Micro ch 14
Nash Equilibrium
when neither firm has an incentive to deviate from the strategy that they are currently playing.
Consider this statement: "The Beatles were once a monopolistically competitive firm that became a monopolist." Which of the following best explains the statement above?
Initially, product differentiation made the Beatles a monopolistically competitive firm.
In a Cournot duopoly, expected output is ________ that for a monopoly and ________ that for a competitive firm.
above; below
Because people can enjoy the benefits of public goods whether or not they pay for them, they are usually unwilling to pay for them. This describes the
free-rider problem.
Choose the most appropriate method, from the list on the right, for dealing with each of the following externality problems Airport landing patterns and hours.
Direct regulation
Comment on the efficiency and/or equity of each d. Refer the matter to the Environmental Protection Agency, which will impose a tax on the factory equal to the marginal damage costs. Proceeds will not be paid to the damaged parties.
Efficient if marginal damages can be measured accurately.
Comment on the efficiency and/or equity of each Deny the merits of the case and affirm the polluter's right to dump. The parties will achieve the optimal solution without government.
Efficient outcome is hindered by the "free-rider problem." Equitable with a smaller number of claimants. Efficient outcome is hindered by the "drop-in-the-bucket problem."
the prisoners dilemma
However, both firms find it to their advantage to cheat on the agreement.
Consider this statement: "The Beatles were once a monopolistically competitive firm that became a monopolist." Which of the following best explains the statement above?
Originally, the Beatles were one act of many that produced a similar, yet slightly different, product: music.
Choose the most appropriate method, from the list on the right, for dealing with each of the following externality problems Air pollution caused by the electric power industry.
Selling or auctioning rights
The Cournot model illustrates the idea of interdependence among firms in an oligopoly.
True
Consider this statement: "The Beatles were once a monopolistically competitive firm that became a monopolist." Which of the following best explains the statement above?
With success, the lack of available substitutes made the Beatles a monopoly.
A cartel is
a group of oligopolists who make price and output decisions jointly.
game theory needs
actions
dominations strategy
an action you play regardless of what the other player does
Which of the following industries would you classify as an oligopoly? Explain your answer. The industry for firearms is ____________.
an oligopoly because firms produce differentiated products and are price makers.
Which of the following industries would you classify as an oligopoly? Explain your answer. The industry for motorcycles is ____________.
an oligopoly because there are a few firms that face the limited entry of new firms.
Which of the following industries would you classify as an oligopoly? Explain your answer. The industry for cruise lines is ____________.
an oligopoly because there are only a few firms that engage in strategic behavior.
In monopolistic competition, firms gain some degree of market power
by differentiating their products from those of other firms in the industry.
In an oligopoly, firms may collude, in which case they will produce up to the point where
marginal revenue equals marginal cost, and price will be above marginal cost.
For a monopolistically competitive firm
marginal revenue is less than the price becuase the firm must lower the price for each additional unit wants to sell.
Which of the following industries would you classify as an oligopoly? Explain your answer. The industry for furniture is ____________.
monopolistically competitive because there are many firms selling a differentiated product.
Which of the following industries would you classify as an oligopoly? Explain your answer. The industry for hotels is ____________.
monopolistically competitive because there are many firms selling a differentiated product.
Public goods are characterized as being
nonrival in consumption and nonexcludable.
The Coase theorem implies that we never need to worry about regulating externalities because the private individuals involved will reach the efficient outcome through negotiations. Is that statement true or false? Justify your answer and use examples. This statement is
not correct because Coase bargaining is not necessarily feasible when bargaining is costly
Monopolistically competitive firms are efficient because in the long run, price falls to equal marginal cost. This statement is
not correct because monopolistically competitive firms produce where price is greater than marginal cost and therefore are inefficient.
For each of the following, state whether you agree or disagree. Explain your answer. Monopolistically competitive firms produce their economic profits protected by barriers to entry. This statement is
not correct because monopolistically competitive industries have easy entry and exit and therefore have no profits in the long run.
game theory needs
payoffs
game theory needs
players
In a monopolistically competitive industry, at long-run equilibrium
the average total cost curve is tangent to the demand curve.
The socially optimal level of pollution is
the output where marginal social benefit equals marginal social cost.
In some oligopolies, two firms find themselves in what is known as "the prisoners' dilemma," that is,
each has a dominant strategy that results in both of them being worse off than they would be if they could collude.
In game theory, if a game is repeated frequently, as is the case with airline pricing,
firms can, in effect, collude without talking to each other.
One of the characteristics of a monopolistically competitive industry is easy entry of new firms and easy exit of existing firms. This means that
if firms in the industry are making positive profits, other firms will enter, pushing each firm's demand curve to the left.
The Cournot model is a model of a two-firm industry that
illustrates the idea of interdependence among firms in an oligopoly.
The output decision in the Cournot model differs from the output decision in a monopoly because
in a monopoly, the output decision is based solely on the costs and demand curve faced by the monopolist.
An oligopoly is defined to be an industry that
includes a few dominant firms, each of whose behavior depends on the behavior of the others.
Choose the most appropriate method, from the list on the right, for dealing with each of the following externality problems A neighbor dumps trash in your yard.
Bargaining and negotiation
Comment on the efficiency and/or equity of each b. Find in favor of the plaintiff. The polluters will be held liable for damages and must fully compensate citizens for all past and future damages imposed.
Compensation charge must be equal to "marginal damage cost."
Comment on the efficiency and/or equity of each c. Order an immediate end to the dumping, with no damages awarded
It is inefficient to stop production cold. Works well in the case where the damages are very high. Does not work well if pollution damage was small relative to the benefits of production on the site.
Which of the following is not one of the characteristics of a monopolistically competitive industry?
Large influence on market price.
Choose the most appropriate method, from the list on the right, for dealing with each of the following externality problems Drunk driving
Legal rules and procedures
