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Exam 9: Basic Oligopoly Models

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Question 71

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Suppose that the duopolists competing in Cournot fashion agree to produce the collusive output.Given that firm 2 commits to this collusive output,it pays firm 1 to:

A) cheat by producing a higher level of output.
B) cheat by producing a lower level of output.
C) cheat by raising prices.
D) None of the preceding answers is correct.

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Question 72

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The (inverse)demand in a Cournot duopoly is P = a - b (Q₁ + Q₂),and costs are C₁(Q₁)= c₁Q₁ and C₂(Q₂)= c₂Q₂. Show that the Cournot equilibrium levels of output are $Q _ { 1 } = \frac { a + c _ { 2 } - 2 c _ { 1 } } { 3 b }$ and $Q _ { 2 } = \frac { a + c _ { 1 } - 2 c _ { 2 } } { 3 b }$ .

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Equating MR = MC for firm 1 yields a − b...

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Question 73

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Which of the following is a feature of a contestable market?

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

The Cournot theory of oligopoly assumes rivals will:

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

In the late 1990s,Chrysler announced a new incentive program on its minivans that included subsidized interest rates and cash allowances.Under the plan,consumers could enjoy financing rates as low as 4.9 percent,as well as a $500 cash allowance toward the lease or purchase of a new minivan.What changes in sales would you anticipate if you were the manager of a Dodge/Plymouth franchise,the official dealer of Chrysler? Why?

If firms are in Cournot equilibrium:

Two firms compete as a Stackelberg duopoly.The demand they face is P = 100 − 3Q.The cost function for each firm is C(Q) = 4Q.The outputs of the two firms are:

The profits of the follower in a Stackelberg duopoly:

Consider two firms competing to sell a homogeneous product by setting price.The inverse demand curve is given by P = 20 − Q.Firm 1 has MC₁(Q₁) = 2 and firm 2 has MC₂(Q₂) = 2.25.Based on this information,we can conclude that the market price will be:

If firms are in Cournot equilibrium,they could increase profits by:

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

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

You are a potential entrant into a market that previously has had entry blocked by the government.Your market research has estimated that the inverse market demand curve for this industry is P = 22,500 - 75Q,where $\mathbf { Q } = \sum _ { \mathbf { i } = 1 } ^ { \mathbf { n } } \mathbf { Q } _ { \mathbf { i } }$ .You estimate that if you enter the market,your own cost function will be C_y(Q_y)= 15,300Q_y .The government has invited your firm to enter the industry,but it will require you to pay a one-time license fee of $100,000.You do not know the cost functions of the firms currently in the market; however,the price is now $16,000.Last year 87 units were sold by existing firms.Would you choose to enter this market?