H l. Installing it prior to production may deter a rival s entry into a market, especially if it s costly to do

Save this PDF as:
 WORD  PNG  TXT  JPG

Size: px
Start display at page:

Download "H l. Installing it prior to production may deter a rival s entry into a market, especially if it s costly to do"

Transcription

1 ECON-115 Industrial Organization Second Midterm Key 2k14 Name Part I: Matching. Match the terms on the left with the definitions on the right (1/2 point each) 1 First mover advantage K a. Takes place under the Cournot Model, when response functions are downward sloping 2 Sequential games E b. No firm wants to change its current strategy given that no other firm changes its current strategy 3 Prisoner s Dilemma D c. It provides a firm s profit maximizing choices, given the other firm s choice of output 4 Limit pricing I d. An example where two dominant strategies do not lead to the optimal outcome for the players 5 Reaction function C e. One player moves; the second player follows 6 Productive capacity L f. Their presence radically alters the outcome of Bertrand style competition. 7 Strategy J g. The strategy that s never chosen 8 Nash equilibrium B h. Debunks the idea that incumbent firms should fight competitors to scare off future competition 9 Aggressive response A i. A way to deter a rival s entry by keeping prices low 10 Capacity constraints F j. In game theory, it s a plan of action 11 Dominated strategy G k. One possible outcome of Stackelberg competition 12 Chain-store paradox H l. Installing it prior to production may deter a rival s entry into a market, especially if it s costly to do Part II: Multiple Choice. For questions 13-34, circle the best answer. (1/2 point each) 13. A critical assumption of game theory is: a. People like to compete b. Firm s strategies are unpredictable c. Players act rationally d. None of the above 14. A dominant strategy is one that is: a. Most effective b. Always chosen by a player c. Very profitable d. Ensures market domination by one firm For questions 15, 16 and 17, use the following pay-off matrix. Firm 1 s options are Top and Bottom and its pay-offs are the values on the left side of each box. Firm 2 s options are Left and Right and its pay-offs are the values on the right-hand side of each box.

2 FIRM II FIRM I Left Right Top 3, 2 5, -2 Bottom 2, 5 6, Does Firm 1 have a dominant strategy? a. Yes, Top b. Yes, Bottom c. No dominant strategy d. Not enough information to determine this 16. Does Firm 2 have a dominant strategy? a. Yes, Left b. Yes, Right c. No dominant strategy d. Not enough information to determine this 17. What is the Nash Equilibrium in this example? a. Top, Left b. Top, Right c. Bottom, Left d. Bottom, Right 18. A critical assumption of the Cournot Model of Duopoly is: a. Firms cooperate b. Firms practice product differentiation c. The firms are focused on pricing d. Firms produce identical products 19. Under Cournot, a reaction function for each firm is: a. Its profit maximizing function b. Dependent on the other firm s output c. Similar to the cost function d. a & b 20. In the Cournot Model, the Nash equilibrium occurs where: a. Price = marginal cost b. The intersection of the reaction functions c. Firm 1 s output > Firm 2 s d. None of the above

3 21. From a welfare perspective, the Cournot Model predicts that in a market with two identical firms and products, the outcome in terms of overall market price and aggregate quantity is: a. Superior to a monopoly but less good than under perfect competition b. Equal to the monopoly outcome c. Similar to a perfectly competitive market d. The outcome varies depending on the product. 22. Assume a market demand function, P = A BQ, and all firms per unit costs = c. A Cournot Model for N identical firms ultimately yields the following price function: P = (A + Nc)/(N + 1). If we rewrite this as P = A/(N + 1) + Nc/(N + 1), what does this tell us? a. As the number of firms grows, price tends to increase b. As the number of firms grows, aggregate output remains constant c. As the number of firms grows, price tends to the competitive outcome (P = c) d. b & c 23. Bertrand s Duopoly Model differs from Cournot s in one significant respect: a. Firms compete on price b. Firms compete on cost reduction c. Firms compete on quantity d. Both models are very similar 24. In its most basic form (two firms, identical cost structures and products, no capacity constraints), the Bertrand Model predicts price ultimately will: a. Equal cost b. Equal price under a monopoly c. Pmonopoly > Pbertrand > Pcournot d. Pmonopoly > Pbertrand > Pcompetitive For questions 25 26, use the following information: Two identical movie theaters show the same film on the same night with each theater s fixed marginal cost for presenting the film = 5/person. The demand function for watching the film is Q = P. Each theater s capacity is What is the quantity demanded if the theaters set price = cost? a. 100 b. 550 c. 500 d. 1050

4 26. Given the capacity constraints the theaters face, the Bertrand Model points to the following more likely outcome. a. Aggregate attendance 225; Price = b. Aggregate attendance is between 225 and 450; Price cannot be determined. c. Aggregate attendance 450; Price = 10 d. Aggregate attendance 450; Price = In applying Bertrand competition to product differentiation (using the Hotelling spatial model), it can be determined that for two firms, profits for each = Nt/2, where N is the total number of consumers and t is the value consumers put on getting their own preferred variety of product. The implication is: a. The more value consumers place on their preferred products, the more profits firms earn. b. The more value consumers place on their preferred products; the less profits firms earn. c. The value consumers place on their preferred products does not affect profits. d. The question is meaningless because all firms maximize profits at MC = MR. 28. One major difference between Cournot and Bertrand competitions is how they respond to changes in their competitors costs. Cournot competitors respond aggressively while Bertrand competitors respond passively. In practical terms, if a firm s costs rise, the second firm: a. Decreases quantity under Cournot and increases price under Bertrand. b. Increases quantity under Cournot and decreases price under Bertrand. c. Increases quantity under Cournot and increases price under Bertrand. d. Decreases quantity under Cournot and decreases price under Bertrand. 29. Unlike simultaneous games, a sequential game creates an advantage to: a. The first mover b. The second mover c. The first or second mover [Check answer] d. Neither player 30. The Stackelberg Duopoly Model is similar to the Cournot Model in that: a. Both are price based. b. Both are sequential games. c. Both are quantity based. d. Neither confers a first mover advantage.

