Managerial Economics & Business Strategy 8th Edition by Michael Baye , Jeff Prince Test bank

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Managerial Economics & Business Strategy 8th Edition by Michael Baye , Jeff Prince Test bank

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Chapter 09
Basic Oligopoly Models

Multiple Choice Questions

1. The Cournot theory of oligopoly assumes rivals will:

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.

2. Which of the following is true?

A. In Bertrand oligopoly each firm believes that its rivals will hold their output constant if it changes its output.

B. In Cournot oligopoly firms produce an identical product at a constant marginal cost and engage in price competition.

C. In oligopoly a change in marginal cost never has an effect on output or price.

D. None of the answers is correct.

3. In a Sweezy Oligopoly, a decrease in a firms marginal cost generally leads to:

A. reduced output and a higher price.

B. increased output and a lower price.

C. higher output and a higher price.

D. None of the answers is correct.

4. 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 statements associated with this question are true.

5. Which of the following are quantity-setting oligopoly models?

A. Stackelberg.

B. Cournot.

C. Bertrand.

D. Stackelberg and Cournot.

6. Which of the following are price-setting oligopoly models?

A. Stackelberg.

B. Cournot.

C. Bertrand.

D. Cournot and Stackelberg.

7. 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. the firms simultaneously reduced output below the Nash equilibrium level and one firm reduced output below the Cournot Nash equilibrium level, while the other firm continued to produce its Cournot Nash equilibrium output.

8. Which of the following is NOT a feature of Sweezy oligopoly?

A. There are few firms in the market serving many consumers.

B. The firms produce homogeneous 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.

9. Which of the following is a profit-maximizing condition for a Cournot oligopolist?

A. MR = MC.

B. Q1 = Q2 = = Qn.

C. P = MR.

D. All of the statements associated with this question are correct.

10. 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?

A. $25

B. $20

C. $15

D. None of the answers is correct.

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

A. true.

B. false.

C. true of homogeneous product industries.

D. None of the answers is correct.

12. 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:

A. Sweezy oligopoly.

B. Cournot oligopoly.

C. Stackelberg oligopoly.

D. Bertrand oligopoly.

13. 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.

14. 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. QA < QB B. ProfitA < ProfitB C. Revenue of firm A < Revenue of firm B D. PriceA < PriceB 15. If firms compete in a Cournot fashion, then each firm views the: A. output of rivals as given. B. prices of rivals as given. C. profits of rivals as given. D. All of the statements associated with this question are correct. 16. Two firms compete in a Stackelberg fashion. If firm 2 is the leader, then: A. firm 1 views the output of firm 2 as given. B. firm 2 views the output of firm 1 as given. C. Both firm 1 views the output of firm 2 as given and firm 2 views the output of firm 1 as given are correct. D. None of the answers is correct. 17. With linear demand and constant marginal cost, a Stackelberg leader's profits are ___________ the follower. A. less than B. equal to C. greater than D. either less than or greater than 18. An oligopolist faces a demand curve that is steeper at higher prices than at lower prices. Which of the following is most likely? 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. 19. When firm 1 enjoys a first-mover advantage in a Stackelberg duopoly, it will produce: A. more output and charge a lower price than firm 2. B. more output and charge the same price as firm 2. C. less output and charge the same price as firm 2. D. less output and charge a higher price than firm 2. 20. A slight increase in the marginal cost of a firm definitely leads to a reduction in its output if the firm competes in the: A. Sweezy fashion. B. Cournot fashion. C. Bertrand fashion. D. Cournot fashion and Bertrand fashion. 21. The market demand in a Bertrand duopoly is P = 10 - 3Q, and the marginal costs are $1. Fixed costs are zero for both firms. Which of the following statement(s) is/are true? A. P = $1. B. Profits of firm 1 = profits of firm 2. C. Producer's surplus of firm 1 = producer's surplus of firm 2. D. All of the statements associated with this question are correct. 22. 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. 23. A firm's isoprofit curve is defined as the combinations of outputs produced by: 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. 24. 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: A. 8. B. 16. C. 32. D. 36. 25. 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: A. $1,024. B. $2,048. C. $4,096. D. $512. 26. 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: A. $128. B. $256. C. $384. D. $512. 27. Which of the following statements is NOT a condition for a Stackelberg oligopoly? A. The market is contestable. B. Barriers to entry exist. C. A single firm (the leader) selects an output before all other firms choose their outputs. D. The firms produce either differentiated or homogeneous products. 28. 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? A. Profits of leader > Profits of follower.

B. QL = 2QF.

C. PL > PF.

D. Profits of leader > Profits of follower and QL = 2QF.

29. 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 answers is correct.

30. 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:

A. QL = 16; QF = 8.

B. QL = 24; QF = 12.

C. QL = 12; QF = 8.

D. QL = 20; QF = 15.

31. 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:

A. L = $384; F = $192.

B. L = $192; F = $91.

C. L = $56; F = -$28.

D. L = $56; F = $28.

32. From a consumers point of view, which type of oligopoly is most desirable?

A. Sweezy

B. Cournot

C. Stackelberg

D. Bertrand

33. Collusion in oligopoly is difficult to achieve because:

A. it is prohibited by law.

B. every firm has an incentive to cheat given that others follow the agreement.

C. firms usually take care of consumers interests as a decision priority.

D. it is prohibited by law and every firm has an incentive to cheat given that others follow the agreement.

34. 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:

A. perfect competition.

B. monopolistic competition.

C. oligopoly.

D. monopoly.

35. 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 answers is correct.

36. MCI announced a price discount plan for small firms. Their stock immediately fell in price. This shows that:

A. MCI is probably competing in a Bertrand oligopolistic industry.

B. stockholders are sometimes not rational.

C. there is increased demand for MCIs stock.

D. AT&T sold out its stock of MCI just after the announcement.

37. 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?

A. Sweezy

B. Cournot

C. Stackelberg

D. Bertrand

38. There are many different models of oligopoly because:

A. beliefs play an important role in oligopolistic competition.

B. firms do not maximize profits in oligopolistic competition.

C. oligopoly is the most complicated type of market structure.

D. beliefs play an important role in oligopolistic competition and oligopoly is the most complicated type of market structure.

39. Which of the following is NOT a type of market structure?

A. Monopolistic competition

B. Perfect competition

C. Monopolistic oligopoly

D. Monopoly

40. Ed just finished an empirical study of oligopoly. He found the following result: In the examined industry, a firms 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. Sweezy model

B. Cournot model

C. Stackelberg model

D. None of the answers is correct.

41. Which of the following is true?

A. If there are only two firms in a market, prices must be above marginal cost.

B. If there is only one firm in a market, prices must be above marginal cost.

C. Both if there are only two firms in a market, prices must be above marginal cost and if there is only one firm in a market, prices must be above marginal cost are correct.

D. None of the answers is correct.

42. Which firm would you expect to make the lowest profits, other things equal?

A. Bertrand oligopolist

B. Cournot oligopolist

C. Sweezy oligopolist

D. Stackelberg leader

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

A. Bertrand oligopolist

B. Cournot oligopolist

C. Stackelberg leader

D. Stackelberg follower

44. When firm 1 acts as a Stackelberg leader:

A. Firm 2 produces the monopoly output.

B. Firm 1s profit is less than its profit if they compete in a Cournot fashion.

C. Firm 2 will earn more than if they compete in a Cournot fashion.

D. None of the answers is correct.

45. 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 1 will produce less.

B. Firm 2 will produce more.

C. Both firm 1s and firm 2s reaction functions are shifted.

D. Profits of firm 1 will decrease.

46. Two firms produce different goods. Firm 1 has a positive-sloped reaction function. This can be explained best by:

A. homogeneous product Cournot oligopoly.

B. homogeneous product Bertrand oligopoly.

C. heterogeneous product Bertrand oligopoly.

D. None of the answers is correct.

47. A duopoly in which both firms have a Lerner index of monopoly power equal to 0 is probably a:

A. Sweezy oligopoly.

B. Cournot oligopoly.

C. Stackelberg oligopoly.

D. Bertrand oligopoly.

48. 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 firms:

A. demand increases by t.

B. demand decreases by t.

C. marginal cost increases by t.

D. marginal cost decreases by t.

49. 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:

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.

50. The producers surplus of all firms in an oligopoly is usually the least in the case of a:

A. Sweezy oligopoly.

B. Cournot oligopoly.

C. Stackelberg oligopoly.

D. Bertrand oligopoly.

51. The Bertrand theory of oligopoly assumes:

A. firms set prices.

B. rivals will increase their output whenever a firm increases its output.

C. rivals will decrease output whenever a firm decreases its output.

D. rivals will follow the learning curve.

52. 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.

53. In a Cournot oligopoly, a decrease in a firms 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.

54. 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.

55. Which of the following is NOT a quantity-setting oligopoly model?

A. Stackelberg

B. Cournot

C. Bertrand

D. All of the choices are quantity-setting models.

56. 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

57. 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 one firm reduced output below the Cournot Nash equilibrium level, while the other firm continued to produce its Cournot Nash equilibrium output.

58. 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.

59. Which of the following is true of a perfectly contestable market?

A. P = MC

B. P > MC

C. P < ATC D. P > MC and P < ATC 60. A new firm enters a market which is initially serviced by a Cournot duopoly charging a price of $20. What will the new market price be should the three firms coexist after the entry? A. $20 B. Below $20 C. Above $20 D. None of the answers is correct. 61. "An oligopoly is an oligopoly. Firms behave the same no matter what type of oligopoly it is." This statement is true of: A. Bertrand and Cournot oligopolies. B. Cournot and Stackelberg oligopolies. C. Bertrand and Stackelberg oligopolies. D. None of the answers is correct. 62. Sue and Jane own two local gas stations. They have identical constant marginal costs, but earn zero economic profits. Sue and Jane constitute: A. a Sweezy oligopoly. B. a Cournot oligopoly. C. a Bertrand oligopoly. D. None of the answers is correct. 63. 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 Sweezy oligopolist. 64. An important condition for a contestable market is: A. all producers have different technologies. B. there are high transaction costs. C. existing firms cannot respond quickly to entry by lowering their price. D. there are sunk costs. 65. The Cournot theory of oligopoly is based on the assumption that each firm believes that rivals will: 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. 66. Which of the following is true? A. In Bertrand oligopoly markets, each firm believes that its rivals will hold their output constant if it changes its output. B. In Cournot oligopoly markets, firms produce an identical product at a constant marginal cost and engage in price competition. C. In Sweezy oligopoly markets, each firm believes rivals will cut their prices in response to a price reduction, but will not raise prices in response to price increases. D. In oligopoly markets, a change in marginal cost never has an effect on output or price. 67. Which of the following is/are NOT price-setting oligopoly models? A. Stackelberg. B. Cournot. C. Bertrand. D. Stackelberg and Cournot. 68. 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 coexist after the entry? A. Above $30 B. Below $30 C. Equal to $30 D. Unable to tell given the information provided. 69. 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. 70. 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. QA > QB

B. ProfitA < ProfitB C. Revenue of firm A < Revenue of firm B D. PriceA = PriceB 71. 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 answers is correct. 72. 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 will be: A. $12. B. $32. C. $48. D. $56. 73. 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: A. QL = 48; QF = 24. B. QL = 35; QF = 6. C. QL = 6; QF = 3. D. None of the answers is correct. 74. Which of the following is NOT a feature of Sweezy oligopoly? A. There are a few firms in the market serving many consumers. B. The firms produce differentiated 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. Free entry and exit occurs in the market. 75. The profits of the follower in a Stackelberg duopoly: A. are greater than those of the leader. B. equal those of the leader. C. are less than those of the leader. D. All the statements associated with this question are correct. 76. If firms are in Cournot equilibrium, they could increase profits by: A. jointly increasing output. B. jointly reducing output. C. unilaterally increasing prices. D. unilaterally reducing prices. 77. There are many different models of oligopoly because: A. beliefs are not incorporated in oligopolistic competition. B. firms do not maximize profits in oligopolistic competition. C. oligopoly is the most complicated type of market structure. D. beliefs are not incorporated in oligopolistic competition and oligopoly is the most complicated type of market structure. 78. Consider a Cournot duopoly with the following inverse demand function: P = 100 - 2Q1 - 2Q2. The firms' marginal costs are identical and are given by MCi(Qi) = 2Qi. Based on this information, firm 1 and 2's marginal revenue functions are: A. MR1(Q1,Q2) = 100 - 2Q1 - Q2 and MR2(Q1,Q2) = 100 - Q1 - 2Q2. B. MR1(Q1,Q2) = 100 - 4Q1 - 2Q2 and MR2(Q1,Q2) = 100 - 2Q1 - 4Q2. C. MR1(Q1,Q2) = 100 - 2Q1 - 4Q2 and MR2(Q1,Q2) = 100 - 4Q1 - 2Q2. D. MR1(Q1,Q2) = 24.5 - 0.5Q2 and MR2(Q1,Q2) = 24.5 - 0.5Q1. 79. Consider a Cournot duopoly with the following inverse demand function: P = 100 - 2Q1 - 2Q2. The firms' marginal costs are identical and are given by MCi(Qi) = 2Qi. Based on this information, firm 1 and 2's reaction functions are: A. r1(Q2) = 24.5 - 0.5Q1 and r2(Q1) = 24.5 - 0.5Q2. B. r1(Q2) = 24.5 - 0.5Q2 and r2(Q1) = 24.5 - 0.5Q1. C. Q1 = 49 - 0.5Q2 and Q2 = 49 - 0.5Q1. D. Q1 = 49 - 0.25Q2 and Q2 = 49 - 0.25Q1. 80. Consider a Cournot duopoly with the following inverse demand function: P = 100 - 2Q1 - 2Q2. The firms' marginal costs are identical and are given by MCi = 2. Based on this information, consumer surplus in this market is: A. $16.33. B. $32.67. C. $1,067.11. D. $2,134.22. 81. 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 = 2. Based on this information, the Stackelberg leader's marginal revenue function is: A. MR(QL) = 50 - 2QL + c1/2. B. MR(QL) = 50 - 2QL + c2/2. C. MR(QF) = 100 - 2QF + c1/2. D. MR(QF) = 100 - QF + c2/2. 82. 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 = 2. Based on this information, the Stackelberg follower's marginal revenue function is: A. MRF(QL,QF) = 100 - 2QL - 4QF. B. MRF(QL,QF) = 100 - 4QL - 2QF. C. MRF(QL,QF) = 100 - 2QL - QF. D. MRF(QL,QF) = 100 - QL - 2QF. 83. 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 = 2. Based on this information, the Stackelberg follower's reaction function is: A. QF = 24.5 - 0.25QL. B. QF = 49 - 0.25QF. C. QF = 24.5 - 0.5QL. D. QF = 24.5 - QL. 84. 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 = 2. Based on this information, the Stackelberg leader's reaction function is: A. QL = 24.5 - 0.5QF. B. QL = 50 - 0.5QF. C. QL = 49 - 0.5QF. D. None of the answers is correct. 85. 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 = 2. Based on this information, the consumer surplus in this market is: A. $36.75. B. $73.50. C. $1,352.40. D. $2,704.80. 86. Consider two firms competing to sell a homogeneous product by setting price. The inverse demand curve is given by P = 6 - Q. If each firm's cost function is Ci(Qi) = 6 + 2Qi, then each firm will symmetrically produce _________ units of output and earn ___________. A. 4 units; profits of $6 B. 2 units; profits of $2 C. 4 units; losses of $2 D. 2 units; losses of $6 87. Consider two firms competing to sell a homogeneous product by setting price. The inverse demand curve is given by P = 6 - Q. If each firm's cost function is Ci(Qi) = 2Qi, then consumer surplus in this market is: A. $2. B. $4. C. $8. D. There is insufficient information to determine consumer surplus in this market. 88. 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: 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. 89. An increase in firm 2's marginal cost will cause: A. 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. B. 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. C. 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. D. 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. 90. A decrease in firm 1's marginal cost will cause: A. 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. B. 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. C. 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. D. 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. 91. 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 consumer surplus in the different equilibrium oligopoly models will follow which of the following orderings? A. CSCollusion > CSStackelberg > CSCournot > CSBertrand

B. CSBertrand > CSStackelberg > CSCournot > CSCollusion

C. CSBertrand > CSCournot > CSStackelberg > CSCollusion

D. CSStackelberg > CSBertrand > CSCournot > CSCollusion

92. 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?

