# Homework 3, Solutions Managerial Economics: Eco 685

Save this PDF as:

Size: px
Start display at page:

## Transcription

1 Homework 3, Solutions Managerial Economics: Eco 685 Question 1 a. Second degree since we have a quantity discount. For 2 GB the cost is \$15 per GB, for 5 GB the cost is \$10 per GB, and for 10 GB the cost is \$8 per GB. b. We have 3rd degree price discrimination here, the drink is the same good, but the price is different for happy hour customers and night customers. Apparently, the after work group is more price sensitive than the group going out later. Note that one would think that the after work group is wealthier and therefore more price sensitive, but there are many reasons other than income why a group might be more price sensitive. For example, the after work group may have less free time. c. Third degree price discrimination, since different income levels have different prices. d. First degree price discrimination, since each customer is charged a potentially different price. e. One could argue either third degree price discrimination, or argue that women s hair cuts are a different good, for example by taking longer to cut. Question 2 a. This is the popcorn problem : upcharging. Ritz would like to charge it s less price sensitive (probably business) customers more. It therefore makes WIFI cost extra, with a large markup. More price sensitive customers pay less by skipping the WIFI. Of course, this is not truly price discrimination as the two customers are buying slightly different products. b. To solve this problem, we first pretend we can tell the customers apart, and figure out the ideal prices. For the consumers we would like to charge: P c = e p MC = , (1) P c = \$135. (2) For business travelers, we have: P b = e p MC = (90+1), (3) 1

2 P b = \$273. (4) Note that the marginal cost of the WIFI is included, since business travelers use WIFI. Now implement these prices. (a) Charge \$135 for the room, which ensures we capture all of the consumer travelers. (b) The WIFI charge is then the difference between the two ideal prices: \$273 \$135 = \$138(this number is a little unrealistic, but the principle holds). Now the business customers will pay \$135 for the room plus \$138 for the WIFI for a total of \$273, which is the ideal price. (c) The markup on the WIFI is then: Markup = P cost cost = \$ = 13,700%. (5) c. Motel 6 may offer free WIFI for several reasons. First, the market may be more competitive for low price hotel rooms. Price Discrimination and similar strategies require a lack of competition to work. Second, business and consumer travelers may have more similar price elasticities in the low end market. If business travelers are using the Motel 6, probably they are trying to save money too. Or Motel 6 may just not have any business travelers. Question 3 a. First we need the prices. Using the demand curves: Q F = 100 2P F, (6) P F = Q F. (7) Q N = 100 P N, (8) P N = 100 Q N. (9) Profits are then: π = P F Q F +P N Q N TC = ( 50 1 ) 2 Q F Q F +(100 Q N )Q N 50 10(Q F +Q N ) = 40Q F 1 2 Q2 F +90Q N Q 2 N 50 (10) 2

3 To find the optimal quantity (which maximizes profits), we set the derivative or slope equal to zero: dπ dq F = 40 Q F = 0, Q F = 40 (11) dπ dq N = 90 2Q N = 0, Q N = 45 (12) Using the demand curves (7) and (9), the optimal prices are: P F = = \$30 (13) 2 P N = = \$55. (14) b. The price elasticity for the Florida residents is: e p = e p = ( )( ) P dq = 30 Q dp 40 ( 2) = 3 2 ( )( ) P dq = 55 Q dp 45 ( 1) = 11 9 (15) (16) Here the derivatives are computed using the demand curves (6) and (8). The Florida residents are more price sensitive. The price is therefore lower for Florida residents. c. One would charge \$55 for the cruise, and then offer a \$10 Florida resident discount (probably one would require a Florida id or address). d. Several answers are possible. One might worry about cheating, for example using a friend or relative s Florida address (or having them buy the tickets for a non-resident). Arbitrage is also possible, Florida residents could buy tickets at a low price and then resell them. To counter the arbitrage, Carnival would take steps to make sure the name on the ticket matches the id of the traveler. e. Now we must charge the same price to both consumers: Q F = 100 2P, (17) 3

