Deck 11: Imperfect Competition

Question 1

(Table: College Football Recruitment) The table shows the payoffs associated with two levels of spending for recruitment of star football players.
Payoffs: University of Michigan's Football Revenue, Michigan State's Football Revenue
What is the Nash equilibrium?

A) Each school will spend a little money on recruiting.
B) Each school will spend lots of money on recruiting.
C) The University of Michigan will spend a little money on recruiting, and Michigan State University will spend lots of money on recruiting.
D) There are two Nash equilibria: (1) both schools spend lots of money recruiting and (2) both schools spend little money recruiting.

Answer 1

B

Question 2

In a Bertrand competition, with differentiated goods in a market structure of two firms, firm A's first-order condition can be expressed as:

A) .
B) .
C) .
D) .

Answer 2

A

Question 3

The inverse demand for shampoo is given by P = 30 - 0.03Q, where P is the price per bottle in dollars and Q is bottles brought to market in hundreds. There are two manufacturers in the local market. Firm 1's cost function is given by C₁ = 0.05q₁², where q₁ is the number of bottles it brings to market. Firm 2's cost function is given by C₂ = 0.03q₂², where q₂ is the number of bottles it brings to market. The two firms are Cournot competitors who set output so that Q = q₁ + q₂. In equilibrium, the market quantity is ____.

A) 147.53
B) 213.12
C) 295.06
D) 360.65

Answer 3

D

Question 4

Two firms are producing identical goods in a market characterized by the inverse demand curve P = 60 - 2Q, where Q is the sum of Firm 1 and Firm 2's output, q₁ + q₂. Each firm's marginal cost is constant at $12, and fixed costs are zero. Answer the following questions, assuming that the firms are Cournot competitors. In this case, Firm 2 earns $____ in profit.

A) 130
B) 128
C) 126
D) 124

Question 5

The market inverse demand curve for thrust bearings is P = 15 - 1.5Q, where Q is measured in hundreds of bearings per day and P is the price per bearing. The marginal cost is $3. Suppose two firms, which are Bertrand competitors, produce identical thrust bearings for this market. If this market were monopolized, the market price would be $____.

A) 10
B) 9
C) 8
D) 7

Question 6

Two companies are the only snowplow merchants in a small town. Inverse market demand curve is P = 100 - 10Q, where Q = q₁ + q₂ (Firm 1's output = q₁; Firm 2's output = q₂). Each firm has marginal costs of $25. In the Nash equilibrium in this market, Firm 2 produces ____.

A) 5
B) 4
C) 2.5
D) 2

Question 7

In a Cournot market structure with two firms, firm A's reaction function gives:

A) optimal quantity for A as a function of quantity for B.
B) optimal price for A as a function of price for B.
C) optimal quantity for A as a function of price for A and price for B.
D) optimal quantity for A as a function of price for B.

Question 8

The inverse demand for tacos is given by P = 10 - 0.02Q, where P is the price per taco and Q is the total number of tacos brought to market. There are two taco shops in the local market. Shop 1's cost function is given by C₁ = 0.01q₁², where q₁ is the number of tacos it brings to market. Shop 2's cost function is given by C₂ = 0.01q₂², where q₂ is the number of tacos it brings to market. Assume the two shops compete by setting output (Cournot). Let Q = q₁ + q₂. In equilibrium, the market price is $____.

A) 5
B) 3
C) 2.5
D) 1.5

Question 9

(Figure: Market for Two-Firm Industry I) The graph depicts the market demand curve for a two-firm industry. If the two firms collude and evenly split the market output, how much output will each firm produce?

A) 400 units
B) 200 units
C) 150 units
D) 300 units

Question 10

Two firms that are engaged in Stackelberg competition face the market inverse demand curve P = 100 - 2Q, where Q is the total market output comprising Firm 1's output, q₁, and Firm 2's output, q₂. Each firm produces the product at a constant marginal cost of $22. If Firm 2's reaction function is q₂ = 22 - 0.5q₁, what is Firm 1's (the first-mover's) inverse demand curve?

