Deck 19: The World of Oligopoly: Preliminaries to Successful Entry

Question 1

A Stackelberg leader is the firm to move first in the Stackelberg model.

Answer 1

True

Question 2

A duopoly game in which firms alternate in setting quantities is known as a first-mover quantity-setting duopoly game.

Answer 2

False

Question 3

The strategic interaction between firms in a duopolistic market as a game where each firm chooses its quantity simultaneously is called a simultaneous-move quantity-setting duopoly game.

Answer 3

True

Question 4

A model in which firm 1 and firm 2 choose a quantity simultaneously and, after both firms have chosen their outputs, the price of the good on the market and the profits of both firms are determined is called a

A) Cournot model
B) Stackelberg model
C) Bertrand model

Question 5

A Cournot equilibrium occurs where the reaction functions for the two firms

A) intersect
B) are farthest apart
C) Neither answer is correct

Question 6

An equilibrium to an oligopoly game played by firms' setting prices (Bertrand competition) such that competition forces the price down to the marginal price is called a Bertrand equilibrium.

Question 7

A function that specifies a firm's optimal choice for some variable such as output, given the choices of its competitors, is called a

A) reaction function
B) best-response function
C) Both answers are correct

Question 8

An oligopoly is a market that is dominated by

A) one seller
B) a large number of sellers
C) a few sellers

Question 9

The firm to move second in the Stackelberg model is called the Stackelberg equilibrium.

Question 10

The change that a firm expects in its competitor's choice of an output level in response to a change the firm makes in its price is called conjectural variation.

Question 11

In a Cournot duopoly, the Cournot conjecture is an assumption that, no matter what change in price a firm makes, the other firm will not change its own output choice in response.

Question 12

A model in which one firm chooses its quantity first, and then the other firm, knowing what firm 1 has done, makes its choice is called the

A) Stackelberg model
B) Cournot model
C) Nash model

Question 13

An entrepreneur will be able to make a substantial profit if the entrepreneur

A) can keep competitors out of the market
B) lowers price below average total cost
C) increases costs at all possible quantities of output

Question 14

The Nash equilibrium applied to a model in which duopolistic firms compete with one another by choosing output levels is known as a(n)

A) isoprofit equilibrium
B) Cournot equilibrium
C) Stackelberg equilibrium

Question 15

The final step in the simultaneous-move quantity-setting duopoly game is

A) both firms choose their output levels simultaneously, with neither firm knowing what level the other firm has chosen
B) the demand curve tells the players what the price will be
C) each firm calculates its payoffs (profits)

Question 16

Isoprofit curves are the set of outputs for all firms in a market, which yield a given firm the same profit level.

Question 17

A duopoly is an industry in which there are two firms selling a product.

Question 18

The isoprofit curves ___________ the _____________ axis contain higher levels of profit.

A) closer to, vertical
B) farther from, horizontal
C) closer to, horizontal

Question 19

The change that a firm expects in its competitor's choice of an output level in response to a change the firm makes in its own output level is called the

A) conjectural variation
B) expected value
C) reaction function

Question 20

The Stackelberg equilibrium is defined by the equilibrium prices and quantities of a Stackelberg game.

Question 21

A duopoly in which the two firms collude on a price to set is called a

A) collusive duopoly
B) Bertrand model
C) competitive duopoly

Question 22

In the Stackelberg model, the Stackelberg follower moves

A) first
B) second
C) Both answers are correct

Question 23

A duopoly game in which firms alternate in setting quantities is called a

A) Stackelberg-move quantity-setting duopoly game
B) sequential-move quantity-setting duopoly game
C) simultaneous-move quantity-setting duopoly game

Question 24

Collusive arrangements are more viable if the competition is like a game that is played

A) repeatedly
B) one time
C) never

Question 25

A model of oligopolistic competition where firms compete by setting prices is called a

A) Cournot model
B) Bertrand model
C) Stackelberg model

Question 26

Once firms in a collusive duopoly start cheating on the agreed-upon price, the cheating usually continues until the price is

A) increased to the monopoly price
B) driven down to marginal cost
C) Neither answer is correct

Question 27

The set of output combinations for two duopolistic firms that has the property of the sum of the outputs being constant is called an

A) isocost curve
B) iso-output line
C) isoprofit curve

Question 28

As a government official responsible for commerce, would you prefer to see a market reach the monopolistic, perfectly competitive, or Cournot equilibrium?

Question 29

Which of the following does not derive from an assumption that opponents will not respond to any action that a firm takes?

A) kinked-demand curve model
B) Bertrand model
C) Cournot model

Question 30

The advantage the leader has in the Stackelberg model, which allows the leader to produce a higher level of output than in the Cournot equilibrium, thus receiving greater profits, is known as the

A) first-mover advantage
B) Stackelberg follower dominance
C) unstable equilibrium

Question 31

What is the difference between convergent and divergent Cournot equilibria?

Question 32

Under the Edgeworth model, will firms engage in price wars?

Question 33

Describe a Cournot equilibrium.

Question 34

A model that assumes that the firms are capacity-constrained is the

A) Edgeworth model
B) Cournot model
C) unstable collusion model

Question 35

The assumption that firms will match a reduction but not an increase in the prevailing price that is responsible for the stability of duopolistic and oligopolistic markets is known as the

A) Stackelberg conjecture
B) kinked-demand curve conjecture
C) Cournot conjecture

Question 36

At a Bertrand equilibrium, the quantity sold in the market is the

A) same as in a Cournot equilibrium
B) welfare-optimal quantity
C) monopoly quantity

Question 37

At a Bertrand equilibrium, the price of the product is driven down to

A) average total cost
B) zero
C) marginal cost

Question 38

Which welfare outcome falls between the other two?

A) Cournot equilibrium
B) monopoly market
C) perfectly competitive market

Question 39

Describe the difference between a Cournot model and a Bertrand model.