You are the owner of a new network that is superior to an existing two-way network.
The network you aim to replace currently has 50 users, each of whom is willing to pay
an average of $75,000 for each connection service within the current network. You are
confident that each user values connection services within your new two-way network
at an average of $100,000 per connection service.
a. What is the maximum price the existing network can charge each user for its
services?
b. Devise a pricing strategy that will permit your firm to overcome the first-mover
advantage enjoyed by the existing network.
One of the sources of monopoly power for a monopoly may be:
A. diseconomies of scale.
B. differentiated products.
C. patents.
D. free entry and exit.
Acme Water is a privately owned company that is the sole supplier of water to a rural
town in Pennsylvania. The owner of the firm has provided the manager of the company
an incentive to maximize the firms profits, and the manager is currently selling 100,000
gallons of water per week at a price of $.05 per gallon. The marginal cost of water is
zero, but the firms average cost of this level of output is $.01 per gallon.a. Determine
Acme Waters profits.b. Now suppose that the local government imposes a price ceiling
on water at a price of $.01 per gallon. Will the firm earn economic profits of zero as a
result of this price ceiling? Explain.c. Does the price ceiling of $.01 per gallon result in
a shortage of water in Acmes service area?
The economic principle that producers are willing to produce more output when price is
high is depicted by the:
A. upward slope of the supply curve.
B. extreme steepness of the supply curve.
C. downward slope of the supply curve.
D. interaction of the supply and demand curves.
Suppose that consumers preferences are well behaved in that properties 4-1 to 4-4 are
satisfied. Furthermore, assume that both X and Y are normal goods and that the price of
good X increases. Then, which of the following effects is known with certainty?
A. The income and substitution effects reinforce one another, leading to an overall
increase in the consumption of good X.
B. The income and substitution effects reinforce one another, leading to an overall
decrease in the consumption of good X.
C. The income and substitution effects will have competing effects, leading to an
indeterminate impact on the consumption of good X.
D. The income and substitution effects will reinforce one another, leading to an overall
increase in the consumption of good Y.
Suppose that the inverse demand for a downstream firm is P = 150 – Q. Its upstream
division produces a critical input with costs of CU(Qd) = 5(Qd)2. The downstream firms
cost is Cd(Q) = 10Q. When there is no external market for the downstream firms critical
input, the downstream firm should produce:
A. 11.67 units.
B. 12.5 units.
C. 14 units.
D. 15 units.
Compute the marginal revenue when the price elasticity of demand is -0.25.
A. -3P, meaning marginal revenue is negative and 3 times greater than price.
B. 3P, meaning marginal revenue is positive and 3 times greater than price.
C. -0.33P, meaning that marginal revenue is negative and one-third of the price.
D. -0.25P, meaning that marginal revenue is negative and one-fourth of the price.
The figure below presents information for a one-shot game.
If this one-shot game is repeated 100 times, the Nash equilibrium payoffs of the players
will be ________________ each period.
A. (2, 2)
B. (10, -8)
C. (-8, 10)
D. (6, 6)
The creation of a new product is referred to as:
A. Process innovation.
B. Independent research and development.
C. Product innovation.
D. Patent disclosure.
Which of the following is true?
A. In an infinitely repeated game, collusion is always a Nash equilibrium.
B. In a finitely repeated game with a certain end period, collusion is unlikely because
effective punishments cannot be used during any time period.
C. All of the statements associated with this question are correct.
D. None of the answers is correct.
The demand for labor by a profit-maximizing firm is determined by:
A. MPL = MC.
B. VMPL = MC.
C. MPL = W.
D. VMPL = W.
When the government imposes a price floor above the market price, the result will be
that
A. surpluses occur.
B. shortages become a problem.
C. supply and demand will shift up to the new equilibrium.
D. a price floor set above the equilibrium price will have no effect on the market
equilibrium.
Find the annual interest rate that would create a perpetual cash flow stream of $15,000
when the present value of the asset is $100,000.
A. 0.15 percent
B. 15 percent
C. 0.1765 percent
D. 17.65 percent