Question 1

Which of the following best describes the profit-maximizing condition for a firm in monopolistic competition?

Accepted Answer

$$MR = MC$$

Question 2

In the Cournot duopoly model, if American Airlines and United Airlines both have a marginal cost of $$147 and the market demand is Q = 339 - p$, what is the Cournot equilibrium quantity for each firm?

Accepted Answer

$$q_A = 64$$, $$q_U = 64$$

Question 3

Which market structure is characterized by firms being price setters, having market power, and facing free entry and exit?

Accepted Answer

Monopolistic Competition

Question 4

Suppose a cartel is formed in an industry. What is the main incentive for individual firms to cheat on the cartel agreement?

Accepted Answer

To increase their individual profits by producing more than the agreed output

Question 5

In the Bertrand model with two firms producing identical products and facing a marginal cost of $5, what is the Nash-Bertrand equilibrium price?

Accepted Answer

$$p = 5$$

Question 6

If the number of firms in a Cournot market increases, what happens to the Lerner Index?

Accepted Answer

It decreases toward zero

Question 7

Which of the following is NOT a necessary condition for a Nash equilibrium in a duopoly?

Accepted Answer

Firms must collude to set prices

Question 8

A monopolistically competitive firm will enter the market until which condition is met?

Accepted Answer

$$P = AC$$

Question 9

If United Airlines lowers its marginal cost from $$147 to 99 $$while American Airlines’ cost remains at $147, what is the likely effect on United’s output in the Cournot equilibrium?

Accepted Answer

United’s output increases

Question 10

Which of the following best explains why cartels are difficult to maintain in the long run?

Accepted Answer

Each member has an incentive to cheat to increase its own profit

Question 11

In a monopolistically competitive market, what happens if average cost is less than price at the profit-maximizing output?

Accepted Answer

Firms will enter the market

Question 12

Which of the following is a real-world example of a cartel?

Accepted Answer

OPEC

Question 13

If a merger leads to more efficient production but reduces competition, what is the likely regulatory response in the U.S.?

Accepted Answer

The merger may be allowed if efficiency gains outweigh anticompetitive effects

Question 14

In the Cournot model, what is the residual demand curve for American Airlines if United Airlines supplies $$q_U$$ units?

Accepted Answer

$$q_A = (339 - p) - q_U$$

Question 15

Which of the following best describes the minimum efficient scale?

Accepted Answer

The smallest quantity at which the average cost curve reaches its minimum

Question 16

If the market price in a Cournot equilibrium is $$p = 211$$ and marginal cost is $$147$$, what is the Lerner Index for each firm?

Accepted Answer

$$L = \frac{211 - 147}{211} \approx 0.30$$

Question 17

Which of the following is true about product differentiation in monopolistic competition?

Accepted Answer

Firms may differentiate their products

Question 18

In the context of oligopoly, what is a Nash equilibrium?

Accepted Answer

A set of strategies where no firm can increase profit by unilaterally changing its own strategy

Question 19

If fixed costs are very high in a monopolistically competitive market, what is the likely effect on the number of firms in equilibrium?

Accepted Answer

Fewer firms will enter the market

Oligopoly and Monopolistic Competition: Market Structures and Models

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