A) P = 88 - 2q₁
B) P = 56 - q₁
C) P = 100 - 2(q₂ - 22 + 0.05q₁)
D) P = 88 - 1.5q₁

Question 11

In monopolistic competition, the long-run equilibrium price _____ marginal cost because _____.

A) equals; firms earn zero economic profit
B) exceeds; firms face downward-sloping demand curves
C) exceeds; there are significant barriers to entry
D) is less than; firms set their production plans simultaneously

Question 12

Gotcha, the only seller of stun guns, faces the inverse market demand curve P = 400 - 12Q, where Q measures the number of stun guns per day and P is the price per stun gun. The marginal cost is constant at $64. Gotcha's profit-maximizing quantity is ____.

A) 20
B) 18
C) 16
D) 14

Question 13

The inverse demand for designer blankets is given by P = 40 - 0.01Q, where P is the price per blanket and Q is the total number of blankets brought to market. Two shops in the market supply specialty blankets. Shop 1's cost function is given by C₁ = 0.02q₁², where q₁ is the number it brings to market. Shop 2's cost function is given by C₂ = 0.02q₂², where q₂ is the number it brings to market. Given that the two shops compete by setting output (Cournot), the profit maximizing level of output for Shop 2 is ____.

A) 532.34
B) 571.42
C) 1,064.68
D) 1,142.84

Question 14

Two firms are producing identical goods in a market characterized by the inverse demand curve P = 60 - 2Q, where Q is the sum of Firm 1 and Firm 2's output, q₁ + q₂. Each firm's marginal cost is constant at $12, and fixed costs are zero. Answer the following questions, assuming that the firms are Cournot competitors. In this case, the market price is $____.

A) 30
B) 28
C) 26
D) 24

Question 15

Suppose that Etsy (an e-commerce site focused on handmade or vintage items) necklace vendors compete in a Bertrand market structure with differentiated products. Demand for style 1, produced by vendor 1, is given by where p₁ is price of style 1 and p₂ is the price of style 2, produced by vendor 2. Demand for style 2 is
The costs of providing these necklaces are C₁ = q₁ and C₂ = 0.75q₂ respectively. The equilibrium price for style 2 is $____.

A) 20.62
B) 26.32
C) 30.66
D) 32.54

Question 16

The inverse demand for shampoo is given by P = 30 - 0.03Q, where P is the price per bottle in dollars and Q is bottles brought to market in hundreds. There are two manufacturers in the local market. Firm 1's cost function is given by C₁ = 0.05q₁², where q₁ is the number of bottles it brings to market. Firm 2's cost function is given by C₂ = 0.03q₂², where q₂ is the number of bottles it brings to market. The two firms are Cournot competitors who set output so that Q = q₁ + q₂. In equilibrium, the market price is $____.

A) 21.23
B) 20.12
C) 19.18
D) 17.63

Question 17

Suppose that Mystic Energy and E-Storm are the only two producers of hydrogen fuel cells. The market inverse demand curve for hydrogen fuel cells is P = 1,300 - 0.08Q, where Q is the number of fuels cells per month and P is the price per fuel cell. The marginal cost is constant at $500. Acting as a cartel, the owners of Mystic Energy and E-Storm agree to evenly split the market output. In this case, E-Storm earns a profit of $ ____.

A) 1,500,000
B) 1,000,000
C) 750,000
D) 500,000

Question 18

Ney Inc. and ARN Parts are the only two producers of bulldozer bucket teeth. The owners of the two firms conspire to charge a monopoly price, with each firm serving half the market. The market inverse demand curve is P = 1,000 - 10Q, where Q measures the daily number of sets of bulldozer bucket teeth and P is the price per set. The marginal cost of production for either firm is constant at $200, and fixed costs are zero. The profit for Ney Inc. is $_____.

A) 6,000
B) 8,000
C) 12,000
D) 16,000

Question 19

The market inverse demand curve for thrust bearings is P = 15 - 1.5Q, where Q is measured in hundreds of bearings per day and P is the price per bearing. The marginal cost is $3. Suppose two firms, which are Bertrand competitors, produce identical thrust bearings for this market. If this market were monopolized, the market quantity would be ____.

