MicroEcon311Final

In the market for lock washers, a perfectly competitive market, the current equilibrium price is $5 per box. Washer King, one of the many producers of washers, has a daily short-run total cost given by TC = 190 + 0.20Q + 0.0025Q2, where Qmeasures boxes of washers. Washer King's corresponding marginal cost is MC = 0.20 + 0.005Q. How many boxes of washers should Washer King produce per day to maximize profit?

960

Big Earth and District 13 are two producers of neodymium, a rare earth. If they agree to restrict output, each firm earns $100 million per year. If both firms expand output, each firm earns $50 million per year. If one firm restricts output and the other firm expands output, the firm that expands output earns $150 million per year and the other firm earns only $30 million per year. Assume that Big Earth and District 13 will compete infinitely, with each firm following a grim trigger strategy. Which of the following statements is TRUE? A) If d = 0.50, Big Earth is indifferent between agreeing to restrict output and expanding output. B) If d = 0.40, Big Earth would be better off restricting output. C) If d = 0.90, Big Earth is indifferent between agreeing to restrict output and expanding output. D) If d = 0.75, Big Earth would be better off by expanding output.

A

Firm B High Low Firm A High . 20,20 10,30 Low 30,10 15,15 The payoffs represent profits measured in thousands of dollars. In this infinitely repeated game, Firm A and Firm B are both using grim trigger strategies; they agree to charge a high price in period 1. If Firm A has a change of heart and decides not to charge a high price in period 1, what is Firm A's expected payoff from cheating? Assume that d = 0.9. A) $165,000 B) $2 million C) $315,000 D) $580,000

A

Imperial Ad No Ad Cape North Ad 120 , 120 180 , 75 No Ad 75 , 180 154 , 154 The payoffs represent profits. If Cape North and Imperial both choose their dominated strategy, Cape North will earn a profit of _____ and Imperial will earn a profit of _____. A) $154; $154 B) $120; $120 C) $75; $180 D) $75; $75

A

Motor City Aid No Aid Detroit Aid 120,120 240,60 No Aid 240,60 180,180 The payoffs represent profits measured in thousands of dollars. In this infinitely repeated game, the two schools agree to cooperate and not offer financial aid. Each school follows a grim trigger strategy. At what value of d is the Motor City Art School indifferent between upholding and cheating on the agreement? A) 0.5 B) 0.7 C) 0.75 D) 0.9

A

(Figure 12.8 #43) Which of the following is an example of a noncredible threat? A) O's Groceries tells the Food Palace that it is committed to entering the market. B) Food Palace tells O's Groceries that it will build a large store whether or not O's Groceries enters the market. C) Food Palace tells O's Groceries that it will build a small store if O's Groceries enters the market. D) O's Groceries tells the Food Palace that it will not enter the market.

B

(Table 12.10 #17) The table shows the payoffs from the game rock-paper-scissors. Which of the following statements is (are) TRUE? I. There is no pure-strategy Nash equilibrium. II. The Nash equilibria are (rock, rock), (paper, paper), and (scissors, scissors). III. The mixed-strategy Nash equilibrium is for each player to randomly select each strategy one-third of the time. A) II and III B) I and III C) III D) I and II

B

Firm B Wrnty . No Wrnty Firm A Wrnty . 5 , 5 10 , 2 No Wrnty 2 , 10 8 , 8 The payoffs represent profits in millions of dollars. In this infinitely repeated game, Firm A and Firm B agree to cooperate and not offer warranty coverage. Each firm follows a grim trigger strategy. At what value of d is Firm A indifferent between keeping the agreement with Firm B and cheating on it? A) 0.2 B) 0.4 C) 0.6 D) 0.8

B

Fruit of the Loom T-Shirt Price $8 $6 $4 Hanes $8 20,20 15,22 . 10,19 $6 22,15 17,17 . 16,15 $4 19,10 . 15,16 . 14,14 Payoffs represent profits in thousands. What is the Nash equilibrium? A) (20 , 20) B) (17 , 17) C) (14 , 14) D) (19 , 10) or (10 , 19)