5 31. In the Stackelberg Duopoly Model, the first mover produces output (q) at: a. The competitive level b. The monopoly level c. At a level similar to Cournot d. All of the above are possible 32. Why are consumers better off when one firm enjoys a first mover advantage (Stackelberg), as compared to a Cournot situation when neither firm enjoys an advantage? a. Superior product quality b. Better customer service c. Great product differentiation d. More quantity produced and lower prices 33. Under Stackelberg competition, but where firms compete on price, the advantage will be conferred on the and the prices will ultimately set a. First mover, at marginal cost b. Second mover, where MR = MC c. Neither party, at marginal cost d. Neither party, where MR = MC 34. In discussing the evolution of markers, which fact about the entry of new competitors is true? a. Entry is common b. The survival rate for entrants is low c. Entrants are small d. All of the above 35. Both forms of predatory behavior predatory pricing and limit pricing enable monopolists to retain control of markets. However, legal action almost always focuses on predatory pricing. Why? a. Most regulators are unfamiliar with limit pricing. b. Limit pricing sounds benign, where predatory pricing sounds menacing. c. A limit pricing strategy is more difficult to maintain. d. Predatory pricing has an identifiable victim. 36. During its first 50 years of existence, Alcoa exercised a virtual monopoly over the aluminum ingot market. What happened to prices of aluminum (per lb.) during this time? a. Rose slowly with inflation b. Fall dramatically c. Stayed nearly constant d. Fell but only after government intervention

6 PART III. Problems. Solve the following problems. Please show your work. (5 points each) 31. A regulated monopoly faces the following demand for its product, P = 56 2Q, and has a marginal cost of MC = 20. Q is the quantity sold and P is the price. a. Under regulation, the firm must set P = MC. Find the regulated price and quantity in this market. 56 2Q = 20 2Q = 36 Q = 18 P = 20 b. Suppose the firm is allowed to set prices at its profit-maximizing level. What is equilibrium price and quantity for its product now? Use marginal revenue (MR) = 56 4Q to solve the problem. 56 4Q = = 4Q Q = 9 P = 56 2(9) = 38 c. Now, imagine there are two identical firms, selling the same product and with the same MC = 20. The resulting market price is P = 56 2*(q1+q2). Use this information to find the Cournot solution to both firms profit maximizing output and price. (A C)/3B (56 20)/3(1) = 12 q1 = q2 = 6 Qtotal = 12 P = 56 2(12) = 32 d. Comparing prices set at marginal cost (a.), prices set at the profit maximizing level (b.) and prices set by profit maximizing oligopolies (c.), where are the prices highest? Lowest? How does the oligopoly prices in c. compare to the other two? Prices are highest at profit maximization (38) Prices are lowest at marginal cost (20) Oligopoly is between the two 20 < 32 < A market demand function is P = 100 Q. MC = 40. There are two firms, one a leader (Firm 1) and the second a follower (Firm 2). Firm 1 will select its output, q1; Firm 2, observing Firm 1 s choice of q1, will then select its own output, q2. Both firms have 0 fixed costs and a constant marginal cost of 40 per unit produced. a. Derive the follower firm Firm 2 s best response function. Do so by determining Firm 2 s marginal revenue function and equating it to marginal cost. P = 100 q1 q2 P(q2) = 100q2 q1q2 q2 2 P (q2) = 100 q1 2q2 = q1 = 2q2 q2 = 30 q1/2

7 b. Firm 1 the leader makes its optimal choice of output knowing Firm 2 s best response function. Use Firm 2 s best response function (determined in (a.), to calculate Firm 1 s profit maximizing output, q1*. Do so by determining Firm 1 s demand and marginal revenue (MR) functions and then by equating MR to marginal cost. P = 100 q q1/2 P = 70 q1/2 Pq1 = 70q1 q1 2 /2 Pq1 = 70 2q1/2 = 40 q1 = 30 c. Use your answers to calculate Firm 2 s output, q2*. Then calculate: q2 = = 15 1) Overall quantity sold (Q) = = 45 2) Market price (P) = = 55 3) Profit to Firm 1 (leader) = (55 40)(30) = Profit to Firm 2 (follower) = (55-40)(15) = 225 d. Use the original demand equation (P = 100 Q) to calculate the monopoly price (at the point where MR = MC) and quantity produced under monopoly. Use this result to answer the following questions. 100Q Q 2 = 100 2Q = 40 2Q = 60 Q = 30 1) The monopoly quantity is equal to what other quantity is the problem? Equal to 30 which is q1 (Firm 1) 2) Given your answer in 1), is the consumer better off under a monopoly or Stackelberg oligopoly? Please justify your answer in terms of quantities and prices. Better off under Stackelberg because more Quantity is produced at lower prices (q1 = 30, P = 70) Stackelberg (q2 = 15, P = 85) Monopoly Profit for firm 1 > Profit for firm > 225

Oligopoly: How do firms behave when there are only a few competitors? These firms produce all or most of their industry s output.

