Question 1

As a practical matter, which of the following predictions of the Bertrand model appear to be unrealistic:

Accepted Answer

A)  Firms in imperfectly-competitive markets tend to charge prices that are greater than marginal cost. 
B)  As the number of firms enter the industry prices to fall. 
C)  Firms in imperfectly-competitive markets earn zero economic profits. 
D)  All of the above are unrealistic. 
E)  None of the above are unrealistic. 
A)  Firms in imperfectly-competitive markets tend to charge prices that are greater than marginal cost. 
B)  As the number of firms enter the industry prices to fall. 
C)  Firms in imperfectly-competitive markets earn zero economic profits. 
D)  All of the above are unrealistic. 
E)  None of the above are unrealistic.

Question 2

Suppose that an industry consists of two firms producing an identical product in which there is no brand loyalty by consumers. The inverse market demand for the combined output of both firms is P = 5 !0.001 (QA + QB). The marginal cost of production by firm A and firm B are $2 and $1, respectively. Firm A produces:

Accepted Answer

A)  667 units. 
B)  1,500 units. 
C)  1,667 units. 
D)  2,000 units. 
E)  2,334 units. 
A)  667 units. 
B)  1,500 units. 
C)  1,667 units. 
D)  2,000 units. 
E)  2,334 units.

Question 3

If Bertrand competitors sell differentiated products:

Accepted Answer

A)  The firm charging the highest price will earn zero economic profits. 
B)  The firm charging the highest price will sell nothing. 
C)  Neither firm will capture the entire market by undercutting its rival's price. 
D)  The firm charging the lowest price will capture the entire market. 
E)  None of the above. 
A)  The firm charging the highest price will earn zero economic profits. 
B)  The firm charging the highest price will sell nothing. 
C)  Neither firm will capture the entire market by undercutting its rival's price. 
D)  The firm charging the lowest price will capture the entire market. 
E)  None of the above.

Question 4

Strategic interaction:
I. Is more pronounced the larger the number of firms in an industry.
II. Is a distinguishing characteristic of industries with a large number of firms, but in which a relatively few large firms account for a large proportion of industry output.
III. Is more pronounced the fewer the number of firms in an industry.
Which of the following is correct?

Accepted Answer

A)  I only. 
B)  II only. 
C)  III only. 
D)  I and II only. 
E)  II and III only. 
A)  I only. 
B)  II only. 
C)  III only. 
D)  I and II only. 
E)  II and III only.

Question 5

As a practical matter, which of the following predictions of the Bertrand model appear to be unrealistic:

Accepted Answer

A)  Firms in imperfectly-competitive markets practice in marginal cost pricing. 
B)  As the number of firms enter the industry prices fall. 
C)  Firms in imperfectly-competitive markets earn zero economic profits. 
D)  All of the above are unrealistic. 
E)  None of the above are unrealistic. 
A)  Firms in imperfectly-competitive markets practice in marginal cost pricing. 
B)  As the number of firms enter the industry prices fall. 
C)  Firms in imperfectly-competitive markets earn zero economic profits. 
D)  All of the above are unrealistic. 
E)  None of the above are unrealistic.

Question 6

The Cournot model suggests, ceteris paribus, that the profit-maximizing price will be:

Accepted Answer

A)  Higher than the monopoly price. 
B)  Lower than the monopoly price but higher than a perfectly competitive price. 
C)  Higher than both the monopoly and perfectly competitive price. 
D)  Lower than the perfectly competitive price. 
E)  Lower than both the monopoly and perfectly competitive price. 
A)  Higher than the monopoly price. 
B)  Lower than the monopoly price but higher than a perfectly competitive price. 
C)  Higher than both the monopoly and perfectly competitive price. 
D)  Lower than the perfectly competitive price. 
E)  Lower than both the monopoly and perfectly competitive price.

Question 7

Game theory:

Accepted Answer

A)  Is used to analyze strategic interaction among rivals. 
B)  Can be used to analyze the pricing behavior of rival firms in imperfectly competitive industries. 
C)  Can be used to analyze the output decisions of rival firms in imperfectly competitive. 
D)  Is useful for analyzing the moves and countermoves of players in sequential-move games. 
E)  All of the above are correct. 
A)  Is used to analyze strategic interaction among rivals. 
B)  Can be used to analyze the pricing behavior of rival firms in imperfectly competitive industries. 
C)  Can be used to analyze the output decisions of rival firms in imperfectly competitive. 
D)  Is useful for analyzing the moves and countermoves of players in sequential-move games. 
E)  All of the above are correct.

