7.1.The general public's demand for flights to Florida has an elasticity of -2 all year round. Knowing that, a monopolistic airline has been optimally charging everyone $360 for a round trip. Next, the airline finds out that during spring break, the price elasticity of students' demand for flights to Florida is -3. Given that information and assuming the airline can vary the number of daily flights, is there a way for the airline to increase its profit and what needs to be done for that?

a)Yes, the airline should give students a price discount.

b)Yes, the airline should charge students a higher price.

c)Yes, it will be profitable for the airline to only serve students.

d)No, elasticity of demand is irrelevant for pricing decisions.

7.2.Collusion is:

a)legal in the United States.

b)possible only in one-shot games.

c)more likely in industries with a large number of firms.

d)more likely when interest rates are low.

e)not possible in repeatedly played games.

7.3.Which of the following is true for a Nash equilibrium of a two-player game?

a)The joint payoffs of the two players are highest compared to other strategy pairs.

b)It is a combination of strategies that are best responses to each other.

c)Every two-player game has a unique Nash equilibrium.

d)None of the above is correct.

7.4.Game theory is especially useful for analysis in the following types of markets:

a)Perfect competition

b)Monopolistic competition

c)Monopoly

d)Oligopoly

7.5. One of the handouts distributed in class dealt with the practice of "price leadership" commonly used by airlines. While engaging in this practice, the firm acting as the price leader is attempting to

a)increase its own market share.

b)enable all competing firms to increase their market shares.

c)increase its own profit and reduce the competitors' profits.

d)enable all competing firms to increase their profits.

7.6.Successful pricing collusion between firms in oligopoly (think airlines) tends to result in

a)higher volumes of output and lower prices for consumers.

b)lower volumes of output and lower prices for consumers.

c)lower volumes of output and higher prices for consumers.

d)higher volumes of output and higher prices for consumers.

7.7. The "limit pricing" strategy suggests that an incumbent monopolist may deter competitors' entry by

a)lowering its price and quantity of output.

b)raising its price and quantity of output.

c)raising its price and reducing the quantity of output.

d)reducing the price and increasing the quantity of output.

7.8.. In the case discussing the pricing of the first iPhone by Apple, which of the following was the most plausible explanation for the sharp drop in price three months after the introduction of the iPhone?

a)iPhones started to become obsolete.

b)Sales were stronger than projected, so a price adjustment was needed.

c)Apple was price discriminating against impatient consumers.

d)Apple was able to cut its production costs in half over that period.

e)All of the above were plausible explanations.