Question 1

The spirit of equating marginal cost with marginal revenue is NOT held by:

Accepted Answer

A)  perfectly competitive firms. 
B)  oligopolistic firms. 
C)  perfectly competitive firms and oligopolistic firms. 
D)  None of the answers is correct. 
A)  perfectly competitive firms. 
B)  oligopolistic firms. 
C)  perfectly competitive firms and oligopolistic firms. 
D)  None of the answers is correct.

Question 2

In a market where two firms compete by setting quantity, the Cournot equilibrium has which of the following characteristics?

Accepted Answer

A)  The two firms' reaction functions intersect. 
B)  There is no incentive for the two firms to collude. 
C)  The two firms' isoprofit curves intersect one another at the highest point. 
D)  The two firms' reaction functions intersect at the highest point where the two firms' isoprofit curves intersect one another. 
A)  The two firms' reaction functions intersect. 
B)  There is no incentive for the two firms to collude. 
C)  The two firms' isoprofit curves intersect one another at the highest point. 
D)  The two firms' reaction functions intersect at the highest point where the two firms' isoprofit curves intersect one another.

Question 3

Tom and Jack are the only two local gas stations. Although they have different constant marginal costs, they both survive continued competition. Tom and Jack do NOT constitute a:

Accepted Answer

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

Question 4

The inverse demand curve for a Stackelberg duopoly is P = 10,000 - 6Q. The leader's cost structure is CL(QL) = 15QL. The follower's cost structure is CF(QF) = 25QF.
a. Determine the reaction function for the follower.
b. Determine the equilibrium output levels for both the leader and the follower.
c. What are the profits for the leader? For the follower?

Accepted Answer

a. The follower's reaction function is Q

Question 5

What real-world evidence would lead you to believe that firms were acting as Cournot oligopolists? Stackelberg oligopolists? Bertrand oligopolists?

Accepted Answer

Evidence of Cournot oligopoly would be a

Question 6

In a Sweezy Oligopoly, a decrease in a firm's marginal cost generally leads to:

Accepted Answer

A)  reduced output and a higher price. 
B)  increased output and a lower price. 
C)  higher output and a higher price. 
D)  None of the answers is correct. 
A)  reduced output and a higher price. 
B)  increased output and a lower price. 
C)  higher output and a higher price. 
D)  None of the answers is correct.

Question 7

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 follower's reaction function is:

Accepted Answer

A)  rF(QL) = 24.5 - 0.5QF. 
B)  QL = 49 - 0.5QF. 
C)  rF(QL) = 24.5 - 0.5QL. 
D)  QF = 49 - 0.25QL. 
A)  rF(QL) = 24.5 - 0.5QF. 
B)  QL = 49 - 0.5QF. 
C)  rF(QL) = 24.5 - 0.5QL. 
D)  QF = 49 - 0.25QL.

Question 8

Which of the following is true of a perfectly contestable market?

Accepted Answer

A) P = MC B) P > MC C) P MC and P < ATC A) P = MC B) P > MC C) P MC and P < ATC

Question 9

A new firm enters a market which is initially serviced by a Cournot duopoly charging a price of $20. What will the new market price be should the three firms coexist after the entry?

Accepted Answer

A)  $20 
B)  Below $20 
C)  Above $20 
D)  None of the answers is correct. 
A)  $20 
B)  Below $20 
C)  Above $20 
D)  None of the answers is correct.

Question 10

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 reaction functions are:

Accepted Answer

A)  r1(Q2) = 24.5 - 0.5Q1 and r2(Q1) = 24.5 - 0.5Q2. 
B)  r1(Q2) = 24.5 - 0.5Q2 and r2(Q1) = 24.5 - 0.5Q1. 
C)  Q1 = 49 - 0.5Q2 and Q2 = 49 - 0.5Q1. 
D)  Q1 = 49 - 0.25Q2 and Q2 = 49 - 0.25Q1. 
A)  r1(Q2) = 24.5 - 0.5Q1 and r2(Q1) = 24.5 - 0.5Q2. 
B)  r1(Q2) = 24.5 - 0.5Q2 and r2(Q1) = 24.5 - 0.5Q1. 
C)  Q1 = 49 - 0.5Q2 and Q2 = 49 - 0.5Q1. 
D)  Q1 = 49 - 0.25Q2 and Q2 = 49 - 0.25Q1.

