Consider a market consisting of two firms where the inverse demand curve is given by
P = 500 – 2Q1 – 2Q2. Each firm has a marginal cost of $50. Based on this information,
we can conclude that aggregate quantity in the different equilibrium oligopoly models
will follow which of the following orderings?
A. QCollusion < QStackelberg < QCournot < QBertrand
B. QCollusion < QCournot < QStackelberg < QBertrand
C. QBertrand < QCollusion < QCournot < QStackelberg
D. QBertrand < QStackelberg < QCournot < QCollusion
A firm with market power has an individual consumer demand of Q = 20 – 4P and costs
of C = 4Q. What is optimal price to charge for a block of 20 units?
A. $18
B. $36
C. $72
D. $90
An industry is comprised of 25 firms, each with an equal market share. What is the
four-firm concentration ratio of this industry?
A. 0.12
B. 0.16
C. 0.20
D. 0.25
Which of the following is true for a Nash equilibrium of a two-player game?
A. The joint payoffs of the two players are highest compared to other strategy pairs.
B. Given another player’s strategy stipulated in that Nash equilibrium, a player cannot
improve his welfare by changing his strategy.
C. A Nash equilibrium is always unique in real-world problems.
D. Given another player’s strategy stipulated in that Nash equilibrium, a player cannot
improve his welfare by changing his strategy, and a Nash equilibrium is always unique
in real-world problems.
Refer to the normal-form game of price competition shown below.
For what values of x is strategy (B, D) the only Nash equilibrium of the game?
A. All x > 450
B. All x < 450
C. x = 450
D. x < 50
Consider the following innovation game: Firm A must decide whether or not to
introduce a new product. Firm B must decide whether or not to clone firm A’s product.
If firm A introduces and B clones, then firm A earns $2 and B earns $15. If A introduces
and B does not clone, then A earns $8 and B earns $1. If firm A does not introduce, both
firms earn profits of 0. Which of the following is true?
A. The subgame perfect Nash equilibrium profits are ($2, 15).
B. The subgame perfect Nash equilibrium profits are ($8, 1).
C. It is not in A’s interest to introduce.
D. None of the answers is correct.
Suppose that JVC is trying to decide how to price a new stereo system composed of a
receiver, CD player, and speakers. The company’s economists have estimated that two
different groups will purchase these products: students and club owners. The
economists’ analysis suggests that the total market for its brand of stereos consists of
10,000 students and 50,000 club owners. In addition, it is estimated that the maximum
amount each group will pay for each stereo component is as follows:
JVC’s objective is to maximize revenues, and it is considering three strategies to price
its stereo components: (1) a standard strategy whereby it prices each stereo component
separately; (2) perfect price discrimination; or (3) bundling the three components
together and selling only bundles containing the receiver, CD player, and speakers.a. If
JVC uses a standard pricing strategy, what price should it charge for the receiver, for the
CD player, and for the speakers to maximize revenues? What are the revenues they will
earn through this strategy?b. Suppose JVC adopts a first-degree price discrimination
policy. What prices should it charge to maximize revenues? What are JVC’s revenues
using this strategy?c. Suppose that JVC markets the receiver, CD player, and speakers
together. That is, it uses a commodity-bundle strategy such that the products are sold as
one item. What price should JVC charge to maximize revenues? How much will it
earn?
Which of the following is a possible critique of the decision theory under uncertainty
presented in the text?
A. People do not always know the “true” probability of complicated events.
B. Decision theory assumes that people are good at math.
C. Decision theory assumes that people face the same situation (uncertainty) repeatedly.
D. People are not risk averse.
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:
A. type A consumers.
B. type B consumers.
C. type A consumers and type B consumers.
D. None of the answers are correct.
When MB = 300 – 12Y and TC = 12Y + 108, the optimal level of Y is:
A. 25
B. 4.5
C. 8
D. 24
The following depicts a normal-form game of price competition.
Suppose that firm A deviates from a trigger strategy to support a high price. What is the
present value of A’s payoff from cheating?
A. 5
B. 20
C. 25
D. 35
Suppose that consumers’ preferences are well behaved in that properties 4-1 to 4-4 are
satisfied. Furthermore, assume that X is a normal good, Y is an inferior good, and the
price of good Y decreases. Then, which of the following effects is known with
certainty?
A. The income and substitution effects reinforce one another leading to an overall
decrease in the consumption of good X.
B. The income and substitution effects will have competing effects, leading to an
indeterminate impact on the consumption of good Y.
C. The income and substitution effects will reinforce one another, leading to an overall
increase in the consumption of good Y.
D. The income and substitution effects will reinforce one another, leading to an overall
decrease in the consumption of good Y.
E. The income and substitution effects will reinforce one another, leading to an overall
increase in the consumption of good X.
Natalie is always willing to give up 10 ounces of licorice for 1 ounce of chocolate.
Mitchell, on the other hand, will always give up 10 ounces of chocolate for 1 ounce of
licorice. Based on this information, answer the following questions:a. Do Natalie’s
preferences exhibit a diminishing marginal rate of substitution between chocolate and
licorice? Why or why not?b. Assuming that Natalie and Mitchell have the same amount
of money to spend on chocolate and licorice, who will purchase the most licorice?
Why?
Suppose a worker is offered a wage of $8 per hour, plus a fixed payment of $100 per
day, and he can use 24 hours per day. What is the minimum the worker can earn in a
day?
A. $50
B. $100
C. $192
D. $200
Managerial reputation is an _____ incentive that helps to mitigate the _______
principal-agent problem.
A. internal; manager-worker
B. internal; manager-consumer
C. external; owner-manager
D. external; owner-consumer
Producer surplus is the
A. area above the supply curve but below the demand curve.
B. area above the supply curve but below the market price of the good.
C. minimum amount required by a producer for producing the good.
D. maximum amount a producer can collect from consumers.