Question 1

All of the following are problems associated with maintaining a cartel except

Accepted Answer

A) cartels are illegal. 
B) a large amount of information is needed to coordinate a cartel. 
C) profits are not maximized by a cartel so it will evolve into a monopoly. 
D) each member of the cartel has an incentive to "chisel" by expanding output. 
A) cartels are illegal. 
B) a large amount of information is needed to coordinate a cartel. 
C) profits are not maximized by a cartel so it will evolve into a monopoly. 
D) each member of the cartel has an incentive to "chisel" by expanding output. C

Question 2

The Stackelberg outcome differs from the Cournot equilibrium because

Accepted Answer

A) the games involve different strategic variables. 
B) the first mover can commit to an output off of its best-response function. 
C) quantity supplied is not equal to quantity demanded at the prevailing price. 
D) it is not a perfectly competitive outcome. 
A) the games involve different strategic variables. 
B) the first mover can commit to an output off of its best-response function. 
C) quantity supplied is not equal to quantity demanded at the prevailing price. 
D) it is not a perfectly competitive outcome. B

Question 3

The subgame-perfect equilibrium of a two-stage game in which firms first choose capacities and then engage in a Bertrand price setting game resembles the equilibrium in

Accepted Answer

A) the competitive model. 
B) the Cournot model. 
C) the cartel model. 
D) the price leadership model. 
A) the competitive model. 
B) the Cournot model. 
C) the cartel model. 
D) the price leadership model. B

Question 4

Which of the following factors might explain why the long-run equilibrium number of firms can in some instances exceed the socially optimal number?

Accepted Answer

A) The appropriability effect (the increase in consumers surplus following entry is not "appropriated" by entrants). 
B) The feedback effect (an increase in the number of firms increases the competitiveness of the market). 
C) The business-stealing effect (entry reduces rival firms' profits,a social loss that entrants do not account for). 
D) The ratchet effect (the more profits the entrants earn,the more the stockholders expect them to earn in the future). 
A) The appropriability effect (the increase in consumers surplus following entry is not "appropriated" by entrants). 
B) The feedback effect (an increase in the number of firms increases the competitiveness of the market). 
C) The business-stealing effect (entry reduces rival firms' profits,a social loss that entrants do not account for). 
D) The ratchet effect (the more profits the entrants earn,the more the stockholders expect them to earn in the future).

Question 5

In the Hotelling model of spatial competition,profits arise from

Accepted Answer

A) monopoly power. 
B) rents based on locational advantage. 
C) the ability to price discriminate. 
D) increasing returns to scale. 
A) monopoly power. 
B) rents based on locational advantage. 
C) the ability to price discriminate. 
D) increasing returns to scale.

Question 6

It is important to understand oligopoly markets because

Accepted Answer

A) although few real world markets are oligopolies,their existence raises interesting theoretical questions. 
B) oligopolies typically generate more deadweight loss than monopolies. 
C) oligopolies can generate a whole range of possible outcomes between monopoly and perfect competition. 
D) one can predict the market outcome exactly just by knowing the number of firms in the market. 
A) although few real world markets are oligopolies,their existence raises interesting theoretical questions. 
B) oligopolies typically generate more deadweight loss than monopolies. 
C) oligopolies can generate a whole range of possible outcomes between monopoly and perfect competition. 
D) one can predict the market outcome exactly just by knowing the number of firms in the market.

Question 7

In the Hotelling model,what effect would an increase in the transportation cost t have on,in the first instance,a monopoly firm and,in the second instance,two firms located at the extremes of the line segment who compete over the marginal consumer?

Accepted Answer

A) The monopolist's profit would decrease but the duopolists' would increase. 
B) Both monopolist's and duopolists' profits would increase. 
C) Both monopolist's and duopolists' profits would decrease. 
D) The monopolist's profit would increase but the duopolists' would decrease. 
A) The monopolist's profit would decrease but the duopolists' would increase. 
B) Both monopolist's and duopolists' profits would increase. 
C) Both monopolist's and duopolists' profits would decrease. 
D) The monopolist's profit would increase but the duopolists' would decrease.

Question 8

How does the leader's behavior in the quantity-leadership (Stackelberg)game compare to that in the analogous price-leadership game?

Accepted Answer

A) It behaves as a "puppy dog" in both. 
B) It behaves as a "top dog" in the quantity leadership game but a "puppy dog" in the price leadership game. 
C) It behaves as a "top dog" in the quantity leadership game but a "puppy dog" in the price leadership game 
D) It behaves as a "top dog" in both 
A) It behaves as a "puppy dog" in both. 
B) It behaves as a "top dog" in the quantity leadership game but a "puppy dog" in the price leadership game. 
C) It behaves as a "top dog" in the quantity leadership game but a "puppy dog" in the price leadership game 
D) It behaves as a "top dog" in both

Question 9

In a Cournot equilibrium each firm chooses an output level which

Accepted Answer

A) maximizes joint profits. 
B) maximizes the price received. 
C) maximizes profits given what the other firms produce. 
D) maximizes revenue given what the other firms produce. 
A) maximizes joint profits. 
B) maximizes the price received. 
C) maximizes profits given what the other firms produce. 
D) maximizes revenue given what the other firms produce.

Question 10

Suppose n identical firms engage in Bertrand competition in a stage game repeated infinitely often.What condition on the discount factor $\delta$ is required for firms to be able to tacitly collude on the monopoly industry output?

Accepted Answer

A)  $\delta \geq 1 / 2$ . 
B)  $\delta \leq 1 / n$ . 
C)  $\delta \geq 1 / n ^ { 2 }$ . 
D)  $\delta \geq 1 - ( 1 / n )$ . 
A)  $\delta \geq 1 / 2$ . 
B)  $\delta \leq 1 / n$ . 
C)  $\delta \geq 1 / n ^ { 2 }$ . 
D)  $\delta \geq 1 - ( 1 / n )$ .

Question 11

The Nash equilibrium is a Bertrand game of price setting where all firms have different marginal cost is

Accepted Answer

A) efficient because all mutually beneficial transactions will occur. 
B) efficient because of the free entry assumption. 
C) inefficient because some mutually beneficial transactions will be foregone. 
D) inefficient because of the uncertainties inherent in the game. 
A) efficient because all mutually beneficial transactions will occur. 
B) efficient because of the free entry assumption. 
C) inefficient because some mutually beneficial transactions will be foregone. 
D) inefficient because of the uncertainties inherent in the game.

Question 12

A cartel-like collusive solution can be a Nash equilibrium only in price-setting games with

Accepted Answer

A) infinite replications. 
B) finite replications. 
C) dominant strategies. 
D) more than two players. 
A) infinite replications. 
B) finite replications. 
C) dominant strategies. 
D) more than two players.

Question 13

Which feature of a market would contribute most to overall social welfare?

Accepted Answer

A) Low prices and high outputs. 
B) Reduction in costs due to technological improvements. 
C) The invention of new products. 
D) Difficult to weigh the other answers without further information about society's preferences. 
A) Low prices and high outputs. 
B) Reduction in costs due to technological improvements. 
C) The invention of new products. 
D) Difficult to weigh the other answers without further information about society's preferences.

Question 14

The more a firm invests in a new production technology,the lower its marginal costs.Which of the following scenarios involving this incumbent firm and a potential entrant makes the least economic sense?

Accepted Answer

A) The incumbent overinvests to deter entry when this investment is observable to the entrant. 
B) The incumbent overinvests to deter entry when this investment is unobservable to the entrant. 
C) The incumbent underinvests to accommodate entry when this investment is observable and they compete in prices. 
D) The incumbent overinvests to accommodate entry when this investment is observable and they compete in quantities. 
A) The incumbent overinvests to deter entry when this investment is observable to the entrant. 
B) The incumbent overinvests to deter entry when this investment is unobservable to the entrant. 
C) The incumbent underinvests to accommodate entry when this investment is observable and they compete in prices. 
D) The incumbent overinvests to accommodate entry when this investment is observable and they compete in quantities.

Question 15

The Nash equilibrium in a Bertrand game in which firms produce perfect substitutes and have equal marginal costs is

Accepted Answer

A) efficient because all mutually beneficial transactions will occur. 
B) efficient because of the free entry assumption. 
C) inefficient because some mutually beneficial transactions will be foregone. 
D) inefficient because of the uncertainties inherent in the game. 
A) efficient because all mutually beneficial transactions will occur. 
B) efficient because of the free entry assumption. 
C) inefficient because some mutually beneficial transactions will be foregone. 
D) inefficient because of the uncertainties inherent in the game.

Question 16

Product differentiation complicates the study of oligopolies because such markets may not

Accepted Answer

A) be efficient. 
B) have prices equal to marginal cost. 
C) have free entry and exit. 
D) obey the law of one price. 
A) be efficient. 
B) have prices equal to marginal cost. 
C) have free entry and exit. 
D) obey the law of one price.

Question 17

A firm's first-order condition from the Cournot game with general demands and costs is

Accepted Answer

A)  $P ( Q ) q _ { i } - C _ { i } \left( q _ { i } \right) = 0$ . 
B)  $P ( Q ) - C _ { i } ^ { t } \left( q _ { i } \right) = 0$ . 
C)  $P ( Q ) + P ^ { t } ( Q ) \sum _ { j = 1 } ^ { n } q _ { j } - C _ { i } ^ { t } \left( q _ { i } \right) = 0$ . 
D)  $P ( Q ) + P ^ { t } ( Q ) q _ { i } - C _ { i } ^ { t} \left( q _ { i } \right) = 0$ . 
A)  $P ( Q ) q _ { i } - C _ { i } \left( q _ { i } \right) = 0$ . 
B)  $P ( Q ) - C _ { i } ^ { t } \left( q _ { i } \right) = 0$ . 
C)  $P ( Q ) + P ^ { t } ( Q ) \sum _ { j = 1 } ^ { n } q _ { j } - C _ { i } ^ { t } \left( q _ { i } \right) = 0$ . 
D)  $P ( Q ) + P ^ { t } ( Q ) q _ { i } - C _ { i } ^ { t} \left( q _ { i } \right) = 0$ .

Question 18

Each firm in a cartel has an incentive to chisel because market price exceeds

Accepted Answer

A) marginal cost. 
B) average cost. 
C) average variable cost. 
D) average fixed cost. 
A) marginal cost. 
B) average cost. 
C) average variable cost. 
D) average fixed cost.

Question 19

A profit-maximizing firm should spend an additional dollar on advertising so long as this expenditure results in more than one dollar of:

Accepted Answer

A) additional sales. 
B) reduced costs. 
C) increased profits. 
D) demand. 
A) additional sales. 
B) reduced costs. 
C) increased profits. 
D) demand.

Question 20

What factor would not help resolve the Bertrand paradox (that a perfectly competitive outcome can emerge with as few as two firms in the market)if the basic Bertrand model were extended to include it?

Accepted Answer

A) Repeated interaction. 
B) Search costs. 
C) Sequential moves. 
D) Product differentiation. 
A) Repeated interaction. 
B) Search costs. 
C) Sequential moves. 
D) Product differentiation.

All of the following are problems associated with maintaining a cartel except

The Stackelberg outcome differs from the Cournot equilibrium because

The subgame-perfect equilibrium of a two-stage game in which firms first choose capacities and then engage in a Bertrand price setting game resembles the equilibrium in

Which of the following factors might explain why the long-run equilibrium number of firms can in some instances exceed the socially optimal number?

In the Hotelling model of spatial competition,profits arise from

It is important to understand oligopoly markets because

In the Hotelling model,what effect would an increase in the transportation cost t have on,in the first instance,a monopoly firm and,in the second instance,two firms located at the extremes of the line segment who compete over the marginal consumer?

How does the leader's behavior in the quantity-leadership (Stackelberg)game compare to that in the analogous price-leadership game?

