Problems 1-3 are related to the graph shown in 13-1 and to each other. Consider the MC to be 40 where it is needed.

1			In the graph of a Cournot duopolist below, firm 2 assumes firm 1 will produce Q1 output. The demand curve for firm 2 will be
			A)	P = 100 - Q2
			B)	P = Q1 - Q2
			C)	P = (100 + Q1) - Q2
			D)	P = (100 - Q1) - Q2
2			When the demand curve for firm 2 is determined, the reaction curve for firm 2 can be derived by
			A)	setting the demand = MC and solving for Q2.
			B)	solving demand for Q2.
			C)	finding the MR function, setting it equal to MC and solving for Q2.
			D)	a process different from any described above.
3			If the reaction curve for firm 2 turns out to be Q2 = 30 - .5Q1, then the Cournot equilibrium output will have each firm producing
			A)	10
			B)	20
			C)	30
			D)	40
			E)	50
4			The Bertrand model assumes that the opponent's _______ will not change. The outcome of the model results in an equilibrium output that is the same as the __________.
			A)	quantity: single price monopoly
			B)	price: perfect competition
			C)	quantity: perfect competition
			D)	price: single price monopoly
			E)	reaction curve: Cournot
5			In the Stackelberg model the Stackelberg leader assumes it knows
			A)	the opponents reaction curve.
			B)	Its own marginal cost curve.
			C)	The demand curve it faces.
			D)	All of the above.
6			In the graph below four points representing price and quantity are shown. The MC is shown as 20. If the outcomes of the four oligopoly models (Cournot, Bertrand, Stackelberg, and Shared Monopoly) were located on the demand curve in their positions relative to each other with respect to quantity and price, the match-ups would be <a onClick="window.open('/olcweb/cgi/pluginpop.cgi?it=jpg::::/sites/dl/free/0078021693/1039793/question6.jpg','popWin', 'width=NaN,height=NaN,resizable,scrollbars');" href="#"><img valign="absmiddle" height="16" width="16" border="0" src="/olcweb/styles/shared/linkicons/image.gif"> (4.0K)</a>
			A)	A = shared monopoly, B = Cournot, C = Stackelberg, D = Bertrand
			B)	A = Bertrand, B = Stackelberg, C = Cournot, D = shared monopoly
			C)	A = Cournot, B = Bertrand, C = Stackelberg, D = shared monopoly
			D)	A = shared monopoly, B = Stackelberg, C = Cournot, D = Bertrand
7			Monopolistic competition is different from perfect competition in that monopolistic competition does not assume
			A)	many buyers and many sellers.
			B)	a homogeneous product.
			C)	Low cost or free information.
			D)	Ease of entry and exit.
8			Monopolistic competitive firms must decide how much to differentiate their product from similar products. Suppose your college is trying to decide how many academic majors it should offer its constituency. The two costs it must consider are shown in the graph below. <a onClick="window.open('/olcweb/cgi/pluginpop.cgi?it=jpg::::/sites/dl/free/0078021693/1039793/question8.jpg','popWin', 'width=NaN,height=NaN,resizable,scrollbars');" href="#"><img valign="absmiddle" height="16" width="16" border="0" src="/olcweb/styles/shared/linkicons/image.gif"> (8.0K)</a> To find the optimal number of majors, given these cost functions, your school administrators should
			A)	horizontally sum the costs and minimize the result.
			B)	Offer the number of majors represented by the point where the 2 costs intersect.
			C)	Vertically sum the costs and minimize the resulting total costs.
			D)	Find the point where the rate of decline of one cost equals the rate of increase of the other cost. (i.e. where the slopes of the two functions are equal.
			E)	Do either c or d since they both amount to the same thing.
9			The Frank text developed a model for determining the optimal number of restaurants that should be built around a lake. To work with the model one needs to know the average distance traveled by each citizen. If the lake is 10 miles in circumference and the people are evenly distributed around the lake, what is the average distance traveled to and from a restaurant if there are 4 restaurants?
			A)	1.25 miles
			B)	2.5 miles
			C)	.625 miles
			D)	5 miles
10			Author Frank argues that the consumer preference driven market sequence is a more accurate description of the way markets work than the producer advertiser led market sequence of John K. Galbraith because
			A)	advertising is usually ignored by an increasingly well educated public.
			B)	producers use advertising to unload items already produced that failed to sell on their own merits.
			C)	advertising efforts cancel each other and as such help neither consumer nor producer
			D)	producers advertise most heavily the products that consumers already have expressed a preference for or what producers believe consumers want so the advertising does not revise the sequence of the market signals.

Refer to the graph below for the next 2 problems.

11			The graph below shows the relevant functions in the market of a duopolist industry. Which statement is true about the graph?
			A)	The segment ab is what is left after the opponent has established an output level.
			B)	The segment bd is the residual demand curve left to the second duopolist firm.
			C)	The segment ae is the demand curve used by both duopolists in the Cournot model as their relevant demand for determining strategy.
			D)	The segment bc is the vertical intercept of the residual demand curve.
12			In the graph above, if the marginal cost of producing is zero, how much will the firm produce if it concedes 0c production to its opponent?
			A)	cd
			B)	ce
			C)	de
			D)	It is impossible to tell from the information given.
13			The Chamberlin model of monopolistic competition is like perfect competition in that it assumes
			A)	homogeneous products.
			B)	ease of entry and exit.
			C)	a horizontal demand curve for the firm.
			D)	all of the above.
14			The optimal number of flights from Chicago to Philadelphia will be reduced if
			A)	the time costs of people go up.
			B)	the number of people traveling goes up.
			C)	the price of an airplane goes up.
			D)	all of the above occur.
15			The central tendency theory described in Hotelling’s paper helps to explain why
			A)	gas stations tend to cluster around the same intersections.
			B)	politicians seem so similar in elections.
			C)	traffic jams occur.
			D)	all of the above are applications of Hotelling’s theories.
			E)	both a and b are correct.
16			Your text lists a number of criticisms of the Chamberlin model. Which is not one of these criticisms?
			A)	It is difficult to define what an industry is when products are differentiated.
			B)	It was more complicated than perfect competition without adding precision to behavior prediction.
			C)	It assumes that customers would easily substitute one differentiated product for another.
			D)	It assumes that competitors will match price increases but not price reductions even though this has not been verified in the real world.
17			Which statement is true of Chamberlin’s monopolistic competition model?
			A)	When gasoline producers differentiate their product buy creating several octane options for consumers, the price of differentiation must be paid by all consumers of gasoline.
			B)	Product differentiation leads to long run economic profits for producers.
			C)	Long run equilibrium is characterized by excess capacity in the production process and a price above the perfect competitive price.
			D)	All of the above statements are true.