Question 1

If the firms in a duopoly are incapable of satisfying total market demand at any price, the Bertrand model predicts that:

Accepted Answer

A)  Both firms will charge a price that is greater than marginal cost. 
B)  Both firms will set output levels simultaneously. 
C)  Both firms will earn zero economic profits. 
D)  Both firms will charge the different price. 
E)  Answers a and d are correct. 
A)  Both firms will charge a price that is greater than marginal cost. 
B)  Both firms will set output levels simultaneously. 
C)  Both firms will earn zero economic profits. 
D)  Both firms will charge the different price. 
E)  Answers a and d are correct. A

Question 2

According to the Bertrand model, if both firms in the industry face identical demands and marginal cost of production:

Accepted Answer

A)  The first firm to enter the industry will charge a higher price than the second firm. 
B)  The first firm to enter the industry will charge a lower price than the second firm. 
C)  Both firm's will charge the same price. 
D)  The first firm to enter the industry will earn higher profits than the second firm. 
E)  The first firm to enter the industry will earn lower profits than the second firm. 
A)  The first firm to enter the industry will charge a higher price than the second firm. 
B)  The first firm to enter the industry will charge a lower price than the second firm. 
C)  Both firm's will charge the same price. 
D)  The first firm to enter the industry will earn higher profits than the second firm. 
E)  The first firm to enter the industry will earn lower profits than the second firm. C

Question 3

Which of the following predictions of the Bertrand model appear to be unrealistic in the real world:

Accepted Answer

A)  Firms in imperfectly-competitive markets tend to charge prices that are greater than marginal cost. 
B)  As the number of firms enter the industry prices tend to fall. 
C)  Firms in imperfectly-competitive markets tend to earn zero economic profits. 
D)  All of the above are unrealistic. 
E)  None of the above are unrealistic. 
A)  Firms in imperfectly-competitive markets tend to charge prices that are greater than marginal cost. 
B)  As the number of firms enter the industry prices tend to fall. 
C)  Firms in imperfectly-competitive markets tend to earn zero economic profits. 
D)  All of the above are unrealistic. 
E)  None of the above are unrealistic. C

Question 4

-Refer to Figure 8.5, which depicts two firms engaged in Bertrand price competition in markets X and Y. The two firms have the same marginal cost of production in each market, although marginal cost is not is not the same in both markets. The reaction functions of firms 1 and 2 in market X are ABC and DBE, respectively. The reaction functions of firms 1 and 2 in market Y are given by the line segments FGH and IGJ, respectively. The price charged by both firms market Y is:

Accepted Answer

A)  A 
B)  F 
C)  D 
D)  I 
E)  Both b and d are correct. 
A)  A 
B)  F 
C)  D 
D)  I 
E)  Both b and d are correct.

Question 5

Game theory:

Accepted Answer

A)  Is useful when analyzing strategic pricing behavior of individual firms in imperfectly competitive industries. 
B)  Is the study of the strategic behavior involving the interaction of two or more players. 
C)  Is useful when predicting the outcome of a two-person, non-cooperative, one-time game. 
D)  Is useful for analyzing strategic output-setting behavior of imperfectly- competitive firms. 
E)  All of the above are correct. 
A)  Is useful when analyzing strategic pricing behavior of individual firms in imperfectly competitive industries. 
B)  Is the study of the strategic behavior involving the interaction of two or more players. 
C)  Is useful when predicting the outcome of a two-person, non-cooperative, one-time game. 
D)  Is useful for analyzing strategic output-setting behavior of imperfectly- competitive firms. 
E)  All of the above are correct.

Question 6

Suppose that two firms in a duopoly set output according to the Cournot model. If demand is linear and the marginal cost of production for each firm is zero:

Accepted Answer

A)  Total industry output will be exactly one-half of the output in perfect competition. 
B)  The two firms will engage in marginal cost pricing, just as in perfect competition. 
C)  Total industry output will be less than the total output in perfect competition, but Greater than one-half the output in perfect competition. 
D)  Total industry output is less than the output in monopoly. 
E)  The duopoly price is greater than the monopoly price. 
A)  Total industry output will be exactly one-half of the output in perfect competition. 
B)  The two firms will engage in marginal cost pricing, just as in perfect competition. 
C)  Total industry output will be less than the total output in perfect competition, but Greater than one-half the output in perfect competition. 
D)  Total industry output is less than the output in monopoly. 
E)  The duopoly price is greater than the monopoly price.

Question 7

Suppose that an industry consists of two firms producing an identical product in which there is no brand loyalty by consumers. The inverse market demand for the combined output of both firms is P = 5 !0.001 (QA + QB). The marginal cost of production by firm A and firm B are $2 and $1, respectively. Total industry output is:

Accepted Answer

A)  667 units. 
B)  1,500 units. 
C)  1,667 units. 
D)  2,000 units. 
E)  2,334 units. 
A)  667 units. 
B)  1,500 units. 
C)  1,667 units. 
D)  2,000 units. 
E)  2,334 units.

Question 8

-Consider Figure 8.4 which depicts two firms producing a homogeneous product at the same constant marginal cost. The Bertrand-Nash equilibrium:

Accepted Answer

A)  Occurs when both firms charge a zero price. 
B)  Occurs when both firms charge a price equal to marginal cost. 
C)  Occurs when both firms earn zero economic profit. 
D)  Is the same as you would expect to see in a Cournot industry. 
E)  Answers b and c. 
A)  Occurs when both firms charge a zero price. 
B)  Occurs when both firms charge a price equal to marginal cost. 
C)  Occurs when both firms earn zero economic profit. 
D)  Is the same as you would expect to see in a Cournot industry. 
E)  Answers b and c.

Question 9

-Figure 8.1 depicts the market demand for the product produced by n firms producing an identical product in which MC = 0 for each firm. If Q' = 5,000 and there are 99 firms in the industry, total industry output according to the Cournot model is:

Accepted Answer

A)  50 units. 
B)  1,237.5 units. 
C)  500,000 units. 
D)  4,950 units. 
E)  None of the above. 
A)  50 units. 
B)  1,237.5 units. 
C)  500,000 units. 
D)  4,950 units. 
E)  None of the above.

Question 10

According to the Cournot model, if two firms in the industry face identical demands for their product:

Accepted Answer

A)  Both firms will end up with an equal share of total industry output. 
B)  The first firm to enter the industry will end up producing 2/3 of industry output while the second firm will end up producing 1/3 of industry output. 
C)  The first firm to enter the industry will end up producing 1/3 of industry output while the second firm will end up producing 2/3 of industry output. 
D)  The first firm to enter the industry will end up producing 3/8 of industry output while the second firm will end up producing 1/4 of industry output. 
A)  Both firms will end up with an equal share of total industry output. 
B)  The first firm to enter the industry will end up producing 2/3 of industry output while the second firm will end up producing 1/3 of industry output. 
C)  The first firm to enter the industry will end up producing 1/3 of industry output while the second firm will end up producing 2/3 of industry output. 
D)  The first firm to enter the industry will end up producing 3/8 of industry output while the second firm will end up producing 1/4 of industry output.

Question 11

-Consider Figure 8.4 which depicts two firms producing a homogeneous product at the same constant marginal cost. According to the Bertrand model, the marginal cost of production for both firms is:

Accepted Answer

A)  A 
B)  E 
C)  F 
D)  Answers a and b are correct. 
E)  Cannot be determined on the basis of the information provided. 
A)  A 
B)  E 
C)  F 
D)  Answers a and b are correct. 
E)  Cannot be determined on the basis of the information provided.

Question 12

Suppose that the reaction functions for two identical Cournot firms are given by the equations q1 = 50 !3q2 and q2 = 50 !3q1. If the market demand for the output of these two firms is qT = 125 !5p, the market price of this product is:

Accepted Answer

A)  $0 
B)  $10 
C)  $12.50 
D)  $20 
E)  $25 
A)  $0 
B)  $10 
C)  $12.50 
D)  $20 
E)  $25

Question 13

According to the Bertrand paradox, if two firms produce a homogeneous product and have identical marginal cost, each firm:

Accepted Answer

A)  Sets price equal to marginal cost. 
B)  Earns zero economic profit. 
C)  Charges the same price that is greater than marginal cost. 
D)  Charges a different price that is greater than marginal cost. 
E)  Answers a and b are correct. 
A)  Sets price equal to marginal cost. 
B)  Earns zero economic profit. 
C)  Charges the same price that is greater than marginal cost. 
D)  Charges a different price that is greater than marginal cost. 
E)  Answers a and b are correct.