B

Louise Confess Deny Thelma Confess 20 , 20 3 , 25 Deny . 25 , 3 . 5 , 5 Thelma and Louise have been arrested for a crime. In this simultaneous game, the payoffs represent years in jail. Louise's dominated strategy is ______ while Thelma's dominated strategy is _________. A) Confess; Deny B) Deny; Deny C) Deny; Confess D) Confess; Confess

B

Which of the following is (are) the elements of every game? I. players II. strategies III. payoffs IV. a pure-strategy Nash equilibrium A) I, II, III, and IV B) I, II, and III C) IV D) I and II

B

Yamaha Rebate No Reb8 Polaris Rebate 4 , 4 7 , 2 No Reb8 2 , 7 6 , 6 The payoffs represent profits in millions of dollars. Suppose that this simultaneous-move game is played once in each period for 3 periods. In period 1, the outcome will be _____, and in period 2, the outcome will be _____. A) (6 , 6); (4 , 4) B) (4 , 4); (4 , 4) C) (2 , 7); (6 , 6) D) (6 , 6); (6 , 6)

B

(Figure 12.10 #47) Payoffs are profits in millions of dollars. Should Mealy Mattress develop its antibedbug mattress if Feely Mattress promises not to develop its own antibedbug mattress? A) Yes, Feely's promise is credible, and Mealy's profits would increase from $6 million to $13 million. B) Yes, Feely's promise is credible, and Mealy's profits would increase from $4 million to $13 million. C) No, Feely's promise is not credible, so Mealy should not develop the antibedbug mattress and should earn $6 million. D) No, Feely's promise is not credible, so Mealy should develop the antibedbug mattress and earn $13 million.

C

(Figure 12.5 #37) The outcome of this game is for: A) Firm B to choose strategy 3. B) Firm A to choose strategy 1 and then Firm B to choose strategy 3. C) Firm A to choose strategy 2. D) Firm A to choose strategy 1 and then Firm B to choose strategy 4.

C

(Table 12.20 #40) Payoffs represent profits in millions of dollars. Which of the following statements is (are) TRUE? I. In a simultaneous game that is played only once, the Nash equilibrium is (0 , 0). II. In a sequential game in which Player A moves first, the Nash equilibrium is (6 , 0). III. In the sequential game, Player A has a first-mover advantage. A) I and III B) II C) II and III D) I, II, and III

C

(Figure 12.3 #34) Which figure corresponds to the following normal-form game? Firm B Ad Don't Ad Firm A Ad 16 , 16 30 , 12 Dont Ad 12,30 24,24 A) panel a B) panel b C) panel c D) panel d

D

Consider a simultaneous game for two players. Each player has a choice between two strategies, Friend and Foe. If both players play Friend, each wins $1,000. If both play Foe, they win nothing. If one plays Foe and the other plays Friend, the Foe wins $2,000 and the Friend wins nothing. Which of the following statements is (are) TRUE? I. This game has a mixed-strategy equilibrium. II. This game has a pure-strategy equilibrium. III. The Nash equilibrium is for both players to play Friend. A) I and II B) I, II, and III C) II and III D) II

D

Firm B High Low Firm A High . 20,20 10,30 Low 30,10 15,15 The payoffs represent profits measured in thousands of dollars. In this infinitely repeated game, Firm A and Firm B are both using grim trigger strategies; they agree to charge a high price in period 1. If Firm A charges a high price for all periods, what is its expected payoff? Assume that d = 0.9. A) $720,000 B) $3 million C) $364,000 D) $200,000

D

Which of the following games is solvable by backward induction? I. a 3-period simultaneous game II. an infinitely repeated simultaneous game III. a 1-period simultaneous game IV. a sequential game A) II B) IV C) I and III D) I and IV

D

Which of the following statements is (are) TRUE? I. A Nash equilibrium requires that each player have a dominant strategy. II. A Nash equilibrium requires that each player have a dominated strategy. III. A game can have more than one Nash equilibrium. A) I and II B) I, II, and III C) I and III D) III

D

Which of the following is true of an extensive-form game? a. It involves sequential decision making by the players. b. It involves simultaneous decision making by the players. c. The players in the game earn equal payoffs in equilibrium. d. The sum of the payoffs to the players in the game is always constant.

a. It involves sequential decision making by the players.

