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week8 - Principles of Economics Problem Set for Week 8 Due...

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Principles of Economics Problem Set for Week 8 Due: online 10pm Apr.20, Tuesday I. Choose one answer that fits the best. (4 points each for questions 1-21, total 84 points) 1. One key difference between an oligopoly market and a competitive market is that oligopolistic firms a. are price takers while competitive firms are not. b. are interdependent while competitive firms are not. c. sell completely unrelated products while competitive firms do not. d. sell their product at a price equal to marginal cost while competitive firms do not. 2. Imagine a small town in which only two residents, Tony and Jill, own wells that produce water for safe drinking. Each Saturday, Tony and Jill work together to decide how many gallons of water to pump, bring the water to town, and sell it at whatever price the market will bear. To keep things simple, suppose that Tony and Jill can pump as much water as they want without cost; therefore, the marginal cost of water equals zero. The weekly town demand schedule and total revenue schedule for water is reflected in the table below. Weekly Weekly Quantity Total Revenue (in gallons) Price (and Total Profit) 0 \$12 \$0 10 11 110 20 10 200 30 9 270 40 8 320 50 7 350 60 6 360 70 5 350 80 4 320 90 3 270 100 2 200 110 1 110 120 0 0 Suppose the town enacts new antitrust laws that prohibit Tony and Jill from operating as a monopolist. What will the new price of water end up being once the Nash equilibrium is reached? a. \$3 b. \$4 c. \$5 d. \$6 3. As the number of firms in an oligopoly increases, a. each seller becomes more concerned about its impact on the market price. b. the output effect decreases. c. the quantity of output becomes closer to the socially efficient quantity. d. All of the above are correct. 4. In a two-person repeated game, a tit-for-tat strategy starts with a. cooperation and then each player mimics the other player's last move. b. cooperation and then each player is unresponsive to the strategic moves of the other player. c. noncooperation and then each player pursues his or her own self-interest. d. noncooperation and then each player cooperates when the other player demonstrates a desire for the cooperative solution. 5. The practice of tying is used to a. enhance the enforcement of antitrust laws.

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b. encourage the enforcement of collusive agreements. c. control the retail price of a collection of related products.
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week8 - Principles of Economics Problem Set for Week 8 Due...

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