Question 1

In the presence of large sunk costs, which of the following market structures generally leads to the highest price?

Accepted Answer

A)  Stackelberg 
B)  Cournot 
C)  Bertrand 
D)  Monopoly 
A)  Stackelberg 
B)  Cournot 
C)  Bertrand 
D)  Monopoly

Question 2

From a consumer's point of view, which type of oligopoly is most desirable?

Accepted Answer

A)  Sweezy 
B)  Cournot 
C)  Stackelberg 
D)  Bertrand 
A)  Sweezy 
B)  Cournot 
C)  Stackelberg 
D)  Bertrand

Question 3

The Bertrand theory of oligopoly assumes:

Accepted Answer

A)  firms set prices. 
B)  rivals will increase their output whenever a firm increases its output. 
C)  rivals will decrease output whenever a firm decreases its output. 
D)  rivals will follow the learning curve. 
A)  firms set prices. 
B)  rivals will increase their output whenever a firm increases its output. 
C)  rivals will decrease output whenever a firm decreases its output. 
D)  rivals will follow the learning curve.

Question 4

Consider two firms competing to sell a homogeneous product by setting price. The inverse demand curve is given by P = 6 - Q. If each firm's cost function is Ci(Qi) = 6 + 2Qi, then each firm will symmetrically produce _________ units of output and earn ___________.

Accepted Answer

A)  4 units; profits of $6 
B)  2 units; profits of $2 
C)  4 units; losses of $2 
D)  2 units; losses of $6 
A)  4 units; profits of $6 
B)  2 units; profits of $2 
C)  4 units; losses of $2 
D)  2 units; losses of $6

Question 5

Which of the following is NOT a feature of Sweezy oligopoly?

Accepted Answer

A)  There are a few firms in the market serving many consumers. 
B)  The firms produce differentiated products. 
C)  Each firm believes that rivals will cut their prices in response to a price reduction, but will not raise their prices in response to a price increase. 
D)  Free entry and exit occurs in the market. 
A)  There are a few firms in the market serving many consumers. 
B)  The firms produce differentiated products. 
C)  Each firm believes that rivals will cut their prices in response to a price reduction, but will not raise their prices in response to a price increase. 
D)  Free entry and exit occurs in the market.

Question 6

Which of the following is true?

Accepted Answer

A)  In Bertrand oligopoly each firm reacts optimally to price changes. 
B)  In Cournot oligopoly firms engage in quantity competition. 
C)  In Sweezy oligopoly a change in marginal cost may not have an effect on output or price. 
D)  All of the statements associated with this question are correct. 
A)  In Bertrand oligopoly each firm reacts optimally to price changes. 
B)  In Cournot oligopoly firms engage in quantity competition. 
C)  In Sweezy oligopoly a change in marginal cost may not have an effect on output or price. 
D)  All of the statements associated with this question are correct.

Question 7

You are the manager of a firm operating in a differentiated-product oligopoly. Show graphically your optimal response to an increase in marginal cost if
a. You believe rivals will follow price reductions but not price increases.
b. You believe rivals will hold output constant if you decrease output.
c. You believe rivals will follow price increases but not price decreases.

Accepted Answer

a. In this case, the demand function for

Question 8

An important condition for a contestable market is:

Accepted Answer

A)  all producers have different technologies. 
B)  there are high transaction costs. 
C)  existing firms cannot respond quickly to entry by lowering their price. 
D)  there are sunk costs. 
A)  all producers have different technologies. 
B)  there are high transaction costs. 
C)  existing firms cannot respond quickly to entry by lowering their price. 
D)  there are sunk costs.

Question 9

Suppose that the duopolists competing in Cournot fashion agree to produce the collusive output. Given that firm 2 commits to this collusive output, it pays firm 1 to:

Accepted Answer

A)  cheat by producing a higher level of output. 
B)  cheat by producing a lower level of output. 
C)  cheat by raising prices. 
D)  None of the answers is correct. 
A)  cheat by producing a higher level of output. 
B)  cheat by producing a lower level of output. 
C)  cheat by raising prices. 
D)  None of the answers is correct.

Question 10

Consider a market consisting of two firms where the inverse demand curve is given by P = 500 - 2Q1 - 2Q2. Each firm has a marginal cost of $50. Based on this information, we can conclude that aggregate profits in the different equilibrium oligopoly models will follow which of the following orderings?

Accepted Answer

A)  πBertand > πCollusion > πStackelberg > πCournot 
B)  πCollusion > πCournot > πStackelberg > πBertand 
C)  πCollusion > πStackelberg > πCournot > πBertand 
D)  None of the answers is correct. 
A)  πBertand > πCollusion > πStackelberg > πCournot 
B)  πCollusion > πCournot > πStackelberg > πBertand 
C)  πCollusion > πStackelberg > πCournot > πBertand 
D)  None of the answers is correct.

