Exam 9: Basic Oligopoly Models

The market demand in a Bertrand duopoly is P = 10 - 3Q, and the marginal costs are $1. Fixed costs are zero for both firms. Based on this information we can conclude that:

Firm A has a higher marginal cost than firm B. They compete in a homogeneous product Cournot duopoly. Which of the following results will NOT occur?

A new firm enters a market which is initially serviced by a Bertrand duopoly charging a price of $30. Assuming that the new firm is equally as efficient as the incumbent firms, what will the new price be should the three firms coexist after the entry?

Profits are higher as isoprofit curves move closer to the:

Sue and Jane own two local gas stations. They have identical constant marginal costs, but earn zero economic profits. Sue and Jane constitute:

When firm 1 acts as a Stackelberg leader:

The profits of the follower in a Stackelberg duopoly:

Which of the following is a feature of a contestable market?

Two firms compete as a Stackelberg duopoly. The demand they face is P = 24 - Q. The cost function for each firm is C(Q) = 4Q. The profits of the two firms are:

Firm A has a strictly higher marginal cost than firm B. They compete in a homogeneous product Bertrand duopoly. Which of the following results will NOT occur?

Which firm would you expect to make the lowest profits, other things equal?

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 leader's marginal revenue function is:

The profits of the leader in a Stackelberg duopoly:

Orion and Zeda are the only producers of a unique product that is sold in a market where the inverse demand curve is P = 200 - 2Q. The firms produce identical products and have identical cost functions given by C(Q_i) = 4Q_i. The managers of each firm must decide on their outputs on Monday morning and then bring products to market by noon. a. What is each firm's marginal revenue? Marginal cost? b. Equate each firm's marginal revenue to marginal cost. c. Use your result in part (b) to solve for each firm's reaction function. d. Use your results in part (c) to solve for the Cournot equilibrium levels of output for each firm.

Firm A has a higher marginal cost than firm B. They compete in a homogeneous product Bertrand duopoly. Which of the following results will NOT occur?

Firm 1 and firm 2 compete as a Cournot oligopoly. There is an increase in marginal cost for firm 1. Which of the following is NOT true?

Suppose you are the manager of a medium-sized firm that operates in an industry that has a four-firm concentration ratio of 100 percent. All firms in the industry are of equal size. In order to determine your firm's optimal output and price, you must obtain information about how rivals would respond to changes in your decisions. If you were the manager, how would you obtain this information?

Two firms produce different goods. Firm 1 has a positive-sloped reaction function. This can be explained best by:

Since the end of the war in the Persian Gulf, the world price of oil has fallen. But in some areas, consumers have seen little relief at the pump. This phenomenon can be explained by the theory of:

Over the past 20 years, the 12 members of the Organization of Petroleum Exporting Countries have made repeated attempts to restrict output in order to maintain high crude oil prices. Between 1990 and 1995, however, crude oil prices dropped by about 20 percent, due in part to increased production from the former Soviet Union, Latin America, Asia, and the North Sea. In light of these increases in oil production from non-OPEC countries, what must OPEC do to maintain the price of oil at its desired level? Do you think this will be easy for OPEC to do? Explain.