Question 1

A duopoly in which both firms have a Lerner index of monopoly power equal to 0 is probably a:

Accepted Answer

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

Question 2

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.

Question 3

In the presence of large sunk costs, which of the following market structures generally leads to the highest price?

Accepted Answer

A)  Stackelberg.
B)  Cournot.
C)  Bertrand.
D)  Monopoly.

Question 4

In a Cournot oligopoly, a decrease in a firm's marginal cost leads to

Accepted Answer

A)  reduced output and a higher price.
B)  reduced output and a lower price.
C)  higher output and a higher price.
D)  higher output and a lower price.

Question 5

The Cournot theory of oligopoly assumes rivals will

Accepted Answer

A)  keep their output constant.
B)  increase their output whenever a firm increases its output.
C)  decrease output whenever a firm increases its output.
D)  follow the learning curve.

Question 6

You are the CEO of ClipIt, a paper clip manufacturer.Your company enjoys a patented technology that allows it to produce paper clips faster and at a lower cost than your only rival, FastenIt.Clipit uses this advantage to be the first to choose its profit-maximizing output level in the market.The inverse demand function for paper clips is

Accepted Answer

, ClipIt's costs are

, and FastenIt's ...

Question 7

The Bertrand theory of oligopoly assumes

Accepted Answer

A)  firms set prices.
B)  rivals will increase their output whenever a firm increases its output.
C)  rivals will decrease output whenever a firm decreases its output.
D)  rivals will follow the learning curve.

Question 8

The market demand in a Bertrand duopoly is P = 10 - 3Q, and the marginal costs are $1.Fixed costs are zero for both firms.Which of the following statement(s)  is/are true?

Accepted Answer

A)  P = $1.
B)  profits of Firm One = profits of Firm Two.
C)  producer's surplus of Firm One = producer's surplus of Firm Two.
D)  all of the statements associated with this question are correct.

Question 9

Suppose you are the manager of a medium-sized firm that operates in an industry that has a four-firm concentration ratio of 100 percent.All firms in the industry are of equal size.In order to determine your firm's optimal output and price, you must obtain information about how rivals would respond to changes in your decisions.If you were the manager, how would you obtain this information?

Accepted Answer

One method would be to study t...

Question 10

An oligopolist faces a demand curve that is steeper at higher prices than at lower prices.Which of the following is most likely?

Accepted Answer

A)  The firm competes with others in the Cournot fashion.
B)  Other firms match price increases but do not match price reductions.
C)  Other firms match price reductions but do not match price changes.
D)  The firm competes with others in the Bertrand fashion.

Question 11

There are many different models of oligopoly because:

Accepted Answer

A)  beliefs play an important role in oligopolistic competition.
B)  firms do not maximize profits in oligopolistic competition.
C)  oligopoly is the most complicated type of market structure.
D)  beliefs play an important role in oligopolistic competition and oligopoly is the most complicated type of market structure.

Question 12

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.

Question 13

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 is 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 14

Firm one and firm two compete as a Cournot oligopoly.There is an increase in marginal cost for firm one.Which of the following is not true?

Accepted Answer

A)  Firm one will produce less.
B)  Firm two will produce more.
C)  Both firm one's and firm two's reaction functions are shifted.
D)  Profits of firm one will decrease.

Question 15

The profits of the leader in a Stackelberg duopoly

Accepted Answer

A)  are greater than those of the follower.
B)  equal those of the follower.
C)  are less than those of the follower.
D)  are greater than those of a Sweezy oligopolist.

Question 16

Zelda Industries is the only firm of its kind in the world.Due largely to historical accident, it began producing streganomas in 1985 in a vacant warehouse.Virtually anyone with a degree in college chemistry could easily replicate the firm's formula, which is not patent protected.Nonetheless, since 1985 Zelda has averaged accounting profits of 6 percent on investment.This rate is comparable to the average interest rate that large banks paid on deposits over the period.Do you think Zelda is earning monopoly profits? Why?

Accepted Answer

No.In fact, Zelda could have invested fu...

Question 17

Consider two firms competing to sell a homogeneous product by setting price.The inverse demand curve is given by P = 15 - Q.Firm 1 has MC1(Q1)  = 1 and firm 2 has MC2(Q2)  = 1.05.Based on this information we can conclude that the market price will be

Accepted Answer

A)  $1 and each firm will produce 7 units.
B)  $1.05 and each firm will produce 6.975 units.
C)  $1.04 and firm 1 will produce 13.96 units and firm 2 will produce 0 units.
D)  $1 and firm 1 will produce 14 units and firm 2 will produce 0 units.

Question 18

Consider a Stackelberg duopoly with the following inverse demand function: P = 100 - 2Q1 - 2Q2.The firms' marginal cost are identical and given by MCi(Qi)  = 2Qi.Based on this information the Stackelberg leader's marginal revenue function is

Accepted Answer

A)  MR(QL)  = 50 - 2QL + c1.
B)  MR(QL)  = 50 - 2QL + c2.
C)  MR(QF)  = 100 - 2QF + c1.
D)  MR(QF)  = 100 - QF + c2.

Question 19

Which of the following is true?

Accepted Answer

A)  In Bertrand oligopoly each firm reacts optimally to price changes.
B)  In Cournot oligopoly firms engage in quantity competition.
C)  In Sweezy oligopoly a change in marginal cost may not have an effect on output or price.
D)  All of the statements associated with this question are correct.

Question 20

Firm A has a strictly higher marginal cost than firm B's.They compete in a homogeneous product Bertrand duopoly.Which of the following results will not occur?

Accepted Answer

A)  QA B.
B)  ProfitA = 0 B.
C)  Revenue of firm A 
D)  PriceA B.

