ECON 302 Assignment 6 - An oligopolist is currently

1 An oligopolist is currently charging a price of $100 and is selling 400 units of output per
day. If the firm increases price above $100, the demand curve is P = 110 - 0.025Q. If the
firm reduces price below $100, the demand curve becomes P = 140 - 0.1Q. If the firm's
marginal cost curve is horizontal, within what range could marginal cost vary without
giving the firm an incentive to change the current price or quantity?
a.
(110, 140).
b.
(55, 70).
c.
(60, 90).
d.
(80, 120). 

2 In a Cournot equilibrium each firm chooses an output level which
a.
maximizes joint profits.
b.
maximizes the price received.
c.
maximizes profits given the level of output produced by other firms.
d.
maximizes revenue given the level of output produced by other firms. 

3 A profit-maximizing firm should spend an additional dollar on advertising so long as this
expenditure results in more than one dollar of:
a.
additional sales.
b.
reduced costs.
c.
increased profits.
d.
demand. 

4 All of the following are problems associated with maintaining a cartel except
a.
cartels are illegal.
b.
a large amount of information is needed to coordinate a cartel.
c.
profits are not maximized by a cartel so it will evolve into a monopoly.
d.
each member of the cartel has an incentive to "chisel" by expanding output. 

5 Each firm in a cartel has an incentive to chisel because market price exceeds
a.
marginal cost.
b.
average cost.
c.
average variable cost.
d.
average fixed cost. 

6 The Stackelberg outcome differs from the Cournot equilibrium because
a.
the games involve different strategic variables.
b.
the first mover can commit to an output off of its best-response function.
c.
quantity supplied is not equal to quantity demanded at the prevailing price.
d.
it is not a perfectly competitive outcome. 

7 A dominant strategy can best be described as
a. a strategy taken by a dominant player.
b. the strategy taken by a player in order to dominate its rivals.
c. a strategy that is optimal for a player no matter what an opponent does.
d. a strategy that leaves every player in a game better off. 

8 In a Nash equilibrium,
a. each player has a dominant strategy.
b. no players have a dominant strategy.
c. at least one player has a dominant strategy.
d. players may or may not have dominant strategies. 

9 The following game is a version of the Prisoners’ Dilemma. Suspect 1 a.
b.
c.
d. Fink
Silent Fink
0, 0
-1, 3 Suspect 2
Silent
3, -1
1, 1 Both suspects have a dominant strategy that is to fink.
Both suspects have a dominant strategy that is to keep silent.
None of the suspects has a dominant strategy.
The suspects may or may not have a dominant strategy. 

10 Based on the above information (in question 9), we conclude that
a.
there is no Nash equilibrium.
b.
the Nash equilibrium payoff would be (0, 0).
c.
the Nash equilibrium payoff would be (1, 1).
d.
the information is not sufficient to determine if a Nash equilibrium exists. 

11 Given on the following payoff matrix Firm A a.
b.
c.
d. Low R&D
High R&D Firm B
Low R&D
High R&D
100, 220
50, 270
150, 150
200, 120 Both firms have a dominant strategy.
None of the firms has a dominant strategy.
Firm A has a dominant strategy while firm B does not.
Firm B has a dominant strategy while firm A does not. 

12 Based on the above information (in question 11), we conclude that
a.
the Nash equilibrium payoff would be (100, 220).
b.
the Nash equilibrium payoff would be (150, 150).
c.
the Nash equilibrium payoff would be (50, 270).
d.
the Nash equilibrium payoff would be (200, 120).
e.
there is no Nash equilibrium. 

13
Rock, Paper, Scissors is a game in which two players simultaneously display one of three
hand symbols. The following table presents the payoffs. Player 1 a.
b.
c.
d.

14 Rock
Paper
Scissors Player 2
Rock Paper Scissors
0, 0 -1, 1
1, -1
1, -1 0, 0
-1, 1
-1, 1 1, -1
0, 0 Both players have a dominant strategy.
None has a dominant strategy.
Player 1 has a dominant strategy while player 2 does not.
Player 2 has a dominant strategy while player 1 does not. Based on the above information (in question 13), we conclude that
a.
the Nash equilibrium payoff would be (0, 0).
b.
the Nash equilibrium payoff would be (1, -1).
c.
the Nash equilibrium payoff would be (-1, 1).
d.
there is no Nash equilibrium. 

Answer Questions 15 - 18 based on the following information: A and B. Their cost functions are
defined below, respectively: CA = 10000 + 10QA + 0.5QA2 and CB = 12000 + 10QB + 0.5QB2.
The firms face the following market demand curve: P = 610 – Q, (where Q = QA + QB).

15 If the firms compete with price (Bertrand model), they can earn profits (?A, ?B), allowing
rounding errors:
a.
(12500, 10500).
b.
(15250, 13250).
c.
(8000, 6000).
d.
(10000, 8000). 

16 If the firms compete with the Cournot model, they can earn profits (?A, ?B), allowing
rounding errors:
a.
(23750, 21750).
b.
(22734.375, 20734.375).
c.
(33571, 31571).
d.
(26250, 24250). 

17 Firm A is the first mover. If firms compete with the Stackelburg model, they can earn
profits (?A, ?B), allowing rounding errors:
a.
(23250.25, 18250.25).
b.
(24285.12, 18612.04).
c.
(26250, 24250).
d.
(23571.5, 21831.6). 

18 If the firms operate as a centralized cartel, they can earn profits (?A, ?B), allowing
rounding errors:
a.
(28000, 26000).
b.
(27000, 25000).
c.
(26000, 24000).
d.
(25000, 23000).