Question 1

Which of the following market models results in the highest level of consumer surplus,assuming a fixed number of firms with identical costs and a given demand curve?

Accepted Answer

In a Stackelberg competition, one firm acts as a leader and sets its output first, with the follower firms then setting their outputs. This model often results in a higher total output compared to Cournot, Monopoly, or Cartel models, leading to lower prices and higher consumer surplus. The leader firm's advantage in setting output first allows it to capture a larger market share, but the competitive response from followers increases total market supply, which benefits consumers through lower prices and higher surplus.

Question 2

-The above figure shows the reaction functions for two pizza shops in a small isolated town.The Stackelberg leader will produce

Accepted Answer

The answer of 
-The above figure shows the reaction functions...

Question 3

As the number of firms increases in a market,the differences between the Cournot,Stackelberg,and price-taking market structures

Accepted Answer

As the number of firms in a market increases, the differences between Cournot, Stackelberg, and price-taking market structures decrease. This convergence occurs because with more firms, each individual firm's influence on the market price diminishes, making the market more competitive and resembling a perfectly competitive market where firms are price takers.

Question 4

For the following, please answer "True" or "False" and explain why.
-If two firms behave as Cournot duopolists,the level of social welfare is lower than if the same firms act as a cartel.

Accepted Answer

The Cournot duopolists produce more at a lower price than a cartel.Thus,social welfare is lower with a cartel.

Question 5

Suppose two duopolists operate at zero marginal cost.The market demand is p = a - bQ.If firm 1 is the Stackelberg leader,what level of output will it choose?

Accepted Answer

In the Stackelberg model, the leader firm takes into account the reaction of the follower firm. Given zero marginal cost and the demand function p = a - bQ, the leader maximizes its profit by choosing q₁ = a/2b, considering the follower's reaction.

Question 6

Which of the following market models results in the highest price assuming a fixed number of firms with identical costs and a given demand curve?

Accepted Answer

In a monopoly, a single firm controls the entire market, allowing it to set prices higher than in competitive markets (like Cournot and Stackelberg) where firms must consider the actions and reactions of competitors, leading to lower prices.

Question 7

Which of the following is a necessary condition for government subsidies to influence a firm to choose an output level as if it were a Stackelberg leader?

Accepted Answer

For a firm to act as a Stackelberg leader, it needs to know the actions of its competitors and make decisions accordingly. Therefore, if the subsidy is announced after the firms have already chosen their output levels, it will not influence the firm's decision-making process. Hence, the subsidy must be announced before the firms choose their output levels for it to have an effect on the firm's behavior.

Question 8

Incumbents are unaffected by fixed costs of entry while potential entrants are affected by them because

Accepted Answer

Incumbents have already paid their fixed costs of entry and therefore do not face additional costs. However, potential entrants must pay these costs to enter the market. While incumbents may face ongoing fixed costs, they have already incurred the initial cost of entry and therefore are not affected by the fixed costs of entry in the same way as potential entrants. For potential entrants, the fixed cost is avoidable, while for the incumbent, it is not.

Question 9

For the following, please answer "True" or "False" and explain why.
-If there are 2 identical firms in a market that choose the quantity they produce,total welfare is the highest when there is a cartel.

Accepted Answer

A cartel acts like a "virtual" monopoly and thus produces the least output.Output is the greatest if the 2 firms act as a Stackelberg Oligopoly which is therefore preferred.

Question 10

Suppose the demand for pizza in a small isolated town is p = 10 - Q.The only two firms,A and B,behave as Cournot duopolists.Each has a cost function TC = 2 + Q.If the government wants to subsidize firm A to raise its output to that of a Stackelberg leader,how large should the subsidy be?

Accepted Answer

The answer of Suppose the demand for pizza in a...

Question 11

What strategic advantage compared to a Cournot Oligopoly results in the Stackelberg outcome?

Accepted Answer

In a Stackelberg game, the leader has the strategic advantage of moving first and setting their output level before the follower. This allows them to anticipate the follower's response and set their output level accordingly to maximize their profit. This advantage is not available in a Cournot oligopoly, where both firms make their output decisions simultaneously.

Question 12

What happens in a duopoly if both firms try to act as the Stackelberg leader?

Accepted Answer

The answer of What happens in a duopoly if both...

Question 13

Suppose the demand for pizza in a small isolated town is p = 10 - Q.There are only two firms,A and B.Each has a cost function TC = 2 + Q.Determine the equilibrium quantities of each if firm A is the Stackelberg leader.

Accepted Answer

The answer of Suppose the demand for pizza in a...

