Practice_final_exam_answers - PART I(50 SHORT-ANSWER QUESTIONS EACH PROBLEM IS WORTH 5 ANSWER 10 OUT OF 12 QUESTIONS Q1 IO studies-various market

Practice_final_exam_answers - PART I(50 SHORT-ANSWER...

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PART I (50%). SHORT-ANSWER QUESTIONS. EACH PROBLEM IS WORTH 5%. ANSWER 10 OUT OF 12 QUESTIONS Q1 IO studies: -various market structures -°rm±s strategies in di/erent market structures, such as pricing, output, entry-exit, and other more complicated strategies -welfare properties of strategies used by °rms Q2 -product di/erentiation -production e¢ ciency - dominant °rm with competitive fringe Q3 -for PC °rms the pro°t-maximizing condition is MR = MC , and MR = p , therefore in equilibrium p = MC ( q ) , which gives the relationship between price and supply by a PC °rm -monopolist is not a price taker and MR 6 = p . In fact, MR ( q ) > p . Pro°t- maximizing condition is MR ( q ) = MC ( q ) , which gives the solution for optimal q inde- pendent of price. Q4 -outcome of innovation activity is a public good and is thus not provided at the socially optimum level Q5 -Equilibrium market price will be p = MC since any other price above marginal costs will stimulate other °rms to undercut this price and capture the entire market. Q6 -price advertisement promotes price competition among producers and reduce °nal good price -informational advertisement that informs consumers about product quality can solve market ine¢ ciency resulting from information incompleteness Q7 -the main di/erence is the amount of information about consumers available to °rms. In 1DPD °rms have complete information, in 3DPD they can identify consumer type, in 2DPD they only know there are di/erent consumer types but can±t identify characteristics of any particular consumer.

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