Microeconomics Exam 3 review
How can such strategies help retailers?
All of the above. This is the correct answer.
Two outcomes are said to be independent when ____________.
knowing about one outcome does not help you predict the other outcome.
Present bias suggests that today is _____ than the future
more important than
Economists have done numerous studies on how much risk people willing to take in a variety of situations. They have found that in most situations people overall are ____.
risk averse
To say that a good has network effects means that the ____________.
value of the product increases as more people use it.
Economists often analyze decisions that involve up-front costs and delayed benefits. When economists value rewards that will be experienced in the future, they multiply the reward by a ____________ factor that is ____________ one to capture the idea that future rewards are worth less than current rewards.
positive; less than.
A report by the Wall Street Journal found there were several online retailers that offered customers different prices based on their browsing history and other characteristics. This is an example of ____________.
third-degree price discrimination
Identify the key assumption(s) made about a Nash equilibrium
All players understand the game and the payoffs associated with each strategy. All players understand that other players understand the game.
Which of the following common features do monopolistically competitive markets and monopolies share?
Firms face downward-sloping demand curves
How is a Nash equilibrium different from a dominant strategy equilibrium?
For a given game, there can only be one dominant strategy equilibrium but multiple Nash equilibriums.
In a competitive market, a supply curve shows all the price and quantity combinations at which firms will produce. Does a monopoly face a similar supply curve?
No, a monopoly is a price-maker and its production decisions are determined by its downward-sloping demand curve.
As long as you receive the same amount, is a sum of money worth the same today and one year later?
No, if there is a positive interest rate the same amount of money is worth more today than receiving it in the future.
Suppose the refrigerator industry has an HHI of 2,500 while the aluminum industry's HHI is 6,850. Is this information sufficient to conclude that the aluminum market is less competitive than the market for refrigerators?
Not necessarily. Although the HHI indicates a smaller number of firms, those firms may compete intensely
A trust game is a sequential prisoners' dilemma. This means that it is likely that the outcome of the game is not socially efficient. Which of the following factors would likely result in a more socially efficient outcome in real life?
Reputational concerns
How is a monopolistically competitive market similar to a perfectly competitive market?
There are no restrictions on the entry of new firms
Why might game theory not always be an accurate predictor of real-world situations?
We do not always know the exact payoffs, since payoffs involve attitudes and feelings as well as monetary gains.
The prisoners' dilemma is ____________ with a ____________ equilibrium that is not the best outcome for both players.
a simultaneous move game; dominant strategy.
for a market to be characterized as a monopoly, there must be____
a single seller that sets he price of a good
In which of the following ways is a monopoly beneficial to an economy?
all of the above
when a firm exercises its monopoly power, the cost to society is the ____
deadweight loss
The tragedy of the commons can be modeled as a prisoners' dilemma game when the __________.
dominant strategy equilibrium leads to the destruction of a common resource.
In the model of an oligopoly with identical (homogeneous) products, the price is likely to be ___________.
equal to marginal cost.
Under present bias, the discount weight you place on the present is ______ the discount weight you place on tomorrow. Under present bias, the discount weight you place on tomorrow is ______ the weight you place on the day after tomorrow.
greater than; equal to.
The gambler's fallacy occurs when gamblers ____________.
ignore the independence of outcomes in some games and believe they are on a hot streak.
when a firm exercises its monopoly power, social surplus is ___ when compared to a perfectly competivte market.
lower
compared to a perfectly competovte market, consumer surplus is ____, producer surplus is ____, and deadweight loss is ____
lower, higher, higher
Consider four market structures: perfect competition, monopolistic competition, oligopoly, and monopoly. Firms in all four market structures maximize profits by producing the quantity where ___________.
marginal revenue equals marginal cost.
In a monopolistically competitive market, a firm earning negative economic profit in the short run will ____________.
producr only if price is greater than average variable cost
Given your response to the previous question and the fact that most extended warranties that are offered on smaller electronic purchases tend to cost more than the benefits they provide it is likely true that firms ____.
sell many extended warranties sine people are willing to pay extra to avoid the risk of a loss
A Nash equilibrium is ___________.
when players choose strategies that are best responses to the strategy of others.
