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Exam 11: Oligopoly

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Question 1

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Two local ready-mix cement manufacturers,Here and There,have combined demand given by Q = 105 - P.Their total costs are given by TC_Here = 5Q_Here + 0.5Q²_Here and TC_There = 5Q_There + 0.5Q²_There.If they successfully collude,their maximum joint profits will be:

A) $500.
B) $1,000.
C) $1,600.
D) $2,000.
E) $2,500.

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D

Question 2

Multiple Choice

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Duopolists A and B face the following demand curves: Q_A = 100 - 2P_A + 2P_B and Q_B = 100 - 2P_B + 2P_A.If both firms have zero marginal cost,what are the profit-maximizing prices and quantities?

A) P_A = 100, Q_A = 60, P_B = 80, Q_B = 140.
B) P_A = 25, Q_A = 100, P_B = 25, Q_B = 100.
C) P_A = 50, Q_A = 80, P_B = 40, Q_B = 120.
D) P_A = 50, Q_A = 100, P_B = 50, Q_B = 100.
E) P_A = 60, Q_A = 60, P_B = 40, Q_B = 140.

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Question 3

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Glyde Air Fresheners is the dominant firm in the solid room aromatizer industry,which has a total market demand given by Q = 80 - 2P.Glyde has competition from a fringe of four small firms that produce where their individual marginal costs equal the market price.The fringe firms each have total costs given by TC_i = 10Q_i + 2Q²_i .If Glyde's total costs are given by TC_G = 100 + 6Q_G,what is Glyde's maximum profit?

In the United States most cartels were declared illegal by the:

Suppose duopolists in the market for spring water share a market demand curve given by P = 50 - 0.02Q,where P is the price per gallon and Q is thousands of gallons of water per day.The marginal cost of producing water is near zero for both firms.If one firm acts as a first mover,the second firm will produce:

The optimal output and price for the cartel shown in the accompanying diagram is:

Oligopoly is the only market structure in which one finds:

The kinked demand model assumes firms will:

What is the advantage to a particular firm of cheating on an otherwise effective cartel?

Sticky prices are an outcome of the kinked demand model because:

Two local ready-mix cement manufacturers,Here and There,have combined demand given by Q = 105 - P.Their total costs are given by TC_Here = 5Q_Here + 0.5Q²_Here and TC_There = 5Q_There + 0.5Q²_There.If they cannot successfully collude and instead produce where the market price equals marginal cost,each firm's profits will be:

The price leadership strategy is most appropriate when a market is:

Glyde Air Fresheners is the dominant firm in the solid room aromatizer industry,which has a total market demand given by Q = 80 - 2P.Glyde has competition from a fringe of four small firms that produce where their individual marginal costs equal the market price.The fringe firms each have total costs given by TC_i = 10Q_i + 2Q²_i.If Glyde's total costs are given by TC_G = 100 + 6Q_G,what are the total profits of the fringe firms?

Suppose duopolists in the market for spring water share a market demand curve given by P = 50 - 0.02Q,where P is the price per gallon and Q is thousands of gallons of water per day.The marginal cost of producing water is near zero for both firms.If firm A produces zero,firm B's best response is producing:

Whopper Stoppers Inc.chooses a price for its sink stoppers,and other firms always charge the same price.Whopper Stoppers Inc.is:

A cartel is:

If the market described in the accompanying diagram is dominated by a cartel,the loss in total surplus relative to perfectly competitive market conditions will be:

If a cartel is working properly,its firms will likely be producing where (MC_i is each firm i's marginal cost,MR is market marginal revenue,and P is price) :

While a cartel is holding together,its individual members' demand curves are likely to be:

Cartels can only exist: