Micro Quiz 9

Refer to Table 17-13. When this game reaches a Nash equilibrium, annual profit will grow by a. $1.5 million for HomeMax and by $1.0 million for Lopes. b. $3.4 million for HomeMax and by $0.4 million for Lopes. c. $0.6 million for HomeMax and by $3.2 million for Lopes. d. $2.5 million for HomeMax and by $2.0 million for Lopes.

a. $1.5 million for HomeMax and by $1.0 million for Lopes.

Lori and Maya are competitors in a local market. Each is trying to decide if it is better to advertise on TV, on radio, or not at all. If they both advertise on TV, each will earn a profit of $10,000. If they both advertise on radio, each will earn a profit of $14,000. If neither advertises at all, each will earn a profit of $20,000. If one advertises on TV and other advertises on radio, then the one advertising on TV will earn $16,000 and the other will earn $6,000. If one advertises on TV and the other does not advertise, then the one advertising on TV will earn $30,000 and the other will earn $4,000. If one advertises on radio and the other does not advertise, then the one advertising on radio will earn $24,000 and the other will earn $8,000. If both follow their dominant strategy, then Lori will a. advertise on TV and earn $10,000. b. advertise on radio and earn $14,000. c. not advertise at all and earn $20,000. d. None of the above is correct. Lori and Maya do not have dominant strategies.

a. advertise on TV and earn $10,000.

An agreement among firms in a market about quantities to produce or prices to charge is called a. collusion. b. Nash equilibrium c. dominant strategy. d. behavioral economics.

a. collusion.

The typical firm in the US economy a. has some degree of market power. b. sells its product for a price that is equal to the marginal cost of producing the last unit. c. is perfectly competitive. d. is a monopoly.

a. has some degree of market power.

Firms that spend the greatest percentage of their revenue on advertising tend to be firms that sell a. highly-differentiated consumer goods. b. goods produced by natural monopolies. c. agricultural products. d. products with a limited shelf life such as milk and lettuce.

a. highly-differentiated consumer goods.

Acme Computer Co. sells computers to retail stores for $400. If Acme requires the retailers to charge customers $500 for the computers, then it is engaging in a. resale price maintenance. b. predatory pricing. c. tying. d. monopolistic competition.

a. resale price maintenance.

A central issue in the Microsoft antitrust lawsuit involved Microsoft's integration of its Internet browser into its Windows operating system, to be sold as one unit. This practice is known as a. tying. b. predation. c. wholesale maintenance. d. retail maintenance.

a. tying.

Refer to Table 17-9. Suppose the market for this product is served by two firms that have formed a cartel. What price will the cartel charge in this market if the marginal cost of production is $0? a. $6 b. $8 c. $10 d. $12

b. $8

Refer to Figure 16-2. The firm's profit-maximizing level of output is a. 16 units. b. 24 units. c. 32 units. d. 48 units.

b. 24 units.

Suppose that Bieber and Rihanna are duopolists in the music industry. In May, they agree to work together as a monopolist, charging the monopoly price for their music and producing the monopoly quantity of songs. By June, each singer is considering breaking the agreement. What would you expect to happen next? a. Bieber and Rihanna will determine that it is in each singer's self interest to maintain the agreement. b. Bieber and Rihanna will each break the agreement. Both singers' profits will decrease. c. Bieber and Rihanna will each break the agreement. Both singers' profits will increase. d. Bieber and Rihanna will each break the agreement. The new equilibrium quantity of songs will increase, and the new equilibrium price also will increase.

b. Bieber and Rihanna will each break the agreement. Both singers' profits will decrease.

Roberto consumes Coke exclusively. He claims that there is a clear taste difference and that competing brands of cola leave an unsavory taste in his mouth. In a blind taste test, Roberto is found to prefer Coke to store-brand cola eight out of ten times. The results of Roberto's taste test would refute claims by critics of brand names that a. consumers are always willing to pay more for brand names. b. brand names cause consumers to perceive differences that do not really exist. c. consumers with the lowest levels of income are the most likely to be influenced by brand name advertising. d. brand names are a form of socially efficient advertising.

b. brand names cause consumers to perceive differences that do not really exist.

The primary purpose of antitrust legislation is to a. protect small businesses. b. protect the competitiveness of U.S. markets. c. protect the prices of American-made products. d. ensure firms earn only a fair profit.

b. protect the competitiveness of U.S. markets.

. Refer to Table 17-9. Suppose the market for this product is served by two firms that have formed a cartel. What price will the cartel charge in this market if the marginal cost of production is $4? a. $6 b. $8 c. $10 d. $12

c. $10

Refer to Table 17-13. Increasing the size of its store and parking lot is a dominant strategy for a. Lopes, but not for HomeMax. b. HomeMax, but not for Lopes. c. both stores. d. neither store.

c. both stores.

Monopolistic competition is an a. efficient market structure because long-run profits are zero. b. efficient market structure because each firm produces at its efficient scale. c. inefficient market structure because there is deadweight loss. d. Both a and b are correct.

c. inefficient market structure because there is deadweight loss.

Each firm in a monopolistically competitive industry faces a downward-sloping demand curve because a. there are many other sellers in the market. b. there are very few other sellers in the market. c. the firm's product is different from those offered by other firms in the market. d. the firm faces the threat of entry into the market by new firms.

c. the firm's product is different from those offered by other firms in the market.

Refer to Figure 16-2. In order to maximize profit, the firm will charge a price of a. $16. b. $24. c. $32. d. $36.

d. $36.

The higher the concentration ratio, the a. more control an individual firm has to set prices. b. more competitive the industry. c. less competitive the industry. d. Both a and c are correct.

d. Both a and c are correct.

Refer to Figure 16-2. Suppose that average total cost is $36 when Q=24. What is the profit-maximizing price and resulting profit? a. P=$24, profit=$0 b. P=$36, profit=$144 c. P=$36, profit=$48 d. P=$36, profit=$0

d. P=$36, profit=$0

A situation in which firms choose their best strategy given the strategies chosen by the other firms in the market is called a. a competitive equilibrium. b. an open-market solution. c. a socially-optimal solution. d. a Nash equilibrium.

d. a Nash equilibrium.