Micro final

The pricing in monopoly prevents some mutually beneficial trades. The value of these unrealized mutually beneficial trades is called:

a deadweight loss.

After the first unit sold, the marginal revenue a monopolist receives from selling one more unit of a good is less than the price at which that unit is sold because of:

a downward-sloping demand curve.

An industry with two firms producing is generally called:

a duopoly.

An industry with a single producer that sells a single product with no substitutes is:

a monopoly.

A patent gives a firm:

a temporary monopoly.

Which of the following is most likely to be observed when firms engage mainly in non-price competition?

advertising and product differentiation

If both players in a game have dominant strategies, we say that the game has:

an equilibrium in dominant strategies.

In the game in Scenario 13.2, the equilibrium strategies

are for both firms to offer rebates.

An industry is characterized by increasing returns to scale if:

average total cost falls as output increases.

Suppose Intel and AMD can each charge either $300 or $200 for a CPU (the computing unit of a computer). The above table illustrates the payoffs, in millions of dollars, from each of the four possible outcomes that could occur in their duopoly setting. If Intel charges $200 and AMD charges $300, then Intel's profit will be ________ million and AMD's profit will be ________ million.

$500; $100

Refer to above figure, which represents a duopoly industry. What would be the likely total industry payoff or profit?

$8 million

Which of the following statements concerning monopoly is true?

A monopoly has no rivals.

In a Nash equilibrium

All the alternatives are correct

Which of the following is true about the game in Scenario 13.2?

Both ABC and XYZ offer a rebate as a dominant strategy.

Refer to the above figure. The figure gives the payoff matrix for two individuals who are being accused of robbing a bank together. Which of the following is the outcome with cooperation?

Both don't confess.

Refer to the above payoff matrix for the profits (in $ millions) of two firms (A and B) making a decision to advertise or not. Which of the following is the outcome of the dominant strategy without cooperation?

Both firm A and firm B choose to advertise.

Refer to the above figure. The figure gives the payoff matrix for two individuals who are being accused of robbing a bank together. If Bob confesses, what is the best strategy for Harry?

Confess.

Refer to the above figure. The figure gives the payoff matrix for two individuals who are being accused of robbing a bank together. What is dominant strategy for Bob?

Confess.

Which of the following statements regarding entry barriers is correct?

Entry barriers exist in monopoly and oligopoly markets.

Godrickporter and Star Connections are the only two airport shuttle and limousine rental service companies in the mid-sized town of Godrick Hollow. Each firm must decide on whether to increase its advertising spending to compete for customers. Table 14-1 shows the payoff matrix for this advertising game. Refer to Table 14-1. What is the Nash equilibrium in this game?

Godrickporter increases its advertising budget, but Star Connections does not.

The only two firms in a market are trying to decide what price to charge. The payoff matrix for this duopoly game is shown above. The payoffs are thousands of dollars of economic profit. Which of the following statements is correct?

If the firms cooperate, both could make $55,000 in economic profit.

Suppose OPEC has only two producers, Saudi Arabia and Nigeria. Saudi Arabia has far more oil reserves and is the lower cost producer compared to Nigeria. The payoff matrix in Table 14-3 shows the profits earned per day by each country. "Low output" corresponds to producing the OPEC assigned quota and "high output" corresponds to producing the maximum capacity beyond the assigned quota. Refer to Table 14-3. What is the Nash equilibrium in this game?

In the Nash equilibrium Saudi Arabia produces a low output and earns a profit of $80 million and Nigeria produces a high output and $30 million respectively.

Which of the following is true?

The profit-maximizing solution occurs where MR= MC.

Which of the following statements about monopoly equilibrium and perfectly competitive equilibrium is incorrect?