4 Q N = 100 P, (18) So the total demand is: Q = Q F +Q N = 100 2P +100 P = 200 3P. (19) Q = 200 3P. (20) Solve for the price: P = Q. (21) Here we can do the usual MR = MC: ( 200 TR = P Q = 3 1 ) 3 Q Q = Q 1 3 Q2. (22) MR = dtr dq = Q. (23) 3 Marginal cost is found via: TC = 50+10Q. (24) MC = dtc dq = 10. (25) Therefore, MR = MC, (26) Q = 10, (27) Q = 30, Q = 85. (28) 4

5 Therefore, P = = (29) 3 The price is between the two discrimination prices as expected. Question 4 a. If B holds, C should cut (10 > 8) and if B cuts, C should cut (6 > 4). Thus the dominant strategy is for C to cut. By symmetry, the dominant strategy is for B to cut. b. The Nash Equilibria is the dominant strategy. Both players cut. c. If both players hold the social benefit is SB = 8+8 = 16. If one player cuts and the other holds we have SB = 10+4 = 14. If both cut then SB = 6+6 = 12. Thus both players holding is the best outcome for the two firms. The Nash equilibrium is the worst possible outcome. We have a prisoner s dilemma. If the two firms could sign a contract, they would sign a contract to hold prices and split the \$16 million. However, since such contracts are illegal and in any event, each has an incentive to cheat on any agreement. Cheating results in a price war. d. No. Even though (B) has promised to keep prices high, (B) has a strong incentive to renege on the promise and cut prices. Firm (C) should respond by ignoring firm (B) and cutting prices. Question 5 a. We have: Agency 3 Rates Good Agency 2 Good Bad Agency 1 Good 8, 8, 8 8,-6, 8 Bad -6, 8, 8 4,4,3 Agency 3 Rates Bad Agency 2 Good Bad Agency 1 Good 8, 8,-6 3,4,4 Bad 4,3,4 4, 4, 4 Table 1: Herding game solution. 5

6 b. No player has a dominant strategy: all players rate good, except when the other two players rate bad. So the best response depends on the other players actions. c. From the circles in table 1, there are two Nash equilibria, one where all rate good and one where all rate bad. d. Yes, both Nash equilibria have all players agreeing. Therefore, in the world one will observe either all players rating good or all players rating bad. e. We have: Agency 3 Rates Good Agency 2 Good Bad Agency 1 Good 8, 8, 4 8,-6,4 Bad -6, 8,4 4,4,-6 Agency 3 Rates Bad Agency 2 Good Bad Agency 1 Good 8, 8,3 3,4, 8 Bad 4,3, 8 4, 4, 8 Table 2: Herding game solution. f. Yes, both Nash equilibria have all players agreeing. Player 3 believes the correct rating is bad. But player 3 is not completely sure. Therefore, if both other players rate good, and player 3 happens to be wrong, the penalty is very high. So player 3 rates good in this case even though player 3 suspects the correct rating is bad. In the book, very few investors were able to maintain a short position long enough to cash in on the mortgage crises. Clients would leave because, until the crises occurred, everything looked fine and the short positions were losing money. Question 6 a. The best responses are: 6

8 offering a high price, the consumer is unable to take advantage of the match and has only high prices to choose from. 8

### Oligopoly: How do firms behave when there are only a few competitors? These firms produce all or most of their industry s output.

Topic 8 Chapter 13 Oligopoly and Monopolistic Competition Econ 203 Topic 8 page 1 Oligopoly: How do firms behave when there are only a few competitors? These firms produce all or most of their industry

Professor Scholz Posted: 11/10/2009 Economics 101, Problem Set #9, brief answers Due: 11/17/2009 Oligopoly and Monopolistic Competition Please SHOW your work and, if you have room, do the assignment on

### Price competition with homogenous products: The Bertrand duopoly model [Simultaneous move price setting duopoly]

ECON9 (Spring 0) & 350 (Tutorial ) Chapter Monopolistic Competition and Oligopoly (Part ) Price competition with homogenous products: The Bertrand duopoly model [Simultaneous move price setting duopoly]

### MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.

Economics 103 Spring 2012: Multiple choice review questions for final exam. Exam will cover chapters on perfect competition, monopoly, monopolistic competition and oligopoly up to the Nash equilibrium

