ECON 2201 Chapter 10-14

Scenario 13.7: Consider the game below about funding and construction of a dam to protect a 1,000-person town. Contributions to the Dam Fund, once made, cannot be recovered, and all citizens must contribute $1,000 to the dam in order for it to be built. The dam, if built, is worth $70,000 to each citizen. (pic on def side) Refer to the game in Scenario 13.7. If each player chose a maximin strategy, the outcome would be -$1000, $0. $69,000, $69,000. $0, $0. $0, -$1000. a mixed strategy equilibrium.

$0, $0.

Suppose the local market for legal services has an upward sloping supply curve, PL = 150 + 0.0001QL where PL is the price of legal services and QL is the number of hours of legal services. If the equilibrium price of legal services is $250 per hour and the average number of hours that a lawyer works per year is 2,500, what is the average economic rent earned per lawyer in this market? $20,000 $10,000 $1,000,000 $50,000

$20,000

Scenario 12.3: Suppose a stream is discovered whose water has remarkable healing powers. You decide to bottle the liquid and sell it. The market demand curve is linear and is given as follows: P = 30 - Q The marginal cost to produce this new drink is $3. Refer to Scenario 12.3. What price would this new drink sell for if it sold in a competitive market? 0 $13.50 $3 $16.50 $27

$3

A monopolist has set her level of output to maximize profit. The firm's marginal revenue is $20, and the price elasticity of demand is -2.0. The firm's profit maximizing price is approximately: $20 $0 $40 $10 This problem cannot be answered without knowing the marginal cost.

$40

Scenario 10.2: A monopolist faces the following demand curve, marginal revenue curve, total cost curve and marginal cost curve for its product: Q = 200 - 2P MR = 100 - Q TC = 5Q MC = 5 Refer to Scenario 10.2. What is the profit maximizing price? $10.00 $52.50 $95.00 $5.00

$52.50

Your local grocery store offers a coupon that reduces the price of milk during the coming week. The regular retail price of milk in the store is $3.00 per gallon, and the coupon price is $2.00 per gallon for the next week. If the store maximizes profits and the price elasticity of demand for milk is -2 for coupon users, what is the price elasticity of demand for non-users? -1.5 -1.0 -0.67 We do not have enough information to answer the question.

-1.5

One Guy's Pizza advertising expenditures are $1,200 and sales are $30,000. When the advertising expenditure increases to $1,400, pizza sales increase to $32,000. The arc advertising elasticity of demand is approximately ________. 2.5 0.1 0 12.5 0.4

0.4

DVDs can be produced at a constant marginal cost of $10 per disk, and Roaring Lion Studios is releasing the DVDs for its last two major films. The DVD for Rambeau 17 is priced at $20 per disk, and the DVD for Schreck 10 is priced at $30 per disk. What are the Lerner indices for these two movies? 2 and 3, respectively 0.5 and 0.67, respectively 1 and 2, respectively Both equal one.

0.5 and 0.67, respectively

Scenario 10.3: The demand curve and marginal revenue curve for red herrings are given as follows: Q = 250 - 5P MR = 50 - 0.4Q Refer to Scenario 10.3. What level of output maximizes revenue? 45 0 85 125 245

125

Scenario 12.2: You are studying a market for which the kinked demand curve model applies. The kinked demand curve is as follows: Q = 1200 - 5P for 0 Q < 150 Q = 360 - P for 150 Q The marginal cost is given as: MC = Q Refer to Scenario 12.2. Suppose that the marginal cost falls such that: MC = Q - 10 What is the profit maximizing level of output? 120 171.43 150 all of the above none of the above

150

Scenario 12.2: You are studying a market for which the kinked demand curve model applies. The kinked demand curve is as follows: Q = 1200 - 5P for 0 Q < 150 Q = 360 - P for 150 Q The marginal cost is given as: MC = Q Refer to Scenario 12.2. Suppose that the marginal cost increases such that: MC = Q + 10 What is the profit maximizing price? 210 205.72 240 all of the above none of the above

210

Scenario 14.1: You are the manager of a firm producing green chalk. The marginal product of labor is: MPL = 24L-1/2 Suppose that the firm is a competitor in the green chalk market. The price of green chalk is $1 per unit. Further suppose that the firm is a competitor in the labor market. The wage rate is $12.00 per hour. Given the information in Scenario 14.1, what is the marginal revenue product of labor? 12L^-1/2 24L^-1/2 0.5L^-1/2 2L^-1/2

24L^-1/2

Scenario 10.5: A firm produces garden hoses in California and in Ohio. The marginal cost of producing garden hoses in the two states and the marginal revenue from producing garden hoses are given in the following table: California Ohio Qc MCc Qo MCo Qc + o MR 1 2 1 3 1 24 2 3 2 4 2 20 3 5 3 6 3 16 4 9 4 8 4 12 5 16 5 12 5 8 6 24 6 17 6 4 Refer to Scenario 10.5. How many garden hoses should be produced in California in order to maximize profits? 3 2 4 1 5

3

Scenario 10.8: Adriana is a monopolist producing green calculators. The average and marginal cost curves and average and marginal revenue curves for her product are given as follows: AC = Q + (10,000/Q) MC = 2Q AR = 30 - (Q/2) MR = 30 - Q Refer to Scenario 10.8. The deadweight loss from monopoly is ________. 5 10 25 0 none of the above

5

Suppose that a tax of $2 per unit of output is imposed on red rubber ball producers. What level of output maximizes profit? 5 4.5 3 -1 B, C, and D are correct.