In the long run, economic profits are driven to zero in both a monopoly and a perfectly competitive market. (CORRECT: Price is greater than marginal cost in monopoly, and price equals marginal cost in perfect competition; When a monopoly exists, the consumer surplus is less than if the market were perfectly competitive; Monopoly output will be less than the output of a comparable perfectly competitive industry)

Refer to Figure c. What is the Nash equilibrium in table above (Figure c)?

Kate squeal, Alice squeal

Refer to the above figure. Ajax and Greenco are oligopolists. Above you are given the payoff matrix for the two firms giving the payoff associated with different pricing strategies. What is the best strategy for Greenco if Ajax decides on charging a low price?

Low price.

Refer to the above figure. Ajax and Greenco are oligopolists. Above you are given the payoff matrix for the two firms giving the payoff associated with different pricing strategies. What is the dominant strategy for Greenco?

Low price.

Which of the following statements about the differences between monopoly and perfect competition is incorrect?

Monopoly profits can continue to exist in the long run because the monopoly produces more and charges a higher price than a comparable perfectly competitive industry. (CORRECT: A monopoly will charge a higher price and produce a smaller quantity than a competitive market with the same demand and cost structure; A monopolist has market power, while a perfect competitor does not; Unlike a perfectly competitive firm, a monopoly can make positive economic profits in the long run)

A ________ occurs if all players in a game play their best strategies given what their competitors do.

Nash equilibrium

Which of the following is true regarding the game in Scenario 13.5?

Neither company has a dominant strategy.

A well-known example of an international cartel is:

OPEC.

Refer to Figure d. In the game described in the figure above, Travis's dominant strategy is

South

Refer to Figure a. What is the Nash equilibrium in the figure above?

There is not one

Suppose OPEC has only two producers, Saudi Arabia and Nigeria. Saudi Arabia has far more oil reserves and is the lower cost producer compared to Nigeria. The payoff matrix in Table 14-3 shows the profits earned per day by each country. "Low output" corresponds to producing the OPEC assigned quota and "high output" corresponds to producing the maximum capacity beyond the assigned quota. Refer to Table 14-3. Is there a dominant strategy for Saudi Arabia and, if so, what is it?

Yes, the dominant strategy is to produce a low output.

Table 14-2 shows the payoff matrix for Wal-Mart and Target from every combination of pricing strategies for the popular PlayStation 3. At the start of the game each firm charges a low price and each earns a profit of $7,000. Refer to Table 14-2. For each firm, is there a better outcome than the current situation in which each firm charges the low price and earns a profit of $7,000?

Yes, the firms can implicitly collude and agree to charge a higher price.

You own a lemonade stand in a competitive lemonade market, and as such, you are a price-taking firm. Which of the following events would most likely increase your market power?

You own exclusive rights to harvest lemons from all domestic citrus orchards.

Which of the following is true for the game in Scenario 13.3?

Zport's dominant strategy is the low-profile tires.

The demand curve for a monopoly is:

above the MR curve.

A monopoly is an industry structure characterized by:

barriers to entry and exit.

In the classic prisoners' dilemma with two accomplices in crime, the Nash equilibrium is for:

both individuals to confess.

Suppose that each of two firms has the independent choice of advertising its product or not advertising. If neither advertises, each gets $10 million in profit; if both advertise, their profits will be $5 million each; and if one advertises while the other does not, the advertiser gets profit of $15 million while the other gets profit of $2 million. According to game theory, the Nash equilibrium is:

both will advertise.

Suppose that each of two firms has the independent choice of advertising its product or not advertising. If neither advertises, each gets $20 million in profit; if both advertise, their profits will be $10 million each; and if one advertises while the other does not, the advertiser gets $25 million profit while the other gets $4 million profit. According to game theory, the likely strategy by the firms is:

both will advertise.

Gary's Gas and Frank's Fuel are the only two providers of gasoline in Smalltown. The large barriers to entry in the Smalltown gas industry explain why Gary and Frank:

can earn an economic profit in the long run.

Suppose a monopoly is producing at the level of output where marginal revenue equals marginal cost. If the monopolist reduces output, it:

can charge a higher price.