### Market Structure: Duopoly and Oligopoly

WSG10 7/7/03 4:24 PM Page 145 10 Market Structure: Duopoly and Oligopoly OVERVIEW An oligopoly is an industry comprising a few firms. A duopoly, which is a special case of oligopoly, is an industry consisting

### 13 MONOPOLISTIC COMPETITION AND OLIGOPOLY. Chapter. Key Concepts

Chapter 13 MONOPOLISTIC COMPETITION AND OLIGOPOLY Key Concepts Monopolistic Competition The market structure of most industries lies between the extremes of perfect competition and monopoly. Monopolistic

### Oligopoly. Oligopoly is a market structure in which the number of sellers is small.

Oligopoly Oligopoly is a market structure in which the number of sellers is small. Oligopoly requires strategic thinking, unlike perfect competition, monopoly, and monopolistic competition. Under perfect

### Lecture 4: Nash equilibrium in economics: monopolies and duopolies

Lecture : Nash equilibrium in economics: monopolies and duopolies We discuss here an application of Nash equilibrium in economics, the Cournot s duopoly model. This is a very classical problem which in

### Market Structure: Oligopoly (Imperfect Competition)

Market Structure: Oligopoly (Imperfect Competition) I. Characteristics of Imperfectly Competitive Industries A. Monopolistic Competition large number of potential buyers and sellers differentiated product

### Chapter 13: Strategic Decision Making in Oligopoly Markets

Learning Objectives After reading Chapter 13 and working the problems for Chapter 13 in the textbook and in this Workbook, you should be able to do the following things For simultaneous decisions: Explain

### Chapter 16 Oligopoly. 16.1 What Is Oligopoly? 1) Describe the characteristics of an oligopoly.

Chapter 16 Oligopoly 16.1 What Is Oligopoly? 1) Describe the characteristics of an oligopoly. Answer: There are a small number of firms that act interdependently. They are tempted to form a cartel and

### The Basics of Game Theory

Sloan School of Management 15.010/15.011 Massachusetts Institute of Technology RECITATION NOTES #7 The Basics of Game Theory Friday - November 5, 2004 OUTLINE OF TODAY S RECITATION 1. Game theory definitions:

### Week 7 - Game Theory and Industrial Organisation

Week 7 - Game Theory and Industrial Organisation The Cournot and Bertrand models are the two basic templates for models of oligopoly; industry structures with a small number of firms. There are a number

### Extreme cases. In between cases

CHAPTER 16 OLIGOPOLY FOUR TYPES OF MARKET STRUCTURE Extreme cases PERFECTLY COMPETITION Many firms No barriers to entry Identical products MONOPOLY One firm Huge barriers to entry Unique product In between

### Oligopoly. Models of Oligopoly Behavior No single general model of oligopoly behavior exists. Oligopoly. Interdependence.

Oligopoly Chapter 16-2 Models of Oligopoly Behavior No single general model of oligopoly behavior exists. Oligopoly An oligopoly is a market structure characterized by: Few firms Either standardized or

### Economics Instructor Miller Oligopoly Practice Problems

Economics Instructor Miller Oligopoly Practice Problems 1. An oligopolistic industry is characterized by all of the following except A) existence of entry barriers. B) the possibility of reaping long run

### AGEC 105 Spring 2016 Homework 7. 1. Consider a monopolist that faces the demand curve given in the following table.

AGEC 105 Spring 2016 Homework 7 1. Consider a monopolist that faces the demand curve given in the following table. a. Fill in the table by calculating total revenue and marginal revenue at each price.

### Chapter 12 Monopolistic Competition and Oligopoly

Chapter Monopolistic Competition and Oligopoly Review Questions. What are the characteristics of a monopolistically competitive market? What happens to the equilibrium price and quantity in such a market

### 12 Monopolistic Competition and Oligopoly

12 Monopolistic Competition and Oligopoly Read Pindyck and Rubinfeld (2012), Chapter 12 09/04/2015 CHAPTER 12 OUTLINE 12.1 Monopolistic Competition 12.2 Oligopoly 12.3 Price Competition 12.4 Competition

### Thus MR(Q) = P (Q) Q P (Q 1) (Q 1) < P (Q) Q P (Q) (Q 1) = P (Q), since P (Q 1) > P (Q).

A monopolist s marginal revenue is always less than or equal to the price of the good. Marginal revenue is the amount of revenue the firm receives for each additional unit of output. It is the difference

### Economics 335, Spring 1999 Problem Set #7

Economics 335, Spring 1999 Problem Set #7 Name: 1. A monopolist has two sets of customers, group 1 and group 2. The inverse demand for group 1 may be described by P 1 = 200? Q 1, where P 1 is the price

### Common in European countries government runs telephone, water, electric companies.

Public ownership Common in European countries government runs telephone, water, electric companies. US: Postal service. Because delivery of mail seems to be natural monopoly. Private ownership incentive

### Quiz 1 (Practice). Circle the correct answer. Each question is worth 1 point.

Student name: Student ID: Quiz 1 (Practice). Circle the correct answer. Each question is worth 1 point. 1. Human capital is: a) The money that humans have in their bank accounts b) Machines that humans

### Marginal cost. Average cost. Marginal revenue 10 20 40

Economics 101 Fall 2011 Homework #6 Due: 12/13/2010 in lecture Directions: The homework will be collected in a box before the lecture. Please place your name, TA name and section number on top of the homework

### Rutgers University Economics 102: Introductory Microeconomics Professor Altshuler Fall 2003

Rutgers University Economics 102: Introductory Microeconomics Professor Altshuler Fall 2003 Answers to Problem Set 11 Chapter 16 2. a. If there were many suppliers of diamonds, price would equal marginal

### New Technology and Profits

Another useful comparative statics exercise is to determine how much a firm would pay to reduce its marginal costs to that of its competitor. This will simply be the difference between its profits with

### COST THEORY. I What costs matter? A Opportunity Costs

COST THEORY Cost theory is related to production theory, they are often used together. However, the question is how much to produce, as opposed to which inputs to use. That is, assume that we use production

### Chapter 7 Monopoly, Oligopoly and Strategy

Chapter 7 Monopoly, Oligopoly and Strategy After reading Chapter 7, MONOPOLY, OLIGOPOLY AND STRATEGY, you should be able to: Define the characteristics of Monopoly and Oligopoly, and explain why the are

### The Prisoner s Dilemma

Activity 10.1 The Prisoner s Dilemma Curly and Moe are crooks. They have been caught stealing auto parts and are now sitting in separate rooms in the city jail. The district attorney is delighted to have

### chapter: Solution Oligopoly 1. The accompanying table presents market share data for the U.S. breakfast cereal market

S209-S220_Krugman2e_PS_Ch15.qxp 9/16/08 9:23 PM Page S-209 Oligopoly chapter: 15 1. The accompanying table presents market share data for the U.S. breakfast cereal market in 2006. Company a. Use the data

### Oligopoly and Strategic Pricing

R.E.Marks 1998 Oligopoly 1 R.E.Marks 1998 Oligopoly Oligopoly and Strategic Pricing In this section we consider how firms compete when there are few sellers an oligopolistic market (from the Greek). Small

### MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.

Chap 13 Monopolistic Competition and Oligopoly These questions may include topics that were not covered in class and may not be on the exam. MULTIPLE CHOICE. Choose the one alternative that best completes

### 4. Market Structures. Learning Objectives 4-63. Market Structures

1. Supply and Demand: Introduction 3 2. Supply and Demand: Consumer Demand 33 3. Supply and Demand: Company Analysis 43 4. Market Structures 63 5. Key Formulas 81 2014 Allen Resources, Inc. All rights

### Figure: Computing Monopoly Profit

Name: Date: 1. Most electric, gas, and water companies are examples of: A) unregulated monopolies. B) natural monopolies. C) restricted-input monopolies. D) sunk-cost monopolies. Use the following to answer

### CHAPTER 10 MARKET POWER: MONOPOLY AND MONOPSONY

CHAPTER 10 MARKET POWER: MONOPOLY AND MONOPSONY EXERCISES 3. A monopolist firm faces a demand with constant elasticity of -.0. It has a constant marginal cost of \$0 per unit and sets a price to maximize

