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Managerial Economics Chapter 9

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The Cournot theory of oligopoly assumes rivals will:
keep their output constant.
Which of the following is true?
None of the answers is correct.
In a Sweezy Oligopoly, a decrease in a firm's marginal cost generally leads to:
None of the answers is correct.
The Bertrand model of oligopoly reveals that:
perfectly competitive prices can arise in markets with only a few firms.
Which of the following are quantity-setting oligopoly models?
Stackelberg and Cournot.
Which of the following are price-setting oligopoly models?
Bertrand.
Both firms in a Cournot duopoly would enjoy higher profits if:
the firms simultaneously reduced output below the Nash equilibrium level.
Which of the following is NOT a feature of Sweezy oligopoly?
The firms produce homogeneous products.
Which of the following is a profit-maximizing condition for a Cournot oligopolist?
MR = MC.
A new firm enters a market which is initially serviced by a Bertrand duopoly charging a price of $20. What will the new price be should the three firms coexist after the entry?
$20
"An oligopoly is an oligopoly. Firms behave the same no matter what type of oligopoly it is." This statement is
false
Tom and Jack are the only two local gas stations. Although they have different constant marginal costs, they both survive continued competition. Tom and Jack do NOT constitute a:
Bertrand oligopoly.
A market is NOT contestable if:
there are sunk costs.
Firm A has a higher marginal cost than firm B. They compete in a homogeneous product
Cournot duopoly. Which of the following results will NOT occur?
PriceA < PriceB
If firms compete in a Cournot fashion, then each firm views the:
output of rivals as given.
Two firms compete in a Stackelberg fashion. If firm 2 is the leader, then:
firm 1 views the output of firm 2 as given.
With linear demand and constant marginal cost, a Stackelberg leader's profits are ___________ the follower.
greater than
An oligopolist faces a demand curve that is steeper at higher prices than at lower prices. Which
of the following is most likely?
Other firms match price increases but do not match price reductions.
When firm 1 enjoys a first-mover advantage in a Stackelberg duopoly, it will produce:
more output and charge the same price as firm 2.
A slight increase in the marginal cost of a firm definitely leads to a reduction in its output if the firm competes in the:
Cournot fashion and Bertrand fashion.
The market demand in a Bertrand duopoly is P = 10 - 3Q, and the marginal costs are $1. Fixed costs are zero for both firms. Which of the following statement(s) is/are true?
All of the statements associated with this question are correct.
If firms are in Cournot equilibrium:
firms could increase profits by jointly reducing output.
A firm's isoprofit curve is defined as the combinations of outputs produced by:
all firms that yield the firm the same level of profit.
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. The equilibrium output of each firm is:
16
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:
$512.
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. In equilibrium, the deadweight loss is:
$256
Which of the following statements is NOT a condition for a Stackelberg oligopoly?
The market is contestable.
With a linear inverse demand function and the same constant marginal costs for both firms in a homogeneous product Stackelberg duopoly, which of the following will result?
Profits of leader > Profits of follower and QL = 2QF.
Suppose that the duopolists competing in Cournot fashion agree to produce the collusive output. Given that firm 2 commits to this collusive output, it pays firm 1 to:
cheat by producing a higher level of output.
Two firms compete as a Stackelberg duopoly. The demand they face is P = 100 - 3Q. The cost function for each firm is C(Q) = 4Q. The outputs of the two firms are:
QL = 16; QF = 8.
Two firms compete as a Stackelberg duopoly. The demand they face is P = 100 - 3Q. The cost function for each firm is C(Q) = 4Q. The profits of the two firms are:
πL = $384; πF = $192.
From a consumer's point of view, which type of oligopoly is most desirable?
Bertrand
Collusion in oligopoly is difficult to achieve because:
it is prohibited by law and every firm has an incentive to cheat given that others follow the agreement.
Since the end of the war in the Persian Gulf, the world price of oil has fallen. But in some areas, consumers have seen little relief at the pump. This phenomenon can be explained by the theory of:
oligopoly.
The spirit of equating marginal cost with marginal revenue is NOT held by:
None of the answers is correct.
MCI announced a price discount plan for small firms. Their stock immediately fell in price. This shows that:
MCI is probably competing in a Bertrand oligopolistic industry.
An oligopolist has a marginal revenue curve that jumps down at 500 units of output. What kind of oligopoly does the firm most likely belong to?
Sweezy
There are many different models of oligopoly because:
beliefs play an important role in oligopolistic competition and oligopoly is the most complicated type of market structure.
Which of the following is NOT a type of market structure?
Monopolistic oligopoly
Ed just finished an empirical study of oligopoly. He found the following result: "In the examined industry, a firm's demand curve is such that other firms match price increases but do not match price reductions." What kind of oligopoly is the examined industry?
None of the answers is correct.
Which of the following is true?
A. If there are only two firms in a market, prices must be above marginal cost.
B. If there is only one firm in a market, prices must be above marginal cost.
C. Both if there are only two firms in a market, prices must be above marginal cost and if there is only one firm in a market, prices must be above marginal cost are correct.
****D. None of the answers is correct.
Which firm would you expect to make the lowest profits, other things equal?
Bertrand oligopolist
Which would you expect to make the highest profits, other things equal?
Stackelberg leader
When firm 1 acts as a Stackelberg leader:
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?
Both firm 1's and firm 2's reaction functions are shifted.
Two firms produce different goods. Firm 1 has a positive-sloped reaction function. This can be explained best by:
heterogeneous product Bertrand oligopoly.
A duopoly in which both firms have a Lerner index of monopoly power equal to 0 is probably a:
Bertrand oligopoly.
The inverse demand in a Cournot duopoly is P = a - b(Q1 + Q2), and costs are C1(Q1) = c1Q1 and C2(Q2) = c2Q2. The government has imposed a per-unit tax of $t on each unit sold by each firm. The equilibrium output of each firm is the same as a situation where each firm's:
marginal cost increases by t.
The inverse demand in a Cournot duopoly is P = a - b(Q1 + Q2), and costs are C1(Q1) = c1Q1 and C2(Q2) = c2Q2. The government has imposed a per-unit tax of $t on each unit sold by each firm. The tax revenue is:
less than t times the total output of the two firms should there be no sales tax.
The producer's surplus of all firms in an oligopoly is usually the least in the case of a:
Bertrand oligopoly.
The Bertrand theory of oligopoly assumes:
firms set prices.
Which of the following is true?
A. In Bertrand oligopoly each firm reacts optimally to price changes.
B. In Cournot oligopoly firms engage in quantity competition. C. In Sweezy oligopoly a change in marginal cost may not have an effect on output or price. ***D. All of the statements associated with this question are correct.
In a Cournot oligopoly, a decrease in a firm's marginal cost leads to:
higher output and a lower price.