II Midterm Review Questions
MULTIPLE CHOICE.
Firm 1 2 3 4 5 6
Econ 389
Market Share (%) 35 25 12 10 5 3
Prof Hassan
Table 15.1 1) The four-firm concentration ratio for the market depicted in Table 15.1 is: A) 92% B) 40% C) 82%
D) 10%
2) Figure 15.2 shows demand, marginal revenue, and costs of a duopolist. If the two duopolists have the same costs and split the market equally, each profit maximizing duopolist will earn a profit of ________. A) $0 B) $30,000 C) $10,000 D) $15,000 3) Figure 15.2 shows demand, marginal revenue, and costs of a duopolist. Suppose that the two duopolists have the same costs. If the two firms form a cartel and charge the profit maximizing monopoly price, the market price will be ________ and the total output level will be ________. A) higher; greater B) lower; greater C) higher; smaller D) lower; smaller 4) Figure 15.2 shows demand, marginal revenue, and costs of a duopolist. Suppose that the two duopolists have the same costs. If the two firms form a cartel and charge the profit maximizing monopoly price, then each firm's profit will be ________ and the total output level will be ______. A) greater; smaller B) smaller; smaller C) smaller; greater D) greater; greater 5) A graphical tool that provides a visual representation of the consequences of alternative strategies is a: A) strategy set. B) decision node. C) game tree. D) payoff matrix.
6) Figure 15.4 depicts an advertising game between two stores. Store A's dominant strategy is ________ and Store B's dominant strategy is ________. A) Advertising; Advertising B) No advertising; No advertising C) No advertising; Advertising D) Advertising; No advertising 7) Figure 15.4 depicts an advertising game between two stores. Which of the following statements is correct? A) Only Store A has a dominant strategy. B) Both stores have a dominant strategy. C) Neither store has a dominant strategy. D) Only Store B has a dominant strategy. 8) Figure 15.4 depicts an advertising game between two stores. "Advertising" is A) a dominant strategy for Store B but not for Store A. B) a dominant strategy for Store A but not for Store B. C) a dominant strategy for both stores. D) a dominant strategy for neither store. 9) Figure 15.4 depicts an advertising game between two stores. "No advertising" is A) a dominant strategy for both stores. B) a dominant strategy for Store B but not for Store A. C) a dominant strategy for neither store. D) a dominant strategy for Store A but not for Store B. 10) Figure 15.4 depicts an advertising game between two stores. The outcome of the game will be that: A) Store A advertises but Store B does not advertise. B) both stores choose not to advertise. C) both stores choose to advertise. D) Store B advertises but Store A does not advertise. 11) Figure 15.4 depicts an advertising game between two stores. Which of the following possible outcomes is a Nash equilibrium of the game? A) Only Store B advertises. B) Only Store A advertises. C) Both Store A and Store B advertise. D) Neither store advertises.
12) Consider the game tree in Figure 15.4. If Store B's payoff in the second rectangle from the top were $300 instead of $100, the outcome of the game will be that: A) both stores choose not to advertise. B) both stores choose to advertise. C) Store A chooses to advertise but Store B chooses not to advertise. D) Store B chooses to advertise but Store A chooses not to advertise. 13) Consider the game tree in Figure 15.4. If both stores' payoffs in the bottom rectangle were $500 instead of $400, the outcome of the game will be that: A) both stores choose not to advertise. B) both stores choose to advertise. C) Store A chooses to advertise but Store B chooses not to advertise. D) Store B chooses to advertise but Store A chooses not to advertise. 14) Consider the game tree in Figure 15.4. If both stores' payoffs in the bottom rectangle were $500 instead of $400, the only outcome of the game in which each store is doing the best it can, gi ven the action of the other store, is: A) both stores choose to advertise. B) both stores choose not to advertise. C) Store A chooses to advertise but Store B chooses not to advertise. D) Store B chooses to advertise but Store A chooses not to advertise. 15) Consider the game tree in Figure 15.4. The duopolists' dilemma in the game is that: A) both firms choose not to advertise even if it leads to higher profits. B) both firms choose to advertise even if it leads to lower profits. C) only Store A has an incentive to advertise. D) only Store B has an incentive to advertise. 16) Consider the game tree in Figure 15.4. If Store A and Store B could coordinate their decisions, A) only Store B advertises and earns a profit of $400. B) both firms choose to advertise and earn profits of $200 each. C) only Store A advertises and earns a profit of $400. D) both firms choose not to advertise and earn profits of $600 each. 17) Consider the game tree in Figure 15.4. Compared to the dominant strategy outcome, guaranteed coordination would lead to: A) higher profit only for Store A. B) higher profits for both stores. C) lower profits for both stores. D) higher profit only for Store B. 18) Consider the game in tree Figure 15.4. If Store A and Store B make advertising decision independently, A) only Store A chooses to advertise. B) only Store B chooses to advertise. C) both stores choose to advertise. D) both stores choose not to advertise.
19) In Figure 15.6, airline Fly Smart is initially a secure monopoly between two cities X and Y at point M, serving 300 passengers per day at the profit maximizing price of $300 per ticket. What is Fly Smart's profit per ticket? A) $200 B) $120 C) $80 D) $0 20) In Figure 15.6, airline Fly Smart is initially a secure monopoly between two cities X and Y at point M, serving 300 passengers per day at the profit maximizing price of $300 per ticket. Suppose that Fly Smart discovers that a second airline is contemplating entering the market. If Fly Smart accommodates the entry, what will its profit be? A) $44,400 B) $33,600 C) $29,600 D) $16,800 21) In Figure 15.6, airline Fly Smart is initially a secure monopoly between two cities X and Y at point M, serving 300 passengers per day at the profit maximizing price of $300 per ticket. Suppose that Fly Smart discovers that a second airline is contemplating entering the market. If the minimum market entry quantity is 130 passengers per day, what price should Smart Fly charge to secure the entry-deterring quantity? A) $300 B) $220 C) $180 D) $100 22) In Figure 15.6, airline Fly Smart is initially a secure monopoly between two cities X and Y at point M, serving 300 passengers per day at the profit maximizing price of $300 per ticket. Suppose that Fly Smart discovers that a second airline is contemplating entering the market. If the minimum market entry quantity is zero passenger per day, what is Fly Smart's profit when it commits to the entry-deterring quantity? A) $60,000 B) $44,400 C) $33,600 D) $0
23) The path of the game in Figure 15.7 will be: A) Fred chooses a small quantity and Barney enters. B) Fred chooses a large quantity and Barney stays out. C) Fred chooses a small quantity and Barney stays out. D) Fred chooses a large quantity and Barney enters. 24) Refer to Figure 15.7. Which of the following statements is true? A) Barney has a dominant strategy but Fred does not. B) Fred has a dominant strategy but Barney does not. C) Both Fred and Barney have a dominant strategy. D) Neither Fred nor Barney has a dominant strategy.
25) Refer to Figure 15.7. If Fred's profit in the top rectangle were 1,400 instead of 500 then the path of the game would be: A) Fred chooses a large quantity and Barney stays out. B) Fred chooses a small quantity and Barney stays out. C) Fred chooses a small quantity and Barney enters. D) Fred chooses a large quantity and Barney enters.
26) Consider an unregulated monopoly in Figure 16.2. The firm's profit at the profit maximizing output level is: A) $600,000. B) $400,000. C) $200,000. D) $0.
27) Consider an unregulated monopoly in Figure 16.2. If a second firm enters the market, the demand curve facing the first firm will: A) remain the same. B) shift to the right. C) shift to the left. D) There is no sufficient information. 28) Consider an unregulated monopoly in Figure 1...