Question 1

Which of the following will facilitate the enforcement of a cartel?

Accepted Answer

A)  most-favored-customer clauses 
B)  reports of bids on government contracts 
C)  meet the competition or price match 
D)  All of the above 
A)  most-favored-customer clauses 
B)  reports of bids on government contracts 
C)  meet the competition or price match 
D)  All of the above

Question 2

Suppose the demand for pizza in a small isolated town is p = 10 - Q.There are only two firms,A and B,and each has a cost function TC = 2 + Q.Compare the firms' profits if they behave as Cournot duopolists with their profits if they form a cartel and share the market.

Accepted Answer

First,the Cournot equilibrium.Firm A's p

Question 3

Incumbents are unaffected by fixed costs of entry while potential entrants are affected by them because

Accepted Answer

A)  for potential entrants the cost is avoidable, while for the incumbent, it is not. 
B)  fixed costs will be greater for the potential entrant than for the incumbent. 
C)  fixed costs are zero for the incumbent. 
D)  incumbents will act to prevent entry at all costs. 
A)  for potential entrants the cost is avoidable, while for the incumbent, it is not. 
B)  fixed costs will be greater for the potential entrant than for the incumbent. 
C)  fixed costs are zero for the incumbent. 
D)  incumbents will act to prevent entry at all costs.

Question 4

In a Bertrand model,if one firm has a dominant strategy,its best-response function

Accepted Answer

A)  does not exist. 
B)  is identical to its rival. 
C)  is a constant. 
D)  is to respond to its rival's price increase with a price decrease. 
A)  does not exist. 
B)  is identical to its rival. 
C)  is a constant. 
D)  is to respond to its rival's price increase with a price decrease.

Question 5

Perfect competition and monopolistic competition are similar in that both market structures include

Accepted Answer

A)  price-taking behavior by firms. 
B)  a homogeneous product. 
C)  no barriers to entry. 
D)  very few firms. 
A)  price-taking behavior by firms. 
B)  a homogeneous product. 
C)  no barriers to entry. 
D)  very few firms.

Question 6

As the number of firms increases in a market,the differences between the Cournot,Stackelberg,and price-taking market structures

Accepted Answer

A)  decrease. 
B)  increase. 
C)  remain the same. 
D)  cannot be determined. 
A)  decrease. 
B)  increase. 
C)  remain the same. 
D)  cannot be determined.

Question 7

In a Bertrand model with identical firms and a non-differentiated product,price will increase in response to

Accepted Answer

A)  an increase in the number of firms. 
B)  a decrease in the number of firms. 
C)  an increase in marginal cost. 
D)  a decrease in marginal cost. 
A)  an increase in the number of firms. 
B)  a decrease in the number of firms. 
C)  an increase in marginal cost. 
D)  a decrease in marginal cost.

Question 8

What strategic advantage compared to a Cournot Oligopoly results in the Stackelberg outcome?

Accepted Answer

A)  the ability to move first 
B)  the ability to set price 
C)  the ability to set quantity 
D)  the ability to make independent decisions by the Stackelberg leader 
A)  the ability to move first 
B)  the ability to set price 
C)  the ability to set quantity 
D)  the ability to make independent decisions by the Stackelberg leader

Question 9

In the Cournot model,a firm maximizes profit by selecting

Accepted Answer

A)  its output, assuming that other firms keep their output constant. 
B)  its price, assuming that other firms keep their price constant. 
C)  its output, assuming that other firms will retaliate. 
D)  its price, assuming that other firms will retaliate. 
A)  its output, assuming that other firms keep their output constant. 
B)  its price, assuming that other firms keep their price constant. 
C)  its output, assuming that other firms will retaliate. 
D)  its price, assuming that other firms will retaliate.

Question 10

For the following, please answer "True" or "False" and explain why.
-Cartels are inherently self-destructive because each member firm has the incentive to cheat on the cartel agreement.

Accepted Answer

A) True 
 B)False

Question 11

Suppose the demand for pizza in a small isolated town is p = 10 - Q.The only two firms,A and B,behave as Cournot duopolists.Each has a cost function TC = 2 + Q.If the government wants to subsidize firm A to raise its output to that of a Stackelberg leader,how large should the subsidy be?

Accepted Answer

Firm B's profit is π = [10 - (qA + qB)]q

Question 12

For the following, please answer "True" or "False" and explain why.
-The ability to set a price greater than marginal cost guarantees an economic profit for the monopolistic competitor (assuming P > AC).

