ARE 100B - Practice Midterm 2 Key

# ARE 100B - Practice Midterm 2 Key - ARE 100B M Whitney...

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ARE 100B M. Whitney NAME: This exam has two sections. MIDTERMll Section A consists of 10 multiple-choice questions, each worth 10 points. Total possible points in Section A = 100. SPRING 2008 Section B consists of 5 problems each worth 30 points. Partial credit is given for correct approach even if fmal answer is incorrect, so show your work! Total possible points in Section B = 150. Total points in this exam: 250

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Section A 1. Suppose an industry consists of Coumot oligopolists who sell a homogenous good. Which of the following is true? (i) The market price of the good declines as the number of oligopolists in the market increases. b. Each firm believes that when it increases its output, other firms will do likewise. c. Each firm believes that when it raises its price, other firms will do likewise. d. All of the above. e. None of the above. 2. There are 3 pizzerias in Red Bluff, each selling its own differentiated brand of pizza. Bob, the manager of Bob's Pizzeria, believes that if he raises the price he charges per pizza, neither of the other 2 firms will raise their price. Bob also feels that, ifhe reduces his price, both rival firms will match his price decrease. If Bob is correct in his beliefs, which of the following statements is true? a. Bob's Pizzeria is viewed as a price leader by the pizza sector in Red Bluff. b. Bob's Pizzeria should price its pizza competitively, such that price equals marginal cost. @ Bob's Pizzeria is likely to hold its price constant for long periods of time, even if marginal costs fluctuate. d. Bob's Pizzeria is a Stackelberg leader. e. None ofthe above. 3. Which of the economic models below requires that firms' products must be differentiated? a. Stackelberg oligopoly b. Bertrand oligopoly c. Coumot oligopoly (a) Monopolistic competition e. All of the above. 4. The Cournot quantity-setting model of oligopoly is criticized by some economists as being unrealistic, since it assumes that firms behave in a "naive" fashion. Which of the following statements best describes this "naive" behavior? a. A Coumot quantity-setter does not realize that its output affects the market price.

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ARE 100B - Practice Midterm 2 Key - ARE 100B M Whitney...

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