Question 14

Suppose that two firms in a duopoly set output according to the Cournot model.:

Accepted Answer

A)  Total industry output is greater than monopoly output. 
B)  Total industry output is greater than output in perfect competition. 
C)  The duopoly price is less than the equilibrium price in perfect competition. 
D)  The duopoly price is greater than the monopoly price. 
E)  None of the above are correct. 
A)  Total industry output is greater than monopoly output. 
B)  Total industry output is greater than output in perfect competition. 
C)  The duopoly price is less than the equilibrium price in perfect competition. 
D)  The duopoly price is greater than the monopoly price. 
E)  None of the above are correct.

Question 15

Suppose that an industry consists of two firms producing an identical product in which there is no brand loyalty by consumers. The inverse market demand for the combined output of both firms is P = 5 !0.001 (QA + QB). The marginal cost of production by firm A and firm B are $2 and $1, respectively. Firm A charges a price of:

Accepted Answer

A)  $2.00. 
B)  $2.50. 
C)  $2.67 
D)  $3.33 
E)  None of the above. 
A)  $2.00. 
B)  $2.50. 
C)  $2.67 
D)  $3.33 
E)  None of the above.

Question 16

The Bertrand-Nash equilibrium in which firms with the same marginal cost first choose output levels resembles:

Accepted Answer

A)  A long-run competitive equilibrium. 
B)  A Cournot-Nash equilibrium. 
C)  A contestable monopoly. 
D)  Barometric price leadership. 
E)  Collusive price-setting behavior. 
A)  A long-run competitive equilibrium. 
B)  A Cournot-Nash equilibrium. 
C)  A contestable monopoly. 
D)  Barometric price leadership. 
E)  Collusive price-setting behavior.

Question 17

If the firms in a duopoly are incapable of satisfying total market demand at any price, the Bertrand model predicts that:

Accepted Answer

A)  Both firms will engage in marginal cost pricing. 
B)  Both firms will set output levels simultaneously. 
C)  Both firms will earn positive economic profits. 
D)  Both firms will charge the same price. 
E)  Answers c and d are correct. 
A)  Both firms will engage in marginal cost pricing. 
B)  Both firms will set output levels simultaneously. 
C)  Both firms will earn positive economic profits. 
D)  Both firms will charge the same price. 
E)  Answers c and d are correct.

Question 18

Suppose that an industry consists of two firms producing an identical product in which there is no brand loyalty by consumers. The inverse market demand for the combined output of both firms is P = 5 !0.001 (QA + QB). The marginal cost of production by firm A and firm B are $2 and $1, respectively. Firm B charges a price of:

Accepted Answer

A)  $2.00. 
B)  $2.50. 
C)  $2.67 
D)  $3.33 
E)  None of the above. 
A)  $2.00. 
B)  $2.50. 
C)  $2.67 
D)  $3.33 
E)  None of the above.

Question 19

-Refer to Figure 8.5, which depicts two firms engaged in Bertrand price competition in markets X and Y. The two firms have the same marginal cost of production in each market, although marginal cost is not is not the same in both markets. The reaction functions of firms 1 and 2 in market X are ABC and DBE, respectively. The reaction functions of firms 1 and 2 in market Y are given by the line segments FGH and IGJ, respectively. The price charged by both firms market X is:

Accepted Answer

A)  A 
B)  F 
C)  D 
D)  J 
E)  Both a and c are correct. 
A)  A 
B)  F 
C)  D 
D)  J 
E)  Both a and c are correct.

Question 20

The Cournot duopoly model assumes that :

Accepted Answer

A)  Each firm decides what price to charge and that their rivals will not respond. 
B)  Each firm decides what price to charge and that their rivals will respond. 
C)  Each firm decides how much to produce and that their rivals will not respond. 
D)  Each firm decides how much to produce and that their rivals will respond. 
A)  Each firm decides what price to charge and that their rivals will not respond. 
B)  Each firm decides what price to charge and that their rivals will respond. 
C)  Each firm decides how much to produce and that their rivals will not respond. 
D)  Each firm decides how much to produce and that their rivals will respond.

