var imagesXXXlarge = ",,,,,"; var imagesXXlarge = ",,,,,,"; var imagesXlarge = ",,,,"; var imagesLarge = ",,,,,"; var imagesSmall = "krugmanap2e-ch64-fig-5,,,,"; var imagesMedium = ",,,,,"; $('#krugmanapecon2e_mod64_mc_2a-tableinquestion').attr('data-block_type','a'); $('#krugmanapecon2e_mod64_mc_2a-tableinquestion').attr('data-type','abc'); xBookUtils.showAnswers['krugmanapecon2e_mod64_cyu_1a'] = "This will decrease the likelihood that the firm will collude to restrict output. By increasing output, the firm will generate a negative price effect. But because the firm’s current market share is small, the price effect will fall mostly on its rivals’ revenues rather than on its own. At the same time, the firm will benefit from a positive quantity effect."; xBookUtils.showAnswers['krugmanapecon2e_mod64_cyu_1b'] = "This will decrease the likelihood that the firm will collude to restrict output. By acting noncooperatively and raising output, the firm will cause the price to fall. Because its rivals have higher costs, they will lose money at the lower price while the firm continues to make profits. So the firm may be able to drive its rivals out of business by increasing its output."; xBookUtils.showAnswers['krugmanapecon2e_mod64_cyu_1c'] = "This will increase the likelihood that the firm will collude. Because it is costly for consumers to switch products, the firm would have to lower its price substantially (with a commensurate increase in quantity) to induce consumers to switch to its product. So increasing output is likely to be unprofitable, given the large negative price effect."; xBookUtils.showAnswers['krugmanapecon2e_mod64_cyu_1d'] = "This will increase the likelihood that the firm will collude. It cannot increase sales because it is currently at maximum production capacity, making attempts to undercut rivals’ prices as under the Bertrand model fruitless due to the inability to produce the output needed to steal the rivals’ customers. This makes the option to cooperate in restricting output relatively attractive."; xBookUtils.showAnswers['krugmanapecon2e_mod64_fr_2_rubric'] = "
Rubric for FRQ 2 (4 points)
1 point:The first major reason is that cartels are illegal in the United States.
1 point:The second major reason is that cartels set prices above marginal cost, which creates an incentive for each firm to cheat on the cartel agreement in order to make more profit. This incentive to cheat tends to cause cartels to fall apart.
1 point:Firms in an oligopoly are interdependent because in an industry with only a small number of firms, the outcome for each firm depends on the behavior of other firms.
1 point:In a perfectly competitive market, there are so many firms that no one firm has a significant influence on the outcome of other firms. A monopoly has only one firm, so interdependence is not an issue.
";