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?
A. Firm 1 will produce less.
B. Firm 2 will produce more.
C. Both firm 1’s and firm 2’s reaction functions are shifted.
D. Profits of firm 1 will decrease.
Refer to the normal-form game of advertising shown below.
Consider the advertising game in Figure 10-17. Firms A and B know the game will be
played for exactly five periods. What is a Nash equilibrium to this game?
A. {advertise, do not advertise}
B. {advertise, advertise}
C. {do not advertise, do not advertise} provided the interest rate is less than 0.10
percent
D. {advertise, advertise} provided the interest rate is less than 0.50 percent
Determine the most likely information structure (independent private values, affiliated
values, or common values) for an auction involving:a. A music CD.b. An offshore oil
lease.c. A used car.
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?
A. C > 30
B. C < 30
C. 10 > C > 0
D. 35 > C > 25
When dealing with present value, a higher interest rate:
A. does not affect the present value of the future amount.
B. increases the present value of a future amount.
C. decreases the present value of a future amount.
D. None of the statements associated with this question are correct.
A decrease in the marginal cost arising from a less complex specialized investment
environment will cause the optimal contract length to:
A. increase.
B. decrease.
C. remain constant.
D. either increase or decrease.
Suppose that Microsoft and Google compete in the market for PC Internet browsers.
Initially these firms compete as Cournot duopolies with symmetric reaction functions.
If Microsoft enters into exclusive contracts with PC suppliers that preclude suppliers
from loading Google’s Internet browser on PCs loaded with the Windows operating
system, then Google’s marginal cost of distributing its browser will increase to $5 per
unit.The new equilibrium would entail Microsoft supplying __________ browsers and
Google supplying ____________ browsers to the market. The end result is ________
profits for Google.
A. more; fewer; lower
B. fewer; more; higher
C. more; more; lower
D. fewer; fewer; higher
Consider a monopolist attempting to engage in limit pricing with total costs C(Q) = 200
+ 10Q. The market (inverse) demand for its product is P = 150 – 2Q. Currently, the
monopolist produces 40 units of output. Assuming the potential entrant has the same
cost structure as the incumbent monopolist, is it profitable for the entrant to produce 20
units of output?
A. Yes, since the market price of $30 is greater than the average total cost of producing
20 units.
B. No, since the market price of $30 is less than the average total cost of producing 20
units.
C. Yes, since the market price of $70 is greater than the average total cost of producing
20 units.
D. No, since the market price of $70 is less than the average total cost of producing 20
units.
A monopoly has produced a product with a patent for the last few years. The patent is
going to expire. What will likely happen to the demand for the patent-holder’s product
when the patent runs out?
A. Demand will increase.
B. Demand will decline.
C. Nothing.
D. None of the answers is correct.
Other things held constant, the greater the price of a good
A. the lower the demand.
B. the higher the demand.
C. the greater the consumer surplus.
D. the lower the consumer surplus.
In the 1960s, each firm in the computer industry was able to make extremely large
profit margins, some as high as 50 to 60 percent. The margin decreased to 20 to 40
percent in the 1970s and to 10 to 20 percent in the 1980s. We conclude that:
A. market power increased in the two decades.
B. the industry evolved from oligopolistic to a more competitive industry in the two
decades.
C. lower profit margins were due to the government’s regulation to protect consumers.
D. lower profit margins were largely due to the mismanagement of computer firms.