Question 1

A profit-maximizing firm should spend an additional dollar on advertising so long as this expenditure results in more than one dollar of

Accepted Answer

A)  additional sales. 
B)  reduced costs. 
C)  increased profits. 
D)  demand. 
A)  additional sales. 
B)  reduced costs. 
C)  increased profits. 
D)  demand. C

Question 2

In the cartel model

Accepted Answer

A)  firms believe that price increases result in a very elastic demand, while price decreases result in an inelastic demand for their products. 
B)  each firm acts as a price taker. 
C)  one dominant firm takes the reactions of all other firms into account in its output and pricing decisions. 
D)  firms coordinate their decisions to act as a multiplant monopoly. 
A)  firms believe that price increases result in a very elastic demand, while price decreases result in an inelastic demand for their products. 
B)  each firm acts as a price taker. 
C)  one dominant firm takes the reactions of all other firms into account in its output and pricing decisions. 
D)  firms coordinate their decisions to act as a multiplant monopoly. D

Question 3

Consider the same market for nonalcoholic beer as in the previous question.Cudweiser's response function is

Accepted Answer

A)    
B)    
C)    
D)    
A)    
B)    
C)    
D)    C

Question 4

Which assumptions of the Bertrand model be altered to avoid the Bertrand Paradox (that an outcome resembling perfect competition may arise with even as few as two firms)?

Accepted Answer

A)  assuming firms have limited capacities. 
B)  assuming firms produce differentiated rather than homogeneous products. 
C)  assuming firms play repeatedly and thus may collude. 
D)  all of the above. 
A)  assuming firms have limited capacities. 
B)  assuming firms produce differentiated rather than homogeneous products. 
C)  assuming firms play repeatedly and thus may collude. 
D)  all of the above.

Question 5

Under the cartel model,each firm produces where

Accepted Answer

A)  marginal cost equals marginal revenue. 
B)  price equals marginal cost. 
C)  the average cost curve is at a minimum. 
D)  price exceeds marginal cost by the greatest amount. 
A)  marginal cost equals marginal revenue. 
B)  price equals marginal cost. 
C)  the average cost curve is at a minimum. 
D)  price exceeds marginal cost by the greatest amount.

Question 6

Suppose there are two firms,Boors and Cudweiser,each selling identical-tasting nonalcoholic beer.Consumers of this beer have no brand loyalty so market demand can be expressed as   .Boors marginal revenue function can be written MRB = 5 - .001(2QB + QC)(and symmetrically for Cudweiser).Boors operates with out of date technology and has constant cost of (MC = AC)$2 per unit where as Cudweiser has constant cost of $1 per unit.Assuming the firms behave as Cournot competitors,Boor's best-response function is

Accepted Answer

A)    
B)    
C)    
D)    
A)    
B)    
C)    
D)

Question 7

Consider the market for nonalcoholic beers from the previous question.Which of the following is the Bertrand reaction function for Cudweiser?

Accepted Answer

A)  PC = 1 + .033PB   
B)  PC = 1 - .033PB 
C)  PC = 1.5 + .075PB 
D)  PB = 1.5 + .075PC  
A)  PC = 1 + .033PB   
B)  PC = 1 - .033PB 
C)  PC = 1.5 + .075PB 
D)  PB = 1.5 + .075PC

Question 8

Which factor would make tacit collusion among firms in a market easier?

Accepted Answer

A)  an increase in the number of firms. 
B)  a decrease in the probability the market will continue into future periods. 
C)  a decrease in the interest rate. 
D)  none of these. 
A)  an increase in the number of firms. 
B)  a decrease in the probability the market will continue into future periods. 
C)  a decrease in the interest rate. 
D)  none of these.

Question 9

Each firm in a cartel has an incentive to chisel because market price exceeds

Accepted Answer

A)  marginal cost. 
B)  average cost. 
C)  average variable cost. 
D)  average fixed cost. 
A)  marginal cost. 
B)  average cost. 
C)  average variable cost. 
D)  average fixed cost.

Question 10

Two firms engage in Bertrand competition in differentiated products.After doing all the appropriate calculations,you find the best-response functions are   and   .Without doing any further calculations,can you determine the relationship between their Nash equilibrium prices?

Accepted Answer

A)  Yes,   
B)  Yes,     
C)  Yes,   d. It cannot be determined.  
A)  Yes,   
B)  Yes,     
C)  Yes,   d. It cannot be determined.

Question 11

Relative to the case in which two identical firms choose quantities simultaneously in a Cournot model,if one of the two moves first and is observed by the other,how would this affect its output?

Accepted Answer

A)  it would increase its output, more so if it could deter the other from entering the market at all. 
B)  it would increase its output, but would moderate this increase if it were concerned about entry deterrence. 
C)  it would decrease its output if it couldn't deter entry and increase it otherwise. 
D)  it would decrease its output whether or not it wanted to deter entry. 
A)  it would increase its output, more so if it could deter the other from entering the market at all. 
B)  it would increase its output, but would moderate this increase if it were concerned about entry deterrence. 
C)  it would decrease its output if it couldn't deter entry and increase it otherwise. 
D)  it would decrease its output whether or not it wanted to deter entry.

Question 12

In the long run,in the model of monopolistic competition,for a typical firm,price is

Accepted Answer

A)  above average cost but equal to marginal cost. 
B)  above marginal cost but equal to average cost. 
C)  above marginal cost. 
D)  equal to marginal cost and equal to or greater than average cost. 
A)  above average cost but equal to marginal cost. 
B)  above marginal cost but equal to average cost. 
C)  above marginal cost. 
D)  equal to marginal cost and equal to or greater than average cost.

Question 13

Consider the market for nonalcoholic beers from the previous question.Cudweisers' price in a Nash equilibrium (assuming Bertrand competition in these differentiated beers)is about

Accepted Answer

A)  0.99 
B)  1.09 
C)  1.71 
D)  2.55 
A)  0.99 
B)  1.09 
C)  1.71 
D)  2.55

Question 14

In the monopolistic competition model

Accepted Answer

A)  firms are price takers 
B)  barriers to entry maintain some monopoly "rents" in the long run. 
C)  one dominant firm acts as the monopolist that is followed by the fringe of competitors. 
D)  none of these. 
A)  firms are price takers 
B)  barriers to entry maintain some monopoly "rents" in the long run. 
C)  one dominant firm acts as the monopolist that is followed by the fringe of competitors. 
D)  none of these.

Question 15

In the Cournot model,each firm assumes that its rival will ____ its output when the firm adjusts its own output.Which word best completes the sentence?

Accepted Answer

A)  increase 
B)  not change 
C)  decrease 
D)  adjust 
A)  increase 
B)  not change 
C)  decrease 
D)  adjust

Question 16

Consider the same market for nonalcoholic beer as in the previous question.How many "units" of beer will Boors produce in the Nash equilibrium?

Accepted Answer

A)  667 
B)  1,667 
C)  2,333 
D)  3,000 
A)  667 
B)  1,667 
C)  2,333 
D)  3,000

Question 17

Suppose there are two firms,Boors and Cudweiser,each selling nonalcoholic beer.Suppose Boors and Cudweiser are not viewed as perfect substitutes but rather demand for Boors is   and demand for Cudweiser is   .For simplicity,assume zero marginal costs.Which is the more preferred beer?

Accepted Answer

A)  Boor's 
B)  Cudweiser 
C)  they are equally preferred 
D)  neither are preferred 
A)  Boor's 
B)  Cudweiser 
C)  they are equally preferred 
D)  neither are preferred

Question 18

Consider the same market for nonalcoholic beer as in the previous question.How many units will Boors produce in the Nash equilibrium?

Accepted Answer

A)  1,333 
B)  2,333 
C)  3,333 
D)  4,333 
A)  1,333 
B)  2,333 
C)  3,333 
D)  4,333

Question 19

In a Cournot equilibrium each firm chooses an output level that

Accepted Answer

A)  maximizes joint profits. 
B)  maximizes the price received. 
C)  maximizes profits given what the other firm produces. 
D)  maximizes revenue given what the other firm produces. 
A)  maximizes joint profits. 
B)  maximizes the price received. 
C)  maximizes profits given what the other firm produces. 
D)  maximizes revenue given what the other firm produces.

Question 20

In the price leadership model,

Accepted Answer

A)  firms believe that price increases result in a very elastic demand, while price decreases result in an inelastic demand for their product. 
B)  each firm acts as a price taker. 
C)  one dominant firm takes the reactions of all other firms into account in its output and pricing decisions. 
D)  firms coordinate their decisions to act as multiplant monopolies. 
A)  firms believe that price increases result in a very elastic demand, while price decreases result in an inelastic demand for their product. 
B)  each firm acts as a price taker. 
C)  one dominant firm takes the reactions of all other firms into account in its output and pricing decisions. 
D)  firms coordinate their decisions to act as multiplant monopolies.

A profit-maximizing firm should spend an additional dollar on advertising so long as this expenditure results in more than one dollar of

In the cartel model

Consider the same market for nonalcoholic beer as in the previous question.Cudweiser's response function is

Which assumptions of the Bertrand model be altered to avoid the Bertrand Paradox (that an outcome resembling perfect competition may arise with even as few as two firms)?

Under the cartel model,each firm produces where

Consider the market for nonalcoholic beers from the previous question.Which of the following is the Bertrand reaction function for Cudweiser?

Which factor would make tacit collusion among firms in a market easier?

Each firm in a cartel has an incentive to chisel because market price exceeds

Two firms engage in Bertrand competition in differentiated products.After doing all the appropriate calculations,you find the best-response functions are and .Without doing any further calculations,can you determine the relationship between their Nash equilibrium prices?

Relative to the case in which two identical firms choose quantities simultaneously in a Cournot model,if one of the two moves first and is observed by the other,how would this affect its output?

In the long run,in the model of monopolistic competition,for a typical firm,price is

Consider the market for nonalcoholic beers from the previous question.Cudweisers' price in a Nash equilibrium (assuming Bertrand competition in these differentiated beers)is about

In the monopolistic competition model

In the Cournot model,each firm assumes that its rival will ____ its output when the firm adjusts its own output.Which word best completes the sentence?

Consider the same market for nonalcoholic beer as in the previous question.How many "units" of beer will Boors produce in the Nash equilibrium?

Suppose there are two firms,Boors and Cudweiser,each selling nonalcoholic beer.Suppose Boors and Cudweiser are not viewed as perfect substitutes but rather demand for Boors is and demand for Cudweiser is .For simplicity,assume zero marginal costs.Which is the more preferred beer?

Consider the same market for nonalcoholic beer as in the previous question.How many units will Boors produce in the Nash equilibrium?

In a Cournot equilibrium each firm chooses an output level that

In the price leadership model,

Economic Models

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Exam 12: Imperfect Competition

A profit-maximizing firm should spend an additional dollar on advertising so long as this expenditure results in more than one dollar of

In the cartel model

Consider the same market for nonalcoholic beer as in the previous question.Cudweiser's response function is

Which assumptions of the Bertrand model be altered to avoid the Bertrand Paradox (that an outcome resembling perfect competition may arise with even as few as two firms)?

Under the cartel model,each firm produces where

Consider the market for nonalcoholic beers from the previous question.Which of the following is the Bertrand reaction function for Cudweiser?

Which factor would make tacit collusion among firms in a market easier?

Each firm in a cartel has an incentive to chisel because market price exceeds

Two firms engage in Bertrand competition in differentiated products.After doing all the appropriate calculations,you find the best-response functions are and .Without doing any further calculations,can you determine the relationship between their Nash equilibrium prices?

Relative to the case in which two identical firms choose quantities simultaneously in a Cournot model,if one of the two moves first and is observed by the other,how would this affect its output?

In the long run,in the model of monopolistic competition,for a typical firm,price is

Consider the market for nonalcoholic beers from the previous question.Cudweisers' price in a Nash equilibrium (assuming Bertrand competition in these differentiated beers)is about

In the monopolistic competition model

In the Cournot model,each firm assumes that its rival will ____ its output when the firm adjusts its own output.Which word best completes the sentence?

Consider the same market for nonalcoholic beer as in the previous question.How many "units" of beer will Boors produce in the Nash equilibrium?

Suppose there are two firms,Boors and Cudweiser,each selling nonalcoholic beer.Suppose Boors and Cudweiser are not viewed as perfect substitutes but rather demand for Boors is and demand for Cudweiser is .For simplicity,assume zero marginal costs.Which is the more preferred beer?

Consider the same market for nonalcoholic beer as in the previous question.How many units will Boors produce in the Nash equilibrium?

In a Cournot equilibrium each firm chooses an output level that

In the price leadership model,

Economic Models

Utility and Choice

Individual Demand Curves

Uncertainty

Game Theory

Production

Costs

Profit Maximization and Supply

Perfect Competition in a Single Market

General Equilibrium and Welfare

Monopoly

Pricing in Input Markets

Capital and Time

Asymmetric Information

Externalities and Public Goods

Behavioral Economics

Filters