Question 1

When marginal cost is constant and zero, the interdependence between Cournot duopolists causes
A)Price to be 1/3 higher and quantity to be 1/3 lower than the corresponding values in the monopoly case
B)Price to be 1/3 lower and quantity to be 1/3 higher than the corresponding values in the monopoly case
C)Prices and quantities to be the same as they would be in the monopoly case
D)Prices and quantities to be the same as they would be in the perfectly competitive case

Accepted Answer

When marginal cost is constant and zero, Cournot duopolists will produce more than a monopolist, leading to a lower price and higher quantity compared to the monopoly case.

Question 2

The strategy for the Stackelberg Leader is
A)To sell a marginally higher quantity of goods than the rival
B)To sell at a marginally lower price than the rival
C)Collusion
D)To take account of the effect of its own behavior on the rival firm's quantity choice

Accepted Answer

The strategy for the Stackelberg Leader is to take account of the effect of its own behavior on the rival firm's quantity choice. This means that the leader should aim to produce a quantity that will make it impossible for the follower to produce a larger quantity and still make a profit. By producing a quantity that maximizes its own profit while limiting the follower's profit, the leader can maintain its dominance in the market. Therefore, choice D is the best choice.

Question 3

In the above diagram the profit-maximizing price is at
A)02
B)03
C)04
D)05

Accepted Answer

The answer of In the above diagram the profit-maximizing price...

Question 4

The strategy for the shared monopoly is
A)To sell a marginally higher quantity of goods than the rival
B)To sell at a marginally lower price than the rival
C)Collusion
D)To take account of the effect of its own behavior on the rival firm's quantity choice

Accepted Answer

In a shared monopoly, firms often engage in collusion to maximize joint profits by setting prices or output levels collectively, rather than competing against each other.

Question 5

The demand curve shown below has four points depicting possible total market oligopoly outcomes of quantity and price.For the given demand and price coordinates labeled A-D, pick the matching oligopoly models that lead to these comparative outcomes. 
A)A = Bertrand: B = Cournot: C = Stackelberg: D = Shared Monopoly
B)A = Cournot: B = Bertrand: C = Stackelberg: D = Shared Monopoly
C)A = Shared Monopoly: B = Cournot: C = Bertrand: D = Stackelberg
D)A = Shared Monopoly: B = Cournot: C = Stackelberg: D = Bertrand

Accepted Answer

The answer of The demand curve shown below has four...

Question 6

In the above graph the profit maximization level of output for a monopolistically competitive firm is
A)OA
B)OB
C)OC
D)OD

Accepted Answer

The answer of In the above graph the profit maximization...

Question 7

Which of the duopoly models has the lowest overall combined profit level?
A)The Cournot model
B)The Bertrand model
C)The Stackelberg Leader-Follower model
D)The shared monopoly model

Accepted Answer

In the Bertrand model, firms engage in price competition and lower their prices until they reach the competitive equilibrium price. This results in lower profits for both firms as they have to lower their prices to attract customers. In contrast, the Cournot model and the Stackelberg Leader-Follower model allow firms to differentiate their products or vary their production quantity, which gives them some pricing power and enables them to earn higher profits. The shared monopoly model assumes that the two firms act as a single entity, maximizing joint profits, and therefore, results in the highest overall combined profit level. Therefore, the Bertrand model has the lowest overall combined profit level of the four types of duopoly models.

Question 8

Which of the duopoly models has the highest overall combined profit level?
A)The Cournot model
B)The Bertrand model
C)The Stackelberg Leader-Follower model
D)The shared monopoly model

Accepted Answer

The shared monopoly model typically results in the highest overall combined profit level among duopoly models because firms act cooperatively to maximize total profits, akin to a monopoly's profit-maximizing behavior.

Question 9

The basic idea of the theory of contestable markets is that when the cost of entry and exit is very low, the threat of entry can be sufficient to produce an allocation similar to the one we see under
A)Monopoly
B)Monopolistic competition
C)Perfect competition
D)Oligopoly

Accepted Answer

The theory of contestable markets suggests that when the cost of entry and exit is low, a market can approximate the outcomes of perfect competition, even in the presence of only a few firms. This is because the threat of new firms entering the market will prevent existing firms from raising prices above the competitive level. Therefore, the best choice is C)Perfect competition.

Question 10

The basic problem of a shared monopoly from the point of view of those involved is that
A)Profits are lower than in the other oligopoly models
B)The shared output is too high for the high price to be maintained
C)Collusive agreements are difficult to sustain
D)Revenue is lower than in the other oligopoly models

Accepted Answer

Collusive agreements are difficult to sustain because firms have an incentive to cheat to increase their individual profits, leading to potential breakdowns in cooperation.

Question 11

In the graph above if additional firms enter the market we would expect
A)The DD curve to shift right
B)Each individual firm to be worse off
C)The dd curve to become steeper
D)The MC and ATC curves to shift downward

Accepted Answer

When additional firms enter the market, competition increases, which typically results in each individual firm being worse off due to reduced market share and potential price decreases.

Question 12

The oligopoly model in which each firm assumes that rivals will continue to produce at their current output levels is called the:
A)Cournot model
B)Bertrand model
C)Stackelberg model
D)Chamberlin model

Accepted Answer

In the Cournot model, each firm assumes that all other firms will continue to produce at their current output levels, leading to a non-cooperative equilibrium. The Bertrand model assumes that firms compete on price, and the Stackelberg model assumes that one firm acts as a leader and the others as followers. The Chamberlin model assumes that firms differentiate their products to some degree.

