Global Management Studies
(Introduction to Managerial Economics)
Section A:
1. Which of the following most closely approximates our definition of oligopoly?
(a) The cigarette industry,
(b) the barber shops in a city,
(c) the gasoline stations in a city,
(d) wheat farmers in the Midwest.
2. With reference to Cournot model, determine which of the following statement is false.
(a) The duopolists do not recognize their interdependence
(b) Each duopolist assumes the other will keep its quantity constant
(c) Each duopolist assumes the other will keep its price constant
(d) The solution is stable.
3. With reference to the Edgeworth model, determine which of the following statements is correct.
(a) The duopolists recognize their interdependence
(b) It explains price rigidity
(c) Each duopolist assumes the other keeps its price constant
(d) Each duopolist assumes the other keeps its quantity constant
4. In both the Chamberlin and the kinked demand curve model, the oligopolists (a) recognize their interdependence, (b) do not collude, (c) tend to keep prices constant, or (d) all of the above.
5. The centralized cartel (a) leads to the monopoly solution, (b) behaves as the multiplant monopolist if it wants to minimize the total costs of production, (c) is illegal in the U.S., or (d) all of the above.
6. A market-sharing cartel will reach the monopoly solution (a) sometimes, (b) always when the producer is homogenous, (c) always when the product is differentiate, or (d) never.
7. In the case of leadership by the dominant firm, all firms in the purely oligopolistic industry will produce their best level of output. (a) always, (b) never, (c) sometimes, or (d) often
8. If an oligopolist incurs losses in the short run, then in the long run, (a) the oligopolist will go out of business, (b) the oligopolist will stay in business, (c) the oligopolist will break even, or (d) any of the above is possible
Section B:
9. Assume that (1) the 10 identical firms in a purely oligopolistic industry form a centralized cartel, (2) the total market demand function facing the cartel is QD = 240 -10P and P is given in dollars, and (3) each firm's SMC is given by $1q for q > 4 units, and factor prices remain constant. Find (a) the best level of output and price for this cartel, (b) how much each firm should produce if the cartel wants to minimize costs of production, and (c) how much profits the cartel will make if the SAC of each firm at its best level of output is $12. (d) Why do we study cartel models if cartels are illegal in countries such as the U.S.?