Q&A Hero

Q: There are two independent dealers for Sporto automobiles in a large city. The dealers decide to run a cooperative advertising campaign in which both dealers are listed in local newspapers ads, and they can purchase larger ads that are more likely to attract attention and generate more auto sales if the dealers commit more funds to the joint advertising budget. Is this an example of a cooperative constant-sum game? A) Yes, each firm can contribute zero to 100 percent of the advertising budget, so this is a constant-sum game. B) Yes, all negotiated outcomes between two firms are cooperative and constant-sum situations. C) No, the outcome of the advertising campaign depends on how much money the firms contribute to the campaign, so it is not constant sum. D) No, the firms are independent, so their interaction cannot be cooperative.

Q: Use the following statements to answer the question: I. Consider the problem of negotiating the price of a rug that costs $100 to make. If there are two buyers (one with a maximum willingness-to-pay of $200 and one with a maximum willingness-to-pay of $250), then the situation is no longer a constant sum game. II. The likely outcome from the game described in statement I is that the second buyer will bid a price slightly above $200 (e.g., $201) to win the rug. A) I and II are true. B) I is true and II is false. C) II is true and I is false. D) I and II are false.

Q: Which of the following statements represents a key point about strategic decision making? A) Strategy is less important in nonconstant sum games than in constant sum games. B) The payoffs in cooperative games will always be higher than in noncooperative games. C) It is essential to understand your opponent's point of view and to deduce his or her likely responses to your actions. D) Optimal strategies in cooperative games always lead to economically efficient outcomes.

Q: Scenario 13.1: You are negotiating with your florist over the price of flowers for your wedding. You value the floral arrangements at $500. The florist's cost for the arrangement is $200. You finally settled on a price of $250. Refer to Scenario 13.1. If your negotiated price had been $350 instead of $250, the sum of consumer surplus and producer surplus would be: A) less than what would have accrued at the $250 price. B) the same as what would have accrued at the $250 price. C) more than what would have accrued at the $250 price. D) None of the above is necessarily correct.

Q: Scenario 13.1: You are negotiating with your florist over the price of flowers for your wedding. You value the floral arrangements at $500. The florist's cost for the arrangement is $200. You finally settled on a price of $250. Refer to Scenario 13.1. At your negotiated price the producer surplus is: A) $0. B) $50. C) $200. D) $250. E) $300.

Q: Scenario 13.1: You are negotiating with your florist over the price of flowers for your wedding. You value the floral arrangements at $500. The florist's cost for the arrangement is $200. You finally settled on a price of $250. Refer to Scenario 13.1. At your negotiated price your consumer surplus is: A) $50. B) $200. C) $250. D) $300.

Q: Scenario 13.1: You are negotiating with your florist over the price of flowers for your wedding. You value the floral arrangements at $500. The florist's cost for the arrangement is $200. You finally settled on a price of $250. Refer to Scenario 13.1. Your negotiations are an example of: A) a noncooperative game. B) a cooperative game. C) a constant sum game. D) a competitive game. E) both B and C

Q: In the spring of 1994, Northwest Airlines took the independent action of reducing fares on its flights. Other competing airlines quickly matched the fare cuts. These actions might be interpreted as: A) a noncooperative game. B) a cooperative game. C) a constant sum game. D) a competitive game.

Q: Which of the following are examples of cooperative games? A) The bargaining between a buyer and seller over the price of a car B) Independent action by two firms in a market regarding advertising strategies C) Independent pricing strategies by two firms in a market D) Independent pricing strategies by many firms in a market E) Team games (such as baseball or basketball)

Q: You are playing a game in which a dollar bill is auctioned. The highest bidder receives the dollar in return for the amount bid. However, the second-highest bidder must pay the amount that he or she bids, and gets nothing in return. The optimal strategy is: A) to bid the smallest allowable increment below $1. B) to bid nothing. C) to bid $0.99. D) to bid more than a dollar.

Q: Which of the following conditions, if present, is sufficient to make a game cooperative?A) Individual payoffs are greater if all players choose the same strategy.B) Players can communicate with each other.C) Players can negotiate binding contracts committing them to particular strategies.D) Players must agree unanimously on any set of strategies.E) The payoff that is highest for all individuals together is also highest for each individual player.