Question 11

When firm 1 enjoys a first-mover advantage in a Stackelberg duopoly, it will produce:

Accepted Answer

A)  more output and charge a lower price than firm 2. 
B)  more output and charge the same price as firm 2. 
C)  less output and charge the same price as firm 2. 
D)  less output and charge a higher price than firm 2. 
A)  more output and charge a lower price than firm 2. 
B)  more output and charge the same price as firm 2. 
C)  less output and charge the same price as firm 2. 
D)  less output and charge a higher price than firm 2.

Question 12

MCI announced a price discount plan for small firms. Their stock immediately fell in price. This shows that:

Accepted Answer

A)  MCI is probably competing in a Bertrand oligopolistic industry. 
B)  stockholders are sometimes not rational. 
C)  there is increased demand for MCI's stock. 
D)  AT&T sold out its stock of MCI just after the announcement. 
A)  MCI is probably competing in a Bertrand oligopolistic industry. 
B)  stockholders are sometimes not rational. 
C)  there is increased demand for MCI's stock. 
D)  AT&T sold out its stock of MCI just after the announcement.

Question 13

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 consumer surplus in this market is:

Accepted Answer

A)  $36.75. 
B)  $73.50. 
C)  $1,352.40. 
D)  $2,704.80. 
A)  $36.75. 
B)  $73.50. 
C)  $1,352.40. 
D)  $2,704.80.

Question 14

The market for widgets consists of two firms that produce identical products. Competition in the market is such that each of the firms independently produces a quantity of output, and these quantities are then sold in the market at a price that is determined by the total amount produced by the two firms. Firm 2 is known to have a cost advantage over firm 1. A recent study found that the (inverse) market demand curve faced by the two firms is P = 280 - 2(Q1 + Q2), and costs are C1(Q1) = 3Q1 and C2(Q2) = 2Q2.
a. Determine the marginal revenue for each firm.
b. Determine the reaction function for each firm.
c. How much output will each firm produce in equilibrium?
d. What are the equilibrium profits for each firm?

Accepted Answer

a. MR₁ = 280 - 2Q₂ - 4Q₁ and MR₂ = 280 - 2Q₁

The spirit of equating marginal cost with marginal revenue is NOT held by:

In a market where two firms compete by setting quantity, the Cournot equilibrium has which of the following characteristics?

Tom and Jack are the only two local gas stations. Although they have different constant marginal costs, they both survive continued competition. Tom and Jack do NOT constitute a:

What real-world evidence would lead you to believe that firms were acting as Cournot oligopolists? Stackelberg oligopolists? Bertrand oligopolists?

In a Sweezy Oligopoly, a decrease in a firm's marginal cost generally leads 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(Q_i) = 2. Based on this information, the follower's reaction function is:

Which of the following is true of a perfectly contestable market?

A new firm enters a market which is initially serviced by a Cournot duopoly charging a price of $20. What will the new market price be should the three firms coexist after the entry?

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 reaction functions are:

When firm 1 enjoys a first-mover advantage in a Stackelberg duopoly, it will produce:

MCI announced a price discount plan for small firms. Their stock immediately fell in price. This shows that:

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 consumer surplus in this market is:

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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Exam 9: Basic Oligopoly Models

The spirit of equating marginal cost with marginal revenue is NOT held by:

In a market where two firms compete by setting quantity, the Cournot equilibrium has which of the following characteristics?

Tom and Jack are the only two local gas stations. Although they have different constant marginal costs, they both survive continued competition. Tom and Jack do NOT constitute a:

What real-world evidence would lead you to believe that firms were acting as Cournot oligopolists? Stackelberg oligopolists? Bertrand oligopolists?

In a Sweezy Oligopoly, a decrease in a firm's marginal cost generally leads 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(Qi) = 2. Based on this information, the follower's reaction function is:

Which of the following is true of a perfectly contestable market?

A new firm enters a market which is initially serviced by a Cournot duopoly charging a price of $20. What will the new market price be should the three firms coexist after the entry?

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 reaction functions are:

When firm 1 enjoys a first-mover advantage in a Stackelberg duopoly, it will produce:

MCI announced a price discount plan for small firms. Their stock immediately fell in price. This shows that:

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 consumer surplus in this market is:

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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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 follower's reaction function is:

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 reaction functions are:

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 consumer surplus in this market is: