Question 1

Which of the following is true of the Bertrand model of a duopoly?

Accepted Answer

A)  Each firm matches the price increases by the other firm. 
B)  The firm that sets the lower price claims the entire market. 
C)  The total output supplied by the firms determines the market price. 
D)  Firms compete on multiple dimensions like quantity, price, and advertising. 
E)  The demand curve facing an individual firm is kinked at the market price. 
A)  Each firm matches the price increases by the other firm. 
B)  The firm that sets the lower price claims the entire market. 
C)  The total output supplied by the firms determines the market price. 
D)  Firms compete on multiple dimensions like quantity, price, and advertising. 
E)  The demand curve facing an individual firm is kinked at the market price. B

Question 2

Antitrust laws in the United States generally forbid tie-in arrangements. What reasons might firms give to justify tying of goods? What reasons might antitrust authorities state to prevent it?

Accepted Answer

Firms seeking to tie-in goods will clearly see the profit potential for the tie-in. It makes demand for the tied product less elastic, permitting a higher price and profit. Price discrimination becomes more likely with tying. In addition, a firm may argue that one product works better when used with another produced by the same firm. An example might be applications software tied-in with a particular operating system software, such as Windows. The firm may be able to offer a group of products at a savings, compared to offering each separately. There may be legitimate quality control issues for requiring a tie-in.
Antitrust regulation is concerned with tying because it may lead to less competition in the tied-in product and serve as an entry barrier. Bundling that serves a legitimate business purpose is generally permitted. Tie-ins that are seen as creating an entry barrier are less likely to pass antitrust scrutiny.

Question 3

An oligopoly firm's effective demand curve will be kinked at the current market price if:

Accepted Answer

A)  the firm acts as a price leader in the industry. 
B)  demand is elastic for price increases by the firm. 
C)  the firm expects other firms to match all price changes. 
D)  there is free entry and exit in the market. 
E)  the firm produces a differentiated product. 
A)  the firm acts as a price leader in the industry. 
B)  demand is elastic for price increases by the firm. 
C)  the firm expects other firms to match all price changes. 
D)  there is free entry and exit in the market. 
E)  the firm produces a differentiated product. B

Question 4

Which of the following is true of product differentiation?

Accepted Answer

A)  Product differentiation increases information asymmetry in a market. 
B)  Product differentiation reduces price differentials among competing goods by informing consumers about the features of a product. 
C)  Product differentiation can be based on perceived differences among products. 
D)  Product differentiation is the process of determining the optimal production of various products by a multi-product firm. 
E)  Firms in a perfectly competitive market practice product differentiation to attract consumers. 
A)  Product differentiation increases information asymmetry in a market. 
B)  Product differentiation reduces price differentials among competing goods by informing consumers about the features of a product. 
C)  Product differentiation can be based on perceived differences among products. 
D)  Product differentiation is the process of determining the optimal production of various products by a multi-product firm. 
E)  Firms in a perfectly competitive market practice product differentiation to attract consumers.

Question 5

Firms do not have the economic incentive to advertise when:

Accepted Answer

A)  there are a small number of firms in the market. 
B)  the goods that are produced are imperfect substitutes. 
C)  there are entry barriers in the market. 
D)  there is information asymmetry in the market. 
E)  products are standardized. 
A)  there are a small number of firms in the market. 
B)  the goods that are produced are imperfect substitutes. 
C)  there are entry barriers in the market. 
D)  there is information asymmetry in the market. 
E)  products are standardized.

Question 6

What is meant by market skimming?

Accepted Answer

A)  The strategy of setting a higher price for a good than for close substitutes of the good, based on product differentiation. 
B)  The strategy of combining several products in the market such that the consumer cannot buy the goods individually. 
C)  The strategy of setting a price that is lower than the current market price in order to undercut competing firms. 
D)  The strategy of setting a higher price for a good when it is first introduced in the market and then gradually lowering the price. 
E)  The strategy of setting a low price in order to induce consumers to buy the good and then consequently increasing the price. 
A)  The strategy of setting a higher price for a good than for close substitutes of the good, based on product differentiation. 
B)  The strategy of combining several products in the market such that the consumer cannot buy the goods individually. 
C)  The strategy of setting a price that is lower than the current market price in order to undercut competing firms. 
D)  The strategy of setting a higher price for a good when it is first introduced in the market and then gradually lowering the price. 
E)  The strategy of setting a low price in order to induce consumers to buy the good and then consequently increasing the price.

Question 7

When the four-firm concentration ratio is less than 40 percent, we can conclude that:

Accepted Answer

A)  the four dominant firms in the industry enjoy a high degree of market power. 
B)  the industry is a tight oligopoly. 
C)  the market shares of each firm in the industry are highly unequal. 
D)  the industry is monopolistically competitive. 
E)  the industry is competitive. 
A)  the four dominant firms in the industry enjoy a high degree of market power. 
B)  the industry is a tight oligopoly. 
C)  the market shares of each firm in the industry are highly unequal. 
D)  the industry is monopolistically competitive. 
E)  the industry is competitive.

Question 8

Distinguish between the degree of concentration for U.S. sales and the degree of concentration for U.S. production. Give at least two examples of U.S. industries that have significantly different production and sales ratios.

Accepted Answer

Concentration ratios for domestic sales

Question 9

In the Cournot model of duopoly, explain whether the quantities chosen by the firms are strategic complements or strategic substitutes.

Accepted Answer

The firms' quantities are strategic subs

Question 10

Briefly explain the concept of price leadership and why it occurs in oligopolistic markets.

Accepted Answer

The price leadership model of oligopoly

Question 11

An oligopoly firm faces the demand curve P = 50 - Q for Q  10 units. What is the marginal cost range within which the firm can operate?

Accepted Answer

The kink in the demand curve occurs at 1

Question 12

An oligopoly firm faces a kinked demand curve with segments given by: P = 100 - Q and P = 120 - 2Q, where P is the price and Q is the quantity demanded. The firm has a constant marginal cost, MC of $45.
(a) Determine the firm's profit-maximizing level of output and price.
(b) Calculate the (upper and lower) limits within which marginal cost may vary without affecting either the profit-maximizing output or the price.

Accepted Answer

The upper and lower limits are computed

Question 13

The following matrix shows the pricing strategies and resultant profits (in thousands of dollars) for two profit-maximizing firms.
Table 9-1
 $\begin{array} {c}
\quad\quad \text { Firm B}  \
\begin{array}{ | c | c | c | } 
\hline \text { Firm } \mathrm { A } & \text { High } & \text { Low } \
\hline \text { High price } & 35,35 & 21,41 \
\hline \text { Low price } & 37,21 & 30,30 \
\hline
\end{array} 
\end{array}$
-Refer to Table 9-1. If Firm B sets a high price, Firm A will:

Accepted Answer

A)  earn a profit equal to $41,000. 
B)  earn a profit equal to $35,000. 
C)  earn a higher profit than Firm B. 
D)  earn the same profit as firm F which is equal to $30,000. 
E)  follow the low-price strategy. 
A)  earn a profit equal to $41,000. 
B)  earn a profit equal to $35,000. 
C)  earn a higher profit than Firm B. 
D)  earn the same profit as firm F which is equal to $30,000. 
E)  follow the low-price strategy.

Question 14

During the 1990s, the U. S. cigarette industry was dominated by four major firms that charged similar prices for the cigarettes they sold under a variety of brand names. When one firm raised its prices, the other firms generally followed. The cigarette industry is best characterized as:

Accepted Answer

A)  an oligopoly 
B)  a monopolistically competitive industry 
C)  a monopoly 
D)  a perfectly competitive industry 
E)  a duopoly 
A)  an oligopoly 
B)  a monopolistically competitive industry 
C)  a monopoly 
D)  a perfectly competitive industry 
E)  a duopoly

Question 15

The model of the kinked demand curve in price competition implies that:

Accepted Answer

A)  strong brand loyalty by consumers gives firms little incentive to reduce prices. 
B)  free entry in the market will eventually reduce economic profits to zero. 
C)  a firm's competitors will match any price cuts by the firm but not price hikes. 
D)  firms will coordinate prices so as to maximize group profit. 
E)  firms in the market match the market price set by a single dominant firm. 
A)  strong brand loyalty by consumers gives firms little incentive to reduce prices. 
B)  free entry in the market will eventually reduce economic profits to zero. 
C)  a firm's competitors will match any price cuts by the firm but not price hikes. 
D)  firms will coordinate prices so as to maximize group profit. 
E)  firms in the market match the market price set by a single dominant firm.

Question 16

How does Michael Porter's Five Forces model explain the structures of different industries?

Accepted Answer

The Five Forces model explains firm stru

Question 17

The demand function in a duopoly is: P = 100 - 2(Q1 + Q2). If the first firm decides to sell 10 units while the second firm sells 20 units, which of the following will be true?

Accepted Answer

A)  The second firm will earn twice as much revenue as the first firm. 
B)  The second firm will sell at a lower price than the first firm. 
C)  An increase in one firm's output will not affect the other firm's revenue. 
D)  The first firm will earn a higher profit than the second firm. 
E)  The market price will be determined by the second firm's output which is larger than the first firm's output. 
A)  The second firm will earn twice as much revenue as the first firm. 
B)  The second firm will sell at a lower price than the first firm. 
C)  An increase in one firm's output will not affect the other firm's revenue. 
D)  The first firm will earn a higher profit than the second firm. 
E)  The market price will be determined by the second firm's output which is larger than the first firm's output.

Question 18

Some years ago, the three leading aluminum producers in the U.S. changed prices nine times by exactly the same amount each time and usually within one to three days of the initial price increase. This is an example of _____.

Accepted Answer

A)  sequential pricing 
B)  price leadership 
C)  price discrimination 
D)  tacit collusion 
E)  price fixing 
A)  sequential pricing 
B)  price leadership 
C)  price discrimination 
D)  tacit collusion 
E)  price fixing

Question 19

The quantity that is set by the dominant firm in an oligopolistic industry:

Accepted Answer

A)  is based on the price set by other firms. 
B)  is at the level where its marginal revenue and marginal cost are equal. 
C)  is equal to the total industry output. 
D)  ensures that there is zero economic profit in the industry. 
E)  is equal to the output produced in a perfectly competitive industry. 
A)  is based on the price set by other firms. 
B)  is at the level where its marginal revenue and marginal cost are equal. 
C)  is equal to the total industry output. 
D)  ensures that there is zero economic profit in the industry. 
E)  is equal to the output produced in a perfectly competitive industry.

Question 20

In a Cournot duopoly, both firms face the market demand: P = 100 - QD, where P is price and QD is total quantity demanded in the market. Firm 1's cost function is given by C1 = .8Q12 and firm 2's cost function is given by C2 = 6Q2, where Q1 is firm 1's output and Q2 is firm 2's output. Derive firm 1's optimal reaction function.

Accepted Answer

The reaction function for firm 1 will sh

Which of the following is true of the Bertrand model of a duopoly?

Antitrust laws in the United States generally forbid tie-in arrangements. What reasons might firms give to justify tying of goods? What reasons might antitrust authorities state to prevent it?

An oligopoly firm's effective demand curve will be kinked at the current market price if:

Which of the following is true of product differentiation?

Firms do not have the economic incentive to advertise when:

What is meant by market skimming?

When the four-firm concentration ratio is less than 40 percent, we can conclude that:

Distinguish between the degree of concentration for U.S. sales and the degree of concentration for U.S. production. Give at least two examples of U.S. industries that have significantly different production and sales ratios.

In the Cournot model of duopoly, explain whether the quantities chosen by the firms are strategic complements or strategic substitutes.

Briefly explain the concept of price leadership and why it occurs in oligopolistic markets.

An oligopoly firm faces the demand curve P = 50 - Q for Q < 10 units and P = 65 - 2Q for Q > 10 units. What is the marginal cost range within which the firm can operate?