Q: Scenario 12.2:You are studying a market for which the kinked demand curve model applies. The kinked demand curve is as follows:Q = 1200 - 5P for 0 Q < 150Q = 360 - P for 150 QThe marginal cost is given as:MC = QRefer to Scenario 12.2. Suppose that the marginal cost increases such that:MC = Q + 10What is the profit maximizing level of output?A) 43B) 120C) 150D) all of the aboveE) none of the above

Q: Scenario 12.2:You are studying a market for which the kinked demand curve model applies. The kinked demand curve is as follows:Q = 1200 - 5P for 0 Q < 150Q = 360 - P for 150 QThe marginal cost is given as:MC = QRefer to Scenario 12.2. What is the profit maximizing price?A) 72B) 240C) 210D) all of the aboveE) none of the above

Q: Scenario 12.2:You are studying a market for which the kinked demand curve model applies. The kinked demand curve is as follows:Q = 1200 - 5P for 0 Q < 150Q = 360 - P for 150 QThe marginal cost is given as:MC = QRefer to Scenario 12.2. What is the profit maximizing level of output?A) 43B) 120C) 150D) all of the aboveE) none of the above

Q: In the dominant firm model, the fringe firms A) are price takers. B) maximize profit by equating average revenue and average cost. C) determine their price and output before the dominant firm determines its price and output. D) all of the above E) none of the above

Q: The kinked demand curve model is based on the assumption that each firm A) considers its rival's output to be fixed. B) considers its rival's price to be fixed. C) believes rivals will match all price changes. D) believes rivals will never match price changes. E) none of the above

Q: Which of the following is true about the demand curve facing the dominant firm? A) It equals market demand minus fringe firms' supply curve. B) It is identical to market demand. C) It equals market demand minus demand facing the fringe firms. D) It is horizontal.

Q: Under the kinked demand curve model, a small increase in marginal cost will lead to A) an increase in output level and a decrease in price. B) a decrease in output level and an increase in price. C) a decrease in output level and no change in price. D) neither a change in output level nor a change in price.

Q: In the dominant firm model, the smaller fringe firms behave like: A) competitive firms. B) Cournot firms. C) Stackelberg firms. D) Bertrand firms. E) monopolists.

Q: A market structure in which there is one large firm that has a major share of the market and many smaller firms supplying the remainder of the market is called: A) the Stackelberg Model. B) the kinked demand curve model. C) the dominant firm model. D) the Cournot model. E) the Bertrand model.

Q: Suppose that three oligopolistic firms are currently charging $12 for their product. The three firms are about the same size. Firm A decides to raise its price to $18, and announces to the press that it is doing so because higher prices are needed to restore economic vitality to the industry. Firms B and C go along with Firm A and raise their prices as well. This is an example of A) price leadership. B) collusion. C) the dominant firm model. D) the Stackelberg model. E) none of the above

Q: In the kinked demand curve model, if one firm reduces its price A) other firms will also reduce their price. B) other firms will compete on a non-price basis. C) other firms will raise their price. D) Both A and B are correct. E) Both B and C are correct.

Q: The oligopoly model that predicts that oligopoly prices will tend to be very rigid is the ________ model. A) Cournot B) Stackelberg C) dominant firm D) kinked demand

Q: The two leading U.S. manufacturers of high performance radial tires must set their advertising strategies for the coming year. Each firm has two strategies available: maintain current advertising or increase advertising by 15%. The strategies available to the two firms, G and B, are presented in the payoff matrix below. The entries in the individual cells are profits measured in millions of dollars. Firm G's outcome is listed before the comma, and Firm B's outcome is listed after the comma. a. Which oligopoly model is best suited for analyzing this decision? Why? (Remember it is illegal to collude in the United States.) b. Carefully explain the strategy that should be used by each firm. Support your choice by including numbers.

Q: Why can't two firms in a Prisoners' Dilemma enforce a better outcome that has higher payoffs? A) Under an outcome with higher payoffs, the outcome is not a Nash equilibrium and each firm has an incentive to change their actions. B) Barriers to entry C) Barriers to exit D) The Nash equilibrium in a Prisoners' Dilemma has the highest possible payoffs for both firms.

