Question

1. Statement 1: A Cournot Equilibrium is an example of a Nash Equilibrium where each frim selects its own prices. Statement 2: In Cournot Equilibrium as the number of firms increase, the price becomes closer and closer to the competitive equilibrium price. a. Both statements are true b. Both statements are false c. Statement 2 is true, but 1 is false d. Statement 1 is true, but 2 is false 3. Statement 1: In a Bertrand duopoly firms always want to be as differentiated from each other as they can be, even when there are positive externalities between firms. Statement 2: In a Bertrand duopoly, when customers are clumped up near the center of town, firms will tend to locate more towards the center of town than they would if customers were spread evenly across town. a. Both are true b. Statement 2 is true, but 1 is false c. Both are false d. Statement 1 is true, but 2 is false Statement 1: The notion that a monopoly may waste resources in an attempt to obtain the rights to exclusively produce its product is called x-inefficiency 4. Statement 2: As demand becomes more elastic, there is a tendency for the deadweight loss due to monopoly to become larger. a. Both statements are true b. Statement 1 is true, but 2 is false. c. Statement 2 is true, but 1 is false d. Both statements are false. 5. Suppose that Firm I is a Stackleberg leader in a duopoly. Which of the following statements best describes the way Firm 1 selects its output and price. a. Firm one will take firm 2's reaction function as given, and look for the output that maximizes profit b. Firm one will take firm 2's output as given, and look for the output that maximizes profit c. Firm one will take firm 2's price as given, and look for the price that maximizes profit. d. None of the above statements describe a Stackleberg daonoly

Answer 1

1) C. Cournot competition is the competition in quantity produced and as number of firms increases more quantity are produced and price will reach to perfect competitive price.

3) B. Bertrand is the price competition and firms sells homogenous product and firms try to locate at a point where majority of consumers live.

4)C. When demand is elastic then quantity demanded will change more if taxed which leads to more dead weight loss.

5)A. In stackleberg, firm 1 takes reaction function of Firm 2 as given and find out the output which maximised profit.