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A high ratio instead shows that a few firms dominate sales and possess significant market power."},{"text":"The industry has no barriers to entry, so new firms can enter freely.","correct":false,"explanation":"Concentration ratios measure the distribution of market share, not entry conditions directly. A high ratio indicates dominance by a few firms, although barriers may help preserve it."},{"text":"Firms in the industry produce identical products and compete only through price.","correct":false,"explanation":"A concentration ratio does not reveal whether products are homogeneous or differentiated. It shows how much market share is controlled by the largest firms."}]},{"id":"7bdf6e10-1225-4b3a-a7d4-d810d4d0b5bd","cardType":"basic","points":2,"front":"Each firm's decisions affect rivals, so it must anticipate their likely reactions.","back":"Why are firms in an oligopoly interdependent?","mcqOptions":[{"text":"Why are firms in an oligopoly interdependent?","correct":true,"explanation":"Interdependence exists because a small number of firms hold substantial market shares. Changes in one firm's price, output or advertising can significantly affect competitors' decisions."},{"text":"Each firm can change its price without affecting the sales or profits of rivals.","correct":false,"explanation":"That assumption fits a highly competitive market, not an oligopoly. In an oligopoly, the limited number of major firms means one firm's decisions influence its rivals."},{"text":"Firms are legally required to agree their prices before making business decisions.","correct":false,"explanation":"Collusion may occur in an oligopoly, but it is not necessary for interdependence. Firms are interdependent because they must predict rivals' responses to independent decisions."},{"text":"Each firm faces no competition because barriers to entry create a separate monopoly.","correct":false,"explanation":"Oligopolists still compete with established rivals. Barriers restrict new entrants, but they do not remove the strategic relationship between firms already operating in the market."}]},{"id":"4a83f750-717b-4280-a787-50d0d1bde458","cardType":"basic","points":2,"front":"Branding, quality and marketing create pricing power and encourage non-price competition.","back":"Why do oligopolists commonly differentiate their products?","mcqOptions":[{"text":"Why do oligopolists commonly differentiate their products?","correct":true,"explanation":"Differentiation makes products appear distinct, reducing consumers' willingness to switch solely for a small price change. This gives firms pricing power and encourages competition through quality and promotion."},{"text":"Producing identical goods guarantees that every firm charges the same price.","correct":false,"explanation":"Identical products encourage price competition because consumers can switch easily. Oligopolists differentiate products to build loyalty and make demand less sensitive to competitors' prices."},{"text":"Product differentiation removes barriers to entry by making production simpler.","correct":false,"explanation":"Differentiation usually strengthens barriers through brand loyalty, reputation and advertising economies. It is used to create a distinct market position, not to simplify entry."},{"text":"Differentiation ensures that firms cannot earn abnormal profit in the long run.","correct":false,"explanation":"Strong brands and perceived quality can help firms maintain abnormal profit by reducing substitutability. Differentiation may therefore increase pricing power rather than eliminate it."}]},{"id":"bbc70b8f-d94f-4ab1-b0a3-c7c1e02a3852","cardType":"basic","points":2,"front":"They deter new firms, allowing established firms to maintain market power over time.","back":"How do high barriers to entry protect oligopolists?","mcqOptions":[{"text":"How do high barriers to entry protect oligopolists?","correct":true,"explanation":"High barriers make entry expensive or difficult, reducing the threat from potential competitors. Existing oligopolists can therefore retain market share, pricing power and abnormal profit."},{"text":"They guarantee that existing firms will always charge the monopoly price.","correct":false,"explanation":"Barriers protect incumbents from entry but do not determine a single price. Rivalry between established oligopolists and possible regulation can prevent monopoly pricing."