CHAPTER 28: Oligopoly
MULTIPLE CHOICE
1. Suppose that the duopolists Carl and Simon in Problem 1 face a demand function for pumpkins of Q =
16,400 − 400P, where Q is the total number of pumpkins that reach the market and P is the price of
pumpkins. Suppose further that each farmer has a constant marginal cost of $1 for each pumpkin
produced. If Carl believes that Simon is going to produce Qs pumpkins this year, then the reaction
function tells us how many pumpkins Carl should produce in order to maximize his profits. Carl’s
reaction function is RC (Qs) =
a.
8,000 − Qs/2.
b.
16,400 − 400Qs.
c.
16,400 − 800Qs.
d.
4,000 − Qs/2.
e.
12,000 − Qs.
2. Suppose that the duopolists Carl and Simon in Problem 1 face a demand function for pumpkins of Q =
16,800 − 800P, where Q is the total number of pumpkins that reach the market and P is the price of
pumpkins. Suppose further that each farmer has a constant marginal cost of $1 for each pumpkin
produced. If Carl believes that Simon is going to produce Qs pumpkins this year, then the reaction
function tells us how many pumpkins Carl should produce in order to maximize his profits. Carl’s
reaction function is RC (Qs) =
a.
16,800 − 800Qs.
b.
8,000 − Qs/2.
c.
16,800 − 1,600Qs.
d.
4,000 − Qs/2.
e.
12,000 − Qs.
3. Suppose that the duopolists Carl and Simon in Problem 1 face a demand function for pumpkins of Q =
1,800 − 400P, where Q is the total number of pumpkins that reach the market and P is the price of
pumpkins. Suppose further that each farmer has a constant marginal cost of $.50 for each pumpkin
produced. If Carl believes that Simon is going to produce Qs pumpkins this year, then the reaction
function tells us how many pumpkins Carl should produce in order to maximize his profits. Carl’s
reaction function is RC (Qs) =
a.
1,800 − 400Qs.
b.
1,800 − 800Qs.
c.
800 − Qs/2.
d.
400 − Qs/2.
e.
1,200 − Qs.
4. Suppose that the duopolists Carl and Simon in Problem 1 face a demand function for pumpkins of Q =
8,400 − 800P, where Q is the total number of pumpkins that reach the market and P is the price of
pumpkins. Suppose further that each farmer has a constant marginal cost of $.50 for each pumpkin
produced. If Carl believes that Simon is going to produce Qs pumpkins this year, then the reaction
function tells us how many pumpkins Carl should produce in order to maximize his profits. Carl’s
reaction function is RC (Qs) =
a.
2,000 − Qs/2.
b.
8,400 − 800Qs.
c.
8,400 − 1,600Qs.
d.
4,000 − Qs/2.
e.
6,000 − Qs.
5. Suppose that the duopolists Carl and Simon in Problem 1 face a demand function for pumpkins of Q =
16,800 − 800P, where Q is the total number of pumpkins that reach the market and P is the price of
pumpkins. Suppose further that each farmer has a constant marginal cost of $1 for each pumpkin
produced. If Carl believes that Simon is going to produce Qs pumpkins this year, then the reaction
function tells us how many pumpkins Carl should produce in order to maximize his profits. Carl’s
reaction function is RC (Qs) =
a.
16,800 − 800Qs.
b.
4,000 − Qs/2.
c.
8,000 − Qs/2.
d.
16,800 − 1,600Qs.
e.
12,000 − Qs.
6. If in Problem 4, the inverse demand for bean sprouts were given by P(Y) = 940 − 5Y and the total cost
of producing Y units for any firm were TC(Y) = 40Y and if the industry consisted of two Cournot
duopolists, then in equilibrium each firm’s production would be
a.
90 units.
b.
45 units.
c.
30 units.
d.
60 units.
e.
47 units.
