Question 1

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.

Accepted Answer

A

Question 2

"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.

Accepted Answer

D

Question 3

Which of the following is a profit-maximizing condition for a Cournot oligopolist? A)MR = MC. B)Q₁ = Q₂ = ...= Q_n. C)P = MR. D)all of the statements associated with this question are correct.

Accepted Answer

The profit-maximizing condition for a Cournot oligopolist is when marginal revenue (MR) equals marginal cost (MC).

Question 4

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 statements associated with this question are correct.
D)none of the statements associated with this question are correct.

Accepted Answer

The answer of Two firms compete in a Stackelberg fashion...

Question 5

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.

Accepted Answer

The Cournot theory assumes that each firm will hold its rivals' output constant while setting its own output level. This assumption allows each firm to make a prediction about how the others will respond to its actions, and thus make optimal decisions about its own output level.

Question 6

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.

Accepted Answer

The answer of When firm 1 enjoys a first-mover advantage...

Question 7

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 statements associated with this question are true.

Accepted Answer

The answer of In a Sweezy Oligopoly, a decrease in...

Question 8

Which of the following is true?
A)In Bertrand oligopoly each firm believes that their 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 affect on output or price.
D)None of the statements associated with this question are true.

Accepted Answer

The answer of Which of the following is true?
A)In Bertrand...

Question 9

If firms compete in a Cournot fashion, then each firm views the
A)output of the rival 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.

Accepted Answer

In a Cournot competition, each firm assumes that the output of its rival remains constant and determines its own output level accordingly. Therefore, the output of the rival is viewed as given. The prices and profits of rivals are not given but are impacted by the output decisions of each firm.

Question 10

"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 statements associated with this question are correct.

Accepted Answer

This statement is false. Different types of oligopolies can exhibit different behaviors depending on a variety of factors such as market structure, level of competition, degree of product differentiation, and entry barriers. For example, a tight oligopoly with only a few competitors may behave differently than a loose oligopoly with many competitors. Therefore, it is incorrect to assume that all oligopolies behave the same regardless of their type.

Question 11

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 to.

Accepted Answer

With linear demand and constant marginal cost, the Stackelberg leader has the first mover advantage and can set the quantity to maximize profits. The follower then chooses its quantity based on the leader's quantity. As a result, the leader's profits are greater than the follower's because they have more control over the market.

Question 12

Which of the following are quantity-setting oligopoly models?
A)Stackelberg.
B)Cournot.
C)Bertrand.
D)Stackelberg and Cournot.

Accepted Answer

The answer of Which of the following are quantity-setting oligopoly...

Question 13

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.

Accepted Answer

In both Cournot and Bertrand competition, firms consider the reaction of their competitors when deciding on their output level. A slight increase in the marginal cost of a firm in these types of competition will increase its cost, which will then affect its profit. In Cournot competition, a firm's output level directly affects the market price, which will also impact the competitor's output level. In Bertrand competition, firms compete on price, and a cost increase will make the firm less competitive and lead to a reduction in output. Therefore, in both types of competition, a slight increase in marginal cost will lead to a reduction in output.

Question 14

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.

Accepted Answer

The answer of Which of the following is not a...

Question 15

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.

Accepted Answer

Sunk costs are costs that cannot be recovered if a firm decides to exit the market. This creates a barrier for new firms to enter the market, which reduces contestability. The other options do not necessarily affect contestability.

Question 16

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.

Accepted Answer

The answer of An oligopolist faces a demand curve that...

Question 17

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 co-exist after the entry?
A)$25.
B)$20.
C)$15.
D)none of the statements associated with this question are correct.

Accepted Answer

The answer of A new firm enters a market which...

Question 18

Which of the following are price-setting oligopoly models?
A)Stackelberg.
B)Cournot.
C)Bertrand.
D)Cournot and Stackelberg.

Accepted Answer

The answer of Which of the following are price-setting oligopoly...

Question 19

Firm A has a higher marginal cost than firm B's.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

Accepted Answer

The answer of Firm A has a higher marginal cost...

Question 20

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.

Accepted Answer

The Bertrand model of oligopoly suggests that in markets with only a few firms, perfectly competitive prices can arise. This is because each firm in the market will be aware that any price above the competitive price will result in a complete loss of market share, leading them to lower their prices to align with the competition. Therefore, the Bertrand model shows that oligopolistic markets can exhibit competitive behavior despite the presence of only a few firms.

Quiz 9: Basic Oligopoly Models

Both firms in a Cournot duopoly would enjoy higher profits if

"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:

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

Two firms compete in a Stackelberg fashion and firm two is the leader, then

The Cournot theory of oligopoly assumes rivals will

When firm 1 enjoys a first-mover advantage in a Stackelberg duopoly, it will produce:

In a Sweezy Oligopoly, a decrease in a firm's marginal cost generally leads to:

Which of the following is true?

If firms compete in a Cournot fashion, then each firm views the

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

With linear demand and constant marginal cost, a Stackelberg leader's profits are ___________ the follower.

Which of the following are quantity-setting oligopoly models?

A slight increase in the marginal cost of a firm definitely leads to a reduction in its output if the firm competes in the:

Which of the following is not a feature of Sweezy oligopoly?

A market is not contestable if:

An oligopolist faces a demand curve that is steeper at higher prices than at lower prices.Which of the following is most likely?

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 co-exist after the entry?

Which of the following are price-setting oligopoly models?

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

Bertrand model of oligopoly reveals that