Oligopoly and monopolistic competition
1.[3p] Two Cournot firms face with marginal cost £30. How much does each produce?
Two Cournot firms face with marginal cost £30. How much does each produce?
2.[2p] For that duopoly, what is the equilibrium price in pounds?
For that duopoly, what is the equilibrium price in pounds?
3.[2p] What happens to the Cournot price as the number of identical firms rises?
What happens to the Cournot price as the number of identical firms rises?
The answer is: It falls towards marginal cost, with the markup shrinking as
The answer is: It falls towards marginal cost, with the markup shrinking as
The answer is: It falls towards marginal cost, with the markup shrinking as
4.[3p] What is the Bertrand paradox?
What is the Bertrand paradox?
The answer is: Two firms selling an identical good at equal marginal cost price at marginal cost, giving the competitive outcome
The answer is: Two firms selling an identical good at equal marginal cost price at marginal cost, giving the competitive outcome
The answer is: Two firms selling an identical good at equal marginal cost price at marginal cost, giving the competitive outcome
5.[3p] Which of these resolve the Bertrand paradox?
Which of these resolve the Bertrand paradox?
Select all that apply
The answer is: Capacity constraints that stop a firm serving the whole market, Product differentiation, so a price cut does not capture every buyer, Repetition, which sets a one-off gain against lost future profit
6.[3p] In the market with marginal cost £30, two firms split the monopoly output. What does each earn, in pounds?
In the market with marginal cost £30, two firms split the monopoly output. What does each earn, in pounds?
7.[2p] A cartel agreement to split monopoly output is stable, because both firms earn more than under Cournot competition.
A cartel agreement to split monopoly output is stable, because both firms earn more than under Cournot competition.
The answer is: False
8.[3p] A market has four firms with shares of 40, 30, 20 and 10 per cent. What is its Herfindahl-Hirschman index?
A market has four firms with shares of 40, 30, 20 and 10 per cent. What is its Herfindahl-Hirschman index?
9.[3p] What does the excess capacity theorem say about monopolistic competition?
What does the excess capacity theorem say about monopolistic competition?
The answer is: Free entry drives profit to zero at a tangency, leaving each firm below its minimum average cost
The answer is: Free entry drives profit to zero at a tangency, leaving each firm below its minimum average cost
The answer is: Free entry drives profit to zero at a tangency, leaving each firm below its minimum average cost