Econ 100B Midterm Review 1

In the Bertrand model with homogeneous products,

-both firms set price equal to marginal cost. -the Nash equilibrium is the competitive outcome. -the firm that sets the lower price will capture all of the market.

A 10 percent decrease in advertising results in a 5 percent sales decrease. The advertising elasticity of demand is:

0.5

Once the state environmental protection agency devises its new policy to protect the environment, firms decide whether to remain in the state or move their operations to a neighboring state. In the language of game theory, this is an example of:

A sequential game

Mixed bundling is more profitable than pure bundling when:

A) the consumers' reservation values of each good being sold are not perfectly negatively correlated with one or another. B) the marginal cost of each good being sold is positive.

In which oligopoly model(s) do firms earn zero profit?

Bertrand

Why does cooperative behavior break down in games with finite endpoints?

Each player has an incentive to deviate from a cooperative strategy during the last period.

There are two independent dealers for Sporto automobiles in a large city. The dealers decide to run a cooperative advertising campaign in which both dealers are listed in local newspapers ads, and they can purchase larger ads that are more likely to attract attention and generate more auto sales if the dealers commit more funds to the joint advertising budget. Is this an example of a cooperative constant-sum game?

No, the outcome of the advertising campaign depends on how much money the firms contribute to the campaign, so it is not constant sum.

Which of the following is true in long-run equilibrium for a firm in a monopolistic competitive industry?

The demand curve is tangent to average cost curve.

Why are many oligopolistic market outcomes conveniently described by a Prisoners' Dilemma?

The firms could do better than the Nash equilibrium if they collude.

The local cable TV company charges a "hook-up" fee of $30 per month. Customers can then watch programs on a "pay-per-view" basis (a fee is charged for every program watched). This is an example of:

a two-part tariff.

Bundling raises higher revenues than selling the goods separately when:

demands for two products are negatively correlated.

When a firm charges each customer the maximum price that the customer is willing to pay, the firm:

engages in first-degree price discrimination.

Nash equilibria are stable because:

once the strategies are chosen, no player has an incentive to deviate unilaterally from them.

In comparing the Cournot equilibrium with the competitive equilibrium,

profit is higher, and output level is lower in Cournot.

A strategy A is "dominant" for a player X if:

strategy A is the best response to every strategy of the other player.

A tennis pro charges $15 per hour for tennis lessons for children and $30 per hour for tennis lessons for adults. The tennis pro is practicing:

third-degree price discrimination.