Question 11

Consider a Stackelberg duopoly with the following inverse demand function: P = 100 - 2Q1 - 2Q2. The firms' marginal costs are identical and are given by MCi = 2. Based on this information, the Stackelberg follower's marginal revenue function is:

Accepted Answer

A)  MRF(QL,QF) = 100 - 2QL - 4QF. 
B)  MRF(QL,QF) = 100 - 4QL - 2QF. 
C)  MRF(QL,QF) = 100 - 2QL - QF. 
D)  MRF(QL,QF) = 100 - QL - 2QF. 
A)  MRF(QL,QF) = 100 - 2QL - 4QF. 
B)  MRF(QL,QF) = 100 - 4QL - 2QF. 
C)  MRF(QL,QF) = 100 - 2QL - QF. 
D)  MRF(QL,QF) = 100 - QL - 2QF.

Question 12

Two firms compete as a Stackelberg duopoly. The demand they face is P = 40 - Q. The cost function for each firm is C(Q) = 4Q. The profits of the two firms are:

Accepted Answer

A)  πL = $162; πF = $81. 
B)  πL = $81; πF = $40.5. 
C)  πL = $81; πF = -$40.5. 
D)  πL = $162; πF = $40.5. 
A)  πL = $162; πF = $81. 
B)  πL = $81; πF = $40.5. 
C)  πL = $81; πF = -$40.5. 
D)  πL = $162; πF = $40.5.

Question 13

Consider two firms competing to sell a homogeneous product by setting price. The inverse demand curve is given by P = 20 - Q. Firm 1 has MC1(Q1) = 2 and firm 2 has MC2(Q2) = 2.25. Based on this information, we can conclude that the market price will be:

Accepted Answer

A)  $2 and each firm will produce 9 units. 
B)  $2.25 and each firm will produce 8.875 units. 
C)  $2.24 and firm 1 will produce 17.76 units and firm 2 will produce 0 units. 
D)  $2 and firm 1 will produce 18 units and firm 2 will produce 0 units. 
A)  $2 and each firm will produce 9 units. 
B)  $2.25 and each firm will produce 8.875 units. 
C)  $2.24 and firm 1 will produce 17.76 units and firm 2 will produce 0 units. 
D)  $2 and firm 1 will produce 18 units and firm 2 will produce 0 units.

Question 14

In the late 1990s, Chrysler announced a new incentive program on its minivans that included subsidized interest rates and cash allowances. Under the plan, consumers could enjoy financing rates as low as 4.9 percent, as well as a $500 cash allowance toward the lease or purchase of a new minivan. What changes in sales would you anticipate if you were the manager of a Dodge/Plymouth franchise, the official dealer of Chrysler? Why?

Accepted Answer

Other things equal, your sales would ris

Question 15

Consider a Cournot duopoly with the following inverse demand function: P = 50 - 0.2Q1 - 0.2Q2. The firms' marginal costs are identical and are given by MCi(Qi) = 2. Based on this information, firm 1 and 2's reaction functions are:

Accepted Answer

A)  r1(Q2) = 120 - 0.5Q1 and r2(Q1) = 120 - 0.5Q2. 
B)  r1(Q2) = 120 - 0.5Q2 and r1(Q2) = 120 - 0.5Q1. 
C)  Q1 = 240 - 0.75Q2 and Q2 = 240 - 0.75Q1. 
D)  Q1 = 240 - 0.5Q2 and Q2 = 240 - 0.5Q1. 
A)  r1(Q2) = 120 - 0.5Q1 and r2(Q1) = 120 - 0.5Q2. 
B)  r1(Q2) = 120 - 0.5Q2 and r1(Q2) = 120 - 0.5Q1. 
C)  Q1 = 240 - 0.75Q2 and Q2 = 240 - 0.75Q1. 
D)  Q1 = 240 - 0.5Q2 and Q2 = 240 - 0.5Q1.

Question 16

There are many different models of oligopoly because:

Accepted Answer

A)  beliefs are not incorporated in oligopolistic competition. 
B)  firms do not maximize profits in oligopolistic competition. 
C)  oligopoly is the most complicated type of market structure. 
D)  beliefs are not incorporated in oligopolistic competition and oligopoly is the most complicated type of market structure. 
A)  beliefs are not incorporated in oligopolistic competition. 
B)  firms do not maximize profits in oligopolistic competition. 
C)  oligopoly is the most complicated type of market structure. 
D)  beliefs are not incorporated in oligopolistic competition and oligopoly is the most complicated type of market structure.

Question 17

A slight increase in the marginal cost of a firm definitely leads to a reduction in its output if the firm competes in the:

Accepted Answer

A)  Sweezy fashion. 
B)  Cournot fashion. 
C)  Bertrand fashion. 
D)  Cournot fashion and Bertrand fashion. 
A)  Sweezy fashion. 
B)  Cournot fashion. 
C)  Bertrand fashion. 
D)  Cournot fashion and Bertrand fashion.

Question 18

Which of the following statements is NOT a condition for a Stackelberg oligopoly?

Accepted Answer

A)  The market is contestable. 
B)  Barriers to entry exist. 
C)  A single firm (the leader) selects an output before all other firms choose their outputs. 
D)  The firms produce either differentiated or homogeneous products. 
A)  The market is contestable. 
B)  Barriers to entry exist. 
C)  A single firm (the leader) selects an output before all other firms choose their outputs. 
D)  The firms produce either differentiated or homogeneous products.

Question 19

In a Cournot oligopoly, a decrease in a firm's marginal cost leads to:

Accepted Answer

A)  reduced output and a higher price. 
B)  reduced output and a lower price. 
C)  higher output and a higher price. 
D)  higher output and a lower price. 
A)  reduced output and a higher price. 
B)  reduced output and a lower price. 
C)  higher output and a higher price. 
D)  higher output and a lower price.

Question 20

Consider a Cournot duopoly with the following inverse demand function: P = 100 - 2Q1 - 2Q2. The firms' marginal costs are identical and are given by MCi(Qi) = 2Qi. Based on this information, firm 1 and 2's marginal revenue functions are:

Accepted Answer

A)  MR1(Q1,Q2) = 100 - 2Q1 - Q2 and MR2(Q1,Q2) = 100 - Q1 - 2Q2. 
B)  MR1(Q1,Q2) = 100 - 4Q1 - 2Q2 and MR2(Q1,Q2) = 100 - 2Q1 - 4Q2. 
C)  MR1(Q1,Q2) = 100 - 2Q1 - 4Q2 and MR2(Q1,Q2) = 100 - 4Q1 - 2Q2. 
D)  MR1(Q1,Q2) = 24.5 - 0.5Q2 and MR2(Q1,Q2) = 24.5 - 0.5Q1. 
A)  MR1(Q1,Q2) = 100 - 2Q1 - Q2 and MR2(Q1,Q2) = 100 - Q1 - 2Q2. 
B)  MR1(Q1,Q2) = 100 - 4Q1 - 2Q2 and MR2(Q1,Q2) = 100 - 2Q1 - 4Q2. 
C)  MR1(Q1,Q2) = 100 - 2Q1 - 4Q2 and MR2(Q1,Q2) = 100 - 4Q1 - 2Q2. 
D)  MR1(Q1,Q2) = 24.5 - 0.5Q2 and MR2(Q1,Q2) = 24.5 - 0.5Q1.

In the presence of large sunk costs, which of the following market structures generally leads to the highest price?

From a consumer's point of view, which type of oligopoly is most desirable?

The Bertrand theory of oligopoly assumes:

Consider two firms competing to sell a homogeneous product by setting price. The inverse demand curve is given by P = 6 - Q. If each firm's cost function is C_i(Q_i) = 6 + 2Q_i, then each firm will symmetrically produce _ units of output and earn ___.

Which of the following is NOT a feature of Sweezy oligopoly?

Which of the following is true?

An important condition for a contestable market is:

Suppose that the duopolists competing in Cournot fashion agree to produce the collusive output. Given that firm 2 commits to this collusive output, it pays firm 1 to:

Consider a Stackelberg duopoly with the following inverse demand function: P = 100 - 2Q₁ - 2Q₂. The firms' marginal costs are identical and are given by MC_i = 2. Based on this information, the Stackelberg follower's marginal revenue function is:

Two firms compete as a Stackelberg duopoly. The demand they face is P = 40 - Q. The cost function for each firm is C(Q) = 4Q. The profits of the two firms are:

Consider two firms competing to sell a homogeneous product by setting price. The inverse demand curve is given by P = 20 - Q. Firm 1 has MC₁(Q₁) = 2 and firm 2 has MC₂(Q₂) = 2.25. Based on this information, we can conclude that the market price will be:

Consider a Cournot duopoly with the following inverse demand function: P = 50 - 0.2Q₁ - 0.2Q₂. The firms' marginal costs are identical and are given by MC_i(Q_i) = 2. Based on this information, firm 1 and 2's reaction functions are:

There are many different models of oligopoly because:

A slight increase in the marginal cost of a firm definitely leads to a reduction in its output if the firm competes in the:

Which of the following statements is NOT a condition for a Stackelberg oligopoly?

