Table 14-2 Table 14-2
shows the payoff matrix for Wal-Mart and Target from every combination of pricing
strategies for the popular PlayStation 3. At the start of the game each firm charges a low
price and each earns a profit of $7,000.
Is the current strategy in which each firm charges the low price and earns a profit of
$7,000 a Nash equilibrium? If not, why and what is the Nash equilibrium?
A) No, it is not a Nash equilibrium because each firm can do better by charging the high
price. The Nash equilibrium occurs when each firm charges the high price and earns a
profit of $10,000.
B) No, the current situation is not a Nash equilibrium; it is a dominant strategy
equilibrium. There is no Nash equilibrium in this game.
C) No, the current situation is not a Nash equilibrium. The Nash equilibrium for each
firm is to have the other charge a high price and for the firm in question charge a low
price.
D) Yes, the current situation is a Nash equilibrium.
If a straight line passes through the point x = 24 and y = 8 and also through the point x =
8 and y = 16, the slope of this line is
A) negative 8 divided by 4.
B) seven tenths.
C) negative one half.
D) one and one half.
The opportunity cost of going to an outdoor music festival is
A) the enjoyment you receive from going to the festival.
B) the value of the time spent at the festival.
C) equal to the highest value of an alternative use of the time and money spent on the
festival.
D) zero because there is no overhead costs for an outdoor festival.
E) the cost of the festival ticket only.
Figure 15-11
In 2011, Verizon was granted
permission to enter the market for cable TV in Upstate New York, ending the virtual
monopoly that Time Warner Cable had in most local communities in the region. Figure
15-11 shows the cable television market in Upstate New York.What is the size of the
deadweight loss prior to Verizon entering the market and what happens to this
deadweight loss after Verizon does enter the market?
A) The deadweight loss of area D is converted to consumer surplus.
B) The deadweight loss of area C+D is converted to consumer surplus
C) The deadweight loss of area D is converted to producer surplus.
D) The total deadweight loss is the area D+F; D is converted to consumer surplus and
F to producer surplus.
The measure of production that values output using base-year prices is called
A) real GDP.
B) nominal GDP.
C) value-added GDP.
D) underground GDP.
Table 4-2
The table above lists the highest prices five consumers are willing to pay for a theater
ticket. If the price of one of the tickets is $10,
A) everyone will buy a ticket except for Esther.
B) only Anya and Basil will buy tickets.
C) Celeste’s consumer surplus is $25.
D) the total consumer surplus from the purchase of tickets will be $61.
In order to prove that Motrin and Ibuprofen are substitutes, one should measure the
________ and get a ________.
A) cross-price elasticity; positive number
B) cross-price elasticity; negative number
C) price elasticity of demand; number greater than 1 (in absolute value)
D) price elasticity of demand; number less than 1 (in absolute value)
A decrease in the price of pork will result in
A) a smaller quantity of pork supplied.
B) a larger quantity of pork supplied.
C) a decrease in the demand for pork.
D) an increase in the supply of pork.
Which of the following is not true for a firm in perfect competition?
A) Profit equals total revenue minus total cost.
B) Price equals average revenue.
C) Average revenue is greater than marginal revenue.
D) Marginal revenue equals the change in total revenue from selling one more unit.
Lowering the interest rate will
A) decrease spending on consumer durables.
B) increase investment projects by firms.
C) decrease spending on new homes.
D) decrease the value of the dollar and lower net exports.
According to ________, in a market with an externality, private parties would
voluntarily negotiate an efficient outcome without government intervention.
A) A. C. Pigou
B) Adam Smith
C) Ronald Coase
D) John Maynard Keynes
In long-run perfectly competitive equilibrium, which of the following is false?
A) There is efficient, low-cost production at the minimum efficient scale.
B) Economic surplus is maximized.
C) Firms earn economic profit.
D) Economies of scale are exhausted.
The prisoner’s dilemma illustrates
A) how oligopolists engage in implicit collusion under strategic situations.
B) why firms will not cooperate if they behave strategically.
C) why firms have an incentive to cheat on agreements.
D) how cooperation in strategic situations lead to the economically efficient market
outcome.
Table 2-7
Table 2-7 shows the output per month of two people, Fred and Barney. They can either
devote their time to making pogo sticks or making unicycles. What is Fred’s
opportunity cost of making a unicycle?
A) 1/3 pogo stick
B) 3 pogo sticks
C) 1/2 unicycle
D) 1.3 pogo sticks