Final Exam Questions

Question 1

what are aspects of perfect competition?
(4)

Answer 1

-many firms
-homogeneous products
-perfect information
-free entry

Question 2

What aspects of the conditions for perfect competition combine to make firms price takers?

Answer 2

-many small Bs and Ss.
-homogenous products
-no transaction costs
-perfect information

NOT: free entry and exit

Question 3

how find the optimal product quantity?

Question 4

how to determine maximum profit that may be earned?

Question 5

Firm should produce in the short run, even if earning a profit is trues , as long as what is true?

Answer 5

-profit is greater than negative fixed cost
-price is above average variable cost

NOT: revenues are GREATER than fixed costs

Question 6

what is true under perfect competition?

Answer 6

price = MR

Question 7

T/F

the free entry and exit of firms I a market structure push profits toward zero economic profit in the long run.

Answer 7

True

Question 8

in a perfectly competitive market,

what will happen in the long run if there is no change in the demand curve?

Answer 8

some firms will enter the market eventually, pushing the market price down.

Question 9

in a perfectly competitive industry

with identical firms, long-run equilibrium is characterized by:

Answer 9

PROFIT moves zero

Question 10

T/F

Laws that aim to reduce monopoly power in an economy are called corporate laws.

Answer 10

F

Laws that aim to reduce monopoly power in an economy are called ANTITRUST laws.

Question 11

how to calculate profit maximizing output for a firm

Question 12

determine tentative cost

Question 13

in a general comparison of Monopoly to Perfect Competition, what is true?

Answer 13

-monopolies can charge higher prices
-perfect competition producers a higher qty.

NOT: monopoly create more total surplus

Question 14

what is a natural monopoly?

Answer 14

one firm can supply the entire market at a lower average cost than if there were multiple firrms.

Question 15

T/F

Profit maximization will not occur on the elastic portion of a firm’s demand curve.

Answer 15

F

Profit maximization will not occur on the INELASTIC portion of a firm’s demand curve.

Question 16

where does the pricing power of a firm in monopolistic competitions comes from?

Answer 16

product differentiation

NOT:
-government granted regional monopoly
-being a natural monopoly
-earning a patent

Question 17

T/F

There is nothing a firm can do to try and avoid ending up with zero economic profit over the long run.

Answer 17

F

(find the answer)

Question 18

how to calculate a maximum profit

Question 19

advertising elasticity??
(look this one up because I am not sure

Question 20

In the long run, profits in monopolistic competition head toward zero as the price in monopolistic competition heads to the minimum of the average cost curve.

Answer 20

F

Profits head toward zero but price stays above the minimum average cost since firms have some pricing power; the equilibrium will have the firm demand tangent to the AC curve, but with a downward sloping demand curve that will not be at the minimum of the AC curve.

Question 21

Conditions for a firm to engage in third degree price discrimination?

Answer 21

-There are different groups of consumers, with some having a more elastic demand than others.
-There is no large and viable resale market for the good.
-The firm has a means of identifying different consumer types.

NOT: Consumers do not know prices that others pay.

Question 22

if using 3rd party discrimination,

how to determine price that should be charge?

Question 23

if firm uses a 2 part pricing strategy,

how to determine pricing?

Question 24

if firm uses a block pricing strategy,

how to determine pricing?

Question 25

Q5

Question 26

Q6

Question 27

Sometimes divisions of a firm internally mark up prices in excess of marginal cost when selling to each other. This is referred to as _____ and it is _____ to overall firm profitability.

Answer 27

double marginalization

harmful

Question 28

what is cost advantage?

Answer 28

A firm that can produce a good at a lower cost that has similar quality and features to its competitors is said to have a

Q5-8.1

Question 29

what is discount strategy?

Answer 29

Q5-8.2

Question 30

what is focused position?

Answer 30

Q5-8.3

Question 31

what is benefit strategy?

Answer 31

Q5-8.4

Question 32

fininsh the statement:

A firm with a benefit advantage and a less elastic demand should pursue a pricing strategy that will give it greater profits than its rivals through__

Answer 32

HIGHER MARGINS as it prices SIZEABLY ABVOVE rivals

Question 33

what is oligopoly?

Answer 33

Game theory is most useful in the analysis of which of the following market structures in economics?

Q5-10.1

Question 34

what is monopoly?

Answer 34

Q5-10.2

Question 35

what is perfect competition?

Answer 35

Q5-10.3

Question 36

T/F

Given another player’s strategy, a player cannot improve their welfare just by changing their own strategy.

Answer 36

T

FALSE:

-A Nash equilibrium is always unique in real world problems.
-There is no alternative outcome that can make all players better off.
-The joint payoffs of the two players is higher than other strategy pairs.

Question 37

what is a mixed strategy?

Answer 37

randomizes over two or more available actions in order to keep rivals from being able to predict a player’s action.

Question 38

what is a dominant strategy for a firm?

how to find it?

Question 39

what is Nash Equilibrium?

Question 40

what are the types of games that can be played?

Question 41

what types of turns/moves that may be made in a game?

Question 42

what is the secure strategy for a firm?

Question 43

what is a trigger strategy?

Question 44

what is a collusion?

Answer 45

Q6-2

Answer 46

Q6-3

Question 47

T/F

Consider an entry game. Firm B is an existing firm in the market, and firm A is a potential entrant. Firm A must decide whether to enter the market (play “enter”) or stay out of the market (play “not enter”). If firm A decides to enter the market, firm B must decide whether to engage in a price war (play “hard”), or not (play “soft”). By playing “hard,” firm B ensures that firm A makes a loss of $2 million, but firm B only makes $2 million in profits. On the other hand, if firm B plays “soft,” the new entrant takes half of the market, and each firm earns profits of $4 million. If firm A stays out, it earns zero while firm B earns $8 million.

Answer 47

T