#1: The Monopolistic Competitor

Transcription

1 #1: The Monopolistic Competitor Economic v. Accounting Profit MC-1) A profit just sufficiently large enough to sustain a business in the long run (without attracting competition) is also called a. break even b. zero economic profit c. normal accounting profit d. all of the above e. none of the above MC-2) Firms will enter an industry that has no barriers to entry if a. there are no economic losses b. there are accounting profits c. there are economic profits d. there are no accounting losses e. there is a normal accounting profit MC-3) If a firm is making a zero economic profit it a. will exit the industry in the long run b. other firms in the industry will exit in the long run c. is doing better than the alternative d. is doing just as well to the alternative e. is making an abnormally large accounting profit which attracts competition in the long run The following questions concern the following scenario. A profit maximizing sole proprietorship has revenue of $210,000. Employee costs are $50,000. Rent is $24,000. Materials are $65,000. Interest is $12,000. Besides the loan, the owner also invested $50,000 of her own money on which she could have received an interest rate of 6%. The owner quit an $80,000 a year job to start this business. MC-4) In the above scenario, the employee costs are a. an explicit cost b. an accounting cost c. an opportunity cost d. an economic cost MC-5) In the above scenario, the total of explicit costs is a. $74,000 b. $139,000 c. $151,000 d. $201,000 e. $281,000 MC-6) In the above scenario, accounting profit is a. $-71,000 b. $9,000 c. $59,000 d. $71,000 e. $136,000 MC-7) In the above scenario, implicit costs are a. $80,000 b. $83,000 c. $120,00 d. $123,000 e. $281,000 MC-8) In the above scenario, opportunity costs are a. $136,000 b. $221,000 c. $234,000 d. $281,000 e. $284,000 MC-9) In the above scenario, economic profit is a. $-74,000 b. $-71,000 c. $-52,000 d. $-24,000 e. $-11,000 MC-10) Given the above scenario, economics predicts a. this firm will shut down in the short run b. new firms will enter the industry c. this firm will exit in the long run d. the owner will raise the price of their good e. the normal profit will increase Monopolistic Competitor $11 $9 $8 $6 $4 $3 $2 50 Figure MC-11) The profit maximizing quantity for the firm in Figure 1 is a. 50 b. 80 c. 100 d. 130 e

2 MC-12) The profit maximizing price for the firm in Figure 1 is a. $11 b. $9 c. $8 d. $6 e. $3 MC-13) The total cost for the firm in Figure 1 will be a. $3 b. $100 c. $200 d. $300 e. $780 MC-14) The total revenue for the firm in Figure 1 will be a. $300 b. $400 c. $780 d. $800 e. $1200 MC-15) The firm in Figure 1 will make a profit of a. $500 b. $550 c. $600 d. $800 e. $1,220 MC-16) For the monopolistically competitive firm in Figure 1, in the long run we expect to see this firm s demand curve a. shift right and become more inelastic b. shift right and become more elastic c. shift left and become more inelastic d. shift left and become more elastic e. none of the above, the curve stays the same MC-17) For the monopolistically competitive firm in Figure 1, in the long run in this industry we expect to see a. firms enter and this firm will produce less. b. firms enter and this firm will produce more. c. firms enter and this firm will produce the same d. firms exit and this firm will produce less. e. firms exit and this firm will produce more. MC-18) Monopolistically competitive firms are different from perfectly competitive firms because monopolistically competitive firms a. have some control over the price of their product. b. can earn profits in the long run c. have barriers to entry d. produce homogeneous goods e. are few in number in the industry MC-19) Monopolistically competitive firms are different from monopolies because monopolistically competitive firms a. make profits in the long run b. are price takers c. have barriers to entry d. face competition in the long run e. have a downward sloping demand curve MC-20) Which of the following actions would not be a strategy a monopolistically competitive firm would use to gain economic profits a. offer exceptional customer service b. differentiate their good c. offer a special low sale price d. develop a brand name e. advertise their good MC-21) Which of the following is not a characteristic of monopolistic competitors? a. There are no barriers to entry b. Firms produce a homogeneous product c. Individual firms face a downward sloping demand curve d. Firms can make a profit in the short run e. Firms breakeven in the long run MC-22) Which of the following is an important characteristic of monopolistic competitors? a. Each firm is large and comprises a significant share of the market b. Each firm is like a small monopoly that makes profit in the long run c. Each firm produces a good that is different from what other firms are producing in that industry d. There are large barriers to entry that keep new firms out e. The demand curve that each firm faces is perfectly elastic MC-23) As competition enters a monopolistically competitive industry, a firm in that industry will observe their demand curve a. decrease and become more inelastic b. increase and become more inelastic c. decrease and become more elastic d. increase and become more elastic e. decrease and become perfectly inelastic MC-24) Monopolistic Competitors are different than Monopolies because Monopolistic Competitors a. make profit in the long run but not the short run b. face a perfectly elastic demand curve, not a downward sloping one c. cannot make profit in the short run or long run d. breakeven in the long run e. have MR = P

3 MC-25) Monopolistic Competitors are different than Perfectly Competitive Firms because Monopolistic Competitors a. face a downward sloping demand curve b. can make profit in the long run c. can make profit in the short run d. have significant barriers to entry e. identical products