5

Johnny's Shop-and-Pay is a regional grocery chain, and their marketing manager is trying to determine the profit-maximizing coupon program for the store's laundry detergent brand. Coupon users at the store have an elasticity of demand for this product that equals -3, and the elasticity of demand for non-users of the coupon for the store brand equals -1.5. If the full retail (undiscounted) price of the detergent is $10 per box, what is the optimal discount to provide for coupon users? 50% off 75% off The optimal strategy is to charge the same price to both groups 25% off

50% off

Scenario 10.7: The marginal revenue of green ink pads is given as follows: MR = 2500 - 5Q The marginal cost of green ink pads is 5Q. Refer to Scenario 10.7. How many ink pads will be produced to maximize revenue? 500 300 250 0 none of the above

500

Scenario 10.2: A monopolist faces the following demand curve, marginal revenue curve, total cost curve and marginal cost curve for its product: Q = 200 - 2P MR = 100 - Q TC = 5Q MC = 5 Refer to Scenario 10.2. What is the profit maximizing level of output? 0 95 100 90 none of the above

95

Which of the following is true for a competitive buyer? AE = ME AE < ME AE > ME AE greater than or equal to ME

AE = ME

Consider the Matching Pennies game: (pic on def slide) Suppose Player A always uses a pure strategy that selects heads. What is Player B's optimal response to this pure strategy? Mixed strategy with probability 1/2 on heads and 1/2 on tails Always select tails. Always select heads. There is no optimal pure or mixed strategy for this situation.

Always select tails.

A monopolistically competitive firm in short-run equilibrium: will make positive profit. will make negative profit (lose money). will make zero profit (break-even) Any of the above are possible.

Any of the above are possible.

Which oligopoly model(s) have the same results as the competitive model? Stackelberg Cournot Bertrand Both Cournot and Stackelberg

Bertrand

In the ________, two duopolists compete by simultaneously selecting price. Cournot model kinked-demand model Nash model Bertrand model none of the above

Bertrand model

Scenario 13.2: Consider the following game: (pic on def side) Which of the following is true about the game in Scenario 13.2? XYZ's dominant strategy is to offer a rebate. ABC's dominant strategy is not offer a rebate. XYZ's dominant strategy is not offer a rebate. ABC's dominant strategy is to offer a rebate. Both ABC and XYZ offer a rebate as a dominant strategy.

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

Consider the following output-choice game for two firms: (picture on def slide) What is the outcome of the game if both firms use maximin strategies? There are two possible maximin outcomes --- Firm 1 chooses medium and Firm 2 chooses low, or Firm 1 chooses low and Firm 2 chooses medium. There is no clear outcome under a maximin strategy for both firms. Both firms choose low output levels. Both firms choose medium output levels.

Both firms choose low output levels.

Albatross Software has two main products: WindSong is a program that can be used to edit audio files and SunBurst is a program that can be used to edit digital photos. The two major types of customers are small businesses and home users. The small business customers have a reservation price of $300 for WindSong and $450 for SunBurst. The home users have a reservation price of $100 for WindSong and $125 for SunBurst. Which of the following statements is true? Bundling the two software products is not likely to be profitable because the consumer demands are homogeneous. Bundling the two software products is not likely to be profitable because the marginal cost of producing software is positive by very small. Bundling the two software products is likely to be profitable because the demands are negatively correlated. Bundling the two software products is not likely to be profitable because the demands are positively correlated.

Bundling the two software products is not likely to be profitable because the demands are positively correlated.

Which of the following is NOT a factor that has contributed to declining private-sector differential between union and nonunion wages in the U.S. since 1980? Declines in the unemployment and health insurance premiums paid by union workers Globalization of the production process Improved ability of firms to substitute capital for labor in production Adoption of two-tiered wage and benefit structures by unionized firms

Declines in the unemployment and health insurance premiums paid by union workers

Suppose the supply of non-OPEC oil increases due to new petroleum discoveries in other countries. What happens to the price of oil on the world market? Decreases Remains the same Increases We do not have enough information to answer this question.

Decreases

The authors note that advertising can make the consumer demand for a product more elastic (price responsive) by expanding the potential range of consumers. As this change in demand occurs (ceteris paribus), what happens to the optimal advertising-sales ratio? Decreases Increases Remains the same We do not have enough information to answer this question

Decreases

BioMed Pharmaceutical has held a patent on an important heart medication called Heartex, but the patent will expire in the coming year. After the patent expires, other firms can legally sell the same medication as a generic drug product. What will happens to the demand for Heartex and to the Lerner index for this product as the generic drugs enter the market? Demand becomes more elastic, Lerner index declines Demand becomes more elastic, Lerner index increases Demand becomes less elastic, Lerner index declines Demand becomes less elastic, Lerner index increases

Demand becomes more elastic, Lerner index declines

Why does cooperative behavior break down in games with finite endpoints? Finite games have the same outcomes as one-period games, and cooperation is not possible in one-period games. Each player has an incentive to deviate from a cooperative strategy during the last period. A Nash equilibrium is only possible in mixed strategies in finite repeated games, but all of the probabilities assigned to particular strategies approach zero as the number of finite game periods becomes large. Thus, we cannot evaluate the expected payoffs in these games. A Nash equilibrium in pure strategies is not possible in finite repeated games.