A) 800
B) 600
C) 400
D) 200

Question 20

The market inverse demand curve for thrust bearings is P = 15 - 1.5Q, where Q is measured in hundreds of bearings per day and P is the price per bearing. The marginal cost is $3. Suppose two firms, which are Bertrand competitors, produce identical thrust bearings for this market. In this case, the market price is $____.

A) 9
B) 7
C) 5
D) 3

Question 21

Gotcha, the only seller of stun guns, faces the inverse market demand curve P = 400 - 12Q, where Q measures the number of stun guns per day and P is the price per stun gun. The marginal cost is constant at $64. Suppose a new firm, Ouchy, enters the stun gun market. Ouchy's marginal cost is also constant at $64. Gotcha and Ouchy agree to form a cartel and evenly split the market output. The market price in this case is $____.

A) 400
B) 324
C) 232
D) 212

Question 22

In Bertrand competition with differentiated products and zero marginal costs, Firm A faces the demand curve q_A = 80 - 2P_A + 0.50P_B.If Firm A expects Firm B to charge a price of $20, what price should Firm A charge?

A) $14.25
B) $18.00
C) $22.50
D) $24.75

Question 23

The inverse demand for tacos is given by P = 10 - 0.02Q, where P is the price per taco and Q is the total number of tacos brought to market. There are two taco shops in the local market. Shop 1's cost function is given by C₁ = 0.01q₁², where q₁ is the number of tacos it brings to market. Shop 2's cost function is given by C₂ = 0.01q₂², where q₂ is the number of tacos it brings to market. Assume the two shops compete by setting output (Cournot). Let Q = q₁ + q₂. Shop 1 produces ____ to maximize profit.

A) 250
B) 200
C) 150
D) 125

Question 24

Suppose that Etsy (an e-commerce site focused on handmade or vintage items) necklace vendors compete in a Bertrand market structure with differentiated products. Demand for style 1, produced by vendor 1, is given by where p₁ is price of style 1 and p₂ is the price of style 2, produced by vendor 2. Demand for style 2 is
The costs of providing these necklaces are C₁ = q₁ and C₂ = 0.75q₂ respectively. The equilibrium price for style 1 is $____.

A) 20.62
B) 26.32
C) 30.66
D) 32.54

Question 25

In a Cournot market structure with two firms, firm A's first-order condition can be expressed as:

A) .
B) .
C) .
D) .

Question 26

(Figure: Market Demand Curve I) The graph shows the market demand curve. The equilibrium market quantity in a Bertrand Competition with identical goods is ____.

A) 8
B) 6
C) 5.34
D) 4

Question 27

Taggart Express operates in a monopolistically competitive industry. Its inverse demand curve is P = 80 - Q. The total cost curve is TC = 20Q and marginal cost is constant at $20. What is the long-run equilibrium price?

A) $60
B) $75
C) $50
D) $20

Question 28

Chauncey's Burgers sells hamburgers in a monopolistically competitive industry. Chauncey faces an inverse demand curve of P = 9 - 0.4Q, where Q is measured in hamburgers per hour and P is the price per hamburger. The total cost is TC = 20 + Q, and marginal cost is constant at $1. What is Chauncey's hourly profit?

A) $15
B) $20
C) $35
D) $70

Question 29

The inverse demand for designer blankets is given by P = 40 - 0.01Q, where P is the price per blanket and Q is the total number of blankets brought to market. Two shops in the market supply specialty blankets. Shop 1's cost function is given by C₁ = 0.02q₁², where q₁ is the number it brings to market. Shop 2's cost function is given by C₂ = 0.02q₂², where q₂ is the number it brings to market. Given that the two shops compete by setting output (Cournot), the equilibrium market price is $____.

A) 32.65
B) 30.76
C) 28.58
D) 23.43

Question 30

Which of the following statements is TRUE regarding collusion, Bertrand (identical products), and Cournot competition?
I) Prices are highest in collusion, next highest in Cournot, and lowest in Bertrand.
II) Output is highest in Bertrand, next highest in Cournot, and lowest in collusion.
III) Profit is highest in Bertrand, next highest in Cournot, and lowest in collusion.