Question 14

Which of the following models results in the greatest total profit,assuming a fixed number of firms with identical costs and a given demand curve?

Accepted Answer

In a monopoly model, the firm has the ability to set the price at which it sells its product. This allows the firm to maximize its profit by setting the price at the point where marginal revenue equals marginal cost. In the other models listed, the firms are price takers and cannot set the price, which limits their ability to maximize profit.

Question 15

Which of the following models results in the highest level of output assuming a fixed number of firms with identical costs and a given demand curve?

Accepted Answer

The answer of Which of the following models results in...

Question 16

Suppose the demand for pizza in a small isolated town is p = 10 - Q.There are only two firms,A and B,and each has a cost function TC = 2 + Q.Compare the firms' profits if they behave as Cournot duopolists with their profits if they form a cartel and share the market.

Accepted Answer

The answer of Suppose the demand for pizza in a...

Question 17

If only two identical firms operate in a market,consumers prefer

Accepted Answer

The answer of If only two identical firms operate in...

Question 18

In which of the following market structures with two identical firms do both firms produce more than the Cournot outcome?

Accepted Answer

The answer of In which of the following market structures...

Question 19

Firms A and B are identical,produce identical products,and are the only firms in a market.Firm A's output is higher than Firm B's.This means that Firm B is the

Accepted Answer

In a market with two identical firms, the Stackelberg model applies. Firm A's higher output suggests that it is the leader in the Stackelberg model, while Firm B is the follower. Therefore, the correct answer is C - Stackelberg follower.

Question 20

Which of the following models results in the greatest deadweight loss,assuming a fixed number of firms with identical costs and a given demand curve?

Accepted Answer

Monopoly results in the greatest deadweight loss because the monopolist restricts output and charges a higher price than would prevail under perfect competition. This reduces consumer surplus and prevents some potential gains from trade. In contrast, perfect competition results in the most efficient allocation of resources and no deadweight loss. Cournot and Stackelberg models have some deadweight loss, but it is less than that of a monopoly.

Quiz 14: Oligopoly and Monopolistic Competition

Which of the following market models results in the highest level of consumer surplus,assuming a fixed number of firms with identical costs and a given demand curve?

-The above figure shows the reaction functions for two pizza shops in a small isolated town.The Stackelberg leader will produce

As the number of firms increases in a market,the differences between the Cournot,Stackelberg,and price-taking market structures

For the following, please answer "True" or "False" and explain why. -If two firms behave as Cournot duopolists,the level of social welfare is lower than if the same firms act as a cartel.

Suppose two duopolists operate at zero marginal cost.The market demand is p = a - bQ.If firm 1 is the Stackelberg leader,what level of output will it choose?

Which of the following market models results in the highest price assuming a fixed number of firms with identical costs and a given demand curve?

Which of the following is a necessary condition for government subsidies to influence a firm to choose an output level as if it were a Stackelberg leader?

Incumbents are unaffected by fixed costs of entry while potential entrants are affected by them because

For the following, please answer "True" or "False" and explain why. -If there are 2 identical firms in a market that choose the quantity they produce,total welfare is the highest when there is a cartel.

Suppose the demand for pizza in a small isolated town is p = 10 - Q.The only two firms,A and B,behave as Cournot duopolists.Each has a cost function TC = 2 + Q.If the government wants to subsidize firm A to raise its output to that of a Stackelberg leader,how large should the subsidy be?

What strategic advantage compared to a Cournot Oligopoly results in the Stackelberg outcome?

What happens in a duopoly if both firms try to act as the Stackelberg leader?

Suppose the demand for pizza in a small isolated town is p = 10 - Q.There are only two firms,A and B.Each has a cost function TC = 2 + Q.Determine the equilibrium quantities of each if firm A is the Stackelberg leader.

Which of the following models results in the greatest total profit,assuming a fixed number of firms with identical costs and a given demand curve?

Which of the following models results in the highest level of output assuming a fixed number of firms with identical costs and a given demand curve?

Suppose the demand for pizza in a small isolated town is p = 10 - Q.There are only two firms,A and B,and each has a cost function TC = 2 + Q.Compare the firms' profits if they behave as Cournot duopolists with their profits if they form a cartel and share the market.

If only two identical firms operate in a market,consumers prefer

In which of the following market structures with two identical firms do both firms produce more than the Cournot outcome?

Firms A and B are identical,produce identical products,and are the only firms in a market.Firm A's output is higher than Firm B's.This means that Firm B is the

Which of the following models results in the greatest deadweight loss,assuming a fixed number of firms with identical costs and a given demand curve?