### Chapter 8 Production Technology and Costs 8.1 Economic Costs and Economic Profit

Chapter 8 Production Technology and Costs 8.1 Economic Costs and Economic Profit 1) Accountants include costs as part of a firm's costs, while economists include costs. A) explicit; no explicit B) implicit;

### Pre-Test Chapter 23 ed17

Pre-Test Chapter 23 ed17 Multiple Choice Questions 1. The kinked-demand curve model of oligopoly: A. assumes a firm's rivals will ignore a price cut but match a price increase. B. embodies the possibility

### chapter: Oligopoly Krugman/Wells Economics 2009 Worth Publishers 1 of 35

chapter: 15 >> Oligopoly Krugman/Wells Economics 2009 Worth Publishers 1 of 35 WHAT YOU WILL LEARN IN THIS CHAPTER The meaning of oligopoly, and why it occurs Why oligopolists have an incentive to act

### Managerial Economics

Managerial Economics Unit 4: Price discrimination Rudolf Winter-Ebmer Johannes Kepler University Linz Winter Term 2012 Managerial Economics: Unit 4 - Price discrimination 1 / 39 OBJECTIVES Objectives Explain

### Cooleconomics.com Monopolistic Competition and Oligopoly. Contents:

Cooleconomics.com Monopolistic Competition and Oligopoly Contents: Monopolistic Competition Attributes Short Run performance Long run performance Excess capacity Importance of Advertising Socialist Critique

### ECON101 STUDY GUIDE 7 CHAPTER 14

ECON101 STUDY GUIDE 7 CHAPTER 14 MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) An oligopoly firm is similar to a monopolistically competitive

### Oligopoly. Unit 4: Imperfect Competition. Unit 4: Imperfect Competition 4-4. Oligopolies FOUR MARKET MODELS

1 Unit 4: Imperfect Competition FOUR MARKET MODELS Perfect Competition Monopolistic Competition Pure Characteristics of Oligopolies: A Few Large Producers (Less than 10) Identical or Differentiated Products

### Ecn 221 - Unit 10 Monopolistic Competition & Oligopoly

Ecn 221 - Unit 10 Monopolistic Competition & Oligopoly An industry characterized by monopolistic competition is similar to the case of perfect competition in that there are many firms, and entry into the

### Chapter 11 Pricing Strategies for Firms with Market Power

Managerial Economics & Business Strategy Chapter 11 Pricing Strategies for Firms with Market Power McGraw-Hill/Irwin Copyright 2010 by the McGraw-Hill Companies, Inc. All rights reserved. Overview I. Basic

### Variable Cost. Marginal Cost. Average Variable Cost 0 \$50 \$50 \$0 -- -- -- -- 1 \$150 A B C D E F 2 G H I \$120 J K L 3 M N O P Q \$120 R

Class: Date: ID: A Principles Fall 2013 Midterm 3 Multiple Choice Identify the choice that best completes the statement or answers the question. 1. Trevor s Tire Company produced and sold 500 tires. The

### ECON 40050 Game Theory Exam 1 - Answer Key. 4) All exams must be turned in by 1:45 pm. No extensions will be granted.

1 ECON 40050 Game Theory Exam 1 - Answer Key Instructions: 1) You may use a pen or pencil, a hand-held nonprogrammable calculator, and a ruler. No other materials may be at or near your desk. Books, coats,

### 5. Suppose demand is perfectly elastic, and the supply of the good in question

ECON 1620 Basic Economics Principles 2010 2011 2 nd Semester Mid term test (1) : 40 multiple choice questions Time allowed : 60 minutes 1. When demand is inelastic the price elasticity of demand is (A)

### Economics 203: Intermediate Microeconomics I Lab Exercise #11. Buy Building Lease F1 = 500 F1 = 750 Firm 2 F2 = 500 F2 = 400

Page 1 March 19, 2012 Section 1: Test Your Understanding Economics 203: Intermediate Microeconomics I Lab Exercise #11 The following payoff matrix represents the long-run payoffs for two duopolists faced

### MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.

MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) The four-firm concentration ratio equals the percentage of the value of accounted for by the four

### The Analysis of the Article Microsoft's Aggressive New Pricing Strategy Using. Microeconomic Theory

2 The Analysis of the Article Microsoft's Aggressive New Pricing Strategy Using Microeconomic Theory I. Introduction: monopolistic power as a means of getting high profits II. The review of the article

### Imperfect Competition. Oligopoly. Types of Imperfectly Competitive Markets. Imperfect Competition. Markets With Only a Few Sellers

Imperfect Competition Oligopoly Chapter 16 Imperfect competition refers to those market structures that fall between perfect competition and pure monopoly. Copyright 2001 by Harcourt, Inc. All rights reserved.

