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ECON 301 Test 4
Terms in this set (43)
If market demand is P = 100 - Q and the firm has a constant marginal cost of 20, then with first-degree price discrimination, the firm's producer surplus will be:
A firm faces a market demand curve P = 50 - 5Q. It has a constant marginal cost of $10. Relative to standard monopoly pricing, how would a block pricing strategy where the first four units can be purchased for a price of $30 each but two more units can be purchased for an additional $20 each change consumer surplus and producer surplus?
Consumer surplus would increase by $10, and producer surplus would increase by $20.
Relative to perfect competition, first-degree price discrimination results in:
lower consumer surplus, higher producer surplus, and equal total surplus.
A golf course has frequent players whose demand is Qf = 260 - 0.4P and infrequent players whose demand is Qi = 10 - 0.1P. Combined market demand is Q = 34 - 0.4P. The marginal cost and average total cost of providing a round of golf are $20. How much higher will profit be if the golf course uses third-degree price discrimination instead of charging all golfers the same price?
Which of the following results in the highest amount of total surplus?
first degree price discrimination
Which of the following conditions do not have to be met in order for indirect price discrimination by versioning to work?
The marginal costs of producing each version of the product must be the same.
The key difference between markets where third-degree price discrimination is possible and markets where second-degree price discrimination is possible is whether:
firms can identify customers' demand before the customers make a purchase.
An airline sells seats on its flights to business travelers whose demand is QB = 300 - P and to vacation travelers whose demand is QV = 150 - 0.5P. Combined market demand is Q = 450 - 1.5P. The marginal cost and average total cost of providing a seat on a flight are $200. How much higher will profit be if the airline uses third-degree price discrimination instead of charging all travelers the same price?
Which of the following results in the highest amount of producer surplus?
two part tariff
Which of the following features is not needed for price discrimination using a two-part tariff to work?
The firm's customers must have different demand curves.
If a firm practices third-degree price discrimination, the price charged should be higher in the market where demand is:
less price elastic
Which of the following results in the highest amount of consumer surplus?
In order for third-degree discrimination to be possible, which of the following features is not required?
identification of each customer's demand before purchase
Which of the following features is needed to make bundling a possible price discrimination strategy but is not required for any other price discrimination strategies?
Demand for two products must be negatively correlated.
Which of the following is not needed for price discrimination to be possible?
The firm's customers must have different demand curves.
A firm wants to offer a quantity discount in order to price-discriminate between buyers who are relatively uninterested in the product and buyers who are obsessively interested in it. The uninterested customers have demand of QU = 30 - 0.5P. The package offered to them contains 10 units of the good at a price of $40 each. Which of the following packages designed for the obsessed customers are incentive compatible?
60 units at a price of $20 each
Relative to standard monopoly pricing, block pricing:
increases consumer surplus, increases producer surplus, and increases total surplus.
In order for price discrimination via a quantity discount to work:
customers who purchase larger quantities must have relatively elastic demand.
Relative to standard monopoly pricing, first-degree price discrimination results in:
lower consumer surplus, higher producer surplus, and higher total surplus.
If the number of firms in the market under Cournot competition increases:
the market price will decrease and the market quantity will increase.
In the Cournot competition model:
firms choose the quantity that maximizes their own profit given the choice of the other firms.
Firms in an oligopoly:
have a difficult time doing so because each firm can increase profit by breaking the agreement and increasing output.
Two firms, A and B, each with a marginal cost of $50, form an oligopoly whose market demand is P = 650 − 10Q. If the market is defined by Cournot competition, what quantity will they produce and what price will they charge?
A quantity of 20 each and a price of $250
Under Stackleberg competition between two firms, if both firms have the same marginal cost:
the first mover earns a larger profit than the second mover.
Two milk producers, A and B, each with a marginal cost of $50, form an oligopoly whose market demand is P = 650 − 10Q. If the firms attempt to collude and firm B produces 15 gallons (half the monopoly output), what is firm A's optimal quantity?
Which of the following factors does not make collusion easier?
an increase in the number of firms in the cartel
Under Stackleberg competition:
there is a first-mover advantage.
Two milk producers, A and B, each with a marginal cost of $50, form an oligopoly whose market demand is P = 650 − 10Q. If the market is defined by Stackleberg competition and firm A moves first, what quantity will firm A produce?
Two firms form an oligopoly in the market for soft drinks. Each must decide whether to advertise its product in order to try to attract customers away from the competition. Advertising is very expensive, and if both firms do it, there will be no net effect of the advertising; both firms will end up with the same number of customers they started with. But if only one firm advertises, it will pull away a substantial number of customers from the competition. What is the likely outcome of this situation?
Both firms advertise.
Which of the following is true about the comparison between the predicted outcomes of the collusion, Cournot, and Bertrand models?
The Bertrand model predicts the lowest price.
If the number of firms in the cartel increases:
collusion becomes more difficult.
If the number of firms in the market under Bertrand competition increases:
the market price and quantity will stay the same.
In the market for widgets, two firms sell identical products, compete by choosing the price at which they sell their product, and choose their prices at the same time. What will the equilibrium price and quantity be relative to what would occur if the market were instead perfectly competitive?
the same quantity and the same price
Under Bertrand competition, firms have the same marginal cost but produce differentiated products, so:
all firms charge the same price.
Assuming a firm has the same cost structure regardless of the market structure, which of the following statements about the long run outcomes under perfect competition and monopolistic competition is true?
The price charged by the firm is higher under monopolistic competition.
Equilibrium in oligopoly is different from other market structures because:
Each firm's action influences what the other companies want to do.
Total demand for a product is 3,000 units. There are two firms, A and B, in this market. Each has a marginal cost of $50. What price and quantity will each firm produce if the firms engage in Bertrand competition?
Each will produce 1,500 units and charge a price of $50.
Two firms, A and B, each with a marginal cost of $50, form an oligopoly whose market demand is P = 650 − 10Q. If the firms are able to collude successfully, what quantity will each produce and what price will they charge?
a quantity of 15 each and a price of $350
If products are differentiated instead of identical under Bertrand competition:
the prices charged by the firms are higher.
If a game has no dominant strategies
it may or may not have multiple Nash equilibria.
Which of the following statements about simultaneous-move games is true?
All games have at least one Nash equilibrium.
Which of the following statements about sequential-move games is true?
Depending on the game's payoffs, either player could have an advantage.
You and your roommate, Harold, are very hungry and are thinking about going out to dinner. Harold will drive and gets to choose where to go. He prefers White Castle, but you prefer Taco Bell because White Castle makes you sick and you would rather not eat than go to White Castle. If you wait for one hour, Taco Bell will deliver a meal to your house. Harold cannot go to dinner without you because he does not know how to get to either restaurant, so he promises that if you agree to go out now, he will choose Taco Bell. If you are both purely self-interested, what should you do?
Stay home and wait for Taco Bell to deliver.
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