4 #2: Perfect Competition A Competitive Industry & Firm Defined PC-1) In a perfectly competitive industry, the market demand curve is a. Vertical b. horizontal c. downward sloping d. upward sloping e. perfectly inelastic PC-2) In a perfectly competitive industry, the demand curve the firm sees is a. vertical b. horizontal c. downward sloping d. upward sloping e. perfectly inelastic PC-3) A competitive firm is a price taker because a. they sell at a profit maximizing price b. MC = MR c. the firm is small and insignificant d. there are barriers to entry PC-4) Which of the following statements about the perfectly competitive firm is not true? a. The demand curve the firm sees is perfectly elastic b. There is easy entry into, and exit from, the market c. MR = P d. If a firm cuts production, it will drive the price of the good up e. There are many firms PC-5) Which of the following is not an assumption about perfectly competitive firms? a. Firms produce heterogeneous products b. There are no barriers to entry or exit c. Everyone has full information d. The firm is a price taker e. There are many firms in the industry PC-7) The MR for a competitive firm is a. zero b. equal to the market price of the good c. declining at an increasing rate d. declining at a decreasing rate e. equal to ATC PC-8) To maximize profit, a competitive firm should produce the quantity where a. MC = ATC b. P = ATC c. P = MC d. P = AVC e. P = MR The Supply Curve in Competitive Industry PC-9) The short run supply curve of a competitive firm is a. the MC curve above the shut down point b. the ATC curve c. the ATC curve above MC d. the MR curve e. nonexistent PC-10) The short run supply curve of a competitive industry is a. perfectly elastic b. perfectly inelastic c. the sum of the firms supply curves d. equal to the average cost of all firms e. the same as the supply curve of the largest firm in the industry PC-11) When more firms enter a competitive industry, the short run industry supply curve will a. become more steep b. shift to the left c. increase d. move downward e. become perfectly elastic PC-6) A perfectly competitive firm a. can attract more customers by pricing below the market price b. can increase profits by lowering her price. c. will lose all of its customers if it prices above the market price d. can increase its total revenue by pricing above the market price e. can increase its total revenue by decreasing her price below the market price

5 18 Figure AVC MC ATC PC-12) Using Figure 1, if the market price is $9, the firm should produce a. 70 b. 80 c. 90 d. 100 e. Not enough information to tell PC-13) Using Figure 1, if the market price is $18, the firm should produce a. 70 b. 80 c. 90 d. 100 e. 0 PC-14) Using Figure 1, if the market price is $14, the firm should produce a. 70 b. 80 c. 90 d. 100 e. 0 PC-15) Using Figure 1, if the market price is $18, the firm will earn an economic profit of a. -50 b. 50 c. 350 d e. Not enough information to tell PC-16) Using Figure 1, if the market price is $9, the firm will earn an economic profit of a b c. -50 d. 160 e. 720 PC-17) Using Figure 1, if the firm produces 80 goods, the firm s total costs will be: a. 600 b. 720 c. 800 d e PC-18) Using Figure 1, if the market price is $6, the firm should produce a. 70 b. 80 c. 90 d. 100 e. 0 PC-19) Using Figure 1, if the market price is $9 and there are 150 firms in the industry, the quantity supplied in the industry will be: a. 100 b. 150 c. 1,350 d. 12,000 e. 15,000 Perfect Competition, Industry $6 $4 Rep. Firm S1 Figure 1 45 Industry S 2 S 3 S 4 S (in 1000 s) PC-20) Using Figure 1, if there are 5,000 firms in this perfectly competitive industry, the industry s supply curve is a. S 1 b. S 2 c. S 3 d. S 4 e. S 5 PC-21) Using Figure 1, S 2 would represent the supply curve of the industry if there are this many firms in the industry a. 2,000 b. 3,000 c. 4,000 d. 5,000 e. 6,000

6 PC-22) Using Figure 1, if there are 5,000 firms in this perfectly competitive industry, and the firms are making an accounting profit, the industry supply curve will shift to a. S 1 b. S 2 c. S 3 d. S 4 e. not enough information to say PC-23) Using Figure 1, if there are 5,000 firms in this perfectly competitive industry, and the firms are suffering an economic loss, the industry supply curve will shift to a. S 1 b. S 2 c. S 3 d. S 4 e. not enough information to say PC-24) Using Figure 1, the industry supply curve is given by S 4. The quantity supplied by the industry with a price of $4 is a. 90,000 b. 105,000 c. 120,000 d. 135,000 e. 150,000 PC-25) Using Figure 1, the bottom of the S 1 curve is defined by a. industry demand curve b. the bottom of LRAC c. the Break Even point d. the Shut Down Point e. the lowest point of MC Competitive Industry Long Run Equilibrium PC-26) There is an increase in demand in a perfectly competitive industry. Which of the following does not happen in the short run a. The market price rises b. Firms will make economic profits c. New firms enter the industry d. Quantity produced in the industry increases e. Quantity produced by each firm increases PC-27) There is an increase in demand in a perfectly competitive industry. Which of the following does not happen in the long run (from the short run equilibrium) a. The market price falls b. The market supply curve increases c. New firms enter the industry d. Quantity produced in the industry increases e. Quantity produced by each firm increases PC-28) There is a decrease in demand in a perfectly competitive industry. Which of the following happens in the short run a. The market price rises b. Firms break even c. Firms exit the industry d. Quantity produced in the industry decreases e. Quantity produced by each firm increases PC-29) There is a decrease in demand in a perfectly competitive industry. Which of the following does not happen in the long run (from the short run equilibrium) a. The market price rises b. Firms will break even c. New firms enter the industry d. Quantity produced in the industry decreases e. Quantity produced by each firm increases PC-30) The long run supply curve in a perfectly competitive industry is (assuming constant cost industry) a. sum of all firms supply curves b. downward sloping if there are economies of scale c. vertical if there are finite resources d. perfectly elastic e. U-shaped PC-31) In a perfectly competitive industry, the position if the long run supply curve is determined by a. demand b. shut down point c. minimum of long run average cost d. diminishing returns e. bottom of MC or highest point of MP PC-32) In an increasing cost industry, the long run supply curve is, and in a decrease cost industry, the long run supply curve is a. upward sloping; downward sloping b. downward sloping; upward sloping c. perfect inelastic; elastic d. elastic; perfectly inelastic e. vertical; horizontal PC-33) With an increase in demand, in the long run, price will in an increasing-cost industry and in a decreasing-cost industry a. rise; fall b. stay the same; stay the same c. rise; stay the same d. stay the same; rise e. fall; rise

