Econ Final

Suppose Cody tells Lee that if Lee chooses aggression, then Cody will also choose aggression, and if Lee chooses cooperation, then Cody will also choose cooperation. Cody's statement

not credible.

Last week, Gina's bakery sold fewer cupcakes than ever before. Regression to the mean implies that the bakery

will sell more cupcakes this week.

When Tversky and Khaneman asked one group of people to imagine that, having previously purchased a ticket for $10, they arrive at the theater to discover they have lost their ticket and a second group to imagine that they arrive just before the performance to buy a ticket and find they have lost $10 from their wallets, the majority of people in the lost ticket group said they still attend the performance, and the s awarded majority of people in the lost $10 group said they still attend the performance

would not, would

To sell an extra unit of output, a perfectly competitive firm , and an imperfectly competitive firm

need not alter its price; must lower its price

The is a game in which the first player has the power to confront the second player with a take-it-or-leave-it offer.

ultimatum bargaining game

situations where people make decisions with perfectly predictable consequences, traditional economic models cannot explain

why people experience regret

Savannah is the owner of the 7-11 Mini Mart, Sam is the owner of the SuperAmerica Mini Mart, and together they are the only two gas stations in town. Currently, they both charge $3 per gallon, and each earns a profit of $1,000. If Savannah cuts her price to $2.90 and Sam continues to charge $3, then Savannah's profit will be $1,350, and Sam's profit will be $500. Similarly, if Sam cuts her price to $2.90 and Savannah continues to charge $3, then Sam's profit will be $1,350, and Savannah's profit will be $500. If Sam and Savannah both cut their price to $2.90 then they will each earn a profit of $900. If both players choose their dominated strategy, they will each earn and if both players choose their dominant strategy they will each earn

$1,000; $900

Mexico and the members of OPEC produce crude oil. Realizing that it would be in their best interests to form an agreement on production goals, a meeting is arranged, and an informal, verbal agreement is reached. If both Mexico and OPEC abide by the agreement, then OPEC's profit will be $200 million and Mexico's profit will be $100 million. If both Mexico and OPEC cheat on the agreement, then OPEC's profit will be varded $175 million and Mexico's profit will be $80 million. If only OPEC cheats, then OPEC's profit will be $185 million, and Mexico's profit will be $60 million. If only Mexico cheats, then Mexico's profit will be $110 million, and OPEC's profit will be $150 million. To OPEC, the payoff to abiding by the agreement is either

$150 million or $200 million.

Given the total cost function TC = 2,250 + 4Q, when output is 1,000 units, average total cost is and average fixed cost is

$6.25; $2.25

If the demand curve facing the monopolist is P= 60 - 12Q, then the slope of its marginal revenue curve is

-24

Suppose that only 2 percent of all people are geniuses. If an IQ test indicates that Albert is a genius, but the test is only accurate 90 percent of the time, then the probability that Albert really is a genius is roughly

16 percent

Suppose that 95 percent of women who are Krista's age do not have high cholesterol and 5 percent do. If a cholesterol test indicates that Krista has high cholesterol, but the test is only accurate 90 percent of the time, then the probability that Krista really does have high cholesterol is roughly

32 percent.

Suppose Island Bikes, a profit-maximizing firm, is the only bike rental company in a small resort town. The marginal cost to Island Bikes of ¡renting out a bike is $3, and Island Bikes has no fixed costs. Each day Island Bikes has six potential customers, whose reservations prices are : listed in the accompanying table. Reservation Price Customer (S/Rental) A 22 B 16 C 12 D 8 E 6 F Suppose Island Bikes knows that customers whose reservation prices are at least $10 always rent bikes before noon, while those whose reservation prices are below $10 never do so. If Island Bikes charges a different price in the morning and in the afternoon, then what will be its ; daily economic profit?

33

Suppose Island Bikes, a profit-maximizing firm, is the only bike rental company in a small resort town. The marginal cost to Island Bikes of renting out a bike is $3, and Island Bikes has no fixed costs. Each day Island Bikes has six potential customers, whose reservations prices are listed in the accompanying table. Customer A B D E F Reservation price (S/Rental) 22 16 12 8 6 Suppose Island Bikes knows that customers whose reservation prices are at least $10 always rent bikes before noon, while those whose reservation prices are below $10 never do so. If Island bikes can charge a different price in the morning and in the afternoon, then in the bikes) and charge per bike.

3;12

Consider an industry with two firms producing similar products. Each firm's total cost (in dollars) is given below. Acme Manufacturing: TC = 100 + 3Q Generic Industries: TC = 500 + 3Q Suppose that Acme and Generic face the same demand curve. If each firm produces its profit-maximizing level of output and ears a positive economic profit, then which of the following statements is true?

Acme and Generic will produce the same quantity, but Acme will have higher profits.