Oligopoly: How do firms behave when there are only a few competitors? These firms produce all or most of their industry s output. Topic 8 Chapter 13 Oligopoly and Monopolistic Competition Econ 203 Topic 8 page 1 Oligopoly: How do firms behave when there are only a few competitors? These firms produce all or most of their industry

More information

Price competition with homogenous products: The Bertrand duopoly model [Simultaneous move price setting duopoly]

Price competition with homogenous products: The Bertrand duopoly model [Simultaneous move price setting duopoly] ECON9 (Spring 0) & 350 (Tutorial ) Chapter Monopolistic Competition and Oligopoly (Part ) Price competition with homogenous products: The Bertrand duopoly model [Simultaneous move price setting duopoly]

More information

Managerial Economics & Business Strategy Chapter 9. Basic Oligopoly Models

Managerial Economics & Business Strategy Chapter 9. Basic Oligopoly Models Managerial Economics & Business Strategy Chapter 9 Basic Oligopoly Models Overview I. Conditions for Oligopoly? II. Role of Strategic Interdependence III. Profit Maximization in Four Oligopoly Settings

More information

Chapter 9 Basic Oligopoly Models

Chapter 9 Basic Oligopoly Models Managerial Economics & Business Strategy Chapter 9 Basic Oligopoly Models McGraw-Hill/Irwin Copyright 2010 by the McGraw-Hill Companies, Inc. All rights reserved. Overview I. Conditions for Oligopoly?

More information

Economics 203: Intermediate Microeconomics I Lab Exercise #11. Buy Building Lease F1 = 500 F1 = 750 Firm 2 F2 = 500 F2 = 400

Economics 203: Intermediate Microeconomics I Lab Exercise #11. Buy Building Lease F1 = 500 F1 = 750 Firm 2 F2 = 500 F2 = 400 Page 1 March 19, 2012 Section 1: Test Your Understanding Economics 203: Intermediate Microeconomics I Lab Exercise #11 The following payoff matrix represents the long-run payoffs for two duopolists faced

More information

Mikroekonomia B by Mikolaj Czajkowski. MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.

Mikroekonomia B by Mikolaj Czajkowski. MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. Mikroekonomia B by Mikolaj Czajkowski Test 12 - Oligopoly Name Group MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) The market structure in which

More information

Market Structure: Duopoly and Oligopoly

Market Structure: Duopoly and Oligopoly WSG10 7/7/03 4:24 PM Page 145 10 Market Structure: Duopoly and Oligopoly OVERVIEW An oligopoly is an industry comprising a few firms. A duopoly, which is a special case of oligopoly, is an industry consisting

More information

University of Hong Kong ECON6021 Microeconomic Analysis Oligopoly

University of Hong Kong ECON6021 Microeconomic Analysis Oligopoly 1 Introduction University of Hong Kong ECON6021 Microeconomic Analysis Oligopoly There are many real life examples that the participants have non-negligible influence on the market. In such markets, every

More information

Competition and Regulation. Lecture 2: Background on imperfect competition

Competition and Regulation. Lecture 2: Background on imperfect competition Competition and Regulation Lecture 2: Background on imperfect competition Monopoly A monopolist maximizes its profits, choosing simultaneously quantity and prices, taking the Demand as a contraint; The

More information

INDUSTRIAL ECONOMICS COMPONENT: THE INTERACTIVE TEXTBOOK

INDUSTRIAL ECONOMICS COMPONENT: THE INTERACTIVE TEXTBOOK UNIT EC407, LEVEL 2 INDUSTRIAL ECONOMICS COMPONENT: THE INTERACTIVE TEXTBOOK Semester 1 1998/99 Lecturer: K. Hinde Room: 427 Northumberland Building Tel: 0191 2273936 email: kevin.hinde@unn.ac.uk Web Page:

More information

Oligopoly and Strategic Pricing

Oligopoly and Strategic Pricing R.E.Marks 1998 Oligopoly 1 R.E.Marks 1998 Oligopoly Oligopoly and Strategic Pricing In this section we consider how firms compete when there are few sellers an oligopolistic market (from the Greek). Small

More information

Finance 360 Problem Set #8 Solutions

Finance 360 Problem Set #8 Solutions Finance 360 Problem Set #8 Solutions ) Consider the game of chicken. Two players drive their cars down the center of the road directly at each other. Each player chooses SWERVE or STAY. Staying wins you

More information

The Basics of Game Theory

The Basics of Game Theory Sloan School of Management 15.010/15.011 Massachusetts Institute of Technology RECITATION NOTES #7 The Basics of Game Theory Friday - November 5, 2004 OUTLINE OF TODAY S RECITATION 1. Game theory definitions:

More information

Week 7 - Game Theory and Industrial Organisation

Week 7 - Game Theory and Industrial Organisation Week 7 - Game Theory and Industrial Organisation The Cournot and Bertrand models are the two basic templates for models of oligopoly; industry structures with a small number of firms. There are a number

More information

ECON 312: Oligopolisitic Competition 1. Industrial Organization Oligopolistic Competition

ECON 312: Oligopolisitic Competition 1. Industrial Organization Oligopolistic Competition ECON 312: Oligopolisitic Competition 1 Industrial Organization Oligopolistic Competition Both the monopoly and the perfectly competitive market structure has in common is that neither has to concern itself

More information

Microeconomics. Lecture Outline. Claudia Vogel. Winter Term 2009/2010. Part III Market Structure and Competitive Strategy

Microeconomics. Lecture Outline. Claudia Vogel. Winter Term 2009/2010. Part III Market Structure and Competitive Strategy Microeconomics Claudia Vogel EUV Winter Term 2009/2010 Claudia Vogel (EUV) Microeconomics Winter Term 2009/2010 1 / 25 Lecture Outline Part III Market Structure and Competitive Strategy 12 Monopolistic