7 PC-34) A perfectly competitive industry will move along a long run supply curve by a. increases or decreases in the price b. each representative firm producing more or less in the short run c. each representative firm producing more or less in the long run d. firms entering or exiting the industry e. changes in technology PC-35) Resources are limited in this industry; so, as more firms enter, the cost of production gets bid up. The describes a. diminishing returns b. increasing cost industry c. decreasing cost industry d. economies of scale e. diseconomies of scale Figure 2 S 1 S 2 S 3 S 4 PC-36) Using Figure 2, this is the industry short run supply curve a. S 1 b. S 2 c. S 3 d. S 4 PC-37) Using Figure 2, this is the constant-cost industry long run supply curve a. S 1 b. S 2 c. S 3 d. S 4 PC-38) Using Figure 2, this is the increasing-cost industry long run supply curve a. S 1 b. S 2 c. S 3 d. S 4 PC-39) Using Figure 2, this is the decreasing-cost industry long run supply curve a. S 1 b. S 2 c. S 3 d. S 4

8 #3: Implications of Long Run Average Cost Figure 1 LRAC 1 LRAC 2 LRAC 3 P 1 LRAC 4 LRAC 5 Firm For all the following questions, Figure 1 has the LRAC s of five different perfectly competitive industries. LRAC-1) Gardening service firms are small with only a few employees. Assuming the industry is in long run equilibrium, which LRAC would best represent gardening service firms? a. LRAC 1 b. LRAC 2 c. LRAC 3 d. LRAC 4 e. LRAC 5 LRAC-2) The firms of this industry are large but the product has a higher price. Assuming the industry is in long run equilibrium, which LRAC would best represent this industry? a. LRAC 1 b. LRAC 2 c. LRAC 3 d. LRAC 4 e. LRAC 5 LRAC-3) Assuming the industry is in long run equilibrium, the industry represented by this cost curve will have the highest price. a. LRAC 1 b. LRAC 2 c. LRAC 3 d. LRAC 4 e. LRAC 5 LRAC-4) Assuming the industry is in long run equilibrium, this industry has firms whose size is quite varied. There are small firms, mediums firms, and large firms. The industry would be best characterized by this cost curve. a. LRAC 1 b. LRAC 2 c. LRAC 3 d. LRAC 4 e. LRAC 5 LRAC-5) Assuming the industry is in long run equilibrium, an industry with large firms producing an inexpensive product would be characterized by this cost curve. a. LRAC 1 b. LRAC 2 c. LRAC 3 d. LRAC 4 e. LRAC 5 LRAC-6) The firms of an industry have the cost curve LRAC 5 The current market price is P 1. We know that: a. The industry is long run equilibrium because the firm has a LRAC curve b. The industry is long run equilibrium because the price crosses the LRAC curve c. In the long run, firms will enter, and price will fall d. In the long run, firms will exit, and price will fall e. In the long run, each firm will produce less and price will fall.

9 LRAC-7) This industry is in long run equilibrium, and price is at P 1. This industry would be represented by this cost curve: a. LRAC 1 b. LRAC 2 c. LRAC 3 d. LRAC 4 e. LRAC 5 LRAC-8) The LRAC s of an industry are represented by LRAC 1. The current market price is P 1. What does theory predict will happen next: a. No change b. Firms enter, and price falls c. Firms exit, and price falls d. Firms enter, and price rises e. Firms exit, and price rises LRAC-9) The firms of an industry have the cost curve LRAC 2 The current market price is P 1. We know that: a. Firms are breaking even b. Firms are making a profit, and more firms will enter the industry c. Firms are making a profit, and firms will exit the industry d. Firms are suffering a loss, and more firms will enter the industry. e. Firms are suffering a loss, and firms will exit the industry.

10 #4: Game Theory GT-1) Game theory is a. economic theory of people having fun b. economic theory of people utilizing leisure time c. mathematical analysis of models of cooperation and conflict between rational decision makers d. mathematical and economic analysis of decisions involving random, chance events e. economic theory of using games to increase productivity of workers GT-2) A game like chess where players take alternating turns making decisions is this type of game a. Strategic game b. Prisoners game c. Sequential game d. Turn after turn game e. All of the above GT-3) Which is the following is a simultaneous game a. Rock, Paper, Scissors b. Tic-Tac-Toe c. Chess d. Monopoly e. All of the above are simultaneous games GT-4) In the game Rock, Paper, Scissors, a pure (not mixed) strategy Nash equilibrium is a. Always choose rock b. There are three: both players choosing the same thing, both choosing rock, paper, or scissors. c. There are three Nash equilibriums: you choose rock if the other player chooses scissors, paper if the other player chooses rock, and scissors if the other player chooses paper. d. There are six Nash equilibriums: whenever the players do not choose the same thing because if they choose the same thing, you do the game again. e. There is no pure strategy in Rock, Paper, Scissors that s a Nash Equilibrium GT-5) In game theory, a mixed strategy means the player should a. choose a different strategy than your opponent b. choose the same strategy as your opponent c. choose a strategy other than the Nash equilibrium and other than the dominant strategy d. alternate which strategy you pick from round to round e. create a new middle strategy that s in the middle of your current strategies. GT-6) Games can be made more complicated by a. adding more players than two b. adding more options from which a player can choose c. having more than a single round of play d. having some uncertainty of outcomes GT-7) Games in which the winnings of one player are equal to the losses of the other players a. are properly called puzzles, not games b. are impossible to analyze c. are called zero-sum games d. are called simultaneous games e. do not have a Nash equilibrium GT-8) Examples of non zero-sum games are a. very rare so they are not analyzed b. probably most common, so they need to be studied c. mathematically equivalent to zero-sum games d. impossible to describe mathematically e. always of a win-lose variety GT-9) Zero-sum games are a. games of pure conflict b. the most common and realistic games c. the economically most interesting games d. games that offer the possibility of no one losing GT-10) In sequential games, a suggestion for finding a best possible action is to a. find a dominant strategy b. find a Nash equilibrium c. look forward and reason backward d. always take the path of least resistance e. chart the middle course GT-11) In chess, a best strategy has never been found because a. There s no Nash equilibrium b. There are so many different possible outcomes, it s been impossible to reason backwards the best strategy c. The optimal strategy is a mixed strategy which means you never do the same thing d. It is a simultaneous game so there is no reasoning backwards e. Chess involves humans who are occasionally irrational GT-12) In the original version of the Prisoners Dilemma (where there are two prisoners), if Prisoner 1 does not confess, then Prisoner 2 a. can be better off if they confess b. will not be interrogated by the police c. will receive no punishment by also not confessing d. will have to confess or else receive the most severe punishment e. none of the above

11 GT-13) In the original version of the Prisoners Dilemma (where there are two prisoners), if one prisoner confesses, the other prisoner a. should not confess b. will want to confess to avoid a severe punishment c. will get off without punishment d. will not confess to avoid a long sentence e. cannot do anything because the first prisoner already confessed GT-14) In the original version of the Prisoners Dilemma (where there are two prisoners), the dominant strategy a. does not exist b. has both prisoners remaining silent and not confessing to reduce punishment c. has each prisoner confessing which always seems better no matter what the other prisoner does d. leads to collusion between the two prisoners GT-15) Players in a Prisoners Dilemma game are more likely to choose the cooperative strategy if a. the gains from defection is very large b. players can communicate in advance c. one player pre-commits d. the game is played in multiple rounds e. the game is simultaneous GT-16) If playing multiple rounds of a Prisoners Dilemma, the best strategy seems to be a. Tit for tat b. Tit for tat but with added forgiveness c. Nash Equilibrium d. Dominant Strategy e. Mixed strategy Hunter B Hunt the Stag Hunt the Hare Table 1 A Stag Hunt Hunt the Stag B: 3 B: 1 Hunter A A: 3 A: 0 Hunt the Hare B: 0 B: 1 A: 1 A: 1 GT-17) In table 1, if A hunts the stag and B hunts the hare, a. A and B both get nothing b. A and B both get the maximum that s possible c. A gets a little, B gets nothing d. A gets nothing, B gets a little e. A and B both get a little GT-18) In table 1, an important part of this game is that a. hares are too small to feed two people b. both players have to cooperate together to successfully hunt the stag c. it is always better to hunt a hare than a stag d. it is always better to hunt the stag than a hare e. if both players hunt the stag, they ll scare it away and be unsuccessful GT-19) In table 1, the dominant strategy is a. hunt the stag b. hunt the hare c. hunt the stag only if your opponent is hunting the stag d. hunt the stag only if your opponent is hunting the hare e. there is no dominant strategy GT-20) In table 1, the (pure strategy) Nash equilibrium is a. both players hunting the stag b. both players hunting the hare c. there are two: both players hunting the stag and both players hunting the hare d. hunt the hare unless the other player has a credible policy to hunt the stag, then hunt the stag e. there is no Nash equilibrium GT-21) In table 1, the efficient outcome is a. both players hunting the stag b. both players hunting the hare c. there are two: both players hunting the stag and both players hunting the hare d. one person hunts the hare and one person hunts the stag e. there is no efficient outcome GT-22) In table 1, the Stag Hunt game is not a prisoners dilemma because a. players are worse off, not better, if they cooperate with each other b. there is no Nash equilibrium c. if players cooperate with each other, there s no incentive to cheat on or break the cooperation d. both players receive a benefit instead of a punishment e. the dominant strategy is to cooperate with each other instead of competing with each other GT-23) In the Stag Hunt game, as seen in table 1, some players will tend to choose the low-risk strategy. This means players will choose to a. hunt the stag b. hunt the hare c. follow a mixed strategy of sometimes hunting the hare and sometimes the stag to ensure they don t always miss out. d. wait and see. e. not play the game.