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

Suppose a labor market has perfectly inelastic supply that is composed of union and non-union workers, and both groups of workers initially earn the perfectly competitive wage. What happens to the equilibrium employment level and wage for non-union workers if the union exercises its bargaining power? Employment increases and wage declines. Both increase. Both decline. Wage increases and employment declines.

Employment increases and wage declines.

Consider the following game in which two firms decide how much of a homogeneous good to produce. The annual profit payoffs for each firm are stated in the cell of the game matrix, and Firm A's payoffs appear first in the payoff pairs: (picture on definition slide) What are the dominant strategies in this game? Firm B's dominant strategy is to produce low levels of output, but Firm A does not have a dominant strategy. Both firms produce high levels of output Firm A's dominant strategy is to produce low levels of output, but Firm B does not have a dominant strategy. Both firms produce low levels of output Neither firm has a dominant strategy

Firm A's dominant strategy is to produce low levels of output, but Firm B does not have a dominant strategy.

Use the following statements to answer this question: I. Under profit maximization, the quantity of labor used in production is optimal if MR = w/MPL. II. The expression MR = w/MPL implies that the revenue earned from the last unit of output produced equals the marginal cost of the last unit of output. II is true and I is false. I and II are true. I is true and II is false. I and II are false.

I and II are true.

I. To maximize profit, a firm will increase its advertising expenditures until the last dollar of advertising generates an additional dollar of revenue. II. The full marginal cost of advertising is the sum of the dollar spent directly on advertising and the marginal production cost that results form the increased sales that advertising brings about. Both I and II are true. Both I and II are false. I is true, and II is false. I is false, and II is true.

I is false, and II is true.

Use the following two statements about monopolistic competition to answer this question. I. In the long run, the price of the good will equal the minimum of the average cost. II. In the short run, firms may earn a profit. I and II are true. I is false, and II is true. I and II are false. I is true, and II is false.

I is false, and II is true.

Use the following statements to answer this question: I. If mixed strategies are allowed, every game has at least one Nash equilibrium. II. The maximin strategy is optimal in the game of "matching pennies." I is true, and II is false. Both I and II are true. I is false, and II is true. Both I and II are false.

I is true, and II is false.

Use the following two statements to answer this question: I. For a monopolist, at every output level, average revenue is equal to price. II. For a monopolist, at every output level, marginal revenue is equal to price. I is true, and II is false. Both I and II are false. Both I and II are true. I is false, and II is true. Statements I and II could either be true or false depending upon demand.

I is true, and II is false.

Use the following statements to answer the question: I. Consider the problem of negotiating the price of a rug that costs $100 to make. If there are two buyers (one with a maximum willingness-to-pay of $200 and one with a maximum willingness-to-pay of $250), then the situation is no longer a constant sum game. II. The likely outcome from the game described in statement I is that the second buyer will bid a price slightly above $200 (e.g., $201) to win the rug. I and II are true. II is true and I is false. I is true and II is false. I and II are false.

II is true and I is false.

A consumer's original utility maximizing combination of income and leisure is shown in the diagram above as point A. After a wage decrease, the consumer's utility maximizing combination changes to point C. (pic on def side) Refer to Figure 14.2. The substitution effect of the wage decrease on the amount of hours of leisure is: L2 to L0. L0 to L1. L1 to L2. L1 to L0. none of the above

L1 to L2.

La Tortilla is the only producer of tortillas in Santa Teresa. The firm produces 10,000 tortillas each day and has the capacity to increase production to 100,000 tortillas each day. La Tortilla has made a large profit for years, but no other firm has chosen to compete in the Santa Teresa tortilla market. La Tortilla has been able to deter entry because if other firms were to enter the market it would greatly step-up production and reduce price. La Tortilla behaves like a Stackelberg firm. La Tortilla's behavior is inconsistent with economic theory. La Tortilla has been successful because of its credible threat. La Tortilla must have other barriers to entry to protect its monopoly power.

La Tortilla has been successful because of its credible threat.

DVDs can be produced at a constant marginal cost, and Roaring Lion Studios is releasing the DVDs for its last two major films. The DVD for Rambeau 17 is priced at $20 per disk, and the DVD for Schreck 10 is priced at $30 per disk. If the Lerner indices for Rambeau 17 divided by the Lerner index for Schreck 10 equals 0.5, what is the constant marginal cost of producing both DVDs? MC = $5 MC = $20 MC = $10 MC = $15

MC = $15

In the competitive output market for good Q, the marginal revenue product for an input X can be expressed as MPX*PQ APX MRQ. MPQ MRX. MPX / TRQ.

MPX*PQ

Suppose a government sets theprice for a natural monopoly at the competitive level such that P = MC. To keep the seller from taking a loss under this policy, the government could provide a lump-sum payment to the firm. How could we determine this payment? Multiply the competitive quantity by the regulated price Multiply the difference in the competitive and monopoly quantities by AC Multiply the competitive quantity by the difference between MC and AC Multiply the competitive quantity by the competitive marginal cost

Multiply the competitive quantity by the difference between MC and AC

Suppose the federal government allows labor unions to act as the sole seller in labor markets, but the government collects an annual $10,000,000 "administrative fee" from each union in this situation. Assuming this fee is not so large that it forces the unions to disband, what is the impact of this fee on the equilibrium wage and employment level in the monopolized labor market? Wages increase and employment declines. Employment increases and wages decline. Wages and employment decline. No change in wages or employment levels.

No change in wages or employment levels.

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? Yes, each firm can contribute zero to 100 percent of the advertising budget, so this is a 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. No, the firms are independent, so their interaction cannot be cooperative. Yes, all negotiated outcomes between two firms are cooperative and constant-sum situations.

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

Suppose the market demand curve for a Bertrand duopoly is downward sloping. What happens to the Nash equilibrium price and market quantity if the constant marginal cost declines? Price and quantity decline Price decreases and quantity increases Price and quantity increase Price increases and quantity declines

Price decreases and quantity increases

Scenario 13.14 Consider the game below: (picture on definition slide) When, in the game in Scenario 13.14, the strategy that would not be chosen under any circumstances is removed, what is left is a Prisoners' Dilemma game. constant-sum game. Beach Location game. Matching Pennies game. Battle of the Sexes game.

Prisoners' Dilemma game.

In a Cournot duopoly, we find that Firm 1's reaction function is Q1 = 50 - 0.5Q2, and Firm 2's reaction function is Q2 = 75 - 0.75Q1. What is the Cournot equilibrium outcome in this market? Q1 = 60 and Q2 = 60 Q1 = 20 and Q2 = 60 Q1 = 20 and Q2 = 20 Q1 = 60 and Q2 = 20

Q1 = 20 and Q2 = 60

The authors cited statistical evidence that the price elasticity of demand for Royal Crown cola is -2.4, and the price elasticity of demand for Coke is roughly -5.5. Which firm likely has stronger brand loyalty among customers that provides greater potential for monopoly power in the cola market? Royal Crown Coke Both firms should have identical monopoly power We do not have enough information to answer this question.

Royal Crown

Suppose the upward sloping labor supply curve shifts leftward in a labor market with a single employer (monopsony). What happens to the marginal expenditure curve? Shifts right Remains the same Shifts left We do not have enough information to answer this question.

Shifts left

Suppose that the marginal cost of an additional ton of steel produced by a Japanese firm is the same whether the steel is set aside for domestic use or exported abroad. If the price elasticity of demand for steel is greater abroad than it is in Japan, which of the following will be correct? The Japanese firm will sell steel at a higher price abroad than they will charge domestic users. The Japanese firm will sell steel at a lower price abroad than they will charge domestic users. Insufficient information exists to determine whether the price or quantity will be higher or lower abroad. The Japanese firm will sell more steel abroad than they will sell in Japan. The Japanese firm will sell more steel in Japan than they will sell abroad.

The Japanese firm will sell steel at a lower price abroad than they will charge domestic users.

Suppose that the marginal cost of an additional ton of steel produced by a Japanese firm is the same whether the steel is set aside for domestic use or exported abroad. If the price elasticity of demand for steel is greater abroad than it is in Japan, which of the following will be correct? The Japanese firm will sell steel at a lower price abroad than they will charge domestic users. Insufficient information exists to determine whether the price or quantity will be higher or lower abroad. The Japanese firm will sell more steel abroad than they will sell in Japan. The Japanese firm will sell more steel in Japan than they will sell abroad. The Japanese firm will sell steel at a higher price abroad than they will charge domestic users.

The Japanese firm will sell steel at a lower price abroad than they will charge domestic users.

Which is true of output-choice models of oligopoly behavior? Both the Stackelberg and Cournot models can be constructed as sequential games. The Stackelberg, but not the Cournot, model can be constructed as a sequential game. The Cournot, but not the Stackelberg, model can be constructed as a sequential game. There is no relationship between any output-choice model and sequential games. Neither the Cournot nor the Stackelberg model can be constructed as a sequential game, but other output-choice models can be.

The Stackelberg, but not the Cournot, model can be constructed as a sequential game.

Which of the following is true in the Stackelberg model? The first firm produces more than its rival. Both firms produce the same quantity. Both firms have a reaction curve. The first firm produces less than its rival.

The first firm produces more than its rival.

A firm has two customers with non-identical demands and a constant marginal cost of production. At any positive price, the consumer surplus values for the two customers are related as CS2 ≥ CS1 . What can we say about the optimal two-part tariff for the firm? The firm sets the price equal to MC and the optimal tariff is equal to CS2. The firm sets the price equal to MC and the optimal tariff is equal to CS1. The optimal price is greater than MC and the optimal tariff is equal to CS1. The firm sets the price equal to MC and the optimal tariff is equal to zero.

