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Week 6 - Group Problems - Market Power and Game Theory Student: ___

1. A monopoly firm is different from a competitive firm in that:

A. there are many substitutes for a monopolist's product while there are no substitutes for a competitive firm's product. B. a monopolist's demand curve is perfectly inelastic while a competitive firm's demand curve is perfectly elastic. D. a competitive firm has a U-shaped average cost curve while a monopolist does not.
 * C. a monopolist can influence market price while a competitive firm cannot.**

2. The demand curve for a monopolist is:

A. perfectly elastic. B. not relevant since the monopolist sets price. D. perfectly inelastic.
 * C. downward sloping.**

3. If a monopolist increases sales from 10 to 11 by lowering its price from $40 to $38, its marginal revenue is:

A. $ 2. C. $400. D. $418.
 * B. $ 18.**

4. If the monopolist produces at a level of production where MR > MC then:

B. total revenue exceeds total cost. C. the additional revenue it gets from producing another unit is less than the cost of producing that unit. D. total revenue is less than total cost.
 * A. the additional revenue it gets from producing another unit exceeds the cost of producing that unit.**

5. Refer to the graph above. If the firm maximizes profit, the marginal cost of its product will be:

A. $10. B. $ 8. C. $ 6. 6. Refer to the graph above. In a perfectly competitive industry, price would:
 * D. $ 4.**

A. equal $16. B. be greater than $16. D. be less than $12. Price = demand
 * C. equal $12.**

7. Refer to the graph above. Assuming that the monopoly maximizes profit the social cost of monopoly will be:

A. $10,000 per day. C. $40,000 per day. D. zero. p.268
 * B. $20,000 per day.**

8. In the early 2000s, iTunes charged UK users 20% more than users in France and Germany. Apple defended the price differential, saying that the "underlying economic model in each country has an impact on how we price our track downloads." An economist would say that Apple is engaged in:

A. collusion. B. monopolistic competition. D. reverse engineering.
 * C. price discrimination.**

9. A monopolistic competitive industry has:

A. a few firms producing identical products. C. many firms producing identical products. D. a few firms producing differentiated products.
 * B. many firms producing differentiated products.**

10. If a monopolistically competitive market became perfectly competitive, output would likely:

B. fall. C. not change. D. rise, then fall.
 * A. rise.**

Individual output is irrelevant with regard to price in a competitive industry, so output with go up, up, up... i'm not sure if it'll go down in the long run.

11. Refer to the graph above of a monopolistically competitive firm. In the long-run:


 * A. marginal cost will fall for firms that remain as other firms exit the industry.**
 * B. average total cost will rise for firms that remain as other firms enter the industry.**
 * C. demand will fall for firms that remain as other firms enter the industry.**
 * D. demand will rise for firms that remain as other firms exit the industry.**

12. A purpose of advertising is to make the:

A. demand for one's product less inelastic. C. supply for one's product less elastic. D. market closer to perfectly competitive. p. 287
 * B. demand for one's product more inelastic.**

13. In 2004, E-commerce Times reported, "Four Infineon Technologies executives agreed to pay $250,000 in fines and serve prison time in the U.S. for their roles in an international conspiracy to fix prices for computer memory chips." An economist would say that the people involved were acting as:

A. if they were in a contestable market. B. if they faced kinked demand curve D. industry with monopolistic competition. p. 289
 * C. a cartel.**

14. An attorney for a firm that is arguing that its market is competitive rather than monopolistic would be most likely to argue that the relevant market is a shown by a:

B. four-digit NAICS industry. C. five-digit NAICS industry. D. six-digit NAICS industry.
 * A. three-digit NAICS industry.**

15. Refer to the table above. Using the 4-firm concentration ratio, the upholstered furniture industry is best categorized as:

B. a pure monopoly. C. monopolistically competitive. D. oligopolistic.
 * A. perfectly competitive.**

16. The prisoner's dilemma is an example of:

B. a cooperative game. C. a non-strategic game. D. a sequential game. p. 305
 * A. a non-cooperative game.**

17. The below represents a payoff matrix for a: A. zero sum game. B. non-zero sum game. C. repeated game. D. sequential game.

18. The equilibrium solution for the payoff matrix below is: A. -1, -1 B. 5, 0 C. 2, 2
 * D. 10, 1**

19. If individuals can credibly cooperate and split the gains, which payoff is the most likely?



A. 1, 50 B. 1, 1 C. 2, 1
 * D. 5. 5**

20. In a standard game theory, cheap talk:

A. will fool all players into cooperating. C. benefits only trustworthy people. D. changes the pay-offs. p. 305
 * B. doesn't affect the outcome of the game.**

21. What is true about the pay off matrix below?



A. Only player A has a dominant strategy. C. Both player A and B have dominant strategies. D. Neither player A nor B has a dominant strategy.
 * B. Only player B has a dominant strategy.**

22. A Nash equilibrium is:

A. the payoff that maximizes joint payoff. B. the output level that minimizes average total cost. C. the strategy that maximizes the outcome of all the players. p. 306
 * D. the set of strategies such that no player can improve their position by changing his own action.**