More information

UNIT 6 cont PRICING UNDER DIFFERENT MARKET STRUCTURES. Monopolistic Competition

UNIT 6 cont PRICING UNDER DIFFERENT MARKET STRUCTURES. Monopolistic Competition UNIT 6 cont PRICING UNDER DIFFERENT MARKET STRUCTURES Monopolistic Competition Market Structure Perfect Competition Pure Monopoly Monopolistic Competition Oligopoly Duopoly Monopoly The further right on

More information

12 Monopolistic Competition and Oligopoly

12 Monopolistic Competition and Oligopoly 12 Monopolistic Competition and Oligopoly Read Pindyck and Rubinfeld (2012), Chapter 12 09/04/2015 CHAPTER 12 OUTLINE 12.1 Monopolistic Competition 12.2 Oligopoly 12.3 Price Competition 12.4 Competition

More information

ECON101 STUDY GUIDE 7 CHAPTER 14

ECON101 STUDY GUIDE 7 CHAPTER 14 ECON101 STUDY GUIDE 7 CHAPTER 14 MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) An oligopoly firm is similar to a monopolistically competitive

More information

EC508: Microeconomic Theory Midterm 3

EC508: Microeconomic Theory Midterm 3 EC508: Microeconomic Theory Midterm 3 Instructions: Neatly write your name on the top right hand side of the exam. There are 25 points possible. Your exam solution is due Tuesday Nov 24, 2015 at 5pm. You

More information

Learning Objectives. Chapter 6. Market Structures. Market Structures (cont.) The Two Extremes: Perfect Competition and Pure Monopoly

Learning Objectives. Chapter 6. Market Structures. Market Structures (cont.) The Two Extremes: Perfect Competition and Pure Monopoly Chapter 6 The Two Extremes: Perfect Competition and Pure Monopoly Learning Objectives List the four characteristics of a perfectly competitive market. Describe how a perfect competitor makes the decision

More information

CHAPTER 6 MARKET STRUCTURE

CHAPTER 6 MARKET STRUCTURE CHAPTER 6 MARKET STRUCTURE CHAPTER SUMMARY This chapter presents an economic analysis of market structure. It starts with perfect competition as a benchmark. Potential barriers to entry, that might limit

More information

MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.

MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. Chap 13 Monopolistic Competition and Oligopoly These questions may include topics that were not covered in class and may not be on the exam. MULTIPLE CHOICE. Choose the one alternative that best completes

More information

Do not open this exam until told to do so.

Do not open this exam until told to do so. Do not open this exam until told to do so. Department of Economics College of Social and Applied Human Sciences K. Annen, Winter 004 Final (Version ): Intermediate Microeconomics (ECON30) Solutions Final

More information

Chapter 6 Competitive Markets

Chapter 6 Competitive Markets Chapter 6 Competitive Markets After reading Chapter 6, COMPETITIVE MARKETS, you should be able to: List and explain the characteristics of Perfect Competition and Monopolistic Competition Explain why a

More information

Chapter 7: Market Structures Section 1

Chapter 7: Market Structures Section 1 Chapter 7: Market Structures Section 1 Key Terms perfect competition: a market structure in which a large number of firms all produce the same product and no single seller controls supply or prices commodity:

More information

Lecture 11: Oligopoly and Strategic Behavior

Lecture 11: Oligopoly and Strategic Behavior Lecture 11: Oligopoly and Strategic Behavior Few Firms in the Market: Each aware of others actions Each firm in the industry has market power Entry is Feasible, although incumbent(s) may try to deter it.

More information

Chapter 12 Monopolistic Competition and Oligopoly

Chapter 12 Monopolistic Competition and Oligopoly Chapter Monopolistic Competition and Oligopoly Review Questions. What are the characteristics of a monopolistically competitive market? What happens to the equilibrium price and quantity in such a market

More information

NONCOOPERATIVE OLIGOPOLY MODELS

NONCOOPERATIVE OLIGOPOLY MODELS NONCOOPERATIVE OLIGOPOLY MODELS 1. INTRODUCTION AND DEFINITIONS Definition 1 (Oligopoly). Noncooperative oligopoly is a market where a small number of firms act independently but are aware of each other

More information

CHAPTER 12 MARKETS WITH MARKET POWER Microeconomics in Context (Goodwin, et al.), 2 nd Edition

CHAPTER 12 MARKETS WITH MARKET POWER Microeconomics in Context (Goodwin, et al.), 2 nd Edition CHAPTER 12 MARKETS WITH MARKET POWER Microeconomics in Context (Goodwin, et al.), 2 nd Edition Chapter Summary Now that you understand the model of a perfectly competitive market, this chapter complicates

More information

New Technology and Profits

New Technology and Profits Another useful comparative statics exercise is to determine how much a firm would pay to reduce its marginal costs to that of its competitor. This will simply be the difference between its profits with

More information

Microeconomics II. ELTE Faculty of Social Sciences, Department of Economics. week 9 MARKET THEORY AND MARKETING, PART 3

Microeconomics II. ELTE Faculty of Social Sciences, Department of Economics. week 9 MARKET THEORY AND MARKETING, PART 3 MICROECONOMICS II. ELTE Faculty of Social Sciences, Department of Economics Microeconomics II. MARKET THEORY AND MARKETING, PART 3 Author: Supervised by February 2011 Prepared by:, using Jack Hirshleifer,

More information

MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.

MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. MBA 640 Survey of Microeconomics Fall 2006, Quiz 6 Name MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) A monopoly is best defined as a firm that

More information

Oligopoly: Cournot/Bertrand/Stackelberg

Oligopoly: Cournot/Bertrand/Stackelberg Outline Alternative Market Models Wirtschaftswissenschaften Humboldt Universität zu Berlin March 5, 2006 Outline 1 Introduction Introduction Alternative Market Models 2 Game, Reaction Functions, Solution

More information

Lecture 28 Economics 181 International Trade

Lecture 28 Economics 181 International Trade Lecture 28 Economics 181 International Trade I. Introduction to Strategic Trade Policy If much of world trade is in differentiated products (ie manufactures) characterized by increasing returns to scale,

More information

MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.

MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) The four-firm concentration ratio equals the percentage of the value of accounted for by the four

More information

Chapter 7 Monopoly, Oligopoly and Strategy

Chapter 7 Monopoly, Oligopoly and Strategy Chapter 7 Monopoly, Oligopoly and Strategy After reading Chapter 7, MONOPOLY, OLIGOPOLY AND STRATEGY, you should be able to: Define the characteristics of Monopoly and Oligopoly, and explain why the are

More information

Problems on Perfect Competition & Monopoly

Problems on Perfect Competition & Monopoly Problems on Perfect Competition & Monopoly 1. True and False questions. Indicate whether each of the following statements is true or false and why. (a) In long-run equilibrium, every firm in a perfectly

More information

Oligopoly. Models of Oligopoly Behavior No single general model of oligopoly behavior exists. Oligopoly. Interdependence.

Oligopoly. Models of Oligopoly Behavior No single general model of oligopoly behavior exists. Oligopoly. Interdependence. Oligopoly Chapter 16-2 Models of Oligopoly Behavior No single general model of oligopoly behavior exists. Oligopoly An oligopoly is a market structure characterized by: Few firms Either standardized or

More information

Econ 111 (04) 2nd Midterm A

Econ 111 (04) 2nd Midterm A Econ 111 (04) 2nd Midterm A MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) Which one of the following does not occur in perfect competition? A)

More information

Midterm Exam #1 - Answers

Midterm Exam #1 - Answers Page 1 of 9 Midterm Exam #1 Answers Instructions: Answer all questions directly on these sheets. Points for each part of each question are indicated, and there are 1 points total. Budget your time. 1.

More information

Microeconomics Instructor Miller Practice Problems Monopolistic Competition

Microeconomics Instructor Miller Practice Problems Monopolistic Competition Microeconomics Instructor Miller Practice Problems Monopolistic Competition 1. A monopolistically competitive market is described as one in which there are A) a few firms producing an identical product.

More information

Oligopoly. Chapter 10. 10.1 Overview

Oligopoly. Chapter 10. 10.1 Overview Chapter 10 Oligopoly 10.1 Overview Oligopoly is the study of interactions between multiple rms. Because the actions of any one rm may depend on the actions of others, oligopoly is the rst topic which requires

More information

MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.

MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. Economics 103 Spring 2012: Multiple choice review questions for final exam. Exam will cover chapters on perfect competition, monopoly, monopolistic competition and oligopoly up to the Nash equilibrium

More information

Oligopoly is a market structure more susceptible to game-theoretic analysis, because of apparent strategic interdependence among a few producers.

Oligopoly is a market structure more susceptible to game-theoretic analysis, because of apparent strategic interdependence among a few producers. 1 Market structure from a game-theoretic perspective: Oligopoly After our more theoretical analysis of different zero-sum and variable-sum games, let us return to the more familiar territory of economics---especially

More information

Monopoly. Key differences between a Monopoly and Perfect Competition Perfect Competition

Monopoly. Key differences between a Monopoly and Perfect Competition Perfect Competition Monopoly Monopoly is a market structure in which one form makes up the entire supply side of the market. That is, it is the polar opposite to erfect Competition we discussed earlier. How do they come about?

More information

3.2. Cournot Model. Matilde Machado

3.2. Cournot Model. Matilde Machado Matilde Machado 1 Assumptions: All firms produce an homogenous product The market price is therefore the result of the total supply (same price for all firms) Firms decide simultaneously how much to produce

More information

Chapter 11. T he economy that we. The World of Oligopoly: Preliminaries to Successful Entry. 11.1 Production in a Nonnatural Monopoly Situation

Chapter 11. T he economy that we. The World of Oligopoly: Preliminaries to Successful Entry. 11.1 Production in a Nonnatural Monopoly Situation Chapter T he economy that we are studying in this book is still extremely primitive. At the present time, it has only a few productive enterprises, all of which are monopolies. This economy is certainly

More information

Economics II: Micro Fall 2009 Exercise session 5. Market with a sole supplier is Monopolistic.

Economics II: Micro Fall 2009 Exercise session 5. Market with a sole supplier is Monopolistic. Economics II: Micro Fall 009 Exercise session 5 VŠE 1 Review Optimal production: Independent of the level of market concentration, optimal level of production is where MR = MC. Monopoly: Market with a

More information

a. Retail market for water and sewerage services Answer: Monopolistic competition, many firms each selling differentiated products.

a. Retail market for water and sewerage services Answer: Monopolistic competition, many firms each selling differentiated products. Chapter 16 1. In which market structure would you place each of the following products: monopoly, oligopoly, monopolistic competition, or perfect competition? Why? a. Retail market for water and sewerage

More information

Monopolistic Competition, Oligopoly, and maybe some Game Theory

Monopolistic Competition, Oligopoly, and maybe some Game Theory Monopolistic Competition, Oligopoly, and maybe some Game Theory Now that we have considered the extremes in market structure in the form of perfect competition and monopoly, we turn to market structures