A. QCollusion < QStackelberg < QCournot < QBertrand B. QCollusion < QCournot < QStackelberg < QBertrand C. QBertrand < QCollusion < QCournot < QStackelberg D. QBertrand < QStackelberg < QCournot < QCollusion 93. 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 equilibrium price in the different oligopoly models will follow which of the following orderings? A. PBertrand < PStackelberg < PCournot < PCollusion B. PStackelberg < PCollusion < PCournot < PBertrand C. PCollusion < PCournot < PStackelberg < PBertrand D. PBertrand < PCournot < PStackelberg < PCollusion 94. 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? A. Bertand > Collusion > Stackelberg > Cournot

B. Collusion > Cournot > Stackelberg > Bertand

C. Collusion > Stackelberg > Cournot > Bertand

D. None of the answers is correct.

95. Industry profits are maximized in the figure below:

A. only at point QM1.

B. only at point QM2.

C. on the line segment joining points QM1 and QM2.

D. at the point where r1 = r2.

96. In a market where two firms compete by setting quantity, the Cournot equilibrium has which of the following characteristics?

A. The two firms reaction functions intersect.

B. There is no incentive for the two firms to collude.

C. The two firms isoprofit curves intersect one another at the highest point.

D. The two firms reaction functions intersect at the highest point where the two firms isoprofit curves intersect one another.

97. The peak of the isoprofit curve has which of the following characteristics?

A. It is the point at which monopoly profits are always achieved.

B. It is the point at which the isoprofit curve crosses the reaction function.

C. It is the point on the isoprofit curves associated with the highest profit.

D. It is the point on the isoprofit curves where Cournot competitors can efficiently achieve collusion profits.

98. Profits are higher as isoprofit curves move closer to the:

A. monopoly output, QM.

B. Cournot output, QCournot.

C. Bertrand output, QBertrand.

D. peak of each isoprofit curve.

99. Consider a market consisting of two firms where the inverse demand curve is given by P = 500 2(Q1 + Q2). If the Stackelberg leaders and followers marginal costs are zero, the leaders marginal revenue is:

A. MR(QL, QF) = 125 QL + 0.5QF.

B. MR(QL) = 250 2QL.

C. MR(QF) = 250 2QF.

D. MR(QL, QF) = 125 0.5QL + QF.

100. 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?

