question
The Cournot theory of oligopoly assumes rivals will:
answer
keep their output constant.
question
In a Sweezy Oligopoly, a decrease in a firm's marginal cost generally leads to:
a) leads to reduced output and a higher price.
b) leads to increased output and a lower price
c) leads to higher output and a higher price.
d) none of the above
a) leads to reduced output and a higher price.
b) leads to increased output and a lower price
c) leads to higher output and a higher price.
d) none of the above
answer
d. None of the answers is correct.
question
The Bertrand model of oligopoly reveals that:
a) capacity constraints are not important in determining market performance.
b) perfectly competitive prices can arise in markets with only a few firms.
c) changes in marginal cost do not affect prices.
d) all of the above.
a) capacity constraints are not important in determining market performance.
b) perfectly competitive prices can arise in markets with only a few firms.
c) changes in marginal cost do not affect prices.
d) all of the above.
answer
perfectly competitive prices can arise in markets with only a few firms.
question
Which of the following are quantity-setting oligopoly models?
answer
Stackelberg and Cournot.
question
Which of the following are price-setting oligopoly models?
answer
Bertrand.
question
Both firms in a Cournot duopoly would enjoy higher profits if:
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) a. and c
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) a. and c
answer
the firms simultaneously reduced output below the Nash equilibrium level.
question
Which of the following is NOT a feature of Sweezy oligopoly?
a) There are two firms in the market serving many consumers.
b) The firms produce homogenous products.
c) Each firm believes that rivals will cut their prices in response to a price reduction, but will not raise their prices in response to a price increase.
d) Barriers to entry exist.
a) There are two firms in the market serving many consumers.
b) The firms produce homogenous products.
c) Each firm believes that rivals will cut their prices in response to a price reduction, but will not raise their prices in response to a price increase.
d) Barriers to entry exist.
answer
The firms produce homogeneous products.
question
Which of the following is a profit-maximizing condition for a Cournot oligopolist?
) MR = MC.
b) Q 1 = Q 2 = . .. = Q n.
c) P = MR.
d) all of the above
) MR = MC.
b) Q 1 = Q 2 = . .. = Q n.
c) P = MR.
d) all of the above
answer
MR = MC.
question
A new firm enters a market which is initially serviced by a Bertrand duopoly charging a price of $20. What will the new price be should the three firms coexist after the entry?
answer
$20
question
"An oligopoly is an oligopoly. Firms behave the same no matter what type of oligopoly it is." This statement is
answer
false
question
Tom and Jack are the only two local gas stations. Although they have different constant marginal costs, they both survive continued competition. Tom and Jack do NOT constitute a:
answer
Bertrand oligopoly.
question
A market is NOT contestable if:
a) all producers have access to the same technology.
b) consumers respond quickly to a price change.
c) existing firms cannot respond quickly to entry by lowering their price.
d) there are sunk costs
a) all producers have access to the same technology.
b) consumers respond quickly to a price change.
c) existing firms cannot respond quickly to entry by lowering their price.
d) there are sunk costs
answer
there are sunk costs.
question
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?
A. Q A > Q B .
B. Profit A < Profit B .
C. Revenue of firm A < Revenue of firm B.
D. Price A = Price B
Cournot duopoly. Which of the following results will NOT occur?
A. Q A > Q B .
B. Profit A < Profit B .
C. Revenue of firm A < Revenue of firm B.
D. Price A = Price B
answer
PriceA < PriceB
question
If firms compete in a Cournot fashion, then
a) each firm views the output of the rival as given.
b) each firm views the prices of rivals as given.
c) each firm views the profits of rivals as given.
d) all of the above
a) each firm views the output of the rival as given.
b) each firm views the prices of rivals as given.
c) each firm views the profits of rivals as given.
d) all of the above
answer
a) each firm views the output of the rival as given
question
With linear demand and constant marginal cost, a Stackelberg leader's profits are ___________ the follower.
answer
greater than
question
An oligopolist faces a demand curve that is steeper at higher prices than at lower prices. Which
of the following is most likely?
of the following is most likely?
answer
Other firms match price increases but do not match price reductions.
question
When firm 1 enjoys a first-mover advantage in a Stackelberg duopoly, it will produce:
answer
more output and charge the same price as firm 2.
question
A slight increase in the marginal cost of a firm definitely leads to a reduction in its output if the firm competes in the:
answer
Cournot fashion and Bertrand fashion.
question
The market demand in a Bertrand duopoly is P = 15 - 4Q, and the marginal costs are $3. Fixed costs are zero for both firms. Which of the following statement(s) is/are true
A. P = $3.
B. P = $10.
C. P = $15.
D. None of the statements associated with this question are correct
A. P = $3.
B. P = $10.
C. P = $15.
D. None of the statements associated with this question are correct
answer
A. P = $3.
question
If firms are in Cournot equilibrium:
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.
