The ability of a firm to raise its price while still maintaining a certain amount of sales means that the firm

Select one:

a.

faces perfectly elastic demand for its product.

b.

produces a perfect substitute for the other products in the industry.

c.

produces a complementary good.

d.

has market power.

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All of the following could be a barrier to entry except

Select one:

a.

occupational licenses (e.g., teacher certification, lawyers passing the bar exam, etc.).

b.

low fixed costs.

c.

government-granted monopoly rights, as exists for many utility companies in cities.

d.

large economies of scale.

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A firm with market power has a demand curve that slopes downward; this implies that

Select one:

a.

the selling price of the current unit must be set equal to the selling price of the previous unit sold.

b.

price is less than marginal revenue.

c.

marginal revenue is greater than marginal cost.

d.

it must continually lower price on successive units in order to continue selling.

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Firms with market power determine the optimal price and quantity by

Select one:

a.

equatingMRMRwithMCMCto find quantity, then setting the price that yields that quantity on the firm demand curve.

b.

setting the price equal to the market price, and then equating that price withMCMCto find quantity.

c.

setting quantity at the point of minimum average total cost (ATCATC), and setting price equal to thatATCATCtimes the concentration ratio.

d.

adding the average fixed cost to the average total cost to find price, and producing the quantity that yields that price on the firm's demand curve.

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A monopoly is producing a level of output at which price is $320, marginal revenue is $290, average total cost is $300, marginal cost is $290. The firm's current choice of output is

Select one:

a.

too high.

b.

at the optimal level.

c.

More information is needed to answer this question.

d.

too low.

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A monopoly is producing a level of output at which price is $320, marginal revenue is $290, average total cost is $330, marginal cost is $290, and average fixed cost is $25. In the short run, this firm should choose to

Select one:

a.

shut down.

b.

produce but take a loss of $10 per unit (better than shutting down).

c.

produce, because it would earn $30 profit per unit.

d.

produce and break even (zero profit).

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In a monopolistically competitive market,

Select one:

a.

every firm's demand curve is equivalent to every other firm's demand curve.

b.

firms produce relatively close (but not perfect) substitutes.

c.

one firm has a significant advantage in terms of market share compared to the other firms.

d.

it is prohibitively expensive for new firms to enter.

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A monopolistic competitor is similar to a monopolist in that

Select one:

a.

both earn positive economic profit in the long run.

b.

both are able to maximize their per-unit profit margin.

c.

both are able to enforce significant entry barriers against potential competitors.

d.

both can set price above marginal cost.

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In the long run, monopolistically competitive firms will

Select one:

a.

break even.

b.

deter entry of new firms and thus restrict market supply.

c.

set price equal to marginal cost and thus earn normal profit.

d.

increase the amount of substitute products produced in the industry.

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A distinguishing characteristic of oligopoly markets is that

Select one:

a.

entry barriers are sufficiently high to prevent any more than one firm existing in the industry.

b.

the output of a single firm is extremely small relative to the output of all firms in the industry.

c.

there are a large number of firms, each producing close substitutes for each other.

d.

a firm's profitability depends on its own, as well as rival firms', decisions.

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In game theory, a dominated strategy is

Select one:

a.

a strategy that allows one firm to achieve greater profits than the profits of rival firms.

b.

a strategy whose payoffs are always lower than other strategies.

c.

a strategy with the lowest payoff which nonetheless is chosen by both firms.

d.

a strategy that is chosen second in a sequential game.

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Two law firms compete for most of the market in the small town of Grumbleton, and must choose their advertising levels simultaneously. The following payoff table facing the two firms,Jackie Chiles Law, LLCandLionel Hutz Law Firm, shows the weekly profit outcomes for the various advertising decision combinations. Use this payoff table to answer the following three questions.

[Blank for Formatting]	Hutz Advertising Level: Low	Hutz Advertising Level: High
Chiles Advertising Level: Low	$2500/$2500	$1500/$3500
Chiles Advertising Level: High	$3500/$1500	$2000/$2000

Jackie Chiles Law, LLChas

Select one:

a.

a dominated strategy; never choose a high level of advertising.

b.

a dominant strategy: choose a high level of advertising.

c.

no dominant strategy; choose a high level ifHutzchooses high, and a low level ifHutzchooses low.

d.

a dominant strategy: choose a low level of advertising.

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Lionel Hutz Law Firmhas

Select one:

a.

a dominated strategy: never choose a low level of advertising ifChileschooses high, and never choose a high level of advertising ifChileschooses low.

b.

no dominant strategy sinceHutzprofits are earned after profits are earned byChiles.

c.

a dominant strategy: choose a low level of advertising.

d.

a dominant strategy: choose a high level of advertising.

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Where is the Nash equilibrium outcome?

Select one:

a.

Chileschoose low andHutzchoose high becauseHutz's low strategy is dominated.

b.

Both choose high and earn a relatively low combined profit.

c.

Both choose low withChilesgetting a slightly larger profit.

d.

Chileschoose high andHutzchoose low sinceHutzhas a dominant strategy whileChileshas a dominated strategy.

Kramerica IndustriesandVandelay Industriesare two companies that makepricingdecisions (high or low). Because of different schedules for their annual meetings, every yearKramericamakes its pricing decision first, thenVandelaymakes its decision. The game tree looks like this:

Question 21

A game tree showing decisions betweenKramericaandVandelay.Kramericamakes the first choice at node 1, choosing either high or low. IfKramericachooses high,Vandelay(at node 2) chooses either high (in which caseKramericaearns $20,000 andVandelayearns $8,500) or low (in which caseKramericaearns $16,000 andVandelayearns $9,700).IfKramericachooses low at node 1,Vandelay(at another node 2) chooses either high (in which caseKramericaearns $23,000 andVandelayearns $7,300) or low (in which caseKramericaearns $14,000 andVandelayearns $6,800).

Using backward induction,Kramericapresumes that if it chooses high,Vandelaywill choose

Select one:

a.

low.

b.

high.

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Vandelayhas

Select one:

a.

a strategy of choosing high ifKramericachooses high, and low ifKramericachooses low.

b.

a dominant strategy of choosing low.

c.

a dominant strategy of choosing high.

d.

a strategy of choosing low ifKramericachooses high, and high ifKramericachooses low.

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The Nash equilibrium outcome is forKramericato choose _______ and thenVandelayto choose ______.

Select one:

a.

low; low

b.

low; high

c.

high; high

d.

high; low

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While they may be used to better inform or attract consumers, why else might firms use practices like price matching and sale-price guarantees?

Select one:

a.

To better conceal their pricing behavior from their rivals.

b.

To make their products seem more homogenous (having closer substitutes).

c.

To reduce their fixed costs.

d.

They are implicit ways firms can monitor each other's pricing and better cooperate with each other.