Question 1

In the Cournot duopoly model, what is the Nash equilibrium called?

Accepted Answer

Cournot equilibrium

Question 2

Given the market demand function $$Q(p) = 1500 - 5p$$, firm 1's cost function $$C_1$$($$q_1) = 120q_1$, and firm 2's cost function C_2$(q_2$) = 150q_2$$, what is the Cournot equilibrium output for firm 1?

Accepted Answer

$$q_1 = 350$

Question 3

In the same Cournot duopoly as above, what is the Cournot equilibrium output for firm 2?

Accepted Answer

$$q_2 = 200$

Question 4

Which of the following best describes the Bertrand equilibrium in a market where both firms have marginal cost $$MC = 200$$ and demand $$Q(p) = 1000 - 2p$$?

Accepted Answer

Both firms set price at $$p = 200$$ and share the market, earning zero profit.

Question 5

If two firms in a Bertrand duopoly both set their prices at $$p = 201$$, what will happen?

Accepted Answer

One firm will undercut the other, capturing the entire market.

Question 6

Which market structure results in the highest total output and lowest price, according to the welfare comparison graphs?

Accepted Answer

Competitive/Bertrand

Question 7

In the Cournot model, what is the marginal revenue (MR) function for firm 1 if the inverse demand is $$p(q) = 300 - 0.2q_1 - 0.2q_2$$?

Accepted Answer

$$MR_1 = 300 - 0.4q_1 - 0.2q_2$

Question 8

Suppose in a Bertrand duopoly, both firms have marginal cost $$MC = 200. Is$$ $$(p_1$, p_2$) = (200.01, 200.01) a $$Nash equilibrium?

Accepted Answer

Yes, because neither firm can profitably deviate.

Question 9

Which area in the monopoly/cartel welfare graph represents deadweight loss?

Accepted Answer

The yellow area between the demand and marginal cost curves, above the monopoly quantity.

Question 10

Why does the Bertrand equilibrium with identical marginal costs result in zero profit for both firms?

Accepted Answer

Because firms keep undercutting each other until price equals marginal cost.

Question 11

If the market demand is $$Q(p) = 1000 - 2p$$ and both firms in a Bertrand duopoly set $$p = 200$$, what is the total market quantity sold?

Accepted Answer

$$Q = 600$$

Question 12

In the Cournot equilibrium, why does firm 1 produce more than firm 2 in the asymmetric cost example?

Accepted Answer

Firm 1 has a lower marginal cost than firm 2.

Question 13

Which of the following is NOT a characteristic of the Bertrand duopoly model?

Accepted Answer

Firms simultaneously choose quantities.

Question 14

If the market demand is $$Q(p) = 1500 - 5p$$ and both firms set price at marginal cost $$p = 120$$, what is the total market quantity sold?

Accepted Answer

$$Q = 900$$

Question 15

Which market structure results in the largest deadweight loss, as shown in the welfare comparison graphs?

Accepted Answer

Monopoly/Cartel

Question 16

In the Cournot model, if firm 2's best response function is $$q_2 = 375 - 0.5q_1$, what is the economic interpretation?

Accepted Answer

Firm 2's optimal output decreases as firm 1 produces more.

Question 17

Which of the following statements about Nash equilibrium in the Bertrand model with discrete prices is correct?

Accepted Answer

If both firms set the same price, and neither can profitably deviate, it is a Nash equilibrium.

Question 18

In the welfare comparison graphs, which area increases as the market moves from monopoly to Cournot to Bertrand/competitive equilibrium?

Accepted Answer

Consumer surplus

Question 19

Why is the total profit lowest in the competitive/Bertrand equilibrium compared to Cournot and monopoly/cartel?

Accepted Answer

Firms set price equal to marginal cost, earning zero economic profit.

Oligopoly Models: Cournot and Bertrand Duopoly, Welfare Comparisons, and Nash Equilibrium

Study Guide - Practice Questions

Study Guide - Flashcards