The optimal price is greater than MC and the optimal tariff is equal to CS1.

What is true about dominant strategies in the game in Scenario 13.10? (pic on def slide) "Make animal-shaped bottles" and "create a diet soda" are dominant strategies. "Use more caffeine" and "create a diet soda" are dominant strategies. "Make animal-shaped bottles" and "have a sweepstakes" are dominant strategies. "Use more caffeine" and "have a sweepstakes" are dominant strategies. There are no dominant strategies.

There are no dominant strategies.

The two largest auto manufacturers, Toyota and GM, have experimented with hydrogen powered cars in the past, and they are currently considering the decision to introduce a hydrogen powered car into the commercial automobile market. The payoffs from the possible actions are measured in millions of dollars per year, and the possible outcomes are summarized in the following game matrix: (pic on def side) If both firms enter the market simultaneously, what is the Nash equilibrium? Toyota produces and GM does not produce. There are two Nash equilibria - GM produces and Toyota does not produce, or Toyota produces and GM does not produce. There is no Nash equilibrium in this game. GM produces and Toyota does not produce.

There are two Nash equilibria - GM produces and Toyota does not produce, or Toyota produces and GM does not produce.

Consider the following payoff matrix for a game in which two firms attempt to collude under the Bertrand (table on answer) Here, the possible options are to retain the collusive price (collude) or to lower the price in attempt to increase the firm's market share (cut). The payoffs are stated in terms of millions of dollars of profits earned per year. What is the Nash equilibrium for this game? Both firms collude. There are no Nash equilibria in this game. There are two Nash equilibria: A cuts and B colludes, and A colludes and B cuts. Both firms cut prices.

There are two Nash equilibria: A cuts and B colludes, and A colludes and B cuts.

The two largest auto manufacturers, Toyota and GM, have experimented with hydrogen powered cars in the past, and they are currently considering the decision to introduce a hydrogen powered car into the commercial automobile market. The payoffs from the possible actions are measured in millions of dollars per year, and the possible outcomes are summarized in the following game matrix: (pic on def side) Suppose the Japanese government provides a $15 million subsidy to Toyota if the company delivers a hydrogen powered auto (regardless of GM's action). What is the Nash equilibrium based on the subsidized payoffs? Toyota's dominant strategy is to produce, and GM is deterred and does not produce. The outcome of the game is the same as before, and there are two Nash equilibria - GM produces and Toyota does not produce, or Toyota produces and GM does not produce. Toyota's dominant strategy is to produce, and GM also produces the electric auto. There is no Nash equilibrium in this game.

Toyota's dominant strategy is to produce, and GM is deterred and does not produce.

Suppose a labor market has perfectly inelastic supply that is composed of union and non-union workers, and both groups of workers initially earn the perfectly competitive wage. What happens to the equilibrium employment level and wage for union workers if the union exercises its bargaining power? Employment increases and wage declines. Both decline. Both increase. Wage increases and employment declines.

Wage increases and employment declines.

Suppose the upward sloping labor supply curve shifts leftward in a labor market with a single employer (monopsony). What happens to the equilibrium wage and level of employment in the market? Wage increases and level of employment declines. Wage and level of employment increase. Wage decreases and level of employment increases. Wage and level of employment decline.

Wage increases and level of employment declines.

In some remote communities, there was only one employer in the local labor market several years ago, but the number of firms that hired workers in the market increased over time. What is the expected change in the local labor market as the number of employers increased (ceteris paribus)? Wages and employment increase Wages increase but employment remains the same Wages remain the same but employment increases Wages and employment decline

Wages and employment increase

In the Bertrand model with homogeneous products, the Nash equilibrium is the competitive outcome. both firms set price equal to marginal cost. the firm that sets the lower price will capture all of the market. all of the above the outcome is inconclusive.

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

You produce stereo components for sale in two markets, foreign and domestic, and the two groups of consumers cannot trade with one another. If your firm practices third-degree price discrimination to maximize profits, the marginal revenue in the domestic market will equal the marginal revenue in the domestic market. in the foreign market will equal the marginal cost. in the domestic market will equal the marginal cost. all of the above none of the above

all of the above in the domestic market will equal the marginal revenue in the domestic market. in the foreign market will equal the marginal cost. in the domestic market will equal the marginal cost.

An increase in technology that enhances labor productivity will likely result in: a decrease in labor employment and a decrease in the wage rate. employers using less labor and more capital while the wage effect is unknown. a decrease in labor employment and an increase in the wage rate. an increase in labor employment and an increase in the wage rate. an increase in labor employment and a decrease in the wage rate.

an increase in labor employment and an increase in the wage rate

In the dominant firm model, the fringe firms maximize profit by equating average revenue and average cost. are price takers. determine their price and output before the dominant firm determines its price and output. all of the above none of the above

are price takers.

Suppose the labor market is perfectly competitive, but the output market is not. When the labor market is in equilibrium, the wage rate will: be greater than price times the marginal product of labor. equal price times the marginal product of labor. be less than price times the marginal product of labor. None of the above is necessarily correct.

be less than price times the marginal product of labor.