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.
answer
firms could increase profits by jointly reducing output.
question
A firm's isoprofit curve is defined as the combinations of outputs produced by:
answer
all firms that yield the firm the same level of profit.
question
Two identical firms compete as a Cournot duopoly. The demand they face is P = 100 - 2Q. The cost function for each firm is C(Q) = 4Q. The equilibrium output of each firm is:
answer
16
question
Two identical firms compete as a Cournot duopoly. The demand they face is P = 100 - 2Q. The cost function for each firm is C(Q) = 4Q. Each firm earns equilibrium profits of:
answer
$512.
question
Two identical firms compete as a Cournot duopoly. The demand they face is P = 100 - 2Q. The cost function for each firm is C(Q) = 4Q. In equilibrium, the deadweight loss is:
answer
$256
question
Two identical firms compete as a Cournot duopoly. The inverse market demand they face is P = 80 - 4Q. The cost function for each firm is C(Q) = 8Q. The price charged in this market
answer
$32
question
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
answer
Q L = 6; Q F = 3.
question
A new firm enters a market which is initially serviced by a Bertrand duopoly charging a price of $30. Assuming that the new firm is equally as efficient as the incumbent firms, what will the new price be should the three firms co-exist after the entry?
answer
Equal to $30
question
Which of the following statements is NOT a condition for a Stackelberg oligopoly?
answer
The market is contestable.
question
With a linear inverse demand function and the same constant marginal costs for both firms in a homogeneous product Stackelberg duopoly, which of the following will result?
answer
Profits of leader > Profits of follower and QL = 2QF.
question
One of the characteristics of a contestable market is that 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.
B. consumers react quickly to a price change.
C. existing firms respond quickly to entry by lowering their price.
D. there are sunk costs.
answer
B. consumers react quickly to a price change.
question
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:
answer
QL = 16; QF = 8.
question
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:
answer
πL = $384; πF = $192.
question
From a consumer's point of view, which type of oligopoly is most desirable?
answer
Bertrand
question
Collusion in oligopoly is difficult to achieve because:
answer
it is prohibited by law and every firm has an incentive to cheat given that others follow the agreement.
question
Since the end of the war in the Persian Gulf, the world price of oil has fallen. But in some areas, consumers have seen little relief at the pump. This phenomenon can be explained by the theory of:
answer
oligopoly.
question
The spirit of equating marginal cost with marginal revenue is NOT held by:
a.perfectly competitive firms.
b.oligopolistic firms.
c.perfectly competitive firms and oligopolistic firms.
d.none of the statements associated with this question are correct
a.perfectly competitive firms.
b.oligopolistic firms.
c.perfectly competitive firms and oligopolistic firms.
d.none of the statements associated with this question are correct
answer
None of the answers is correct.
question
MCI announced a price discount plan for small firms. Their stock immediately fell in price. This shows that:
answer
MCI is probably competing in a Bertrand oligopolistic industry.
question
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?
answer
Sweezy
question
There are many different models of oligopoly because:
answer
beliefs play an important role in oligopolistic competition and oligopoly is the most complicated type of market structure.
question
Which of the following is NOT a type of market structure?
answer
Monopolistic oligopoly
question
Ed just finished an empirical study of oligopoly. He found the following result: "In the examined industry, a firm's demand curve is such that other firms match price increases but do not match price reductions." What kind of oligopoly is the examined industry?
a. Cournot
b. Sweezy
c. Stackberg
4. none of the answers is correct
a. Cournot
b. Sweezy
c. Stackberg
4. none of the answers is correct
answer
None of the answers is correct.
question
Which firm would you expect to make the lowest profits, other things equal?
answer
Bertrand oligopolist
question
Which would you expect to make the highest profits, other things equal?
answer
Stackelberg leader
question
When firm 1 acts as a Stackelberg leader:
a) Firm two produces the monopoly output.
b) Firm one's profit is less than its profit if they compete in a Cournot fashion.
c) Firm two will earn more than if they compete in a Cournot fashion.
d) None of the above.
a) Firm two produces the monopoly output.
b) Firm one's profit is less than its profit if they compete in a Cournot fashion.
c) Firm two will earn more than if they compete in a Cournot fashion.
d) None of the above.
answer
None of the answers is correct.
question
Firm 1 and firm 2 compete as a Cournot oligopoly. There is an increase in marginal cost for firm 1. Which of the following is NOT true?
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
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
answer
Both firm 1's and firm 2's reaction functions are shifted.
question
Two firms produce different goods. Firm 1 has a positive-sloped reaction function. This can be explained best by:
answer
heterogeneous product Bertrand oligopoly.
question
A duopoly in which both firms have a Lerner index of monopoly power equal to 0 is probably a:
answer
Bertrand oligopoly.
question
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 equilibrium output of each firm is the same as a situation where each firm's:
answer
marginal cost increases by t.
question
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:
answer
less than t times the total output of the two firms should there be no sales tax.
question
The producer's surplus of all firms in an oligopoly is usually the least in the case of a:
answer
Bertrand oligopoly.
question
The Bertrand theory of oligopoly assumes:
answer
firms set prices.
question
Which of the following is true?
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.
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.
answer
D. All of the statements associated with this question are correct.
question
In a Cournot oligopoly, a decrease in a firm's marginal cost leads to:
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.
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.
answer
higher output and a lower price.
question
The Sweezy model of oligopoly reveals that
A. capacity constraints are not important in determining market performance.
B. perfectly competitive prices can arise in markets with only a few firms.
C. changes in marginal cost may not affect prices.
D. all of the statements associated with this question are correct.
A. capacity constraints are not important in determining market performance.
B. perfectly competitive prices can arise in markets with only a few firms.
C. changes in marginal cost may not affect prices.
D. all of the statements associated with this question are correct.
answer
C. changes in marginal cost may not affect prices.
question
In the presence of large sunk costs, which of the following market structures generally leads to the highest price
a) Stackelberg. b) Cournot. c) Bertrand. d) Monopoly.
a) Stackelberg. b) Cournot. c) Bertrand. d) Monopoly.
answer
d) Monopoly.
question
Both firms in a Cournot duopoly would experience lower profits if
A. there was an increase in marginal production costs.
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. there was an increase in marginal production costs and ne firm reduced output below the Cournot Nash equilibrium level, while the other firm continued to produce its Cournot Nash equilibrium output
A. there was an increase in marginal production costs.
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. there was an increase in marginal production costs and ne firm reduced output below the Cournot Nash equilibrium level, while the other firm continued to produce its Cournot Nash equilibrium output
answer
...a) there was an increase in marginal production costs
question
Which of the following is a feature of a contestable market?
A. There are several firms in the market serving many consumers.
B. There is a single firm in the market serving many consumers.
C. The market price is equal to marginal cost.
D. There is a single firm in the market serving many consumers and the market price is equal to marginal cost
A. There are several firms in the market serving many consumers.
B. There is a single firm in the market serving many consumers.
C. The market price is equal to marginal cost.
D. There is a single firm in the market serving many consumers and the market price is equal to marginal cost
answer
...
question
Two firms compete in a Stackelberg fashion and firm two is the leader, then
a) firm one views the output of firm two as given.
b) firm two views the output of firm one as given.
c) all of the above
d) none of the above
a) firm one views the output of firm two as given.
b) firm two views the output of firm one as given.
c) all of the above
d) none of the above
answer
a) firm one views the output of firm two as given
question
Suppose that the duopolists competing in Cournot fashion agree to produce the collusive output. Given that firm two commits to this collusive output, it pays firm one 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 above.
