Question 1

The profitability of the second mover in a Stackelberg model is

Accepted Answer

A)  guaranteed to be negative. 
B)  smaller than that of the first mover. 
C)  greater than that of the first mover. 
D)  greater than the Cournot profits. 
A)  guaranteed to be negative. 
B)  smaller than that of the first mover. 
C)  greater than that of the first mover. 
D)  greater than the Cournot profits.

Question 2

-The above figure shows the reaction functions for two pizza shops in a small isolated town.The Cournot equilibrium is at point

Accepted Answer

A)  a. 
B)  b. 
C)  c. 
D)  d. 
A)  a. 
B)  b. 
C)  c. 
D)  d.

Question 3

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)  the 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)  the always result in lower joint profits of the firms involved. 
D)  all mergers are undesirable.

Question 4

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 5

Which of the following market models results in the highest price assuming a fixed number of firms with identical costs and a given demand curve?

Accepted Answer

A)  Cournot 
B)  Stackelberg 
C)  Monopoly 
D)  Price is the same in all three markets. 
A)  Cournot 
B)  Stackelberg 
C)  Monopoly 
D)  Price is the same in all three markets.

Question 6

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 7

Firms seek to differentiate their product

Accepted Answer

A)  to avoid state and federal regulation. 
B)  to create an illusion of value. 
C)  to strengthen their demand and to make it more inelastic. 
D)  to strengthen their demand and to make it more elastic. 
A)  to avoid state and federal regulation. 
B)  to create an illusion of value. 
C)  to strengthen their demand and to make it more inelastic. 
D)  to strengthen their demand and to make it more elastic.

Question 8

Perfect competition and monopolistic competition are similar in that firms in both types of market structure will

Accepted Answer

A)  act as price takers. 
B)  produce a level of output where price equals marginal cost. 
C)  earn zero profit in the long run. 
D)  act as price setters. 
A)  act as price takers. 
B)  produce a level of output where price equals marginal cost. 
C)  earn zero profit in the long run. 
D)  act as price setters.

Question 9

The Bertrand model is a more plausible model of firm behavior than the Cournot model

Accepted Answer

A)  when firms set the quantity to be sold. 
B)  when firms sell a differentiated product. 
C)  because firms that sell a non-differentiated product typically act as price takers. 
D)  because the Bertrand model predicts that firms will price at marginal cost. 
A)  when firms set the quantity to be sold. 
B)  when firms sell a differentiated product. 
C)  because firms that sell a non-differentiated product typically act as price takers. 
D)  because the Bertrand model predicts that firms will price at marginal cost.

Question 10

A cartel is a group of firms that attempts to

Accepted Answer

A)  maximize joint revenue. 
B)  maximize joint profit. 
C)  behave independently. 
D)  increase consumer surplus. 
A)  maximize joint revenue. 
B)  maximize joint profit. 
C)  behave independently. 
D)  increase consumer surplus.

Question 11

The Cournot model assumes that firm A maximizes its profit,holding firm B's output constant.

Accepted Answer

A) True 
 B)False

Question 12

Suppose Cournot duopolist firms operate with each having a cost of 30qi (i = 1,2)so that each firm's marginal cost is 30.The inverse market demand curve is P = 120 - Q where Q = q1 + q2.At the Nash-Cournot equilibrium,the total quantity,Q,is

Accepted Answer

A)  30. 
B)  45. 
C)  60. 
D)  90. 
A)  30. 
B)  45. 
C)  60. 
D)  90.

Question 13

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

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 15

Minimum efficient scale refers to the lowest level of output at which

Accepted Answer

A)  the firm can earn a profit. 
B)  average cost is minimized. 
C)  the firm will operate. 
D)  the average cost curve is downward sloping. 
A)  the firm can earn a profit. 
B)  average cost is minimized. 
C)  the firm will operate. 
D)  the average cost curve is downward sloping.

Question 16

Product differentiation

Accepted Answer

A)  is possibly welfare enhancing if new products match consumer preferences better. 
B)  is welfare reducing even if new products match consumer preferences better. 
C)  is welfare enhancing even if new products do not match consumer preferences better. 
D)  is welfare reducing even if new products do not match consumer preferences better. 
A)  is possibly welfare enhancing if new products match consumer preferences better. 
B)  is welfare reducing even if new products match consumer preferences better. 
C)  is welfare enhancing even if new products do not match consumer preferences better. 
D)  is welfare reducing even if new products do not match consumer preferences better.

Question 17

Suppose Cournot duopolists firms face the same market demand curve,but have differing costs.At the Nash-Cournot equilibrium,the firm with the lower cost will

Accepted Answer

A)  have a lower price for its product than its competitor. 
B)  produce a smaller output than its competitor. 
C)  have a higher price for its product than its competitor. 
D)  produce a larger output than its competitor. 
A)  have a lower price for its product than its competitor. 
B)  produce a smaller output than its competitor. 
C)  have a higher price for its product than its competitor. 
D)  produce a larger output than its competitor.

Question 18

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

Accepted Answer

On a best-response function,a firm selec

Question 19

The evidence on mergers occurring within the hospital industry suggests that

Accepted Answer

A)  efficiency gains that resulted have been passed on to customers through lower prices. 
B)  the mergers have tended to not have any significant effect on hospital prices. 
C)  prices have risen slightly as some efficiency gains are passed on to customers after mergers. 
D)  prices have risen after mergers. 
A)  efficiency gains that resulted have been passed on to customers through lower prices. 
B)  the mergers have tended to not have any significant effect on hospital prices. 
C)  prices have risen slightly as some efficiency gains are passed on to customers after mergers. 
D)  prices have risen after mergers.

Question 20

There are only two firms in an industry with demand curves q1 = 30 - P and q2 = 30 - P.Both have no fixed costs and each has a marginal cost of 10 per unit produced.If they behave as profit maximizing price takers,each produces 20 units and sells them at a price of 10 so that each firm makes zero economic profits.Suppose the two firms form a cartel.While firm 1 produces one-half of the profit maximizing cartel output,firm 2 cheats and produces 5 units more.What would happen to the two firms' economic profits?

Accepted Answer

A)  Firm 1's profits remain the same, but firm 2's profits increase by 10.5 
B)  Firm 1's profits decrease by 5.5, but firm 2's profits increase by 11. 
C)  Firm 1's profits decrease by 25, but firm 2's profits increase by 12.5. 
D)  Firm 1's profits decrease by 12.5, but firm 2's profits increase by 25. 
A)  Firm 1's profits remain the same, but firm 2's profits increase by 10.5 
B)  Firm 1's profits decrease by 5.5, but firm 2's profits increase by 11. 
C)  Firm 1's profits decrease by 25, but firm 2's profits increase by 12.5. 
D)  Firm 1's profits decrease by 12.5, but firm 2's profits increase by 25.

The profitability of the second mover in a Stackelberg model is

-The above figure shows the reaction functions for two pizza shops in a small isolated town.The Cournot equilibrium is at point

Mergers are closely scrutinized by the government because

Product differentiation

Which of the following market models results in the highest price assuming a fixed number of firms with identical costs and a given demand curve?

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

Firms seek to differentiate their product

Perfect competition and monopolistic competition are similar in that firms in both types of market structure will

The Bertrand model is a more plausible model of firm behavior than the Cournot model

A cartel is a group of firms that attempts to

The Cournot model assumes that firm A maximizes its profit,holding firm B's output constant.

Suppose Cournot duopolist firms operate with each having a cost of 30q_i (i = 1,2)so that each firm's marginal cost is 30.The inverse market demand curve is P = 120 - Q where Q = q₁ + q₂.At the Nash-Cournot equilibrium,the total quantity,Q,is

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.

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

Minimum efficient scale refers to the lowest level of output at which

Product differentiation

Suppose Cournot duopolists firms face the same market demand curve,but have differing costs.At the Nash-Cournot equilibrium,the firm with the lower cost will

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

The evidence on mergers occurring within the hospital industry suggests that

Introduction

Supply and Demand

Applying the Supply and Demand Model

Consumer Choice

Applying Consumer Theory

Firms and Production

Costs

Competitive Firms and Markets

Applying the Competitive Model

General Equilibrium and Economic Welfare

Monopoly

Pricing and Advertising

Game Theory

Factor Markets

Interest Rates, Investments, and Capital Markets

Uncertainty

Externalities, Open-Access, and Public Goods

Asymmetric Information

Contracts and Moral Hazards

Filters

Exam 13: Oligopoly and Monopolistic Competition

The profitability of the second mover in a Stackelberg model is

-The above figure shows the reaction functions for two pizza shops in a small isolated town.The Cournot equilibrium is at point

Mergers are closely scrutinized by the government because

Product differentiation

Which of the following market models results in the highest price assuming a fixed number of firms with identical costs and a given demand curve?

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

Firms seek to differentiate their product

Perfect competition and monopolistic competition are similar in that firms in both types of market structure will

The Bertrand model is a more plausible model of firm behavior than the Cournot model

A cartel is a group of firms that attempts to

The Cournot model assumes that firm A maximizes its profit,holding firm B's output constant.

Suppose Cournot duopolist firms operate with each having a cost of 30qi (i = 1,2)so that each firm's marginal cost is 30.The inverse market demand curve is P = 120 - Q where Q = q1 + q2.At the Nash-Cournot equilibrium,the total quantity,Q,is

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.

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

Minimum efficient scale refers to the lowest level of output at which

Product differentiation

Suppose Cournot duopolists firms face the same market demand curve,but have differing costs.At the Nash-Cournot equilibrium,the firm with the lower cost will

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

The evidence on mergers occurring within the hospital industry suggests that

Introduction

Supply and Demand

Applying the Supply and Demand Model

Consumer Choice

Applying Consumer Theory

Firms and Production

Costs

Competitive Firms and Markets

Applying the Competitive Model

General Equilibrium and Economic Welfare

Monopoly

Pricing and Advertising

Game Theory

Factor Markets

Interest Rates, Investments, and Capital Markets

Uncertainty

Externalities, Open-Access, and Public Goods

Asymmetric Information

Contracts and Moral Hazards

Filters

Suppose Cournot duopolist firms operate with each having a cost of 30q_i (i = 1,2)so that each firm's marginal cost is 30.The inverse market demand curve is P = 120 - Q where Q = q₁ + q₂.At the Nash-Cournot equilibrium,the total quantity,Q,is