Question 1

The concept of Nash equilibrium states that

Accepted Answer

A)  no firm can improve their outcome holding the other firm's actions constant. 
B)  all firms are earning the highest possible profit. 
C)  firms make alternating output decisions. 
D)  None of the above 
A)  no firm can improve their outcome holding the other firm's actions constant. 
B)  all firms are earning the highest possible profit. 
C)  firms make alternating output decisions. 
D)  None of the above A

Question 2

Suppose two duopolists operate at zero marginal cost.The market demand is p = a - bQ.If firm 1 is the Stackelberg leader,what level of output will it choose?

Accepted Answer

A)  q₁ = (a - bq₂)/2b 
B)  q₁ = (a - 2bq₂)/2b 
C)  q₁ = a/b 
D)  q₁ = a/2b 
A)  q₁ = (a - bq₂)/2b 
B)  q₁ = (a - 2bq₂)/2b 
C)  q₁ = a/b 
D)  q₁ = a/2b D

Question 3

Explain why a monopoly or a perfectly competitive firm does not consider a rival firm's behavior,but an oligopoly and a monopolistically competitive firm do.

Accepted Answer

A monopoly has no rivals.The market price tells a competitive firm everything it needs to know.An oligopoly or a monopolistically competitive firm's strategy will depend on the behavior of its rivals.

Question 4

If a Cournot duopolist announced that it will double its output,

Accepted Answer

A)  it becomes the leader. 
B)  the other firm does not view the announcement as credible. 
C)  the other firm will shut down. 
D)  the other firm will double output also. 
A)  it becomes the leader. 
B)  the other firm does not view the announcement as credible. 
C)  the other firm will shut down. 
D)  the other firm will double output also.

Question 5

One firm previously operated as a monopoly.Now,one potential entrant exists.Consumers would prefer

Accepted Answer

A)  entry, and the firms to split the output equally. 
B)  no entry, and for the incumbent to produce the Stackelberg leader level of output. 
C)  entry, and for the incumbent to produce the Stackelberg leader level of output. 
D)  no entry, and the monopoly to continue. 
A)  entry, and the firms to split the output equally. 
B)  no entry, and for the incumbent to produce the Stackelberg leader level of output. 
C)  entry, and for the incumbent to produce the Stackelberg leader level of output. 
D)  no entry, and the monopoly to continue.

Question 6

The market power for a firm in the Cournot model will be greater

Accepted Answer

A)  if the market demand is more elastic. 
B)  if there are fewer firms in the industry. 
C)  if market demand is higher. 
D)  the more output this firm produces. 
A)  if the market demand is more elastic. 
B)  if there are fewer firms in the industry. 
C)  if market demand is higher. 
D)  the more output this firm produces.

Question 7

A competitive market structure differs from the monopoly,oligopoly,and monopolistic competition structures in the

Accepted Answer

A)  producers' ability to set price. 
B)  profit maximization condition. 
C)  amount of long run profit. 
D)  entry conditions. 
A)  producers' ability to set price. 
B)  profit maximization condition. 
C)  amount of long run profit. 
D)  entry conditions.

Question 8

The three models of oligopolies,Cournot,Stackelberg and Bertrand,all assume firms independently choose the quantity of output to produce.

Accepted Answer

A) True 
 B)False

Question 9

A cartel is a group of firms that attempts to

Accepted Answer

A)  maximize joint revenue. 
B)  maximize joint profit. 
C)  behave independently. 
D)  increase consumer surplus. 
A)  maximize joint revenue. 
B)  maximize joint profit. 
C)  behave independently. 
D)  increase consumer surplus.

Question 10

Perfect competition and monopolistic competition are similar in that firms in both types of market structure will

Accepted Answer

A)  act as price takers. 
B)  produce a level of output where price equals marginal cost. 
C)  earn zero profit in the long run. 
D)  act as price setters. 
A)  act as price takers. 
B)  produce a level of output where price equals marginal cost. 
C)  earn zero profit in the long run. 
D)  act as price setters.