Question 8

-Refer to Figure 8.5, which depicts two firms engaged in Bertrand price competition in markets X and Y. The two firms have the same marginal cost of production in each market, although marginal cost is not is not the same in both markets. The reaction functions of firms 1 and 2 in market X are ABC and DBE, respectively. The reaction functions of firms 1 and 2 in market Y are given by the line segments FGH and IGJ, respectively. The marginal cost of production of both firms in market X is:

Accepted Answer

A)  A 
B)  F 
C)  I 
D)  J 
E)  H 
A)  A 
B)  F 
C)  I 
D)  J 
E)  H

Question 9

-Consider Figure 8.3, which depicts two firms producing a homogeneous product at the same constant marginal cost. According to the Bertrand model, firm 1's reaction function is given by the line segment:

Accepted Answer

A)  DECB. 
B)  DECA. 
C)  P1 DECA. 
D)  P1 DECB. 
E)  ECA. 
A)  DECB. 
B)  DECA. 
C)  P1 DECA. 
D)  P1 DECB. 
E)  ECA.

Question 10

-Consider Figure 8.3, which depicts two firms producing a homogeneous product at the same constant marginal cost. According to the Bertrand model, the marginal cost of production for both firms is:

Accepted Answer

A)  0. 
B)  PN. 
C)  Greater than zero but less than PN. 
D)  Greater than PN but less than P*. 
E)  Greater than P* but less than PN. 
A)  0. 
B)  PN. 
C)  Greater than zero but less than PN. 
D)  Greater than PN but less than P*. 
E)  Greater than P* but less than PN.

Question 11

The unrealistic predictions of the simple Bertrand model may be explained by the assumption of:

Accepted Answer

A)  Output differentiation. 
B)  The ability of firms to fully satisfy market demand at any price. 
C)  The dynamic nature of the of the price-setting game. 
D)  Capacity constraints. 
E)  The assumption of constant marginal cost. 
A)  Output differentiation. 
B)  The ability of firms to fully satisfy market demand at any price. 
C)  The dynamic nature of the of the price-setting game. 
D)  Capacity constraints. 
E)  The assumption of constant marginal cost.

Question 12

The Bertrand model assumes:

Accepted Answer

A)  Demand is linear. 
B)  Goods and services produced by the two firms in the industry are perfect complements. 
C)  Firms determine prices simultaneously. 
D)  Answers a and c. 
E)  All of the above are correct. 
A)  Demand is linear. 
B)  Goods and services produced by the two firms in the industry are perfect complements. 
C)  Firms determine prices simultaneously. 
D)  Answers a and c. 
E)  All of the above are correct.

As a practical matter, which of the following predictions of the Bertrand model appear to be unrealistic:

If Bertrand competitors sell differentiated products:

As a practical matter, which of the following predictions of the Bertrand model appear to be unrealistic:

The Cournot model suggests, ceteris paribus, that the profit-maximizing price will be:

Game theory:

-Consider Figure 8.3, which depicts two firms producing a homogeneous product at the same constant marginal cost. According to the Bertrand model, firm 1's reaction function is given by the line segment:

-Consider Figure 8.3, which depicts two firms producing a homogeneous product at the same constant marginal cost. According to the Bertrand model, the marginal cost of production for both firms is:

The unrealistic predictions of the simple Bertrand model may be explained by the assumption of:

The Bertrand model assumes:

Introduction to Game Theory

Noncooperative, One-Time, Static Games

Focal-Point and Evolutionary Equilibria

Infinitely-Repeated, Static Games

Finitely-Repeated, Static Games

Mixing Pure Strategies

Static Games With Continuous Strategies

Perfect Competition and Monopoly

Strategic Trade Policy

Dynamic Games With Complete

Bargaining

Pure Strategies With Uncertain Payoffs

Torts and Contracts

Auctions

Dynamic Games With Incomplete Information

Filters

Exam 8: Imperfect Competition

As a practical matter, which of the following predictions of the Bertrand model appear to be unrealistic:

If Bertrand competitors sell differentiated products:

As a practical matter, which of the following predictions of the Bertrand model appear to be unrealistic:

The Cournot model suggests, ceteris paribus, that the profit-maximizing price will be:

Game theory:

-Consider Figure 8.3, which depicts two firms producing a homogeneous product at the same constant marginal cost. According to the Bertrand model, firm 1's reaction function is given by the line segment:

-Consider Figure 8.3, which depicts two firms producing a homogeneous product at the same constant marginal cost. According to the Bertrand model, the marginal cost of production for both firms is:

The unrealistic predictions of the simple Bertrand model may be explained by the assumption of:

The Bertrand model assumes:

Introduction to Game Theory

Noncooperative, One-Time, Static Games

Focal-Point and Evolutionary Equilibria

Infinitely-Repeated, Static Games

Finitely-Repeated, Static Games

Mixing Pure Strategies

Static Games With Continuous Strategies

Perfect Competition and Monopoly

Strategic Trade Policy

Dynamic Games With Complete

Bargaining

Pure Strategies With Uncertain Payoffs

Torts and Contracts

Auctions

Dynamic Games With Incomplete Information

Filters