Stu owns an ice cream parlor that is usually closed during the winter. This winter, however, Stu is considering opening his business in February instead of March. If Stu opens his store in February, he will earn total revenue of $4,000 for the month, incurring variable costs of $3,500 and fixed costs of $1,500. If the store remains closed during February, Stu will earn no revenues and incur fixed costs of $1,500. Stu should:

open in February because the $4,000 of total revenue exceeds the $3,500 of variable costs.

Economists assume that firms maximize:

π = TR - TC

In a perfectly competitive market, each firm has a long-run total cost given by LTC = 100Q - 10Q^2 + 1/3Q^3 and long-run marginal cost curve given by LMC = 100 - 20Q + Q^2. What is the market's long-run equilibrium price?

$25

(Figure; Price and Quantity VII) If this firm operates, it earns a profit of _____, but if it shuts down, it earns a profit of _____.

-$9000: -$5000

(Figure: Price and Quantity of Output and Table I) For simplicity, assume that there are only three firms in a perfectly competitive industry; their short-run supply curves are depicted in the graph. At a market price of $100, the industry output is ____.

15

Use the following table to answer the question. The profit-maximizing level of output is a quantity of ____.

3

(Table: Level of Output I) The level of output where marginal revenue equals marginal cost is:

4

ESPN Magazine Story Favre Tebow Sports Favre 2.8 ,1.4 2.5 , 1.9 Tebow . 3 , 1.7 2.7 , 1.6 Payoffs represent profits in millions of dollars. What is ESPN's dominant strategy? A) none B) run the Brett Favre cover story C) run the Tim Tebow cover story D) run either cover story

A

Firm 2 Strat A Strat B Firm 1 Strat A . 8,8 ñ1,10 Strat B . ñ20,15 20,20 The payoffs are profits in millions of dollars. The Nash equilibrium of this game is: A) (20 , 20). B) (8 , 8). C) (ñ20 , 15). D) (ñ1 , 10).

A

The _____ model is an example of a simultaneous game, while the _____ model is an example of a sequential game. A) Cournot; Stackelberg B) Cournot; Bertrand C) Bertrand; Cournot D) Stackelberg; Bertrand

A

(Figure 12.10 #48) In the figure, payoffs are profits in millions of dollars. Suppose that Feely cannot develop an antibedbug mattress because of Mealy's patented technology. Should Mealy develop and release its antibedbug mattress? A) Yes, Mealy will earn $4 million and Feely will earn $9 million. B) Yes, Mealy will earn $13 million and Feely will earn $3 million. C) Yes, Mealy will earn $6 million and Feely will earn $4 million. D) No, Mealy will earn larger profits by not releasing the mattress.

B

(Table 12.19 #39) The payoffs represent profits in thousands of dollars. Which of the following statements is (are) TRUE? I. In a simultaneous game that is played only once, the Nash equilibrium is (20 , 20). II. In a sequential game in which Player A moves first, the Nash equilibrium is (18 , 18). III. In the sequential game, Player A has a first-mover advantage. A) I and III B) II C) II and III D) I, II, and III

B

(Table 12.22 #46) Payoffs, represent profits in millions of dollars. In this simultaneous game, TriStar and New Line Cinema both decide the genre of their summer movie release. TriStar prefers to release a superhero movie and New Line Cinema releases a comedy. TriStar enters into an irrevocable contract that will provide penalty payments to theater chains if it releases a summer comedy. These penalty payments serve as a credible commitment to TriStar's desire to release a superhero movie. How large do these penalty payments have to be to convince New Line Cinema that TriStar will release a superhero movie? A) between $1 million and $5 million B) greater than $5 million C) at least $90 million D) less than $95 million