Q: Why are many oligopolistic market outcomes conveniently described by a Prisoners' Dilemma? A) The firms can always achieve the outcome that maximizes joint outcomes. B) The firms could do better than the Nash equilibrium if they collude. C) The outcome of a Prisoners' Dilemma is always efficient. D) The outcome of a Prisoners' Dilemma is always identical to the perfectly competitive outcome.

Q: Consider the following payoff matrix for a game in which two firms attempt to collude under the Bertrand model: Firm B cuts Firm B colludes Firm A cuts 6,6 24,8 Firm A colludes 8,24 12,12 Here, the possible options are to retain the collusive price (collude) or to lower the price in attempt to increase the firm's market share (cut). The payoffs are stated in terms of millions of dollars of profits earned per year. What is the Nash equilibrium for this game? A) Both firms cut prices. B) Both firms collude. C) There are two Nash equilibria: A cuts and B colludes, and A colludes and B cuts. D) There are no Nash equilibria in this game.

Q: Consider the following payoff matrix for a game in which two firms attempt to collude under the Bertrand model: Firm B cuts Firm B colludes Firm A cuts 6,6 24,0 Firm A colludes 0,24 12,12 Here, the possible options are to retain the collusive price (collude) or to lower the price in attempt to increase the firm's market share (cut). The payoffs are stated in terms of millions of dollars of profits earned per year. What is the Nash equilibrium for this game? A) Both firms cut prices. B) A cuts and B colludes. C) B cuts and A colludes. D) Both firms collude.

Q: The Prisoners' Dilemma is a particular type of game in which negotiation and enforcement of binding contracts is not possible, and such games are known as: A) cooperative games. B) noncooperative games. C) collusive games. D) Cournot games.

Q: Two firms operating in the same market must choose between a collude price and a cheat price. Firm A's profit is listed before the comma, B's outcome after the comma. If each firm tries to choose a price that is best for it, regardless of the other firm's price, which of these statements is correct? A) Firm A should charge the collude price, Firm B should charge a cheat price. B) Firm A should charge a cheat price, Firm B should charge a collude price. C) Both firms should charge a collude price. D) Both firms should charge a cheat price.

Q: Hale's One Stop and Auto Service competes with Murray's Gas Mart. The local demand is:Qd = 25 - 10P P = 2.50 - 0.1Qd. Both firms sell exactly the same quality of gasoline. Thus, if the firms charge a different price, the lower price firm will capture the entire market share. If the firms charge the same price, they will split the market share. The marginal cost functions are both constant at $1.25. If the firms compete by setting price, what is the market output level? What is the market price level?

Q: Suppose the market demand curve for a Bertrand duopoly is downward sloping. What happens to the Nash equilibrium price and market quantity if the constant marginal cost declines? A) Price and quantity decline B) Price increases and quantity declines C) Price decreases and quantity increases D) Price and quantity increase

Q: Suppose two firms with differentiated products are competing on price. The reaction curve for Firm 1 is P1 = 4 + 0.5 P2, and the reaction curve for Firm 2 is P2 = 4 + 0.5P1. What is the equilibrium price outcome in this market? A) P1 = P2 = 4 B) P1 = P2 = 6 C) P1 = P2 = 8 D) P1 = 6 and P2 = 8

Q: Scenario 12.3: Suppose a stream is discovered whose water has remarkable healing powers. You decide to bottle the liquid and sell it. The market demand curve is linear and is given as follows: P = 30 - Q The marginal cost to produce this new drink is $3. Refer to Scenario 12.3. What will be the price of this new drink in the long run if the firms in the industry collude with one another to maximize joint profit? A) $3 B) $9 C) $12 D) $16.50 E) none of the above

Q: Scenario 12.3: Suppose a stream is discovered whose water has remarkable healing powers. You decide to bottle the liquid and sell it. The market demand curve is linear and is given as follows: P = 30 - Q The marginal cost to produce this new drink is $3. Refer to Scenario 12.3. What will be the price of this new drink in the long run if the industry is a Bertrand duopoly? A) $3 B) $9 C) $12 D) $13.50 E) none of the above

Q: Which statement most nearly describes a Nash equilibrium applied to price competition? A) Two firms cooperate and set the price that maximizes joint profits. B) Each firm automatically moves to the purely competitive equilibrium because it knows the other firm will eventually move to that price anyway. C) Given the prices chosen by its competitors, no firm has an incentive to change their prices from the equilibrium level. D) One dominant firm sets the price, and the other firms take that price as if it were given by the market.