7. If in Problem 4, the inverse demand for bean sprouts were given by P(Y) = 300 − 3Y and the total cost
of producing Y units for any firm were TC(Y) = 30Y and if the industry consisted of two Cournot
duopolists, then in equilibrium each firm’s production would be
a.
45 units.
b.
22.50 units.
c.
30 units.
d.
15 units.
e.
25 units.
8. If in Problem 4, the inverse demand for bean sprouts were given by P(Y) = 430 − 2Y and the total cost
of producing Y units for any firm were TC(Y) = 10Y and if the industry consisted of two Cournot
duopolists, then in equilibrium each firm’s production would be
a.
52.50 units.
b.
70 units.
c.
105 units.
d.
35 units.
e.
53.75 units.
9. If in Problem 4, the inverse demand for bean sprouts were given by P(Y) = 640 − 3Y and the total cost
of producing Y units for any firm were TC(Y) = 10Y and if the industry consisted of two Cournot
duopolists, then in equilibrium each firm’s production would be
a.
52.50 units.
b.
70 units.
c.
105 units.
d.
35 units.
e.
53.33 units.
10. If in Problem 4, the inverse demand for bean sprouts were given by P(Y) = 550 − 3Y and the total cost
of producing Y units for any firm were TC(Y) = 10Y and if the industry consisted of two Cournot
duopolists, then in equilibrium each firm’s production would be
a.
90 units.
b.
30 units.
c.
60 units.
d.
45 units.
e.
45.83 units.
11. In Problem 5, suppose that Grinch and Grubb go into the wine business in a small country where wine
is difficult to grow. The demand for wine is given by p = $480 − .2Q, where p is the price and Q is the
total quantity sold. The industry consists of just the two Cournot duopolists, Grinch and Grubb.
Imports are prohibited. Grinch has constant marginal costs of $6 and Grubb has marginal costs of $45.
How much Grinch’s output in equilibrium?
a.
675
b.
1,350
c.
337.50
d.
1,012.50
e.
2,025
12. In Problem 5, suppose that Grinch and Grubb go into the wine business in a small country where wine
is difficult to grow. The demand for wine is given by p = $360 − .2Q, where p is the price and Q is the
total quantity sold. The industry consists of just the two Cournot duopolists, Grinch and Grubb.
Imports are prohibited. Grinch has constant marginal costs of $45 and Grubb has marginal costs of
$15. How much Grinch’s output in equilibrium?
a.
237.50
b.
712.50
c.
950
d.
475
e.
1,425
13. In Problem 5, suppose that Grinch and Grubb go into the wine business in a small country where wine
is difficult to grow. The demand for wine is given by p = $420 − .2Q, where p is the price and Q is the
total quantity sold. The industry consists of just the two Cournot duopolists, Grinch and Grubb.
Imports are prohibited. Grinch has constant marginal costs of $60 and Grubb has marginal costs of
$30. How much Grinch’s output in equilibrium?
a.
275
b.
550
c.
825
d.
1,100
e.
1,650
14. In Problem 5, suppose that Grinch and Grubb go into the wine business in a small country where wine
is difficult to grow. The demand for wine is given by p = $360 − .2Q, where p is the price and Q is the
total quantity sold. The industry consists of just the two Cournot duopolists, Grinch and Grubb.
Imports are prohibited. Grinch has constant marginal costs of $75 and Grubb has marginal costs of
$15. How much Grinch’s output in equilibrium?
a.
562.50
b.
187.50
c.
750
d.
375
e.
1,125
15. In Problem 5, suppose that Grinch and Grubb go into the wine business in a small country where wine
is difficult to grow. The demand for wine is given by p = $480 − .2Q, where p is the price and Q is the
total quantity sold. The industry consists of just the two Cournot duopolists, Grinch and Grubb.
Imports are prohibited. Grinch has constant marginal costs of $30 and Grubb has marginal costs of
$45. How much Grinch’s output in equilibrium?
a.
775
b.
1,162.50
c.