Scenario 13.17 Consider the entry-deterrence game below. The potential entrant would have to spend some amount in sunk costs to enter the market. (pic on def side) If the game in Scenario 13.17 were to be infinitely repeated, waging a price war might be a rational strategy if the monopolist had excess capacity. because the short-term losses might be outweighed by long-term gains from preventing entry. if the potential entrant were irrational. because there would be no short-term losses. if there were no sunk costs to the potential entrant.

because the short-term losses might be outweighed by long-term gains from preventing entry.

Bundling products makes sense for the seller when firms cannot price discriminate. the products are complementary in nature. consumers have heterogeneous demands. both A and C.

both A and C. firms cannot price discriminate. consumers have heterogeneous demands.

A local restaurant sells strawberry pie for $3.00 per slice. However, if you order the prime rib dinner, you can get a slice of pie for only a dollar. This is an example of second-degree price discrimination. tying. a two-part tariff. bundling. none of the above

bundling.

A firm purchases a factor of production in a competitive market. At the current purchase rate the MRP of the factor is greater than the marginal expenditure for the factor. Thus, the firm can increase profit by expanding the employment of the factor of production. can increase profit by reducing the employment of the factor of production. is now maximizing profit. should not use this factor of production because it has no potential in generating a profit.

can increase profit by expanding the employment of the factor of production.

Third-degree price discrimination involves charging each consumer the same two part tariff. the use of increasing block rate pricing. charging lower prices the greater the quantity purchased. charging different prices to different groups based upon differences in elasticity of demand.

charging different prices to different groups based upon differences in elasticity of demand.

Under what circumstances are the marginal expenditure for an input and the average expenditure always equal? Where there is a competitive seller. competitive buyer. monopoly seller. monopoly buyer.

competitive buyer.

A firm setting a two-part tariff with only one customer should set the entry fee equal to marginal revenue. marginal cost. price. consumer surplus.

consumer surplus.

A Nash equilibrium occurs when there is no dominant firm in a market. a player can choose a strategy that is optimal regardless of its rivals' actions. each firm chooses the strategy that maximizes its minimum gain. each firm is doing the best it can given its opponents' actions.

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

For a perfect first-degree price discriminator, incremental revenue is greater than price if the demand curve is downward sloping. the same as the marginal revenue curve if the firm is a non-discriminating monopolist. equal to the price paid for each unit of output. less than the marginal revenue for a non-discriminating monopolist.

equal to the price paid for each unit of output.

Under perfect price discrimination, consumer surplus is greater than zero. is less than zero. equals zero. is maximized.

equals zero.

Monopolistically competitive firms have monopoly power because they face downward sloping demand curves. are great in number. are free to advertise. have freedom of entry.

face downward sloping demand curves.

A third-degree price discriminating monopolist can sell its output either in the local market or on an internet auction site (or both). After selling all of its output, the firm discovers that the marginal revenue earned in the local market was $20 while its marginal revenue on the internet auction site was $30. To maximize profits the firm should have sold more output in the local market and less at the internet auction site. sell more in both markets until marginal cost is zero. sell less in both markets until marginal revenue is zero. have sold less output in the local market and more on the internet auction site. do nothing until it acquires more information on costs.

have sold less output in the local market and more on the internet auction site.

If the fringe supply curve shifts leftward in the dominant firm model, then the resulting market equilibrium price is ________ and the dominant firm's quantity ________. higher, decreases higher, increases lower, increases lower, decreases

higher, increases

If all producers in a market are cartel members, then the demand curve facing the cartel is horizontal. the market demand curve. identical to the demand curve in the dominant firm model. identical to the monopolist's demand curve.

identical to the monopolist's demand curve.

Under an upward sloping supply curve for land, the economic rents to land ________ as the demand for land shifts rightward. increase decrease remain the same We do not have enough information to answer this question.

increase

The substitution effect of a decrease in the wage will: increase leisure only if leisure is a normal good. decrease leisure only if leisure is a normal good. decrease leisure, regardless of whether leisure is a normal or inferior good. increase leisure, regardless of whether leisure is a normal or inferior good.

increase leisure, regardless of whether leisure is a normal or inferior good.

If leisure is a normal good, then the income effect of a decrease in wage will increase the number of hours worked. decrease the number of hours worked. decrease the number of leisure hours. increase the sum of leisure plus hours worked.

increase the number of hours worked.

Bridge Coal Company is the only employer in a remote and mountainous region of the country, so the firm is the monopsony buyer of labor in the market. If the price of coal increases, then the firm's quantity of labor demanded ________ and the equilibrium wage ________. decreases, decreases increases, decreases decreases, increases increases, increases

increases, increases

If a monopolist's profits were taxed away and redistributed to its consumers, efficiency would be obtained because output would be increased and profits removed. inefficiency would remain, but not because output would be lower than under competitive conditions. efficiency would be obtained because output would be increased to the competitive level. inefficiency would remain because output would be lower than under competitive conditions.

inefficiency would remain because output would be lower than under competitive conditions.

For a monopsony buyer of an input, the marginal expenditure curve is identical to the average expenditure curve. lies below the input demand curve. lies below the average expenditure curve. lies above the average expenditure curve.

lies above the average expenditure curve.

