Question 1

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 2

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 a Stackelberg model with zero marginal cost, the leader maximizes its profit by anticipating the reaction of the follower. The leader's output level is determined by solving for the quantity that maximizes its profit given the follower's best response. The correct formula for the leader's output in this context, considering the linear demand function p = a - bQ and zero marginal cost, is q₁ = a/2b, which corresponds to choice D. This outcome results from the leader taking advantage of its first-mover advantage to capture a larger share of the market by setting its quantity at a level that maximizes its profit given the residual demand left for the follower.

Question 3

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 4

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

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

Accepted Answer

Fixed costs are unavoidable for incumbents as they have already incurred them in the past, but potential entrants can choose to avoid them by not entering the market. This can create a barrier to entry and give incumbents an advantage.

Question 6

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 others as followers, which often leads to more competitive pricing compared to Cournot, Monopoly, or Cartel models. This results in a higher quantity produced than in Cournot or Monopoly models, and certainly more than in a Cartel, where firms act to maximize joint profits, often reducing output to increase prices. Therefore, the Stackelberg model tends to result in a higher consumer surplus due to more competitive pricing and greater quantity available to consumers.

Question 7

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 Stackelberg duopoly, one firm is the leader and the other is the follower. The leader sets its output first, and the follower then chooses its output based on the leader's choice. Since Firm A has a higher output, it is likely the leader in this scenario, and Firm B is the follower. Therefore, choice C, Stackelberg follower, is the correct answer.

Question 8

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 9

-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 10

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 11

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

Accepted Answer

The strategic advantage of the Stackelberg outcome compared to a Cournot Oligopoly is the ability to move first. The Stackelberg leader sets its quantity or price first, which allows it to take into account how its follower will react. This advantage leads to a higher market share and profits for the Stackelberg leader.

Question 12

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 13

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

Accepted Answer

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

Question 14

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

A monopoly results in the highest price because there is no competition and the monopolist has the ability to charge a higher price than in a competitive market. The other two options (Cournot and Stackelberg) assume competition and therefore result in lower prices.

Question 15

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 16

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 it leads to a market outcome where the price is higher and the quantity produced is lower than in perfect competition. This creates a deadweight loss, which is the loss of consumer and producer surplus that occurs when the market is not operating efficiently. In contrast, in perfect competition, the market operates efficiently and there is no deadweight loss. The other two models (Cournot and Stackelberg) are oligopoly models that assume a small number of firms in the market, but they still have some competition and do not result in as much deadweight loss as a monopoly.

Question 17

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, the firm has the power to control the price and output level. This allows the firm to maximize profit by setting a price that is higher than the marginal cost. In the other models, there is competition between firms which drives down the price and limits the profit potential. In a monopoly, there are no competitors and the firm can charge a higher price. Therefore, a monopoly model results in the greatest total profit.

Question 18

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

The government subsidy must be announced before the firms choose output levels for the firm to act as a Stackelberg leader. As a Stackelberg leader, the firm has an advantage over its rival by being able to set its output level first. If the subsidy is announced after the firms have chosen their output levels, it will not affect the firm's decision to act as a leader. The other options (B, C, and D) are not necessary conditions for a firm to act as a Stackelberg leader.

Question 19

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 20

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...

Quiz 14: Oligopoly and Monopolistic Competition

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

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?

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.

If two firms behave as Cournot duopolists,the level of social welfare is lower than if the same firms act as a cartel.

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

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?

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

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.

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

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?

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

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

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?

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?

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?

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

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

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