The following matrix shows the pricing strategies and resultant profits (in thousands of dollars) for two profit-maximizing firms. Table 9-1 Firm B Firm High Low High price 35,35 21,41 Low price 37,21 30,30 -Refer to Table 9-1. If Firm B sets a high price, Firm A will:

During the 1990s, the U. S. cigarette industry was dominated by four major firms that charged similar prices for the cigarettes they sold under a variety of brand names. When one firm raised its prices, the other firms generally followed. The cigarette industry is best characterized as:

The model of the kinked demand curve in price competition implies that:

How does Michael Porter's Five Forces model explain the structures of different industries?

The demand function in a duopoly is: P = 100 - 2(Q1 + Q2). If the first firm decides to sell 10 units while the second firm sells 20 units, which of the following will be true?

Some years ago, the three leading aluminum producers in the U.S. changed prices nine times by exactly the same amount each time and usually within one to three days of the initial price increase. This is an example of _____.

The quantity that is set by the dominant firm in an oligopolistic industry:

Introduction to Economic Decision Making

Optimal Decisions Using Marginal Analysis

Demand Analysis and Optimal Pricing

Estimating and Forecasting Demand

Production

Cost Analysis

Perfect Competition

Monopoly

Game Theory and Competitive Strategy

Regulation, Public Goods, and Benefit-Cost Analysis

Decision Making Under Uncertainty

The Value of Information

Asymmetric Information and Organizational Design

Bargaining and Negotiation

Linear Programming

Auctions and Competitive Bidding Available Online

Filters

Exam 9: Oligopoly

Which of the following is true of the Bertrand model of a duopoly?

Antitrust laws in the United States generally forbid tie-in arrangements. What reasons might firms give to justify tying of goods? What reasons might antitrust authorities state to prevent it?

An oligopoly firm's effective demand curve will be kinked at the current market price if:

Which of the following is true of product differentiation?

Firms do not have the economic incentive to advertise when:

What is meant by market skimming?

When the four-firm concentration ratio is less than 40 percent, we can conclude that:

Distinguish between the degree of concentration for U.S. sales and the degree of concentration for U.S. production. Give at least two examples of U.S. industries that have significantly different production and sales ratios.

In the Cournot model of duopoly, explain whether the quantities chosen by the firms are strategic complements or strategic substitutes.

Briefly explain the concept of price leadership and why it occurs in oligopolistic markets.

An oligopoly firm faces the demand curve P = 50 - Q for Q < 10 units and P = 65 - 2Q for Q > 10 units. What is the marginal cost range within which the firm can operate?

The following matrix shows the pricing strategies and resultant profits (in thousands of dollars) for two profit-maximizing firms. Table 9-1 Firm B Firm High Low High price 35,35 21,41 Low price 37,21 30,30 -Refer to Table 9-1. If Firm B sets a high price, Firm A will:

During the 1990s, the U. S. cigarette industry was dominated by four major firms that charged similar prices for the cigarettes they sold under a variety of brand names. When one firm raised its prices, the other firms generally followed. The cigarette industry is best characterized as:

The model of the kinked demand curve in price competition implies that:

How does Michael Porter's Five Forces model explain the structures of different industries?

The demand function in a duopoly is: P = 100 - 2(Q1 + Q2). If the first firm decides to sell 10 units while the second firm sells 20 units, which of the following will be true?

Some years ago, the three leading aluminum producers in the U.S. changed prices nine times by exactly the same amount each time and usually within one to three days of the initial price increase. This is an example of _____.

The quantity that is set by the dominant firm in an oligopolistic industry:

Introduction to Economic Decision Making

Optimal Decisions Using Marginal Analysis

Demand Analysis and Optimal Pricing

Estimating and Forecasting Demand

Production

Cost Analysis

Perfect Competition

Monopoly

Game Theory and Competitive Strategy

Regulation, Public Goods, and Benefit-Cost Analysis

Decision Making Under Uncertainty

The Value of Information

Asymmetric Information and Organizational Design

Bargaining and Negotiation

Linear Programming

Auctions and Competitive Bidding Available Online

Filters