Accepted Answer

A) True 
 B)False

Question 13

If only two identical firms operate in a market,consumers prefer

Accepted Answer

A)  a Cournot equilibrium. 
B)  a Stackelberg equilibrium. 
C)  a collusive equilibrium. 
D)  any equilibrium, since they all result in the same consumer surplus. 
A)  a Cournot equilibrium. 
B)  a Stackelberg equilibrium. 
C)  a collusive equilibrium. 
D)  any equilibrium, since they all result in the same consumer surplus.

Question 14

-The above figure shows the reaction functions for two pizza shops in a small isolated town.The Stackelberg leader will produce

Accepted Answer

A)  25 pizzas. 
B)  50 pizzas. 
C)  66.7 pizzas. 
D)  100 pizzas. 
A)  25 pizzas. 
B)  50 pizzas. 
C)  66.7 pizzas. 
D)  100 pizzas.

Question 15

If a Cournot duopolist announced that it will double its output,the other firm does not view the announcement as credible because

Accepted Answer

A)  the announcing firm's profits will fall if it carries out the threat. 
B)  the other firm's profits will fall if the announcing firm carries out the threat. 
C)  the other firm's profits will rise if the announcing firm carries out the threat. 
D)  the other firm will double output also. 
A)  the announcing firm's profits will fall if it carries out the threat. 
B)  the other firm's profits will fall if the announcing firm carries out the threat. 
C)  the other firm's profits will rise if the announcing firm carries out the threat. 
D)  the other firm will double output also.

Question 16

-The above figure shows the reaction functions for two pizza shops in a small isolated town.Compare the Cournot,Stackelberg,cartel,and competitive equilibria in terms of total output and welfare.

Accepted Answer

If both firms are competitive price take

Question 17

Which of the following is a necessary condition for government subsidies to influence a firm to choose an output level as if it were a Stackelberg leader?

Accepted Answer

A)  The subsidy must be announced before the firms choose output levels. 
B)  The subsidy must be equal to the firm's marginal cost. 
C)  The subsidy must be equal to the firm's rival's marginal cost. 
D)  The firm does not have any fixed costs. 
A)  The subsidy must be announced before the firms choose output levels. 
B)  The subsidy must be equal to the firm's marginal cost. 
C)  The subsidy must be equal to the firm's rival's marginal cost. 
D)  The firm does not have any fixed costs.

Question 18

The Cournot Model of Oligopoly assumes that

Accepted Answer

A)  firms decide what quantity to produce. 
B)  firms make their decisions simultaneously. 
C)  firms do not cooperate. 
D)  All of the above. 
A)  firms decide what quantity to produce. 
B)  firms make their decisions simultaneously. 
C)  firms do not cooperate. 
D)  All of the above.

Question 19

Suppose Ralph sells bento lunches which have the following demand:
pR = 100 - qR - 0.5qD
where pR is the price of Ralph's bentos and qR is the number of bentos Ralph sells.qD is the number of bentos Ralph's rival Dave sells.Dave's demand is given by:
pR = 100 - qD - 0.5qR
where pD is the price Dave can sell his bentos for.Suppose each seller has a cost per unit (average and marginal)of $1.
a.How does this game differ from the Cournot model with identical products? Why do the demand curves indicate that the goods are differentiated - not perfect substitutes for one another?
b.Compute the best response functions for each seller and the Nash Equilibrium outputs and prices.

Accepted Answer

a.The output of the rival firm has a sma

Question 20

Two firms compete in a market by selling imperfect substitutes.The demand equations are given by the following equations:
Q₁ = 50 - p₁ + p₂
Q₂ = 50 - p₂ + p₁
For now,assume that each firm has a marginal cost and average cost of 0.
a.From the equations,how can you tell these goods are substitutes.How can you tell they are imperfect substitutes?
b.Suppose the firms compete by simultaneously choosing price.Fine the best response function of each firm as a function of the other firm's price.
c.Compute the equilibrium price and quantity for each firm.
d.Suppose firm 1 (and only firm 1)had a marginal and average cost of $10.How would the equilibrium change? How does this compare to the Bertrand result when the firms sell perfect substitutes?

Accepted Answer

a.The price of the other good increases

Which of the following will facilitate the enforcement of a cartel?

Suppose the demand for pizza in a small isolated town is p = 10 - Q.There are only two firms,A and B,and each has a cost function TC = 2 + Q.Compare the firms' profits if they behave as Cournot duopolists with their profits if they form a cartel and share the market.

Incumbents are unaffected by fixed costs of entry while potential entrants are affected by them because

In a Bertrand model,if one firm has a dominant strategy,its best-response function

Perfect competition and monopolistic competition are similar in that both market structures include

As the number of firms increases in a market,the differences between the Cournot,Stackelberg,and price-taking market structures

In a Bertrand model with identical firms and a non-differentiated product,price will increase in response to

What strategic advantage compared to a Cournot Oligopoly results in the Stackelberg outcome?

In the Cournot model,a firm maximizes profit by selecting

For the following, please answer "True" or "False" and explain why. -Cartels are inherently self-destructive because each member firm has the incentive to cheat on the cartel agreement.

Suppose the demand for pizza in a small isolated town is p = 10 - Q.The only two firms,A and B,behave as Cournot duopolists.Each has a cost function TC = 2 + Q.If the government wants to subsidize firm A to raise its output to that of a Stackelberg leader,how large should the subsidy be?

For the following, please answer "True" or "False" and explain why. -The ability to set a price greater than marginal cost guarantees an economic profit for the monopolistic competitor (assuming P > AC).

If only two identical firms operate in a market,consumers prefer

-The above figure shows the reaction functions for two pizza shops in a small isolated town.The Stackelberg leader will produce

If a Cournot duopolist announced that it will double its output,the other firm does not view the announcement as credible because

-The above figure shows the reaction functions for two pizza shops in a small isolated town.Compare the Cournot,Stackelberg,cartel,and competitive equilibria in terms of total output and welfare.

Which of the following is a necessary condition for government subsidies to influence a firm to choose an output level as if it were a Stackelberg leader?

The Cournot Model of Oligopoly assumes that

Introduction

Supply and Demand

A Consumers Constrained Choice

Demand

Consumer Welfare and Policy Analysis

Firms and Production

Costs

Competitive Firms and Markets

Properties and Applications of the Competitive Model

General Equilibrium and Economic Welfare

Monopoly and Monopsony

Pricing and Advertising

Game Theory

Factor Markets

Uncertainty

Property Rights, externalities, rivalry, and Exclusion

Asymmetric Information

Contracts and Moral Hazards

Filters

Exam 14: Oligopoly and Monopolistic Competition

Which of the following will facilitate the enforcement of a cartel?

Suppose the demand for pizza in a small isolated town is p = 10 - Q.There are only two firms,A and B,and each has a cost function TC = 2 + Q.Compare the firms' profits if they behave as Cournot duopolists with their profits if they form a cartel and share the market.

Incumbents are unaffected by fixed costs of entry while potential entrants are affected by them because

In a Bertrand model,if one firm has a dominant strategy,its best-response function

Perfect competition and monopolistic competition are similar in that both market structures include

As the number of firms increases in a market,the differences between the Cournot,Stackelberg,and price-taking market structures

In a Bertrand model with identical firms and a non-differentiated product,price will increase in response to

What strategic advantage compared to a Cournot Oligopoly results in the Stackelberg outcome?

In the Cournot model,a firm maximizes profit by selecting

For the following, please answer "True" or "False" and explain why. -Cartels are inherently self-destructive because each member firm has the incentive to cheat on the cartel agreement.

Suppose the demand for pizza in a small isolated town is p = 10 - Q.The only two firms,A and B,behave as Cournot duopolists.Each has a cost function TC = 2 + Q.If the government wants to subsidize firm A to raise its output to that of a Stackelberg leader,how large should the subsidy be?

For the following, please answer "True" or "False" and explain why. -The ability to set a price greater than marginal cost guarantees an economic profit for the monopolistic competitor (assuming P > AC).

If only two identical firms operate in a market,consumers prefer

-The above figure shows the reaction functions for two pizza shops in a small isolated town.The Stackelberg leader will produce

If a Cournot duopolist announced that it will double its output,the other firm does not view the announcement as credible because

-The above figure shows the reaction functions for two pizza shops in a small isolated town.Compare the Cournot,Stackelberg,cartel,and competitive equilibria in terms of total output and welfare.

Which of the following is a necessary condition for government subsidies to influence a firm to choose an output level as if it were a Stackelberg leader?

The Cournot Model of Oligopoly assumes that

Introduction

Supply and Demand

A Consumers Constrained Choice

Demand

Consumer Welfare and Policy Analysis

Firms and Production

Costs

Competitive Firms and Markets

Properties and Applications of the Competitive Model

General Equilibrium and Economic Welfare

Monopoly and Monopsony

Pricing and Advertising

Game Theory

Factor Markets

Uncertainty

Property Rights, externalities, rivalry, and Exclusion

Asymmetric Information

Contracts and Moral Hazards

Filters