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1. An oligopoly is a market in which: A) the actions of one seller have an impact on the other sellers' choices. B) firms are price takers. C) each seller offers products identical to the others' products.D) all firms have the same cost functions.E) all of the above.
2. A perfectly functioning cartel results in a: A) perfectly competitive equilibrium. B) oligopoly equilibrium. C) monopoly equilibrium. D) monopolistically competitive equilibrium.E) disequilibrium outcome.
3. OPEC as a cartel will, in comparison to a competitive industry: A) Produce greater output and charge a higher priceB) Produce less output and charge a higher price C) Produce greater output and charge a lower priceD) Produce less output and charge a lower price E) Has to be a price taker in the market for oil
4. The kinked demand curve theory of oligopoly assumes that rival firms: A) react to price increases.B) react to price increases and decreases. C) do not react to price changes. D) react to price decreases.
5. Which of the following are quantity-setting oligopoly models? A) Stackelberg and Cournot. B) Bertrand.C) Cournot.D) Stackelberg.E) Sweezy and Bertrand.
6. If firms are in Cournot equilibrium: A) Firms could increase profits by jointly increasing output.B) Firms could increase profits by jointly reducing output. C) Each firm could increase profits by unilaterally decreasing output.D) Each firm could increase profits by unilaterally increasing output.E) A slight increase in the marginal cost of a firm leads to an increase in its output
7. Suppose that the duopolists competing in Cournot fashion agree to produce the collusive output. Given that firm two commits to this collusive output, it pays firm one to A) cheat by raising prices.B) cheat by producing a higher level of output.C) cheat by producing a lower level of output.D) undercut competitor's prices.E) merge with firm two.
8. Two identical firms compete as a Cournot duopoly. The inverse market demand they face is P = 80 - 4Q. The cost function for each firm is C(Q) = 8Q. The total industry output will be A) 6B) 12C) 32D) 48E) 64
9. 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) $4,096.B) $1,024.C) $2,048.D) $1,922.E) $512.
10. A new firm enters a market which is initially serviced by a Cournot duopoly charging a price of $20. What will the new market price be should the three firms co-exist after the entry? A) $20.B) below $20.C) above $20.D) $23.E) any of the statements associated with this question are correct.
11. When firm 1 enjoys a first-mover advantage in a Stackelberg duopoly, it will produce: A) less output and charge a higher price than firm 2. B) less output and charge the same price as firm 2.C) more output and charge the same price as firm 2.D) more output and charge a lower price than firm 2.E) the same output and charge the same price as firm 2.
12. 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 = 20; QF = 15. B) QL = 12; QF = 8.C) QL = 24; QF = 12.D) QL = 4; QF = 12.E) QL = 16; QF = 8.
13. The market demand in a Bertrand duopoly is P = 15 - 4Q, and the marginal costs are $3. Fixed costs are zero for both firms. Which of the following statement(s) is/are true? A) P = $3. B) P = $10. C) P = $15. D) P = $15. E) P = $4.
14. A new firm enters a market which is initially serviced by a Bertrand duopoly charging a price of $30. Assuming that the new firm is equally as efficient as the incumbent firms, what will the new price be should the three firms co-exist after the entry? A) Above $30.B) Below $30.C) Equal to $30.D) Unable to tell given the information provided. E) I have no idea.
15. The Sweezy model of oligopoly reveals that A) capacity constraints are not important in determining market performance.B) changes in marginal cost may not affect prices.C) perfectly competitive prices can arise in markets with only a few firms.D) changes in output may affect marginal costs of production. E) all of the statements associated with this question are correct.
16. Which of the following is true? A) In Sweezy oligopoly a change in marginal cost may not have an effect on output or price.B) In Cournot oligopoly firms engage in quantity competition.C) In Bertrand oligopoly each firm reacts optimally to price changes.D) In Sweezy oligopoly markets each firm believes rivals will cut their prices in response to a price reduction, but will not raise prices in response to price increases.E) All of the statements above are correct.
17. One of the characteristics of a contestable market is that A) consumers react quickly to a price change.B) existing firms respond quickly to entry by lowering their price.C) there are sunk costs.D) all firms have different productive technology.E) there are high barriers to entry and transaction costs.
18. Consider two firms competing to sell a homogeneous product by setting price. The inverse demand curve is given by P = 15 - Q. Firm 1 has MC1(Q1) = 1 and firm 2 has MC2(Q2) = 1.05. Based on this information we can conclude that the market price will be A) $1 and each firm will produce 7 units.B) $1.5 and each firm will produce 5 units.C) $1.05 and each firm will produce 6.975 units.D) $1.04 and firm 1 will produce 13.96 units and firm 2 will produce 0 units.E) $1 and firm 1 will produce 14 units and firm 2 will produce 0 units.
19. Consider a market consisting of two firms where the inverse demand curve is given by P = 500 - 2Q1 - 2Q2. Each firm has a marginal cost of $50. Based on this information we can conclude that consumer surplus in the different equilibrium oligopoly models will follow which of the following orderings.
A) CSCollusion > CSStackelberg > CSCournot > CSBertrand.B) CSBertrand > CSStackelberg > CSCournot > CSCollusion.C) CSBertrand > CSCournot > CSStackelberg > CSCollusion.D) CSStackelberg > CSBertrand > CSCournot > CSCollusion.E) CSCollusion > CSBertrand > CSCournot > CSStackelberg.
20. Collusion in oligopoly is difficult to achieve because: A) it is prohibited by law and every firm has an incentive to cheat given that others follow the agreement.B) firms usually take care of consumers' interests as a decision priority.C) it is not in the shareholders' interests.D) it is allowed by law but there is lack of trust between firms. E) of high transaction costs of writing collusion contracts.