Quiz 4

Question 1

The Cournot model of symmetric duopoly suggests that the market equilibrium position is such that:

1. one firm is larger than the other in the final equilibrium and the largest firm produces the largest quantity of output
2. economic profits are zero for both firms
3. total industry output is the same as it would have been in a perfectly competitive market
4. all of the above
5. one of the above

Answer 1

5. one of the above

Question 2

In game theory, a player has a dominant strategy when:

1. the pay-off to the player is greater than for any other strategy, regardless of what the other players do
2. the pay-off to the player is dominated by all other strategies
3. each player has full information about the pay-offs for the other players
4. all of the above
5. none of the above

Answer 2

1. the pay-off to the player is greater than for any other strategy, regardless of what the other players do

Question 3

The kinked demand curve model of oligopoly pricing assumes:

1. each firm believes that its competitors will not match a price reduction
2. e f b t its c will increase price in response to a price reduction
3. e f b t its c will match any price increase
4. none of the above

Answer 3

4. none of the above

Question 4

The dominant firm model of price leadership assumes:

1. the dominant firm colludes with the follower firms to maximise industry profits
2. the follower firms attempt to undercut the price set by the dominant firm
3. the dominant firm faces a horizontal demand curve
4. the follower firms set the market price and the dominant firm adds a mark-up to that price
5. marginal cost is lower for the dominant firm than it is for the follower firms

Answer 4

5. marginal cost is lower for the dominant firm than it is for the follower firms

Question 5

The characteristic of a Nash equilibrium is that:

1. there are no dominant strategies for any of the players in a game
2. all players have access to at least one dominant strategy
3. an equilibrium can only be established if one of the players has a first-mover advantage
4. there is no incentive for any player to deviate from the strategy currently played
5. none of the above

Answer 5

4. there is no incentive for any player to deviate from the strategy currently played

Question 6

The key difference between the Cournot model of oligopoly and the Stackelberg model is:

1. The Cournot Model assumes the firms compete over price
2. the Stackelberg model assumes the firms complete over price
3. The Cournot model assumes that one of the firms has a first-mover advantage
4. the Stackelberg model assumes that the firms have the same cost conditions
5. none of the above

Answer 6

5. none of the above

Question 7

Question 7, check Nawal’s screenshot

Answer 7

!

Question 8

An oligopolist industry is typically characterised by:

1. the industry contains a few large firms
2. the industry has low entry barriers
3. the pricing decisions of the firms are independent of each other
4. all of the above
5. none of the above

Answer 8

1. the industry contains a few large firms

Question 9

The analysis of oligopoly suggests that total industry profits will be greatest if:

1. entry barriers can be removed
2. new entrants can achieve cost reductions via learning by doing
3. product differentiation is low
4. the competing firms collude
5. fixed costs are low

Answer 9

4. the competing firms collude

Question 10

The final equilibrium position in the Bertrand model of oligopoly pricing is:

1. a Nash equilibrium, because the participating firms college to hold price above ATC
2. not a Nash equilibrium because any reduction in price would eventually drive the market price down to the competitive level
3. not a Nash equilibrium because each individual firm has an incentive to cut price to increase profits
4. a Nash equilibrium because price falls to the competitive equilibrium level and no firm then has an incentive to increase the price above its competitive level.
5. none of the above

Answer 10

4. a Nash equilibrium because price falls to the competitive equilibrium level and no firm then has an incentive to increase the price above its competitive level.