B

At one time, tobacco companies vigorously fought lawsuits by their current and former customers, even though the cost of defending the lawsuits exceeded the amount of money demanded by the smokers. What type of strategic behavior were tobacco companies using? A) excess capacity B) reputation C) grim reaper D) MAD

B

GAF Capacity Expansion None Small Large Owens None 30,30 .15,33 10,19 Small 33,15 . 24,24 . 9,15 Large 19,10 . 15,9 3, 3 Payoffs represent profits in millions of dollars. The Nash equilibrium: A) does not exist. B) occurs when both firms choose small expansion. C) occurs when both firms choose large expansion. D) occurs when both firms choose no expansion.

B

(Table 12.21 #41) Payoffs represent profits in millions of dollars. Which of the following statements is (are) TRUE? I. In a simultaneous game that is played only once, the Nash equilibria are (80 , 100) and (70 , 40). II. In a sequential game in which Player A moves first, the Nash equilibrium is (100 , 90). III. In a simultaneous game that is played only once, the dominated strategy for Player 1 is Middle. A) I, II, and III B) II and III C) I and III D) I

C

A simultaneous game: A) requires that both participants play exactly the same strategy at the same time. B) involves at least one participant playing a random strategy after first observing the opponent's strategies. C) necessitates participants revealing their strategy at the same time without knowing the strategy of their opponent. D) requires both players to base their strategy on backward induction.

C

(Figure 12.2 #33) Two firms are considering whether to expand their production capacity. Which of the following statements is TRUE? A) The outcome is (10 , 6) or (6 , 10). B) There is no first-mover advantage. C) Neither firm expands its production capacity. D) There is a first-mover advantage.

D

Firm 2 Strat A Strat B Firm 1 Strat A . 8,8 ñ1,10 Strat B . ñ20,15 20,20 The payoffs are profits in millions of dollars. If Firm 1 follows a maximin strategy, the outcome of this game is: A) (20 , 20). B) (8 , 8). C) (ñ20 , 15). D) (ñ1 , 10).

D

Scenario: Two firms in a market must choose between two alternative strategies—X and Y. The figure below shows the game tree that these firms can use to make their decisions. Refer to the figure above. This is an example of a(n) ________. a. prisoners' dilemma b. extensive-form game c. zero-sum game d. payoff matrix

b. extensive-form game

In many business situations one firm will act first, and then other firms will respond. To help analyze these types of situations economists use a. follow-the-leader-games. b. sequential games. c. retaliation games. d. bargaining games.

b. sequential games.

A sequential game can be used to analyze whether a retail firm should build a large store or a small store in a city, when the correct choice depends on whether a competing firm will build a new store in the same city. Which of the following is used to analyze this type of decision? a. an either-or graph b. decision matrix c. a sequential matrix d. a decision tree

d. a decision tree

A Nash equilibrium occurs if ________. a. each player chooses only a pure strategy b. each player chooses his or her dominant strategy c. each player chooses only a mixed strategy d. each player chooses strategies that are mutual best responses

d. each player chooses strategies that are mutual best responses

A ________ is a complete plan describing how a player will act. a. hypothesis b. payoff c. policy d. strategy

d. strategy

(Figure: Perfectly Competitive Market I) In a perfectly competitive market with 5,000 firms, the equilibrium price and quantity are $0.70 and 3.0 million units, respectively. The demand curve facing a firm in this market is represented by:

panel C

In a perfectly competitive industry, there are two types of firms: low-cost producers and high-cost producers. The minimum average total cost of the high-cost producers is $150. The low-cost producers have a long-run total cost curve given by LTC= 150Q - 15Q^2 + 0.4Q^3, where LMC = 150 - 30Q + 1.2Q^2. How much economic rent does the low-cost producer earn?

