Question 1

The kinked demand curve model assumes that an oligopolistic firm recognizes its mutual interdependence with other firms and:

Accepted Answer

The kinked demand curve model assumes that each firm recognizes its mutual interdependence with other firms in the industry and that they do not collude with each other. Each firm determines that it can not gain by departing from the prevailing price, hence they act independently and adjust their prices in response to the price changes made by their rivals. This leads to a stable pricing behavior in the industry. Therefore, choice A is the best answer.

Question 2

The dominant firm case of price leadership is characterized by all of the following EXCEPT:

Accepted Answer

The answer of The dominant firm case of price leadership...

Question 3

In a market characterized by price leadership,

Accepted Answer

In a market characterized by price leadership, the smaller firms accept the price determined by the dominant firm. The dominant firm sets a price and the smaller firms follow it to maintain their market share.

Question 4

A large firm that is a price leader in an industry characterized also by many small competing firms estimates that the market demand for its product to be as follows: Q_m = 20,700 - 75P, where Q_m is units per month. It expects small firms in the industry to supply output according to the following function: Q_s = 700 + 25P. If the large firm's marginal cost is constant at $52, what quantity will it sell?

Accepted Answer

To determine the quantity that the large firm will sell, we need to find the point at which its marginal cost equals its marginal revenue. The large firm's marginal revenue can be found by taking the derivative of the market demand function with respect to quantity: MR = d(Q_m)/dQ = 20,700/75 - (75P)/75 MR = 276 - P Setting MR equal to MC: 276 - P = 52 Solving for P: P = 224 Substituting this value for P into the market demand function, we can find the corresponding quantity: Q_m = (20,700 - 75P)/1 Q_m = (20,700 - 75(224))/1 Q_m = 7,400 Therefore, the large firm will sell 7,400 units when its marginal cost is constant at $52. The correct answer is D) 7,400.

Question 5

Price rigidity:

Accepted Answer

Price rigidity is the tendency for all firms in an industry to charge approximately the same price for a specific product over long periods of time. This is usually due to market conditions that limit the ability of firms to change prices easily, such as high competition, high fixed costs or high switching costs for consumers. It is not necessarily an indication of collusive agreements in an industry.

Question 6

All of the following are characteristics of monopolistic competition EXCEPT:

Accepted Answer

Monopolistic competition typically involves a relatively large number of sellers, the use of advertising to differentiate products, each firm attempting to retain or increase its market share through product differentiation, and each firm not being particularly concerned about the relationship between its individual actions and those of other firms in the industry. However, a few sellers is a characteristic of oligopoly, not monopolistic competition.

Question 7

The dominant firm case of price leadership is characterized by the following:

Accepted Answer

The dominant firm case of price leadership is characterized by all the given options: A firm capable of sustaining losses to maintain market dominance (A), setting monopoly prices based on market demand (B), the ability to drive smaller rivals out of the market (C), and the potential for anti-trust action if predatory pricing is suspected (D).

Question 8

All of the following are characteristics of monopolistic competition EXCEPT:

Accepted Answer

Collusive agreements that lead to all firms charging the same price is a characteristic of oligopoly, not monopolistic competition. In monopolistic competition, each firm attempts to differentiate its product to retain or increase market share, and each firm is concerned with the actions of other firms. Advertising is also commonly used in monopolistic competition, and there are a relatively large number of sellers in the industry.

Question 9

A large firm that is a price leader in an industry characterized also by many small competing firms estimates that the market demand for its product to be as follows: Q_m = 20,700 - 75P, where Q_m is units per month. It expects small firms in the industry to supply output according to the following function: Q_s = 700 + 25P. What is the demand function for the large firm?

Accepted Answer

The demand function for the large firm is found by subtracting the small firms' supply from the total market demand. The total market demand is given as 20,700 - 75P, and the small firms' supply is 700 + 25P. Subtracting the small firms' supply from the total market demand gives the large firm's demand: (20,700 - 75P) - (700 + 25P) = 20,000 - 100P.

Question 10

You believe that you have a costless monopoly. Given your estimate of the one day demand for mushrooms: Q_m = 1050 - 150P_m Where Q_m = servings of fried mushroom and gravy. What price and quantity would yield you the most revenue?

Accepted Answer

The correct answer is A because the price that yields the most revenue is $3.50 and the quantity demanded at that price is 525 servings.

Question 11

The efficient firm case of price leadership is characterized by which of the following?

Accepted Answer

The efficient firm case of price leadership is characterized by a firm with lower marginal and average costs, allowing them to offer a lower price and maintain profitability while still leading the market in terms of pricing. While the other choices may still apply in certain situations, they are not necessarily defining characteristics of price leadership.

Question 12

A cartel exists when:

Accepted Answer

A cartel exists when a number of firms get together and agree on a policy of managing operations in a way that will maximize the joint profits of the group. This involves coordination on pricing, output levels, and other market strategies. The goal of a cartel is to reduce competition and increase profits for its members.

Question 13

Two market situations in which there is a clear reason for a price leader's identity are:

Accepted Answer

In the efficient firm case, the price leader is typically the firm with the lowest cost structure, as they can afford to set a lower price and still make a profit. In the dominant firm case, the price leader is the firm with the largest market share, as they have the most influence over market prices.