},{"text":"They force all established firms to produce exactly the same quantity.","correct":false,"explanation":"Entry barriers affect potential competition, not firms' output decisions directly. Oligopolists remain strategically interdependent and may choose different output levels or product strategies."},{"text":"They eliminate the need for firms to advertise or differentiate their products.","correct":false,"explanation":"Established firms may still advertise and differentiate to compete for market share. Barriers limit entry by outsiders but do not remove competition among existing firms."}]},{"id":"333168e7-1139-4780-ad12-f739b564d1ec","cardType":"basic","points":1,"front":"The combined market share of the five largest firms in the industry.","back":"What does the five-firm concentration ratio measure?","mcqOptions":[{"text":"What does the five-firm concentration ratio measure?","correct":true,"explanation":"The five-firm concentration ratio adds the market shares of the five largest firms. It indicates how much of the industry is controlled by its leading suppliers."},{"text":"The average market share of the five smallest firms in the industry.","correct":false,"explanation":"The measure focuses on the five largest firms, not the smallest. Averaging smaller firms would provide different information and would not show leading-firm concentration."},{"text":"The percentage of firms in the industry that earn abnormal profit.","correct":false,"explanation":"The ratio measures market share, not profitability. A firm may have a large share without abnormal profit, or a small share with high profitability."},{"text":"The total percentage of industry sales made by all firms except the largest five.","correct":false,"explanation":"This is the residual market share outside the leading five firms. The five-firm ratio itself is the sum of those five firms' market shares."}]},{"id":"0448017f-04b0-4865-9ec5-2ecfd2cc815a","cardType":"basic","points":2,"front":"$$$CR_5 = 30\\% + 25\\% + 15\\% + 10\\% + 8\\% = 88\\%$$","back":"Calculate $CR_5$ for firms with market shares of 30%, 25%, 15%, 10% and 8%.","mcqOptions":[{"text":"Calculate $CR_5$ for firms with market shares of 30%, 25%, 15%, 10% and 8%.","correct":true,"explanation":"Adding the five market shares gives 30 + 25 + 15 + 10 + 8 = 88. Therefore, the five largest firms control 88% of the market."},{"text":"$$$CR_5 = 30\\% + 25\\% + 15\\% + 10\\% + 8\\% = 78\\%$$","correct":false,"explanation":"The likely slip is subtracting or misadding one ten-percentage-point component. Correctly summing all five shares produces 88%, representing the leading firms' combined market share."},{"text":"$$$CR_5 = 30\\% + 25\\% + 15\\% + 10\\% + 8\\% = 83\\%$$","correct":false,"explanation":"This total usually results from dropping the 5% contribution implicit in the final calculation or making an addition error. Every listed share must be included, giving 88%."},{"text":"$$$CR_5 = 30\\% + 25\\% + 15\\% + 10\\% + 8\\% = 90\\%$$","correct":false,"explanation":"Rounding the individual market shares or treating 8% as 10% produces this tempting result. Concentration ratios use the exact stated shares, which total 88%."}]},{"id":"a8400294-0091-4791-a539-0094a2e82b12","cardType":"basic","points":2,"front":"It suggests many rivals, greater competition and little dominance by individual firms.","back":"What does a low concentration ratio suggest about a market?","mcqOptions":[{"text":"What does a low concentration ratio suggest about a market?","correct":true,"explanation":"A low concentration ratio means the largest firms hold a relatively small combined market share. This suggests market power is dispersed and competition is likely to be stronger."},{"text":"It proves that one firm controls nearly the entire market.","correct":false,"explanation":"That indicates very high concentration, not low concentration. A low ratio means the leading firms account for a limited share and many rivals are likely present."},{"text":"It shows that firms can collude without being detected by regulators.","correct":false,"explanation":"Concentration ratios do not establish whether collusion occurs or whether it can be hidden. They indicate how market share is distributed among the largest firms."},{"text":"It means the market has high barriers preventing new firms from entering.","correct":false,"explanation":"Low concentration may be associated with easier entry, but the ratio itself measures market-share dominance. It does not directly measure the height of entry barriers."}]},{"id":"dc93e44e-4ebe-4e6f-8fcb-d6b376bc65ea","cardType":"basic","points":3,"front":"

