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1、Microeconomics, 9e (Pindyck/Rubinfeld)Chapter 12 Monopolistic Competition and Oligopoly12.1 Monopolistic CompetitionFor which of the following market structures is it assumed that there are barriers to entry?A) Perfect competitionMonopolistic competitionB) Monopolyall of the aboveC) B and C onlyAnsw
2、er: CDiff: 1Section: 12.11) Use the following two statements about monopolistic competition to answer this question.1. In the long run, the price of the good will equal the minimum of the average cost.IL In the short run, firms may earn a profit.A) I and II are true.B) I is true, and II is false.C)
3、I is false, and II is true.D) I and II are false.Answer: CDiff： 1Section: 12.1A market with few entry barriers and with many firms that sell differentiated products is:A) purely competitive.B) a monopoly.C) monopolistically competitive.D) oligopolistic.Answer: CDiff: 1Section: 12.1The most important
4、 factor in determining the long-run profit potential in monopolistic competition is: A) free entry and exit.B) the elasticity of the market demand curve.C) the elasticity of the firms demand curve.D) the reaction of rival firms to a change in price.Answer: ADiff: 1Section: 12.1E) none of the aboveAn
5、swer: ADiff： 1Section: 12.26) A shows how much a firm will produce as a function of how much it thinks its competitorswill produce.A) contract curvedemand curveB) reaction curveNash equilibrium curveC) none of the aboveAnswer: CDiff: 1Section: 12.27) Which of the following markets is most likely to
6、be oligopolistic?A) The market for cornThe market for aluminumB) The market for colasThe market for ground coffeesAnswer: BDiff： 1Section: 12.2The market structure in which there is interdependence among firms is:A) monopolistic competition.B) oligopoly.C) perfect competition.D) monopoly.Answer: BDi
7、ff： 1Section: 12.28) Refer to Figure 12.2.1 above. The points A, B and C in the figure correspond, in that order, to: A) competitive, collusion, and Cournot equilibrium.B) competitive, Cournot, and collusion equilibrium.C) collusion, Cournot, and competitive equilibrium.D) Cournot, collusion, and co
8、mpetitive equilibrium.Answer: CDiff： 1Section: 12.2In comparing the Cournot equilibrium with the competitive equilibrium, A) both profit and output level are higher in Cournot.B) both profit and output level are higher in the competitive equilibrium.C) profit is higher, and output level is lower in
9、the competitive equilibrium.D) profit is higher, and output level is lower in Cournot.Answer: DDiff: 2Section: 12.2Scenario 121:Suppose mountain spring water can be produced at no cost and that the demand and marginal revenue curves for mountain spring water are given as follows:Q = 6000 -5P MR = 12
10、00 - 0.4QRefer to Scenario 12.1. What is the profit maximizing price of a monopolist?A) $400B)$600C)$800D)$900E) none of the aboveAnswer: BDiff： 2Section: 12.29) Refer to Scenario 12.1. What will be the price in the long run if the industry is a Cournot duopoly?A) $400B)$600C) $800D)$900E) Competiti
11、on will drive the price to zero.Answer: ADiff: 2Section: 12.2The Cournot equilibrium can be found by treating as a pair of simultaneous equations andby finding the combination of QI and Q2 that satisfy both equations.A) the reaction curves for firms 1 and 2the market supply curve and the market dema
12、nd curveB) the contract curve and the market demand curvethe contract curve and the market supply curveC) the firms supply curve and the firms demand curveAnswer: ADiff: 3Section: 12.210) The oligopoly model that is most appropriate when one large firm usually takes the lead in setting price is the
13、model.A) CournotStackelbergB) game theoryPrisoners1 DilemmaAnswer: BDiff： 1Section: 12.211) Under a Cournot duopoly, the collusion curve represents:A) all possible allocations of the pure monopoly quantity among the two firms in the duopoly.B) all possible allocations of the pure monopoly quantity t
14、hat would be possible if the two firms in the duopoly did not cooperate.C) all optimal price-quantity outcomes for a cartel rather than a Cournot duopoly.D) the potential profits to be earned by firms in a collusive cartel.Answer: ADiff： 2Section: 12.2For a market with a linear demand curve and cons
15、tant marginal cost of production, why are the reaction functions for the Cournot duopoly sellers also straight lines?A) The reaction functions do not have to be straight lines, and they are only drawn this way in the book to keep the figures simple.B) Cournot thought the lines would be straight, but
16、 this was proven wrong by other economists.C) Marginal revenue is always linear when marginal costs are constant.D) We know that the marginal revenue curves for linear demand curves are also straight lines.Answer: DDiff: 2Section: 12.2In the Stackelberg model, suppose the first-mover has MR = 15 - Q