Suppose Jordan and Lee are trying to decide what to do on a Friday. Jordan would prefer to see a comedy while Lee would prefer to see a ints awarded documentary. One documentary and one comedy are showing at the local cinema. The payoffs they receive from seeing the films either together or separately are shown in the accompanying payoff matrix. Both Jordan and Lee know the information contained in the payoff matrix. They purchase their tickets simultaneously, ignorant of the other's choice Explanation Scored Jordan Comedy Lee Documentary Comedv 3 for Lee 5 for Jordan 2 for lee 2 for Jordan Documentary 1 for Lee 1 for Jordan 5 for Lee 3 for Jordan Which of the following statements is true?

Jordan does not have a dominant strategy

Something that changes incentives so as to make otherwise empty threats or promises credible is called a

Commitment devices

According to the representative heuristic, people will tend to think that Kayleigh is a vegetarian if

Kayleigh has many of the characteristics of a stereotypical vegetarian.

Government programs aimed at stimulating personal savings

Increase welfare if people discount the future too heavily.

The tit-for-tat strategy only works for a prisoner's dilemma that

Is repeated

A game in which the first player has the power to confront the second player with a take-it-or-leave-it offer is the

ultimatum bargaining game

Mexico and the members of OPEC produce crude oil. Realizing that it would be in their best interests to form an agreement on production goals, a meeting is arranged, and an informal, verbal agreement is reached. M both Mexico and OPEC abide by the agreement, then OPEC's profit will be $200 million and Mexico's profit will be $100 million. " both Mexico and OPEC cheat on the agreement, then OPEC's profit will be $175 million and Mexico's profit will be $80 million. If only OPEC cheats, then OPE'S profit will be $185 million, and Mexico's profit will be $60 million. If only Mexico cheats, then Mexico's profit will be $110 million, and OPEC's profit will be $150 million. This game is because

Not a prisoners dilemma, OPEC does not have a dominant strategy

Which of the following is not an example of the hurdle method of price discrimination?

Permanently reducing all prices by 10 percent.

is the relationship according to which the perceived change in any stimulus varies according to the size of the change measured as a proportion of the original stimulus.

The Weber-Fechner Law

Typically, when people use anchoring and adjustment to estimate something, the importance of in influencing their assessment is too large.

The anchor

Consider two coupons: one offers 10 percent off a pair of jeans that costs $100, and the other offers 50 percent off a pair of sunglasses that costs $20. Using either coupon requires driving to the shopping mall across town. If the Weber-Fechner law holds, which coupon will people tend to perceive as being more valuable?

The coupon for the sunglasses since 50 percent is greater than 10 percent.

A dominant strategy exists if

a player has a strategy that yields the highest payoff regardiess of the other player's choice.

In traditional economic models, homo economicus is assumed to be all of the following except

altruistic

Fungibility is the property of an entity whose individual units

are interchangeable

adaptive rationality standard

assumes that people's goals are themselves a choice variable and that people's choices about which goals to pursue are made efficiently.

Suppose you would have to pay Troy at least $12 to get him to part with his new water bottle. Loss aversion implies that if Troy had not yet purchased the water bottle, he would

be willing to pay less than $12 to buy it.

The payoff matrix below shows the daily profit for two firms, Row Restaurant and Column Cafe, for two different strategies, publishing coupons in the student paper and not publishing coupons in the student paper. Publish Coupons Row Restaurant Do not Publish Coupons Publish Coupons $25 for Row $25 for Column $10 for Row $200 for Column Column Cafe Do not Publish Coupons $200 for Row $10 for Column $120 for Row $120 for Column The payoffs of this game are such that

both firms would benefit from a law that made publishing coupons illegal

Suppose a monopolist offers a $20 mail-in rebate on an item with a list price of $100. In order for the rebate to be a perfect hurdle, it must be the case that

buyers use the rebate if and only if they have a reservation price between $80 and $100.

Traditional economic models the fact that people sometimes regret making decisions with perfectly predictable consequences.

cannot explain

A coalition of firms who agree to restrict output for the purpose of earning an economic profit is called a(n)

cartel

Consider two coupons: one offers 60 percent off a scarf that costs $24, and the other offers 10 percent off a jacket that costs $240. Using either coupon requires driving to the shopping mall across town. If the Weber-Fechner law does not hold, which coupon will people tend to perceive as being more valuable?

coupon for the jacket since $24 is greater than $14.40.

