Question 1

When it comes to network goods, consumer loyalties may switch quickly.

Accepted Answer

A) True 
 B)False

Question 2

Is electricity distribution a contestable market? Why or why not?

Accepted Answer

A)  No, because there are high fixed costs of erecting power lines to every house. 
B)  No, because consumers feel loyal to their current power company. 
C)  Yes, because there are no legal barriers to entry. 
D)  Yes, because there are no fixed costs associated with distributing power. 
A)  No, because there are high fixed costs of erecting power lines to every house. 
B)  No, because consumers feel loyal to their current power company. 
C)  Yes, because there are no legal barriers to entry. 
D)  Yes, because there are no fixed costs associated with distributing power.

Question 3

In the case of software, contestability is often hampered by:

Accepted Answer

A)  low fixed costs of development. 
B)  low variable costs of distribution. 
C)  high variable costs of distribution. 
D)  high fixed costs of development. 
A)  low fixed costs of development. 
B)  low variable costs of distribution. 
C)  high variable costs of distribution. 
D)  high fixed costs of development.

Question 4

Table: Homer, Marge Payoff Table
 
Refer to the table. The Nash equilibrium is (are):

Accepted Answer

A)  (50, 50) and (48, 60). 
B)  (0, 45). 
C)  (45, 45). 
D)  (48, 60) and (45, 45). 
A)  (50, 50) and (48, 60). 
B)  (0, 45). 
C)  (45, 45). 
D)  (48, 60) and (45, 45).

Question 5

Which statement is TRUE regarding network goods?

Accepted Answer

A)  Producers of network goods typically sell their product at a price below marginal cost. 
B)  Competition among companies producing network goods drives the price down to equal marginal cost. 
C)  Network goods typically sell at a price higher than marginal cost. 
D)  Marginal cost always equals average cost for network goods. 
A)  Producers of network goods typically sell their product at a price below marginal cost. 
B)  Competition among companies producing network goods drives the price down to equal marginal cost. 
C)  Network goods typically sell at a price higher than marginal cost. 
D)  Marginal cost always equals average cost for network goods.

Question 6

The market for cell phone service has:

Accepted Answer

A)  become more contestable over time. 
B)  become less contestable over time. 
C)  maintained the same contestability over time. 
D)  fluctuated in contestability over time. 
A)  become more contestable over time. 
B)  become less contestable over time. 
C)  maintained the same contestability over time. 
D)  fluctuated in contestability over time.

Question 7

The story of QWERTY is about:

Accepted Answer

A)  how an inferior product can become the "locked-in" standard simply because it was first to market. 
B)  how network goods are noncontestable. 
C)  the absence of a Nash equilibrium when there are large fixed costs to entry. 
D)  the creation of monopoly power through the use of loyalty programs. 
A)  how an inferior product can become the "locked-in" standard simply because it was first to market. 
B)  how network goods are noncontestable. 
C)  the absence of a Nash equilibrium when there are large fixed costs to entry. 
D)  the creation of monopoly power through the use of loyalty programs.

Question 8

Shutterfly is an Internet-based personal publishing service that allows consumers to upload and share photos and videos. They also allow customers to create photobooks, stationary, and cards. The company tries to differentiate itself from other companies that offer similar services by allowing customers to upload an unlimited number of photos at no cost. Explain why Shutterfly would offer such a service free of charge.

Accepted Answer

Web sites such as Shutterfly are network

Question 9

Which statement is NOT a feature of markets for network goods?

Accepted Answer

A)  Network goods are usually sold by monopolies or oligopolies. 
B)  Standard wars are common in establishing network goods. 
C)  Competition in the market for network goods is "in the market" instead of "for the market." 
D)  When networks are important, the "best" product may not always win. 
A)  Network goods are usually sold by monopolies or oligopolies. 
B)  Standard wars are common in establishing network goods. 
C)  Competition in the market for network goods is "in the market" instead of "for the market." 
D)  When networks are important, the "best" product may not always win.

Question 10

QWERTY is used today because it is:

Accepted Answer

A)  faster. 
B)  locked in. 
C)  simple. 
D)  superior in several dimensions. 
A)  faster. 
B)  locked in. 
C)  simple. 
D)  superior in several dimensions.

Question 11

Firms sometimes give away products for free in the hopes of:

Accepted Answer

A)  selling other goods they produce at a higher price. 
B)  driving the competition out of business. 
C)  becoming the dominant standard. 
D)  creating a loyal customer base. 
A)  selling other goods they produce at a higher price. 
B)  driving the competition out of business. 
C)  becoming the dominant standard. 
D)  creating a loyal customer base.

Question 12

Which is an example of a good with a high switching cost?

Accepted Answer

A)  soda that has a distinct taste 
B)  a computer program with a lot of complicated features 
C)  window cleaner that is best used with a particular brand of sponge 
D)  a particular brand of bottled water 
A)  soda that has a distinct taste 
B)  a computer program with a lot of complicated features 
C)  window cleaner that is best used with a particular brand of sponge 
D)  a particular brand of bottled water

Question 13

Antitrust authorities have a difficult time with network goods because:

Accepted Answer

A)  they know that with network goods, only a few firms will always dominate the market. 
B)  profits tend to be higher in network markets, and thus firms are willing to fight harder. 
C)  when monopolies exist, there is no competition to help lower prices. 
D)  increased competition can easily lead to corruption in network markets. 
A)  they know that with network goods, only a few firms will always dominate the market. 
B)  profits tend to be higher in network markets, and thus firms are willing to fight harder. 
C)  when monopolies exist, there is no competition to help lower prices. 
D)  increased competition can easily lead to corruption in network markets.