If the firms in a duopoly are incapable of satisfying total market demand at any price, the Bertrand model predicts that:

According to the Bertrand model, if both firms in the industry face identical demands and marginal cost of production:

Which of the following predictions of the Bertrand model appear to be unrealistic in the real world:

Game theory:

Suppose that two firms in a duopoly set output according to the Cournot model. If demand is linear and the marginal cost of production for each firm is zero:

-Consider Figure 8.4 which depicts two firms producing a homogeneous product at the same constant marginal cost. The Bertrand-Nash equilibrium:

-Figure 8.1 depicts the market demand for the product produced by n firms producing an identical product in which MC = 0 for each firm. If Q' = 5,000 and there are 99 firms in the industry, total industry output according to the Cournot model is:

According to the Cournot model, if two firms in the industry face identical demands for their product:

-Consider Figure 8.4 which depicts two firms producing a homogeneous product at the same constant marginal cost. According to the Bertrand model, the marginal cost of production for both firms is:

Suppose that the reaction functions for two identical Cournot firms are given by the equations q₁ = 50 !3q₂ and q₂ = 50 !3q₁. If the market demand for the output of these two firms is q_T = 125 !5p, the market price of this product is:

According to the Bertrand paradox, if two firms produce a homogeneous product and have identical marginal cost, each firm:

Suppose that two firms in a duopoly set output according to the Cournot model.:

The Bertrand-Nash equilibrium in which firms with the same marginal cost first choose output levels resembles:

If the firms in a duopoly are incapable of satisfying total market demand at any price, the Bertrand model predicts that:

The Cournot duopoly model assumes that :

Introduction to Game Theory

Noncooperative, One-Time, Static Games

Focal-Point and Evolutionary Equilibria

Infinitely-Repeated, Static Games

Finitely-Repeated, Static Games

Mixing Pure Strategies

Static Games With Continuous Strategies

Perfect Competition and Monopoly

Strategic Trade Policy

Dynamic Games With Complete

Bargaining

Pure Strategies With Uncertain Payoffs

Torts and Contracts

Auctions

Dynamic Games With Incomplete Information

Filters

Exam 8: Imperfect Competition

If the firms in a duopoly are incapable of satisfying total market demand at any price, the Bertrand model predicts that:

According to the Bertrand model, if both firms in the industry face identical demands and marginal cost of production:

Which of the following predictions of the Bertrand model appear to be unrealistic in the real world:

Game theory:

Suppose that two firms in a duopoly set output according to the Cournot model. If demand is linear and the marginal cost of production for each firm is zero:

-Consider Figure 8.4 which depicts two firms producing a homogeneous product at the same constant marginal cost. The Bertrand-Nash equilibrium:

-Figure 8.1 depicts the market demand for the product produced by n firms producing an identical product in which MC = 0 for each firm. If Q' = 5,000 and there are 99 firms in the industry, total industry output according to the Cournot model is:

According to the Cournot model, if two firms in the industry face identical demands for their product:

-Consider Figure 8.4 which depicts two firms producing a homogeneous product at the same constant marginal cost. According to the Bertrand model, the marginal cost of production for both firms is:

Suppose that the reaction functions for two identical Cournot firms are given by the equations q1 = 50 !3q2 and q2 = 50 !3q1. If the market demand for the output of these two firms is qT = 125 !5p, the market price of this product is:

According to the Bertrand paradox, if two firms produce a homogeneous product and have identical marginal cost, each firm:

Suppose that two firms in a duopoly set output according to the Cournot model.:

The Bertrand-Nash equilibrium in which firms with the same marginal cost first choose output levels resembles:

If the firms in a duopoly are incapable of satisfying total market demand at any price, the Bertrand model predicts that:

The Cournot duopoly model assumes that :

Introduction to Game Theory

Noncooperative, One-Time, Static Games

Focal-Point and Evolutionary Equilibria

Infinitely-Repeated, Static Games

Finitely-Repeated, Static Games

Mixing Pure Strategies

Static Games With Continuous Strategies

Perfect Competition and Monopoly

Strategic Trade Policy

Dynamic Games With Complete

Bargaining

Pure Strategies With Uncertain Payoffs

Torts and Contracts

Auctions

Dynamic Games With Incomplete Information

Filters

Suppose that the reaction functions for two identical Cournot firms are given by the equations q₁ = 50 !3q₂ and q₂ = 50 !3q₁. If the market demand for the output of these two firms is q_T = 125 !5p, the market price of this product is: