Question 1

Explain why the intersection of the best-response functions is the Cournot equilibrium.

Accepted Answer

On a best-response function,a firm selec

Question 2

For the following, please answer "True" or "False" and explain why.
-If there are 2 identical firms in a market that choose the quantity they produce,total welfare is the highest when there is a cartel.

Accepted Answer

A) True 
 B)False

Question 3

Product differentiation

Accepted Answer

A)  may allow firms to price above a competitive level. 
B)  generates value as consumers value more choices. 
C)  depends on perceived differences between products. 
D)  All of the above. 
A)  may allow firms to price above a competitive level. 
B)  generates value as consumers value more choices. 
C)  depends on perceived differences between products. 
D)  All of the above.

Question 4

Product differentiation allows a firm to charge a higher price because the residual demand curve facing the firm

Accepted Answer

A)  is more elastic than the residual demand curve without product differentiation. 
B)  is less elastic than the residual demand curve without product differentiation. 
C)  is horizontal. 
D)  shifts to the left. 
A)  is more elastic than the residual demand curve without product differentiation. 
B)  is less elastic than the residual demand curve without product differentiation. 
C)  is horizontal. 
D)  shifts to the left.

Question 5

Mergers are closely scrutinized by the government because

Accepted Answer

A)  they might allow the firms involved to dominate the market and act as a legalized cartel (monopoly). 
B)  they always result in a more efficient market. 
C)  they always result in lower joint profits of the firms involved. 
D)  all mergers are undesirable. 
A)  they might allow the firms involved to dominate the market and act as a legalized cartel (monopoly). 
B)  they always result in a more efficient market. 
C)  they always result in lower joint profits of the firms involved. 
D)  all mergers are undesirable.

Question 6

In the short run,a monopolistic competitor

Accepted Answer

A)  produces at minimum efficient scale. 
B)  produces where P = AC. 
C)  sets P = MC. 
D)  sets MR = MC. 
A)  produces at minimum efficient scale. 
B)  produces where P = AC. 
C)  sets P = MC. 
D)  sets MR = MC.

Question 7

In the Cournot model,if a firm's marginal cost increases,its best-response function will

Accepted Answer

A)  shift inward. 
B)  not change. 
C)  shift outward. 
D)  The shift is ambiguous. 
A)  shift inward. 
B)  not change. 
C)  shift outward. 
D)  The shift is ambiguous.

Question 8

What happens in a duopoly if both firms try to act as the Stackelberg leader?

Accepted Answer

If both firms think they are the leader,

Question 9

Regardless of market structure,all firms

Accepted Answer

A)  consider the actions of rivals. 
B)  maximize profit by setting marginal revenue equal to marginal cost. 
C)  produce a differentiated product. 
D)  have the ability to set price. 
A)  consider the actions of rivals. 
B)  maximize profit by setting marginal revenue equal to marginal cost. 
C)  produce a differentiated product. 
D)  have the ability to set price.

Question 10

Firms A and B are identical,produce identical products,and are the only firms in a market.Firm A's output is higher than Firm B's.This means that Firm B is the

Accepted Answer

A)  Cartel leader. 
B)  Stackelberg leader. 
C)  Stackelberg follower. 
D)  Cournot leader. 
A)  Cartel leader. 
B)  Stackelberg leader. 
C)  Stackelberg follower. 
D)  Cournot leader.

Question 11

Consumers of laundry detergent view brands as different and so each brand effectively has some market power.Prices are set much higher than marginal cost,yet detergent firms earn a normal rate of return.
a.Use a diagram with demand for the output of a single firm,marginal cost and average cost curves to show a monopolistically competitive firm in equilibrium.
b.Why do firms just earn a normal rate of return? That is,why do firms in this market earn zero profits?
c.Suppose that each firm in this industry was required to pay a fixed annual fee to operate (a tax that does not vary with the output of the firm).What would this tax do to the number of firms and the price each firm charges? (Using a new graph may help your argument.)

Accepted Answer

a.
 @#IMG-DLM& 
b.Because free entry drives demand

Question 12

Suppose in the automobile industry with free entry and exit,the marginal cost is constant at $5,000,two identical manufacturers are currently producing 1,000 cars each and earning zero economic profit.If the equilibrium price is $20,000,then what is the fixed cost for each manufacturer?

Accepted Answer

A)  $20,000,000 
B)  $15,000,000 
C)  $5,000,000 
D)  $10,000,000 
A)  $20,000,000 
B)  $15,000,000 
C)  $5,000,000 
D)  $10,000,000

Question 13

For the following, please answer "True" or "False" and explain why.
-Because firms selling a homogeneous product set price in response to the (perceived)pricing decision of other firms in the Bertrand Model of oligopoly in equilibrium price exceeds marginal cost.

Accepted Answer

A) True 
 B)False

Question 14

Mergers may result in

Accepted Answer

A)  anticompetitive behavior. 
B)  more efficient production. 
C)  fewer firms in a market. 
D)  All of the above. 
A)  anticompetitive behavior. 
B)  more efficient production. 
C)  fewer firms in a market. 
D)  All of the above.

Question 15

For the following, please answer "True" or "False" and explain why.
-If two firms behave as Cournot duopolists,the level of social welfare is lower than if the same firms act as a cartel.

Accepted Answer

A) True 
 B)False

Question 16

Two identical firms that share a market and produce a homogeneous good will find the Bertrand Oligopoly LEAST attractive because

Accepted Answer

A)  Cartels generate the highest joint profit. 
B)  a Cournot Oligopoly will generate more profit than a Bertrand Oligopoly. 
C)  they want to avoid a price war that leads to profit erosion and P = MC. 
D)  All of the above. 
A)  Cartels generate the highest joint profit. 
B)  a Cournot Oligopoly will generate more profit than a Bertrand Oligopoly. 
C)  they want to avoid a price war that leads to profit erosion and P = MC. 
D)  All of the above.

Question 17

In a Nash-Cournot equilibrium where firms produce identical products with unequal costs,

Accepted Answer

A)  the firm with lower costs charges a higher price. 
B)  the firm with higher costs charges a higher price. 
C)  the firm with lower costs produces more. 
D)  the firm with higher costs produces more. 
A)  the firm with lower costs charges a higher price. 
B)  the firm with higher costs charges a higher price. 
C)  the firm with lower costs produces more. 
D)  the firm with higher costs produces more.

Question 18

Suppose two Cournot duopolist firms operate at zero marginal cost.The market demand is p = a - bQ.Firm 1's best-response function is

Accepted Answer

A)  q₁ = (a - bq₂)/2b. 
B)  q₁ = (a - 2bq₂)/2b. 
C)  q₁ = a/b. 
D)  q₁ = a/2b. 
A)  q₁ = (a - bq₂)/2b. 
B)  q₁ = (a - 2bq₂)/2b. 
C)  q₁ = a/b. 
D)  q₁ = a/2b.

Question 19

Draw a graph that shows the effect on the equilibrium quantities if the government subsidizes one firm in a Cournot duopoly with a per-unit subsidy.Assume that the best-response functions are linear.Explain the new equilibrium quantities.

Accepted Answer

@#IMG-DLM& See the above figure.The subsidized fir

Question 20

Monopolistic Competition and perfect competition differ because

Accepted Answer

A)  only monopolistically competitive firms will set MR = MC. 
B)  only perfectly competitive firms will set MR = MC. 
C)  only monopolistic competition allows for entry of other firms in the long run. 
D)  only competitive firms take the price as given. 
A)  only monopolistically competitive firms will set MR = MC. 
B)  only perfectly competitive firms will set MR = MC. 
C)  only monopolistic competition allows for entry of other firms in the long run. 
D)  only competitive firms take the price as given.

Explain why the intersection of the best-response functions is the Cournot equilibrium.

For the following, please answer "True" or "False" and explain why. -If there are 2 identical firms in a market that choose the quantity they produce,total welfare is the highest when there is a cartel.

Product differentiation

Product differentiation allows a firm to charge a higher price because the residual demand curve facing the firm

Mergers are closely scrutinized by the government because

In the short run,a monopolistic competitor

In the Cournot model,if a firm's marginal cost increases,its best-response function will

What happens in a duopoly if both firms try to act as the Stackelberg leader?

Regardless of market structure,all firms

Firms A and B are identical,produce identical products,and are the only firms in a market.Firm A's output is higher than Firm B's.This means that Firm B is the

Suppose in the automobile industry with free entry and exit,the marginal cost is constant at $5,000,two identical manufacturers are currently producing 1,000 cars each and earning zero economic profit.If the equilibrium price is $20,000,then what is the fixed cost for each manufacturer?

For the following, please answer "True" or "False" and explain why. -Because firms selling a homogeneous product set price in response to the (perceived)pricing decision of other firms in the Bertrand Model of oligopoly in equilibrium price exceeds marginal cost.

Mergers may result in

For the following, please answer "True" or "False" and explain why. -If two firms behave as Cournot duopolists,the level of social welfare is lower than if the same firms act as a cartel.

Two identical firms that share a market and produce a homogeneous good will find the Bertrand Oligopoly LEAST attractive because

In a Nash-Cournot equilibrium where firms produce identical products with unequal costs,

Suppose two Cournot duopolist firms operate at zero marginal cost.The market demand is p = a - bQ.Firm 1's best-response function is

Draw a graph that shows the effect on the equilibrium quantities if the government subsidizes one firm in a Cournot duopoly with a per-unit subsidy.Assume that the best-response functions are linear.Explain the new equilibrium quantities.

Monopolistic Competition and perfect competition differ because

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

Explain why the intersection of the best-response functions is the Cournot equilibrium.

For the following, please answer "True" or "False" and explain why. -If there are 2 identical firms in a market that choose the quantity they produce,total welfare is the highest when there is a cartel.

Product differentiation

Product differentiation allows a firm to charge a higher price because the residual demand curve facing the firm

Mergers are closely scrutinized by the government because

In the short run,a monopolistic competitor

In the Cournot model,if a firm's marginal cost increases,its best-response function will

What happens in a duopoly if both firms try to act as the Stackelberg leader?

Regardless of market structure,all firms

Firms A and B are identical,produce identical products,and are the only firms in a market.Firm A's output is higher than Firm B's.This means that Firm B is the

Suppose in the automobile industry with free entry and exit,the marginal cost is constant at $5,000,two identical manufacturers are currently producing 1,000 cars each and earning zero economic profit.If the equilibrium price is $20,000,then what is the fixed cost for each manufacturer?

For the following, please answer "True" or "False" and explain why. -Because firms selling a homogeneous product set price in response to the (perceived)pricing decision of other firms in the Bertrand Model of oligopoly in equilibrium price exceeds marginal cost.

Mergers may result in

For the following, please answer "True" or "False" and explain why. -If two firms behave as Cournot duopolists,the level of social welfare is lower than if the same firms act as a cartel.

Two identical firms that share a market and produce a homogeneous good will find the Bertrand Oligopoly LEAST attractive because

In a Nash-Cournot equilibrium where firms produce identical products with unequal costs,

Suppose two Cournot duopolist firms operate at zero marginal cost.The market demand is p = a - bQ.Firm 1's best-response function is

Draw a graph that shows the effect on the equilibrium quantities if the government subsidizes one firm in a Cournot duopoly with a per-unit subsidy.Assume that the best-response functions are linear.Explain the new equilibrium quantities.

Monopolistic Competition and perfect competition differ because

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