$3125

A perfectly competitive industry consists of many identical firms, each with a long-run average total cost of LATC = 800 - 10Q + 0.1Q2 and long-run marginal cost of LMC = 800 - 20Q + 0.3Q2. The industry's demand curve is QD = 40,000 - 70P. In long-run equilibrium, the total quantity purchase by consumers is ____.

1500

Figure: Profit-Maximizing Output Level I) At the profit-maximizing quantity, the slope of the total cost curve is ____.

3

In the lemonade stand industry, Lucia is representative of a low-cost producer, and Carlos is representative of a high-cost producer. The minimum average total cost of the high-cost producers is $5. The low-cost producers have a long-run total cost curve given by LTC = 5Q -1.5Q2 + 0.33Q3, where LMC = 5 - 3Q + Q2. In this case, Lucia can earn an economic rent of $____ as a low-cost producer.

4.50

Suppose that each firm in a perfectly competitive market has a short-run total cost of TC = 75 + 500Q - 5Q2 + 0.5Q3, where MC = 500 - 10Q + 1.5Q2. The firm's shutdown price is $____.

487.50

(Figure: Long Run Output I) Initially, the constant-cost industry was in long-run equilibrium at point A when the demand for the good increased to D2. How much output will be produced in the long run as a result of the demand increase?

6000

(Figure 12.1 #32) The Nash equilibrium of this game is: A) Low , Up. B) Low , Down. C) High , Up. D) High , Down.

A

(Figure 12.4 #35) The outcome of this game is: A) (9 , 10). B) (14 , 9). C) (6 , 8). D) (12 , 3).

A

(Figure 12.6 #38) Which of the panels correctly illustrates trimming the branches? A) panel a B) panel b C) panel c D) panel d

A

Firm B High Low Firm A High . 20,20 10,30 Low 30,10 15,15 The payoffs represent profits in thousands of dollars. Suppose that two firms are playing an infinitely repeated game. In period 6, Firm B decides it will no longer cooperate with Firm A. If Firm A is using a grim trigger strategy, Firm A will choose: A) a low price in period 7 and all future periods. B) a low price in period 7 and a high price in all future periods. C) to set price below marginal cost and drive Firm B out of the market. D) to maintain a high price in all future periods.

A

The lesson from Dr. Strangelove is that: A) your enemies must know about your doomsday machine if it is to serve as a credible deterrent to attack. B) to win at love you must sometimes make implausible promises to your lover. C) prisoner's dilemma can be avoided by making side payments to your opponent. D) forward induction is never superior to backward induction.

A

Todd Left Right Ran Top 27 ,40 35 , 28 Bottom 33 , 67 . 42 , 18 Randy and Todd are playing a simultaneous game. Randy's dominant strategy is _____. and Todd's dominant strategy is _____. A) Bottom; Left B) Top; Left C) Bottom; Right D) Top; Right

A

(Table 12.8 #15) Payoffs represent profits measured in thousands of dollars. Which of the following outcomes represent(s) a Nash equilibrium? I. (200 , 200) II. (600 , 990) III. (650, 400) IV. (400 , 825) A) II and I B) II C) II and III D) III and IV

C

Player 2 Straight Swerve Player 1 Strt ñ500,ñ500 15,ñ25 Swerve .ñ25 , 15 . 0 , 0 The payoffs represent dollars. If both players follow their maximin strategy, the outcome of this game is: A) (ñ500 , ñ500). B) (15 , ñ25). C) (25 , ñ15). D) (0 , 0).

D

Period . A B 1 Coop Coop 2 Coop Cheat 3 Cheat Coop 4 Coop Cheat 5 Cheat Coop 6 Coop Coop 7 Coop Coop The table shows the strategies of two players playing prisoner's dilemma. What is player A's strategy? A) tit-for-tat B) grim reaper C) hammer and sickle D) positional leadership

A

(Figure 12.9 #44) Brad may threaten to play strategy _____ if Sly plays strategy _____. A) B; A, in an attempt to move the game's outcome from (10 , 3) to (7 , 4) B) B; B, in an attempt to move the game's outcome from (10 , 3) to (7 , 4) C) B; A or B D) A; A, in an attempt to move the game's outcome from (1 , 2) to (10 , 3).

B

According to Goolsbee and Syverson, how did incumbent airlines respond to the entry of Southwest Airlines? A) They raised airfares just before Southwest's arrival and then cut airfares when Southwest began operating. B) They lowered airfares just before Southwest's arrival and then raised airfares when Southwest began operating. C) They began cutting airfare as early as 1 to 2 years before Southwest began operating from the same airport. D) They kept airfares unchanged before Southwest's arrival and then lowered airfares when Southwest began operating.

C

ESPN Magazine Story Favre Tebow Sports Favre 2.8 ,1.4 2.5 , 1.9 Tebow . 3 , 1.7 2.7 , 1.6 Payoffs represent profits in millions of dollars. In a Nash equilibrium, Sports Illustrated will run the _____ cover story and ESPN Magazine will run the _____ cover story. A) Brett Favre; Brett Favre B) Brett Favre; Tim Tebow C) Tim Tebow; Brett Favre D) Tim Tebow; Tim Tebow

C

GAF Capacity Expansion None Small Large Owens None 30,30 .15,33 10,19 Small 33,15 . 24,24 . 9,15 Large 19,10 . 15,9 3, 3 Payoffs represent profits in millions of dollars. What is Owens Corning's dominated strategy? A) no expansion B) small expansion C) large expansion D) none

C

Horizon Copter Rides High Low TopFlight Rides High Price80 ,80 50 ,98 Low Price 98 ,50 65 ,65 Payoffs are profits in thousands of dollars. Which of the following statements is TRUE? A) This game has no Nash equilibrium. B) Horizon's dominant strategy is high price. C) The Nash equilibrium occurs when both companies choose the low-price strategy. D) There are two Nash equilibria, (80 , 80) and (65 , 65).

C

Player B Odd Even Player A Odd 1 , ñ1 ñ1 , 1 Even ñ1 , 1 1 , ñ1 The payoffs represent dollars won or lost. Which of the following statements is TRUE? A) The Nash equilibria are (1, ñ1) and (ñ1 , 1). B) The dominant strategy for Player B is pick odd number. C) In mixed strategy, the Nash equilibrium is for both players to randomly select their strategy with a 50% probability. D) The pure-strategy equilibrium is (odd number, even number).

C

Suppose that Ben and Tim are playing a finitely repeated flag game. The game starts with 7 flags in the ground, and the players take turns removing the flags. A player must remove either 1, 2, or 3 flags per turn. The player who takes the last flag out of the ground, whether it is by itself or in a group, wins the game. Assume that Ben decides first on how many flags to remove. How many flags should Ben remove on his first turn to guarantee that he will win the game? Use backward induction. A) 1 B) 2 C) 3 D) either 1 or 2

C

Suppose that Fizzy Soda and Townie Soda must choose whether to advertise their soft drinks. In a Nash equilibrium, both firms choose to advertise and earn weekly profits of $80,000. Which of the following statements is (are) TRUE? I. Neither firm has incentive to change its advertising strategy, given the strategy choice of its rival. II. If Townie Soda decided to stop advertising, its profits would fall below $80,000. III. If both firms stopped advertising, it is possible that each firm could earn profits greater than $80,000. A) I B) II and III C) I, II, and III D) I and II

C

A dominant strategy ________. a. results in a higher payoff irrespective of the strategy chosen by the other player b. always results in equal payoffs to all the players in a game c. always results in zero payoff to the opponent d. always results in a lower payoff irrespective of the strategy chosen by the other player

a. results in a higher payoff irrespective of the strategy chosen by the other player

A player has a dominant strategy when: a. she has only one best response to every possible strategy of the other player. b. she has many best responses to any strategy of the other player in the game. c. her chosen strategy matches the best response of other players in the game. d. her chosen strategy gives her a lower payoff than the other player.

a. she has only one best response to every possible strategy of the other player.

