final-f03 - Department of Economics University of...

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Econ 121 Fall 2003 Page 1 Final Exam Department of Economics Fall 2003 University of California Prof. Woroch Economics 121: FINAL EXAM GENERAL INSTRUCTIONS : Write your name on the front of each blue book that you use. Please write clearly. The exam has four parts with some choice. All together there are 100 points. Point assignments are given in the instructions for each part. I. TRUE or FALSE or UNCERTAIN and EXPLAIN : Choose 7 of the following 10 statements, decide whether each is true or false or uncertain, and then explain the reasoning behind your answer. Be sure to state assumptions you need to arrive at your conclusion. Each is worth 4 points for a total of 28 for this part. 1. Suppose all firms in an industry produce using a cost subadditive technology. Then, if they were to form a cartel, only one of the members would produce and all others would shut down. 2. The Lerner Index decreases as the number of firms increase in a Cournot oligopoly. 3. According to the Stackelberg model, the leader produces more and earns more profit than the follower because it is a price setter and the follower is a price taker. 4. If two firms located on Hotelling’s Main Street charge different prices, and those prices are fixed, then the low-price firm will have an incentive to move toward the high-price firm. 5. When firms sell the same product in each of an infinite number of periods, a cartel is more likely to succeed in maintaining the collusive outcome, all else equal, when its members compete according to Cournot quantity competition, rather than Bertrand price competition. 6. The “merger paradox” may not occur when the products of merging and non-merging firms are differentiated. 7. Predatory pricing is not likely to be a profit-maximizing strategy when the targeted firms have large sunk costs. 8. In the “chain store paradox,” potential entrants in the separate markets choose not to enter because the chain store threat in one market makes its threat credible in all other markets. 9.
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This note was uploaded on 05/05/2008 for the course ECON 121 taught by Professor Woroch during the Fall '07 term at Berkeley.

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final-f03 - Department of Economics University of...

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