Question 14

Hotels often offer reward cards that provide discounts to customers who frequent their establishments. Why do hotels offer these loyalty programs?

Accepted Answer

A)  to decrease switching costs 
B)  to increase switching costs 
C)  to eliminate switching costs 
D)  to reduce their market power 
A)  to decrease switching costs 
B)  to increase switching costs 
C)  to eliminate switching costs 
D)  to reduce their market power

Question 15

The equilibrium in a market in which no participant has an incentive to change his or her strategy unilaterally is called a:

Accepted Answer

A)  market equilibrium. 
B)  Nash equilibrium. 
C)  coordinating equilibrium. 
D)  financial equilibrium. 
A)  market equilibrium. 
B)  Nash equilibrium. 
C)  coordinating equilibrium. 
D)  financial equilibrium.

Question 16

In the case of network goods, the best product may not win because of:

Accepted Answer

A)  complexity issues. 
B)  simplicity issues. 
C)  lock-in. 
D)  intangibility. 
A)  complexity issues. 
B)  simplicity issues. 
C)  lock-in. 
D)  intangibility.

Question 17

iTunes is an online digital media store operated by Apple. Songs may be purchased individually, and each song has a popularity meter that keeps track of how many consumers have downloaded the song. What information does the popularity meter on iTunes give to consumers, and does the meter itself influence how many consumers download songs? Explain.

Accepted Answer

The popularity meter tells consumers whi

Question 18

What is meant by the concept of a Nash equilibrium?

Accepted Answer

A)  It is an outcome where the player has played his or her dominant strategy. 
B)  It is an outcome where both players have the incentive to change their strategy. 
C)  It is the outcome where neither player wishes to change his or her strategy unilaterally. 
D)  It is the same as a dominant strategy outcome. 
A)  It is an outcome where the player has played his or her dominant strategy. 
B)  It is an outcome where both players have the incentive to change their strategy. 
C)  It is the outcome where neither player wishes to change his or her strategy unilaterally. 
D)  It is the same as a dominant strategy outcome.

Question 19

Which is an example of a coordination game?

Accepted Answer

A)  choosing a dress for a wedding while making sure no one is wearing the same thing 
B)  divvying up the parts of a group project so you don't have to do as much and everyone can work cohesively together 
C)  You're not sure where your study group is supposed to meet, but the library is the most likely place so you go there. 
D)  getting the roast beef at a restaurant-the same thing everyone else gets-because it is the best deal on the menu 
A)  choosing a dress for a wedding while making sure no one is wearing the same thing 
B)  divvying up the parts of a group project so you don't have to do as much and everyone can work cohesively together 
C)  You're not sure where your study group is supposed to meet, but the library is the most likely place so you go there. 
D)  getting the roast beef at a restaurant-the same thing everyone else gets-because it is the best deal on the menu

Question 20

A Nash equilibrium:

Accepted Answer

A)  means that no players have an incentive to change their strategy. 
B)  means that some players could be made better off by changing their strategy. 
C)  is suboptimal compared to Raj's equilibrium. 
D)  None of the answers is correct. 
A)  means that no players have an incentive to change their strategy. 
B)  means that some players could be made better off by changing their strategy. 
C)  is suboptimal compared to Raj's equilibrium. 
D)  None of the answers is correct.

Exam 16: Competing for Monopoly

When it comes to network goods, consumer loyalties may switch quickly.

Is electricity distribution a contestable market? Why or why not?

In the case of software, contestability is often hampered by:

Table: Homer, Marge Payoff Table Refer to the table. The Nash equilibrium is (are):

Which statement is TRUE regarding network goods?

The market for cell phone service has:

The story of QWERTY is about:

Which statement is NOT a feature of markets for network goods?

QWERTY is used today because it is:

Firms sometimes give away products for free in the hopes of:

Which is an example of a good with a high switching cost?

Antitrust authorities have a difficult time with network goods because:

Hotels often offer reward cards that provide discounts to customers who frequent their establishments. Why do hotels offer these loyalty programs?

The equilibrium in a market in which no participant has an incentive to change his or her strategy unilaterally is called a:

In the case of network goods, the best product may not win because of:

What is meant by the concept of a Nash equilibrium?

Which is an example of a coordination game?

A Nash equilibrium:

The Big Ideas

The Power of Trade and Comparative

Supply and Demand

Equilibrium

Elasticity and Its Applications

Taxes and Subsidies

The Price System

Price Ceilings and Floors

International Trade

Externalities- When the Price Is Not Right

Costs and Profit Maximization Under Competition

Competition and the Invisible Hand

Monopoly

Price Discrimination

Oligopoly and Game Theory

Monopolistic Competition and Advertising

Labor Markets

Public Goods and the Tragedy of the Commons

Political Economy and Public Choice

Economics, Ethics, and Public Policy

Managing Incentives

Stock Markets and Personal Finance

Price Discrimination

Consumer Choice

Filters