Q: Relative to the Nash equilibrium in the Cournot model, the Nash equilibrium in the Bertrand model with homogeneous products A) results in the same output but a higher price. B) results in the same output but a lower price. C) results in a larger output at a lower price. D) results in a smaller output at a higher price. E) any of the above may result.

Q: In the Bertrand model with homogeneous products, A) the firm that sets the lower price will capture all of the market. B) the Nash equilibrium is the competitive outcome. C) both firms set price equal to marginal cost. D) all of the above E) the outcome is inconclusive.

Q: In the ________, two duopolists compete by simultaneously selecting price. A) Cournot model B) Nash model C) Bertrand model D) kinked-demand model E) none of the above

Q: In the ________, one firm sets its output first, and then a second firm, after observing the first firm's output, makes its output decision. A) Cournot model B) model of monopolistic competition C) Bertrand model D) kinked-demand model E) none of the above

Q: In which oligopoly model(s) do firms earn zero profit? A) Cournot B) Bertrand C) Stackelberg D) Oligopoly firms always earn positive economic profits.

Q: Which oligopoly model(s) have the same results as the competitive model? A) Cournot B) Bertrand C) Stackelberg D) Both Cournot and Stackelberg

Q: Collusion can earn higher prices and higher profits under the Bertrand model, but why is this an unlikely outcome in practice? A) Firms prefer to remain independent of other firms so that their pricing plans can be more flexible over time. B) The collusive firms have an incentive to gain market share at the expense of the other firms by cutting prices. C) The federal antitrust authorities have an easier time catching firms that collude on price rather than quantity. D) none of the above

Q: Is there a first-mover advantage in the Bertrand duopoly model with homogenous products? A) Yes, first-movers always hold the advantage over other firms. B) Yes, first-movers may have an advantage, but it depends on the model assumptions. C) No, first-movers cannot choose a profit maximizing quantity because the second-mover can always produce a bit less and earn higher profits. D) No, the second-mover would be able to set a slightly lower price and capture the full market share.

Q: Which one of the following statements is a common criticism of the original Bertrand duopoly model? A) Firms never choose optimal prices as strategic variables. B) Firms would more naturally choose quantities if goods are homogenous. C) The assumption that market share is split evenly between the firms is unrealistic. D) A and B are correct. E) B and C are correct.

Q: Quasar Corporation is set to release its latest video game system which utilizes the newest game technology. In fact, the release date is sooner than that of its only rival Orion. This gives Quasar Corporation "first-move" ability.The demand for video game systems is: Qd = 150 - 0.1P P = 1,500 - 10Qd.Orion's marginal revenue curve is: MRO(qO, qQ) = 1,500 - 20qO - 10qQ.The marginal cost functions are: .Determine Orion's reaction function. Given that Quasar Corporation has this information and moves first, Quasar's marginal revenue function is: (qQ) = - ()qQ. Calculate Quasar Corporation's optimal output level. Does the "first-move" ability of Quasar Corporation allow it to capture a larger market share?

Q: The Grand River Brick Corporation uses Business-to-Business internet technology to set output before Bernard's Bricks. This gives the Grand River Brick Corporation "first-move" ability. The market demand for bricks is: Qd = 1,000 - 100P P = 10 - 0.01Qd. Bernard Brick's marginal revenue curve is: (qB, qG) = 10 - 0.02qB - 0.01 qG. The marginal cost of producing an additional unit of bricks is constant at $2.00 for each firm. Determine Bernard's reaction function. Given that the Grand River Brick Corporation has this information and moves first, Grand River's marginal revenue curve is: (qG) = 6 - 0.01qG. Calculate Grand River Brick Corporations optimal output level. Does the "first-move" ability of the Grand River Brick Corporation allow them to capture a larger market share (note that the marginal revenue curves would be symmetric if Grand River did not have first-move ability)?

Q: Hale's One Stop Gas and Auto Service competes with Murray's Gas and Service Mart. The local demand is given by: P = 2.50 - 0.01Q. Hale's marginal cost function is: (qH) = 0.35qH. Murray's marginal cost function is: (qM) = 0.30qM. Given the demand relationship above, Hale's marginal revenue function is: (qH, qM) = 2.50 - 0.02qH - 0.01qM. Determine Hale's reaction function. Murray's marginal revenue function is: (qM, qH) = 2.50 - 0.02qM - 0.01qH. Determine Murray's reaction function. What is the Cournot solution?