More information

Monopoly: Linear pricing. Econ 171 1

Monopoly: Linear pricing. Econ 171 1 Monopoly: Linear pricing Econ 171 1 The only firm in the market Marginal Revenue market demand is the firm s demand output decisions affect market clearing price $/unit P 1 P 2 L G Demand Q 1 Q 2 Quantity

More information

Chapter 13 Perfect Competition

Chapter 13 Perfect Competition Chapter 13 Perfect Competition 13.1 A Firm's Profit-Maximizing Choices 1) What is the difference between perfect competition and monopolistic competition? A) Perfect competition has a large number of small

More information

9.1 Cournot and Bertrand Models with Homogeneous Products

9.1 Cournot and Bertrand Models with Homogeneous Products 1 Chapter 9 Quantity vs. Price Competition in Static Oligopoly Models We have seen how price and output are determined in perfectly competitive and monopoly markets. Most markets are oligopolistic, however,

More information

Ecn 221 - Unit 10 Monopolistic Competition & Oligopoly

Ecn 221 - Unit 10 Monopolistic Competition & Oligopoly Ecn 221 - Unit 10 Monopolistic Competition & Oligopoly An industry characterized by monopolistic competition is similar to the case of perfect competition in that there are many firms, and entry into the

More information

ECON 40050 Game Theory Exam 1 - Answer Key. 4) All exams must be turned in by 1:45 pm. No extensions will be granted.

ECON 40050 Game Theory Exam 1 - Answer Key. 4) All exams must be turned in by 1:45 pm. No extensions will be granted. 1 ECON 40050 Game Theory Exam 1 - Answer Key Instructions: 1) You may use a pen or pencil, a hand-held nonprogrammable calculator, and a ruler. No other materials may be at or near your desk. Books, coats,

More information

Extreme cases. In between cases

Extreme cases. In between cases CHAPTER 16 OLIGOPOLY FOUR TYPES OF MARKET STRUCTURE Extreme cases PERFECTLY COMPETITION Many firms No barriers to entry Identical products MONOPOLY One firm Huge barriers to entry Unique product In between

More information

Oligopoly. Chapter 25

Oligopoly. Chapter 25 Chapter 25 Oligopoly We have thus far covered two extreme market structures perfect competition where a large number of small firms produce identical products, and monopoly where a single firm is isolated

More information

Market Structure: Perfect Competition and Monopoly

Market Structure: Perfect Competition and Monopoly WSG8 7/7/03 4:34 PM Page 113 8 Market Structure: Perfect Competition and Monopoly OVERVIEW One of the most important decisions made by a manager is how to price the firm s product. If the firm is a profit

More information

Chapter 8 Production Technology and Costs 8.1 Economic Costs and Economic Profit

Chapter 8 Production Technology and Costs 8.1 Economic Costs and Economic Profit Chapter 8 Production Technology and Costs 8.1 Economic Costs and Economic Profit 1) Accountants include costs as part of a firm's costs, while economists include costs. A) explicit; no explicit B) implicit;

More information

Imperfect Competition. Oligopoly. Types of Imperfectly Competitive Markets. Imperfect Competition. Markets With Only a Few Sellers

Imperfect Competition. Oligopoly. Types of Imperfectly Competitive Markets. Imperfect Competition. Markets With Only a Few Sellers Imperfect Competition Oligopoly Chapter 16 Imperfect competition refers to those market structures that fall between perfect competition and pure monopoly. Copyright 2001 by Harcourt, Inc. All rights reserved.

More information

Models of Imperfect Competition

Models of Imperfect Competition Models of Imperfect Competition Monopolistic Competition Oligopoly Models of Imperfect Competition So far, we have discussed two forms of market competition that are difficult to observe in practice Perfect

More information

All these models were characterized by constant returns to scale technologies and perfectly competitive markets.

All these models were characterized by constant returns to scale technologies and perfectly competitive markets. Economies of scale and international trade In the models discussed so far, differences in prices across countries (the source of gains from trade) were attributed to differences in resources/technology.

More information

Figure: Computing Monopoly Profit

Figure: Computing Monopoly Profit Name: Date: 1. Most electric, gas, and water companies are examples of: A) unregulated monopolies. B) natural monopolies. C) restricted-input monopolies. D) sunk-cost monopolies. Use the following to answer

More information

ECON 202: Principles of Microeconomics. Chapter 13 Oligopoly

ECON 202: Principles of Microeconomics. Chapter 13 Oligopoly ECON 202: Principles of Microeconomics Chapter 13 Oligopoly Oligopoly 1. Oligopoly and Barriers to Entry. 2. Using Game Theory to Analyze Oligopoly. 3. Sequential Games and Business Strategy. 4. The Five

More information

Industrial Organization: Theory and Application

Industrial Organization: Theory and Application Industrial Organization: Theory and Application Jie Shuai Nankai University July 7 2014 Shuai (Nankai) IO: Theory and Application July 7 2014 1 / 39 Introduction Outline of the speech Introduction Game

More information

13 MONOPOLISTIC COMPETITION AND OLIGOPOLY. Chapter. Key Concepts

13 MONOPOLISTIC COMPETITION AND OLIGOPOLY. Chapter. Key Concepts Chapter 13 MONOPOLISTIC COMPETITION AND OLIGOPOLY Key Concepts Monopolistic Competition The market structure of most industries lies between the extremes of perfect competition and monopoly. Monopolistic

More information

Choose the single best answer for each question. Do all of your scratch-work in the side and bottom margins of pages.