If the only two firms in an industry agree to fix the price at a given level, this is an example of:

collusion.

Refer to Table 12.2. Jeri and Tom are arrested for having committed a crime. They are being interrogated individually and need to decide if they should confess or not confess. The police have enough information to put them in jail for 5 years. They also know the pair have committed a more egregious crime but without the help of one of the suspects they will not be able to convict them on this charge. The first number in each cell refers to the number of years of prison time Jeri will receive if she confesses or does not confess and the second number in each cell refers to the number of years of prison time Tom will receive if he confesses or does not confess. The dominant strategy for Jeri is to ________ and the dominant strategy for Tom is to ________.

confess; confess

Refer to Table 14.1. Firm Aʹs optimal strategy is

dependent on what Firm B does.

OPEC is:

described by all of these answer choices. (an international cartel made up of oil-producing countries, the cartel that was responsible for the large increases in crude oil prices in the 1970s, the Organization or Petroleum Exporting Countries)

In the game in Scenario 13.4, the equilibrium outcome:

does not exist.

The demand curve facing a monopolist is:

downward sloping, like the industry demand curve in perfect competition.

A market comprised of only two firms is called a

duopoly.

According to the kinked demand model of oligopolies, oligopolistic firms often choose not to compete much on:

price.

A Nash equilibrium occurs when

each firm is doing the best it can given its opponents' actions.

Suppose that you build a new jumbo jet that can carry five times more passengers than any other competitor. You have high fixed costs due to the quantity of capital used to build the jets. There's decreasing average cost for all levels of demand. In this case, your monopoly would result from which of the following?

economies of scale

Lenoia runs a natural monopoly producing electricity for a small mountain village. The barrier preventing other firms from competing with her is:

economies of scale.

Cartels made up of a large number of firms are unstable because each firm in the cartel:

has a great incentive to cheat.

A natural monopoly is one that:

has increasing returns to scale over the entire relevant range of output.

Because of monopoly, consumers experience ________ than with perfect competition.

higher prices

In order to maximize profits, an airline will offer ________ prices to customers with ________ demand.

higher; inelastic

In the game in Scenario 13.3, the equilibrium outcome:

is for Moto to offer a CD changer and Zport to offer low-profile tires.

For the monopolist, marginal revenue:

is less than price.

In oligopoly, a firm must realize that:

it is in an industry in which another major firm may dominate, and the firm will need to judge its actions accordingly.

In an industry characterized by extensive economies of scale:

large companies are more profitable than small companies.

Price-discriminating firms will impose a price structure that offers customers with a ________ demand a ________ price and offers customers with a(n) ________ demand a ________ price.

less elastic; higher; more elastic; lower

Compared to a perfectly competitive market, a monopolist will produce ________ and charge a ________ price.

less; higher

Price discrimination leads to a ________ price for consumers with a ________ demand.

lower; more elastic

A monopolistically competitive industry is made up of:

many firms producing a differentiated product.

A firm that is a natural monopoly will:

maximize profit by producing where MR = MC.

In contrast with perfect competition, a monopolist:

may have economic profits in the long run.

The city bus system charges lower fares to senior citizens than to other passengers. Assuming that this pricing strategy increases the profits of the bus system, we can conclude that senior citizens must have a ________ for bus service than other passengers.

more elastic demand

Amtrak charges lower fares to students than to its other passengers. This pricing strategy increases Amtrak's profits. From this information, we can conclude that students must have a ________ for Amtrak train service than other passengers.

more price-elastic demand

Suppose that each of two firms has the independent choice of advertising its product or not advertising. If neither advertises, each gets $10 million in profit; if both advertise, their profits will be $5 million each; and if one advertises while the other does not, the advertiser gets profit of $15 million while the other gets profit of $2 million. According to game theory, if the firms could collude to maximize profit:

neither will advertise.

