pbms 27-29
Multiple Choice
Identify the choice that best completes the statement or answers the question.
____
1.
Suppose that the duopolists Carl and Simon in Problem 1 face a demand function for pumpkins of
Q
= 16,400
– 400P, where
Q
is the total number of pumpkins that reach the market and
P
is the price of pumpkins. Sup-
pose further that each farmer has a constant marginal cost of $1 for each pumpkin produced. If Carl believes
that Simon is going to produce
Q
s
pumpkins this year, then the reaction function tells us how many pumpkins
Carl should produce in order to maximize his profits. Carl’s reaction function is
R
C
(
Q
s
) =
a.
8,000 –
.
b.
16,400 – 400
Q
s
.
c.
16,400 – 800
Q
s
.
d.
4,000 –
.
e.
12,000 –
Q
s
.
____
2.
If in Problem 4, the inverse demand for bean sprouts were given by
P
(
Y
) = 940 – 5
Y
and the total cost of pro-
ducing
Y
units for any firm were
TC
(
Y
) = 40
Y
and if the industry consisted of two Cournot duopolists, then in
equilibrium each firm’s production would be
a.
90 units.
b.
45 units.
c.
30 units.
d.
60 units.
e.
47 units.
____
3.
In Problem 6, suppose that two Cournot duopolists serve the Peoria-Dubuque route, and the demand curve for
tickets per day is
Q
= 170 – 2
p
(so
p
= 85 –
). Total costs of running a flight on this route are 850 + 10
q
,
where
q
is the number of passengers on the flight. Each flight has a capacity of 80 passengers. In Cournot
equilibrium, each duopolist will run one flight per day and will make a daily profit of
a.
$400.
b.
$425.
c.
$170.
d.
$800.
e.
$1,750.
____
4.
In Problem 4, suppose that the market demand curve for bean sprouts is given by
P
= 1,280 – 4
Q
, where
P
is
the price and
Q
is total industry output. Suppose that the industry has two firms, a Stackleberg leader and a
follower. Each firm has a constant marginal cost of $80 per unit of output. In equilibrium, total output by the
two firms will be
a.
150.
b.
75.
c.
225.
d.
300.
e.
37.50.
____
5.
There are two firms in the blastopheme industry. The demand curve for blastophemes is given by
p
= 4,500 –
4
q
. Each firm has one manufacturing plant and each firm
i
has a cost function
C
(
q
i
) =
q
2
i
, where
q
i
is the out-
put of firm
i
. The two firms form a cartel and arrange to split total industry profits equally. Under this cartel
arrangement, they will maximize joint profits if
a.
and only if each firm produces 250 units in its plant.