Question 14

You believe that you have a costless monopoly. Given your estimate of the one day demand for mushrooms: Q_m = 900 - 100P_m Where Q_m = servings of fried mushroom and gravy. If another booth opens next to yours also selling fried mushroom and gravy, but demand remains as above assume the product is undifferentiated), how much revenue will each of you generate under the Cournot assumption?

Accepted Answer

The answer of You believe that you have a costless...

Question 15

Perfect collusion is simply another label applied to a market situation where a number of firms get together and agree on a policy of managing operations in a way that will maximize the joint profits of the group.

Accepted Answer

Perfect collusion is a situation where firms collude to maximize joint profits.

Question 16

Becky's Bookshelves currently sells 50 bookshelves a month for $160.00. Becky is going to begin a series of advertisements in order to boost her sales. With a market share curve described by Q_M = 150-.5P, how many bookshelves will Becky be able to sell.

Accepted Answer

To find out how many bookshelves Becky will be able to sell after beginning her series of advertisements, we use the market share curve provided: QS1U1B1MS1U1B0 = 150 - 0.5P, where P is the price of the bookshelves. Since the price is given as $160.00, we substitute this value into the equation: QS1U1B1MS1B0 = 150 - 0.5(160) = 150 - 80 = 70. Therefore, Becky will be able to sell 70 bookshelves.

Question 17

A cartel is a group of firms that have joined together to make agreements on pricing and market strategy.

Accepted Answer

A cartel is indeed a group of firms that work together to influence prices and market strategy, often to limit competition and increase profit.

Question 18

A cartel exists when a number of firms get together and agree on a policy of managing operations in a way that will maximize the joint profits of the group.

Accepted Answer

This is the definition of a cartel.

Question 19

U.S. firms may form cartels for purposes of foreign trade.

Accepted Answer

The Export Trade Act of 1918 allows for the formation of export cartels by U.S. firms in order to promote and regulate foreign trade. However, these cartels must be registered with and approved by the U.S. government.

Question 20

A large firm that is a price leader in an industry characterized also by many small competing firms estimates that the market demand for its product to be as follows: Q_m = 28,700 - 75P, where Q_m is units per month. It expects small firms in the industry to supply output according to the following function: Q_s = 1,700 + 25P. What quantity and price will the large firm set?

Accepted Answer

To find the quantity and price the large firm will set, we first need to determine the total market demand and then subtract the quantity supplied by the small firms. The market demand is given by $Q_D = 28,700 - 75P$, and the supply by small firms is $Q_S = 1,700 + 25P$. The large firm's output will be the difference between total market demand and the supply by small firms: $Q_L = Q_D - Q_S$.First, we combine the equations:$$Q_L = (28,700 - 75P) - (1,700 + 25P)$$$$Q_L = 27,000 - 100P$$However, without further information or calculations provided in the options, we cannot directly solve for $Q$ and $P$ (quantity and price) that the large firm will set. The correct answer choice is based on the realization that none of the provided options directly follow from the information given without additional steps or missing information. Therefore, the correct answer is E) None of the above, as we cannot accurately determine the quantity and price without further calculations or information.

Quiz 9: Monopolistic Competition and Oligopoly

The kinked demand curve model assumes that an oligopolistic firm recognizes its mutual interdependence with other firms and:

The dominant firm case of price leadership is characterized by all of the following EXCEPT:

In a market characterized by price leadership,

Price rigidity:

All of the following are characteristics of monopolistic competition EXCEPT:

The dominant firm case of price leadership is characterized by the following:

All of the following are characteristics of monopolistic competition EXCEPT:

You believe that you have a costless monopoly. Given your estimate of the one day demand for mushrooms: Qm = 1050 - 150Pm Where Qm = servings of fried mushroom and gravy. What price and quantity would yield you the most revenue?

The efficient firm case of price leadership is characterized by which of the following?

A cartel exists when:

Two market situations in which there is a clear reason for a price leader's identity are:

Perfect collusion is simply another label applied to a market situation where a number of firms get together and agree on a policy of managing operations in a way that will maximize the joint profits of the group.

Becky's Bookshelves currently sells 50 bookshelves a month for $160.00. Becky is going to begin a series of advertisements in order to boost her sales. With a market share curve described by QM = 150-.5P, how many bookshelves will Becky be able to sell.

A cartel is a group of firms that have joined together to make agreements on pricing and market strategy.

A cartel exists when a number of firms get together and agree on a policy of managing operations in a way that will maximize the joint profits of the group.

U.S. firms may form cartels for purposes of foreign trade.

You believe that you have a costless monopoly. Given your estimate of the one day demand for mushrooms: Q_m = 1050 - 150P_m Where Q_m = servings of fried mushroom and gravy. What price and quantity would yield you the most revenue?

Becky's Bookshelves currently sells 50 bookshelves a month for $160.00. Becky is going to begin a series of advertisements in order to boost her sales. With a market share curve described by Q_M = 150-.5P, how many bookshelves will Becky be able to sell.