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# Sample MCQs for Chapters 9, 10 and 11 1. "An oligopoly is an oligopoly.

Firms behave the same no matter what type of oligopoly it is." This statement is: a) true. b) false. c) true of homogeneous product industries. d) none of the above. Answer: B Difficulty: Med 2. Both firms in a Cournot duopoly would enjoy higher profits if a) the firms simultaneously reduced output below the Nash equilibrium level. b) each firm simultaneously increased output above the Nash equilibrium level. c) one firm reduced output below the Cournot Nash equilibrium level, while the other firm continued to produce its Cournot Nash equilibrium output. d) a. and c. Answer: A Difficulty: Hard 3. a) b) c) d) The Cournot theory of oligopoly assumes rivals will keep their output constant. rivals will increase their output whenever a firm increases its output. rivals will decrease output whenever a firm increases its output . rivals will follow the learning curve.

Answer: A Difficulty: Easy 4. Which of the following is true? a) In Bertrand oligopoly each firm believes that their rivals will hold their output constant if it changes its output. b) In Cournot oligopoly firms produce an identical product at a constant marginal cost and engage in price competition. c) In oligopoly a change in marginal cost never has an affect on output or price. d) None of the above are true. Answer: D Difficulty: Med 5. a) b) c) d) If firms compete in a Cournot fashion, then each firm views the output of the rival as given. each firm views the prices of rivals as given. each firm views the profits of rivals as given. all of the above

## Answer: A Difficulty: Med

6. a) b) c) d)

Two firms compete in a Stackelberg fashion and firm two is the leader, then firm one views the output of firm two as given. firm two views the output of firm one as given. all of the above none of the above

Answer: A Difficulty: Hard 7. a) b) c) d) There are many different models of oligopoly because: beliefs play an important role in oligopolistic competition. firms do not maximize profits in oligopolistic competition. oligopoly is the most complicated type of market structure. both a and c.

Answer: D Difficulty: Easy 8. 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 producing a higher level of output. b) cheat by producing a lower level of output. c) cheat by raising prices. d) none of the above. Answer: A Difficulty: Med 9. a) b) c) d) If firms are in Cournot equilibrium: Each firm could increase profits by unilaterally increasing output. Each firm could increase profits by unilaterally decreasing output. Firms could increase profits by jointly increasing output. Firms could increase profits by jointly reducing output.

Answer: D Difficulty: Easy 10. When firm one acts as a Stackelberg leader: a) Firm two produces the monopoly output. b) Firm one's profit is less than its profit if they compete in a Cournot fashion. c) Firm two will earn more than if they compete in a Cournot fashion. d) None of the above. Answer: D Difficulty: Hard 11. Sue and Jane own two local petrol stations. They have identical constant marginal costs, but earn zero economic profits. Sue and Jane constitute a) a Sweezy oligopoly. b) a Cournot oligopoly. c) a Bertrand oligopoly. d) none of the above. Answer: C Difficulty: Med