Question 13

Prices in the Bertrand model are
A)The same as prices under a shared monopoly
B)Slightly higher than prices would be under a shared monopoly
C)The same as prices would be in the perfectly competitive case
D)Slightly higher than prices would be in the perfectly competitive case

Accepted Answer

In the Bertrand model, firms compete in price, which leads to a situation similar to perfect competition where firms charge the marginal cost of production. Therefore, the prices in the Bertrand model are the same as the prices would be in the perfectly competitive case.

Question 14

In the graph above at the profit maximizing price and output the firm is making
A)Positive economic profit
B)Negative economic profit
C)Zero economic profit
D)It is impossible to tell from the information given

Accepted Answer

At the profit-maximizing price and output, the firm is making positive economic profit because the price is above the average total cost.

Question 15

The strategy for the Bertrand model is
A)To sell a marginally higher quantity of goods than the rival
B)To sell at a marginally lower price than the rival but not below marginal cost
C)Collusion
D)To take account of the effect of its own behavior on the rival firm's quantity choice

Accepted Answer

In the Bertrand model, firms compete by setting prices rather than quantities. The strategy is to undercut the rival's price slightly, but not below marginal cost, to capture the entire market.

Question 16

In the Stackelberg model
A)Each firm takes the quantities produced by its rivals as given
B)Each firm takes the prices charged by its rivals as given
C)One firm plays a leadership role and its rivals merely react to the leader's quantity
D)Prices are higher and quantities are slightly less than we would see if the firms colluded to achieve the monopoly outcome

Accepted Answer

In the Stackelberg model, one firm (the leader) sets its quantity first, and then the other firms (the followers) react by setting their quantities. This means that the followers take the leader's quantity as given, and the leader has a strategic advantage. Therefore, C is the correct answer. Choices A and B describe the Cournot model, where firms compete by setting quantities simultaneously. Choice D is not necessarily true, as outcomes in the Stackelberg model depend on the specific circumstances of the market.

Question 17

Cournot duopolists face a market demand curve given by P = 90 - Q where Q is total market demand.Each firm can produce output at a constant marginal cost of 30 per unit.The equilibrium price and quantity for the total market will be
A)Q = 30, P = 60
B)Q = 60, P = 30
C)Q = 40, P = 50
D)Q = 45, P = 45

Accepted Answer

The answer of Cournot duopolists face a market demand curve...

Question 18

If the duopolists in Problem 17 behave according to the Stackelberg Leader-Follower model, the equilibrium price and total quantity for the market will be
A)Q = 30, P = 60
B)Q = 60, P = 30
C)Q = 40, P = 50
D)Q = 45, P = 45

Accepted Answer

The answer of If the duopolists in Problem 17 behave...

Question 19

If the duopolists in Problem 17 behave as a shared monopoly, the equilibrium price and total quantity of output will be
A)Q = 30, P = 60
B)Q = 60, P = 30
C)Q = 40, P = 50
D)Q = 45, P = 45

Accepted Answer

The answer of If the duopolists in Problem 17 behave...

Question 20

If the duopolists in problem 17 behave, instead, according to the Bertrand model, the equilibrium price and quantity for the total market will be
A)Q = 30, P = 60
B)Q = 60, P = 30
C)Q = 40, P = 50
D)Q = 45, P = 45

Accepted Answer

In the Bertrand model, firms compete by setting prices. The equilibrium occurs when firms set prices equal to marginal cost, leading to a competitive outcome. Assuming marginal cost is 30, the equilibrium price is 30, and the quantity is 60.

Quiz 13: Imperfect Competition: a Game-Theoretic Approach

When marginal cost is constant and zero, the interdependence between Cournot duopolists causes

The strategy for the Stackelberg Leader is

In the above diagram the profit-maximizing price is at

The strategy for the shared monopoly is

The demand curve shown below has four points depicting possible total market oligopoly outcomes of quantity and price.For the given demand and price coordinates labeled A-D, pick the matching oligopoly models that lead to these comparative outcomes.

In the above graph the profit maximization level of output for a monopolistically competitive firm is

Which of the duopoly models has the lowest overall combined profit level?

Which of the duopoly models has the highest overall combined profit level?

The basic idea of the theory of contestable markets is that when the cost of entry and exit is very low, the threat of entry can be sufficient to produce an allocation similar to the one we see under

The basic problem of a shared monopoly from the point of view of those involved is that

In the graph above if additional firms enter the market we would expect

The oligopoly model in which each firm assumes that rivals will continue to produce at their current output levels is called the:

Prices in the Bertrand model are

In the graph above at the profit maximizing price and output the firm is making

The strategy for the Bertrand model is

In the Stackelberg model

Cournot duopolists face a market demand curve given by P = 90 - Q where Q is total market demand.Each firm can produce output at a constant marginal cost of 30 per unit.The equilibrium price and quantity for the total market will be

If the duopolists in Problem 17 behave according to the Stackelberg Leader-Follower model, the equilibrium price and total quantity for the market will be

If the duopolists in Problem 17 behave as a shared monopoly, the equilibrium price and total quantity of output will be

If the duopolists in problem 17 behave, instead, according to the Bertrand model, the equilibrium price and quantity for the total market will be