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 above.
answer
a) cheat by producing a higher level of output.
question
When firm one acts as a Stackelberg leader
a) Firm two produces the monopoly output.
b) Firm one's profit is less than its profit if they compete in a Cournot fashion.
c) Firm two will earn more than if they compete in a Cournot fashion.
d) None of the above
a) Firm two produces the monopoly output.
b) Firm one's profit is less than its profit if they compete in a Cournot fashion.
c) Firm two will earn more than if they compete in a Cournot fashion.
d) None of the above
answer
d) None of the above
question
Sue and Jane own two local petrol stations. They have identical constant marginal costs, but earn zero economic profits. Sue and Jane constitute
answer
a Bertrand oligopoly
question
The profits of the leader in a Stackelberg duopoly
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 Bertrand oligopolist
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 Bertrand oligopolist
answer
a) are greater than those of the follower.
question
"Tom and Jack are two local petrol stations. Although they have different constant marginal costs, they both survive continued competition." Tom and Jack do not constitute:
answer
a Bertrand oligopoly.
question
Which of the following types of oligopoly competition would you expect to result in the lowest market output, other things equal?
answer
Collusion
question
Two symmetric firms in a Bertrand duopoly face the inverse market demand P = 60 - 3Q, and the marginal costs of the two firms are $6. Also, fixed costs are zero for both firms. What will the market price be?
answer
6
question
Two symmetric firms in a Bertrand duopoly face the inverse market demand P = 60 - 3Q, and the marginal costs of the two firms are $6. Also, fixed costs are zero for both firms. How much output will each firm produce?
answer
9
question
Two identical firms compete as a Cournot duopoly. The inverse market demand they face is P = 150 - 2Q. The cost function for each firm is C(Q) = 6Q. The total industry output will be
answer
48
question
Two identical firms compete as a Cournot duopoly. The inverse market demand they face is P = 150 - 2Q. The cost function for each firm is C(Q) = 6Q. Each firm will earn equilibrium profits of
answer
1,152.
question
Suppose that two firms competing in Cournot fashion agree to produce the collusive output. Given that the two firms both agree to the collusive output, one of the firms can increase their profits by cheating and
A) raising prices.
B) lowering prices.
C) producing less output.
D) None of the responses are correct.
A) raising prices.
B) lowering prices.
C) producing less output.
D) None of the responses are correct.
answer
D) None of the responses are correct.
question
Two firms compete as a Stackelberg duopoly. The inverse market demand function they face is P = 65 - 3Q. The cost function for each firm is C(Q) = 11Q.
The outputs of the two firms are
The outputs of the two firms are
answer
QL = 9; QF = 4.5.
question
Two firms compete as a Stackelberg duopoly. The inverse market demand function they face is P = 65 - 3Q. The cost function for each firm is C(Q) = 11Q.
The market price charged will be
The market price charged will be
answer
24.5
question
Which of the following is correct?
A) In Cournot oligopoly each firm believes that their rivals will hold their output constant if it changes its output.
B) In Betrand oligopoly firms produce a differentiated product at an increasing marginal cost and engage in price competition.
C) In Sweezy oligopoly each firm believes rivals will increase their prices in response to a price reduction, but will not raise prices in response to price decreases.
D) In oligopoly a change in marginal cost never has an effect on output or price.
A) In Cournot oligopoly each firm believes that their rivals will hold their output constant if it changes its output.
B) In Betrand oligopoly firms produce a differentiated product at an increasing marginal cost and engage in price competition.
C) In Sweezy oligopoly each firm believes rivals will increase their prices in response to a price reduction, but will not raise prices in response to price decreases.
D) In oligopoly a change in marginal cost never has an effect on output or price.
answer
A) In Cournot oligopoly each firm believes that their rivals will hold their output constant if it changes its output.
question
If a new entrant wants to leave a contestable market,
A) another firm will always want to enter to take its place.
B) all, or nearly all, the invested capital values can be recovered.
C) its leaving will be contested by government regulators that seek to limit exit.
D) it will have to accept large losses in its capital investment, so it is unlikely to exit.
A) another firm will always want to enter to take its place.
B) all, or nearly all, the invested capital values can be recovered.
C) its leaving will be contested by government regulators that seek to limit exit.
D) it will have to accept large losses in its capital investment, so it is unlikely to exit.
answer
all, or nearly all, the invested capital values can be recovered.
question
A basic characteristic of the firms in an oligopoly market is that firms exhibit
answer
interdependent behaviors and are large relative to the total market.
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