Question 1

A new firm successfully enters a three-firm Cournot oligopoly without changing the demand and cost structures.The new price becomes:

Accepted Answer

A) 75 percent of the original price. 
B) 50 percent of the original price. 
C) the same as the original price. 
D) unknown for lack of other information.

Question 2

Suppose two types of consumers buy suits.Consumers of type A will pay $100 for a coat, and $50 for pants.Consumers of type B will pay $75 for a coat, and $75 for pants.The firm selling suits faces no competition and has a marginal cost of zero.If the firm sells coats and pants for $25 each, but offers a bundle containing both a coat and pants for $150, how many bundles will the firm sell?

Accepted Answer

A) 0. 
B) 1. 
C) 2. 
D) insufficient information.

Question 3

In a Cournot oligopoly with N-firms and identical marginal costs, the relationship between the price elasticity of market demand and that of the firm is:

Accepted Answer

A) EM = EF. 
B) EM = NEF. 
C) EM = EF/N. 
D) No deterministic relationship.

Question 4

Suppose fixed costs rise to $200.What will happen in the market?

Accepted Answer

A) The firm will decrease its output and lower its price. 
B) The firm will increase the price. 
C) The firm will shut down immediately. 
D) The firm continues to produce the same output and charge the same price.

Question 5

Suppose P = 20 - 2Q is the market demand function for a local monopoly.The marginal cost is 2Q.The local monopoly tries to maximize its profits by equating MC = MR and charging a uniform price.What will be the equilibrium price and output?

Accepted Answer

A) $6.33, 3.33 units. 
B) $6.33, 5 units. 
C) $13.33, 3.33 units. 
D) $10, 5 units.

Question 6

You are the manager of We Trust - the only bank in a small town.Your boss has been studying a report on transaction volume and has noticed a troubling trend: We Trust does not have enough tellers to handle the bank's maximum capacity, which occurs during the lunch hour.Your boss has asked for a short report that summarizes alternative plans for solving this problem, the pros and cons of each plan, and your recommended course of action.Provide this report.

Accepted Answer

The answer of You are the manager of We Trust...

Question 7

An industry produces 10,000 units of output at a price of $100.At the equilibrium price and quantity, the market elasticity of demand is -0.75.Does this industry consist of a profit-maximizing monopolist? Explain.

Accepted Answer

The answer of An industry produces 10,000 units of output...

Question 8

Before the breakup of AT&T, the firm charged a price for local telephone services that was roughly one-half of its cost of providing the services.In contrast, it charged almost two times it cost for long distance services.Why do you think AT&T adopted this pricing strategy?

Accepted Answer

The answer of Before the breakup of AT&T, the firm...

Exam 11: Pricing Strategies for Firms With Market Power