Question 1

A decrease in firm 1's marginal cost will cause:

Accepted Answer

A)  a downward shift in firm 1's reaction function, resulting in a new Cournot equilibrium where firm 1 is producing a lower quantity and firm 2 is producing a higher quantity. 
B)  an upward shift in firm 1's reaction function, resulting in a new Cournot equilibrium where firm 1 is producing a higher quantity and firm 2 is producing a lower quantity. 
C)  a downward shift in firm 2's reaction function, resulting in a new Cournot equilibrium where firm 1 is producing a higher quantity and firm 2 is producing a lower quantity. 
D)  an upward shift in firm 2's reaction function, resulting in a new Cournot equilibrium where firm 1 is producing a lower quantity and firm 2 is producing a higher quantity. 
A)  a downward shift in firm 1's reaction function, resulting in a new Cournot equilibrium where firm 1 is producing a lower quantity and firm 2 is producing a higher quantity. 
B)  an upward shift in firm 1's reaction function, resulting in a new Cournot equilibrium where firm 1 is producing a higher quantity and firm 2 is producing a lower quantity. 
C)  a downward shift in firm 2's reaction function, resulting in a new Cournot equilibrium where firm 1 is producing a higher quantity and firm 2 is producing a lower quantity. 
D)  an upward shift in firm 2's reaction function, resulting in a new Cournot equilibrium where firm 1 is producing a lower quantity and firm 2 is producing a higher quantity.

Question 2

Two identical firms compete as a Cournot duopoly. The demand they face is P = 100 - 2Q. The cost function for each firm is C(Q) = 4Q. In equilibrium, the deadweight loss is:

Accepted Answer

A)  $128. 
B)  $256. 
C)  $384. 
D)  $512. 
A)  $128. 
B)  $256. 
C)  $384. 
D)  $512.

Question 3

Two identical firms compete as a Cournot duopoly. The demand they face is P = 100 - 2Q. The cost function for each firm is C(Q) = 4Q. Each firm earns equilibrium profits of:

Accepted Answer

A)  $1,024. 
B)  $2,048. 
C)  $4,096. 
D)  $512. 
A)  $1,024. 
B)  $2,048. 
C)  $4,096. 
D)  $512.

Question 4

With linear demand and constant marginal cost, a Stackelberg leader's profits are ___________ the follower.

Accepted Answer

A)  less than 
B)  equal to 
C)  greater than 
D)  either less than or greater than 
A)  less than 
B)  equal to 
C)  greater than 
D)  either less than or greater than

Question 5

Two firms compete in a Stackelberg fashion. If firm 2 is the leader, then:

Accepted Answer

A)  firm 1 views the output of firm 2 as given. 
B)  firm 2 views the output of firm 1 as given. 
C)  Both firm 1 views the output of firm 2 as given and firm 2 views the output of firm 1 as given are correct. 
D)  None of the answers is correct. 
A)  firm 1 views the output of firm 2 as given. 
B)  firm 2 views the output of firm 1 as given. 
C)  Both firm 1 views the output of firm 2 as given and firm 2 views the output of firm 1 as given are correct. 
D)  None of the answers is correct.

Question 6

A new firm enters a market which is initially serviced by a Cournot duopoly charging a price of $10. What will the new market price be should the three firms coexist after the entry?

Accepted Answer

A)  $10 
B)  Below $10 
C)  Above $10 
D)  None of the answers is correct. 
A)  $10 
B)  Below $10 
C)  Above $10 
D)  None of the answers is correct.

Question 7

Which of the following is NOT a quantity-setting oligopoly model?

Accepted Answer

A)  Stackelberg 
B)  Cournot 
C)  Bertrand 
D)  All of the choices are quantity-setting models. 
A)  Stackelberg 
B)  Cournot 
C)  Bertrand 
D)  All of the choices are quantity-setting models.

Question 8

Which of the following is true?

Accepted Answer

A)  If there are only two firms in a market, prices must be above marginal cost. 
B)  If there is only one firm in a market, prices must be above marginal cost. 
C)  Both if there are only two firms in a market, prices must be above marginal cost and if there is only one firm in a market, prices must be above marginal cost are correct. 
D)  None of the answers is correct. 
A)  If there are only two firms in a market, prices must be above marginal cost. 
B)  If there is only one firm in a market, prices must be above marginal cost. 
C)  Both if there are only two firms in a market, prices must be above marginal cost and if there is only one firm in a market, prices must be above marginal cost are correct. 
D)  None of the answers is correct.

Question 9

The Bertrand model of oligopoly reveals that:

Accepted Answer

A)  capacity constraints are not important in determining market performance. 
B)  perfectly competitive prices can arise in markets with only a few firms. 
C)  changes in marginal cost do not affect prices. 
D)  All of the statements associated with this question are true. 
A)  capacity constraints are not important in determining market performance. 
B)  perfectly competitive prices can arise in markets with only a few firms. 
C)  changes in marginal cost do not affect prices. 
D)  All of the statements associated with this question are true.

Question 10

If firms are in Cournot equilibrium:

Accepted Answer

A)  each firm could increase profits by unilaterally increasing output. 
B)  each firm could increase profits by unilaterally decreasing output. 
C)  firms could increase profits by jointly increasing output. 
D)  firms could increase profits by jointly reducing output. 
A)  each firm could increase profits by unilaterally increasing output. 
B)  each firm could increase profits by unilaterally decreasing output. 
C)  firms could increase profits by jointly increasing output. 
D)  firms could increase profits by jointly reducing output.

Question 11

Collusion in oligopoly is difficult to achieve because:

Accepted Answer

A)  it is prohibited by law. 
B)  every firm has an incentive to cheat given that others follow the agreement. 
C)  firms usually take care of consumers' interests as a decision priority. 
D)  it is prohibited by law and every firm has an incentive to cheat given that others follow the agreement. 
A)  it is prohibited by law. 
B)  every firm has an incentive to cheat given that others follow the agreement. 
C)  firms usually take care of consumers' interests as a decision priority. 
D)  it is prohibited by law and every firm has an incentive to cheat given that others follow the agreement.

Question 12

The (inverse) demand in a Cournot duopoly is P = a - b (Q1 + Q2), and costs are C1(Q1) = c1Q1 and C2(Q2) = c2Q2. Show that the Cournot equilibrium levels of output are   and   .

Accepted Answer

Equating MR = MC for firm 1 yields a - b

Question 13

Both firms in a Cournot duopoly would enjoy higher profits if:

Accepted Answer

A)  the firms simultaneously reduced output below the Nash equilibrium level. 
B)  each firm simultaneously increased output above the Nash equilibrium level. 
C)  one firm reduced output below the Cournot Nash equilibrium level, while the other firm continued to produce its Cournot Nash equilibrium output. 
D)  the firms simultaneously reduced output below the Nash equilibrium level and one firm reduced output below the Cournot Nash equilibrium level, while the other firm continued to produce its Cournot Nash equilibrium output. 
A)  the firms simultaneously reduced output below the Nash equilibrium level. 
B)  each firm simultaneously increased output above the Nash equilibrium level. 
C)  one firm reduced output below the Cournot Nash equilibrium level, while the other firm continued to produce its Cournot Nash equilibrium output. 
D)  the firms simultaneously reduced output below the Nash equilibrium level and one firm reduced output below the Cournot Nash equilibrium level, while the other firm continued to produce its Cournot Nash equilibrium output.

Question 14

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) = 2Qi, then consumer surplus in this market is:

Accepted Answer

A)  $2. 
B)  $4. 
C)  $8. 
D)  There is insufficient information to determine consumer surplus in this market. 
A)  $2. 
B)  $4. 
C)  $8. 
D)  There is insufficient information to determine consumer surplus in this market.

Question 15

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 consumer surplus in the different equilibrium oligopoly models will follow which of the following orderings?

Accepted Answer

A)  CSCollusion > CSStackelberg > CSCournot > CSBertrand 
B)  CSBertrand > CSStackelberg > CSCournot > CSCollusion 
C)  CSBertrand > CSCournot > CSStackelberg > CSCollusion 
D)  CSStackelberg > CSBertrand > CSCournot > CSCollusion 
A)  CSCollusion > CSStackelberg > CSCournot > CSBertrand 
B)  CSBertrand > CSStackelberg > CSCournot > CSCollusion 
C)  CSBertrand > CSCournot > CSStackelberg > CSCollusion 
D)  CSStackelberg > CSBertrand > CSCournot > CSCollusion

Question 16

An increase in firm 2's marginal cost will cause:

Accepted Answer

A)  a downward shift in firm 1's reaction function, resulting in a new Cournot equilibrium where firm 1 is producing a lower quantity and firm 2 is producing a higher quantity. 
B)  an upward shift in firm 1's reaction function, resulting in a new Cournot equilibrium where firm 1 is producing a higher quantity and firm 2 is producing a lower quantity. 
C)  a downward shift in firm 2's reaction function, resulting in a new Cournot equilibrium where firm 1 is producing a higher quantity and firm 2 is producing a lower quantity. 
D)  an upward shift in firm 2's reaction function, resulting in a new Cournot equilibrium where firm 1 is producing a lower quantity and firm 2 is producing a higher quantity. 
A)  a downward shift in firm 1's reaction function, resulting in a new Cournot equilibrium where firm 1 is producing a lower quantity and firm 2 is producing a higher quantity. 
B)  an upward shift in firm 1's reaction function, resulting in a new Cournot equilibrium where firm 1 is producing a higher quantity and firm 2 is producing a lower quantity. 
C)  a downward shift in firm 2's reaction function, resulting in a new Cournot equilibrium where firm 1 is producing a higher quantity and firm 2 is producing a lower quantity. 
D)  an upward shift in firm 2's reaction function, resulting in a new Cournot equilibrium where firm 1 is producing a lower quantity and firm 2 is producing a higher quantity.

Question 17

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(Qi) = ciQi. Based on this information, the Stackelberg leader's marginal revenue function is:

Accepted Answer

A)  MR(QL) = 50 - 2QL - 0.5cL. 
B)  MR(QL) = 50 - 2QL - 0.5cF. 
C)  MR(QF) = 100 - 2QF - 0.5cF. 
D)  MR(QF) = 100 - QF - 0.5cF. 
A)  MR(QL) = 50 - 2QL - 0.5cL. 
B)  MR(QL) = 50 - 2QL - 0.5cF. 
C)  MR(QF) = 100 - 2QF - 0.5cF. 
D)  MR(QF) = 100 - QF - 0.5cF.

Question 18

Which of the following is a profit-maximizing condition for a Cournot oligopolist?

Accepted Answer

A)  MR = MC. 
B)  Q1 = Q2 = ... = Qn. 
C)  P = MR. 
D)  All of the statements associated with this question are correct. 
A)  MR = MC. 
B)  Q1 = Q2 = ... = Qn. 
C)  P = MR. 
D)  All of the statements associated with this question are correct.

Question 19

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(Qi) = 2. Based on this information, the leader's reaction function is:

Accepted Answer

A)  r1(Q2) = 24.5 - 0.5Q1 and r2(Q1) = 24.5 - 0.5Q2. 
B)  r1(Q2) = 24.5 - 0.5Q2 and r1(Q2) = 24.5 - 0.5Q1. 
C)  Q1 = 49 - 0.5Q2 and Q2 = 49 - 0.5Q1. 
D)  The Stackelberg leader does not react to the output decision of its rival. 
A)  r1(Q2) = 24.5 - 0.5Q1 and r2(Q1) = 24.5 - 0.5Q2. 
B)  r1(Q2) = 24.5 - 0.5Q2 and r1(Q2) = 24.5 - 0.5Q1. 
C)  Q1 = 49 - 0.5Q2 and Q2 = 49 - 0.5Q1. 
D)  The Stackelberg leader does not react to the output decision of its rival.

Question 20

Which of the following is true about a differentiated-product Bertrand duopoly?

Accepted Answer

A)  Firm 1 and firm 2's prices will exceed marginal cost. 
B)  Firm 1 and firm 2's prices will equal marginal cost. 
C)  Firm 1's price will always be above marginal cost, while firm 2's price will be equal to marginal cost. 
D)  Firms in a differentiated-product Bertrand duopoly cannot earn positive economic profits in the long run. 
A)  Firm 1 and firm 2's prices will exceed marginal cost. 
B)  Firm 1 and firm 2's prices will equal marginal cost. 
C)  Firm 1's price will always be above marginal cost, while firm 2's price will be equal to marginal cost. 
D)  Firms in a differentiated-product Bertrand duopoly cannot earn positive economic profits in the long run.

A decrease in firm 1's marginal cost will cause:

Two identical firms compete as a Cournot duopoly. The demand they face is P = 100 - 2Q. The cost function for each firm is C(Q) = 4Q. In equilibrium, the deadweight loss is:

Two identical firms compete as a Cournot duopoly. The demand they face is P = 100 - 2Q. The cost function for each firm is C(Q) = 4Q. Each firm earns equilibrium profits of:

With linear demand and constant marginal cost, a Stackelberg leader's profits are ___________ the follower.

Two firms compete in a Stackelberg fashion. If firm 2 is the leader, then:

A new firm enters a market which is initially serviced by a Cournot duopoly charging a price of $10. What will the new market price be should the three firms coexist after the entry?

Which of the following is NOT a quantity-setting oligopoly model?

Which of the following is true?

The Bertrand model of oligopoly reveals that:

If firms are in Cournot equilibrium:

Collusion in oligopoly is difficult to achieve because:

The (inverse) demand in a Cournot duopoly is P = a - b (Q₁ + Q₂), and costs are C₁(Q₁) = c₁Q₁ and C₂(Q₂) = c₂Q₂. Show that the Cournot equilibrium levels of output are and .

Both firms in a Cournot duopoly would enjoy higher profits if:

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) = 2Q_i, then consumer surplus in this market is:

An increase in firm 2's marginal cost will cause:

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(Q_i) = c_iQ_i. Based on this information, the Stackelberg leader's marginal revenue function is:

Which of the following is a profit-maximizing condition for a Cournot oligopolist?

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(Q_i) = 2. Based on this information, the leader's reaction function is:

Which of the following is true about a differentiated-product Bertrand duopoly?

The Fundamentals of Managerial Economics

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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

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Exam 9: Basic Oligopoly Models

A decrease in firm 1's marginal cost will cause:

Two identical firms compete as a Cournot duopoly. The demand they face is P = 100 - 2Q. The cost function for each firm is C(Q) = 4Q. In equilibrium, the deadweight loss is:

Two identical firms compete as a Cournot duopoly. The demand they face is P = 100 - 2Q. The cost function for each firm is C(Q) = 4Q. Each firm earns equilibrium profits of:

With linear demand and constant marginal cost, a Stackelberg leader's profits are ___________ the follower.

Two firms compete in a Stackelberg fashion. If firm 2 is the leader, then:

A new firm enters a market which is initially serviced by a Cournot duopoly charging a price of $10. What will the new market price be should the three firms coexist after the entry?

Which of the following is NOT a quantity-setting oligopoly model?

Which of the following is true?

The Bertrand model of oligopoly reveals that:

If firms are in Cournot equilibrium:

Collusion in oligopoly is difficult to achieve because:

The (inverse) demand in a Cournot duopoly is P = a - b (Q1 + Q2), and costs are C1(Q1) = c1Q1 and C2(Q2) = c2Q2. Show that the Cournot equilibrium levels of output are and .

Both firms in a Cournot duopoly would enjoy higher profits if:

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) = 2Qi, then consumer surplus in this market is:

An increase in firm 2's marginal cost will cause:

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(Qi) = ciQi. Based on this information, the Stackelberg leader's marginal revenue function is:

Which of the following is a profit-maximizing condition for a Cournot oligopolist?

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(Qi) = 2. Based on this information, the leader's reaction function is:

Which of the following is true about a differentiated-product Bertrand duopoly?

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

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The (inverse) demand in a Cournot duopoly is P = a - b (Q₁ + Q₂), and costs are C₁(Q₁) = c₁Q₁ and C₂(Q₂) = c₂Q₂. Show that the Cournot equilibrium levels of output are and .

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) = 2Q_i, then consumer surplus in this market is:

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(Q_i) = c_iQ_i. Based on this information, the Stackelberg leader's marginal revenue function is:

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(Q_i) = 2. Based on this information, the leader's reaction function is: