Econ Fina

Which of the following is true for a Nash equilibrium of a two-player game?

Given another player's strategy stipulated in that Nash equilibrium, a player cannot improve his welfare by changing his strategy.

Which of the following is NOT a feature of Sweezy oligopoly?

The firms produce homogeneous products

In a Sweezy Oligopoly, a decrease in a firm's marginal cost generally leads to: reduced output and a higher price.

false

Consider the following information for a simultaneous move game: If you advertise and your rival advertises, you each will earn $5 million in profits. If neither of you advertises, you will each earn $10 million in profits. However, if one of you advertises and the other does not, the firm that advertises will earn $15 million and the non-advertising firm will earn $1 million. If you and your rival plan to be in business for 10 years, then the Nash equilibrium is:

for each firm to advertise every year.

A secure strategy is a strategy that:

guarantees the highest payoff given the worst possible scenario

Two firms produce different goods. Firm 1 has a positive-sloped reaction function. This can be explained best by

heterogeneous product Bertrand oligopoly

Second-degree price discrimination

is the practice of posting a discrete schedule of declining prices for different ranges of quantities

Which of the following is NOT a type of market structure

monopolistic oligopoly

A Nash equilibrium with a noncredible threat as a component is:

not a perfect equilibrium

If firms compete in a Cournot fashion, then each firm views the:

output of rivals as given

The Bertrand model of oligopoly reveals that:

perfectly competitive prices can arise in markets with only a few firms

Both firms in a Cournot duopoly would enjoy higher profits if:

the firms simultaneously reduced output below the Nash equilibrium level.

o firms compete as a Stackelberg duopoly. The demand they face is P = 100 − 3Q. The cost function for each firm is C(Q) = 4Q. The profits of the two firms are:

πL = $384; πF = $192.

There are two existing firms in the market for computer chips. Firm A knows how to reduce the production costs for the chip and is considering whether to adopt the innovation or not. Innovation incurs a fixed setup cost of C, while increasing its revenue. However, once the new technology is adopted, another firm, B, can adopt it with a smaller setup cost of C/2. If A innovates and B does not, A earns $20 in revenue while B earns $0. If A innovates and B does likewise, both firms earn $15 in revenue. If neither firm innovates, both earn $5. Under what condition will firm A innovate?

10 > C > 0

Two identical firms compete as a Cournot duopoly. The demand they face is P = 100 −2Q. The cost function for each firm is C(Q) = 4Q. The equilibrium output of each firm is:

16

From a consumer's point of view, which type of oligopoly is most desirable?

Bertrand

Which of the following are price-setting oligopoly models

Bertrand

Which firm would you expect to make the lowest profits, other things equal?

Bertrand oligopolist

A duopoly in which both firms have a Lerner index of monopoly power equal to 0 is probably a:

Bertrand oligopoly

There are two existing firms in the market for computer chips. Firm A knows how to reduce the production costs for the chip and is considering whether to adopt the innovation or not. Innovation incurs a fixed setup cost of C, while increasing the revenue. However, once the new technology is adopted, another firm, B, can adopt it with a smaller setup cost of C/2. If A innovates and B does not, A earns $20 in revenue while B earns $0. If A innovates and B does likewise, both firms earn $15 in revenue. If neither firm innovates, both earn $5. Under what condition will firm B have an incentive to adopt if firm A adopts the innovation?

C < 30

It is easier to sustain tacit collusion in an infinitely repeated game if:

the present value of cheating is lower than collusion

A market is NOT contestable if:

there are sunk costs

Game theory suggests that, in the absence of patents, the privately motivated innovation decisions of firms might lead to:

not enough innovation

First-degree price discrimination

occurs when a firm charges each consumer the maximum price he or she would be willing to pay for each unit of the good purchased and results in the firm extracting all surplus from consumers.

Firm A has a higher marginal cost than firm B. They compete in a homogeneous product Cournot duopoly. Which of the following results will NOT occur?

PriceA < PriceB

The market demand in a Bertrand duopoly is P = 10 − 3Q, and the marginal costs are $1. Fixed costs are zero for both firms. Which of the following statement(s) is/are true?

Profits of firm 1 = profits of firm 2.

Which of the following is a profit-maximizing condition for a Cournot oligopolist?

MR=MC

A new firm enters a market which is initially serviced by a Cournot duopoly charging a price of $20. What will the new market price be should the three firms coexist after the entry?

Below $20

Which of the following is true?

In a finitely repeated game with a certain end period, collusion is unlikely because effective punishments cannot be used during any time period

Which of the following statements about a price-matching strategy is incorrect?

It requires that the firms can monitor their rival's prices

Management and a labor union are bargaining over how much of a $50 surplus to give to the union. The $50 is divisible up to one cent. The players have one shot to reach an agreement. Management has the ability to announce what it wants first, and then the labor union can accept or reject the offer. Both players get zero if the total amounts asked for exceed $50. Which of the following is NOT a Nash equilibrium?

Management requests $30 and the labor union accepts $10.

Game theory is best applied to the analysis of:

Oligopoly

Two firms compete as a Stackelberg duopoly. The demand they face is P = 100 − 3Q. The cost function for each firm is C(Q) = 4Q. The outputs of the two firms are:

QL = 16; QF = 8.

Cinemas sometimes give senior citizens discounts. What is the possible privately motivated purpose for them to do so?

Senior citizens have a more elastic demand for movies than ordinary citizens

Which of the following are quantity-setting oligopoly models?

Stackelberg and Cournot

Management and a labor union are bargaining over how much of a $50 surplus to give to the union. The $50 is divisible up to one cent. The players have one shot to reach an agreement. Management has the ability to announce what it wants first, and then the labor union can accept or reject the offer. Both players get zero if the total amount asked for exceed $50. Which of the following is true?

There are multiple Nash equilibria, and ($25, $25) is a Nash equilibrium

Both firms in a Cournot duopoly would experience lower profits if:

there was an increase in marginal production costs.

Suppose two types of consumers buy suits. Consumers of type A will pay $100 for a coat and $50 for pants. Consumers of type B will pay $75 for a coat and $75 for pants. The firm selling suits faces no competition and has a marginal cost of zero. If the firm charges $100 for a suit (which includes both pants and a coat), the firm will sell a suit to

type A consumers and type B consumers.

A new firm enters a market which is initially serviced by a Bertrand duopoly charging a price of $20. What will the new price be should the three firms coexist after the entry?

20

Two identical firms compete as a Cournot duopoly. The demand they face is P = 100 − 2Q. The cost function for each firm is C(Q) = 4Q. Each firm earns equilibrium profits of:

512

A local video store estimates its average customer's demand per year is Q = 7 í 2P, and it knows the marginal cost of each rental is $0.5. How much should the store charge for an annual membership in order to extract the entire consumer surplus via an optimal two-part pricing strategy?

9

Sue and Jane own two local gas stations. They have identical constant marginal costs, but earn zero economic profits. Sue and Jane constitute:

Bertrand oligopoly

Firm 1 and firm 2 compete as a Cournot oligopoly. There is an increase in marginal cost for firm 1. Which of the following is NOT true?

Both firm 1's and firm 2's reaction functions are shifted

Consider the following entry game: Here, firm B is an existing firm in the market, and Firm A is a potential entrant. Firm A must decide whether to enter the market (play"enter") or stay out of the market (play "not enter"). If firm A decides to enter the market, firm B must decide whether to engage in a price war (play "hard"), or not (play"soft"). By playing "hard," firm B ensures that firm A makes a loss of $1 million, but firm B only makes $1 million in profits. On the other hand, if firm B plays "soft,", the new entrant takes half of the market, and each firm earns profits of $5 million. If firm Astays out, it earns zero while firm B earns $10 million. Which of the following are Nash equilibrium strategies?

enter, soft

Collusion is: not possible when firms interact repeatedly forever

false

Two firms compete in a Stackelberg fashion. If firm 2 is the leader, then

firm 1 views the output of firm 2 as given

Consider the following information for a simultaneous move game: If you advertise and your rival advertises, you each will earn $5 million in profits. If neither of you advertises, you will each earn $10 million in profits. However, if one of you advertises and the other does not, the firm that advertises will earn $15 million and the non-advertising firm will earn $1 million. If you and your rival plan to be in business for only one year, the Nash equilibrium is:

for each firm to advertise.

If you advertise and your rival advertises, you each will earn $4 million in profits. If neither of you advertises, you will each earn $10 million in profits. However, if one of you advertises and the other does not, the firm that advertises will earn $1 million and the non-advertising firm will earn $5 million. If you and your rival plan to be in business for only one year, the Nash equilibrium is:

for neither firm to advertise

With linear demand and constant marginal cost, a Stackelberg leader's profits are ________ the follower.

greater than

Suppose a manager is interested in implementing third-degree price discrimination. The manager knows that the price elasticity of demand for Group 1 is í2 and the price elasticity of demand for Group 2 is í1.2. Based on this information alone we can conclude that the price charged to Group 2 will be:

higher than the price charged to Group 1.

One of the conditions under which price discrimination is profitable is

inability to resell the good, differences in demand elasticities, ability to identify consumer types

A Broadway theater sells weekday show tickets at a lower price than for a weekend show. This is an example of:

price discrimination or peak-load pricing