quality of the explanation more than on the T/F/U answer.

1. Consider a Cournot oligopoly market (quantity competition) with twowidget firms competing against each other. The twofirms haveidentical cost functions. Iftheyweretoproduce1,000unitseach,thepricewouldbe$12perwidget,and they would make a profit of $10,000 each. If the twofirms were to produce 750 units each, the price would be$22 per widget, and they would make a profitof

$15,000each.IntheCournotoutcome,thetwofirmsmusteachproducesomething less than 1,000units.

1. In a market with free entry, where anyfirm can bereplicated byanynumber of identicalcompetitors,profitsgotozerointhelong-run.Thereforeanyfirmswith fixed costswillgobankrupt.

1. Suppose orange juice costs twice as muchper glass as seltzer, and we havea consumer who drinks at least some of each. If the markets for these beveragesareCOMPETITIVE, a consumer's marginal value for her last glass of orange juiceis twiceas much as that for her last glass of seltzer. But if the markets areMONOPOLISTICthenthepricesaredistortedupwardsandnolongertellus aboutconsumer preferences.
2. SupposethatalloftheUSbeercompaniesmergeandbecomeabeermonopolist. If the US government adds a$.50 tax to eachpint of beer,the beermonopolist canmaintain its previous profits by raising pricesto consumers by exactly$.50 perpint.
3. An individual is choosing between twodierent lotteries over money.Lottery 1 gives a 10% chance of $200,000 and an 80% chance of 0. Lottery 2 gives a 50% chance of $11,000 and a 50% chance of $19,000.If given the choice, a rational

individual would always choose Lottery 1 over Lottery 2