A. QA < QB B. ProfitA < ProfitB C. Revenue of firm A < Revenue of firm B D. PriceA < PriceB 101. Firm A has a strictly higher marginal cost than firm B. They compete in a homogeneous product Bertrand duopoly. Which of the following results will NOT occur? A. QA < QB B. ProfitA = 0 < ProfitB C. Revenue of firm A < Revenue of firm B D. PriceA < PriceB 102. Consider a Cournot duopoly with the following inverse demand function: P = 50 - 0.2Q1 - 0.2Q2. The firms' marginal costs are identical and are given by MCi(Qi) = 2. Based on this information, firm 1 and 2's reaction functions are: A. r1(Q2) = 120 - 0.5Q1 and r2(Q1) = 120 - 0.5Q2. B. r1(Q2) = 120 - 0.5Q2 and r1(Q2) = 120 - 0.5Q1. C. Q1 = 240 - 0.75Q2 and Q2 = 240 - 0.75Q1. D. Q1 = 240 - 0.5Q2 and Q2 = 240 - 0.5Q1. 103. Consider a Cournot duopoly with the following inverse demand function: P = 10 - 0.5Q1 - 0.5Q2. The firms' marginal costs are identical and are given by MCi(Qi) = 3. Based on this information, firm 1 and 2's reaction functions are: A. r1(Q2) = 7 - 0.5Q1 and r2(Q1) = 7 - 0.5Q2. B. r1(Q2) = 14 - 0.25Q2 and r1(Q2) = 14 - 0.25Q1. C. Q1 = 7 - 0.5Q2 and Q2 = 7 - 0.5Q1. D. Q1 = 14 - 0.25Q2 and Q2 = 14 - 0.25Q1. 104. 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: A. rF(QL) = 24.5 - 0.5QF. B. QL = 49 - 0.5QF. C. rF(QL) = 24.5 - 0.5QL. D. QF = 49 - 0.25QL. 105. 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 leader's reaction function is: A. r1(Q2) = 24.5 - 0.5Q1 and r2(Q1) = 24.5 - 0.5Q2. B. r1(Q2) = 24.5 - 0.5Q2 and r1(Q2) = 24.5 - 0.5Q1. C. Q1 = 49 - 0.5Q2 and Q2 = 49 - 0.5Q1. D. The Stackelberg leader does not react to the output decision of its rival. 106. Which of the following is true about a differentiated-product Bertrand duopoly? A. Firm 1 and firm 2's reaction functions are downward sloping. B. Firm 1 and firm 2's reaction functions are upward sloping. C. Firm 1's reaction function is downward sloping but firm 2's reaction function is upward sloping. D. In a differentiated-product Bertrand duopoly neither firm has a reaction function. 107. Which of the following is true about a differentiated-product Bertrand duopoly? A. Firm 1 and firm 2's prices will exceed marginal cost. B. Firm 1 and firm 2's prices will equal marginal cost. C. Firm 1's price will always be above marginal cost, while firm 2's price will be equal to marginal cost. D. Firms in a differentiated-product Bertrand duopoly cannot earn positive economic profits in the long run. 108. Which of the following is true about a Sweezy oligopoly? A. The marginal cost function has a downward "jump" or "discontinuity." B. The marginal revenue function has a downward "jump" or "discontinuity." C. The marginal cost function has an upward "jump" or "discontinuity." D. The marginal revenue function has an upward "jump" or "discontinuity." 109. The market demand in a Bertrand duopoly is P = 10 - 3Q, and the marginal costs are $1. Fixed costs are zero for both firms. Based on this information we can conclude that: A. P = $7 and firm 1 will sell 7 units of output. B. P = $1 and firms 1 and 2 will each sell 7 units of output. C. P = $1 and firms 1 and 2 will each sell 1.5 units of output. D. P = $1.5 and firms 1 and 2 will each sell 10 units of output. 110. 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: A. $2 and each firm will produce 9 units. B. $2.25 and each firm will produce 8.875 units. C. $2.24 and firm 1 will produce 17.76 units and firm 2 will produce 0 units. D. $2 and firm 1 will produce 18 units and firm 2 will produce 0 units. 111. A decrease in firm 2's marginal cost will cause: 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. 112. An increase in firm 1's marginal cost will cause: 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. 113. The profits of the leader in a Stackelberg duopoly: A. are less than those of the follower. B. equal those of the follower. C. are greater than those of the follower. D. are less than those of a Sweezy oligopolist. 114. 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) = ciQi. Based on this information, the Stackelberg leader's marginal revenue function is: A. MR(QL) = 50 - 2QL - 0.5cL. B. MR(QL) = 50 - 2QL - 0.5cF. C. MR(QF) = 100 - 2QF - 0.5cF. D. MR(QF) = 100 - QF - 0.5cF. 115. Which of the following is NOT true about a differentiated-product Bertrand duopoly? A. Firm 1 and firm 2's prices will be equal to marginal cost. B. Firm 1's price will always be above marginal cost, while firm 2's price will be less than marginal cost. C. Firm 1's price will always be less than marginal cost, while firm 2's price will be above marginal cost. D. None of the answers is correct. 116. A new firm enters a market which is initially serviced by a Cournot duopoly charging a price of $10. What will the new market price be should the three firms coexist after the entry? A. $10 B. Below $10 C. Above $10 D. None of the answers is correct. 117. Two firms compete as a Stackelberg duopoly. The demand they face is P = 40 - Q. The cost function for each firm is C(Q) = 4Q. The profits of the two firms are: A. L = $162; F = $81. B. L = $81; F = $40.5. C. L = $81; F = -$40.5. D. L = $162; F = $40.5. 118. Two firms compete as a Stackelberg duopoly. The demand they face is P = 24 - Q. The cost function for each firm is C(Q) = 4Q. The profits of the two firms are: A. L = $100; F = $50. B. L = $50; F = $25. C. L = $25; F = $12.5. D. L = $20; F = $10. 119. Both firms in a Cournot duopoly would enjoy lower 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. None of the answers is correct. Essay Questions 120. 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. 121. Suppose you are the manager of a medium-sized firm that operates in an industry that has a four-firm concentration ratio of 100 percent. All firms in the industry are of equal size. In order to determine your firm's optimal output and price, you must obtain information about how rivals would respond to changes in your decisions. If you were the manager, how would you obtain this information? 122. You are the manager of a firm operating in a differentiated-product oligopoly. Show graphically your optimal response to an increase in marginal cost if a. You believe rivals will follow price reductions but not price increases. b. You believe rivals will hold output constant if you decrease output. c. You believe rivals will follow price increases but not price decreases. 