### Practice Questions Week 8 Day 1

Practice Questions Week 8 Day 1 Multiple Choice Identify the choice that best completes the statement or answers the question. 1. The characteristics of a market that influence the behavior of market participants

### CHAPTER 6 MARKET STRUCTURE

CHAPTER 6 MARKET STRUCTURE CHAPTER SUMMARY This chapter presents an economic analysis of market structure. It starts with perfect competition as a benchmark. Potential barriers to entry, that might limit

### Lecture 11: Oligopoly and Strategic Behavior

Lecture 11: Oligopoly and Strategic Behavior Few Firms in the Market: Each aware of others actions Each firm in the industry has market power Entry is Feasible, although incumbent(s) may try to deter it.

### Managerial Economics & Business Strategy Chapter 8. Managing in Competitive, Monopolistic, and Monopolistically Competitive Markets

Managerial Economics & Business Strategy Chapter 8 Managing in Competitive, Monopolistic, and Monopolistically Competitive Markets I. Perfect Competition Overview Characteristics and profit outlook. Effect

### LECTURE #15: MICROECONOMICS CHAPTER 17

LECTURE #15: MICROECONOMICS CHAPTER 17 I. IMPORTANT DEFINITIONS A. Oligopoly: a market structure with a few sellers offering similar or identical products. B. Game Theory: the study of how people behave

### Profit maximization in different market structures

Profit maximization in different market structures In the cappuccino problem as well in your team project, demand is clearly downward sloping if the store wants to sell more drink, it has to lower the

### CHAPTER 12 MARKETS WITH MARKET POWER Microeconomics in Context (Goodwin, et al.), 2 nd Edition

CHAPTER 12 MARKETS WITH MARKET POWER Microeconomics in Context (Goodwin, et al.), 2 nd Edition Chapter Summary Now that you understand the model of a perfectly competitive market, this chapter complicates

### Choose the single best answer for each question. Do all of your scratch-work in the side and bottom margins of pages.

Econ 0, Sections 3 and 4, S, Schroeter Exam #4, Special code = 000 Choose the single best answer for each question. Do all of your scratch-work in the side and bottom margins of pages.. Gordon is the owner

### CHAPTER 18 MARKETS WITH MARKET POWER Principles of Economics in Context (Goodwin et al.)

CHAPTER 18 MARKETS WITH MARKET POWER Principles of Economics in Context (Goodwin et al.) Chapter Summary Now that you understand the model of a perfectly competitive market, this chapter complicates the

### Lecture 5: Review Investment decisions and break even analysis

Lecture 5: Review Investment decisions and break even analysis 2 Summary Investments imply willingness to trade dollars in the present for dollars in the future. Wealth-creating transactions occur when

### MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.

MBA 640 Survey of Microeconomics Fall 2006, Quiz 6 Name MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) A monopoly is best defined as a firm that

### Do not open this exam until told to do so.

Do not open this exam until told to do so. Department of Economics College of Social and Applied Human Sciences K. Annen, Winter 004 Final (Version ): Intermediate Microeconomics (ECON30) Solutions Final

### Microeconomics. Lecture Outline. Claudia Vogel. Winter Term 2009/2010. Part III Market Structure and Competitive Strategy

Microeconomics Claudia Vogel EUV Winter Term 2009/2010 Claudia Vogel (EUV) Microeconomics Winter Term 2009/2010 1 / 25 Lecture Outline Part III Market Structure and Competitive Strategy 12 Monopolistic

### Microeconomics and mathematics (with answers) 5 Cost, revenue and profit

Microeconomics and mathematics (with answers) 5 Cost, revenue and profit Remarks: = uantity Costs TC = Total cost (= AC * ) AC = Average cost (= TC ) MC = Marginal cost [= (TC)'] FC = Fixed cost VC = (Total)

### MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question on the accompanying scantron.

Principles of Microeconomics Fall 2007, Quiz #6 Name MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question on the accompanying scantron. 1) A monopoly is

### Monopolistic Competition, Oligopoly, and maybe some Game Theory

Monopolistic Competition, Oligopoly, and maybe some Game Theory Now that we have considered the extremes in market structure in the form of perfect competition and monopoly, we turn to market structures

### ECON 103, 2008-2 ANSWERS TO HOME WORK ASSIGNMENTS

ECON 103, 2008-2 ANSWERS TO HOME WORK ASSIGNMENTS Due the Week of June 23 Chapter 8 WRITE [4] Use the demand schedule that follows to calculate total revenue and marginal revenue at each quantity. Plot

### When other firms see these potential profits they will enter the industry, causing a downward shift in the demand for a given firm s product.

Characteristics of Monopolistic Competition large number of firms differentiated products (ie. substitutes) freedom of entry and exit Examples Upholstered furniture: firms; HHI* = 395 Jewelry and Silverware:

### First degree price discrimination ECON 171

First degree price discrimination Introduction Annual subscriptions generally cost less in total than one-off purchases Buying in bulk usually offers a price discount these are price discrimination reflecting

### MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.

Test 2 Review Econ 201, V. Tremblay MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) Barbara left a \$25,000 job as an architect to run a catering

### Price Competition Under Product Differentiation

Competition Under Product Differentiation Chapter 10: Competition 1 Introduction In a wide variety of markets firms compete in prices Internet access Restaurants Consultants Financial services Without

### KEELE UNIVERSITY MID-TERM TEST, 2007 BA BUSINESS ECONOMICS BA FINANCE AND ECONOMICS BA MANAGEMENT SCIENCE ECO 20015 MANAGERIAL ECONOMICS II

KEELE UNIVERSITY MID-TERM TEST, 2007 Thursday 22nd NOVEMBER, 12.05-12.55 BA BUSINESS ECONOMICS BA FINANCE AND ECONOMICS BA MANAGEMENT SCIENCE ECO 20015 MANAGERIAL ECONOMICS II Candidates should attempt

### How to Solve Strategic Games? Dominant Strategies

How to Solve Strategic Games? There are three main concepts to solve strategic games: 1. Dominant Strategies & Dominant Strategy Equilibrium 2. Dominated Strategies & Iterative Elimination of Dominated

### Problems on Perfect Competition & Monopoly

Problems on Perfect Competition & Monopoly 1. True and False questions. Indicate whether each of the following statements is true or false and why. (a) In long-run equilibrium, every firm in a perfectly

### Competition and Regulation. Lecture 2: Background on imperfect competition

Competition and Regulation Lecture 2: Background on imperfect competition Monopoly A monopolist maximizes its profits, choosing simultaneously quantity and prices, taking the Demand as a contraint; The

1 Monopoly Why Monopolies Arise? Monopoly is a rm that is the sole seller of a product without close substitutes. The fundamental cause of monopoly is barriers to entry: A monopoly remains the only seller

### Industry profit in an oligopoly (sum of all firms profits) < monopoly profit.

Collusion. Industry profit in an oligopoly (sum of all firms profits) < monopoly profit. Price lower and industry output higher than in a monopoly. Firms lose because of non-cooperative behavior : Each

### OLIGOPOLY. Nature of Oligopoly. What Causes Oligopoly?

CH 11: OLIGOPOLY 1 OLIGOPOLY When a few big firms dominate the market, the situation is called oligopoly. Any action of one firm will affect the performance of other firms. If one of the firms reduces

### Oligopoly and Game Theory

Chapter 15 MODERN PRINCIPLES OF ECONOMICS Third Edition Oligopoly and Game Theory Outline Cartels The Prisoner s Dilemma Oligopolies When Are Cartels and Oligopolies Most Successful? Government Policy

### Monopolistic Competition

Monopolistic Chapter 17 Copyright 2001 by Harcourt, Inc. All rights reserved. Requests for permission to make copies of any part of the work should be mailed to: Permissions Department, Harcourt College

