Question 1

Which is NOT a good example of a contestable market?

Accepted Answer

A)  low-cost airlines 
B)  electricity providers 
C)  a local Mexican restaurant 
D)  bottled water manufacturers 
A)  low-cost airlines 
B)  electricity providers 
C)  a local Mexican restaurant 
D)  bottled water manufacturers

Question 2

Two features of music markets are:

Accepted Answer

A)  predatory pricing and standard wars. 
B)  predatory pricing and network goods. 
C)  network goods and standard wars. 
D)  merit goods and network goods. 
A)  predatory pricing and standard wars. 
B)  predatory pricing and network goods. 
C)  network goods and standard wars. 
D)  merit goods and network goods.

Question 3

Online dating services are a network good.

Accepted Answer

A) True 
 B)False

Question 4

The market for Internet dating is dominated by eHarmony, Match.com, and Yahoo. This market is an example of monopolistic competition.

Accepted Answer

A) True 
 B)False

Question 5

A Nash equilibrium is a situation in which:

Accepted Answer

A)  the players are better off choosing the same strategy than if they choose different strategies. 
B)  all players select the worst outcome. 
C)  no player has an incentive to change his or her strategy unilaterally. 
D)  one's costs are minimized. 
A)  the players are better off choosing the same strategy than if they choose different strategies. 
B)  all players select the worst outcome. 
C)  no player has an incentive to change his or her strategy unilaterally. 
D)  one's costs are minimized.

Question 6

In a network good's market:

Accepted Answer

A)  the output is usually split evenly among many different sellers. 
B)  the best product might not be the most popular product. 
C)  there is fierce competition "in the market." 
D)  the government is the low-cost leader. 
A)  the output is usually split evenly among many different sellers. 
B)  the best product might not be the most popular product. 
C)  there is fierce competition "in the market." 
D)  the government is the low-cost leader.

Question 7

Operating systems have network-good characteristics because of ______ issues.

Accepted Answer

A)  complexity 
B)  simplicity 
C)  intangibility 
D)  compatibility 
A)  complexity 
B)  simplicity 
C)  intangibility 
D)  compatibility

Question 8

Network goods are usually produced by:

Accepted Answer

A)  competitive firms. 
B)  monopolies and oligopolies. 
C)  monopolistically competitive firms. 
D)  state and local governments. 
A)  competitive firms. 
B)  monopolies and oligopolies. 
C)  monopolistically competitive firms. 
D)  state and local governments.

Question 9

When many people are involved and when they do not all agree about whether one good really is better than another, the best final equilibrium is usually determined by:

Accepted Answer

A)  consumers. 
B)  the market. 
C)  the government. 
D)  historical accidents. 
A)  consumers. 
B)  the market. 
C)  the government. 
D)  historical accidents.

Question 10

Why is music considered a network good?

Accepted Answer

As suggested by the study by Duncan J. W

Question 11

Network industries that are contestable usually perform better than uncontestable markets even if they are monopolized.

Accepted Answer

A) True 
 B)False

Question 12

Firms that operate in contestable markets:

Accepted Answer

A)  still price competitively since they face the threat of competition from new entrants. 
B)  are pure monopolies that set prices equal to consumers' highest willingness to pay. 
C)  earn zero economic profits. 
D)  face more competition when fixed costs are high. 
A)  still price competitively since they face the threat of competition from new entrants. 
B)  are pure monopolies that set prices equal to consumers' highest willingness to pay. 
C)  earn zero economic profits. 
D)  face more competition when fixed costs are high.

Question 13

The port of Rhodes (of the famed Colossus of Rhodes) was a major trading hub during the Roman Republic, charging a small harbor tax on goods that passed through. When Rome fought Macedonia, Rhodes took a neutral stance much to Rome's chagrin. In response, Rome established a rival port on the nearby Isle of Delos and eliminated the harbor tax. Trade in Rhodes immediately fell by 85% and eventually the city-state disappeared forever. Why did Rome completely eliminate the tax instead of charging one just below what Rhodes charged?

