Question

Question 16

1. From society’s standpoint, cooperation among oligopolists is

   	a.	desirable, because it leads to an outcome closer to the competitive outcome than what would be observed in the absence of cooperation.
   	b.	undesirable, because it leads to output levels that are too high and prices that are too high.
   	c.	desirable, because it leads to less conflict among firms and a wider variety of products for consumers.
   	d.	undesirable, because it leads to output levels that are too low and prices that are too high.

Question 17

1. The story of the prisoners’ dilemma shows why

   	a.	predatory pricing is clearly not in society’s best interest.
   	b.	oligopolies can fail to cooperate, even when cooperation is in their best interest.
   	c.	oligopolies can fail to act independently, even when independent decision-making is in their best interest.
   	d.	economists are unanimous in condemning resale price maintenance, since it inevitably reduces competition.

Question 18

1. Capital, labor, and land

   	a.	have derived demands.
   	b.	are factors of production.
   	c.	are inputs used in the production of goods and services.
   	d.	All of the above are correct.

Answer 1

16. Option D

• Oligopolies form group or collude together to decide on general prices and output level in the market.
• But this is undesirable in society's standpoint because, these firms set Very high prices and set output level that are too low. This deteriorates the market efficiency.

17. Option B

• Prisoner's dilemma is a concept in game theory which shows that individuals fail to co-operate, even though cooperation is in their best interest.
• This concept can be seen in oligopolies as they fail to co-operate even though it is in their best interest.
• This happens because each of the dominant firms have different view points which can create conflicts among other firms.

18. Option C

• Capital, labour and land are the various factors of production used for the production of various goods and services.
• Factors of production are defined as those inputs that are used to transform intermediate goods into final products.