123. 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 and . 124. The market for widgets consists of two firms that produce identical products. Competition in the market is such that each of the firms independently produces a quantity of output, and these quantities are then sold in the market at a price that is determined by the total amount produced by the two firms. Firm 2 is known to have a cost advantage over firm 1. A recent study found that the (inverse) market demand curve faced by the two firms is P = 280 - 2(Q1 + Q2), and costs are C1(Q1) = 3Q1 and C2(Q2) = 2Q2. a. Determine the marginal revenue for each firm. b. Determine the reaction function for each firm. c. How much output will each firm produce in equilibrium? d. What are the equilibrium profits for each firm? 125. When MCI announced a price discount plan designed to induce small firms to use its services, the price of its stock immediately declined. Why do you think the stock market reacted negatively to MCI's plan to attract new customers? 126. The inverse demand curve for a Stackelberg duopoly is P = 10,000 - 6Q. The leader's cost structure is CL(QL) = 15QL. The follower's cost structure is CF(QF) = 25QF. a. Determine the reaction function for the follower. b. Determine the equilibrium output levels for both the leader and the follower. c. What are the profits for the leader? For the follower? 127. What real-world evidence would lead you to believe that firms were acting as Cournot oligopolists? Stackelberg oligopolists? Bertrand oligopolists? 128. 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? 129. You are the manager of a firm in a new industry. You have gotten the jump on the only other producer in the market. You know what your competitor's cost function is, and it knows yours. Your products, although different to experts, are indistinguishable to the average consumer. Your marketing research team has provided you with the following market demand curve: Q = 1,250 - .5P. Your cost function is CA(QA) = 8QA. Your competitor's cost function is CB(QB) = 6QB. Your diligent effort will allow you to decide how much of your product to provide and will allow you to place it on the market shortly before your competitor will be able to make its product available for sale. What output level will you choose, and what price will you charge? Explain. 130. 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 . You estimate that if you enter the market, your own cost function will be Cy(Qy) = 15,300Qy. 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? Explain. 131. Compare and contrast the output levels and profits for the Cournot, Stackelberg, and Bertrand models. Use the following cost and demand conditions for your comparison, and suppose there are two firms: P = 1,500 - 10Q. Each firm has a marginal cost of $20 and fixed costs of zero. 132. Over the past 20 years, the 12 members of the Organization of Petroleum Exporting Countries have made repeated attempts to restrict output in order to maintain high crude oil prices. Between 1990 and 1995, however, crude oil prices dropped by about 20 percent, due in part to increased production from the former Soviet Union, Latin America, Asia, and the North Sea. In light of these increases in oil production from non-OPEC countries, what must OPEC do to maintain the price of oil at its desired level? Do you think this will be easy for OPEC to do? Explain. 133. 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? 134. Orion and Zeda are the only producers of a unique product that is sold in a market where the inverse demand curve is P = 200 - 2Q. The firms produce identical products and have identical cost functions given by C(Qi) = 4Qi. The managers of each firm must decide on their outputs on Monday morning and then bring products to market by noon. a. What is each firm's marginal revenue? Marginal cost? b. Equate each firm's marginal revenue to marginal cost. c. Use your result in part (b) to solve for each firm's reaction function. d. Use your results in part (c) to solve for the Cournot equilibrium levels of output for each firm. 135. You are the CEO of ClipIt, a paper clip manufacturer. Your company enjoys a patented technology that allows it to produce paper clips faster and at a lower cost than your only rival, FastenIt. Clipit uses this advantage to be the first to choose its profit-maximizing output level in the market. The inverse demand function for paper clips is P = 500 - 2Q, ClipIt's costs are CC(QC) = 2QC, and FastenIt's costs are CF(QF) = 4QF. a. What is ClipIt's profit-maximizing output level? FastenIt's? b. What is the market's equilibrium price? c. How much profit does each firm earn? d. Ignoring antitrust considerations, would it be profitable for your firm to merge with FastenIt? If not, explain why not; if so, put together an offer that would permit you to profitably complete the merger. Chapter 09 Basic Oligopoly Models Answer Key Multiple Choice Questions 1. The Cournot theory of oligopoly assumes rivals will: 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. AACSB: Reflective Thinking Blooms: Remember Difficulty: 1 Easy Learning Objective: 09-02 Identify the conditions under which a firm operates in a Sweezy; Cournot; Stackelberg; or Bertrand oligopoly; and the ramifications of each type of oligopoly for optimal pricing decisions; output decisions; and firm profits. Topic: Profit Maximization in Four Oligopoly Settings 2. Which of the following is true? A. In Bertrand oligopoly each firm believes that its rivals will hold their output constant if it changes its output. B. In Cournot oligopoly firms produce an identical product at a constant marginal cost and engage in price competition. C. In oligopoly a change in marginal cost never has an effect on output or price. D. None of the answers is correct. AACSB: Reflective Thinking Blooms: Understand Difficulty: 2 Medium Learning Objective: 09-02 Identify the conditions under which a firm operates in a Sweezy; Cournot; Stackelberg; or Bertrand oligopoly; and the ramifications of each type of oligopoly for optimal pricing decisions; output decisions; and firm profits. Topic: Profit Maximization in Four Oligopoly Settings 3. In a Sweezy Oligopoly, a decrease in a firm's marginal cost generally leads to: A. reduced output and a higher price. B. increased output and a lower price. C. higher output and a higher price. D. None of the answers is correct. AACSB: Reflective Thinking Blooms: Understand Difficulty: 1 Easy Learning Objective: 09-02 Identify the conditions under which a firm operates in a Sweezy; Cournot; Stackelberg; or Bertrand oligopoly; and the ramifications of each type of oligopoly for optimal pricing decisions; output decisions; and firm profits. Topic: Profit Maximization in Four Oligopoly Settings 4. 