Exam 9: Basic Oligopoly Models

The Bertrand theory of oligopoly assumes

Correct Answer
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A duopoly in which both firms have a Lerner index of monopoly power equal to 0 is probably a:

Correct Answer
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Correct Answer
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, ClipIt's costs are , and FastenIt's ...
View Answer

In a Cournot oligopoly, a decrease in a firm's marginal cost leads to

Correct Answer
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Correct Answer
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No.In fact, Zelda could have invested fu...
View Answer

The profits of the leader in a Stackelberg duopoly

Correct Answer
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A decrease in firm 1's marginal cost will cause

Correct Answer
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Firm one and firm two compete as a Cournot oligopoly.There is an increase in marginal cost for firm one.Which of the following is not true?

Correct Answer
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In the presence of large sunk costs, which of the following market structures generally leads to the highest price?

Correct Answer
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An oligopolist faces a demand curve that is steeper at higher prices than at lower prices.Which of the following is most likely?

Correct Answer
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Which of the following is not a quantity-setting oligopoly model?

Correct Answer
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The Cournot theory of oligopoly assumes rivals will

Correct Answer
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Consider a Stackelberg duopoly with the following inverse demand function: P = 100 - 2Q₁ - 2Q₂.The firms' marginal cost are identical and given by MC_i(Q_i) = 2Q_i.Based on this information the Stackelberg leader's marginal revenue function is

Correct Answer
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There are many different models of oligopoly because:

Correct Answer
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Which of the following is true?

Correct Answer
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Correct Answer
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One method would be to study t...
View Answer

The market demand in a Bertrand duopoly is P = 10 - 3Q, and the marginal costs are $1.Fixed costs are zero for both firms.Which of the following statement(s) is/are true?

Correct Answer
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If firms are in Cournot equilibrium:

Correct Answer
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Consider two firms competing to sell a homogeneous product by setting price.The inverse demand curve is given by P = 15 - Q.Firm 1 has MC₁(Q₁) = 1 and firm 2 has MC₂(Q₂) = 1.05.Based on this information we can conclude that the market price will be

Correct Answer
verified

Firm A has a strictly higher marginal cost than firm B's.They compete in a homogeneous product Bertrand duopoly.Which of the following results will not occur?

Correct Answer
verified

Exam 9: Basic Oligopoly Models

The Bertrand theory of oligopoly assumes

Correct AnswerverifiedShow Answer

A duopoly in which both firms have a Lerner index of monopoly power equal to 0 is probably a:

Correct AnswerverifiedShow Answer

Correct Answerverified , ClipIt's costs are , and FastenIt's ...View AnswerShow Answer

In a Cournot oligopoly, a decrease in a firm's marginal cost leads to

Correct AnswerverifiedShow Answer

Correct AnswerverifiedNo.In fact, Zelda could have invested fu...View AnswerShow Answer

The profits of the leader in a Stackelberg duopoly

Correct AnswerverifiedShow Answer

A decrease in firm 1's marginal cost will cause

Correct AnswerverifiedShow Answer

Firm one and firm two compete as a Cournot oligopoly.There is an increase in marginal cost for firm one.Which of the following is not true?

Correct AnswerverifiedShow Answer

In the presence of large sunk costs, which of the following market structures generally leads to the highest price?

Correct AnswerverifiedShow Answer

An oligopolist faces a demand curve that is steeper at higher prices than at lower prices.Which of the following is most likely?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

The Cournot theory of oligopoly assumes rivals will

Correct AnswerverifiedShow Answer

Consider a Stackelberg duopoly with the following inverse demand function: P = 100 - 2Q1 - 2Q2.The firms' marginal cost are identical and given by MCi(Qi) = 2Qi.Based on this information the Stackelberg leader's marginal revenue function is

Correct AnswerverifiedShow Answer

There are many different models of oligopoly because:

Correct AnswerverifiedShow Answer

Which of the following is true?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedOne method would be to study t...View AnswerShow Answer

The market demand in a Bertrand duopoly is P = 10 - 3Q, and the marginal costs are $1.Fixed costs are zero for both firms.Which of the following statement(s) is/are true?

Correct AnswerverifiedShow Answer

If firms are in Cournot equilibrium:

Correct AnswerverifiedShow Answer

Consider two firms competing to sell a homogeneous product by setting price.The inverse demand curve is given by P = 15 - Q.Firm 1 has MC1(Q1) = 1 and firm 2 has MC2(Q2) = 1.05.Based on this information we can conclude that the market price will be

Correct AnswerverifiedShow Answer

Firm A has a strictly higher marginal cost than firm B's.They compete in a homogeneous product Bertrand duopoly.Which of the following results will not occur?

Correct AnswerverifiedShow Answer

Correct Answer
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Correct Answer
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Correct Answer
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, ClipIt's costs are , and FastenIt's ...
View Answer

Correct Answer
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Correct Answer
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No.In fact, Zelda could have invested fu...
View Answer

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Consider a Stackelberg duopoly with the following inverse demand function: P = 100 - 2Q₁ - 2Q₂.The firms' marginal cost are identical and given by MC_i(Q_i) = 2Q_i.Based on this information the Stackelberg leader's marginal revenue function is

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
One method would be to study t...
View Answer

Correct Answer
verified

Correct Answer
verified

Consider two firms competing to sell a homogeneous product by setting price.The inverse demand curve is given by P = 15 - Q.Firm 1 has MC₁(Q₁) = 1 and firm 2 has MC₂(Q₂) = 1.05.Based on this information we can conclude that the market price will be

Correct Answer
verified

Correct Answer
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