Exam 26: Oligopoly-Part A

The price elasticity of demand for melocotones is constant and equal to -2.The melocotone market is controlled by two Cournot duopolists who have different cost functions.One of the duopolists has a constant marginal cost of $975 per ton and produces 70% of the total number of melocotones sold.The equilibrium price of a ton of melocotones must be

Suppose that two airlines are Cournot duopolists serving the Peoria-Dubuque route, and the demand curve for tickets per day is Q = 230 - 2p (so p = 115 - Q/2).Total costs of running a flight on this route are 450 + 40q, where q is the number of passengers on the flight.Each flight has a capacity of 80 passengers.In Cournot equilibrium, each duopolist will run one flight per day and will make a daily profit of

Two firms decide to form a cartel and collude in a way that maximizes industry profits.Each firm has zero production costs and each firm is given a positive output quota by the cartel.Which of the following statements is not true?

A Stackelberg leader will necessarily make at least as much profit as he would if he acted as a Cournot oligopolist.

There are two firms in the blastopheme industry.The demand curve for blastophemes is given by p = 4,200 - 3q.Each firm has one manufacturing plant and each firm i has a cost function C(q_i)= q²i, where q_i is the output of firm i.The two firms form a cartel and arrange to split total industry profits equally.Under this cartel arrangement, they will maximize joint profits if

A city has two major league baseball teams, A and B.The number of tickets sold by either team depends on the price of the team's own tickets and the price of the other team's tickets.If team A charges P_a for its tickets and team B charges P_b for its tickets, then ticket sales, measured in hundreds of thousands per season, are 10 - 2P_a + P_b for team A and 5 + P_a - 2P_b for team B.The marginal cost of an extra spectator is zero for both teams.Each team believes the other's price is independent of its own choice of price, and each team sets its own price so as to maximize its revenue.What price do they charge per ticket?

An industry has two firms.The inverse demand function for this industry is p = 74 - 4q.Both firms produce at a constant unit cost of $26 per unit.What is the Cournot equilibrium price for this industry?

A Stackelberg leader and follower choose their outputs to maximize their own profits.Local property taxes which constitute a lump sum tax for each of them are reduced by $500 per year for the leader and by $200 a year for the follower.In consequence, the firms

Suppose that two airlines are Cournot duopolists serving the Peoria-Dubuque route, and the demand curve for tickets per day is Q = 220 - 2p (so p = 110 - Q/2).Total costs of running a flight on this route are 1,400 + 20q, where q is the number of passengers on the flight.Each flight has a capacity of 80 passengers.In Cournot equilibrium, each duopolist will run one flight per day and will make a daily profit of

North Bend currently has one McDonald's fast-food franchise.Demand for hamburgers in North Bend is given by Q = 300 - 10P.Any McDonald's franchise has costs of C = 70 + 2Q for producing Q hamburgers.If a second McDonald's franchise were to move into North Bend (and both behaved as duopolists), the profit of the original McDonald's would fall from

An industry has two firms.The inverse demand function for this industry is p = 263 - 6q.Both firms produce at a constant unit cost of $29 per unit.What is the Cournot equilibrium price for this industry?

A city has two major league baseball teams, A and B.The number of tickets sold by either team depends on the price of the team's own tickets and the price of the other team's tickets.If team A charges P_a for its tickets and team B charges P_b for its tickets, then ticket sales, measured in hundreds of thousands per season, are 10 - 2P_a + P_b for team A and 20 + P_a - 2P_b for team B.The marginal cost of an extra spectator is zero for both teams.Each team believes the other's price is independent of its own choice of price, and each team sets its own price so as to maximize its revenue.What price do they charge per ticket?

Suppose that Grinch and Grubb go into the wine business in a small country where wine is difficult to grow.The demand for wine is given by p = $480 - .2Q, where p is the price and Q is the total quantity sold.The industry consists of just the two Cournot duopolists, Grinch and Grubb.Imports are prohibited.Grinch has constant marginal costs of $30 and Grubb has marginal costs of $60.How much is Grinch's output in equilibrium?

Suppose that the price elasticity of demand for airline flights between two cities is constant and equal to -1.5.If 4 airlines with equal costs are in Cournot equilibrium for this industry, then the ratio of price to marginal cost in the industry is

In the Cournot model, each firm chooses its actions on the assumption that its rivals will react by changing their quantities in such a way as to maximize their own profits.

The price elasticity of demand for melocotones is constant and equal to -2.The melocotone market is controlled by two Cournot duopolists who have different cost functions.One of the duopolists has a constant marginal cost of $675 per ton and produces 50% of the total number of melocotones sold.The equilibrium price of a ton of melocotones must be

There are two major producers of corncob pipes in the world, both located in Herman, Missouri.Suppose that the inverse demand function for corncob pipes is described by p = 160 - 3q, where q is total industry output, and marginal costs are zero.What is the Cournot reaction function of firm 1 to the output, q₂, of firm 2?

In Cournot equilibrium each firm chooses the quantity that maximizes its own profits assuming that the firm's rival will continue to sell at the same price as before.

A duopoly in which two identical firms are engaged in Bertrand competition will not distort prices from their competitive levels.

Ann and Bruce each own a pizza store in Frostbite Falls, Minnesota.Demand for pizza is given by Q = 400 2 40P.Having the only two pizza stores in Frostbite Falls, they attempt to profitably split the market without violating the Sherman Antitrust Act.Each has the cost function C = 50 + 2Q.If Ann and Bruce behave as duopolists, each earns a profit of