Question 1

The demand for y is given by y = 256/p2.Only two firms produce y.They have identical costs c(y)= y2.If they agree to collude and maximize their joint profits, how much output will each firm produce?

Accepted Answer

A) 2 
B) 5 
C) 10 
D) 12 
E) 16

Question 2

An industry has two colluding firms that act so as to maximize total profit in the industry and then split the profits equally.Firm 1 has cost function c( y)= 8y.Firm 2 has cost function c( y)= y2.Each firm produces an integer number of units.Market demand is given by Y( p)= 56 - p.

Accepted Answer

A) Firm 1 should produce 10 units and firm 2 should produce 10 units. 
B) Firm 1 should produce 20 units and firm 2 should produce 4 units. 
C) Each firm should produce 12 units. 
D) Firm 1 should produce 24 units and firm 2 should produce 2 units. 
E) None of the above.

Question 3

Ann and Bruce each own a pizza store in Frostbite Falls, Minnesota.Demand for pizza is given by Q = 200 - 10P.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 + 5Q.If Ann and Bruce behave as duopolists, each earns a profit of

Accepted Answer

A) $0. 
B) $200. 
C) $500 
D) $500. 
E) $562.50.

Question 4

Roach Motors is the dominant used-car dealer in a small Midwestern city.After paying $50,000 for overhead, Roach Motors' cost per car is $500.There are 5 other small used-car lots in this town, but since they are not large enough to purchase cars through the same discount sources as Roach, each firm faces the cost function C = 5,000 + 700Q + 5Q2.The demand for used cars is Q = 200 - P1/10.Assuming Roach is aware of its competitors' costs, what price should Roach set for a used car?

Accepted Answer

A) $708.33 
B) $575 
C) $616.67 
D) $604.17 
E) $925

Question 5

Conjectural variation refers to the fact that in a single market there is variation among firms in their estimates of the demand function in future periods.

Accepted Answer

A) True 
 B)False

Question 6

Suppose that the demand curve for an industry's output is a downward-sloping straight line and there is constant marginal cost.Then the larger the number of identical firms producing in Cournot equilibrium, the lower will be the price.

Accepted Answer

A) True 
 B)False

Question 7

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 = $300 - .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 $45 and Grubb has marginal costs of $30.How much is Grinch's output in equilibrium?

Accepted Answer

A) 400 
B) 800 
C) 200 
D) 600 
E) 1,200

Question 8

A Stackelberg leader chooses his actions on the assumption that his rival will adjust to the leader's actions in such a way as to maximize the rival's profits.

Accepted Answer

A) True 
 B)False

Question 9

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 - 4q, 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?

Accepted Answer

A) 40 - 4q2 
B) 160 - 4q22 
C) 20 - .5q2 
D) 160 - 4q2 
E) 164 - 8q2

Question 10

The cartel of copper exporting countries is called COPEC.As part of an international marketing agreement, the United States has agreed to buy all the copper that COPEC wants to sell the United States at a constant price of $100 per ton.COPEC also sells copper in Europe at a price of $150 per ton.COPEC acts just like a monopolist.If COPEC finds it profitable to sell in the United States at $100 per ton and simultaneously to sell in Europe for $150 a ton, what is the price elasticity of demand of COPEC's copper in the European market? (Hint: What is COPEC's marginal revenue in the U.S.market?)

Accepted Answer

A) -1 
B) -2 
C) -3 
D) -1/3 
E) -2/3

Question 11

An industry has two firms producing at a constant unit cost of $10 per unit.The inverse demand curve for the industry is p = 110 - .5q.Suppose that firm 1 is a Stackelberg leader in choosing its quantity (i.e., firm 1 chooses its quantity first, knowing that firm 2 will observe firm 1's quantity when it chooses its own output.)How much output will firm 2, the follower, produce?

Accepted Answer

A) 40 units. 
B) 15 units. 
C) 20 units. 
D) 50 units. 
E) 30 units.

