Business Economics: Coursework Quiz 4 (Lecture Sessions 7 & 8)

The correct answers are in yellow

Please note: the order of the questions in the online quiz were randomized so they will not
have necessarily appeared in the following order:
The key difference between the Cournot model of oligopoly and the Stackelberg
model is:
a)

the Cournot model assumes the firms compete over price

b)

the Stackelberg model assumes the firms compete over price

c)

the Cournot model assumes that one of the firms has a first-mover advantage

d)

the Stackelberg model assumes that the firms have the same cost conditions

e)

none of the above

The Cournot model of symmetric duopoly suggests that the market equilibrium position is
such that:
a)

one firm is larger than the other in the final equilibrium and the largest firm produces
the largest quantity of output

b)

economic profits are zero for both firms

c)

total industry output is the same as it would have been in a perfectly competitive
market

d)

all of the above

e)

none of the above

In game theory, a player has a dominant strategy when:

a) the pay-off to the player is greater than for any other strategy, regardless of what
the other players may do
b) the pay-off to the player is dominated by all other strategies
c) each player has full information about the pay-offs for the other players
d) all of the above
e) none of the above

Consider the following game in which two firms (ABC and XYZ) are considering
whether or not to enter a market. Each firm knows that the impact on profits depends
on what the other does. The possible outcomes of the game are shown below:
XYZ
Enter

Dont Enter

Enter

2, 4

10, 0

Dont Enter

0, 12

0, 0

ABC

Which of the following is TRUE for the game?

a) ABCs dominant strategy is to enter
b) XYZs dominant strategy is not to enter
c) ABCs dominant strategy is not to enter
d) The dominant solution is for XYZ to enter and ABC not to enter
e) The dominant solution is for ABC to enter and XYZ not to enter

The final equilibrium position in the Bertrand model of oligopoly pricing is:
a) a Nash equilibrium, because the participating firms collude to hold price above
ATC
b) not a Nash equilibrium because any reduction in price would eventually drive the
market price down to the competitive level
c) not a Nash equilibrium because each individual firm has an incentive to cut price
to increase profits
d) a Nash equilibrium because price falls to the competitive equilibrium level and no
firm then has an incentive to increase the price above the competitive level
e) none of the above

The analysis of oligopoly suggests that total industry profits will be greatest if:
a) the competing firms collude
b) fixed costs are low
c) entry barriers can be removed
d) new entrants can achieve costs reductions via learning by doing
e) product differentiation is low

The dominant firm model of price leadership assumes:

a) the follower firms set the market price and the dominant firm adds a mark-up to
that price
b) marginal cost is lower for the dominant firm than it is for the follower firms
c) the dominant firm colludes with the follower firms to maximise industry profits
d) the follower firms attempt to undercut the price set by the dominant firm
e) the dominant firm faces a horizontal demand curve

The characteristic of a Nash equilibrium is that:

a) there are no dominant strategies for any of the players in a game
b) all players have access to at least one dominant strategy
c) there is no incentive for any player to deviate from the strategy currently played
d) all of the above
e) none of the above

The kinked demand curve model of oligopoly pricing assumes:

a) each firm believes that its competitors will not match a price reduction
b) each firm believes that its competitors will increase price in response to a price
reduction
c) each firm believes that its competitors will match any price increase
d) each firm takes the market price as given
e) none of the above

An oligopolistic industry is typically characterized by:

a) the industry contains just a few large firms
b) the industry has low entry barriers
c) the pricing decisions of the firms are independent of each other
d) all of the above
e) none of the above

End of Coursework Quiz 4