If the factor supply curve facing a monopolist is the market supply curve, and if the market supply curve is an upward sloping straight line, the marginal expenditure curve lies above the market supply curve. lies below the market supply curve. crosses the market supply curve at the market wage rate. is the market supply curve. either A or B is possible.

lies above the market supply curve.

A maximin strategy: maximizes the gain of one player, but minimizes the gain of the opponent. maximizes the minimum gain that can be earned. minimizes the maximum gain that can be earned. involves a random choice between two strategies, one which maximizes potential gain and one which minimizes potential loss

maximizes the minimum gain that can be earned.

The Prisoners' Dilemma is a particular type of game in which negotiation and enforcement of binding contracts is not possible, and such games are known as: collusive games. Cournot games. noncooperative games. cooperative games.

noncooperative games.

In the ________, one firm sets its output first, and then a second firm, after observing the first firm's output, makes its output decision. kinked-demand model Bertrand model Cournot model model of monopolistic competition none of the above

none of the above

In the ________, one firm sets its output first, and then a second firm, after observing the first firm's output, makes its output decision. model of monopolistic competition Cournot model kinked-demand model Bertrand model none of the above

none of the above

The kinked demand curve model is based on the assumption that each firm considers its rival's output to be fixed. believes rivals will never match price changes. believes rivals will match all price changes. considers its rival's price to be fixed. none of the above

none of the above

The monopoly supply curve is the result of market power and production costs. portion of marginal costs curve where marginal costs exceed the minimum value of average variable costs. same as the competitive market supply curve. none of the above

none of the above

Suppose a firm produces identical goods for two separate markets and practices third-degree price discrimination. In the first market the firm charges $30 per unit, and it charges $22 per unit in the second market. Which of the following represents the ratio of price elasticities of demand in the two markets? E2 = E1 E2 = (22/30)E1 E2 = (29/21)E1 E2 = (21/29)E1 none of these

none of these

Playing the game in Scenario 13.12 by using a maximin strategy would (pic on def slide) change the equilibrium to (R1,C2). change the equilibrium to (R2,C2). change the equilibrium to (R2,C1) if C moved first. change the equilibrium to (R2,C1) if R moved first. not change the equilibrium from the equilibrium of the original game.

not change the equilibrium from the equilibrium of the original game.

In a two-person bargaining situation it is: often in the best interest of players to cut off some of their own options in order to make their own threats credible. always in the best interests of both players for each player to be as flexible as possible, and to have as many options as possible. often in the best interest of players to pretend a game is noncooperative when it is not, and vice versa. always in the best interest of the player that moves first to be as flexible as possible, and to have as many options as possible. often in the best interest of players to cut off some of their own options in order to make the other player's threats not credible.

often in the best interest of players to cut off some of their own options in order to make their own threats credible.

If the Battle of the Sexes game were played sequentially, the two pure strategy equilibria would alternate in being the equilibrium seen in each round of the game. only the mixed strategy equilibrium would exist. only the dominant strategy equilibrium would exist. one of the two pure strategy equilibria would become the only equilibrium. the equilibrium would not change.

one of the two pure strategy equilibria would become the only equilibrium.

A firm has two customers and creates a two-part tariff with a usage fee (P) that exceeds the marginal cost of production and leaves each customer with positive consumer surplus such that CS2 > CS1 > 0. If the firm sets the entry fee equal to CS2, then the number of customers that actually buy the product is equal to: one. two. zero. We don't have enough information to answer this question.

one.

Large manufacturing firms that buy many different parts or components (e.g., auto manufacturers) can choose which parts to buy from other firms and which parts to make in their own factories. These manufacturers may be able to use monopsony power to reduce the price paid to outside suppliers for parts that are: bought and sold in perfectly competitive markets. standard components for many manufacturers so that there are many buyers and sellers. only used in their cars so that there is one buyer and a few sellers. none of the above

only used in their cars so that there is one buyer and a few sellers.

In the kinked demand curve model, if one firm reduces its price other firms will compete on a non-price basis. other firms will raise their price. other firms will also reduce their price. Both A and B are correct. Both B and C are correct.

other firms will also reduce their price.

When a drug company develops a new drug it is granted a ________ making it illegal for other firms to enter the market until the ________ expires. patent; patent franchise; franchise copyright; copyright government license; government license

patent; patent

A local theater charges $5.00 for every matinee (daytime) ticket, but the ticket prices are much higher during the evening. This is an example of a two-part tariff. bundling. peak-load pricing. second-degree price discrimination. none of the above

peak-load pricing.

If a monopolist sets her output such that marginal revenue, marginal cost and average total cost are equal, economic profit must be: negative. zero. positive. indeterminate from the given information.

positive.

Scenario 10.4: he demand for tickets to the Katy Perry concert (Q) is given as follows: Q = 120,000 - 2,000P The marginal revenue is given as: MR = 60 - .001Q The stadium at which the concert is planned holds 60,000 people. The marginal cost of each additional concert goer is essentially zero up to 60,000 fans, but becomes infinite beyond that point. A multiplant monopolist can produce her output in either of two plants. Having sold all of her output she discovers that the marginal cost in plant 1 is $30 while the marginal cost in plant 2 is $20. To maximize profits the firm will shut down plant 1 and only produce at plant 2 in the future. produce less in both plants until marginal revenue is zero. produce more output in plant 1 and less in the plant 2. do nothing until it acquires more information on revenues. produce less output in plant 1 and more in plant 2.

produce less output in plant 1 and more in plant 2.

A ________ shows how much a firm will produce as a function of how much it thinks its competitors will produce. demand curve Nash equilibrium curve contract curve reaction curve none of the above

reaction curve

Discrimination based upon the quantity consumed is referred to as ________ price discrimination. second-degree group third-degree first-degree

second-degree

Many cellular phone rate plans are structured as a combination of ________ price discrimination. first-degree and third-degree first-degree and second-degree second-degree and third-degree peak-load pricing and third-degree

second-degree and third-degree

A strategy A is "dominant" for a player X if: strategy A is the best response to the best strategy of the other player. irrespective of any of the possible strategies chosen by the other players, strategy A generates a higher payoff than any other strategy available to player X. every outcome under strategy A generates positive payoffs. strategy A is the best response to every strategy of the other player. strategy A contains among its outcomes the highest possible payoff in the game.

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

A "mixed strategy" equilibrium means that one player has a dominant strategy, and one does not. the equilibrium strategy involves alternating between a dominant strategy and a Nash strategy. one player has a pure strategy, and one does not. the strategies chosen by the players represent different behaviors. the equilibrium strategy is an assignment of probabilities to pure strategies.

the equilibrium strategy is an assignment of probabilities to pure strategies.

If an individual's labor supply curve is backward bending, then" the substitution effect associated with a higher wage encourages more leisure. the income effect associated with a higher wage is greater than the substitution effect. the substitution effect associated with a higher wage is greater than the income effect. A and C B and C

the income effect associated with a higher wage is greater than the substitution effect.

The more elastic the demand facing a firm, the less monopoly power it has. the higher its profit. the higher the value of the Lerner index. the lower the value of the Lerner index.

the lower the value of the Lerner index.

Scenario 13.13 Consider the game below: (pic on def side) If the game in Scenario 13.13 were not played sequentially, the only equilibria would be (R2,C1) and (R1,C2). there would not be any equilibrium. the only equilibria would be (R2,C1), (R1,C2) and a mixed strategy equilibrium. the only equilibrium would be (R2,C1). the only equilibrium would be (R1,C2).

the only equilibria would be (R2,C1), (R1,C2) and a mixed strategy equilibrium.

Scenario 13.1: You are negotiating with your florist over the price of flowers for your wedding. You value the floral arrangements at $500. The florist's cost for the arrangement is $200. You finally settled on a price of $250. Refer to Scenario 13.1. If your negotiated price had been $350 instead of $250, the sum of consumer surplus and producer surplus would be: more than what would have accrued at the $250 price. the same as what would have accrued at the $250 price. less than what would have accrued at the $250 price. None of the above is necessarily correct.

the same as what would have accrued at the $250 price.

Some grocery stores are now offering customers coupons which entitle them to a discount on certain items on their next visit when they go through the check-out line. This practice is an example of: bundling. a two-part tariff. intertemporal price discrimination. third-degree price discrimination. none of the above

third-degree price discrimination.

A national chain of bookstores has initiated a frequent buyer program. If you buy a frequent buyer card for $10, you are entitled to a 10 percent discount on all purchases for 1 year. This practice is an example of: peak-load pricing. bundling. intertemporal price discrimination. two-part tariff. Both A and B are correct.

two-part tariff.

A pricing strategy that requires consumers pay an up-front fee plus an additional fee for each unit of product purchased is a form of perfect price discrimination two-part tariff. tying contract. none of these.

two-part tariff.

Scenario 14.4: John's firm is a competitor in your product market and a monopsonist in the labor market. The current market price of the product that your firm produces is $2. The total product and marginal product of labor are given as: TP = 100L - 0.125L2 MP = 100 - 0.25L where L is the amount of labor employed. The supply curve for labor and the marginal expenditure curve for labor are given as follows: L = PL -5 MEL = 2L + 5 Refer to Scenario 14.4. Suppose that the price of the product rises to $5, the price of labor will decrease. will not change. will increase. will change in an indeterminate fashion.

will increase.

A monopolistically competitive firm in long-run equilibrium: will make positive profit. will make zero profit. will make negative profit. Any of the above are possible.

will make zero profit.

If only one firm in an industry could take advantage of a reduced wage and all other firms continue paying the old wage, how would one best describe the one firm's reaction to this reduced wage assuming labor is the only variable input? The marginal revenue product of labor curve would remain unchanged, and the firm would hire more labor at the lower wage. shifts to the left, and the firm hires less labor at the lower wage on the new curve. shifts to the left, and the firm hires more labor at the lower wage on the new curve. shifts to the right, and the firm hires less labor at the lower wage on the new curve. shifts to the right, and the firm hires more labor at the lower wage on the new curve.

would remain unchanged, and the firm would hire more labor at the lower wage.