Question 12

A duopoly faces the demand curve D(p)= 30 - .5p.Both firms in the industry have a total cost function given by C(q)= 4q.Suppose that firm 1 is a Stackelberg leader in choosing its quantity first.Firm 1's profit function can be written as

Accepted Answer

A) q1 = 14 - .5q2. 
B) q2 = 14 - .5q1. 
C) 28q1 - q21. 
D) 56q1 - q21. 
E) 60q - q2.

Question 13

Suppose that the inverse demand for bean sprouts is given by P(Y)= - 4Y and the total cost of producing Y units for any firm is TC(Y)= 10Y.If the industry consists of two Cournot duopolists, then in equilibrium each firm's production is

Accepted Answer

A) 45 units. 
B) 22.50 units. 
C) 15 units. 
D) 30 units. 
E) 23.13 units.

Question 14

The inverse demand function for fuzzy dice is p = 20 - q.There are constant returns to scale in this industry with unit costs of $8.Which of the following sets of statements is completely true?

Accepted Answer

A) Monopoly output is 6.Cournot duopoly total output is 8.A Stackelberg leader's output is 8. 
B) Monopoly output is 8.Cournot duopoly total output is 8.A Stackelberg leader's output is 8. 
C) Monopoly output is 6.Cournot duopoly total output is 6.A Stackelberg follower's output is 3. 
D) Monopoly output is 6.Cournot duopoly total output is 8.A Stackelberg follower's output is 3. 
E) Monopoly output is 6.Cournot duopoly total output is 8.A Stackelberg follower's output is 4.

Question 15

Roach Motors is the dominant used-car dealer in a small Midwestern city.After paying $50,000 for overhead, Roach Motors' cost per car is $500.There are 4 other small used-car lots in this town, but since they are not large enough to purchase cars through the same discount sources as Roach, each firm faces the cost function C = 5,000 + 600Q + 5Q2.The demand for used cars is Q = 600 - P3/10.Assuming Roach sets the market price so as to maximize its profit, how many cars will each of the follower firms supply?

Accepted Answer

A) 25 
B) 33 
C) 28 
D) 29 
E) 27

Question 16

A duopoly faces the inverse demand curve p = 160 - 2q.Both firms in the industry have constant costs of $10 per unit of output.In a Cournot equilibrium how much output will each duopolist sell?

Accepted Answer

A) 75 
B) 54 
C) 25 
D) 35 
E) 48

Question 17

A city has two newspapers.Demand for either paper depends on its own price and the price of its rival.Demand functions for papers A and B respectively, measured in tens of thousands of subscriptions, are 21 - 2Pa + Pb and 21 +Pa 2 2Pb.The marginal cost of printing and distributing an extra paper just equals the extra advertising revenue from another reader, so each paper treats marginal costs as zero.Each paper maximizes its revenue assuming that the other's price is independent of its own price.If the papers enter a joint operating agreement where they set prices to maximize total revenue, by how much will newspaper prices rise?

Accepted Answer

A) $3 
B) $2 
C) $0 
D) $3.50 
E) $2.50

Question 18

In Bertrand competition between two firms, each firm believes that if it changes its output, the rival firm will change its output by the same amount.

Accepted Answer

A) True 
 B)False

Question 19

Roach Motors is the dominant used-car dealer in a small Midwestern city.After paying $50,000 for overhead, Roach Motors' cost per car is $500.There are 5 other small used-car lots in this town, but since they are not large enough to purchase cars through the same discount sources as Roach, each firm faces the cost function C = 5,000 + 700Q + 5Q2.The demand for used cars is Q = 500 - P1/10.Assuming Roach is aware of its competitors' costs, what price should Roach set for a used car?

Accepted Answer

A) $1,325 
B) $616.67 
C) $958.33 
D) $729.17 
E) $1,675

Question 20

Consider a market with one large firm and many small firms.The supply function of all of the small firms together is S(p)= 200 + p, the market demand curve is D(p)= 400 - p, and the cost function for the large firm is C(y)= 20y.The residual demand curve for the large firm, where DL is the large firm's demand and yL is the large firm's output, is

Accepted Answer

A) DL(p)= 400 - 21yL. 
B) DL(p) = 200 - 2p. 
C) DL(p) = 600 - 2p. 
D) DL(yL)= 200 - 2p - 20yL. 
E) DL(yL)= 200 - p + 20yL.

