Chp 17 ECO Final study

Predatory pricing refers to

a monopoly firm reducing its price in an attempt to maintain its monopoly.

Refer to Table 17-9. Suppose the market for this product is served by two firms that have formed a cartel. If the marginal cost of production is $0 and there is no fixed cost, the combined profit of the cartel will be

$32

The information in the table below shows the total demand for internet radio subscriptions in a small urban market. Assume that each company that provides these subscriptions incurs an annual fixed cost of $20,000 (per year) and that the marginal cost of providing an additional subscription is always $16. Refer to Table 17-7. Assume there are two profit-maximizing internet radio providers operating in this market. Further assume that they are not able to collude on the price and quantity of subscriptions to sell. What price will they charge for a subscription when this market reaches a Nash equilibrium?

$32

Scenario 17-5 Assume that a local restaurant sells two items, salads and steaks. The restaurant's only two customers on a particular day are Mr. Carnivore and Ms. Leafygreens. Mr. Carnivore is willing to pay $20 for a steak and $7 for a salad. Ms. Leafygreens is willing to pay only $8 for a steak, but is willing to pay $12 for a salad. Assume that the restaurant can provide each of these items at zero marginal cost. Refer to Scenario 17-5. How much additional profit can the restaurant earn by switching to the use of a tying strategy to price salads and steaks rather than pricing these goods separately?

$6

Refer to Table 17-3. Suppose the town enacts new antitrust laws that prohibit Maria and Miguel from operating as a monopoly. What will be the price of milk once Maria and Miguel reach a Nash equilibrium?

$8

Scenario 17-5 Assume that a local restaurant sells two items, salads and steaks. The restaurant's only two customers on a particular day are Mr. Carnivore and Ms. Leafygreens. Mr. Carnivore is willing to pay $20 for a steak and $7 for a salad. Ms. Leafygreens is willing to pay only $8 for a steak, but is willing to pay $12 for a salad. Assume that the restaurant can provide each of these items at zero marginal cost. Refer to Scenario 17-5. If the restaurant is unable to use tying, what is the profit-maximizing price to charge for a steak?

20

Refer to Table 17-11. If ABC and XYZ operate to jointly maximize profits, then what quantity is sold?

25

Refer to Figure 17-5. The situation faced by ABC and QRS is

All of the above are correct.

Which of the following questions about predatory pricing remains unresolved?

Are the courts capable of determining which price cuts are competitive and which are predatory? Are the courts capable of determining which price cuts are good for consumers? Is predatory pricing ever a profitable business strategy?

Consider a small town that has two grocery stores from which residents can choose to buy a loaf of bread. The store owners each must make a decision to set a high bread price or a low bread price. The payoff table, showing profit per week, is provided below. The profit in each cell is shown as (Store 1, Store 2). Refer to Table 17-19. If grocery store 2 sets a low price, what price should grocery store 1 set? And what will grocery store 1's payoff equal?

Low price, $250

If a certain market were a monopoly, then the monopolist would maximize its profit by producing 4,000 units of output. If, instead, that market were a duopoly, then which of the following outcomes would be most likely if the duopolists successfully collude?

One duopolist produces 2,400 units of output and the other produces 1,600 units of output.

Which of the following statements is true?

Policymakers have the difficult task of determining whether some firms' decisions have legitimate purposes even though they appear anti-competitive.

An agreement among firms regarding price and/or production levels is called

collusion.

In which of the following games is it clearly the case that the cooperative outcome of the game is good for the two players and bad for society?

Two airlines dominate air travel between City A and City B, and each airline decides whether to charge a "high" airfare or a "low" airfare on flights between those two cities.

Assume that Samorola has entered into an enforceable resale price maintenance agreement with Trint and U-Mobile. Which of the following will always be true?

U-Mobile and Trint will always sell Samorolas for exactly the same price.

Economists claim that a resale price maintenance agreement is not anti-competitive because

if a supplier has market power, it will be likely to exert that power through wholesale price rather than retail price.

Individual profit earned by Dave, the oligopolist, depends on which of the following? (i) The quantity of output that Dave produces (ii) The quantities of output that the other firms in the market produce (iii) The extent of collusion between Dave and the other firms in the market

c. (i), (ii), and (iii)

In a duopoly situation, the logic of self-interest results in a total output level that

exceeds the monopoly level of output, but falls short of the competitive level of output.

We must be knowledgeable of how people behave in strategic situations if we are to understand

oligopolistic markets.

Each year the United States considers renewal of Most Favored Nation (MFN) trading status with Farland (a mythical nation). Historically, legislators have made threats of not renewing MFN status because of human rights abuses in Farland. The non-renewal of MFN trading status is likely to involve some retaliatory measures by Farland. The payoff table below shows the potential economic gains associated with a game in which Farland may impose trade sanctions against U.S. firms and the United States may not renew MFN status with Farland. The table contains the dollar value of all trade-flow benefits to the United States and Farland. Refer to Table 17-27. Pursuing its own best interests, Farland will impose trade sanctions against U.S. firms

regardless of whether the U.S. renews MFN status with Farland.