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Chapter 9

The document contains multiple choice questions about oligopoly market structures including Sweezy, Cournot, Bertrand, Stackelberg, and contestable markets. Specifically: - In a Sweezy oligopoly, a decrease in a firm's marginal cost generally leads to higher output and a lower price. - A market is not contestable if existing firms can quickly respond to entry by lowering their price. - A firm's isoprofit curve shows the combinations of outputs that yield the firm the same level of profit. - Collusion in oligopoly is difficult to achieve because every firm has an incentive to cheat given others follow the agreement.

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126 views

Chapter 9

The document contains multiple choice questions about oligopoly market structures including Sweezy, Cournot, Bertrand, Stackelberg, and contestable markets. Specifically: - In a Sweezy oligopoly, a decrease in a firm's marginal cost generally leads to higher output and a lower price. - A market is not contestable if existing firms can quickly respond to entry by lowering their price. - A firm's isoprofit curve shows the combinations of outputs that yield the firm the same level of profit. - Collusion in oligopoly is difficult to achieve because every firm has an incentive to cheat given others follow the agreement.

Uploaded by

Anh Thu Vu
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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Chapter 9

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 answers is correct.

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.

A firm's isoprofit curve is defined as the combinations of outputs produced by:


a) a firm that earns it the same level of profits.
b) all firms that yield the firm the same level of profit.
c) all firms that make total industry profits constant.
d) None of the answers is correct.

Collusion in oligopoly is difficult to achieve because:


a) it is prohibited by law.
b) every firm has an incentive to cheat given that others follow the agreement.
c) firms usually take care of consumers' interests as a decision priority.
d) it is prohibited by law and every firm has an incentive to cheat given that others
follow the agreement.

Which would you expect to make the highest profits, other things equal?
a) Bertrand oligopolist
b) Cournot oligopolist
c) Stackelberg leader
d) Stackelberg follower

In a Cournot oligopoly, a decrease in a firm's marginal cost leads to:


a) reduced output and a higher price.
b) reduced output and a lower price.
c) higher output and a higher price.
d) higher output and a lower price.

The profits of the leader in a Stackelberg duopoly:


a) are greater than those of the follower.
b) equal those of the follower.
c) are less than those of the follower.
d) are greater than those of a Sweezy oligopolist.
Two firms compete as a Stackelberg duopoly. The inverse market demand they face is P = 62
− 4.5Q. The cost function for each firm is C(Q) = 8Q. The outputs of the two firms are:
a) QL = 48; QF = 24.
b) QL = 35; QF = 6.
c) QL = 6; QF = 3.
d) None of the answers is correct.

Consider a Stackelberg duopoly with the following inverse demand function: P = 100 − 2Q1
− 2Q2. The firms' marginal costs are identical and are given by MCi = 2. Based on this
information, the Stackelberg follower's reaction function is:
a) QF = 24.5 − 0.25QL.
b) QF = 49 − 0.25QF.
c) QF = 24.5 − 0.5QL.
d) QF = 24.5 − QL.

Consider a market consisting of two firms where the inverse demand curve is given by P =
500 − 2Q1 − 2Q2. Each firm has a marginal cost of $50. Based on this information, we can
conclude that aggregate profits in the different equilibrium oligopoly models will follow
which of the following orderings?
a) πBertand > πCollusion > πStackelberg > πCournot
b) πCollusion > πCournot > πStackelberg > πBertand
c) πCollusion > πStackelberg > πCournot > πBertand
d) None of the answers is correct.

Consider a Stackelberg duopoly with the following inverse demand function: P = 100 − 2Q1
− 2Q2. The firms' marginal costs are identical and are given by MCi(Qi) = 2. Based on this
information, the follower's reaction function is:
a) rF(QL) = 24.5 − 0.5QF.
b) QL = 49 − 0.5QF.
c) rF(QL) = 24.5 − 0.5QL.
d) QF = 49 − 0.25QL.

Consider a Stackelberg duopoly with the following inverse demand function: P = 100 − 2Q1
− 2Q2. The firms' marginal costs are identical and are given by MCi(Qi) = ciQi. Based on this
information, the Stackelberg leader's marginal revenue function is:
a) MR(QL) = 50 − 2QL - 0.5cL.
b) MR(QL) = 50 − 2QL - 0.5cF.
c) MR(QF) = 100 − 2QF - 0.5cF.
d) MR(QF) = 100 − QF - 0.5cF.

Which of the following are quantity-setting oligopoly models?


a) Stackelberg.
b) Cournot.
c) Bertrand.
d) Stackelberg and Cournot.

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


a) output of rivals 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.

Two identical firms compete as a Cournot duopoly. The demand they face is P = 100 − 2Q.
The cost function for each firm is C(Q) = 4Q. Each firm earns equilibrium profits of:
a) $1,024.
b) $2,048.
c) $4,096.
d) $512.

The spirit of equating marginal cost with marginal revenue is NOT held by:
a) perfectly competitive firms.
b) oligopolistic firms.
c) perfectly competitive firms and oligopolistic firms.
d) None of the answers is correct.

Firm 1 and firm 2 compete as a Cournot oligopoly. There is an increase in marginal cost for
firm 1. Which of the following is NOT true?
a) Firm 1 will produce less.
b) Firm 2 will produce more.
c) Both firm 1's and firm 2's reaction functions are shifted.
d) Profits of firm 1 will decrease.

Which of the following is NOT a quantity-setting oligopoly model?


a) Stackelberg
b) Cournot
c) Bertrand
d) All of the choices are quantity-setting models.

The Cournot theory of oligopoly is based on the assumption that each firm believes that rivals
will:
a) keep their output constant if it changes its output.
b) increase their output whenever it increases its output.
c) decrease their output whenever it increases its output.
d) randomly change output whenever it changes its output.

The profits of the follower in a Stackelberg duopoly:


a) are greater than those of the leader.
b) equal those of the leader.
c) are less than those of the leader.
d) All the statements associated with this question are correct.

Consider a Stackelberg duopoly with the following inverse demand function: P = 100 −
2Q1 − 2Q2. The firms' marginal costs are identical and are given by MCi = 2. Based on this
information, the consumer surplus in this market is:
a) $36.75.
b) $73.50.
c) $1,352.40.
d) $2,704.80.

In a market where two firms compete by setting quantity, the Cournot equilibrium has which
of the following characteristics?
a) The two firms' reaction functions intersect.
b) There is no incentive for the two firms to collude.
c) The two firms' isoprofit curves intersect one another at the highest point.
d) The two firms' reaction functions intersect at the highest point where the two firms'
isoprofit curves intersect one another.

Which of the following is true about a differentiated-product Bertrand duopoly?


a) Firm 1 and firm 2's reaction functions are downward sloping.
b) Firm 1 and firm 2's reaction functions are upward sloping.
c) Firm 1's reaction function is downward sloping but firm 2's reaction function is
upward sloping.
d) In a differentiated-product Bertrand duopoly neither firm has a reaction function.

A new firm enters a market which is initially serviced by a Cournot duopoly charging a price
of $10. What will the new market price be should the three firms coexist after the entry?
a) $10
b) Below $10
c) Above $10
d) None of the answers is correct.

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