Compare and contrast the Bertrand and Cournot models of oligopoly. Your discussion should include assumptions made, goals of the firms and the resulting outcomes.
What will be an ideal response?
The Bertrand model of oligopoly involves price competition with homogenous goods. Firms produce homogenous goods and set their prices simultaneously. At the equilibrium point in a Bertrand oligopoly, all sales occur at a price equal to marginal cost, the competitive outcome. If one firm charges more than marginal cost, there is an incentive for the other firm to undercut them and steal their customers. Because of this incentive, each firm charges the marginal cost so as not to be undercut and lose profits. In the Cournot model of oligopoly firms focuses on output decisions rather than price decisions. Firms choose how much to produce simultaneously and the price clears the market given the total quantity produced. In Nash equilibrium, each firm's output choice maximizes its profits given its rival's output choice. Equilibrium in a Cournot market differs from that of the Bertrand market. In a Cournot market, the equilibrium price is always above marginal cost.
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In monopolistic competition, the products of different sellers are
A) identical. B) similar but slightly different. C) unique without any close or perfect substitutes. D) perfect substitutes. E) either identical or differentiated.
To eliminate losses in a perfectly competitive market, firms exit the industry. This exit results in
A) an increase in market supply. B) a decrease in market supply. C) an increase in market demand. D) a decrease in market demand. E) a decrease in both the market supply and the market demand.
What is a Nash equilibrium? How is a Nash equilibrium different from a dominant strategy equilibrium?
What will be an ideal response?
Which of the following is true?
a. The GDP gap is the difference between actual real GDP and full-employment real GDP. b. We desire economic growth because it increases the nation's standard of living. c. Economic growth is measured by the annual percentage increase in a nation's real GDP. d. Discouraged workers are a reason critics say the unemployment rate is understated. e. All of these are true.