In a Cournot oligopoly, a decrease in a firm's marginal cost leads to:

Consider a Cournot duopoly with the following inverse demand function: P = 100 - 2Q₁ - 2Q₂. The firms' marginal costs are identical and are given by MC_i(Q_i) = 2Q_i. Based on this information, firm 1 and 2's marginal revenue functions are:

The Fundamentals of Managerial Economics

Market Forces: Demand and Supply

Quantitative Demand Analysis

The Theory of Individual Behavior

The Production Process and Costs

The Organization of the Firm

The Nature of Industry

Managing in Competitive, Monopolistic, and Monopolistically Competitive Markets

Game Theory: Inside Oligopoly

Pricing Strategies for Firms With Market Power

The Economics of Information

Advanced Topics in Business Strategy

A Managers Guide to Government in the Marketplace

Filters

Exam 9: Basic Oligopoly Models

In the presence of large sunk costs, which of the following market structures generally leads to the highest price?

From a consumer's point of view, which type of oligopoly is most desirable?

The Bertrand theory of oligopoly assumes:

Consider two firms competing to sell a homogeneous product by setting price. The inverse demand curve is given by P = 6 - Q. If each firm's cost function is Ci(Qi) = 6 + 2Qi, then each firm will symmetrically produce _________ units of output and earn ___________.

Which of the following is NOT a feature of Sweezy oligopoly?

Which of the following is true?

An important condition for a contestable market is:

Suppose that the duopolists competing in Cournot fashion agree to produce the collusive output. Given that firm 2 commits to this collusive output, it pays firm 1 to:

Consider a Stackelberg duopoly with the following inverse demand function: P = 100 - 2Q1 - 2Q2. The firms' marginal costs are identical and are given by MCi = 2. Based on this information, the Stackelberg follower's marginal revenue function is:

Two firms compete as a Stackelberg duopoly. The demand they face is P = 40 - Q. The cost function for each firm is C(Q) = 4Q. The profits of the two firms are:

Consider two firms competing to sell a homogeneous product by setting price. The inverse demand curve is given by P = 20 - Q. Firm 1 has MC1(Q1) = 2 and firm 2 has MC2(Q2) = 2.25. Based on this information, we can conclude that the market price will be:

Consider a Cournot duopoly with the following inverse demand function: P = 50 - 0.2Q1 - 0.2Q2. The firms' marginal costs are identical and are given by MCi(Qi) = 2. Based on this information, firm 1 and 2's reaction functions are:

There are many different models of oligopoly because:

A slight increase in the marginal cost of a firm definitely leads to a reduction in its output if the firm competes in the:

Which of the following statements is NOT a condition for a Stackelberg oligopoly?

In a Cournot oligopoly, a decrease in a firm's marginal cost leads to:

Consider a Cournot duopoly with the following inverse demand function: P = 100 - 2Q1 - 2Q2. The firms' marginal costs are identical and are given by MCi(Qi) = 2Qi. Based on this information, firm 1 and 2's marginal revenue functions are:

The Fundamentals of Managerial Economics

Market Forces: Demand and Supply

Quantitative Demand Analysis

The Theory of Individual Behavior

The Production Process and Costs

The Organization of the Firm

The Nature of Industry

Managing in Competitive, Monopolistic, and Monopolistically Competitive Markets

Game Theory: Inside Oligopoly

Pricing Strategies for Firms With Market Power

The Economics of Information

Advanced Topics in Business Strategy

A Managers Guide to Government in the Marketplace

Filters

Consider two firms competing to sell a homogeneous product by setting price. The inverse demand curve is given by P = 6 - Q. If each firm's cost function is C_i(Q_i) = 6 + 2Q_i, then each firm will symmetrically produce _ units of output and earn ___.

Consider a Stackelberg duopoly with the following inverse demand function: P = 100 - 2Q₁ - 2Q₂. The firms' marginal costs are identical and are given by MC_i = 2. Based on this information, the Stackelberg follower's marginal revenue function is:

Consider two firms competing to sell a homogeneous product by setting price. The inverse demand curve is given by P = 20 - Q. Firm 1 has MC₁(Q₁) = 2 and firm 2 has MC₂(Q₂) = 2.25. Based on this information, we can conclude that the market price will be:

Consider a Cournot duopoly with the following inverse demand function: P = 50 - 0.2Q₁ - 0.2Q₂. The firms' marginal costs are identical and are given by MC_i(Q_i) = 2. Based on this information, firm 1 and 2's reaction functions are:

Consider a Cournot duopoly with the following inverse demand function: P = 100 - 2Q₁ - 2Q₂. The firms' marginal costs are identical and are given by MC_i(Q_i) = 2Q_i. Based on this information, firm 1 and 2's marginal revenue functions are: