Question 1

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 2

The inverse demand in a Cournot duopoly is P = a - b(Q1 + Q2) , and costs are C1(Q1)  = c1Q1 and C2(Q2)  = c2Q2. The government has imposed a per-unit tax of $t on each unit sold by each firm. The tax revenue is:

Accepted Answer

A)   t times the total output of the two firms should there be no sales tax.
B)   less than t times the total output of the two firms should there be no sales tax.
C)   greater than t times the total output of the two firms should there be no sales tax.
D)   None of the answers is correct.

Question 3

One of the characteristics of a contestable market is that:

Accepted Answer

A)   all firms have different productive technology.
B)   consumers react quickly to a price change.
C)   existing firms respond quickly to entry by lowering their price.
D)   there are sunk costs.

Question 4

Which would you expect to make the highest profits, other things equal?

Accepted Answer

A)   Bertrand oligopolist
B)   Cournot oligopolist
C)   Stackelberg leader
D)   Stackelberg follower C

Question 5

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 f...

Question 6

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 7

An oligopolist has a marginal revenue curve that jumps down at 500 units of output. What kind of oligopoly does the firm most likely belong to?

Accepted Answer

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

Question 8

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 9

A decrease in firm 2's marginal cost will cause:

Accepted Answer

A)   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.
B)   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.
C)   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.
D)   a downward shift in 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.

Question 10

The Cournot theory of oligopoly is based on the assumption that each firm believes that rivals will:

Accepted Answer

A)   keep their output constant if it changes its output.
B)   increase their output whenever it increases its output.
C)   decrease their output whenever it increases its output.
D)   randomly change output whenever it changes its output.

Question 11

Both firms in a Cournot duopoly would enjoy lower profits if:

Accepted Answer

A)   the firms simultaneously reduced output below the Nash equilibrium level.
B)   each firm simultaneously increased output above the Nash equilibrium level.
C)   one firm reduced output below the Cournot Nash equilibrium level, while the other firm continued to produce its Cournot Nash equilibrium output.
D)   None of the answers is correct.

Question 12

Which of the following are price-setting oligopoly models?

Accepted Answer

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

Question 13

A firm's isoprofit curve is defined as the combinations of outputs produced by:

Accepted Answer

A)   a firm that earns it the same level of profits.
B)   all firms that yield the firm the same level of profit.
C)   all firms that make total industry profits constant.
D)   None of the answers is correct.

Question 14

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 15

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

Accepted Answer

A)   QA B
B)   ProfitA B
C)   Revenue of firm A 
D)   PriceA B

Question 16

In Gelate, Pennsylvania, the market for compact discs has evolved as follows: There are two firms that each use a marquee to post the price they charge for compact discs. Each firm buys CDs from the same supplier at a cost of $5.00 per disc. The inverse market demand in their area is given by P = 10 - 2Q, where Q is the total output produced by the two firms.
a. Solve for the Bertrand equilibrium price and market output.
b. Would your answer differ if the products were not perfect substitutes? Explain.

Accepted Answer

a. P = MC = $5. To find industry output, we find Q such that P = 5 = 10 - 2Q. Solving for Q gives us industry output of 2.5 units.
b. When goods are perfect substitutes, firms are forced to charge a price equal to marginal cost, otherwise they sell nothing. However, if consumers view the goods as heterogeneous (differentiated products) a firm does not lose the entire market if it prices above another firm's price.

Question 17

Two firms compete as a Stackelberg duopoly. The inverse market demand they face is P = 62 - 4.5Q. The cost function for each firm is C(Q)  = 8Q. The outputs of the two firms are:

Accepted Answer

A)   QL = 48; QF = 24.
B)   QL = 35; QF = 6.
C)   QL = 6; QF = 3.
D)   None of the answers is correct. C

Question 18

"An oligopoly is an oligopoly. Firms behave the same no matter what type of oligopoly it is." This statement is:

Accepted Answer

A)   true.
B)   false.
C)   true of homogeneous product industries.
D)   None of the answers is correct.

Question 19

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 profits of the two firms are:

Accepted Answer

A)   πL = $384; πF = $192.
B)   πL = $192; πF = $91.
C)   πL = $56; πF = -$28.
D)   πL = $56; πF = $28.