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 statements associated with this question are true. AACSB: Reflective Thinking Blooms: Understand Difficulty: 1 Easy Learning Objective: 09-02 Identify the conditions under which a firm operates in a Sweezy; Cournot; Stackelberg; or Bertrand oligopoly; and the ramifications of each type of oligopoly for optimal pricing decisions; output decisions; and firm profits. Topic: Profit Maximization in Four Oligopoly Settings 5. Which of the following are quantity-setting oligopoly models? A. Stackelberg. B. Cournot. C. Bertrand. D. Stackelberg and Cournot. AACSB: Reflective Thinking Blooms: Remember Difficulty: 1 Easy Learning Objective: 09-02 Identify the conditions under which a firm operates in a Sweezy; Cournot; Stackelberg; or Bertrand oligopoly; and the ramifications of each type of oligopoly for optimal pricing decisions; output decisions; and firm profits. Topic: Comparing Oligopoly Models 6. Which of the following are price-setting oligopoly models? A. Stackelberg. B. Cournot. C. Bertrand. D. Cournot and Stackelberg. AACSB: Reflective Thinking Blooms: Remember Difficulty: 1 Easy Learning Objective: 09-02 Identify the conditions under which a firm operates in a Sweezy; Cournot; Stackelberg; or Bertrand oligopoly; and the ramifications of each type of oligopoly for optimal pricing decisions; output decisions; and firm profits. Topic: Comparing Oligopoly Models 7. 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. the firms simultaneously reduced output below the Nash equilibrium level and one firm reduced output below the Cournot Nash equilibrium level, while the other firm continued to produce its Cournot Nash equilibrium output. AACSB: Analytic Blooms: Analyze Difficulty: 3 Hard Learning Objective: 09-02 Identify the conditions under which a firm operates in a Sweezy; Cournot; Stackelberg; or Bertrand oligopoly; and the ramifications of each type of oligopoly for optimal pricing decisions; output decisions; and firm profits. Topic: Profit Maximization in Four Oligopoly Settings 8. Which of the following is NOT a feature of Sweezy oligopoly? A. There are few firms in the market serving many consumers. B. The firms produce homogeneous 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. AACSB: Reflective Thinking Blooms: Remember Difficulty: 2 Medium Learning Objective: 09-02 Identify the conditions under which a firm operates in a Sweezy; Cournot; Stackelberg; or Bertrand oligopoly; and the ramifications of each type of oligopoly for optimal pricing decisions; output decisions; and firm profits. Topic: Profit Maximization in Four Oligopoly Settings 9. Which of the following is a profit-maximizing condition for a Cournot oligopolist? A. MR = MC. B. Q1 = Q2 = ... = Qn. C. P = MR. D. All of the statements associated with this question are correct. AACSB: Analytic Blooms: Apply Difficulty: 2 Medium Learning Objective: 09-02 Identify the conditions under which a firm operates in a Sweezy; Cournot; Stackelberg; or Bertrand oligopoly; and the ramifications of each type of oligopoly for optimal pricing decisions; output decisions; and firm profits. Topic: Profit Maximization in Four Oligopoly Settings 10. 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? A. $25 B. $20 C. $15 D. None of the answers is correct. AACSB: Analytic Blooms: Analyze Difficulty: 3 Hard Learning Objective: 09-02 Identify the conditions under which a firm operates in a Sweezy; Cournot; Stackelberg; or Bertrand oligopoly; and the ramifications of each type of oligopoly for optimal pricing decisions; output decisions; and firm profits. Topic: Profit Maximization in Four Oligopoly Settings 11. "An oligopoly is an oligopoly. Firms behave the same no matter what type of oligopoly it is." This statement is: A. true. B. false. C. true of homogeneous product industries. D. None of the answers is correct. AACSB: Reflective Thinking Blooms: Understand Difficulty: 2 Medium Learning Objective: 09-02 Identify the conditions under which a firm operates in a Sweezy; Cournot; Stackelberg; or Bertrand oligopoly; and the ramifications of each type of oligopoly for optimal pricing decisions; output decisions; and firm profits. Topic: Comparing Oligopoly Models 12. 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: A. Sweezy oligopoly. B. Cournot oligopoly. C. Stackelberg oligopoly. D. Bertrand oligopoly. AACSB: Reflective Thinking Blooms: Understand Difficulty: 2 Medium Learning Objective: 09-02 Identify the conditions under which a firm operates in a Sweezy; Cournot; Stackelberg; or Bertrand oligopoly; and the ramifications of each type of oligopoly for optimal pricing decisions; output decisions; and firm profits. Topic: Comparing Oligopoly Models 13. 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. AACSB: Reflective Thinking Blooms: Understand Difficulty: 1 Easy Learning Objective: 09-04 Identify the conditions for a contestable market; and explain the ramifications for market power and the sustainability of long-run profits. Topic: Contestable Markets 14. 