17、i，the second firm has reaction function Q2 = 15 - Qi/2, and production occurs at zero marginal cost. Why doesnt the first-mover announce that its production is Qi = 30 in order to exclude the second firm from the market (i.e., Q2 = 0 in this case)?A) In this case, MR is negative and is less than MC,
18、 so the first-mover would be producing less than the optimal quantity.B) In this case, MR is negative and is less than MC, so the first-mover would be producing too much output.C) This is a possible outcome from the Stackelberg duopoly under these conditions.D) We do not have enough information to d
19、etermine if this is an optimal outcome for this case.Answer: BDiff： 3Section: 12.2What is one difference between the Cournot and Stackelberg models?A) In Cournot, both firms make output decisions simultaneously, and in Stackelberg, one firm sets its output level first.B) In Stackelberg, both firms m
20、ake output decisions simultaneously, and in Cournot, one firm sets its output level first.C) In Cournot, a firm has the opportunity to react to its rival.D) Profits are zero in Cournot and positive in Stackelberg.Answer: ADiff: 1Section: 12.212) Which of the following is true in the Stackelberg mode
21、l?A) The first firm produces less than its rival.B) The first firm produces more than its rival.C) Both firms produce the same quantity.D) Both firms have a reaction curve.Answer: BDiff: 1Section: 12.2In the Stackelberg model, there is an advantage:A) to waiting until your competitor has committed h
22、erself to a particular output level before deciding on your output level.B) to being the first competitor to commit to an output level.C) to the firm with a dominant strategy.D) to producing an output level which is identical to a monopolists output level.Answer: BDiff: 2Section: 12.2Scenario 122Sup
23、pose a stream is discovered whose water has remarkable healing powers. You decide to bottle the liquid and sell it. The market demand curve is linear and is given as follows:P = 30 - QThe marginal cost to produce this new drink is $3.13) Refer to Scenario 12.2. What price would this new drink sell f
24、or if it sold in a competitive market? A)0$3B) $13.50$16.50C) $27Answer: BDiff: 3Section: 12.214) Refer to Scenario 12.2. What is the monopoly price of this new drink?A)0$3B) $13.50$16.50C) $27Answer: DDiff: 3Section: 12.215) Refer to Scenario 12.2. What will be the price of this new drink in the lo
25、ng run if the industry is a Cournot duopoly?A) $3$9B) $12$13.50C) none of the aboveAnswer: BDiff： 3Section: 12.216) Refer to Scenario 12.2. What will be the price of this new drink in the long run if the industry is a Stackelberg duopoly?A) $3$9B) $12$13.50C) none of the aboveAnswer: EDiff： 3Section
26、: 12.217) In a Cournot duopoly, we find that Firm 15 reaction function is Qj = 50 - 0.5Q2, and Firm 2s reaction function is Q2 = 75 - 0.75Q1， What is the Cournot equilibrium outcome in this market?A) Qi = 20 and Q2 = 60Qi = 20 and Q2 = 20B) Qi = 60 and Q2 = 60Qi = 60 and Q2 = 20Answer: ADiff: 2Secti
27、on: 12.2Suppose the market demand curve is P = 40 - 2Q and the constant marginal cost of production is MC =20. Which of the following is a valid expression for the collusion curve?A)Q = 5Qi = 5 - Q2B) Qi = Q2 = 5Qi = 40 - Q2Answer: ADiff: 3Section: 12.227) Suppose that the market demand for mountain
28、 spring water is given as follows: P = 1200 - QMountain spring water can be produced at no cost.a. What is the profit maximizing level of output and price of a monopolist?b. What level of output would be produced by each firm in a Cournot duopoly in the long run? What will the price be?c. What will
29、be the level of output and price in the long run if this industry were perfectly competitive?Answer: a.The monopoly level of output is found where marginal revenue equals marginal cost. The marginal revenue curve has the same price intercept as the demand curve and twice the slope. Thus:MR = 1,200 -
30、 2QSetting MR equal to MC (which is zero in this problem) yields:1,200 -2Q = 0Q = 600P = 1,200 - 600 = 600b.The Cournot equilibrium is found by using the reaction curves of the two firms to solve for levels of output. The reaction curve for firm 1 is found as follows:Rl = PQi = (1,200 - Q)Qi=lz200Qi
31、 - (Qi + Q2)Q1=l,200Qi - Qi2 - Q2Q1The firm s marginal revenue MRj is just the incremental revenue Rl resulting from an incremental change in output AQj:MR = AR1/AQ1 = 1,200 - 2Q1 - Q2Setting MRi equal to zero (the firms marginal cost) and solving for Qi yields the reaction curve for Qi：Firm l*s Rea
32、ction Curve: Qi = 600 - (1/2)Q2Going through the same calculations for firm 2 yields:Firm 2s Reaction Curve: Q2 = 600 - (l/2)QjSolving the reaction curves simultaneously for Qi and Q2 yields: Q = Q2 = 400. Thus the total output is 800 and the price will be $400. c.In the industry were perfectly comp
