Question

7. Oligopoly differs from monopolistic competition in that it includes:

a. barriers to entry b. pricing powers. c. downward-sloping demand curves d. product differentiation

8. Which of the following statements are FALSE regarding the price elasticity of residual demand? Select all correct answers.

a. It is equal to negative infinity in the perfect competition model.

b. It is equal to the price elasticity of market demand times the number of firms.

c. It is less elastic for homogeneous goods than for heterogeneous goods.

d. The monopoly markup decreases as the price elasticity of residual demand becomes more negative.

9. Which of the following market structures is efficient?

a. Two-part pricing with non-identical customers

b. Third degree price discrimination

c. Second degree price discrimination with finite blocks

d. First degree price discrimination

10. Consider an oligopoly with five identical firms. If the market demand elasticity is -4, what is the Lerner Index?

a. 0.1

b. 0.05

c. 0.25

d. 0.20

11. Consider a market in which there are three firms that simultaneously choose prices, produce differentiated goods, and let the market determine the quantities. Which oligopoly model would best fit this market?

a. Cournot

b. None of these are appropriate for differentiated goods.

c. Bertrand

d. Stackelberg

12. Consider a monopolist using second degree price discrimination. If it expands the number of blocks it is using from two to three, what is the impact on consumer surplus, producer surplus, and the deadweight loss?

Select all correct answers.

a. Producer surplus decreases

b. Consumer surplus increases

c. Deadweight loss decreases

Answer 1

Answer-7. Correct option is 'a'

Oligopoly differs from monopolistic competition in that it includes barriers to entry. Under monopolistic competition, firms are free to enter into or exit from the industry at any time they wish. One important source of oligopoly power is barriers to entry. Barriers to entry are obstacles that make it difficult to enter a given market. This means that new firms cannot enter the market whenever existing firms are making a positive economic profit.

Answer-8. Correct option is 'c'

If the product is more homogeneous or less hetrogeneous, each seller will have a relatively elastic demand. Option 'c' is falsebecause it says it is less elastic for homogeneous goods than for heterogeneous goods.

Answer-9. Correct option is 'a'

Two-part pricing market structures is efficient because it ia a form of price discrimination where in the price of a product or services is composed of two parts- a lump sum fee as well as a per unit charges. It is designed to enable the firm to capture more consumer surplus than it otherwise would in a non-discriminating pricing environment.

Answer-10. Correct option is 'c'

Lerner Index = -1 / Market demand elasticity

                   = -1 / -4

                   = 0.25

Answer-11. Correct option is 'd'

The Stackelberg leadership model is a strategic game in economics in which the leader firm moves first and then the follower firms move sequentially. Stackelberg is when firms choose equilibrium simultaneously.

Answer-12.