Microsoft and its operating system are often cited as an example of a company that grew into a monopolist through:

network externalities.

Suppose that a monopoly firm is required to pay a new annual license fee just for the privilege of doing business in its city and that the fee is somewhat less than the economic profit the firm is now earning. In response to the increase in fees, the firm will:

not change its price.

An increase in the fixed costs of a monopoly firm would ________ price and ________ quantity in the short run.

not change; not change

Refer to Table 12.2. Jeri and Tom are arrested for having committed a crime. They are being interrogated individually and need to decide if they should confess or not confess. The police have enough information to put them in jail for 5 years. They also know the pair have committed a more egregious crime but without the help of one of the suspects they will not be able to convict them on this charge. The first number in each cell refers to the number of years of prison time Jeri will receive if she takes that action and the second number in each cell refers to the number of years of prison time Tom will receive if he takes that action. If Jeri and Tom can decide jointly then the best strategy is for Jeri to ________ and Tom to ________.

not confess; not confess

Given the large amount of interdependence among them, cooperation with one's competitors is the most profitable strategy for:

oligopolists.

Assume an industry is dominated by a few firms. Each of these firms acknowledges that its own choices affect the choices of its rivals. Each firm also recognizes that its rivals' choices affect the decisions it makes. This industry is an example of a(n):

oligopoly.

In a Nash equilibrium,

players may or may not have dominant strategies.

The prisoner's dilemma shows that

players would be better off if they cooperated.

Price discrimination will occur when a firm can segment its existing and potential customers into different groups based on:

price elasticity of demand.

Microsoft sets prices for their new line of computers and Dell and HP follow. This practice is known as________.

price leadership.

Collusive agreements are typically difficult for cartels to maintain because each firm can increase profits by:

producing more output than the quantity that maximizes joint cartel profits.

A monopolist's marginal cost curve shifts up, but the firm's demand curve remains the same and the firm does not shut down. Compared to the condition before the increase in marginal costs, the monopolist will ________ its price and ________ its level of production.

raise; decrease

A Nash equilibrium is

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

An action is a dominant strategy when it is a player's best action:

regardless of the actions by other players.

Suppose that a profit-maximizing monopoly firm undergoes a substantial technological change that reduces its marginal and average total costs by $40. If in response to its reduction in cost the firm changes its price in a profit-maximizing way, then we can predict that its total economic profit will:

rise.

Oligopoly is a market structure that is characterized by a:

small number of interdependent firms producing identical or differentiated products.

A deadweight loss arises in monopoly because:

some potentially beneficially transactions do not occur.

To calculate the Herfindahl-Hirschman Index (HHI), one must:

sum the squared market shares of all firms in the industry.

An oligopoly may result from:

the existence of increasing returns to scale in the industry.

Suppose a monopoly can separate its customers into two groups. If the monopoly practices price discrimination, it will charge the lower price to the group with:

the higher price elasticity of demand.

The demand curve for a monopoly is:

the industry demand curve.

In comparing monopoly and perfect competition, we see that:

the monopolist will produce a smaller quantity and charge a higher price.

Market structures are categorized by the following two criteria:

the number of firms and whether or not products are differentiated

Network externalities exist when a good's value to the consumer rises as:

the number of people who use the good increases.

In the game in Scenario 13.5,

there are two equilibria: either can expand in the West, and the other expands in the South.

A statement that best reflects an evaluation of monopoly firms is that:

they are economically inefficient.

What is the incentive for a firm to join a cartel?

to be able to earn larger profits than if it was not part of the cartel

Table 14-2 shows the payoff matrix for Wal-Mart and Target from every combination of pricing strategies for the popular PlayStation 3. At the start of the game each firm charges a low price and each earns a profit of $7,000. Refer to Table 14-2. Suppose Wal-Mart and Target both advertise that they will match the lowest price offered by any competitor. What is the purpose of such a strategy?

to signal to each other that they intend to charge the high price