ECON 351 Final USC Camara
What is the unique Nash equilibrium of the Matching Pennies game?
50/50
Which oligopoly model(s) have the same results as the competitive model?
Bertrand
True or False: A player must have at least one dominant strategy in a game
False
True or False: If neither player has a dominant strategy, then the Nash equilibrium must be in mixed strategies.
False
True or False: If neither player in a game has a dominant strategy in a game, then there is no equilibrium outcome for the game
False
True or False: If the Nash equilibrium has pure strategies, then at least one player must have a dominant strategy
False
True or false: Externalities are reflected in market prices
False, they become a source of economic inefficiency
To find the profit maximizing level of output, a firm finds the output level where
MR = MC
A firm sells an identical product to two groups of consumers, A and B. The firm has decided that third-degree price discrimination is feasible and wishes to set prices that maximize profits. Which of the following best describes the price and output strategy that will maximize profits?
MR_A = MR_B = MC
Over the past several years, the federal government has rescued a few financially distressed banks and other large private companies, and the key reasons for these actions is to stabilize financial markets and to prevent additional business failures that may arise from the original problem. However, critics of these interventions argue that these actions generate a moral hazard problem. Why?
Managers may be more likely to invest in risky projects if they believe the government will save the firm in case of failure
In California, Consumers pay California Redemption Value (CRV) when they purchase beverages from a retailer and receive CRV refunds when they redeem the containers at a recycling center. CRV is 5 cents for each small beverage container. If the CRV was optimally designed to maximize social welfare, then in this market 5 cents correspond to the:
Marginal External Cost
How is a natural monopoly defined?
Marginal cost is always below average cost
Is there a first-mover advantage in the Bertrand duopoly model with homogeneous products?
No, the second-mover would be able to set a slightly lower price and capture the full market share
Although firms earn zero profits in the long run, why is the outcome from monopolistic competition considered to be inefficient?
Price exceeds marginal cost AND Quantity is lower than the perfectly competitive outcome
What is true for both perfectly competitive and monopolistically competitive firms in the long run?
Profit equals zero
What is true for the monopolist at the output level where P=MC?
The monopolist is not maximizing profit and should decrease output
What is true for both perfect and monopolistic competition?
There is freedom of entry and exit in the long run
True or False: A dominant strategy is a strategy that is optimal for a player no matter what an opponent does
True
True or False: A monopolist will never operate at an inelastic segment of the demand curve
True
True or False: the efficiency wage is higher than the market-clearing wage, to penalize shirking
True
Which of the following represent examples of adverse selection?
Unhealthy people are more likely to want health insurance AND Unskilled drivers purchasing extra auto insurance NOT Risk averse individuals choosing to buy extra insurance
What is the value of the Lerner index under perfect competition?
Zero
A dominant strategy can best be described as
a strategy that is optimal for a player no matter what an opponent does
A positive externality is shown by a marginal social benefit (MSB) curve that is _______ and to the _______ of the _______ curve for the good that generates it
above and to the right of the demand curve for the good that generates it
When asymmetric information problems drive high quality products from a market, we refer to this situation as:
adverse selection AND a lemons problem
In the economic literature on principal-agent problems, the is the person who takes some action, and the is the person whom the action affects
agent, principal
Suppose that the production of energy by Coal Power Plants produces pollution, and this market is regulated by a system of transferable permits. If consumers increase their demand for energy, then we should expect:
an increase in the price of transferable permits
Firm Sigma is a natural monopolist. The government decides to limit Sigma's monopoly power with price regulation. In order to find the minimum feasible price, the government must find the point where:
average cost equals average revenue
Third-degree price discrimination involves
charging different prices to different groups based upon differences in elasticity of demand
A firm setting a two-part tariff with only one customer should set the entry fee equal to
consumer surplus
Assume that a particular state has decided to outlaw the sharing of individuals' credit histories as an illegal invasion of privacy. As a result of this action we would expect the
cost of borrowing money to rise AND number of loans to unworthy credit risks to rise AND problems of asymmetric information to become more severe
Second-degree price discrimination is the practice of charging
different prices for different quantity blocks of the same good or service
When costly new technologies make cleaner production possible,
emissions are more likely to fall under a system of fees, than under a system of transferable emissions permits unless the government bought back some of the permits.
The "efficiency wage" is the wage at which
employees have no incentive to shirk
When a firm charges each customer the maximum price that the customer is willing to pay, the firm
engages in first-degree price discrimination
The provision of an education in public school is
exclusive and rival
Monopolistically competitive firms have monopoly power because they
face downward sloping demand curves
A monopsonist will buy units of input than a competitor, and will pay per unit.
fewer; less
Assume that a profit maximizing monopolist is producing a quantity such that marginal revenue exceeds marginal cost. We can conclude that the
firm's output is smaller than the profit maximizing quantity
The presence of pollution in the dry cleaning industry leads in the long run to dynamic inefficiencies because
firms whose average private cost is less than price will stay in (or enter) the dry cleaning industry even though their average social cost exceeds price
The most important factor in determining the long-run profit potential in monopolistic competition is
free entry and exit
A consumer or producer who does not pay for use of a nonexclusive good but expects others to pay is known as a:
free rider
Compared to the equilibrium price and quantity sold in a competitive market, a monopolist will charge a price and sell a quantity.
higher; smaller
In the insurance market, moral hazard refers to the problem that
individuals may change their behavior after the insurance is bought, so that they behave in a more high-risk manner than they did before
When a company introduces new audio products, it often initially sets the price high and lowers the price about a year later. This is an example of
intertemporal price discrimination
Dry cleaning of clothing produces air pollutants. Therefore, in the market for dry cleaning services, the equilibrium price P paid by consumers is too _______ to be optimal, and equilibrium quantity is too _______
is too low to be optimal, and equilibrium quantity is too high
When the demand curve is downward sloping, marginal revenue is
less than price
When sellers have more information about products than buyers do, we would expect
low-quality goods to drive high-quality goods out of the market
You will charge the higher price in the market with the ______ price elasticity of demand
lower
The Cournot duopoly equilibrium has _________ price, _________ total output, and _________ consumer surplus than those of a market with a monopolist.
lower ; higher ; higher
When firms participate in group health insurance for all employees, it
may lower rates for all people to the extent that it keeps healthy people in the pool
The principal-agent problem in corporations exists because the managers of a firm
may pursue their own goals even when the result is lower profit for owners
A market with few entry barriers and with many firms that sell differentiated products is
monopolistically competitive
If individuals are paid the wage at which the supply of labor is equal to the demand for labor, how much employment exists?
no unemployment exists, and workers have an incentive to shirk.
The efficiency wage is a wage at which there is a ________ amount of unemployment
positive
In comparing the Cournot equilibrium with the competitive equilibrium,
profit is higher, and output level is lower in Cournot
Having a refundable deposit for recyclable material _______ the marginal _______ cost of disposal
raises the marginal private cost of disposal
The maximum price that a consumer is willing to pay for each unit bought is the price
reservation
Hulk's marginal utility of income function is given as MU(I)= I, while Dante's marginal utility of income function is given as MU(I)= I^2. Therefore, Hulk is _____ and Dante is _______.
risk loving, risk loving
Discrimination based upon the quantity consumed is referred to as price discrimination
second-degree
Constructing plastic containers produces air pollutants. Therefore, in the market for plastic containers, the marginal social cost curve is ______ and to the ______ of the ______ curve
the marginal social cost curve is above and to the left of the supply curve
Common property resources like fish stocks in open waters tend to be overutilized because: the marginal social cost is _______ than the private marginal cost
the marginal social cost is greater than the private marginal cost
When new technologies make cleaner production possible,
the price of transferable permits falls
A tennis pro charges $15 per hour for tennis lessons for children and $30 per hour for tennis lessons for adults. The tennis pro is practicing
third-degree price discrimination
The problem of adverse selection in insurance results in a situation in which
unhealthy people become more likely to buy insurance than healthy people, which drives premiums up, which drives even more healthy people away from the market
A monopolistically competitive firm in short-run equilibrium
will make negative, zero, or positive profit
A monopolistically competitive firm in long-run equilibrium
will make zero profit