Problem 2: Suppose that the Winnipeg Warriors are the only professional basketball team in the area, making them the monopsony employer of basketball players. The team's player demand is given by MRP = 100 - 10Q. The supply of basketball players is given by W = 2Q + 40 and the marginal cost of hiring players is given by MC = 5Q + 40. What is the difference between the number of players and the wages of players hired in a competitive market versus if the team exerts its monopsony power?

• a) The monopsonist will hire 4 less people and pay a wage $1 less than a perfectly competitive market
• b) The monopsonist will hire 1 less person and pay a wage $2 less than a perfectly competitive market
• c) The monopsonist will hire 4 less people and pay a wage $2 less than a perfectly competitive market
• d) The monopsonist will hire 1 less person and pay a wage $1 less than a perfectly competitive market
• e) None of the Above

Problem 3: According to the Coase Theorem, which of the following statements is true?

• a) Coase theorem applies when there is asymmetric information.
• b) Private parties can negotiate and reach an efficient outcome only with the help of
• government intervention.
• c) In the absence of transactional costs, the initial allocation of property rights has an impact
• on the resulting efficiency
• d) The Coase Theorem will not apply when there are high transactional costs.
• e) Exactly 2 of statements (a)-(d) are correct
• f) Exactly 3 of statements (a)-(d) are correct
• g) All statements (a)-(d) are correct
• h) None of the above

Problem 4: Consider a market served by an unregulated natural monopoly. In the hope to improve efficiency, the government intervened and imposes a limit on the total sales by a single firm in this market. As a result, several new firms will enter the market which will increase the competition. Which of the following will most likely happen?

• a) Both the total quantity and the price will increase
• b) The total quantity will increase while the price will decrease
• c) The total quantity will decrease while the price will increase
• d) Both the total quantity and the price will decrease

Problem 5: Which of the following is correct about firms in the market with monopolistic competition?

• (a) They earn a positive economic profit because their marginal cost is less than the price they charge
• (b) They earn zero economic profit because their marginal cost is equal to the price they charge. (c) The present value of their operational profits is equal to the cost of entry to the market.
• (d) Their marginal costs are less than their average total costs.

Problem 6: Consider an industry where only two firms operate. The firms produce identical products and compete by simultaneously and independently choosing the quantity produced. There are two possible uncertainties:

1) Uncertainty about the demand: the demand can be either high or low. No one knows the exact demand, but everyone knows the ex-ante probability of high and low demand 2) The uncertainty about the costs: each firm can have either high or low costs (independent of each other), no one knows the exact costs (including the firm itself) but everyone knows the ex- ante probability of high and low cost

One of the firms has an over-optimistic manager (i.e., the manager incorrectly thinks that the probability of high demand and/or lower costs of his firm is higher than it actually is). When it will be in the best interest of the firm to reveal that its manager is overoptimistic\?

• a) Never b) When there is demand uncertainty but no cost uncertainty
• c) When there is cost uncertainty but no demand uncertainty
• d) Always