Question : 21) La Dila and Swiss Pro the only two firms : 1377525

21) La Dila and Swiss Pro are the only two firms in an industry. The firms charge equal prices for their products which are perfect substitutes. La Dila decides to lower its price slightly. Swiss Pro responds by cutting its price further. This price cutting will continue as long as each firm’s ________.

A) price is lower than marginal cost

B) price is higher than marginal cost

C) price is higher than zero

D) price is higher than the average fixed cost

22) Which of the following will happen if a firm in a duopoly with homogeneous products increases its price above its marginal cost once a Nash equilibrium is reached?

A) The firm will earn huge economic profit.

B) The firm will gain market share.

C) The firm will lose all its customers to its rival.

D) The firm will continue to earn zero economic profit.

23) The market outcome in a duopoly with homogeneous product is similar to that in ________.

A) a perfectly competitive market

B) a monopolistically competitive market

C) a monopoly

D) an oligopoly with differentiated products

24) In an oligopoly with differentiated products, firms ________.

A) make positive economic profits

B) incur losses

C) earn zero economic profits

D) do not face competition from its rivals

25) The competition faced by firms in an oligopoly with differentiated products is higher than that faced by firm(s) in ________.

A) a duopoly with homogeneous products

B) perfect competition

C) monopolistic competition

D) monopoly

26) Which of the following is true of a duopoly with differentiated products?

A) A firm loses all its customers when its rival lowers the price of its product.

B) A firm does not lose all its customers when its rival lowers the price of its product.

C) A firm faces a perfectly elastic demand curve.

D) A firm faces a perfectly inelastic demand curve.

27) Crisps and Smith’s are the only two bakeries in a locality that sell cookies. Crisps sells butter cookies while Smith’s sells chocolate cookies. Which of the following will happen if Smith’s lowers its price for cookies slightly below Crisps’s price?

A) Crisps will lose all its customers to Smith’s.

B) Smith’s will lose all its customers to Crisps.

C) Crisps will face a lower demand for its cookies.

D) Smith’s will face a lower demand for its cookies.

28) Which of the following will happen if a new firm enters in an oligopoly with differentiated products?

A) Market price will fall.

B) Market price will rise.

C) Existing firms will gain market share.

D) Each firm will have an equal market share.

29) Which of the following is a difference between an oligopoly with homogeneous products and an oligopoly with differentiated products?

A) There are a large number of sellers in an oligopoly with homogeneous products and there are a few sellers in an oligopoly with differentiated products.

B) Firms in an oligopoly with homogeneous products earn positive economic profits in equilibrium while firms in an oligopoly with differentiated products earn zero economic profit.

C) There are huge barriers to entry in an oligopoly with homogeneous products while there are no barriers to entry in an oligopoly with differentiated products.

D) Firms in an oligopoly with homogeneous products earn zero economic profits in equilibrium while firms in an oligopoly with differentiated products earn positive economic profits.

30) As the number of firms in an oligopolistic market increases, ________.

A) prices tend to decline toward marginal cost

B) prices tend to rise above marginal cost

C) the market demand for the good tends to fall

D) profits earned by firms tend to rise