Which of the following is true?
In Bertrand oligopoly each firm believes that its rivals will hold their output constant if it changes its output.
In Cournot oligopoly firms produce an identical product at a constant marginal cost and engage in price competition.
In oligopoly a change in marginal cost never has an effect on output or price.
None of the answers is correct.
An oligopolist faces a demand curve that is steeper at higher prices than at lower prices. Which of the following is most likely?
The firm competes with others in the Cournot fashion.
Other firms match price increases but do not match price reductions.
Other firms match price reductions but do not match price changes.
The firm competes with others in the Bertrand fashion.
$1,024.
$2,048.
$4,096.
$512.
$512; Profit=(P-MC)Q
P=100-2Q for each firm so,
P=100-2(Q1+Q2) is price for entire market
C(Q)=4Q, so MC=4
MR=MC
1. Find MR's:
MR1= a-bQ2-2bQ1--> 100-2(Q2)-4(Q1)
MR2= a-bQ1-2bQ2--> 100-2(Q1)-4(Q2)
2. Use MR to get reaction functions:
Q1=r1(Q2)=(a-c1)/2b -.5(Q2)---> Q1= 24 -.5(Q2)
---------------------------------> Q2= 24-.5(Q1)
3. Use reaction functions to solve for Q:
Q1= 24 -.5(24-.5(Q1))
Q1= 12 + 1/4Q1
3/4Q1=12*4/3=Q=16 for each firm
4. Solve for price using Q1 and Q2
P=100-2(16+16)
100-2(32)
100-64
P=36
5. Solve for profit:
Profit=(P-MC)(Q)
36-4=32*16=$512
Profits of leader > Profits of follower.
QL = 2QF.
PL > PF.
Profits of leader > Profits of follower and QL = 2QF.
Profits of leader > Profits of follower and QL = 2QF;
In a Stackelberg duopoly, if MC are equal and inverse demand function is linear, profits will be greater than follower and output will be double.
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:
QL = 16; QF = 8.
QL = 24; QF = 12.
QL = 12; QF = 8.
QL = 20; QF = 15.
The spirit of equating marginal cost with marginal revenue is NOT held by:
perfectly competitive firms.
oligopolistic firms.
perfectly competitive firms and oligopolistic firms
None of the answers is correct.
Sweezy
Cournot
Stackelberg
Bertrand
Sweezy;
In a sweezy oligopoly, firms believe that rivals will match a price reduction but not a price increase. This leads to a kinked MR and demand curve.
Which of the following is NOT a type of market structure?
Monopolistic competition
Perfect competition
Monopolistic oligopoly
Monopoly
Sweezy model
Cournot model
Stackelberg model
None of the answers is correct.
Bertrand oligopolist
Cournot oligopolist
Sweezy oligopolist
Stackelberg leader
Bertrand oligopolist; firms in bertrand oligopolies make zero economic profit, similar to perfectly competitive market.
The Sweezy model of oligopoly reveals that:
capacity constraints are not important in determining market performance.
perfectly competitive prices can arise in markets with only a few firms.
changes in marginal cost may not affect prices.
All of the statements associated with this question are correct.
Stackelberg
Cournot
Bertrand
All of the choices are quantity-setting models.
Bertrand and Cournot oligopolies.
Cournot and Stackelberg oligopolies.
Bertrand and Stackelberg oligopolies.
None of the answers is correct.
Stackelberg.
Cournot.
Bertrand.
Stackelberg and Cournot.
Stackelberg and Cournot; are quantity setting oligopolies.
Cournot firms simultaneously choose quantities believing rivals will hold Q constant, while Stackelberg firms pick quantity in a sequential order.
CSCollusion > CSStackelberg > CSCournot > CSBertrand
CSBertrand > CSStackelberg > CSCournot > CSCollusion
CSBertrand > CSCournot > CSStackelberg > CSCollusion
CSStackelberg > CSBertrand > CSCournot > CSCollusion
CSBertrand > CSStackelberg > CSCournot > CSCollusion;
We can eliminate A and B because Bertrand oligopoly gives most consumer surplus, since it acts like a perfectly competitive market. We also know that collusion extracts consumer surplus.
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?
QCollusion < QStackelberg < QCournot < QBertrand
QCollusion < QCournot < QStackelberg < QBertrand
QBertrand < QCollusion < QCournot < QStackelberg
QBertrand < QStackelberg < QCournot < QCollusion
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 profits in the different equilibrium oligopoly models will follow which of the following orderings?
πBertand > πCollusion > πStackelberg > πCournot
πCollusion > πCournot > πStackelberg > πBertand
πCollusion > πStackelberg > πCournot > πBertand
None of the answers is correct.
Consider a market consisting of two firms where the inverse demand curve is given by P = 500 − 2(Q1 + Q2). If the Stackelberg leader's and follower's marginal costs are zero, the leader's marginal revenue is:
MR(QL, QF) = 125 − QL + 0.5QF.
MR(QL) = 250 − 2QL.
MR(QF) = 250 − 2QF.
MR(QL, QF) = 125 − 0.5QL + QF.
Consider a Stackelberg duopoly with the following inverse demand function: P = 100 − 2Q1 − 2Q2. The firms' marginal costs are identical and are given by MCi(Qi) = 2. Based on this information, the follower's reaction function is:
rF(QL) = 24.5 − 0.5QF.
QL = 49 − 0.5QF.
rF(QL) = 24.5 − 0.5QL.
QF = 49 − 0.25QL.
Which of the following is true about a Sweezy oligopoly?
The marginal cost function has a downward "jump" or "discontinuity."
The marginal revenue function has a downward "jump" or "discontinuity."
The marginal cost function has an upward "jump" or "discontinuity."
The marginal revenue function has an upward "jump" or "discontinuity."
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