Mexico and the members of OPEC produce crude oil. Realizing that it would be in their best interests to form an agreement on production goals, a meeting is arranged, and an informal, verbal agreement is reached. If both Mexico and OPEC abide by the agreement, then OPEC's profit will be $200 million and Mexico's profit will be $100 million. If both Mexico and OPEC cheat on the agreement, then OPEC's profit will be $175 million and Mexico's profit will be $80 million. If only OPEC cheats, then OPEC's profit will be $185 million, and Mexico's profit will be $60 million. If only Mexico cheats, then Mexico's profit will be $110 million, and OPEC's profit will be $150 million, pred Suppose Mexico chooses first, and then OPEC, after seeing Mexico's choice, chooses second. Before Mexico chooses, OPEC tells Mexico that if Mexico cheats on the agreement, then OPEC will also cheat, and if Mexico abides by the agreement, then OPEC will also abide. This is an example of a _, and the outcome is that

credible threat; neither will cheat

Imagine that you are an entrepreneur making designer t-shirts in your garage. Your total cost (in dollars) is given by the equation TC = 300 + 10Q, where Q represents the number of t-shirts you make. As you increase your production of t-shirts, your average fixed cost and your marginal cost

decreases: stays the same

In the realm of public policy, loss aversion makes it

difficult to enact policy changes.

According to the adaptive rationality standard, people might choose to have unselfish preferences because

doing so could be in their own best interest.

An imperfectly competitive firm faces a demand curve that is while a perfectly competitive firm faces a demand curve that is

downward-sloping: horizontal

A natural monopoly is a monopoly that arises from

economies of scale

The essential feature that differentiates imperfectly competitive firms from perfectly competitive firms is that an imperfectly competitive firm

faces a downward-sloping demand curve

One problem with government ownership of natural monopolies is that

government-owned firms have weaker incentives to cut costs than do privately-owned firms

A credible threat is

in the threatener's interest to carry out.

If an entity is fungible, then its individual units are

interchangeable

According to the representative heuristic, people are more likely to believe that something belongs to a given category if

it shares characteristics with the stereotypical members of that category.

Rules of thumb that reduce computation costs are known as

judgmental and decision heuristics.

Suppose there are two small island countries: Avarice, which is populated by people who are completely self-interested, and Altruism, which is populated by people who have adopted social norms of generosity and cooperation. Commitment problems will be

largely avoided in Altruism, but prevalent in Avarice.

Consider an industry with two firms producing similar products. Each firm's total cost (in dollars) is given below. Acme Manufacturing: TC = 100 + 3Q Generic Industries: TC = 500 + 30 When each firm is producing the same quantity, Acme's average total cost is

lower than Generic's average total cost.

The monopolist will maximize profits at the output level for which

marginal revenue equals marginal cost

Hotelling's model has been used to describe differentiation in the political "market." Suppose that 100 voters are evenly distributed between the extreme left and the extreme right on the political spectrum, and that all voters vote, and they always vote for the candidate closest to them on this spectrum. The numbers on this spectrum represent the number of voters lying to the left of the number. So, at the midpoint, 50 voters lie to the left and 50 to the right. Scored Extreme Left Extreme Right 25 75 100 If Candidate X is running against Candidate Z, by moving to the right Candidate X would

not lose any votes from voters on the left and gain some votes from Z.

If Haru has just watched a television show in which the main character is killed in an airplane crash, then the availability heuristic predicts that he will

overestimate the dangers of air travel

Traditional economic models cannot explain why

people donate money to charity completely anonymously

If a firm's total revenue is $112 when it sells 16 units, $119 when it sells 17 units and $126 when it sells 18 units, then the firm is

perfectly competitive firm.

Imperfect price discrimination occurs when a monopolist

price discriminates but some buyers pay less than their reservation price.

'*Market power" refers to a firm's ability to

raise its price without losing all of its sales

Status quo bias is the general

resistance to change, often stemming from loss aversion

Industries in which firms have high fixed costs and low marginal costs are likely to have a

small number of large firms

When a pharmaceutical company introduces a new drug, its research and development costs are in manufacturing the drug are

start-up costs: variable costs

Game theory provides tools that are used to model

strategic interdependencies.

The present aim standard of rationality

takes people's goals as given and assumes that people are efficient at pursuing whatever goals they happen to hold at the moment of action

The rule of thumb that estimates the frequency of an event by the ease with which it is possible to summon examples from memory is known as

the availability heuristic

Once a firm has determined the quantity of output it wishes to sell, the maximum price it can charge for each unit is determined by

the demand curve facing the firm

This demand curve can be used to determine

the monopolist's total revenue at different price and quantity combinations.

According to the availability heuristic, the more easily we can recall examples of an event

the more likely we judge the event to be.

A payoff matrix shows

the payoffs for each possible combination of strategies.

A strategy that limits defection in a repeated prisoner's dilemma game is

tit-for-tat strategy

Refer to the figure below. If Jess chooses A, then Cory's best response is: Jess A B Cory A 5 for Jess 5 for Corv 10 for Jess 0 for Cory B 0 for Jess -5 for Corv -5 for Jess 10 for Cory

to choose A.

When people use anchoring and adjustment to estimate something, the adjustment they make when they receive new information is typically

too small

When a perfectly competitive firm sells additional units of output. , and when a monopolist sells additional units of output,

total revenue always Rises, total revenue could Rise, fail, or remain unchanged

When marginal revenue is zero

total revenue is maximized