If the price of a good rises, then the equilibrium consumption of that good:
A. increases if it is an inferior good.
B. decreases if it is a normal good.
C. remains the same.
D. None of the statements is correct.
In a one-shot game, if you advertise and your rival advertises, you will each earn $5
million in profits. If neither of you advertises, your rival will make $4 million and you
will make $2 million. If you advertise and your rival does not, you will make $10
million and your rival will make $3 million. If your rival advertises and you do not, you
will make $1 million and your rival will make $3 million.
a. Write the above game in normal form.
b. Do you have a dominant strategy?
c. Does your rival have a dominant strategy?
d. What is the Nash equilibrium for the one-shot game?
e. How much would you be willing to bribe your rival not to advertise?
A campus auditorium sells tickets at half price to students during the last 30 minutes
before a concert starts. This is an example of:
A. price discrimination.
B. peak-load pricing.
C. price discrimination or peak-load pricing.
D. None of the statements is correct.
The demand for good X is given by QX = 4,000 – PX – 2PY + 4PZ + 0.2M, where PY is
the price of good Y, PZ is the price of good Z, and M is income. If PY = $800, PZ =
$200 and M = $5000, what is the inverse demand function for good X?
A. PX = 1,200 – 2QX.
B. PX = 4,200 – QX.
C. PX = 3,200 – QX.
D. PX = 4,600 – 2QX.
Which of the following is NOT considered a measure of firm conduct?
A. Lerner index of pricing behavior
B. Research and development measures
C. Advertising measures
D. Dansby-Willig index
A monopoly produces widgets at a marginal cost of $10 per unit and zero fixed costs. It
faces an inverse demand function given by P = 50 – Q. The monopoly price is:
A. $30.
B. $20.
C. $10.
D. $40.
One of the conditions under which price discrimination is profitable is:
A. ability to identify consumer types.
B. inability to resell the good.
C. differences in demand elasticities.
D. All of the statements associated with this question are correct.
Suppose the cost function is C(Q) = 50 + Q – 10Q2 + 2Q3. At 3 units of output, the
marginal cost curve is:
A. in the increasing stage.
B. in the declining stage.
C. at the minimum level.
D. at the maximum level.
A price ceiling imposed on a monopoly may:
A. lead to a shortage.
B. lead to no shortage.
C. drive the monopolist out of business.
D. All of the statements associated with this question are correct.
Both firms in a Cournot duopoly would enjoy lower profits if:
A. the firms simultaneously reduced output below the Nash equilibrium level.
B. each firm simultaneously increased output above the Nash equilibrium level.
C. one firm reduced output below the Cournot Nash equilibrium level, while the other
firm continued to produce its Cournot Nash equilibrium output.
D. None of the answers is correct.
Economists use game theory to predict the behavior of oligopolists. Which of the
following is crucial for the success of the analysis?
A. Make sure the payoffs reflect the true payoffs of the oligopolists.
B. Determine whether the oligopolists move simultaneously or sequentially.
C. Determine whether the problem considered is of a one-shot or a repeated nature.
D. All of the statements associated with this question are correct.
For given input prices, isocosts closer to the origin are associated with:
A. lower costs.
B. the same costs.
C. higher costs.
D. initially lower, then higher costs.
Which of the following is FALSE?
A. It is always more profitable to engage in limit pricing than to permit entry.
B. Being the first mover is always best.
C. Engaging in predatory pricing is always more profitable than permitting existing
firms to remain in the market.
D. All of the statements associated with this question are false.
Having worked for many of the firms in the petroleum industry, you know that the price
elasticity of demand for a representative firm is about -1.25. Moreover, a recent report
from an economist in your office revealed that the price elasticity of demand for the
petroleum products sold by your firm is -1.5. Based on this information, you know that
the Rothschild index is:
A. 0.833.
B. 1.20.
C. -1.20.
D. -0.833.
The dominant strategy for player 1 in the following game is:
A. S1.
B. S2.
C. S1 and S2.
D. None of the answers is correct.
The Dansby-Willig index measures the potential for a change in:
A. production cost.
B. firm’s revenue.
C. firm’s profit.
D. social welfare.
A peach farmer must decide how many peaches to harvest for the world peach fair. He
knows that there is a 25 percent chance that the world price will be $3, a 50 percent
chance that it will be $3.50, and a 25 percent chance that it will be $4. His cost function
is C(Q) = 0.05Q2. The expected profit-maximizing quantity is:
A. 0.
B. 3.5.
C. 35.
D. 40.