Accepted Answer

A)  to make consumers open to a new competitor 
B)  to remove a legal barrier to entry 
C)  to destroy Rhodes's excellent ports 
D)  to reduce the fixed cost of entry 
A)  to make consumers open to a new competitor 
B)  to remove a legal barrier to entry 
C)  to destroy Rhodes's excellent ports 
D)  to reduce the fixed cost of entry

Question 14

Nash equilibria always maximize total surplus in society.

Accepted Answer

A) True 
 B)False

Question 15

Which one would NOT be considered a network good?

Accepted Answer

A)  cell phones 
B)  quiet study rooms 
C)  e-mail programs 
D)  online player versus player games 
A)  cell phones 
B)  quiet study rooms 
C)  e-mail programs 
D)  online player versus player games

Question 16

Network goods are always sold by the firm with the "best" product.

Accepted Answer

A) True 
 B)False

Question 17

In the previous chapter you learned about why cartels are hard to maintain since cheating is a dominant strategy for all firms involved. If this table represents the payoffs for two firms operating as a cartel, are there any Nash equilibria in this coordination game? If so, how many? For these payoffs, what is the "best" equilibrium outcome for both firms? Which outcome is likely to occur in the market? Does your answer change if these firms can communicate and/or monitor each other easily? Explain.

Accepted Answer

There are two Nash equilibria-one where

Question 18

Which statement is TRUE regarding network goods?

Accepted Answer

A)  Network goods are usually sold by monopolies or oligopolies. 
B)  Microsoft Word has always been the dominant word processing software 
C)  Microsoft Excel has always been the dominate spreadsheet software. 
D)  All of the answers are correct. 
A)  Network goods are usually sold by monopolies or oligopolies. 
B)  Microsoft Word has always been the dominant word processing software 
C)  Microsoft Excel has always been the dominate spreadsheet software. 
D)  All of the answers are correct.

Question 19

Since its founding in 331 B.C.E., the city of Alexandria has been a center of trade for the Mediterranean countries, as well as the Middle Eastern countries. Part of this is due to geography, but it is also due to the network effect. What is the source of the network effect?

Accepted Answer

A)  Ships want the best harbor available. 
B)  There is a lot of contestability for ports. 
C)  There are economies of scale due to a concentration of trade. 
D)  Merchants want to maximize trading opportunities. 
A)  Ships want the best harbor available. 
B)  There is a lot of contestability for ports. 
C)  There are economies of scale due to a concentration of trade. 
D)  Merchants want to maximize trading opportunities.

Question 20

A network good is a good whose value to one consumer increases the more other consumers use the good.

Accepted Answer

A) True 
 B)False

Exam 16: Competing for Monopoly

Which is NOT a good example of a contestable market?

Two features of music markets are:

Online dating services are a network good.

The market for Internet dating is dominated by eHarmony, Match.com, and Yahoo. This market is an example of monopolistic competition.

A Nash equilibrium is a situation in which:

In a network good's market:

Operating systems have network-good characteristics because of ______ issues.

Network goods are usually produced by:

When many people are involved and when they do not all agree about whether one good really is better than another, the best final equilibrium is usually determined by:

Why is music considered a network good?

Network industries that are contestable usually perform better than uncontestable markets even if they are monopolized.

Firms that operate in contestable markets:

Nash equilibria always maximize total surplus in society.

Which one would NOT be considered a network good?

Network goods are always sold by the firm with the "best" product.

Which statement is TRUE regarding network goods?

Since its founding in 331 B.C.E., the city of Alexandria has been a center of trade for the Mediterranean countries, as well as the Middle Eastern countries. Part of this is due to geography, but it is also due to the network effect. What is the source of the network effect?

A network good is a good whose value to one consumer increases the more other consumers use the good.

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

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