A payoff matrix shows ________. a. the return from each action that players can take in a game b. the various combinations of inputs required to produce a good c. the payment made to each factor of production for the production of a good d. the different combinations of two goods that can be bought with a given income

a. the return from each action that players can take in a game

The first mover in an extensive-form game should use ________ to win the game. a. mixed strategies b. backward induction c. pure strategies d. forward induction

b. backward induction

What is the dominant strategy in the prisoner's dilemma? a. Do not confess because the other prisoner will most likely confess. b. Do nothing in the hope that the other prisoner will also do nothing. c. There is no dominant strategy. d. Each prisoner confesses because this is the rational action to pursue.

d. Each prisoner confesses because this is the rational action to pursue.

Which of the following is true of a payoff matrix? a. It is the representation of only the best response of each player. b. It shows the payment made to each factor of production for the production of a good. c. It does not represent all the costs and benefits associated with the choices of the players. d. It takes into account all relevant costs and benefits associated with each action of the players.

d. It takes into account all relevant costs and benefits associated with each action of the players.

What is a prisoner's dilemma? a. a game in which prisoners are stumped because they cannot communicate with each other b. a game that involves no dominant strategies c. a game in which players collude to outfox authorities d. a game in which players act in rational, self-interested ways that leave everyone worse off

d. a game in which players act in rational, self-interested ways that leave everyone worse off

Decision trees are commonly used to illustrate how firms make business decisions that depend on the actions of rival firms. A decision tree has boxes that contain points that represent when firms must make the decisions contained in the boxes. What are these points called? a. option points b. decision options c. either-or terminals d. decision nodes

d. decision nodes

A Nash equilibrium is a. reached when each player chooses the best strategy for himself and for the group. b. reached when an oligopoly's market demand and supply intersect. c. an equilibrium comprising non-dominant strategies only. d. reached when each player chooses the best strategy for himself, given the other strategies chosen by the other players in the group.

d. reached when each player chooses the best strategy for himself, given the other strategies chosen by the other players in the group.

Sequential games are used to analyze a. cartels. b. second-price auctions. c. firms that are subject to the prisoner's dilemma. d. situations in which one firm acts and other firms respond.

d. situations in which one firm acts and other firms respond.

Suppose that a firm is producing where 0 < MR < MC. If the firm produced one less unit of output, total revenue would ____ and total cost would ____.

decrease; decrease

Suppose the long-run equilibrium price in a perfectly competitive market is $100. When demand increases, if it is a(n) _____ industry, the long-run equilibrium price will _____ to reflect a _____ long-run average total cost.

decreasing-cost; fall; lower

Suppose that a firm is earning a 12% return on capital in a perfectly competitive industry, and the market return outside the industry is 9.5%. Which of the following statements is (are) TRUE?

in the long run, the firm's return on capitol will be 9.5%

Animal Planet Gator Bear History Gator 50,50 180,180 Bear 210,250 20,20 Payoffs represent profits in thousands of dollars. In this game, the Nash equilibria are: A) (210 , 250) and (180 , 180). B) (50 , 50) and (20 , 20). C) (210 , 250) and (50, 50). D) (20 , 20), (50, 50), and (180 , 180).

A

Why is the type of product sold in an industry an important characteristic?

A firm that can differentiate its product from that of rivals may be able to charge a higher price for a superior product.

(Figure 12.7 #42) Suppose that Player A promises a $2 side payment to Player B if Player B chooses Pass. As a result of the side payment, the game's outcome will change from: A) (2 , 10) to (10 , 9). B) (5 , 0) to (8 , 11). C) (5 , 0) to (7 , 2). D) (2 , 10) to (8 , 11).

B

(Figure: Perfectly Competitive Firms I) The graph represents three perfectly competitive firms. Which of the following statements is (are) TRUE? I. In the long run, each firm will produce the same quantity of output. II. Firm 1 is the highest-cost producer and Firm 3 is the lowest-cost producer. III. Firm 3 will produce the most output in the long run.

II & III

Suppose the market for sprouts is in long-run equilibrium. In the short run, what will happen if an E. coli outbreak reduces the demand for sprouts?

The market price of sprouts will fall, causing each firm to produce fewer sprouts.

The study of how people make decisions in situations where attaining their goals depends on their interactions with others is called a. game theory. b. dominant strategy equilibrium. c. the prisoner's dilemma. d. Nash equilibrium.

a. game theory.

A game is called a simultaneous move game if ________. a. players choose their actions at the same time b. one player chooses her action after the other player makes a move c. players choose their dominant strategies to play the game d. players choose mixed strategies to play the game

a. players choose their actions at the same time

Which of the following is true of a simultaneous move game? a. This game cannot be represented by a payoff matrix. b. All relevant benefits and costs of each action are taken into account. c. It involves strategic interactions among a large number of players. d. Players choose their actions after knowing the action of the first player.

b. All relevant benefits and costs of each action are taken into account.

Scenario: Two firms in a market must choose between two alternative strategies—X and Y. The figure below shows the game tree that these firms can use to make their decisions. Refer to the figure above. In equilibrium, ________. a. Firm 1 will follow Strategy X, and Firm 2 will follow Strategy Y b. Firm 1 will follow Strategy Y, and Firm 2 will follow Strategy X c. both firms will follow Strategy Y d. both firms will follow Strategy X

b. Firm 1 will follow Strategy Y, and Firm 2 will follow Strategy X

A dominant strategy is a. an equilibrium where each firm chooses the best strategy, given the strategies of other firms. b. a strategy that is the best for a firm no matter what strategies other firms use. c. strategy chosen by two firms that decide to charge the same price or otherwise not to compete. d. a strategy that is obviously the best for each firm that is a party to a business decision.

b. a strategy that is the best for a firm no matter what strategies other firms use.

A situation in which each firm chooses the best strategy given the strategies chosen by other firms is called a a. payoff matrix. b. dominant strategy. c. Nash equilibrium. d. collusion.

c. Nash equilibrium.

A game in which each player adopts its dominant strategy a. can never result in a Nash equilibrium. b. will not lead to an equilibrium. c. could result in a Nash equilibrium. d. must be a cooperative game.

c. could result in a Nash equilibrium.

A ________ is an extensive -form representation of a game. a. pure strategy b. payoff matrix c. game tree d. Nash equilibrium

c. game tree

In an extensive-form game, payoff to a player is usually higher if ________. a. he is smarter than the other player b. he is the second mover c. he is the first mover d. he picks a strategy at random

c. he is the first mover

Figure: Representative Firm I) Which panel shows a representative firm (operating in a perfectly competitive industry) in a long-run equilibrium?

panel b

(Figure: Price and Quantity I) The graph shows a firm's marginal cost curve. This firm operates in a perfectly competitive industry with market demand and supply curves given by Qd = 100 - 8P and QS = -20 + 2P, respectively, where Q is measured in millions of units. Based on the figure, how many units of output will the firm produce at the equilibrium price?

800

A perfectly competitive industry consists of many identical firms, each with a long-run average total cost of LATC = 800 - 10Q + 0.1Q2 and long-run marginal cost of LMC = 800 - 20Q + 0.3Q2. The industry's demand curve is QD = 40,000 - 70P. In long-run equilibrium, the number of firms in the industry is ____.

30

Suppose that a perfectly competitive firm's AVC curve is given by AVC = WQ, and its marginal cost curve is given by MC = 2WQ, where W is the wage rate. Assume W = 20. At a market price of $3,200, the firm will produce a quantity of ____ to maximize profit.

80