A) I and II
B) III
C) I
D) II

Question 31

Suppose that two firms are engaged in Bertrand competition with identical goods and each firm has a marginal cost of $33. Suppose Firm A charges a price of $50 and Firm B charges $40. In this case, the market share for Firm A is ____%.

A) 100
B) 50
C) 40
D) 0

Question 32

Consider the following information:
Inverse market demand: P = 12 - 0.5(q₁ + q₂), where q₁ and q₂ are Firm 1 and Firm 2's output
Firm 1's reaction function: q₁ = 9 - 0.5q₂
Firm 2's reaction function: q₂ = 9 - 0.5q₁
The marginal cost of production for both firms is constant at $3. The equilibrium prices in Cournot and Stackelberg competition are _____ and _____, respectively.

A) $8; $7
B) $9; $10
C) $4; $3.50
D) $6; $5.25

Question 33

The Nash equilibrium in Bertrand competition with identical goods:

A) occurs when each firm produces an amount at which marginal revenue equals marginal cost.
B) occurs when each firm sets price equal to marginal cost.
C) occurs when each firm sets price equal to average total cost.
D) does not exist.

Question 34

In a Bertrand competition with differentiated goods market structure, each firm's profit function depends on:

A) its own quantity but not those of other firms.
B) both its own quantity and those of other firms.
C) its own price but not those of other firms.
D) both its own price and those of other firms.

Question 35

Which of the following characteristics does Bertrand competition with differentiated goods have in common with Bertrand competition with identical goods?

A) Price equals marginal cost.
B) Firms earn zero economic profit.
C) Firms set prices simultaneously.
D) Each firm's product is a perfect substitute for the other firm's product.

Question 36

The inverse demand for shampoo is given by P = 30 - 0.03Q, where P is the price per bottle in dollars and Q is bottles brought to market in hundreds. There are two manufacturers in the local market. Firm 1's cost function is given by C₁ = 0.05q₁², where q₁ is the number of bottles it brings to market. Firm 2's cost function is given by C₂ = 0.03q₂², where q₂ is the number of bottles it brings to market. The two firms are Cournot competitors who set output so that Q = q₁ + q₂. The profit maximizing level of output for firm 2 is ____.

A) 147.53
B) 213.12
C) 295.06
D) 360.65

Question 37

Two firms are producing identical goods in a market characterized by the inverse demand curve P = 60 - 2Q, where Q is the sum of Firm 1 and Firm 2's output, q₁ + q₂. Each firm's marginal cost is constant at $12, and fixed costs are zero. Answer the following questions, assuming that the firms are Cournot competitors. In this case, Firm 1 would produce ____ units to maximize profit.

A) 16
B) 12
C) 8
D) 6

Question 38

(Table: Car Dealerships I)
Payoffs: Anastasia's Monthly Profit, Dasha's Monthly Profit
If state law prevented car dealerships from opening on Sunday, Anastasia's Hyundai would earn _____, and Dasha's Nissan would earn _____.

A) $70K; $70K
B) $100K; $100K
C) $80K; $80K
D) $40K; $40K

Question 39

(Table: Gascolator Producers I) Banner and Sense are Bertrand competitors producing identical gascolators (a main line strainer). The inverse market demand curve for gascolators is P = 2,000 - 4Q, where Q is the quantity of gascolators and P is the price per gascolator. Banner and Sense produce gascolators at a constant marginal cost of $80. If Banner charges a price of $100 and Sense charges $80, Banners quantity sold is ____.

A) 480
B) 475
C) 240
D) 0

Question 40

The inverse demand for designer blankets is given by P = 40 - 0.01Q, where P is the price per blanket and Q is the total number of blankets brought to market. Two shops in the market supply specialty blankets. Shop 1's cost function is given by C₁ = 0.02q₁², where q₁ is the number it brings to market. Shop 2's cost function is given by C₂ = 0.02q₂², where q₂ is the number it brings to market. Given that the two shops compete by setting output (Cournot), the profit maximizing level of output for Shop 1 is ____.

A) 532.34
B) 571.42
C) 1,064.68
D) 1,142.84

Question 41

The inverse market demand curve is P = 170 - 4Q. Two firms in this market are evenly splitting the output. Each firm produces the product at a constant marginal cost of $10. Which of the following statements is TRUE?
I) If one firm produces 2 more units of output, its profits will rise to $864.
II) If neither firm cheats, each firm will earn a profit of $800.
III) If one firm produces 3 more units of output, the other firm's profits will fall to $680.

A) I and III
B) II and III
C) I and II
D) I, II, and III

Question 42

In a Cournot market structure with two firms, firm A's profit function can be expressed as:

A) , where P(Q) is market (inverse) demand, and is total cost for firm A.
B) , where P(Q) is market (inverse) demand, and is total cost for firm A.
C) , where P(Q) is market (inverse) demand, and is total cost for firm A.
D) , where P(Q) is market (inverse) demand, and is total cost for firm A as a function of firm B's output.

Question 43

(Table: Gascolator Producers I) Banner and Sense are Bertrand competitors producing identical gascolators (a main line strainer). The inverse market demand curve for gascolators is P = 2,000 - 4Q, where Q is the quantity of gascolators and P is the price per gascolator. Banner and Sense produce gascolators at a constant marginal cost of $80. If Banner charges a price of $100 and Sense charges $101, Sense's quantity sold is ____.

A) 240
B) 120
C) 100
D) 0

Question 44

Gotcha, the only seller of stun guns, faces the inverse market demand curve P = 400 - 12Q, where Q measures the number of stun guns per day and P is the price per stun gun. The marginal cost is constant at $64. Suppose a new firm, Ouchy, enters the stun gun market. Ouchy's marginal cost is also constant at $64. Gotcha and Ouchy agree to form a cartel and evenly split the market output. In this case, Ouchy's output level is ____.

A) 14
B) 11
C) 9
D) 7

Question 45

The inverse demand for tacos is given by P = 10 - 0.02Q, where P is the price per taco and Q is the total number of tacos brought to market. There are two taco shops in the local market. Shop 1's cost function is given by C₁ = 0.01q₁², where q₁ is the number of tacos it brings to market. Shop 2's cost function is given by C₂ = 0.01q₂², where q₂ is the number of tacos it brings to market. Assume the two shops compete by setting output (Cournot). Let Q = q₁ + q₂. Shop 2 produces ____ to maximize profit.

A) 250
B) 200
C) 150
D) 125

Question 46

A two-firm cartel that produces at a constant marginal cost of $20 faces a market inverse demand curve of P = 100 - 0.50Q. Initially, both firms agree to act like a monopolist, each producing 40 units of output. If one of the firms cheats on the agreement (assuming the other firm is compliant and continues to produce at 40 units), how much output should the cheating firm produce to maximize profits?

A) 41 units
B) 60 units
C) 80 units
D) 44 units

Question 47

Suppose that two firms are engaged in Bertrand competition with identical goods and each firm has a marginal cost of $33. In a Nash Equilibrium, the price is $____.

A) 66
B) 33
C) 35
D) 20

Question 48

(Table: Airline Baggage Fees II) British Airways and American Airlines have to decide whether or not to charge baggage fees. The revenue for each company that would result from the four possible outcomes is presented in the table. In the Nash equilibrium, British Airways will earn $____ million in revenues.

A) 120
B) 100
C) 80
D) 40

Question 49

A market is characterized with the inverse demand curve P = 130 - 1.5Q, and marginal cost of production is constant at $10. If this market is served by a two-firm cartel that evenly splits the market output, how much output does each firm produce?

A) 20 units
B) 80 units
C) 40 units
D) 65 units

Question 50

Two firms are producing identical goods in a market characterized by the inverse demand curve P = 60 - 2Q, where Q is the sum of Firm 1 and Firm 2's output, q₁ + q₂. Each firm's marginal cost is constant at $12, and fixed costs are zero. Answer the following questions, assuming that the firms are Cournot competitors. In this case, Firm 2 would produce ____ units to maximize profit.

A) 16
B) 12
C) 8
D) 6

Question 51

Suppose that Mystic Energy and E-Storm are the only two producers of hydrogen fuel cells. The market inverse demand curve for hydrogen fuel cells is P = 1,300 - 0.08Q, where Q is the number of fuels cells per month and P is the price per fuel cell. The marginal cost is constant at $500. Acting as a cartel, the owners of Mystic Energy and E-Storm agree to evenly split the market output. In this case, E-Storm produces ____.

A) 5,000
B) 3,000
C) 2,500
D) 1,500

Question 52

Gotcha, the only seller of stun guns, faces the inverse market demand curve P = 400 - 12Q, where Q measures the number of stun guns per day and P is the price per stun gun. The marginal cost is constant at $64. Suppose a new firm, Ouchy, enters the stun gun market. Ouchy's marginal cost is also constant at $64. Gotcha and Ouchy agree to form a cartel and evenly split the market output. In this case, Gotcha's output level is ____.

A) 14
B) 11
C) 9
D) 7

Question 53

Suppose two colas compete in a Bertrand market structure with differentiated products. Demand for the first cola is given by where p₁ is price for cola 1 and p₂ is the price for cola 2. Demand for the second cola is
The costs of providing the colas are C₁ = q₁ and C₂ = q_2, respectively. The second cola firm will charge $____ for its cola.

A) 50.32
B) 48.13
C) 46.23
D) 44.54

Question 54

Suppose that two manufacturers produce identical fireproof safes at a constant marginal cost of $90. The market inverse demand curve for fireproof safes is P = 450 - 2Q, where Q is the total output of fireproof safes produced by the two manufacturers, q₁ + q₂. The firms compete by simultaneously choosing their quantity to produce. At Nash equilibrium, what is the market price of a fireproof safe?

A) $340
B) $210
C) $160
D) $130

Question 55

In a Bertrand competition, with differentiated goods in a market structure of two firms, firm A's reaction function gives:

A) optimal quantity for A as a function of quantity for B.
B) optimal price for A as a function of price for B.
C) optimal price for A as a function of quantity for A and quantity for B.
D) optimal quantity for A as a function of price for B.

Question 56

Which of the following are model assumptions of Bertrand competition with identical goods?
I) The firms compete by choosing the quantity of output produced.
II) The firms agree to coordinate their output and pricing decisions to act like a monopolist.
III) The firms compete by choosing the price of their product.

A) I
B) II
C) III
D) I, II, and III

Question 57

In Bertrand competition with differentiated goods, the demand curve for bags of Wilson tennis balls is q_W = 80 - 4P_W + 2P_D , and the demand curve for bags of Dunlop tennis balls is q_D = 80 - 2P_D + P_W. The two firms both have zero marginal costs. How many bags of tennis balls does each firm produce?

A) q_W = 44; q_D = 44
B) q_W = 64; q_D = 48
C) q_W = 16; q_D = 24
D) q_W = 38; q_D = 32

Question 58

An industry faces the demand curve Q = 400 - 4P, where each firm produces an identical good at a constant marginal cost of $10. The Bertrand equilibrium price is $____ for each firm.

A) 400
B) 200
C) 100
D) 10

Question 59

In an identical-product Bertrand oligopoly, the market inverse demand curve is P = 100 - 0.5Q. Firm A's average cost and marginal cost are constant at $20; Firm B's average cost and marginal cost are constant at $10. What is the equilibrium price in this market?

A) $10
B) $15
C) $20
D) $19.99

Question 60

Ney Inc. and ARN Parts are the only two producers of bulldozer bucket teeth. The owners of the two firms conspire to charge a monopoly price, with each firm serving half the market. The market inverse demand curve is P = 1,000 - 10Q, where Q measures the daily number of sets of bulldozer bucket teeth and P is the price per set. The marginal cost of production for either firm is constant at $200, and fixed costs are zero. Suppose Ney Inc. cheats on the cartel agreement by producing an additional 10 sets of bucket teeth per day (while ARN Parts adheres to the cartel agreement). In this case, ARN Parts will earn a profit of $_____.

A) 6,000
B) 9,000
C) 12,000
D) 8,000

Question 61

Gotcha, the only seller of stun guns, faces the inverse market demand curve P = 400 - 12Q, where Q measures the number of stun guns per day and P is the price per stun gun. The marginal cost is constant at $64. Suppose a new firm, Ouchy, enters the stun gun market. Ouchy's marginal cost is also constant at $64. Gotcha and Ouchy agree to form a cartel and evenly split the market output. Gotcha holds to the agreement, but Ouchy decides to produce 5 more stun guns than its level under the cartel agreement. In this case, the market output is ____.

A) 7
B) 12
C) 14
D) 19

Question 62

In the Cournot model, under the assumption that all firms operating in the industry have the same cost structure, we can write firm i's profit-maximization problem as _____, where Q_i^O is the combined output of all other firms in the market and is firm i's cost function.

A) ;
B) ;
C) ;
D)

Question 63

In a Cournot market structure with two firms, firm A's second-order condition sufficient for maximization is:

A) 0.
B) 0.
C) .
D) .

Question 64

CellBat and DuraBat are the only makers of lawn mower batteries. Their batteries are identical, produced at a constant marginal cost of $25. The market inverse demand curve for lawn mower batteries is P = 145 - 0.5Q, where Q is the total output produced by CellBat and DuraBat, q_C + q_D. How many batteries will each firm produce in Cournot equilibrium?

A) CellBat and DuraBat will each produce 60 batteries.
B) CellBat will produce 40 batteries, and DuraBat will produce 80 batteries.
C) CellBat and DuraBat will each produce 80 batteries.
D) CellBat and DuraBat will each produce 90 batteries.

Question 65

Suppose that Mystic Energy and E-Storm are the only two producers of hydrogen fuel cells. The market inverse demand curve for hydrogen fuel cells is P = 1,500 - 0.08Q, where Q is the number of fuels cells per month and P is the price per fuel cell. The marginal cost is constant at $500. Acting as a cartel, the owners of Mystic Energy and E-Storm agree to evenly split the market output. In this case, Mystic Energy earns a profit of $ ____.

A) 3,062,500
B) 1,531,250
C) 6,125,000
D) 500,000

Question 66

Gotcha, the only seller of stun guns, faces the inverse market demand curve P = 400 - 12Q, where Q measures the number of stun guns per day and P is the price per stun gun. The marginal cost is constant at $64. Gotcha's profit-maximizing price is $____.

A) 400
B) 324
C) 232
D) 212

Question 67

Suppose that Mystic Energy and E-Storm are the only two producers of hydrogen fuel cells. The market inverse demand curve for hydrogen fuel cells is P = 1,300 - 0.08Q, where Q is the number of fuels cells per month and P is the price per fuel cell. The marginal cost is constant at $500. Acting as a cartel, the owners of Mystic Energy and E-Storm agree to evenly split the market output. In this case, Mystic Energy produces ____.

A) 5,000
B) 3,000
C) 2,500
D) 1,500

Question 68

(Table: Gascolator Producers I) Banner and Sense are Bertrand competitors producing identical gascolators (a main line strainer). The inverse market demand curve for gascolators is P = 2,000 - 4Q, where Q is the quantity of gascolators and P is the price per gascolator. Banner and Sense produce gascolators at a constant marginal cost of $80. If Banner charges a price of $80 and Sense charges $80, Banner's quantity sold is ____.

A) 480
B) 475
C) 240
D) 0

Question 69

Two companies are the only snowplow merchants in a small town. Inverse market demand curve is P = 100 - 10Q, where Q = q₁ + q₂ (Firm 1's output = q₁; Firm 2's output = q₂). Each firm has marginal costs of $25. In the Nash equilibrium in this market, Firm 1 produces ____.

A) 5
B) 4
C) 2.5
D) 2

Question 70

Which of the following is NOT a feature of Cournot competition?

A) Firms sell identical products.
B) Firms compete by choosing a quantity to produce.
C) All goods sell at the same price.
D) One firm sets its quantity to produce before the other firm.

Question 71

The output of firms is determined simultaneously in _____ competition but sequentially in _____ competition.

A) Cournot; Bertrand with differentiated goods
B) Stackelberg; Cournot
C) collusion; Cournot
D) Cournot; Stackelberg

Question 72

Gotcha, the only seller of stun guns, faces the inverse market demand curve P = 400 - 12Q, where Q measures the number of stun guns per day and P is the price per stun gun. The marginal cost is constant at $64. Suppose a new firm, Ouchy, enters the stun gun market. Ouchy's marginal cost is also constant at $64. Gotcha and Ouchy agree to form a cartel and evenly split the market output. Gotcha holds to the agreement, but Ouchy decides to produce 5 more stun guns than its level under the cartel agreement. In this case, the market price is $ ____.

A) 232
B) 205
C) 192
D) 172

Question 73

The inverse demand for tacos is given by P = 10 - 0.02Q, where P is the price per taco and Q is the total number of tacos brought to market. There are two taco shops in the local market. Shop 1's cost function is given by C₁ = 0.01q₁², where q₁ is the number of tacos it brings to market. Shop 2's cost function is given by C₂ = 0.01q₂², where q₂ is the number of tacos it brings to market. Assume the two shops compete by setting output (Cournot). Let Q = q₁ + q₂. In equilibrium, the market output is ____.

A) 500
B) 400
C) 300
D) 250

Question 74

As firms enter a monopolistically competitive industry, the existing firms' demand curves will:

A) remain unchanged.
B) shift outward and become more inelastic.
C) shift inward and become more elastic.
D) shift outward and become more elastic.

Question 75

Suppose that Mystic Energy and E-Storm are the only two producers of hydrogen fuel cells. The market inverse demand curve for hydrogen fuel cells is P = 1,300 - 0.08Q, where Q is the number of fuels cells per month and P is the price per fuel cell. The marginal cost is constant at $500. Acting as a cartel, the owners of Mystic Energy and E-Storm agree to evenly split the market output. In this case, the market price is $ ____.

A) 1,200
B) 1,100
C) 1,000
D) 900

Question 76

Suppose that Mystic Energy and E-Storm are the only two producers of hydrogen fuel cells. The market inverse demand curve for hydrogen fuel cells is P = 1,000 - 0.08Q, where Q is the number of fuels cells per month and P is the price per fuel cell. The marginal cost is constant at $500. Acting as a cartel, the owners of Mystic Energy and E-Storm agree to evenly split the market output. In this case, each firm earns a profit of $ ____.

A) 2,343,750
B) 781,250
C) 390,625
D) 1,562,500

Question 77

(Figure: Market Demand Curve I) The graph shows the market demand curve. The equilibrium market quantity in Cournot competition with identical goods is ____.

A) 8
B) 6
C) 5.34
D) 4

Question 78

Suppose the outboard motor market is characterized by Stackelberg competition. The market inverse demand curve for outboard motors is P = 10,000 - 50Q, where Q is the total market output produced by Mercury Marine and Yamaha, q_M + q_Y. Suppose that the marginal cost for both firms is constant at $1,000. If Yamaha is the first-mover, what is the equilibrium price?

A) $1,800
B) $2,600
C) $3,250
D) $4,000

Question 79

Consider two firms engaged in Bertrand competition with differentiated goods and zero marginal costs.
Firm A's demand curve is q_A = 60 - 0.50P_A + 0.40P_B.
Firm B's demand curve is q_B = 72 - 0.50P_B + 0.40P_A.
In a Nash equilibrium, approximately how much profit does Firm A earn?

A) $4,800
B) $3,210
C) $6,040
D) $5,588

Question 80

Suppose that two firms are competing on price. The firms produce identical goods, and the marginal cost of each firm is constant at $15. If one firm is charging a price of $18, the other firm should:

A) raise its price to $18.01.
B) charge $17.99.
C) also charge $18.
D) cut its output to raise the market price well above $18.