Exam 26: Oligopoly-Part A

The demand for y is given by y = 256/p².Only two firms produce y.They have identical costs c(y) = y².If they agree to collude and maximize their joint profits, how much output will each firm produce?

An industry has two colluding firms that act so as to maximize total profit in the industry and then split the profits equally.Firm 1 has cost function c( y) = 8y.Firm 2 has cost function c( y) = y².Each firm produces an integer number of units.Market demand is given by Y( p) = 56 - p.

Conjectural variation refers to the fact that in a single market there is variation among firms in their estimates of the demand function in future periods.

Suppose that the demand curve for an industry's output is a downward-sloping straight line and there is constant marginal cost.Then the larger the number of identical firms producing in Cournot equilibrium, the lower will be the price.

A Stackelberg leader chooses his actions on the assumption that his rival will adjust to the leader's actions in such a way as to maximize the rival's profits.

A duopoly faces the demand curve D(p) = 30 - .5p.Both firms in the industry have a total cost function given by C(q) = 4q.Suppose that firm 1 is a Stackelberg leader in choosing its quantity first.Firm 1's profit function can be written as

Suppose that the inverse demand for bean sprouts is given by P(Y) = - 4Y and the total cost of producing Y units for any firm is TC(Y) = 10Y.If the industry consists of two Cournot duopolists, then in equilibrium each firm's production is

The inverse demand function for fuzzy dice is p = 20 - q.There are constant returns to scale in this industry with unit costs of $8.Which of the following sets of statements is completely true?

A duopoly faces the inverse demand curve p = 160 - 2q.Both firms in the industry have constant costs of $10 per unit of output.In a Cournot equilibrium how much output will each duopolist sell?

In Bertrand competition between two firms, each firm believes that if it changes its output, the rival firm will change its output by the same amount.

Exam 26: Oligopoly-Part A

The demand for y is given by y = 256/p2.Only two firms produce y.They have identical costs c(y) = y2.If they agree to collude and maximize their joint profits, how much output will each firm produce?

An industry has two colluding firms that act so as to maximize total profit in the industry and then split the profits equally.Firm 1 has cost function c( y) = 8y.Firm 2 has cost function c( y) = y2.Each firm produces an integer number of units.Market demand is given by Y( p) = 56 - p.

Conjectural variation refers to the fact that in a single market there is variation among firms in their estimates of the demand function in future periods.

Suppose that the demand curve for an industry's output is a downward-sloping straight line and there is constant marginal cost.Then the larger the number of identical firms producing in Cournot equilibrium, the lower will be the price.

A Stackelberg leader chooses his actions on the assumption that his rival will adjust to the leader's actions in such a way as to maximize the rival's profits.

A duopoly faces the demand curve D(p) = 30 - .5p.Both firms in the industry have a total cost function given by C(q) = 4q.Suppose that firm 1 is a Stackelberg leader in choosing its quantity first.Firm 1's profit function can be written as

Suppose that the inverse demand for bean sprouts is given by P(Y) = - 4Y and the total cost of producing Y units for any firm is TC(Y) = 10Y.If the industry consists of two Cournot duopolists, then in equilibrium each firm's production is

The inverse demand function for fuzzy dice is p = 20 - q.There are constant returns to scale in this industry with unit costs of $8.Which of the following sets of statements is completely true?

A duopoly faces the inverse demand curve p = 160 - 2q.Both firms in the industry have constant costs of $10 per unit of output.In a Cournot equilibrium how much output will each duopolist sell?

In Bertrand competition between two firms, each firm believes that if it changes its output, the rival firm will change its output by the same amount.

The demand for y is given by y = 256/p².Only two firms produce y.They have identical costs c(y) = y².If they agree to collude and maximize their joint profits, how much output will each firm produce?

An industry has two colluding firms that act so as to maximize total profit in the industry and then split the profits equally.Firm 1 has cost function c( y) = 8y.Firm 2 has cost function c( y) = y².Each firm produces an integer number of units.Market demand is given by Y( p) = 56 - p.