Question 1

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 2

Compared to a cartel,firms in a Cournot Oligopoly

Accepted Answer

A) make more joint profit. 
B) sell less output. 
C) make less joint profit. 
D) act independently. 
A) make more joint profit. 
B) sell less output. 
C) make less joint profit. 
D) act independently.

Question 3

Suppose a market with a Cournot structure has five firms and a market price elasticity of demand equal to -2.What is a Cournot firm's Lerner Index?

Accepted Answer

A) .1 
B) .2 
C) .5 
D) 1 
A) .1 
B) .2 
C) .5 
D) 1

Question 4

Suppose two Cournot duopolist firms operate at zero marginal cost.The market demand is p = a - bQ.Each firm will produce

Accepted Answer

A) a/b. 
B) a/2b. 
C) a/3b. 
D) a/4b. 
A) a/b. 
B) a/2b. 
C) a/3b. 
D) a/4b.

Question 5

One criticism of the Bertrand pricing model is that

Accepted Answer

A) the model is implausible when there is product differentiation. 
B) when there is an oligopoly with no product differentiation,the model's prediction is inconsistent with reality. 
C) the model's predicted price is solely a function of demand conditions. 
D) the model's predicted price is dependent on the number of firms. 
A) the model is implausible when there is product differentiation. 
B) when there is an oligopoly with no product differentiation,the model's prediction is inconsistent with reality. 
C) the model's predicted price is solely a function of demand conditions. 
D) the model's predicted price is dependent on the number of firms.

Question 6

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

Accepted Answer

A) Cournot 
B) Stackelberg 
C) Monopoly 
D) Cartel 
A) Cournot 
B) Stackelberg 
C) Monopoly 
D) Cartel

Question 7

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 8

The concept of Nash equilibrium states that

Accepted Answer

A) no firm can improve their outcome holding the other firm's actions constant. 
B) all firms are earning the highest possible profit. 
C) firms make alternating output decisions. 
D) None of the above 
A) no firm can improve their outcome holding the other firm's actions constant. 
B) all firms are earning the highest possible profit. 
C) firms make alternating output decisions. 
D) None of the above

Question 9

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 10

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

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 12

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

Accepted Answer

On a best-response function,a firm selec

Question 13

The benefits from cartelizing are greater if

Accepted Answer

A) the market demand elasticity is higher. 
B) the market demand elasticity is lower. 
C) the market price is higher. 
D) each firm cuts its output more. 
A) the market demand elasticity is higher. 
B) the market demand elasticity is lower. 
C) the market price is higher. 
D) each firm cuts its output more.

Question 14

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 15

Is it true that in the long run,a monopolistically competitive firm has market power but earns no profit? Explain.

Accepted Answer

As strange as it sounds,yes.The firm ear

Question 16

Monopolistically competitive firms

Accepted Answer

A) have market power because they can set price above marginal cost. 
B) have no market power because they earn zero economic profit. 
C) have no market power because of free entry. 
D) have no market power because price equals marginal cost. 
A) have market power because they can set price above marginal cost. 
B) have no market power because they earn zero economic profit. 
C) have no market power because of free entry. 
D) have no market power because price equals marginal cost.

Question 17

Suppose in the ice-cream market with 10 firms,the elasticity of market demand is -1,and each firm has a constant marginal cost at $2.The Nash-Cournot equilibrium price is

Accepted Answer

A) $2. 
B) $2.2. 
C) $2.4. 
D) $2.5. 
A) $2. 
B) $2.2. 
C) $2.4. 
D) $2.5.

Question 18

In comparing monopolistic competition to perfect competition,one can conclude that the lack of free entry is the key to having the ability to set price.

Accepted Answer

A) True 
 B)False

Question 19

The Stackelberg model is more appropriate than the Cournot model in situations where

Accepted Answer

A) there are more than two firms. 
B) all firms enter the market simultaneously. 
C) one firm makes its output decision before the other. 
D) firms will be likely to collude. 
A) there are more than two firms. 
B) all firms enter the market simultaneously. 
C) one firm makes its output decision before the other. 
D) firms will be likely to collude.

Question 20

Assuming a homogeneous product,the Bertrand duopoly equilibrium price is

Accepted Answer

A) the same as the Cournot equilibrium price. 
B) less than the Cournot equilibrium price. 
C) greater than the Cournot equilibrium price. 
D) equal to the monopoly price. 
A) the same as the Cournot equilibrium price. 
B) less than the Cournot equilibrium price. 
C) greater than the Cournot equilibrium price. 
D) equal to the monopoly price.

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

Compared to a cartel,firms in a Cournot Oligopoly

Suppose a market with a Cournot structure has five firms and a market price elasticity of demand equal to -2.What is a Cournot firm's Lerner Index?

Suppose two Cournot duopolist firms operate at zero marginal cost.The market demand is p = a - bQ.Each firm will produce

One criticism of the Bertrand pricing model is that

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

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

The concept of Nash equilibrium states that

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.

Cartels are inherently self-destructive because each member firm has the incentive to cheat on the cartel agreement.

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

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

The benefits from cartelizing are greater if

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

Is it true that in the long run,a monopolistically competitive firm has market power but earns no profit? Explain.

Monopolistically competitive firms

Suppose in the ice-cream market with 10 firms,the elasticity of market demand is -1,and each firm has a constant marginal cost at $2.The Nash-Cournot equilibrium price is

In comparing monopolistic competition to perfect competition,one can conclude that the lack of free entry is the key to having the ability to set price.

The Stackelberg model is more appropriate than the Cournot model in situations where

Assuming a homogeneous product,the Bertrand duopoly equilibrium price is

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

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

Compared to a cartel,firms in a Cournot Oligopoly

Suppose a market with a Cournot structure has five firms and a market price elasticity of demand equal to -2.What is a Cournot firm's Lerner Index?

Suppose two Cournot duopolist firms operate at zero marginal cost.The market demand is p = a - bQ.Each firm will produce

One criticism of the Bertrand pricing model is that

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

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

The concept of Nash equilibrium states that

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.

Cartels are inherently self-destructive because each member firm has the incentive to cheat on the cartel agreement.

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

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

The benefits from cartelizing are greater if

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

Is it true that in the long run,a monopolistically competitive firm has market power but earns no profit? Explain.

Monopolistically competitive firms

Suppose in the ice-cream market with 10 firms,the elasticity of market demand is -1,and each firm has a constant marginal cost at $2.The Nash-Cournot equilibrium price is

In comparing monopolistic competition to perfect competition,one can conclude that the lack of free entry is the key to having the ability to set price.

The Stackelberg model is more appropriate than the Cournot model in situations where

Assuming a homogeneous product,the Bertrand duopoly equilibrium price is

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