Choose the single best answer for each question. Do all of your scratch-work in the side and bottom margins of pages. Econ 0, Sections 3 and 4, S, Schroeter Exam #4, Special code = 000 Choose the single best answer for each question. Do all of your scratch-work in the side and bottom margins of pages.. Gordon is the owner

More information

When other firms see these potential profits they will enter the industry, causing a downward shift in the demand for a given firm s product.

When other firms see these potential profits they will enter the industry, causing a downward shift in the demand for a given firm s product. Characteristics of Monopolistic Competition large number of firms differentiated products (ie. substitutes) freedom of entry and exit Examples Upholstered furniture: firms; HHI* = 395 Jewelry and Silverware:

More information

Cournot s model of oligopoly

Cournot s model of oligopoly Cournot s model of oligopoly Single good produced by n firms Cost to firm i of producing q i units: C i (q i ), where C i is nonnegative and increasing If firms total output is Q then market price is P(Q),

More information

Summary Chapter 12 Monopoly

Summary Chapter 12 Monopoly Summary Chapter 12 Monopoly Defining Monopoly - A monopoly is a market structure in which a single seller of a product with no close substitutes serves the entire market - One practical measure for deciding

More information

Equilibrium of a firm under perfect competition in the short-run. A firm is under equilibrium at that point where it maximizes its profits.

Equilibrium of a firm under perfect competition in the short-run. A firm is under equilibrium at that point where it maximizes its profits. Equilibrium of a firm under perfect competition in the short-run. A firm is under equilibrium at that point where it maximizes its profits. Profit depends upon two factors Revenue Structure Cost Structure

More information

Table of Contents MICRO ECONOMICS

Table of Contents MICRO ECONOMICS economicsentrance.weebly.com Basic Exercises Micro Economics AKG 09 Table of Contents MICRO ECONOMICS Budget Constraint... 4 Practice problems... 4 Answers... 4 Supply and Demand... 7 Practice Problems...

More information

Cooleconomics.com Monopolistic Competition and Oligopoly. Contents:

Cooleconomics.com Monopolistic Competition and Oligopoly. Contents: Cooleconomics.com Monopolistic Competition and Oligopoly Contents: Monopolistic Competition Attributes Short Run performance Long run performance Excess capacity Importance of Advertising Socialist Critique

More information

c. Given your answer in part (b), what do you anticipate will happen in this market in the long-run?

c. Given your answer in part (b), what do you anticipate will happen in this market in the long-run? Perfect Competition Questions Question 1 Suppose there is a perfectly competitive industry where all the firms are identical with identical cost curves. Furthermore, suppose that a representative firm

More information

4. Market Structures. Learning Objectives 4-63. Market Structures

4. Market Structures. Learning Objectives 4-63. Market Structures 1. Supply and Demand: Introduction 3 2. Supply and Demand: Consumer Demand 33 3. Supply and Demand: Company Analysis 43 4. Market Structures 63 5. Key Formulas 81 2014 Allen Resources, Inc. All rights

More information

Lecture 4: Nash equilibrium in economics: monopolies and duopolies

Lecture 4: Nash equilibrium in economics: monopolies and duopolies Lecture : Nash equilibrium in economics: monopolies and duopolies We discuss here an application of Nash equilibrium in economics, the Cournot s duopoly model. This is a very classical problem which in

More information

Oligopoly: Firms in Less Competitive Markets

Oligopoly: Firms in Less Competitive Markets Chapter 13 Oligopoly: Firms in Less Competitive Markets Prepared by: Fernando & Yvonn Quijano 2008 Prentice Hall Business Publishing Economics R. Glenn Hubbard, Anthony Patrick O Brien, 2e. Competing with

More information

3.4. Bertrand Model Bertrand Model

3.4. Bertrand Model Bertrand Model atilde achado 1 In Cournot, firms decide how much to produce and the market price is set such that supply equals demand. But the sentence price is set is too imprecise. In reality how does it work exactly?

More information

Pricing and Output Decisions: i Perfect. Managerial Economics: Economic Tools for Today s Decision Makers, 4/e By Paul Keat and Philip Young

Pricing and Output Decisions: i Perfect. Managerial Economics: Economic Tools for Today s Decision Makers, 4/e By Paul Keat and Philip Young Chapter 9 Pricing and Output Decisions: i Perfect Competition and Monopoly M i l E i E i Managerial Economics: Economic Tools for Today s Decision Makers, 4/e By Paul Keat and Philip Young Pricing and

More information

5. Suppose demand is perfectly elastic, and the supply of the good in question

5. Suppose demand is perfectly elastic, and the supply of the good in question ECON 1620 Basic Economics Principles 2010 2011 2 nd Semester Mid term test (1) : 40 multiple choice questions Time allowed : 60 minutes 1. When demand is inelastic the price elasticity of demand is (A)

More information

OLIGOPOLY. Nature of Oligopoly. What Causes Oligopoly?

OLIGOPOLY. Nature of Oligopoly. What Causes Oligopoly? CH 11: OLIGOPOLY 1 OLIGOPOLY When a few big firms dominate the market, the situation is called oligopoly. Any action of one firm will affect the performance of other firms. If one of the firms reduces

More information

Aggressive Advertisement. Normal Advertisement Aggressive Advertisement. Normal Advertisement

Aggressive Advertisement. Normal Advertisement Aggressive Advertisement. Normal Advertisement Professor Scholz Posted: 11/10/2009 Economics 101, Problem Set #9, brief answers Due: 11/17/2009 Oligopoly and Monopolistic Competition Please SHOW your work and, if you have room, do the assignment on

More information

AGEC 105 Spring 2016 Homework 7. 1. Consider a monopolist that faces the demand curve given in the following table.