387.50
d.
1,550
e.
2,325
16. In Problem 6, suppose that two Cournot duopolists serve the Peoria-Dubuque route, and the demand
curve for tickets per day is Q = 170 − 2p (so p = 85 − Q/2). Total costs of running a flight on this route
are 850 + 10q, where q is the number of passengers on the flight. Each flight has a capacity of 80
passengers. In Cournot equilibrium, each duopolist will run one flight per day and will make a daily
profit of
a.
$400.
b.
$425.
c.
$170.
d.
$800.
e.
$1,750.
17. In Problem 6, suppose that two Cournot duopolists serve the Peoria-Dubuque route, and the demand
curve for tickets per day is Q = 250 − 2p (so p = 125 − Q/2). Total costs of running a flight on this
route are 2,050 + 20q, where q is the number of passengers on the flight. Each flight has a capacity of
80 passengers. In Cournot equilibrium, each duopolist will run one flight per day and will make a daily
profit of
a.
$1,025.
b.
$400.
c.
$250.
d.
$800.
e.
$3,850.
18. In Problem 6, suppose that two Cournot duopolists serve the Peoria-Dubuque route, and the demand
curve for tickets per day is Q = 190 − 2p (so p = 95 − Q/2). Total costs of running a flight on this route
are 1,050 + 20q, where q is the number of passengers on the flight. Each flight has a capacity of 80
passengers. In Cournot equilibrium, each duopolist will run one flight per day and will make a daily
profit of
a.
$525.
b.
$190.
c.
$200.
d.
$400.
e.
$2,250.
19. In Problem 6, suppose that two Cournot duopolists serve the Peoria-Dubuque route, and the demand
curve for tickets per day is Q = 160 − 2p (so p = 80 − Q/2). Total costs of running a flight on this route
are 400 + 20q, where q is the number of passengers on the flight. Each flight has a capacity of 80
passengers. In Cournot equilibrium, each duopolist will run one flight per day and will make a daily
profit of
a.
$800.
b.
$400.
c.
$200.
d.
$160.
e.
$1,600.
20. In Problem 6, suppose that two Cournot duopolists serve the Peoria-Dubuque route, and the demand
curve for tickets per day is Q = 240 − 2p (so p = 120 − Q/2). Total costs of running a flight on this
route are 900 + 30q, where q is the number of passengers on the flight. Each flight has a capacity of 80
passengers. In Cournot equilibrium, each duopolist will run one flight per day and will make a daily
profit of
a.
$240.
b.
$900.
c.
$1,800.
d.
$450.
e.
$3,600.
21. In Problem 4, suppose that the market demand curve for bean sprouts is given by P = 1,280 − 4Q,
where P is the price and Q is total industry output. Suppose that the industry has two firms, a
Stackleberg leader and a follower. Each firm has a constant marginal cost of $80 per unit of output. In
equilibrium, total output by the two firms will be
a.
150.
b.
75.
c.
225.
d.
300.
e.
37.50.
22. In Problem 4, suppose that the market demand curve for bean sprouts is given by P = 1,680 − 2Q,
where P is the price and Q is total industry output. Suppose that the industry has two firms, a
Stackleberg leader and a follower. Each firm has a constant marginal cost of $80 per unit of output. In
equilibrium, total output by the two firms will be
a.
600.
b.
400.
c.
200.
d.
800.
e.
100.
23. In Problem 4, suppose that the market demand curve for bean sprouts is given by P = 3,040 − 3Q,
where P is the price and Q is total industry output. Suppose that the industry has two firms, a
Stackleberg leader and a follower. Each firm has a constant marginal cost of $40 per unit of output. In
equilibrium, total output by the two firms will be
a.
1,000.
b.
250.
c.
750.
d.
500.
e.
125.