12 GT-24) In the Stag Hunt game, as seen in table 1, some players will tend to choose a high-reward strategy instead of low-risk. This means players will choose to a. hunt the stag b. hunt the hare c. follow a mixed strategy of sometimes hunting the hare and sometimes the stag to ensure they don t always miss out. d. wait and see. e. not play the game. Bicycling Person B Tennis Table 3 Battle of Sexes Bicycling Person A Tennis B: 3 A: 5 A: -2 B: -2 B: 1 A: 1 A: 3 B: 5 Driver B Don t Swerve Swerve Table 2 Game of Chicken Swerve B: 3 B: 0 Driver A A: -1 A: 0 Don t Swerve B: -3 B: -1 GT-25) In table 2, the dominant strategy is a. swerve b. don t swerve c. don t swerve unless the other driver doesn t d. wait for the other person to swerve e. there is no dominant strategy A: -3 A: 3 GT-26) In table 2, the (pure strategy) Nash equilibrium is a. both drivers swerve b. both drivers don t swerve c. there are two: A swerves and B doesn t, and vice versa d. there are two: they both swerve or they both don t swerve e. there are three: A swerves, B swerves, or they both swerve GT-27) Game of Chicken is not a Prisoners Dilemma because a. players must cooperate to achieve the best outcome b. players will always stay with their initial strategy c. players cannot cooperate to produce a mutually beneficial outcome d. players will always do what they promise GT-28) One possible solution for a player in a Game of Chicken is a. credible pre-commitment b. agreeing to do one thing then actually doing the opposite c. collusion d. use tit for tat e. penalties or consequences for breaking a promise GT-29) In table 3, the dominant strategy is a. go bicycling b. play tennis c. always do what the other person does d. wait to see what the other person does e. there is no dominant strategy GT-30) In table 3, the (pure strategy) Nash equilibrium is a. both players bicycle b. both players play tennis c. there are two: both bicycling and both playing tennis d. there are two: A bicycles while B plays tennis and vice versa e. there is no Nash equilibrium GT-31) In table 3, the Battle of Sexes game is not a prisoners dilemma because a. if players cooperate with each other, there s no incentive to cheat on or break the cooperation b. players are worse off, not better, if they cooperate with each other c. there is no Nash equilibrium d. both players receive a benefit instead of a punishment e. the dominant strategy is to cooperate with each other instead of competing with each other GT-32) For pre-commitment to be an effective solution to a game situation, a. the game needs to have multiple rounds b. it must be impossible or very expensive to violate the pre-commitment c. there must be a single Nash equilibrium d. it must be a prisoner s dilemma, not a game of chicken GT-33) If a commitment, threat or promise is believed, it s referred to as being a. credible b. Nash c. strategic d. iron-clad e. bone fide

13 GT-34) A method to make a commitment believed is a. using a 3 rd party agent to enforce the commitment b. using a contract c. having a reputation adhering to your commitment d. burning your bridges Defect Person B Cooperate Cooperate B: 5 B: 3 Table 4 GT-35) For the game presented in Table 4, the Dominant Strategy is a. Always cooperate b. Always defect c. Always match your opponent d. Use a mixed strategy e. There is no Dominant Strategy GT-36) For the game presented in Table 4, the (pure strategy) Nash Equilibrium is a. Both players cooperate b. Both player defect c. There are two, both players defect or both players cooperate d. There are two, one player defects while the other cooperates e. There is no pure strategy Nash equilibrium GT-37) For the game in Table 4, the efficient outcome is a. both players cooperate b. both players defect c. one player defects while the other cooperates d. players mix their strategies e. there is no efficient outcome GT-38) The game in Table 4 is a a. Prisoners Dilemma b. Stag Hunt c. Battle of the Sexes d. Chicken Person A A: 0 A: 3 B: 1 B: 0 Defect A: 1 A: 5 GT-39) For strategic plays like commitments, threats, and promises to be effective, they must be a. not credible b. announced to your opponent c. kept secret d. mixed with other strategies For next set of descriptions, use the following answers to identify to which game it applies. An answer may be used more than once, and not all answers may be used. a. Prisoners Dilemma b. Stag Hunt c. Battle of the Sexes d. Chicken GT-40) A main issue of this game is the two players agreeing upon which cooperating equilibrium will be chosen GT-41) A main issue of this game is that one player wins and the other loses GT-42) A main issue of this game is that though each player would like to cooperate, they d also like to break that cooperation if it were to happen. GT-43) A main issue of this game is assurance that is, each player needs to be assured that the other player will do what they promise. GT-44) Tit for tat is one of the best strategies for playing multi-round versions of this game. GT-45) Which game would best symbolize two football teams playing in the Superbowl GT-46) Which game would best symbolize two football organizations that are both negotiating with a group of players to sign with their teams. GT-47) In this game, players are likely to promise to do one thing, but then do something different. GT-48) A possible solution to this game is to take turns on which cooperating equilibrium is chosen. GT-49) In this game, both players will promise to do the same thing, but each hopes the other will break that promise. GT-50) In this game, both players may promise to do the same thing, but each fears the other will break that promise. GT-51) Both the Democrat and Republican parties benefit if the US is doing well, but each party would prefer the US to do well in slightly different ways. This description suggests the game between the Democrats and Republicans is most like this game. For next set of descriptions, use the following answers to identify to which game it applies. An answer may be used more than once, and not all answers may be used. a. Pre-commitment b. Warning c. Threat d. Assurance e. Promise

14 GT-52) You communicate to your opponent that you will under specific circumstance undertake some action that will benefit them, and it s in your self-interest to follow through and carry out the action GT-53) You communicate to your opponent that you will under specific circumstance undertake some action that will harm them, but it s not in your self-interest to follow through and carry out the action GT-54) You communicate to your opponent that you will undertake a particular action no matter what your opponent plans on doing. GT-55) You communicate to your opponent that you will under specific circumstance undertake some action that will benefit them, but it s not in your self-interest to follow through and carry out the action GT-56) You communicate to your opponent that you will under specific circumstance undertake some action that will harm them, and it s in your self-interest to follow through and carry out the action GT-57) You re playing a Prisoners Dilemma game (such as in Table 4). You tell your opponent that if they defect, you will defect too and you both will be worse off. This statement is an example of what? GT-58) You re playing a Prisoners Dilemma game (such as in Table 4). You tell your opponent that if they cooperate, you will cooperate too. This statement is an example of what? GT-59) This strategic play could allow you to win the game of chicken GT-60) In the game Stag Hunt (such as in table 1), if you tell your opponent that you will cooperate (hunt the stag), if your opponent also cooperates (hunts the stag), this is an example of what? GT-61) You re playing a Battle of the Sexes game (it is in both your self-interests to do the same thing). You want to take a vacation to Mexico. Your partner wants to go to Canada. You tell your opponent, if you go to Canada, I m going to go to Mexico by myself. This statement is an example of what?

