1) Rank the market outcomes from lowest to highest in terms of Quantitiy. Explai

Question

1) Rank the market outcomes from lowest to highest in terms of Quantitiy. Explain the Economics of your ranking.

·              a) Bertrand

·              b) Stackelberg

·              c) Cournot

·              d) Collusion

2) Profits are highest for which of the following oligopoly situations? Explain why?

·              a) Stackelberg leader

·              b) Colluding firms

·              c) Both (a) and (b) above

·              d) Neither (a) nor (b)

3) Which of the following are true about a Stackelberg Oligopoly and Why?

·              a) There are many firms serving few customers.

·              b) Firms produce either differentiated or homogeneous products.

·              c) A single firm (the leader) chooses an output before their rivals select their output

·              d) Barriers to entry exist.

4) Which of the following statements can be used to describe a Collusive Duopoly and why?
a) The duopolists produce a total output equal to the monopoly output.

·              b) In a symmetric situation, each firm will produce half of the monopoly output.

·              c) The duopoly will maximize the total industry profits.

·              d) All of the above statements describe a Collusive Duopoly.

5)Explain why each one of the following is (or is not) important to Contestability

a) All producers have access to the same technology.

·              b) Consumers respond quickly to price changes.

·              c) Existing firms cannot respond quickly to entry by lowering price.

·              d) Sunk costs exceed expected profits.

6.What is the importance of a sunk cost in terms of a contestable market?

7. In a perfectly contestable market, firms will set prices because of the threat of new entrants.
A. high
B. low    C. medium    and Why?

Explanation / Answer

1.Lowest to highest: collusive-cournot-stackleberg-bertrand.For cournot both the firms chooses their output simultaneously.Hence there is no quantity leadership.In stackeberg a firm chooses the output before the other.hence the output will be higher than cournot.For bertrand the firms choose price as a means of competition.A bertrand equilibrium is a no profit equilibrium.Hence the output will be highest.Iin collusive duopoly each firm enters into an agreement to share the profit.This is a virtual monopoly.Therefore the output will be lowest.

2. Profits are highest for colluding firms.Colluding firms behave like monopolists.They set the monopoly price to share the industr profit by half.Hence the profit wil be higher than stackelberg.

3.A single firm (the leader) chooses an output before their rivals select their output.In stackelberg there is a leader firm and the other one is the dominant one.The leader firm has the privilege to choose output first.

4.All of the above statements describe a Collusive Duopoly.In collusive setup each firm is a monopoly supplier and produces half of the industry output and share the profit.Hence the industry profit will be highest in this case.

Related Questions

Navigate

• Browse (All)
• Browse 1
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.