Exam 12: Monopolistic Competition and Oligopoly

In the Stackelberg model, suppose the first-mover has MR = 15 - Q₁, the second firm has reaction function Q₂ = 15 - Q₁/2, and production occurs at zero marginal cost. Why doesn't the first-mover announce that its production is Q₁ = 30 in order to exclude the second firm from the market (i.e., Q₂ = 0 in this case)?

The market structure of Red Raider Gear is best characterized by monopolistic competition. Red Raider Gear is one of the producers in this market. The demand for Red Raider Gear is: The resulting marginal revenue curve is The Red Raider Gear cost function is Therefore we have MC (Q) = 0.25Q. Determine the profit maximizing level of output and the price charged to customers for Red Raider Gear. Is this a long-run equilibrium?

A situation in which each firm selects its best action, given what its rivals are doing, is called a:

The market structure of the local pizza industry is best characterized by monopolistic competition. One Guy's Pizza is one of the producers in the local market. The demand for One Guy's Pizza is: The resulting marginal revenue curve is One Guy's cost function is: Determine One Guy's profit maximizing level of output and the price charged to customers. Is this a long-run equilibrium?

Under the kinked demand curve model, a small increase in marginal cost will lead to:

Scenario 12.2: Suppose a stream is discovered whose water has remarkable healing powers. You decide to bottle the liquid and sell it. The market demand curve is linear and is given as follows: P = 30 - Q The marginal cost to produce this new drink is $3. -Refer to Scenario 12.2. What will be the price of this new drink in the long run if the firms in the industry collude with one another to maximize joint profit?

Refer to Scenario 12.3. What is the profit maximizing price?

Suppose the supply of non-OPEC oil increases due to new petroleum discoveries in other countries. What happens to OPEC's share of the world oil market?

Figure 12.1.2 -Refer to Figure 12.1.2 above. Which of the following best describes the reason for the shaded triangle in panel (b)?

In the Cournot duopoly model, each firm assumes that:

What characteristic of monopolistic competition may help to offset the inefficiency of this market structure?

This market situation is much like a pure monopoly except that its member firms tend to cheat on agreed upon price and output strategies. What is it?

Which of the following is NOT conducive to the successful operation of a cartel?

In the Bertrand model with homogeneous products,

Two large diversified consumer products firms are about to enter the market for a new pain reliever. The two firms are very similar in terms of their costs, strategic approach, and market outlook. Moreover, the firms have very similar individual demand curves so that each firm expects to sell one-half of the total market output at any given price. The market demand curve for the pain reliever is given as: Q = 2600 - 400P. Both firms have constant long-run average costs of $2.00 per bottle. Patent protection insures that the two firms will operate as a duopoly for the foreseeable future. Price and quantity values are stated in per-bottle terms. If the firms act as Cournot duopolists, solve for the firm and market outputs and equilibrium prices.

Figure 12.1.2 -Which of the following is true in long-run equilibrium for a firm in monopolistic competition?

The market for an industrial chemical has a single dominant firm and a competitive fringe comprised of many firms that behave as price takers. The dominant firm has recently begun behaving as a price leader, setting price while the competitive fringe follows. The market demand curve and competitive fringe supply curve are given below. Marginal cost for the dominant firm is $0.75 per gallon. Q_M = 140,000 - 32,000P Q_F = 60,000 + 8,000P, where Q_M = market quantity demanded, and . Quantities are measured in gallons per week, and price is measured as a price per gallon. a. Determine the price and output that would prevail in the market under the conditions described above. Identify output for the dominant firm as well as the competitive fringe. b. Assume that the market demand curve shifts rightward by 40,000 units. Show that the dominant firm is indeed a price leader. What output (leader and follower) and market price will prevail after the change in demand?

Use the following statements to answer this question: I. Under the dominant firm model, the dominant firm effectively acts like a monopolist who is facing the excess market demand that cannot be supplied by the fringe firms. II) Under the dominant firm model, the fringe firms also act like profit maximizing monopolists.

The key disadvantage of the kinked-demand model is that it:

What happens to the market outcome if cartel members cheat on the collusive agreement?