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Which of the following is NOT an example of raising rivals' fixed costs?


A) Existing doctors in a particular medical field lobby to require new doctors to acquire new licenses.
B) Yellow Cab Company lobbying New York City government officials for an ordinance that would require all taxi cab drivers to pay for a medallion, giving them the right to drive a cab in New York City.
C) Federal Express lobbying the U.S. Department of Transportation to increase annual terminal fees.
D) The New York Port Authority lobbying to increase the tolls on New York City's George Washington Bridge.

E) B) and C)
F) B) and D)

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D

Which of the following is an INCORRECT statement about predatory pricing?


A) It benefits the firm engaging in predatory pricing to have deeper pockets than its prey.
B) Reputation for taking tough actions to drive a competitor out of the market can enhance the benefits received from the firm engaging in the predatory pricing.
C) Having its prey stockpile its product produces more benefits to the firm engaging in the predatory pricing.
D) None of the statements are correct.

E) B) and C)
F) B) and D)

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SunCenter is the only firm in its industry. Currently, SunCenter charges $75 per unit, a price well in excess of its marginal cost of $5 per unit, and earns $70 million per year in profit. According to a trusted source, the manager of SunCenter learned that a new firm is contemplating entering the market. This would reduce its profit to $40 million per year. If SunCenter expanded its output and lowered its price to $50, the entrant would find it unprofitable to enter the market, and SunCenter would earn profits of $50 million per year for the indefinite future. a. What pricing strategy is the manager of SunCenter considering? b. If SunCenter was able to credibly commit to maintain a price of $50, would it be a profitable strategy? Explain.

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a. Limit pricing. It is not predatory pr...

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Nodes are:


A) examples of positive network externalities.
B) examples of negative network externalities.
C) different points in geographic or economic space linked by a network.
D) None of the statements are correct.

E) C) and D)
F) All of the above

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Firms that can effectively price discriminate can increase profitability when they engage in:


A) predatory pricing.
B) limit pricing.
C) strategies that raises rivals' costs.
D) Any of the statements associated with this question are correct.

E) C) and D)
F) A) and D)

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Refer to the following payoff matrix: Refer to the following payoff matrix: If the payoff matrix is a simultaneous-move production game, the Nash equilibrium is for: A) both players to produce low output. B) both players to produce high output. C) player 1 to produce low output and player 2 to produce high output. D) player 1 to produce high output and player 2 to produce low output. If the payoff matrix is a simultaneous-move production game, the Nash equilibrium is for:


A) both players to produce low output.
B) both players to produce high output.
C) player 1 to produce low output and player 2 to produce high output.
D) player 1 to produce high output and player 2 to produce low output.

E) None of the above
F) All of the above

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A monopolist earns $80 million annually and will maintain that level of profit indefinitely, provided no other firm enters the market. If another firm successfully enters the market, the incumbent's profits remain at $80 million the first period but fall to $35 million annually thereafter. The opportunity cost of funds is 20 percent, and profits in each period are realized at the beginning of each period. What is the present value of the firm's current and future earnings if entry occurs?


A) $350 million
B) $255 million
C) $400 million
D) $280 million

E) A) and B)
F) None of the above

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Firms 1 and 2 compete in a Cournot duopoly. If firm 2 adopts a strategy that raises firm 1's marginal cost:


A) firm 1 will increase its output.
B) firm 2 will gain market share.
C) firm 2 will enjoy lower profits.
D) All of the statements associated with this question are correct.

E) B) and D)
F) A) and B)

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Suppose that a one-way network leads to the development of a number of new complementary products and services. This phenomenon is known as:


A) a direct network externality.
B) an indirect network externality.
C) a reputation effect.
D) lock-in.

E) A) and B)
F) B) and C)

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A potential entrant knows that it faces a (inverse) residual demand curve given by P = 50 - 4Q. While the entrant does not know the inverse market demand, it does know that the incumbent committed to producing 150 units. Using this information, which of the following equations best summarizes the inverse market demand curve?


A) P = 200 - 4Q
B) P = 200 - Q
C) P = 150 - 4Q
D) None of the statements are correct.

