FIN 311 Practice Final MC

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the producer of two joint products A and B, producing QA = QB with marginal revenues MRA and MRB, should equate marginal cost to

vertical sum of MRA and MRB

Cartel agreements tend to break down

-during economic downturns. -because of price "chiseling" by one or more members. -when there is overcapacity in the industry

price matching ...

-is a strategic commitment -must be irreversible in order to have the desired effect

When state universities charge higher tuition fees to out-of-state students than to local students, the universities are practicing

3rd degree discrimination

If John produces joint products A and B and refuses to sell all the A he produces, then

A is a low demand good

in the United States most cartels were declared illegal by the

Sherman Antitrust Act

In game theory, what is a dominant strategy?

The strategy that leads to the best outcome for a firm no matter what strategy the other chooses.

Which of the following conditions make it LESS likely that a cartel will succeed? a. a large number of firms b. a differentiated product c. similar cost structures across firms d. both a and b e. none of the above

a. a large number of firms b. a differentiated product

In a duopoly situation with two firms A and B, A's best response curve

a. gives A's profit-maximizing choice given B's choice. b. is derived based upon the underlying mutual interdependence of firms A and B

A credible commitment is

a. irreversible. b. a way of becoming the first-mover in sequential decision situation. c. an unconditional strategic move.

When participants in a game are in Nash equilibrium

a. no participant has an incentive to change. b. each participant has chosen the best action possible, given what the others have chosen.

what is the advantage to a particular firm of cheating on an otherwise effective cartel?

always pays in the short run and may pay in the long run

Which of the following is an example of strategic entry deterrence?

building excess capacity

All of the following are conditions which are favorable to the formation of cartels, except: a. the existence of a small number of firms. b. geographic proximity of firms. c. homogeneity of the product. d. easy entry into the industry. e. all of the above conditions are favorable to the formation of cartels.

d. easy entry into the industry

oligopoly is the only market structure in which one finds

firm interdependence

Mutual interdependence occurs when

firms take the actions of other firms into account when making price and output decisions

tacit collusion

form of cooperation that occurs without explicit communication

a firm selling in two markets is practicing price discrimination when

it is charging different customers different prices AND the price difference is not based upon cost differences

a firm is producing two goods (x and y) that are related in consumption. in order to maximize profit, the firm

should determine the levels of output for the two goods SIMULTANEOUSLY


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