33、etitive, price will be equated to marginal cost.P = 1,200 - Q = 0 or Q= 1,200 and P = 0Diff: 3Section: 12.228) Bartels and Jaymes are two individuals who one day discover a stream that flows wine cooler instead of water. Bartels and Jaymes decide to bottle the wine cooler and sell it. The marginal c
34、ost of bottling wine cooler and the fixed cost to bottle wine cooler are both zero. The market demand for bottled wine cooler is given as:P = 90- 0.25Qwhere Q is the total quantity of bottled wine cooler produced and P is the market price of bottled wine cooler.a. What is the economically efficient
35、price of bottled wine cooler?b. What is the economically efficient quantity of bottled wine cooler produced?c. If Bartels and Jaymes were to collude with one another and produce the profit-maximizing monopoly quantity of bottled wine cooler, how much bottled wine cooler will they produce?d. Given th
36、e output level in (c), what price will Bartels and Jaymes charge for bottled wine cooler?e. At the output level in (c), what is the welfare loss?f. Suppose that Bartels and Jaymes act as Cournot duopolists, what are the reaction functions for Bartels and for Jaymes?g. In the long run, what level of
37、output will Bartels produce if Bartels and Jaymes act as Cournot duopolists?h. In the long run, what will be the price of wine coolers be if Bartels and Jaymes act as Cournot duopolists?i. Suppose that after Bartels and Jaymes have arrived at their long run equilibrium as Cournot duopolists, another
38、 individual, Paul Mason, discovers the streams. Paul Mason, who will sell no wine cooler before its time, decides to bottle wine coolers. There are now three Cournot firms producing at once. In the long run, what level of output will Bartels produce?Answer:a.The economically efficient level of price
39、 is found where price equals marginal cost. The marginal cost is zero. Therefore, the efficient price is zero.b.At a price of zero, Q = 360.c.The profit maximizing level of output is found where MR = MC. The MR curve has the same price intercept as the demand curve and is twice as steep. Thus, a mon
40、opolist will produce half as much as the competitive level (this is only true because marginal cost is constant). The competitive level of output is 360. Therefore, the monopoly level of output is 180.Mathematically, the marginal revenue curve is:MR = 90 - 0.5QEquating MR to MC yields:90 - 0.5Q = 0Q
41、 = 180d.When Q = 180 we have P = 90 - 0.25(180) = 45.e.The welfare loss is the value of the output that would have been produced under the conditions of economic efficiency, but is not produced due to the monopoly. This is the area of the triangle from Q = 180 to Q = 360, under the demand curve. The
42、 base of the triangle is 180, the height of the triangle is 45, and therefore the welfare loss is (1/2)(180)(45) = 4,050.The Cournot equilibrium is found by using the reaction curves of the two firms to solve for levels of output. The reaction curve for firm 1 (Bartels) is found as follows:Rl = PQi
43、= (90 - 0.25Q)Qi=90Q1 - 0.25(Qi + Q2)Q1=90Q1 - 0.25Q12- 0.25Q2Q1The firms marginal revenue MR is just the incremental revenue dRj resulting from an incremental change in output dQi：MRi = dRi/dQi = 90 - 0.5Q1 - 0.25Q2Setting MRj equal to zero (the firms marginal cost) and solving for Qi yields the re
44、action curve for Qj:Firm 1s Reaction Curve: Ql = 180 - (1/2)Q2Going through the same calculations for firm 2 yields:Firm 2s Reaction Curve: Q2 = 180 - (1/2)Q1gSolving the reaction curves simultaneously for Qi and Q2 yields: Ql = Q2 = 120.h.The total output is 240 (120 by each firm). Therefore: P = 9
45、0- 0.25(240) = 30. * I.The Cournot equilibrium for three firms is found by solving the reaction curves of the three firms simultaneously for levels of output. The reaction curve for firm 1 (Bartels) is found as follows: Rl = PQi = (90 - 0.25Q)Qi=90Q1 - 0.25(Qi + Q2 + Q3)Q1=90Q1 - 0.25Q12 - 0.25Q2Q1
46、- 0.25Q3Q1The firms marginal revenue MRj is just the incremental revenue dRj resulting from an incremental change in output dQi：MR1 = ciRi/dQ =90- 0.5Q1 - 0.25Q2 - 0.25Q3Setting MR equal to zero (the firms marginal cost) and solving for Qi yields the reaction curve for Qi： Firm Ts Reaction Curve: Ql
47、 = 180 - 0.5Q2 - 0.5Q3Going through the same calculations for firm 2 yields:Firm 2s Reaction Curve: Q2 = 1&)- 0.5Q1 - 0.5Q3Going through the same calculations for firm 3 yields:Firm 3,s Reaction Curve: Q3 = 180 - 0.5Q2 - 0.5Q3Solving the reaction curves simultaneously for Qj, Q2 and Q3 yields:Ql = Q
48、2 = Q3 = 90.Diff: 3Section: 12.229) Two large diversified consumer products firms are about to enter the market for a new pain reliever. The two firms are very similar in terms of their costs, strategic approach, and market outlook. Moreover, the firms have very similar individual demand curves so that each firm expects to sell one-half of the total market output at any given price. The market demand curve for the pain reliever is given as:Q = 2600 - 400P.Bo