E) All of the above
F) None of the above

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Under limit pricing, the incumbent will produce:


A) more than the monopoly output and charge a price that is greater than the monopoly price.
B) less than the monopoly output and charge a price that is greater than the monopoly price.
C) more than the monopoly output and charge a price that is less than the monopoly price.
D) less than the monopoly output and charge a price that is less than the monopoly price.

E) B) and C)
F) A) and B)

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Refer to the following payoff matrix: Refer to the following payoff matrix: If the payoff matrix is a simultaneous-move production game, the Nash equilibrium is for: A) both players to produce low output. B) both players to produce high output. C) player 1 to produce low output and player 2 to produce high output. D) player 1 to produce high output and player 2 to produce low output. If the payoff matrix is a simultaneous-move production game, the Nash equilibrium is for:


A) both players to produce low output.
B) both players to produce high output.
C) player 1 to produce low output and player 2 to produce high output.
D) player 1 to produce high output and player 2 to produce low output.

E) A) and B)
F) B) and C)

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Bottlenecks:


A) occur only in one-way networks.
B) occur only in two-way networks.
C) occur in both one-way and two-way networks.
D) are a positive externality associated with networks.

E) A) and C)
F) B) and C)

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Which of the following is an example of a network?


A) Wireless telephone service
B) Railroads
C) Internet
D) All of the examples associated with this question are networks.

E) A) and C)
F) None of the above

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Suppose the inverse market demand is given by P = 105 - Q. If the incumbent continues to produce 40 units of output, which of the following equations best summarizes the potential entrant's residual demand curve?


A) P = 65 - 2Q
B) P = 20 - 0.5Q
C) P = 150 - Q
D) P = 65 - Q

E) All of the above
F) A) and B)

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A single firm that charges the monopoly price in the market earns $800. If another firm successfully enters the market, the incumbent's profits fall to $500 and the entrant earns $450. If the incumbent engages in limit pricing, its profits are $600. For what interest rate, i, is limit pricing a profitable strategy for the incumbent?


A) i < 0.5
B) 0.5 < i < 1.0
C) 1.0 < i < 1.5
D) i > 1.5

E) B) and D)
F) None of the above

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A

If one more user is added to a two-way network, it will generally:


A) benefit the new user more than the existing users.
B) benefit existing users more than the new user.
C) provide equal benefits to existing users and the new user.
D) unable to tell, because this analysis depends on the type of industry.

E) C) and D)
F) B) and C)

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Refer to the following payoff matrix: Refer to the following payoff matrix: Suppose the production game depicted in the payoff matrix is a sequential-move game. Identify the strategy leading to a first-mover advantage for player 2. A) Player 2 moves first and plays Low Q. Observing player 2's move, player 1's best response is to play Low Q. B) Player 2 moves first and plays High Q. Observing player 2's move, player 1's best response is to play Low Q. C) Player 1 moves first and plays Low Q. Observing player 1's move, player 2's best response is to play High Q. D) Player 2 moves first and plays High Q. Observing player 2's move, player 1's best response is to play High Q. Suppose the production game depicted in the payoff matrix is a sequential-move game. Identify the strategy leading to a first-mover advantage for player 2.


A) Player 2 moves first and plays Low Q. Observing player 2's move, player 1's best response is to play Low Q.
B) Player 2 moves first and plays High Q. Observing player 2's move, player 1's best response is to play Low Q.
C) Player 1 moves first and plays Low Q. Observing player 1's move, player 2's best response is to play High Q.
D) Player 2 moves first and plays High Q. Observing player 2's move, player 1's best response is to play High Q.

E) A) and B)
F) None of the above

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Consider a monopolist attempting to engage in limit pricing with total costs C(Q) = 200 + 10Q. The market (inverse) demand for its product is P = 150 - 2Q. Currently, the monopolist produces 40 units of output. Assuming the potential entrant has the same cost structure as the incumbent monopolist, is it profitable for the entrant to produce 20 units of output?


A) Yes, since the market price of $30 is greater than the average total cost of producing 20 units.
B) No, since the market price of $30 is less than the average total cost of producing 20 units.
C) Yes, since the market price of $70 is greater than the average total cost of producing 20 units.
D) No, since the market price of $70 is less than the average total cost of producing 20 units.

E) All of the above
F) B) and C)

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A two-way network linking five users creates how many potential network connections?


A) 5
B) 10
C) 20
D) 30

E) A) and B)
F) None of the above

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C

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