Question 11

Which of the following conditions can help prolong the life of a cartel?

Accepted Answer

A)  There are only a few firms in the market and they all belong to the cartel. 
B)  There are many firms in the market that are not members of the cartel. 
C)  It is difficult to know what price any cartel member is actually charging. 
D)  The cartel has no ability to punish members who cheat on the cartel. 
A)  There are only a few firms in the market and they all belong to the cartel. 
B)  There are many firms in the market that are not members of the cartel. 
C)  It is difficult to know what price any cartel member is actually charging. 
D)  The cartel has no ability to punish members who cheat on the cartel.

Question 12

The Bertrand model is a more plausible model of firm behavior than the Cournot model

Accepted Answer

A)  when firms set the quantity to be sold. 
B)  when firms sell a differentiated product. 
C)  because firms that sell a non-differentiated product typically act as price takers. 
D)  because the Bertrand model predicts that firms will price at marginal cost. 
A)  when firms set the quantity to be sold. 
B)  when firms sell a differentiated product. 
C)  because firms that sell a non-differentiated product typically act as price takers. 
D)  because the Bertrand model predicts that firms will price at marginal cost.

Question 13

Consider a market with (inverse)demand p=100-2Q.There are two firms in the market with constant marginal and average costs of $10.
a.Determine the Cournot equilibrium quantities and price
b.What would be the collusive (joint-profit maximizing)price and quantity?
c.Derive the deadweight loss from (i)Cournot Dupoly,(ii)Collusion,and (iii)Perfect competition in this market with the two firms.

Accepted Answer

a.q₁ = q₂ = 15
p = 100 - 2(30)

Question 14

Suppose two Cournot duopolist firms operate at zero marginal cost.The market demand is p = a - bQ.Each firm will produce

Accepted Answer

A)  a/b. 
B)  a/2b. 
C)  a/3b. 
D)  a/4b. 
A)  a/b. 
B)  a/2b. 
C)  a/3b. 
D)  a/4b.

Question 15

The organization of petroleum exporting countries (OPEC)is an example of a(n)

Accepted Answer

A)  oil monopoly. 
B)  cartel. 
C)  competitive arrangement. 
D)  prisoner's dilemma. 
A)  oil monopoly. 
B)  cartel. 
C)  competitive arrangement. 
D)  prisoner's dilemma.

Question 16

Explain how long-run economic profits are linked to entry in monopolistic competition and perfect competition.

Accepted Answer

In the short run,all market structures a

Question 17

Minimum efficient scale refers to the lowest level of output at which

Accepted Answer

A)  the firm can earn a profit. 
B)  average cost is minimized. 
C)  the firm will operate. 
D)  the average cost curve is downward sloping. 
A)  the firm can earn a profit. 
B)  average cost is minimized. 
C)  the firm will operate. 
D)  the average cost curve is downward sloping.

Question 18

Compared to a cartel,firms in a Cournot Oligopoly

Accepted Answer

A)  make more joint profit. 
B)  sell less output. 
C)  make less joint profit. 
D)  act independently. 
A)  make more joint profit. 
B)  sell less output. 
C)  make less joint profit. 
D)  act independently.

Question 19

Is it true that in the long run,a monopolistically competitive firm has market power but earns no profit? Explain.

Accepted Answer

As strange as it sounds,yes.The firm ear

Question 20

Monopolistically competitive firms face downward sloping residual demand curves because these firms

Accepted Answer

A)  have relatively few rivals (compared to competition). 
B)  sell differentiated products. 
C)  Both A and B. 
D)  None of the above. 
A)  have relatively few rivals (compared to competition). 
B)  sell differentiated products. 
C)  Both A and B. 
D)  None of the above.

The concept of Nash equilibrium states that

Suppose two duopolists operate at zero marginal cost.The market demand is p = a - bQ.If firm 1 is the Stackelberg leader,what level of output will it choose?

Explain why a monopoly or a perfectly competitive firm does not consider a rival firm's behavior,but an oligopoly and a monopolistically competitive firm do.

If a Cournot duopolist announced that it will double its output,

One firm previously operated as a monopoly.Now,one potential entrant exists.Consumers would prefer

The market power for a firm in the Cournot model will be greater

A competitive market structure differs from the monopoly,oligopoly,and monopolistic competition structures in the

The three models of oligopolies,Cournot,Stackelberg and Bertrand,all assume firms independently choose the quantity of output to produce.

A cartel is a group of firms that attempts to

Perfect competition and monopolistic competition are similar in that firms in both types of market structure will

Which of the following conditions can help prolong the life of a cartel?

The Bertrand model is a more plausible model of firm behavior than the Cournot model

Suppose two Cournot duopolist firms operate at zero marginal cost.The market demand is p = a - bQ.Each firm will produce

The organization of petroleum exporting countries (OPEC)is an example of a(n)

Explain how long-run economic profits are linked to entry in monopolistic competition and perfect competition.

Minimum efficient scale refers to the lowest level of output at which

Compared to a cartel,firms in a Cournot Oligopoly

Is it true that in the long run,a monopolistically competitive firm has market power but earns no profit? Explain.

Monopolistically competitive firms face downward sloping residual demand curves because these firms

Introduction

Supply and Demand

A Consumers Constrained Choice

Demand

Consumer Welfare and Policy Analysis

Firms and Production

Costs

Competitive Firms and Markets

Properties and Applications of the Competitive Model

General Equilibrium and Economic Welfare

Monopoly and Monopsony

Pricing and Advertising

Game Theory

Factor Markets

Uncertainty

Property Rights, externalities, rivalry, and Exclusion

Asymmetric Information

Contracts and Moral Hazards

Filters

Exam 14: Oligopoly and Monopolistic Competition

The concept of Nash equilibrium states that

Suppose two duopolists operate at zero marginal cost.The market demand is p = a - bQ.If firm 1 is the Stackelberg leader,what level of output will it choose?

Explain why a monopoly or a perfectly competitive firm does not consider a rival firm's behavior,but an oligopoly and a monopolistically competitive firm do.

If a Cournot duopolist announced that it will double its output,

One firm previously operated as a monopoly.Now,one potential entrant exists.Consumers would prefer

The market power for a firm in the Cournot model will be greater

A competitive market structure differs from the monopoly,oligopoly,and monopolistic competition structures in the

The three models of oligopolies,Cournot,Stackelberg and Bertrand,all assume firms independently choose the quantity of output to produce.

A cartel is a group of firms that attempts to

Perfect competition and monopolistic competition are similar in that firms in both types of market structure will

Which of the following conditions can help prolong the life of a cartel?

The Bertrand model is a more plausible model of firm behavior than the Cournot model

Suppose two Cournot duopolist firms operate at zero marginal cost.The market demand is p = a - bQ.Each firm will produce

The organization of petroleum exporting countries (OPEC)is an example of a(n)

Explain how long-run economic profits are linked to entry in monopolistic competition and perfect competition.

Minimum efficient scale refers to the lowest level of output at which

Compared to a cartel,firms in a Cournot Oligopoly

Is it true that in the long run,a monopolistically competitive firm has market power but earns no profit? Explain.

Monopolistically competitive firms face downward sloping residual demand curves because these firms

Introduction

Supply and Demand

A Consumers Constrained Choice

Demand

Consumer Welfare and Policy Analysis

Firms and Production

Costs

Competitive Firms and Markets

Properties and Applications of the Competitive Model

General Equilibrium and Economic Welfare

Monopoly and Monopsony

Pricing and Advertising

Game Theory

Factor Markets

Uncertainty

Property Rights, externalities, rivalry, and Exclusion

Asymmetric Information

Contracts and Moral Hazards

Filters