Question 20

Consider a market consisting of two firms where the inverse demand curve is given by P = 500 - 2Q1 - 2Q2. Each firm has a marginal cost of $50. Based on this information, we can conclude that aggregate quantity in the different equilibrium oligopoly models will follow which of the following orderings?

Accepted Answer

A)   QCollusion Stackelberg Cournot Bertrand
B)   QCollusion Cournot Stackelberg Bertrand
C)   QBertrand Collusion Cournot Stackelberg
D)   QBertrand Stackelberg Cournot Collusion

Exam 9: Basic Oligopoly Models

The profits of the leader in a Stackelberg duopoly:

Correct Answer
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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. The government has imposed a per-unit tax of $t on each unit sold by each firm. The tax revenue is:

Correct Answer
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One of the characteristics of a contestable market is that:

Correct Answer
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Which would you expect to make the highest profits, other things equal?

Correct Answer
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C

Correct Answer
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No. In fact, Zelda could have invested f...
View 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 Answer
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An oligopolist has a marginal revenue curve that jumps down at 500 units of output. What kind of oligopoly does the firm most likely belong to?

Correct Answer
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The Cournot theory of oligopoly assumes rivals will:

Correct Answer
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A decrease in firm 2's marginal cost will cause:

Correct Answer
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The Cournot theory of oligopoly is based on the assumption that each firm believes that rivals will:

Correct Answer
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Both firms in a Cournot duopoly would enjoy lower profits if:

Correct Answer
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Which of the following are price-setting oligopoly models?

Correct Answer
verified

A firm's isoprofit curve is defined as the combinations of outputs produced by:

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

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

Correct Answer
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Two firms compete as a Stackelberg duopoly. The inverse market demand they face is P = 62 - 4.5Q. The cost function for each firm is C(Q) = 8Q. The outputs of the two firms are:

Correct Answer
verified
C

"An oligopoly is an oligopoly. Firms behave the same no matter what type of oligopoly it is." This statement is:

Correct Answer
verified

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 profits of the two firms are:

Correct Answer
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Correct Answer
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Exam 9: Basic Oligopoly Models

The profits of the leader in a Stackelberg duopoly:

Correct AnswerverifiedShow Answer

The inverse demand in a Cournot duopoly is P = a - b(Q1 + Q2) , and costs are C1(Q1) = c1Q1 and C2(Q2) = c2Q2. The government has imposed a per-unit tax of $t on each unit sold by each firm. The tax revenue is:

Correct AnswerverifiedShow Answer

One of the characteristics of a contestable market is that:

Correct AnswerverifiedShow Answer

Which would you expect to make the highest profits, other things equal?

Correct AnswerverifiedC

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

An oligopolist has a marginal revenue curve that jumps down at 500 units of output. What kind of oligopoly does the firm most likely belong to?

Correct AnswerverifiedShow Answer

The Cournot theory of oligopoly assumes rivals will:

Correct AnswerverifiedShow Answer

A decrease in firm 2's marginal cost will cause:

Correct AnswerverifiedShow Answer

The Cournot theory of oligopoly is based on the assumption that each firm believes that rivals will:

Correct AnswerverifiedShow Answer

Both firms in a Cournot duopoly would enjoy lower profits if:

Correct AnswerverifiedShow Answer

Which of the following are price-setting oligopoly models?

Correct AnswerverifiedShow Answer

A firm's isoprofit curve is defined as the combinations of outputs produced by:

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

Correct AnswerverifiedShow Answer

Two firms compete as a Stackelberg duopoly. The inverse market demand they face is P = 62 - 4.5Q. The cost function for each firm is C(Q) = 8Q. The outputs of the two firms are:

Correct AnswerverifiedC

"An oligopoly is an oligopoly. Firms behave the same no matter what type of oligopoly it is." This statement is:

Correct AnswerverifiedShow Answer

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 profits of the two firms are:

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct Answer
verified

The inverse demand in a Cournot duopoly is P = a - b(Q₁ + Q₂) , and costs are C₁(Q₁) = c₁Q₁ and C₂(Q₂) = c₂Q₂. The government has imposed a per-unit tax of $t on each unit sold by each firm. The tax revenue is:

Correct Answer
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Correct Answer
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Correct Answer
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C

Correct Answer
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No. In fact, Zelda could have invested f...
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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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
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Correct Answer
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Correct Answer
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C

Correct Answer
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Correct Answer
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Correct Answer
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