Table 2 Shows Media Cable's demand table, total revenue, and marginal revenue at each price. Why, at any price lower than $130, is the marginal revenue from an additional sale less than the price?

Table 2

Price

Amount Demanded

Total Revenue

Marginal Revenue

$160

0

$0

n/a

$130

90

$11,700

$130.00

$100

200

$20,000

$75.45

$80

350

$28,000

$53.33

$40

600

$24,000

-$16.00

$0

850

$0

-$96.00

Question 1 options:

a)

Lowering the price means that Media Cable lowers the price on all cable packages sold, and the combination of the price effect and quantity effect work together to reduce the Marginal Revenue.

b)

Marginal revenue is calculated by dividing the change in quantity into the change in Total Revenue.

c)

The price effect tends to increase Total Revenue.

d)

The quantity effect tends to decrease Total Revenue.

e)

It cost less to provide a service in bulk.

Question 2(8 points)

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Looking at differences between a single firm within a perfectly competitive market and a monopoly, which of the following is true?

Question 2 options:

a)

A single firm within a perfectly competitive market, sees the entire downward sloping demand curve of the perfectly competitive market.

b)

A single firm within the perfectly competitive market can set its price at any level and will not see a change in the demand.

c)

Because it is the only producer in the market, the monopoly sees the entire downward sloping demand curve of the market.

d)

Because it is the only producer in the market, the monopoly will sell the same amount, no matter what price it charges.

e)

A single firm within a perfectly competitive market must be concerned about the impact of the price effect and the quantity effect.

Question 3(8 points)

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Table 2 shows Media Cable's demand table, total revenue, and marginal revenue at each price. What is the quantity effect of reducing the price from $100 to $80?

Table 2

Price

Amount Demanded

Total Revenue

Marginal Revenue

$160

0

$0

n/a

$130

90

$11,700

$130.00

$100

200

$20,000

$75.45

$80

350

$28,000

$53.33

$40

600

$24,000

-$16.00

$0

850

$0

-$96.00

Question 3 options:

a)

$4,000

b)

-$20,000

c)

$28,000

d)

-$4,000

e)

$12,000

Question 4(8 points)

Saved

For a monopoly, why is marginal revenue less than price?

Question 4 options:

a)

If a monopoly wishes to increase sales, it must lower the price to all customers, and the impact of the price effect, working with the quantity effect causes marginal revenue to be less than price.

b)

If a monopoly wishes to increase sales, it must raise the price to all customers, and the impact of the price effect causes marginal revenue to be less than price.

c)

If a monopoly wishes to increase sales, it must lower the price to all customers, and the impact of the quantity effect causes marginal revenue to be less than price.

d)

If a monopoly wishes to increase sales, it must raise the price to all customers, and the impact of the price effect, working with the quantity effect causes marginal revenue to be less than price.

e)

If a monopoly wishes to increase sales, it must lower the price to all customers, and the impact of the price effect causes marginal revenue to be less than price.

Question 5(8 points)

For a monopoly, what is the price effect?

Question 5 options:

a)

The change in total revenue caused by the new customers now paying the old price.

b)

The change in marginal revenue caused by the new customers now paying the new price.

c)

The change in total revenue caused by the new customers now paying the new price.

d)

The change in total revenue caused by old customers now paying the new price.

e)

The change in marginal revenue caused by old customers now paying the new price.

Question 6(8 points)

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Table B shows the pricing options for two medical doctors operating as an oligopoly in a rural market. Which of the following pricing strategies does Table 6a and 6b depict?

Table B

Pricing strategies Dr. Good charges LOW PricePricing strategies Dr. Good charges HIGH PriceIf Dr. Good and Dr. Fine both charge LOW price, BOTH get $350 eachIf DR. Good charges the HIGH PRICE and Dr. Fine charges the LOW PRICE, Dr. Good GETS $0, and Dr. Fine gets $700If Dr. Fine charges HIGH PRICE and Dr. Good charges LOW PRICE, Dr. Fine gets $0 and Dr. Good gets $700If Dr. Good and Dr. Fine both charge the HIGH PRICE, BOTH get $500 each

Table 6aFirst PeriodChoose High or low priceFirst Period ProfitDr. GoodLow$350Dr. FineLow$350

Table 6bFirst Period Choose High or low priceFirst Period ProfitDr. GoodHigh$0Dr. FineLow$700

Question 6 options:

a)

Dr. Fine always plays "Tit-for-Tat" and Dr. Good always plays "Tit-for-Tat."

b)

Dr. Fine always plays "Tit-for-Tat" and Dr. Good always chooses the "Low" price.

c)

Dr. Good always plays "Tit-for-Tat" and Dr. Fine always chooses the "Low" price.

d)

Dr. Good always chooses the "Low" price and Dr. Fine always chooses the "Low" price.

e)

When there is only a single period in which to choose and Dr. Fine does not know what Dr. Good will do, Dr. Fine always chooses the Nash Noncooperative Equilibrium price strategy.

Question 7(8 points)

Table A shows the pricing options for two hair salons, one operated by Sue and the other by Jane, as an oligopoly in a rural market. Which of the following pricing strategies does Table 3 depict?

Table A

Pricing strategies for Sue's Hair Salon when charging the LOW PricePricing strategies for Sue's Hair Salon when charging the HIGH PriceIf Sue and Jane both charge LOW price, BOTH get $400 eachIf Sue charges the HIGH price and Jane charges the LOW price, Sue GETS $0, and Jane gets $800If Jane charges HIGH price and Sue charges LOW price, Jane gets $0 and Sue gets $800If Sue and Jane both charge the HIGH price, BOTH get $600 each

TABLE 3First Period Choose High or low priceFirst Period ProfitSecond Period Choose High or low priceSecond Period ProfitTotal Profit in both periodsSueHigh$0Low$400$400JaneLow$800Low$400$1,200

Question 7 options:

a)

Sue always plays "Tit-for-Tat" and Jane always plays "Tit-for-Tat."

b)

Sue always plays "Tit-for-Tat" and Jane always chooses the "Low" price.

c)

Jane always plays "Tit-for-Tat" and Sue always chooses the "Low" price.

d)

Jane always chooses the "Low" price and Sue always chooses the "Low" price.

e)

When there is only a single period in which to choose and Jane does not know what Sue will do, Jane always chooses the Nash Noncooperative Equilibrium price strategy.

Question 8(8 points)

Table A shows the pricing options for two hair salons, one operated by Sue and the other by Jane, as an oligopoly in a rural market. Which of the following pricing strategies does Table 1a and 1b depict?

Table A

Pricing strategies for Sue's Hair Salon when charging the LOW PricePricing strategies for Sue's Hair Salon when charging the HIGH PriceIf Sue and Jane both charge LOW price, BOTH get $400 eachIf Sue charges the HIGH price and Jane charges the LOW price, Sue GETS $0, and Jane gets $800If Jane charges HIGH price and Sue charges LOW price, Jane gets $0 and Sue gets $800If Sue and Jane both charge the HIGH price, BOTH get $600 each

TABLE 1aFirst Period Choose High or low priceFirst Period ProfitSueLow$400JaneLow$400

TABLE 1bFirst Period Choose High or low priceFirst Period ProfitSueHigh$0JaneLow$800

Question 8 options:

a)

Sue always plays "Tit-for-Tat" and Jane always plays "Tit-for-Tat."

b)

Sue always plays "Tit-for-Tat" and Jane always chooses the "Low" price.

c)

Jane always plays "Tit-for-Tat" and Sue always chooses the "Low" price.

d)

Jane always chooses the "Low" price and Sue always chooses the "Low" price.

e)

When there is only a single period in which to choose and Jane does not know what Sue will do, Jane always chooses the Nash Noncooperative Equilibrium price strategy.

Question 9(8 points)

Table B shows the pricing options for two medical doctors operating as an oligopoly in a rural market. Which of the following pricing strategies does Table 10 depict?

Table B

Pricing strategies Dr. Good charges LOW PricePricing strategies Dr. Good charges HIGH PriceIf Dr. Good and Dr. Fine both charge LOW price, BOTH get $350 eachIf Dr. Good charges the HIGH PRICE and Dr. Fine charges the LOW PRICE, Dr. Good GETS $0, and Dr. Fine gets $700If Dr. Fine charges HIGH PRICE and Dr. Good charges LOW PRICE, Dr. Fine gets $0 and Dr. Good gets $700If Dr. Good and Dr. Fine both charge the HIGH PRICE, BOTH get $500 each

TABLE 10First Period Choose High or low priceFirst Period ProfitSecond Period Choose High or low priceSecond Period ProfitTotal Profit in both periodsDr. GoodHigh$500High$500$1,000Dr. FineHigh$500High$500$1,000

Question 9 options:

a)

Dr. Fine always plays "Tit-for-Tat" and Dr. Good always plays "Tit-for-Tat."

b)

Dr. Fine always plays "Tit-for-Tat" and Dr. Good always chooses the "Low" price.

c)

Dr. Good always plays "Tit-for-Tat" and Dr. Fine always chooses the "Low" price.

d)

Dr. Good always chooses the "Low" price and Dr. Fine always chooses the "Low" price.

e)

When there is only a single period in which to choose and Dr. Fine does not know what Dr. Good will do, Dr. Fine always chooses the Nash Noncooperative Equilibrium price strategy.

Question 10(8 points)

Table A shows the pricing options for two hair salons, one operated by Sue and the other by Jane, as an oligopoly in a rural market. Which of the following pricing strategies does Table 2 depict?

Table A

Pricing strategies for Sue's Hair Salon when charging the LOW PricePricing strategies for Sue's Hair Salon when charging the HIGH PriceIf Sue and Jane both charge LOW price, BOTH get $400 eachIf Sue charges the HIGH price and Jane charges the LOW price, Sue GETS $0, and Jane gets $800If Jane charges HIGH price and Sue charges LOW price, Jane gets $0 and Sue gets $800If Sue and Jane both charge the HIGH price, BOTH get $600 each

TABLE 2First Period Choose High or low priceFirst Period ProfitSecond Period Choose High or low priceSecond Period ProfitTotal Profit in both periodsSueLow$400Low$400$800JaneLow$400Low$400$800

Question 10 options:

a)

Sue always plays "Tit-for-Tat" and Jane always plays "Tit-for-Tat."

b)

Sue always plays "Tit-for-Tat" and Jane always chooses the "Low" price.

c)

Jane always plays "Tit-for-Tat" and Sue always chooses the "Low" price.

d)

Jane always chooses the "Low" price and Sue always chooses the "Low" price.

e)

When there is only a single period in which to choose and Jane does not know what Sue will do, Jane always chooses the Nash Noncooperative Equilibrium price strategy.