Q: Consider two identical firms (no. 1 and no. 2) that face a linear market demand curve. Each firm has a marginal cost of zero and the two firms together face demand:P = 50 - 0.5Q, where Q = Q1 + Q2.a. Find the Cournot equilibrium Q and P for each firm.b. Find the equilibrium Q and P for each firm assuming that the firms collude and share the profit equally.c. Contrast the efficiencies of the markets in (a) and (b) above.

Q: Lambert-Rogers Company is a manufacturer of petrochemical products. The firm's research efforts have resulted in the development of a new auto fuel injector cleaner that is considerably more effective than other products on the market. Another firm, G.H. Squires Company, independently developed a very similar product that is as effective as the Lambert-Rogers formula. To avoid a lengthy court battle over conflicting patent claims, the two firms have decided to cross-license each other's patents and proceed with production. It is unlikely that other petrochemical companies will be able to duplicate the product, making the market a duopoly for the foreseeable future. Lambert-Rogers estimates the demand curve given below for the new cleaner. Marginal cost is estimated to be a constant $2 per bottle. Q = 300,000 - 25,000P. where P = dollars per bottle and Q = monthly sales in bottles. a. Lambert-Rogers and G.H. Squires have very similar operating strategies. Consequently, the management of Lambert-Rogers believes that the Cournot model is appropriate for analyzing the market, provided that both firms enter at the same time. Calculate Lambert-Rogers's profit-maximizing output and price according to this model. b. Lambert-Rogers's productive capacity and technical expertise could allow them to enter the market several months before Squires's. Choose an appropriate model and analyze the impact of Lambert Rogers being first into the market. Should Lambert-Rogers hurry to enter first?

Q: Two large diversified consumer products firms are about to enter the market for a new pain reliever. The two firms are very similar in terms of their costs, strategic approach, and market outlook. Moreover, the firms have very similar individual demand curves so that each firm expects to sell one-half of the total market output at any given price. The market demand curve for the pain reliever is given as: Q = 2600 - 400P. Both firms have constant long-run average costs of $2.00 per bottle. Patent protection insures that the two firms will operate as a duopoly for the foreseeable future. Price and quantity values are stated in per-bottle terms. If the firms act as Cournot duopolists, solve for the firm and market outputs and equilibrium prices.

Q: Bartels and Jaymes are two individuals who one day discover a stream that flows wine cooler instead of water. Bartels and Jaymes decide to bottle the wine cooler and sell it. The marginal cost of bottling wine cooler and the fixed cost to bottle wine cooler are both zero. The market demand for bottled wine cooler is given as: P = 90 - 0.25Q where Q is the total quantity of bottled wine cooler produced and P is the market price of bottled wine cooler. a. What is the economically efficient price of bottled wine cooler? b. What is the economically efficient quantity of bottled wine cooler produced? c. If Bartels and Jaymes were to collude with one another and produce the profit-maximizing monopoly quantity of bottled wine cooler, how much bottled wine cooler will they produce? d. Given the output level in (c), what price will Bartels and Jaymes charge for bottled wine cooler? e. At the output level in (c), what is the welfare loss? f. Suppose that Bartels and Jaymes act as Cournot duopolists, what are the reaction functions for Bartels and for Jaymes? g. In the long run, what level of output will Bartels produce if Bartels and Jaymes act as Cournot duopolists? h. In the long run, what will be the price of wine coolers be if Bartels and Jaymes act as Cournot duopolists? i. Suppose that after Bartels and Jaymes have arrived at their long run equilibrium as Cournot duopolists, another individual, Paul Mason, discovers the streams. Paul Mason, who will sell no wine cooler before its time, decides to bottle wine coolers. There are now three Cournot firms producing at once. In the long run, what level of output will Bartels produce?

Q: Suppose that the market demand for mountain spring water is given as follows: P = 1200 - Q Mountain spring water can be produced at no cost. a. What is the profit maximizing level of output and price of a monopolist? b. What level of output would be produced by each firm in a Cournot duopoly in the long run? What will the price be? c. What will be the level of output and price in the long run if this industry were perfectly competitive?

