Chapter 16 - Summative Quiz - 1. Antitrust laws make...

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1.Antitrust laws make certain "anticompetitive" practices illegal because these practices raise prices and reduce output, which reduces the total amount of consumer surplus. Why are antitrust laws uncommon in markets that are highly contestable? a.Since the market is contestable, antitrust laws are illegal. b. In contestable markets, there is always the threat of losing the monopoly to another monopoly, which tends to keep consumers' surplus higher than it would for a noncontestable market. c.Antitrust laws are common in contestable markets. d.In contestable markets there aren't many monopolies.
2.What does competition "for the market" mean?
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3.Assess the validity of each of the following statements. I. The only clothing store in a small town is in a more contestable market than the only natural gas provider in a small town II. The only clothing store in a small town is in a more contestable market than the only cable TV provider in a small town III. De Beers diamond mining is in a more contestable market than H&R Block tax preparation services
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4.In the following three games, is each a coordination game or a prisoner's dilemma? The best way to check is to see if there is exactly one Nash equilibrium; another way is to see if there is a dominant strategy for each player. To keep it a little challenging, we won't give the actions obvious labels that might give away the answer. Higher numbers are always better. I. II. III.
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5.The mantra of Amazon.com CEO Jeff Bezos is "Get big fast." As we saw in our monopoly chapter, one reason to "get big fast" is because in some industries the firm's average cost will plummet as the firm expands—so size helps on the supply side. In this chapter, network effects illustrated how size helps on the demand side. With this in mind, explain the following real-world drives to get big fast: Do you think it's mostly about increasing returns or mostly about network effects? I. Adobe Acrobat Reader is free, but the software to create sophisticated Adobe documents is not. II. Match.com, the online dating site, lets people post profiles, look at other people's profiles, and even get mail from other members for free. To send an e-mail to a member, you have to pay. a.I and II are both network effects. b.I is network effects and II is increasing returns. c.I is increasing returns and II is a network effect. d.
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