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gamepracticequestions-4

# gamepracticequestions-4 - University of Minnesota Econ...

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University of Minnesota Econ 3101.04 Practice Questions on Oligopoly Page 1 of 3 TRUE/FALSE 1. In Cournot equilibrium each firm chooses the quantity that maximizes its own profits assuming that the firm’s rival will continue to sell at the same price as before. 2. In Bertrand competition between two firms, each firm believes that if it changes its output, the rival firm will change its output by the same amount. 3. Suppose that the demand curve for an industry’s output is a downward-sloping straight line and there is constant marginal cost. Then the larger the number of identical firms producing in Cournot equilibrium, the lower will be the price. 4. A Stackelberg leader chooses his actions on the assumption that his rival will adjust to the leader’s actions in such a way as to maximize the rival’s profits. 5. A duopoly in which two identical firms are engaged in Bertrand competition will not distort prices from their competitive levels. 6. A Stackelberg leader will necessarily make at least as much profit as he would if he acted as a Cournot oligopolist. 7. In the Cournot model, each firm chooses its actions on the assumption that its rivals will react by changing their quantities in such a way as to maximize their own profits. 8. In the Bertrand model of duopoly, each firm sets its price, believing that the other’s price will not change. When both firms have identical production functions and produce with constant returns to scale, the Bertrand equilibrium price is equal to marginal cost. MULTIPLE CHOICE 1. An industry has two firms. The inverse demand function for this industry is p = 263 – 6 q . Both firms produce at a constant unit cost of \$29 per unit. What is the Cournot equilibrium price for this industry? a. \$29 b. \$31 c. \$107 d. \$53.50 e. None of the above.

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gamepracticequestions-4 - University of Minnesota Econ...

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