Question

In: Economics

11.Which of the following is true? (a) In Bertrand oligopoly each firm believes that their rivals...

11.Which of the following is true?

(a) In Bertrand oligopoly each firm believes that their rivals will hold their output

constant if it changes its output.

(a) In Cournot oligopoly firms produce an identical product at a constant marginal cost and engage in price competition.

(b) In oligopoly a change in marginal cost never has an effect on output or price.

(c) (a) and (b) are true

(d) None of the statements associated with this question are true.

12. 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) (a) and (b) are true. (e) none of the statements associated with this question are true.

13. Bertrand model of oligopoly reveals that (a) capacity constraints are not important in determining market performance. (b) perfectly competitive prices can arise in markets with only a few firms. (c) changes in marginal cost do not affect prices. (d) all of the statements associated with this question are true.

(e) none of the statements associated with this question are true.

14. 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: (a) $128, (b)$256, (c) $384, (d) $512, (e) none of them are true..

15. 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: (a) 8, (b) 16, (c) 32, (d) 36, (e) none of them are true.

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: (a) $1,024, (b) $2,048, (c)$4,096, (d) $512 (e) none of them are true

17. 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: (a)$128, (b)$256, (c)$384, (d)$512, (e) none of them are true.

18. 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:

(a).QL = 16; QF = 8.

(b).QL = 24; QF = 12.

(c).QL = 12; QF = 8.

(d).QL = 20; QF = 15.

(e). None of them are true.

19. 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:

20. Suppose a manager is interested in implementing third-degree price discrimination. The manager knows that the price elasticity of demand for Group 1 is -2 and the price elasticity of demand for Group 2 is -1.2. Based on this information alone we can conclude that the price charged to Group 2 will be

(a) the same as the price charged to Group 1.

(b) lower than the price charged to Group 1.

(c) higher than the price charged to Group 1.

(d) there is insufficient information to determine whether Group 2 will have a higher,

lower or the same price as Group 1.

(e) none of them are true.

Expert Solution

Q.11.

In Bertrand oligopoly each firm believes that their rivals will hold their price constant if it changes its price i.e. it is a simultaneous price setting model. Cournot Oligopoly, on the other hand, is a simultaneous quantity setting where each firm believes that their rivals will hold their output constant if it changes its output.

In Oligopoly, equilibrium price and equilibrium quantity are a function of marginal cost. Hence a change in marginal cost has an effect on output or price.

Correct Option - (d) None of the statements associated with this question are true.

Q.12.

The Sweezy model incorporates a kinked demand curve which shows that unlike regular oligopoly, price stability can exist without collusion in an oligopoly.

Hence a decrease in a firm's marginal cost generally leads to higher output and a higher price.

Correct Ans - c

Q.13.

In Bertrand oligopoly each firm believes that their rivals will hold their price constant if it changes its price i.e. it is a simultaneous price setting model. Each firm wants to maximize their market share by capturing most of the market through charging lower prices. Hence there is a tendency to undercut prices. However minimum both firms can charge is P = MC (competitive market condition) because charging P < MC results in negative profits. Hence Bertrand model of oligopoly reveals that perfectly competitive prices can arise in markets with only a few firms.

Correct Ans - b

Rahul Sunny answered 1 year ago

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