Raise joint profits
Reduce uncertainty from interdependence
Deter new entrants

","back":"Why might oligopolists choose to collude?","mcqOptions":[{"text":"Why might oligopolists choose to collude?","correct":true,"explanation":"Collusion can let firms restrict competition, increase collective profit and make outcomes more predictable. Higher profits and coordinated behaviour may also strengthen their position against potential entrants."},{"text":"

Lower joint profits
Increase uncertainty from interdependence
Encourage new entrants

","correct":false,"explanation":"These are generally opposite to the reasons for colluding. Coordination aims to improve collective returns, reduce strategic uncertainty and make the market less attractive to new competitors."},{"text":"

Remove all barriers to entry
Increase product variety
Make demand perfectly elastic

","correct":false,"explanation":"Collusion normally strengthens incumbent control and reduces competitive pressure. It does not remove entry barriers, guarantee variety or make consumers infinitely responsive to price."},{"text":"

Maximise consumer surplus
Expand industry output
Ensure prices equal marginal cost

","correct":false,"explanation":"These outcomes describe competitive efficiency, whereas collusion usually restricts output and raises prices. Firms collude to improve their own collective position, not consumer welfare."}]},{"id":"3029d779-86f1-4218-8043-8b3364e33db6","cardType":"basic","points":3,"front":"

Overt collusion uses a formal agreement, such as a cartel.
Tacit collusion uses an informal understanding without explicit agreement.

","back":"What is the difference between overt and tacit collusion?","mcqOptions":[{"text":"What is the difference between overt and tacit collusion?","correct":true,"explanation":"Overt collusion involves explicit coordination, while tacit collusion arises from an unstated understanding. Both can reduce competitive pressure, but only overt collusion requires a formal agreement."},{"text":"

Overt collusion uses an informal understanding without explicit agreement.
Tacit collusion uses a formal agreement, such as a cartel.

","correct":false,"explanation":"The definitions are reversed. Overt collusion is explicit and may involve a cartel; tacit collusion is implicit, with firms coordinating without openly agreeing."},{"text":"

Overt collusion involves competing aggressively on price.
Tacit collusion involves competing aggressively on advertising.

","correct":false,"explanation":"Both descriptions refer to competitive behaviour rather than coordination. Overt collusion is explicit cooperation, whereas tacit collusion is an informal, unspoken coordination of conduct."},{"text":"

Overt collusion is legal in every market.
Tacit collusion is illegal in every market.