AGEC 105 Spring 2016 Homework 7. 1. Consider a monopolist that faces the demand curve given in the following table. AGEC 105 Spring 2016 Homework 7 1. Consider a monopolist that faces the demand curve given in the following table. a. Fill in the table by calculating total revenue and marginal revenue at each price.

More information

ECON 103, 2008-2 ANSWERS TO HOME WORK ASSIGNMENTS

ECON 103, 2008-2 ANSWERS TO HOME WORK ASSIGNMENTS ECON 103, 2008-2 ANSWERS TO HOME WORK ASSIGNMENTS Due the Week of June 23 Chapter 8 WRITE [4] Use the demand schedule that follows to calculate total revenue and marginal revenue at each quantity. Plot

More information

MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.

MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. Chapter 11 Monopoly practice Davidson spring2007 MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) A monopoly industry is characterized by 1) A)

More information

1 Cournot Oligopoly with n firms

1 Cournot Oligopoly with n firms BEE07, Microeconomics, Dieter Balkenborg Cournot Oligopoly with n firms firmi soutput: q i totaloutput: q=q +q + +q n opponent soutput: q i =q q i =Σ j i q i constantmarginalcostsoffirmi: c i inverse demand

More information

Oligopoly. Oligopoly is a market structure in which the number of sellers is small.

Oligopoly. Oligopoly is a market structure in which the number of sellers is small. Oligopoly Oligopoly is a market structure in which the number of sellers is small. Oligopoly requires strategic thinking, unlike perfect competition, monopoly, and monopolistic competition. Under perfect

More information

ANSWERS TO END-OF-CHAPTER QUESTIONS

ANSWERS TO END-OF-CHAPTER QUESTIONS ANSWERS TO END-OF-CHAPTER QUESTIONS 23-1 Briefly indicate the basic characteristics of pure competition, pure monopoly, monopolistic competition, and oligopoly. Under which of these market classifications

More information

Market structures. 18. Oligopoly Gene Chang Univ. of Toledo. Examples. Oligopoly Market. Behavior of Oligopoly. Behavior of Oligopoly

Market structures. 18. Oligopoly Gene Chang Univ. of Toledo. Examples. Oligopoly Market. Behavior of Oligopoly. Behavior of Oligopoly Market structures 18. Oligopoly Gene Chang Univ. of Toledo We distinguish the market structure by examining the following characteristics in the industry: Number of firms in the industry Nature of the

More information

MICROECONOMICS II. "B"

MICROECONOMICS II. B MICROECONOMICS II. "B" Sponsored by a Grant TÁMOP-4.1.2-08/2/A/KMR-2009-0041 Course Material Developed by Department of Economics, Faculty of Social Sciences, Eötvös Loránd University Budapest (ELTE) Department

More information

Managerial Economics & Business Strategy Chapter 8. Managing in Competitive, Monopolistic, and Monopolistically Competitive Markets

Managerial Economics & Business Strategy Chapter 8. Managing in Competitive, Monopolistic, and Monopolistically Competitive Markets Managerial Economics & Business Strategy Chapter 8 Managing in Competitive, Monopolistic, and Monopolistically Competitive Markets I. Perfect Competition Overview Characteristics and profit outlook. Effect

More information

CHAPTER 18 MARKETS WITH MARKET POWER Principles of Economics in Context (Goodwin et al.)

CHAPTER 18 MARKETS WITH MARKET POWER Principles of Economics in Context (Goodwin et al.) CHAPTER 18 MARKETS WITH MARKET POWER Principles of Economics in Context (Goodwin et al.) Chapter Summary Now that you understand the model of a perfectly competitive market, this chapter complicates the

More information

MPP 801 Monopoly Kevin Wainwright Study Questions

MPP 801 Monopoly Kevin Wainwright Study Questions MPP 801 Monopoly Kevin Wainwright Study Questions MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) The marginal revenue facing a monopolist A) is

More information

Chapter. Perfect Competition CHAPTER IN PERSPECTIVE

Chapter. Perfect Competition CHAPTER IN PERSPECTIVE Perfect Competition Chapter 10 CHAPTER IN PERSPECTIVE In Chapter 10 we study perfect competition, the market that arises when the demand for a product is large relative to the output of a single producer.

More information

ECON 600 Lecture 3: Profit Maximization Π = TR TC

ECON 600 Lecture 3: Profit Maximization Π = TR TC ECON 600 Lecture 3: Profit Maximization I. The Concept of Profit Maximization Profit is defined as total revenue minus total cost. Π = TR TC (We use Π to stand for profit because we use P for something

More information

A Detailed Price Discrimination Example

A Detailed Price Discrimination Example A Detailed Price Discrimination Example Suppose that there are two different types of customers for a monopolist s product. Customers of type 1 have demand curves as follows. These demand curves include

More information

Practice Questions Week 8 Day 1

Practice Questions Week 8 Day 1 Practice Questions Week 8 Day 1 Multiple Choice Identify the choice that best completes the statement or answers the question. 1. The characteristics of a market that influence the behavior of market participants

More information

Economics Instructor Miller Oligopoly Practice Problems

Economics Instructor Miller Oligopoly Practice Problems Economics Instructor Miller Oligopoly Practice Problems 1. An oligopolistic industry is characterized by all of the following except A) existence of entry barriers. B) the possibility of reaping long run

More information

chapter Perfect Competition and the >> Supply Curve Section 3: The Industry Supply Curve

chapter Perfect Competition and the >> Supply Curve Section 3: The Industry Supply Curve chapter 9 The industry supply curve shows the relationship between the price of a good and the total output of the industry as a whole. Perfect Competition and the >> Supply Curve Section 3: The Industry

More information