24. In Problem 4, suppose that the market demand curve for bean sprouts is given by P = 1,480 − 2Q,
where P is the price and Q is total industry output. Suppose that the industry has two firms, a
Stackleberg leader and a follower. Each firm has a constant marginal cost of $80 per unit of output. In
equilibrium, total output by the two firms will be
a.
175.
b.
700.
c.
350.
d.
525.
e.
87.50.
25. In Problem 4, suppose that the market demand curve for bean sprouts is given by P = 1,660 − 4Q,
where P is the price and Q is total industry output. Suppose that the industry has two firms, a
Stackleberg leader and a follower. Each firm has a constant marginal cost of $60 per unit of output. In
equilibrium, total output by the two firms will be
a.
400.
b.
300.
c.
100.
d.
200.
e.
50.
26. There are two firms in the blastopheme industry. The demand curve for blastophemes is given by p =
4,500 − 4q. Each firm has one manufacturing plant and each firm i has a cost function C(qi) = q2i,
where qi is the output of firm i. The two firms form a cartel and arrange to split total industry profits
equally. Under this cartel arrangement, they will maximize joint profits if
a.
and only if each firm produces 250 units in its plant.
b.
they produce a total of 500 units, no matter which firm produces them.
c.
and only if they each produce a total of 562.50 units.
d.
they produce a total of 375 units, no matter which firm produces them.
e.
they shut down one of the two plants, having the other operate as a monopoly and splitting
the profits.
27. There are two firms in the blastopheme industry. The demand curve for blastophemes is given by p =
3,000 − 2q. Each firm has one manufacturing plant and each firm i has a cost function C(qi) = q2i,
where qi is the output of firm i. The two firms form a cartel and arrange to split total industry profits
equally. Under this cartel arrangement, they will maximize joint profits if
a.
and only if they each produce a total of 750 units.
b.
they produce a total of 500 units, no matter which firm produces them.
c.
and only if each firm produces 300 units in its plant.
d.
they produce a total of 600 units, no matter which firm produces them.
e.
they shut down one of the two plants, having the other operate as a monopoly and splitting
the profits.
28. There are two firms in the blastopheme industry. The demand curve for blastophemes is given by p =
1,500 − 2q. Each firm has one manufacturing plant and each firm i has a cost function C(qi) = q2i,
where qi is the output of firm i. The two firms form a cartel and arrange to split total industry profits
equally. Under this cartel arrangement, they will maximize joint profits if
a.
and only if each firm produces 150 units in its plant.
b.
they produce a total of 300 units, no matter which firm produces them.
c.
they produce a total of 250 units, no matter which firm produces them.
d.
and only if they each produce a total of 375 units.
e.
they shut down one of the two plants, having the other operate as a monopoly and splitting
the profits.
29. There are two firms in the blastopheme industry. The demand curve for blastophemes is given by p =
4,500 − 4q. Each firm has one manufacturing plant and each firm i has a cost function C(qi) = q2i,
where qi is the output of firm i. The two firms form a cartel and arrange to split total industry profits
equally. Under this cartel arrangement, they will maximize joint profits if
a.
they produce a total of 375 units, no matter which firm produces them.
b.
and only if each firm produces 250 units in its plant.
c.
and only if they each produce a total of 562.50 units.
d.
they produce a total of 500 units, no matter which firm produces them.
e.
they shut down one of the two plants, having the other operate as a monopoly and splitting
the profits.
30. There are two firms in the blastopheme industry. The demand curve for blastophemes is given by p =
6,600 − 5q. Each firm has one manufacturing plant and each firm i has a cost function C(qi) = q2i,
where qi is the output of firm i. The two firms form a cartel and arrange to split total industry profits
equally. Under this cartel arrangement, they will maximize joint profits if
a.
and only if each firm produces 300 units in its plant.
b.
they produce a total of 600 units, no matter which firm produces them.
c.
and only if they each produce a total of 660 units.
d.
they produce a total of 440 units, no matter which firm produces them.
e.
they shut down one of the two plants, having the other operate as a monopoly and splitting
the profits.