### Oligopoly. Oligopoly. Offer similar or identical products Interdependent. How people behave in strategic situations

Oligopoly PowerPoint Slides prepared by: Andreea CHIRITESCU Eastern Illinois University 1 Oligopoly Only a few sellers Oligopoly Offer similar or identical products Interdependent Game theory How people

### MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.

Practice for Perfect Competition Name MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) Which of the following is a defining characteristic of a

### MODULE 64: INTRODUCTION TO OLIGOPOLY Schmidty School of Economics. Wednesday, December 4, 2013 9:20:15 PM Central Standard Time

MODULE 64: INTRODUCTION TO OLIGOPOLY Schmidty School of Economics Learning Targets I Can Understand why oligopolists have an incentive to act in ways that reduce their combined profit. Explain why oligopolies

### Chapter 14. Oligopoly

Chapter 14. Oligopoly Instructor: JINKOOK LEE Department of Economics / Texas A&M University ECON 202 504 Principles of Microeconomics Oligopoly Market Oligopoly: A market structure in which a small number

### Final Exam 15 December 2006

Eco 301 Name Final Exam 15 December 2006 120 points. Please write all answers in ink. You may use pencil and a straight edge to draw graphs. Allocate your time efficiently. Part 1 (10 points each) 1. As

### Oligopoly and Strategic Behavior

Oligopoly and Strategic Behavior MULTIPLE-CHOICE QUESTIONS Like a pure monopoly, an oligopoly is characterized by: a. free entry and exit in the long run. b. free entry and exit in the short run. c. significant

### I d Rather Stay Stupid: The Advantage of Having Low Utility

I d Rather Stay Stupid: The Advantage of Having Low Utility Lior Seeman Department of Computer Science Cornell University lseeman@cs.cornell.edu Abstract Motivated by cost of computation in game theory,

### Monopoly and Perfect Competition Compared

Monopoly and Perfect Competition Compared I. Definitions of Efficiency A. Technological efficiency occurs when: Given the output produced, the costs of production (recourses used) are minimized. or Given

### CHAPTER 11: MONOPOLISTIC COMPETITION AND OLIGOPOLY

CHAPTER 11: MONOPOLISTIC COMPETITION AND OLIGOPOLY Introduction While perfect competition and monopoly represent the extremes of market structures, most American firms are found in the two market structures

### MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question on the accompanying scantron.

Principles of Microeconomics, Quiz #5 Fall 2007 Name MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question on the accompanying scantron. 1) Perfect competition

### COMMERCE MENTORSHIP PROGRAM COMM295: MANAGERIAL ECONOMICS FINAL EXAM REVIEW SOLUTION KEY

COMMERCE MENTORSHIP PROGRAM COMM295: MANAGERIAL ECONOMICS FINAL EXAM REVIEW SOLUTION KEY WR1 Sam-I-Am is a local restaurant chain located in Vancouver. It is considering different pricing strategies for

### Chapter 16 Monopolistic Competition and Oligopoly

Chapter 16 Monopolistic Competition and Oligopoly Market Structure Market structure refers to the physical characteristics of the market within which firms interact It is determined by the number of firms

### Economics 431 Fall 2003 1st midterm Answer Key

Economics 431 Fall 003 1st midterm Answer Key 1) (7 points) Consider an industry that consists of a large number of identical firms. In the long run competitive equilibrium, a firm s marginal cost must

### UNIT 6 cont PRICING UNDER DIFFERENT MARKET STRUCTURES. Monopolistic Competition

UNIT 6 cont PRICING UNDER DIFFERENT MARKET STRUCTURES Monopolistic Competition Market Structure Perfect Competition Pure Monopoly Monopolistic Competition Oligopoly Duopoly Monopoly The further right on

### Chapter 14 Monopoly. 14.1 Monopoly and How It Arises

Chapter 14 Monopoly 14.1 Monopoly and How It Arises 1) One of the requirements for a monopoly is that A) products are high priced. B) there are several close substitutes for the product. C) there is a

### Economics 165 Winter 2002 Problem Set #2

Economics 165 Winter 2002 Problem Set #2 Problem 1: Consider the monopolistic competition model. Say we are looking at sailboat producers. Each producer has fixed costs of 10 million and marginal costs