1. Otto has a monopoly on limousine service, and Carla is thinking about entering the market. The...

Question:

1. Otto has a monopoly on limousine service, and Carla is thinking about entering the market. The outcome of the entry-deterrence game represented by the game tree on the following page is that Otto picks the ________quantity and Carla _______the market.

2. Use the game tree in the previous exercise as a starting point. If the minimum entry quantity increases, a single number in one of the profit rectangles changes from $_______ to a smaller number. If the relevant number is reduced by half, the new outcome of the entry deterrence game is that Otto picks the _______quantity and Carla _______the market.
3. Consider a market with an insecure monopolist. The zero-profit quantity is 60 units and the minimum entry quantity is 5 units. The entry-deterring quantity is_______ units. The zero-profit price is $80. The slope of the market demand curve is - $2 per unit of output. The limit price is $_______.
4. To deter entry, a monopolist can simply threaten that if a second firm enters, the monopolist will cut its price to the average cost. _______ (True/False)
5. Arrows up or down: As the minimum entry quantity decreases, the entry-deterring quantity _______, the limit price_______, and the profit from the entry-deterrence strategy _______.
6. In Figure rectangle 2 is not a Nash equilibrium because if _______picks a small quantity, the best response for is to _______.

7. At the beginning of this chapter, we saw that Katrina paid more for her plane ticket than Brian paid for his, even though they both live in cities that are served by a single airline. Two cities with the same number of airlines (1) could have different prices because the airline in Katrina s city could be a (n) _______monopolist.
8. A contestable market has relatively _______ (high, low)costs.