Exam 3

Question 1

monopoly

Answer 1

-industry with a single seller that sells a good for which there are no close substitutes e.g. USPS

Question 2

in monopolies produce as long as

Answer 2

MR>MC

Question 3

monopolies - profit maximization

Answer 3

MC=MR

• will charge the highest P willing to pay
• take that Q then go all the way up to the demand curve to find the price

Question 4

total costs in monopolies

Answer 4

P where the Q intersects the ATC curve

Question 5

monopolies’ profits

Answer 5

• might not exist

- when do exist will not be competed away

Question 6

monopolies- price is _____ to MR

Answer 6

greater than MR

Question 7

MR curve (mathematically)

Answer 7

2 times the slope of the inverse demand curve

-keep y-intercept the same as in inverse D curve

Question 8

Lerner Index equation

Answer 8

(P-MC/P)=(-1/Ed)

Question 9

Lerner Index definition

Answer 9

• measure of monopoly power
• % by which its MR (P) exceeded MC
• the higher, the more power

Question 10

slope=

Answer 10

y intercept/x intercept

Question 11

price taker

Answer 11

• no market power

- competitive

Question 12

price maker

Answer 12

• does not have market power

- monopoly

Question 13

price discrimination

Answer 13

• the practice of charging different prices to difference customers for the same product
• 3 degrees

Question 14

perfect price discrimination (1st degree)

Answer 14

• charge every consumer the highest price they are willing to pay
• no CS
• no DWL

Question 15

1st degree price discrimination (monopoly)

Answer 15

CS=A PS=B DWL=C

Question 16

1st degree price discrimination (competition)

Answer 16

CS=A+B+C PS=0 DWL=0

Question 17

rent seeking

Answer 17

-try to obtain a monopoly position for yourself so you can get the rents

Question 18

in perfect price discrimination the MR

Answer 18

=D curve

Question 19

3rd degree

Answer 19

• you put ppl into different markets and charge a different price per market (segmenting)
• charge a lower price w/markets with greater elasticity b/c Q increases by a bigger % and raises TR

Question 20

to get customers to reveal themselves

Answer 20

through their elasticities of demand

Question 21

price sensitive get what price? why?

Answer 21

because they have a higher Ed

Question 22

segmented profits

Answer 22

exceed those of an unsegmented market

Question 23

How to find P and Q for both markets without segmenting

Answer 23

1. convert to regular demand curve
2. add the regular demand curves together
3. convert back to inverse and find MR
4. set MR=MC to find P
5. plug Q into the total demand curve

Question 24

How to find P and Q and profits for each market with segmenting

Answer 24

1. take inverse demand curve
2. find MR curve
3. set MR=MC
4. solve for P
5. get Q
6. P-MC
7. take (P-MC)(profit max. Q)

Question 25

2nd degree price discrimination

Answer 25

- can't tell consumer's demand - Q discounts - versioning - coupons

Question 26

Quantity discounts

Answer 26

- with lower elasticity of demand, can charge higher price cause so seldomly participate that commission not a big deal - higher elasticity of demand, charge lower price cause participate often and are sensitive to price

Question 27

versioning/ price cut margins

Answer 27

- a firm offers diff. product options designed to attract diff. kinds of customers - will buy what gives them the most surplus

Question 28

neg. correlating bundling

Answer 28

then bundling will allow company to raise revenues and profits

Question 29

pos. correlating bundling

Answer 29

bundling doesn't impact TR and profits

Question 30

simultaneous games

Answer 30

the participants choose their actions at the same time with out knowing each others actions

Question 31

repeated games

Answer 31

series of simultaneous games among the same set of actors

Question 32

sequential games

Answer 32

players take turns making decisions

Question 33

prisoner's dilemma

Answer 33

any game where if the players do what is in their own self interest they end up worse off

Question 34

games of pure strategy

Answer 34

a player chooses an action w/100% certainty

Question 35

mixed strategy

Answer 35

player chooses a strategy randomly

Question 36

maximin strategy

Answer 36

used to minimize loss

Question 37

use what to solve repeated games?

Answer 37

backward induction- start in the last round and determine the outcome then work your way back to the starting point

Question 38

if there is a definite stopping point in a repeated game then...

Answer 38

there will be no cooperation

Question 39

grim trigger strategy

Answer 39

start out cooperating but if the other player ever failts to cooperate, will punish the player until the end of time no matter what the other player does

Question 40

discount rate

Answer 40

how you value the future - closer to 1=more patient - closer to 0=more impatient

Question 41

tit for tat

Answer 41

do what the other person did to you--willing to forgive

Question 42

how to solve a sequential game

Answer 42

use backward induction - determine the outcome for the second chooser - then choose the best outcome for the 1st chooser based on the 2nd chooser's actions

Question 43

first mover advantage

Answer 43

if you're the first mover and you make a commitment it is often seen as credible so have the advantage and achieve goals