Q: Suppose the market demand curve is P = 40 - 2Q and the constant marginal cost of production is MC = 20. Which of the following is a valid expression for the collusion curve? A) Q = 5 B) Q1 = 5 - Q2 C) Q1 = Q2 = 5 D) Q1 = 40 - Q2

Q: In a Cournot duopoly, we find that Firm 1's reaction function is Q1 = 50 - 0.5Q2, and Firm 2's reaction function is Q2 = 75 - 0.75Q1. What is the Cournot equilibrium outcome in this market? A) Q1 = 20 and Q2 = 60 B) Q1 = 20 and Q2 = 20 C) Q1 = 60 and Q2 = 60 D) Q1 = 60 and Q2 = 20

Q: Scenario 12.3: Suppose a stream is discovered whose water has remarkable healing powers. You decide to bottle the liquid and sell it. The market demand curve is linear and is given as follows: P = 30 - Q The marginal cost to produce this new drink is $3. Refer to Scenario 12.3. What will be the price of this new drink in the long run if the industry is a Stackelberg duopoly? A) $3 B) $9 C) $12 D) $13.50 E) none of the above

Q: Scenario 12.3: Suppose a stream is discovered whose water has remarkable healing powers. You decide to bottle the liquid and sell it. The market demand curve is linear and is given as follows: P = 30 - Q The marginal cost to produce this new drink is $3. Refer to Scenario 12.3. What will be the price of this new drink in the long run if the industry is a Cournot duopoly? A) $3 B) $9 C) $12 D) $13.50 E) none of the above

Q: Scenario 12.3: Suppose a stream is discovered whose water has remarkable healing powers. You decide to bottle the liquid and sell it. The market demand curve is linear and is given as follows: P = 30 - Q The marginal cost to produce this new drink is $3. Refer to Scenario 12.3. What is the monopoly price of this new drink? A) 0 B) $3 C) $13.50 D) $16.50 E) $27

Q: Scenario 12.3: Suppose a stream is discovered whose water has remarkable healing powers. You decide to bottle the liquid and sell it. The market demand curve is linear and is given as follows: P = 30 - Q The marginal cost to produce this new drink is $3. Refer to Scenario 12.3. What price would this new drink sell for if it sold in a competitive market? A) 0 B) $3 C) $13.50 D) $16.50 E) $27

Q: In the Stackelberg model, there is an advantage A) to waiting until your competitor has committed herself to a particular output level before deciding on your output level. B) to being the first competitor to commit to an output level. C) to the firm with a dominant strategy. D) to producing an output level which is identical to a monopolist's output level.

Q: Which of the following is true in the Stackelberg model? A) The first firm produces less than its rival. B) The first firm produces more than its rival. C) Both firms produce the same quantity. D) Both firms have a reaction curve.

Q: What is one difference between the Cournot and Stackelberg models? A) In Cournot, both firms make output decisions simultaneously, and in Stackelberg, one firm sets its output level first. B) In Stackelberg, both firms make output decisions simultaneously, and in Cournot, one firm sets its output level first. C) In Cournot, a firm has the opportunity to react to its rival. D) Profits are zero in Cournot and positive in Stackelberg.

Q: In the Stackelberg model, suppose the first-mover has MR = 15 - Q1, the second firm has reaction function Q2 = 15 - Q1/2, and production occurs at zero marginal cost. Why doesn't the first-mover announce that its production is Q1 = 30 in order to exclude the second firm from the market (i.e., Q2 = 0 in this case)? A) In this case, MR is negative and is less than MC, so the first-mover would be producing less than the optimal quantity. B) In this case, MR is negative and is less than MC, so the first-mover would be producing too much output. C) This is a possible outcome from the Stackelberg duopoly under these conditions. D) We do not have enough information to determine if this is an optimal outcome for this case.

Q: For a market with a linear demand curve and constant marginal cost of production, why are the reaction functions for the Cournot duopoly sellers also straight lines? A) The reaction functions do not have to be straight lines, and they are only drawn this way in the book to keep the figures simple. B) Cournot thought the lines would be straight, but this was proven wrong by other economists. C) Marginal revenue is always linear when marginal costs are constant. D) We know that the marginal revenue curves for linear demand curves are also straight lines.