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. QA < QB B. ProfitA < ProfitB C. Revenue of firm A < Revenue of firm B D. PriceA < PriceB AACSB: Analytic Blooms: Analyze Difficulty: 1 Easy Learning Objective: 09-02 Identify the conditions under which a firm operates in a Sweezy; Cournot; Stackelberg; or Bertrand oligopoly; and the ramifications of each type of oligopoly for optimal pricing decisions; output decisions; and firm profits. Topic: Profit Maximization in Four Oligopoly Settings 15. If firms compete in a Cournot fashion, then each firm views the: A. output of rivals as given. B. prices of rivals as given. C. profits of rivals as given. D. All of the statements associated with this question are correct. AACSB: Reflective Thinking Blooms: Understand Difficulty: 2 Medium Learning Objective: 09-02 Identify the conditions under which a firm operates in a Sweezy; Cournot; Stackelberg; or Bertrand oligopoly; and the ramifications of each type of oligopoly for optimal pricing decisions; output decisions; and firm profits. Topic: Profit Maximization in Four Oligopoly Settings 16. Two firms compete in a Stackelberg fashion. If firm 2 is the leader, then: A. firm 1 views the output of firm 2 as given. B. firm 2 views the output of firm 1 as given. C. Both firm 1 views the output of firm 2 as given and firm 2 views the output of firm 1 as given are correct. D. None of the answers is correct. AACSB: Reflective Thinking Blooms: Understand Difficulty: 3 Hard Learning Objective: 09-02 Identify the conditions under which a firm operates in a Sweezy; Cournot; Stackelberg; or Bertrand oligopoly; and the ramifications of each type of oligopoly for optimal pricing decisions; output decisions; and firm profits. Topic: Profit Maximization in Four Oligopoly Settings 17. With linear demand and constant marginal cost, a Stackelberg leader's profits are ___________ the follower. A. less than B. equal to C. greater than D. either less than or greater than AACSB: Reflective Thinking Blooms: Understand Difficulty: 2 Medium Learning Objective: 09-02 Identify the conditions under which a firm operates in a Sweezy; Cournot; Stackelberg; or Bertrand oligopoly; and the ramifications of each type of oligopoly for optimal pricing decisions; output decisions; and firm profits. Topic: Profit Maximization in Four Oligopoly Settings 18. An oligopolist faces a demand curve that is steeper at higher prices than at lower prices. Which of the following is most likely? 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. AACSB: Reflective Thinking Blooms: Understand Difficulty: 2 Medium Learning Objective: 09-01 Explain how beliefs and strategic interaction shape optimal decisions in oligopoly environments. Topic: The Roles of Beliefs and Strategic Interaction 19. When firm 1 enjoys a first-mover advantage in a Stackelberg duopoly, it will produce: A. more output and charge a lower price than firm 2. B. more output and charge the same price as firm 2. C. less output and charge the same price as firm 2. D. less output and charge a higher price than firm 2. AACSB: Analytic Blooms: Analyze Difficulty: 2 Medium Learning Objective: 09-02 Identify the conditions under which a firm operates in a Sweezy; Cournot; Stackelberg; or Bertrand oligopoly; and the ramifications of each type of oligopoly for optimal pricing decisions; output decisions; and firm profits. Topic: Profit Maximization in Four Oligopoly Settings 20. A slight increase in the marginal cost of a firm definitely leads to a reduction in its output if the firm competes in the: A. Sweezy fashion. B. Cournot fashion. C. Bertrand fashion. D. Cournot fashion and Bertrand fashion. AACSB: Analytic Blooms: Analyze Difficulty: 3 Hard Learning Objective: 09-02 Identify the conditions under which a firm operates in a Sweezy; Cournot; Stackelberg; or Bertrand oligopoly; and the ramifications of each type of oligopoly for optimal pricing decisions; output decisions; and firm profits. Topic: Profit Maximization in Four Oligopoly Settings 21. The market demand in a Bertrand duopoly is P = 10 - 3Q, and the marginal costs are $1. Fixed costs are zero for both firms. Which of the following statement(s) is/are true? A. P = $1. B. Profits of firm 1 = profits of firm 2. C. Producer's surplus of firm 1 = producer's surplus of firm 2. D. All of the statements associated with this question are correct. AACSB: Reflective Thinking Blooms: Understand Difficulty: 1 Easy Learning Objective: 09-02 Identify the conditions under which a firm operates in a Sweezy; Cournot; Stackelberg; or Bertrand oligopoly; and the ramifications of each type of oligopoly for optimal pricing decisions; output decisions; and firm profits. Topic: Profit Maximization in Four Oligopoly Settings 22. 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. AACSB: Reflective Thinking Blooms: Understand Difficulty: 1 Easy Learning Objective: 09-02 Identify the conditions under which a firm operates in a Sweezy; Cournot; Stackelberg; or Bertrand oligopoly; and the ramifications of each type of oligopoly for optimal pricing decisions; output decisions; and firm profits. Topic: Profit Maximization in Four Oligopoly Settings 23. A firm's isoprofit curve is defined as the combinations of outputs produced by: 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. AACSB: Reflective Thinking Blooms: Remember Difficulty: 1 Easy Learning Objective: 09-03 Apply reaction (or best-response) functions to identify optimal decisions and likely competitor responses in oligopoly settings. Topic: Profit Maximization in Four Oligopoly Settings 24. 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: A. 8. B. 16. C. 32. D. 36. AACSB: Analytic Blooms: Apply Difficulty: 2 Medium Learning Objective: 09-02 Identify the conditions under which a firm operates in a Sweezy; Cournot; Stackelberg; or Bertrand oligopoly; and the ramifications of each type of oligopoly for optimal pricing decisions; output decisions; and firm profits. Topic: Profit Maximization in Four Oligopoly Settings 25. 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: A. $1,024. B. $2,048. C. $4,096. D. $512. AACSB: Analytic Blooms: Apply Difficulty: 2 Medium Learning Objective: 09-02 Identify the conditions under which a firm operates in a Sweezy; Cournot; Stackelberg; or Bertrand oligopoly; and the ramifications of each type of oligopoly for optimal pricing decisions; output decisions; and firm profits. Topic: Profit Maxi

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Once the order is placed, the order will be delivered to your email less than 24 hours, mostly within 4 hours. 

If you have questions, you can contact us here