Question 1

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

Accepted Answer

A)   $1,500.
B)   $750.
C)   $975.
D)   $3,000.
E)   $2,250. A

Question 2

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. D

Question 3

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. D

Question 4

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

Accepted Answer

A) True 
 B)False

Question 5

Suppose that the inverse demand for bean sprouts is given by P(Y)=750 - 2Y and the total cost of producing Y units for any firm is TC(Y)= 30Y.If the industry consists of two Cournot duopolists,then in equilibrium each firm's production is

Accepted Answer

A)   60 units.
B)   120 units.
C)   180 units.
D)   90 units.
E)   93.75 units.

Question 6

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 7

The duopolists Carl and Simon face a demand function for pumpkins of Q = 8,200- 400P,where Q is the total number of pumpkins that reach the market and P is the price of pumpkins.Suppose further that each farmer has a constant marginal cost of $.50 for each pumpkin produced.If Carl believes that Simon is going to produce Qs pumpkins this year,then the reaction function tells us how many pumpkins Carl should produce in order to maximize his profits.Carl's reaction function is

Accepted Answer

A)   RC (Qs) = 4,000 - Qs/2.
B)   RC(Qs) = 8,200 -400Qs.
C)   RC(Qs) = 8,200 - 800Qs.
D)   RC(Qs) = 2,000 - Qs/2.
E)   RC(Qs) = 6,000 - Qs.

Question 8

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 9

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 10

An industry has two firms-a Stackelberg leader and a follower.The price of the industry output is given by P = 84 - Q,where Q is the total output of the two firms.The follower has a marginal cost of $0.The leader has a marginal cost of $21.How much should the leader produce in order to maximize profits?

Accepted Answer

A)   21
B)   24
C)   42
D)   19
E)   None of the above.

Question 11

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 12

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.

Question 13

The duopolists Carl and Simon face a demand function for pumpkins of Q =2,200 -400P,where Q is the total number of pumpkins that reach the market and P is the price of pumpkins.Suppose further that each farmer has a constant marginal cost of $1.50 for each pumpkin produced.If Carl believes that Simon is going to produce Qs pumpkins this year,then the reaction function tells us how many pumpkins Carl should produce in order to maximize his profits.Carl's reaction function is

Accepted Answer

A)   RC(Qs) = 400 - Qs/2.
B)   RC(Qs) =2,200 - 800Qs.
C)   RC(Qs) = 800 - Qs/2.
D)   RC(Qs) =2,200 - 400Qs.
E)   RC(Qs) = 1,200 - Qs.

Question 14

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 +700Q +5Q2.The demand for used cars is Q = 300 +P1/10.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)   19
B)   13
C)   9
D)   16
E)   8

Question 15

There are two firms in the blastopheme industry.The demand curve for blastophemes is given by p =3,600 -4q.Each firm has one manufacturing plant and each firm i has a cost function C(qi)= q2i,where qi 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

Accepted Answer

A)   and only if each firm produces 200 units in its plant.
B)   they produce a total of 400 units,no matter which firm produces them.
C)   and only if they each produce a total of 450 units.
D)   they produce a total of 300 units,no matter which firm produces them.
E)   they shut down one of the two plants,having the other operate as a monopoly and splitting the profits.

Question 16

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 17

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 -0 q2.

Question 18

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 19

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

Accepted Answer

A)   8/7.
B)   9/8.
C)   7/6.
D)   3/2.
E)   None of the above.

Question 20

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?

Accepted Answer

A)   $21
B)   $29
C)   $42
D)   $26
E)   None of the above.

Exam 28:Oligopoly-Part A

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

Suppose that the inverse demand for bean sprouts is given by P(Y) =750 - 2Y and the total cost of producing Y units for any firm is TC(Y) = 30Y.If the industry consists of two Cournot duopolists,then in equilibrium each firm's production is

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.

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.

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.

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 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.

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

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?

Exam 28:Oligopoly-Part A

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

Suppose that the inverse demand for bean sprouts is given by P(Y) =750 - 2Y and the total cost of producing Y units for any firm is TC(Y) = 30Y.If the industry consists of two Cournot duopolists,then in equilibrium each firm's production is

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.

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.

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.

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 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.

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

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?

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.