15 F i rm B C u t P ric e Ma inta i n Pri c e Table 1 Cut Pri ce F i rm A Ol-1) In Table 1, if Firm B maintains their price while Firm A cuts their price, firm B will experience a a. Profit of $40,000 b. Profit of $80,000 c. Profit of $20,000 d. Profit of $60,000 e. Loss of $20,000 Ol-2) Using Table 1, Firm A s dominate strategy is a. to wait and see what Firm B does b. is to maintain current price c. is to cut current price d. is to maintain price only if Firm B cuts their price e. not enough information Ol-3) Using Table 1, if both firms colluded the collusion would be that a. both firms maintain current price b. both firms will lower their price c. only firm A will lower its price d. only firm B will lower its price Ol-4) Using Table 1, if both firms adopt a strategy that will minimize the damage the other firm can do, then a. both firms maintain current price b. both firms will lower their price c. only firm A will lower its price d. only firm B will lower its price Ol-5) Using Table 1, if the two firms colluded they would each make a profit of a. $0 b. $20,000 c. $40,000 d. $60,000 e. $80,000 #5: Oligopoly and Game Theory Ma intai n Pri ce A s Profi t: $40, 000 A s Profit: $ 20,000 B s Profit: $ 40,000 B s Profit: $ 80,000 A s Profit : $80,000 A s Profit: $ 60,000 B s Profit: $ 20,000 B s Profit: $ 60,000 Ol-6) Using Table 1, if Firm A maintains their price, then Firm B a. will see their greatest profit by maintaining a high price b. will increase profits by cutting price because they ll steal customers away from Firm A c. must maintain price in order not to lose market share d. will increase profits by raising price and increase the profit margin e. will reduce their profits by cutting price. Ol-7) Using Table 1, both Dominant Strategy and Nash Equilibrium are that a. Both firms maintain price until one firm lowers its price and the other follows b. Both firms will cut price c. Collusion will result in each firm maintaining price d. Both firms will trust each other e. it is impossible to predict what each firm may do Ol-8) Which of the following is not a characteristic of oligopolies? a. game theory is useful to understand firm behavior b. firms are mutually interdependent c. there are many firms in an oligopolistic market d. there are significant barriers to entry e. firms may try to collude to increase profits Ol-9) Which of the following is not an obstacle to collusion? a. firms may cheat b. there are high barriers to entry c. legal restrictions d. there are a large number of firms in the industry are obstacles to collusion Ol-10) The purpose of collusion is to a. Keep the smallest firm in business by making a normal profit b. Charge the highest price possible c. Maximize the largest firm s profits d. Make total profits in the industry the largest e. Create economic efficiency Ol-11) Contestable Market Theory suggests that a. an oligopolistic or monopolistic industry will still be efficient if the market is contestable b. a monopolistic industry will become oligopolistic if a firm contests it c. a market can only be monopolized if it can withstand a contest d. oligopolistic firms will cheat on collusion agreements e. oligopolistic firms will collude if firms have an incentive to trust one another

16 Firm B s Pricing $14 $12 $10 $8 Table 2 Firm Profits Firm A s Pricing $14 $12 $10 $8 A: $18k B: $18k A: $15k B: $20k A: $11k B: $18k A: $5k B: $15k A: $20k B: $15k A: $16k B: $16k A: $12k B: $17k A: $8k B: $14k A: $18k B: $11k A: $17k B: $12k A: $14k B: $14k A: $11k B: $13k A: $15k B: $5k A: $14k B: $8k A: $13k B: $11k A: $10k B: $10k Ol-12) Using Table 2, if Firm A sets a price of $12, and Firm B sets a price of $8, then Firm B will make a profit of a. $17,000 b. $16,000 c. $15,000 d. $14,000 e. $8,000 Ol-13) Using Table 2, if the two firms colluded, they would each charge a price of a. $14 b. $12 c. $10 d. $8 e. None of the above, the two firms would not charge the same price Ol-14) Using Table 2, if both firms are charging $12, then Firm B reduces price to $10, Firm B will a. experience higher profits because they under -cut Firm A s price b. experience lower profits because of less revenue from the lower price even though they attract more customers c. want to raise price back to $12 to maximize profits d. continue to reduce the price to $8 to increase profits even further e. hope that Firm A matches the price reduction to $10 to increase industry profits Ol-15) Using Table 2, if both firms are charging $10, then Firm B reduces price to $8, Firm B will a. have maximized profits b. experience higher profits because they under-cut Firm A s price c. experience lower profits because of less revenue from the lower price even though they attract more customers d. suffer an economic loss e. hope that Firm A matches the price reduction to $8 Ol-16) Using Table 2, if Firm B sets a price of $14, Firm A would, to maximize its profit, set a price of a. $14 b. $12 c. $10 d. $8 e. $14 or $10 Ol-17) Using Table 2, if Firm B sets a price of $8, Firm A would, to maximize their profit, set a price of and make a profit of a. $12; $8,000 b. $12; $14,000 c. $10; $11,000 d. $10; $13,000 e. $8; $10,000 Ol-18) Using Table 2, the dominant strategy for Firm B is to a. set a price of $14 b. set a price of $12 c. set a price of $10 d. always do what Firm A does e. there is no dominant strategy Ol-19) Using Table 2, the Nash Equilibrium is a. both firms set a price of $14 b. both firms set a price of $12 c. both firms set a price of $10 d. both firms setting a price of $14, $12, $10, and $8 are all Nash equilibriums e. there isn t a Nash Equilibrium because there is no dominant strategy for either firm. Ol-20) Using Table 2, at the Nash Equilibrium, Firm A s decision about price is based upon a. tacit collusion with Firm B b. both firms making the same amount of profit c. a correct prediction of what Firm B will do d. maximizing industry profits e. dominant strategy Ol-21) Using Table 2, both Firms charging a price of $12 is a. A Nash equilibrium because profits are equal for both firms b. Not a Nash equilibrium because industry profits are not maximized c. A Nash equilibrium because industry profits are maximized d. Not a Nash equilibrium because if a firm sets a price of $12, the other firm will want to price at $10. Then the first firm won t set a $12 price. e. A Nash equilibrium since both firms are making the same decision, a price of $12