Q: Under a Cournot duopoly, the collusion curve represents: A) all possible allocations of the pure monopoly quantity among the two firms in the duopoly. B) all possible allocations of the pure monopoly quantity that would be possible if the two firms in the duopoly did not cooperate. C) all optimal price-quantity outcomes for a cartel rather than a Cournot duopoly. D) the potential profits to be earned by firms in a collusive cartel.

Q: The oligopoly model that is most appropriate when one large firm usually takes the lead in setting price is the ________ model. A) Cournot B) Stackelberg C) game theory D) prisoner's dilemma

Q: The Cournot equilibrium can be found by treating ________ as a pair of simultaneous equations and by finding the combination of Q1 and Q2 that satisfy both equations. A) the reaction curves for firms 1 and 2 B) the market supply curve and the market demand curve C) the contract curve and the market demand curve D) the contract curve and the market supply curve E) the firm's supply curve and the firm's demand curve

Q: Scenario 12.1: Suppose mountain spring water can be produced at no cost and that the demand and marginal revenue curves for mountain spring water are given as follows: Q = 6000 - 5P MR = 1200 - 0.4Q Refer to Scenario 12.1. What will be the price in the long run if the industry is a Cournot duopoly? A) $400 B) $600 C) $800 D) $900 E) Competition will drive the price to zero.

Q: Scenario 12.1: Suppose mountain spring water can be produced at no cost and that the demand and marginal revenue curves for mountain spring water are given as follows: Q = 6000 - 5P MR = 1200 - 0.4Q Refer to Scenario 12.1. What is the profit maximizing price of a monopolist? A) $400 B) $600 C) $800 D) $900 E) none of the above

Q: In comparing the Cournot equilibrium with the competitive equilibrium, A) both profit and output level are higher in Cournot. B) both profit and output level are higher in the competitive equilibrium. C) profit is higher, and output level is lower in the competitive equilibrium. D) profit is higher, and output level is lower in Cournot.

Q: The market structure in which there is interdependence among firms is A) monopolistic competition. B) oligopoly. C) perfect competition. D) monopoly.

Q: Which of the following markets is most likely to be oligopolistic? A) The market for corn B) The market for aluminum C) The market for colas D) The market for ground coffees

Q: A ________ shows how much a firm will produce as a function of how much it thinks its competitors will produce. A) contract curve B) demand curve C) reaction curve D) Nash equilibrium curve E) none of the above

Q: In the ________, each firm treats the output of its competitor as fixed and then decides how much to produce. A) Cournot model B) model of monopolistic competition C) Stackelberg model D) kinked-demand model E) none of the above

Q: Which of the following can be thought of as a barrier to entry? A) scale economies. B) patents. C) strategic actions by incumbent firms. D) all of the above

Q: A situation in which each firm selects its best action, given what its rivals are doing, is called a A) Nash equilibrium. B) Cooperative equilibrium. C) Stackelberg equilibrium. D) zero sum game.

Q: In the Cournot duopoly model, each firm assumes that A) rivals will match price cuts but will not match price increases. B) rivals will match all reasonable price changes. C) the price of its rival is fixed. D) the output level of its rival is fixed.

Q: The market structure in which strategic considerations are most important is A) monopolistic competition. B) oligopoly. C) pure competition. D) pure monopoly.

Q: The market structure of Red Raider Gear is best characterized by monopolistic competition. Red Raider Gear is one of the producers in this market. The demand for Red Raider Gear is: Qd = 50 - P P = 50 - Qd. The resulting marginal revenue curve is MR(Qd) = 50 - 2Qd. The Red Raider Gear cost function is C(Q) = (1/8)Q2 + 555.56. Therefore we have MC (Q) = 0.25Q. Determine the profit maximizing level of output and the price charged to customers for Red Raider Gear. Is this a long-run equilibrium?

Q: The market structure of home video gaming systems is best characterized by monopolistic competition. Quasar Entertainment is one of the producers in this market. The inverse demand for Quasar systems is:P = 500 - 9.75QdThe resulting marginal revenue curve isMR(Qd) = 500 - 19.5Qd.Quasar's cost function is:C(Q) = 0.25Q2 + 6,250 MC(Q) = 0.5Q.Determine Quasar's profit maximizing level of output and the price charged to customers. Is this a long-run equilibrium?