Suppose that three oligopolistic firms are currently charging 12 for their product. The three firms are about the same size.
Firm A decides to raise its price to 18, and announces to the press that it is doing so because higher prices are needed to restore economic vitality to the industry. Firms B and C go along with Firm A and raise their prices as well. This is an example of A) price leadership.
B) collusion.
C) the dominant firm model.
D) the Stackelberg model.
E) none of the above
Question 2
The Acme Oil Company is a vertically integrated firm. It explores for and extracts crude oil. It also refines the crude oil into gasoline and other products, and sells these products to consumers.
The internal price that Acme Oil uses when the crude oil that it extracts is sold to one of its refineries is called: A) the shadow price.
B) the transfer price.
C) the market price.
D) the non-market price.
E) none of the above
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