17 Ol-22) You work for the firm Acme electronics which makes cell phones. The firm Visionary TV s, a maker of TV sets, contacts you and wants their firm and Acme to work together on a joint project. The project would allow your cell phones and their TV s to work together. The joint project requires both firms to spend millions of dollars in development. If both firms do this, consumers will value Acme s phones more and profits will rise. However, if only Acme develops the technology and Visionary does nothing, the new technology has no value, and Acme will lose the amount of the development cost. This is an example of which game? a. Prisoners Dilemma b. Stag Hunt c. Battle of Sexes d. Chicken Ol-23) Continuing with the previous question, how should you respond to Visionary s overture? a. Tell them you ll jump right on that technology, but then do nothing b. Ask to see what work they ve done so far, then set a meeting three months from now for both firms to compare progress c. Ignore / dismiss Visionary, fearing it might be construed as illegal collusion d. Take turns developing the technology e. Say you won t develop the technology, but do it anyway in secret Ol-24) Continuing on with the previous questions, both firms have embarked on the new technology. It turns out there are two ways it could be done. The technology could use infrared communication which would be cheaper and more profitable for Visionary. Alternatively, the technology could use Bluetooth communication which would be cheaper and more profitable for Acme. If the firms choose different communication methods, it won t work at all. Choosing which communication method is an example of which game? a. Prisoners Dilemma b. Stag Hunt c. Battle of Sexes d. Chicken Ol-26) You are still working for Acme electronics. A competitor of yours, Cell-Gamma, contacts you. Cell- Gamma explains that another, a third, cell phone firm is launching a new technology called X-5. This third firm is going to advertise that X-5 is faster and better than the 4G technology that both you and Cell-Gamma use. The advertising is a lie. X-5 is not better. If both you and Cell- Gamma remain silent, people will believe the lie and switch to the technology. Acme and Cell-Gamma will lose profit. If either Acme or Cell-Gamma spends a few million on an advertising campaign explaining the inferiority of X-5 technology, both Acme and Cell-Gamma will maintain their level of profit, minus the cost of the information campaign. Even with the added advertising costs, it is more profitable to advertise and repudiate the bogus technology, exposing the lying firm. If both you and Cell-Gamma advertise the inferiority of X-5, the outcome is no better than if only one of you advertises, though both firms now have added costs. This is an example of which game? a. Prisoners Dilemma b. Stag Hunt c. Battle of Sexes d. Chicken Ol-27) Continuing with the above question, how should you respond to Cell-Gamma? a. Promise to advertise, but don t b. Promise to advertise, and do c. Make no commitment d. Wait and see e. Explain that you had just fired your advertising firm, so it would be impossible for Acme to combat the X-5 technology right then Ol-25) How should you respond to Visionary? a. Immediately start production of phones with the Bluetooth communication, knowing it would be impossible to change production. b. Promise to use infrared, and do it. c. Promise to use infrared, but switch to Bluetooth. d. Agree that both firms will use the least expensive method e. Pull out of the agreement to development the new technology.

18 #6: Industry Review For next set of descriptions, use the following answers to identify what type of industry it applies to. An answer may be used more than once, and not all answers may be used. Important: there may be more than one correct answer (a, b, c or d) per question a. Perfect Competition b. Pure Monopoly c. Monopolistic Competition d. Oligopoly IR-1) Barriers to entry keep out all but just a few large firms IR-2) Is economically efficient IR-3) Mutual interdependence is a characteristic of this industry IR-4) The wine industry is made up of many firms. Each winery spends money to make itself stand out and develop consumer loyalty. The wine industry would be best analyzed using this model IR-5) There are barriers to entry IR-6) Is made up of many small firms who produce identical products. IR-7) Does not make profit in the long run IR-8) Game theory is useful to describe firm interaction IR-9) The airline industry is made up of many firms. However, most of the firms are very small and produce very little of the total industry production. Most of the production in the industry is done by a few large firms. Those few large firms would be best analyzed using this model IR-10) Produces a product for which there is no close substitution, and there are significant barriers to entry IR-11) Is susceptible to collusion IR-12) Is a price taker IR-13) Is a price maker IR-14) Though this type of firm has some control over the price of their good, the firm will not make profit in the long run.