","correct":false,"explanation":"Legality depends on competition law and the evidence of coordination, not simply on whether collusion is overt or tacit. The key distinction is explicit versus implicit agreement."}]},{"id":"2805a928-3f02-4203-8233-69cd93e65b5f","cardType":"basic","points":2,"front":"Each firm has a private incentive to cheat by undercutting the agreed price.","back":"Why is collusion unstable even when it raises joint profit?","mcqOptions":[{"text":"Why is collusion unstable even when it raises joint profit?","correct":true,"explanation":"Although joint compliance can maximise collective profit, each firm may gain individually by secretly cutting price and attracting customers. This incentive makes maintaining the agreement difficult."},{"text":"Firms cannot communicate because oligopolistic markets prohibit all contact between competitors.","correct":false,"explanation":"Communication may be restricted by competition law, but firms can still observe prices and anticipate behaviour. Collusion is unstable primarily because each participant has an incentive to cheat."},{"text":"Collusion always reduces the profits of every participating firm immediately.","correct":false,"explanation":"Collusion is attractive because it can raise joint profit and potentially each firm's profit. Its instability comes from individual incentives to deviate, not from guaranteed immediate losses."},{"text":"Consumers can force every firm to leave the cartel by switching products instantly.","correct":false,"explanation":"Consumer switching may constrain collusion, but it is not the central prisoner's-dilemma incentive. Each firm is tempted to undercut the agreement to gain market share."}]},{"id":"cc6a7c48-f7ea-48aa-8602-88526e4aa695","cardType":"basic","points":2,"front":"A dominant firm sets the price and smaller rivals follow it without an explicit agreement.","back":"How does price leadership enable tacit collusion?","mcqOptions":[{"text":"How does price leadership enable tacit collusion?","correct":true,"explanation":"Price leadership can coordinate firms without a formal cartel. Smaller firms follow the leader's announced price, creating tacit coordination while avoiding an explicit agreement."},{"text":"A regulator sets one compulsory price that every firm must legally charge.","correct":false,"explanation":"That is administered pricing, not price leadership. Under tacit price leadership, a dominant private firm announces or establishes the price and rivals voluntarily follow."},{"text":"Smaller firms secretly agree to undercut the dominant firm's price every month.","correct":false,"explanation":"Regular undercutting represents rivalry rather than tacit collusion. Price leadership works when rivals accept and follow the dominant firm's price without explicit coordination."},{"text":"The dominant firm follows the smallest rival's price to avoid attracting attention.","correct":false,"explanation":"This reverses the usual leadership relationship. Price leadership involves a dominant firm setting the benchmark while smaller competitors follow its pricing decision."}]},{"id":"c9e54e72-18ac-4759-8666-d3926f6a6c7a","cardType":"basic","points":1,"front":"The choice giving a firm the higher payoff regardless of what its rival chooses.","back":"In the prisoner's dilemma, what is a dominant strategy?","mcqOptions":[{"text":"In the prisoner's dilemma, what is a dominant strategy?","correct":true,"explanation":"A dominant strategy produces a better payoff for a firm under every possible action by its rival. It remains preferable even when the rival's decision is uncertain."},{"text":"The choice that gives both firms the highest combined payoff after cooperation.","correct":false,"explanation":"That describes the collectively optimal or cooperative outcome, not a dominant strategy. Dominance concerns one firm's payoff across all possible choices by the rival."},{"text":"The choice that is best only when the rival chooses the same action.","correct":false,"explanation":"A strategy dependent on the rival's matching action is conditional, not dominant. A dominant strategy must provide the higher payoff regardless of the rival's choice."},{"text":"The choice selected by the firm with the largest market share.","correct":false,"explanation":"Market share does not define strategic dominance in a prisoner's dilemma. The concept refers to payoffs and whether one action is better under every rival response."}]},{"id":"aa3574ea-0fbf-4694-aa87-50961b504065","cardType":"basic","points":2,"front":"Cutting price is each firm's dominant strategy, so both choose it despite earning less than under collusion.","back":"Why do both firms cut prices in the prisoner's dilemma?","mcqOptions":[{"text":"Why do both firms cut prices in the prisoner's dilemma?","correct":true,"explanation":"Each firm can gain by undercutting whatever its rival does, so price cutting is individually dominant. Both therefore cut prices, producing a lower payoff than mutual cooperation."},{"text":"Both firms raise prices because cooperation is always their dominant strategy.","correct":false,"explanation":"Mutual cooperation may give the highest combined profit but is not dominant when each firm can gain by deviating. The dominant individual choice is to cut price."},{"text":"Both firms maintain the collusive price because neither can gain from attracting extra customers.","correct":false,"explanation":"A firm can often attract customers by undercutting the agreed price, creating a private incentive to deviate. This is why the collusive outcome is unstable."},{"text":"One firm cuts price while the other automatically leaves the market permanently.","correct":false,"explanation":"The prisoner's-dilemma outcome involves both firms choosing their individually dominant action. It does not require one firm to exit; both typically cut prices and earn less."}]},{"id":"292a21a0-0de6-4e5d-83d9-8381b8a2adbc","cardType":"basic","points":3,"front":"

Prices rise towards the monopoly level.
Output is restricted, so consumers receive less.
Allocative inefficiency occurs because $P > MC$.

","back":"Why does collusion harm consumers?","mcqOptions":[{"text":"Why does collusion harm consumers?","correct":true,"explanation":"Collusion reduces competitive pressure, allowing higher prices and lower output. Because price exceeds marginal cost, resources are not allocated efficiently and consumer surplus falls."},{"text":"

Prices fall towards the competitive level.
Output expands, so consumers receive more.
Allocative efficiency occurs because $P = MC$.

","correct":false,"explanation":"These are outcomes associated with stronger competition, not collusion. Coordination normally raises price, restricts output and creates allocative inefficiency because price exceeds marginal cost."},{"text":"

Prices remain unchanged at the competitive level.
Output is unchanged, so consumers receive the same amount.
Allocative efficiency occurs because $P < MC$.

","correct":false,"explanation":"Collusion is intended to alter the competitive outcome by restricting supply and raising price. Allocative efficiency requires price to equal marginal cost, not to fall below it."},{"text":"

Prices rise towards the monopoly level.
Output expands, so consumers receive more.
Allocative efficiency occurs because $P = MC$.

","correct":false,"explanation":"The price effect is correctly identified, but collusion restricts output rather than expanding it. The resulting price above marginal cost also causes allocative inefficiency."}]},{"id":"f271a28d-28ef-4f89-8672-c89d8fe11c65","cardType":"basic","points":3,"front":"

Predatory pricing sets price below average cost to remove existing rivals.
Limit pricing sets price low enough to deter potential entrants.

","back":"What is the difference between predatory pricing and limit pricing?","mcqOptions":[{"text":"What is the difference between predatory pricing and limit pricing?","correct":true,"explanation":"Predatory pricing targets current competitors and may involve short-run losses. Limit pricing is designed to make entry unattractive, discouraging firms that are considering entering the market."},{"text":"

Predatory pricing sets price low enough to deter potential entrants.
Limit pricing sets price below average cost to remove existing rivals.

","correct":false,"explanation":"The two definitions are reversed. Predatory pricing aims to drive out existing rivals, while limit pricing deters potential entrants by signalling that post-entry profits may be low."},{"text":"

Predatory pricing raises price above monopoly level to attract new rivals.
Limit pricing raises price to maximise short-run profit.

","correct":false,"explanation":"Both descriptions involve price increases, which would generally attract entry rather than deter it or remove rivals. The strategies involve deliberately maintaining a low price for strategic reasons."},{"text":"

Predatory pricing fixes price through a formal cartel agreement.
Limit pricing follows the price set by a dominant rival.

","correct":false,"explanation":"These describe collusion and price leadership, not strategic low pricing. Predatory pricing targets existing rivals, whereas limit pricing targets potential entrants."}]},{"id":"ad247e6f-451d-4d15-b8c9-8c04dd3093ff","cardType":"basic","points":2,"front":"A rival usually matches a price cut, so firms gain no lasting market share while all suffer lower profit margins.","back":"Why is open price competition risky in an oligopoly?","mcqOptions":[{"text":"Why is open price competition risky in an oligopoly?","correct":true,"explanation":"Price cuts are easily matched in an oligopoly, so the initiating firm gains little lasting share. The resulting lower market price reduces margins across the industry."},{"text":"A rival usually ignores a price cut, so the initiating firm gains permanent market share and higher margins.","correct":false,"explanation":"This assumes rivals will not respond, but oligopolistic interdependence makes matching likely. Mutual price cutting usually prevents lasting share gains and compresses every firm's margins."},{"text":"A rival usually raises its price, so firms gain lasting market share while all earn higher margins.","correct":false,"explanation":"A rival is more likely to match a price reduction to protect its customers than raise price. Matching cuts can create a price war with lower, not higher, margins."},{"text":"A rival usually matches a price cut, so firms gain lasting market share while all earn higher margins.","correct":false,"explanation":"Matching the cut is the correct response, but it removes the initiator's lasting advantage and lowers industry prices. The likely result is reduced profit margins for all firms."}]},{"id":"27a143d0-6a31-4eb9-92db-693486f4d186","cardType":"basic","points":2,"front":"It shifts the firm's average revenue curve rightwards and makes it steeper, making demand more price-inelastic.","back":"How does successful advertising affect a firm's demand?","mcqOptions":[{"text":"How does successful advertising affect a firm's demand?","correct":true,"explanation":"Successful advertising differentiates the firm's product, shifting its average revenue curve rightwards and making demand more price-inelastic because consumers become less responsive to price changes."},{"text":"How does successful advertising affect a firm's costs?","correct":false,"explanation":"Advertising expenditure may raise costs, but the stated effect concerns demand. Successful advertising shifts average revenue rightwards and makes demand more price-inelastic by strengthening consumer preference."},{"text":"How does successful advertising affect a firm's supply?","correct":false,"explanation":"A supply change concerns production costs or capacity, not stronger consumer preference. Successful advertising affects demand by shifting average revenue rightwards and reducing price elasticity."},{"text":"How does successful advertising affect a firm's productive efficiency?","correct":false,"explanation":"Advertising does not directly determine whether production occurs at minimum average cost. Its successful use raises demand and makes consumers less responsive to the firm's price changes."}]},{"id":"8ce28c75-3e14-4f46-81f2-c1a69485e9cb","cardType":"basic","points":2,"front":"They reward repeat purchases and raise the switching cost of moving to a rival.","back":"Why can loyalty schemes increase a firm's market power?","mcqOptions":[{"text":"Why can loyalty schemes increase a firm's market power?","correct":true,"explanation":"Loyalty schemes reward repeated purchases and make switching to rivals more costly, reducing customers' responsiveness to price changes and increasing the firm's market power."},{"text":"Why can loyalty schemes increase a firm's productive efficiency?","correct":false,"explanation":"Rewarding repeat purchases does not necessarily lower average production costs. Loyalty schemes increase market power by raising switching costs and making customers less likely to choose rivals."},{"text":"Why can loyalty schemes increase a firm's contestability?","correct":false,"explanation":"Loyalty schemes can make a market less contestable rather than more contestable because they discourage switching. This strengthens incumbent firms' market power by retaining repeat customers."},{"text":"Why can loyalty schemes increase a firm's price elasticity?","correct":false,"explanation":"Loyalty rewards generally make demand less price-elastic, not more price-elastic, because customers face a cost from losing accumulated benefits when they switch to a rival."}]},{"id":"77aa430f-3a55-4ae7-80f0-5f0e45d6aced","cardType":"basic","points":2,"front":"New firms must spend heavily on advertising to match recognition, creating a sunk cost that deters entry.","back":"How can strong branding act as a barrier to entry?","mcqOptions":[{"text":"How can strong branding act as a barrier to entry?","correct":true,"explanation":"Strong incumbent brands force entrants to spend heavily to gain comparable recognition. Much of this advertising expenditure is unrecoverable, creating a sunk-cost barrier that discourages entry."},{"text":"How can strong branding reduce barriers to entry?","correct":false,"explanation":"Strong incumbent branding normally raises rather than reduces entry barriers. Entrants must incur substantial, often sunk, advertising expenditure to establish recognition and compete effectively."},{"text":"How can strong branding increase market contestability?","correct":false,"explanation":"Brand recognition can reduce contestability because new firms face high promotional costs before competing effectively. These unrecoverable advertising costs deter potential entrants from challenging incumbents."},{"text":"How can strong branding eliminate sunk costs of entry?","correct":false,"explanation":"Branding does not eliminate sunk costs for entrants; it can create them. New firms may need heavy, unrecoverable advertising expenditure to match established brand recognition."}]},{"id":"235d4511-e689-4f3e-9921-bc152bc0d07b","cardType":"basic","points":2,"front":"When it involves informative advertising, genuine quality improvements and innovation that support dynamic efficiency.","back":"When is non-price competition most likely to benefit consumers?","mcqOptions":[{"text":"When is non-price competition most likely to benefit consumers?","correct":true,"explanation":"Consumers benefit when non-price competition supplies useful information, improves genuine product quality and encourages innovation, thereby supporting dynamic efficiency rather than merely manipulating preferences."},{"text":"When is non-price competition most likely to reduce consumer choice?","correct":false,"explanation":"The stated conditions describe consumer benefits, not reduced choice. Informative advertising, genuine quality improvements and innovation can increase welfare by supporting dynamic efficiency."},{"text":"When is non-price competition most likely to create productive inefficiency?","correct":false,"explanation":"Productive efficiency concerns producing at minimum average cost, whereas the relevant benefit is dynamic efficiency. Innovation and genuine quality improvements can raise consumer welfare over time."},{"text":"When is non-price competition most likely to prevent innovation?","correct":false,"explanation":"Genuine non-price competition can stimulate rather than prevent innovation. It benefits consumers when firms improve quality and develop new products, supporting dynamic efficiency over time."}]},{"id":"345248d0-dd60-4e50-a495-095961e8e3c9","cardType":"cloze","points":null,"front":"The five-firm concentration ratio is the most common concentration ratio, measured against a total market share of [ ].","back":"The five-firm concentration ratio is the most common concentration ratio, measured against a total market share of 100%.","mcqOptions":[{"text":"100%","correct":true,"explanation":"Market shares across the entire market sum to 100%, so the five-firm concentration ratio measures the five largest firms’ combined share against that total."},{"text":"50%","correct":false,"explanation":"This confuses the market total with a possible threshold for high concentration. The denominator is the whole market, whose firms’ market shares sum to 100%."},{"text":"five firms","correct":false,"explanation":"Five firms identifies how many leading businesses have their shares combined, not the total against which concentration is measured. The total market share is 100%."},{"text":"one firm","correct":false,"explanation":"This confuses a five-firm concentration ratio with a single firm’s market share. The five largest shares are combined and measured against a total market share of 100%."}]},{"id":"56eddc65-ceeb-4ac5-85bf-835805683fed","cardType":"cloze","points":null,"front":"In a cartel, firms restrict total [ ] so that price rises towards the monopoly level.","back":"In a cartel, firms restrict total output so that price rises towards the monopoly level.","mcqOptions":[{"text":"output","correct":true,"explanation":"Cartel members collectively restrict output to create artificial scarcity. This raises the market price towards the monopoly level and allows participating firms to earn greater supernormal profit."},{"text":"demand","correct":false,"explanation":"Firms do not directly restrict total consumer demand in a cartel. They coordinate reductions in output, creating scarcity that raises price towards the monopoly level."},{"text":"revenue","correct":false,"explanation":"Restricting revenue would not explain the cartel's price increase and would conflict with its profit objective. Cartel members restrict total output to create scarcity and raise price."},{"text":"employment","correct":false,"explanation":"Employment might fall when production is reduced, but it is not the cartel's direct strategic variable. Firms restrict total output so market price rises towards monopoly level."}]},{"id":"35a948cf-d9ad-4ed7-bb1e-9d70ed9cc15c","cardType":"cloze","points":null,"front":"In the prisoner's dilemma, both firms reach a [ ] when they cut prices.","back":"In the prisoner's dilemma, both firms reach a Nash equilibrium when they cut prices.","mcqOptions":[{"text":"Nash equilibrium","correct":true,"explanation":"Mutual price-cutting is a Nash equilibrium because, given the rival's decision, neither firm can improve its outcome by changing strategy alone, despite both being worse off."},{"text":"Pareto optimum","correct":false,"explanation":"Mutual price-cutting is not Pareto optimal because both firms could be better off through cooperation. It is a Nash equilibrium since neither benefits from changing strategy unilaterally."},{"text":"dominant monopoly","correct":false,"explanation":"A dominant monopoly describes market structure rather than the stable outcome of a strategic game. Mutual price-cutting produces a Nash equilibrium when unilateral deviation offers no gain."},{"text":"collusive agreement","correct":false,"explanation":"Both firms cutting prices reflects non-cooperative behaviour, not a collusive agreement. The resulting Nash equilibrium is stable because neither firm gains by changing its action alone."}]},{"id":"19b0c6b2-5d71-4338-906a-9e6b2605e2cf","cardType":"cloze","points":null,"front":"Predatory pricing initially sets price below [ ] to drive existing rivals out.","back":"Predatory pricing initially sets price below average cost to drive existing rivals out.","mcqOptions":[{"text":"average cost","correct":true,"explanation":"Predatory pricing sets price below average cost, accepting short-run losses to force rivals from the market. The predator may then raise prices after competition has weakened."},{"text":"average revenue","correct":false,"explanation":"Price is average revenue, so setting price below average revenue is not a meaningful distinction. Predatory pricing means charging below average cost and deliberately sustaining losses."},{"text":"marginal revenue","correct":false,"explanation":"Comparing price with marginal revenue does not establish predatory loss-making. Predatory pricing is identified here by price falling below average cost to force existing rivals out."},{"text":"market demand","correct":false,"explanation":"Market demand is a quantity relationship, not a monetary cost benchmark below which price is set. Predatory pricing involves charging below average cost to weaken rivals."}]},{"id":"cdb71822-7e68-4d88-be2f-15935124878f","cardType":"cloze","points":null,"front":"Limit pricing works by deterring [ ] from entering the market.","back":"Limit pricing works by deterring potential entrants from entering the market.","mcqOptions":[{"text":"potential entrants","correct":true,"explanation":"Limit pricing keeps price low enough to make anticipated post-entry profits unattractive. This discourages potential entrants while allowing the incumbent to retain its established market position."},{"text":"existing consumers","correct":false,"explanation":"Low limit prices are intended to attract or retain consumers, not deter them. The strategy discourages potential entrants by making entry appear insufficiently profitable."},{"text":"current employees","correct":false,"explanation":"Limit pricing is a product-market strategy rather than an employment policy. Its purpose is to deter potential entrants by reducing the profit they expect from entering."},{"text":"existing suppliers","correct":false,"explanation":"Discouraging suppliers is not the objective of limit pricing and could raise the incumbent's costs. The low price instead deters potential entrants by reducing expected profitability."}]},{"id":"c77b6f3d-f018-479a-ae29-7ade67007551","cardType":"cloze","points":null,"front":"Advertising is a cost that raises average cost and can become a [ ].","back":"Advertising is a cost that raises average cost and can become a sunk-cost barrier to entry.","mcqOptions":[{"text":"sunk-cost barrier to entry","correct":true,"explanation":"Advertising expenditure is often unrecoverable if entry fails. Entrants must risk this sunk cost to build recognition, so established firms' advertising can create a barrier to entry."},{"text":"variable-cost economy of scale","correct":false,"explanation":"Advertising may be spread across greater output, but it is not normally a variable cost. Its unrecoverable nature can instead create a sunk-cost barrier to entry."},{"text":"marginal-revenue barrier to exit","correct":false,"explanation":"Marginal revenue is revenue from an additional unit, not an unrecoverable advertising expense. Advertising can become a sunk-cost barrier to entry because entrants cannot recover failed expenditure."},{"text":"fixed-cost barrier to production","correct":false,"explanation":"Although advertising may be a fixed expense, the relevant deterrent is its irrecoverability rather than production itself. It becomes a sunk-cost barrier facing potential market entrants."}]}]}],"examCountdown":{"examDate":"2027-05-10","paperLabel":"Paper 1"},"heading":"3.4.4 Oligopoly","title":"3.4.4 Oligopoly Flashcards","topbar":{"backHref":"/a-level/economics/edexcel/a/flashcards"},"topicSidebar":"$L38"}]}],"topicId":"61ce1064-64ac-5b30-945c-41c13e51096a","walled":"$L39"}],"$L3a","$L3b"]