In a Cournot equilibrium each firm chooses an output level which

Suppose n identical firms engage in Bertrand competition in a stage game repeated infinitely often.What condition on the discount factor $\delta$ is required for firms to be able to tacitly collude on the monopoly industry output?

The Nash equilibrium is a Bertrand game of price setting where all firms have different marginal cost is

A cartel-like collusive solution can be a Nash equilibrium only in price-setting games with

Which feature of a market would contribute most to overall social welfare?

The more a firm invests in a new production technology,the lower its marginal costs.Which of the following scenarios involving this incumbent firm and a potential entrant makes the least economic sense?

The Nash equilibrium in a Bertrand game in which firms produce perfect substitutes and have equal marginal costs is

Product differentiation complicates the study of oligopolies because such markets may not

A firm's first-order condition from the Cournot game with general demands and costs is

Each firm in a cartel has an incentive to chisel because market price exceeds

A profit-maximizing firm should spend an additional dollar on advertising so long as this expenditure results in more than one dollar of:

What factor would not help resolve the Bertrand paradox (that a perfectly competitive outcome can emerge with as few as two firms in the market)if the basic Bertrand model were extended to include it?

Preferences and Utility

Utility Maximization and Choice

Income and Substitution Effects

Demand Relationships Among Goods

Uncertainty and Information

Strategy and Game Theory

Production Functions

Cost Functions

Profit Maximization

The Partial Equilibrium Competitive Model

General Equilibrium and Welfare

Monopoly

Labor Markets

Capital and Time

Asymmetric Information

Externalities and Public Goods

Filters

Exam 13: Imperfect Competition

All of the following are problems associated with maintaining a cartel except

The Stackelberg outcome differs from the Cournot equilibrium because

The subgame-perfect equilibrium of a two-stage game in which firms first choose capacities and then engage in a Bertrand price setting game resembles the equilibrium in

Which of the following factors might explain why the long-run equilibrium number of firms can in some instances exceed the socially optimal number?

In the Hotelling model of spatial competition,profits arise from

It is important to understand oligopoly markets because

In the Hotelling model,what effect would an increase in the transportation cost t have on,in the first instance,a monopoly firm and,in the second instance,two firms located at the extremes of the line segment who compete over the marginal consumer?

How does the leader's behavior in the quantity-leadership (Stackelberg)game compare to that in the analogous price-leadership game?

In a Cournot equilibrium each firm chooses an output level which

Suppose n identical firms engage in Bertrand competition in a stage game repeated infinitely often.What condition on the discount factor δ\deltaδ is required for firms to be able to tacitly collude on the monopoly industry output?

The Nash equilibrium is a Bertrand game of price setting where all firms have different marginal cost is

A cartel-like collusive solution can be a Nash equilibrium only in price-setting games with

Which feature of a market would contribute most to overall social welfare?

The more a firm invests in a new production technology,the lower its marginal costs.Which of the following scenarios involving this incumbent firm and a potential entrant makes the least economic sense?

The Nash equilibrium in a Bertrand game in which firms produce perfect substitutes and have equal marginal costs is

Product differentiation complicates the study of oligopolies because such markets may not

A firm's first-order condition from the Cournot game with general demands and costs is

Each firm in a cartel has an incentive to chisel because market price exceeds

A profit-maximizing firm should spend an additional dollar on advertising so long as this expenditure results in more than one dollar of:

What factor would not help resolve the Bertrand paradox (that a perfectly competitive outcome can emerge with as few as two firms in the market)if the basic Bertrand model were extended to include it?

Preferences and Utility

Utility Maximization and Choice

Income and Substitution Effects

Demand Relationships Among Goods

Uncertainty and Information

Strategy and Game Theory

Production Functions

Cost Functions

Profit Maximization

The Partial Equilibrium Competitive Model

General Equilibrium and Welfare

Monopoly

Labor Markets

Capital and Time

Asymmetric Information

Externalities and Public Goods

Filters

Suppose n identical firms engage in Bertrand competition in a stage game repeated infinitely often.What condition on the discount factor $\delta$ is required for firms to be able to tacitly collude on the monopoly industry output?