19 #7: More Questions Exam 3 Cost Calculation Review Q TC Table 1 EM-1) Given the firm costs in Table 1, at a quantity of 4, Fixed Cost is a. $0 b. $40 c. $73 d. $82 e. $113 EM-2) Given the firm costs in Table 1, at a quantity of 4, Variable Cost is a. $8 b. $20 c. $33 d. $73 e. $82 EM-3) Given the firm costs in Table 1, at Q = 5, ATC is a. $8 b. $8.2 c. $8.4 d. $16.4 e. $82 Demand and Marginal Revenue Q P 1 $24 2 $21 3 $18 4 $15 5 $12 6 $9 Table 4 EM-4) Given the Demand Schedule in Table 4, this firm a. Is perfectly competitive b. Faces a perfectly elastic demand curve c. Faces a perfectly inelastic demand curve d. Has monopoly (market) power e. Is a price taker EM-5) Given the Demand Schedule in Table 4, what is the Total Revenue if the firm prices its good at $18? a. $0 b. $18 c. $36 d. $54 e. $72 EM-6) Given the Demand Schedule in Table 4, the Marginal Revenue of the 5 th good is a. $-3 b. $0 c. $3 d. $12 e. $24 Efficiency EM-7) The type of industry that is least efficient is a. perfect competition b. monopolistic competition c. oligopoly d. monopoly e. contestable market EM-8) Perfect competition will be efficient a. in the short run b. in the long run c. when firms break even d. at the minimum of LRAC EM-9) A monopolistically competitive firm will be more efficient if a. It has more market power b. It is breaking even c. Demand is more elastic d. The product is well differentiated e. Consumers are very brand loyal EM-10) Perfectly competitive firms are also productive efficient in the long run because a. firms produce at lowest possible cost b. firms are price takers c. firms break even d. production is where demand equals marginal cost e. there are economies of scale EM-11) An oligopolistic industry will be inefficient if a. there are many firms in the industry b. the firms effectively collude c. it is a contestable market d. firms earn normal profits

20 EM-12) An oligopolistic industry is more likely to be efficient if a. it is a contestable market b. there are many firms in the industry c. there are lower barriers to firm entry d. firms can easily cheat EM-13) Collusion has this impact upon economic efficiency a. It improves efficiency by raising producer surplus (profits) b. It reduces efficiency because companies will see an increase in costs c. It improves efficiency by allowing firms to produce more expensive products with better quality d. It reduces efficiency because firms agree to produce fewer goods to increase price and profits e. It improves efficiency because all firms agreed, and voluntary agreement promotes efficiency EM-14) To battle collusion, the government may use this policy a. anti-trust b. direct regulation c. government ownership d. introduction of competition Demand Curves Firms Face Figure 2 EM-16) Using Figure 2, which demand curve represents a monopolistically competitive firm in the short run (only)? a. D 2 b. D 2 & D 3 c. D 2, D 3 & D 4 d. D 2, D 3 & D 5 e. All of the demand curves EM-17) Using Figure 2, which demand curve would suggest that new firms will enter and attempt to produce close substitutes? a. D 1 b. D 2 c. D 2 & D 3 d. D 2, D 3 & D 4 e. D 2, D 3, D 4 & D 5 EM-18) Using Figure 2, which demand curve would a firm desire to sell to? a. D 1 b. D 2 c. D 3 d. D 4 e. D 5 EM-19) Using Figure 2, which demand curve represents a perfectly competitive firm? a. D 1 b. D 2 c. D 3 d. D 4 e. D 5 D 5 D 3 D 4 D 2 ATC D 1 EM-20) Using Figure 2, which demand curve would generate economic efficiency? a. D 1 b. D 2 c. D 3 d. D 4 e. D 5 EM-15) Using Figure 2, which demand curve represents a monopolistically competitive firm in long run equilibrium? a. D 1 b. D 2 c. D 3 d. D 4 e. D 5 EM-21) Using Figure 2, which demand curve represents the most efficient firm who has market power (is a price maker) a. D 1 b. D 2 c. D 3 d. D 4 e. Not enough information to answer

21 Figure EM-22) Using Figure 3, this firm will shut down if the price is less than a. $2 b. $4 c. $6 d. $7 e. $10 EM-23) Using Figure 3, this firm will break even if the price is a. $2 b. $4 c. $6 d. $7 e. $10 EM-24) Using Figure 3, this firm will make an economic profit if the price is above a. $2 b. $4 c. $6 d. $7 e. $10 EM-25) In a highly competitive industry, if firms seek profit maximization, in the long run, the firms actions will lead to a. firms making no profit b. higher prices and fewer goods produced c. inefficiency d. much of the consumer surplus being lost and converted to firm profit e. abnormal or excessive profits and income distribution becoming more unequal EM-26) If there are substantial or significant barriers to entry in an industry a. The industry can maintain profits in the long run b. The industry would probably not be accurately described by monopolistic competition model c. It could create inefficiency d. The industry is not contestable e. All of the above

22 Figure, for the firm depicted in the graph: Qty: #8: Monopolistic Competition Review Price: TC: TR: Profit: $26 $22 $20 $16 $12 $10 What's efficient? Price: Qty: $ At a quantity of 425, is demand elastic or inelastic? At a quantity of 600, is demand elastic or inelastic? What will happen in the long run? If this firm is a monopolistic competitor, in the long run, the firm will be producing fewer than how many goods?

23 1) Fill in all blank spaces in questions below: #9: Perfect Competition Review At Q=100, VC = TC = At Q = 140, FC = If Market Price is $10, then Q =, ATC =, TR =, TC =, Profit = If Market Price is $15, then Q =, ATC =, TR =, TC =, Profit = If Market Price is $20, then Q =, ATC =, TR =, TC =, Profit = If Market Price is $4, then Q =, ATC =, TR =, TC =, Profit = If the Market in this graph is in long run equilibrium the price is: There are 80 firms in the industry identical to the firm represented above. What is the quantity supplied in the industry at a price of $10? If the Industry for the firm above is in long run equilibrium, and the quantity demanded for the good if price is $15 is 320,000, how many firms will there be in the industry? 2) Q TC What is the MC of Good 4? What is the ATC of 5 goods? What is the FC of 2 goods?