Final D2

Question 1

(Monopoly) For the Price elastivcity of Demand, What does MR = to ?

Answer 1

MR = p(1 + 1/e) where, e = - p/Q

Question 2

(Monopoly) What is the Lerner Index equal to ?

Answer 2

(p - MC)/p = - 1/e

Question 3

(Monopoly) Where do we add the tax (t) and what is it equal to after the tax (t) is added

Answer 3

Add the tax (t) to the MC and then MC = xQ + t

Question 4

(Monopoly) Who absorbs the tax when added? (equation)

Answer 4

∆p / t is the consumer, and 1 - ∆p / t is firm

Question 5

What is a network externality ?

Answer 5

If one’s person demand depends on the consumption of a good by others

Question 6

What is the bandwagon effect

Answer 6

Person places greater value on a good as more and more other people possess it.

Question 7

What is the snob effect

Answer 7

Person places greater value on a good as fewer and fewer pther people possess it.

Question 8

Which factors make firms able to Price Discriminate? (3)

Answer 8

• Must have market power
• Consumer with different demand curves
• Must be able to prevent resale or limit it

Question 9

What is the Perfect Price Discrimination (first degree)

Answer 9

Sell each unit at Maximum price any customer is willing to pay. Different price for everyone

Question 10

What is Group price discrimination? (3rd degree)

Answer 10

Different prices to each different groups

Question 11

What is Nonlinear price discrimination ? (2nd degree)

Answer 11

Different prices for different quantities

Question 12

What is the total profit in a group price discrimination pricing

Answer 12

π = πa + πb

Question 13

What is the price elasticity of demand in group price discrimination pricing

Answer 13

Pa/Pb = (1 + 1/ ea) / (1 + 1/eb)

Question 14

What is the Two-Part Pricing

Answer 14

Charging consumer access fee of their CS and a separate price per unit

Question 15

What is the Tie-In Sales pricing ?

Answer 15

Buy one product only if they purchase another one. (bundling)

Question 16

When does a Monopoly stops Advertising ?

Answer 16

When its benefits from advertising is equal to its cost of advertising

Question 17

What is an Oligopoly

Answer 17

Small group of firms in a market with substantial barriers to entry

Question 18

What is a Monopolistic Competition

Answer 18

Firms have market power, but no additional firm can enter and earn profit

Question 19

What is a Cournot Oligopoly

Answer 19

Both firms choose their quantity without colluding simultaneously

Question 20

What is a Cournot-Nash Equilibrium ?

Answer 20

A set of quantities chosen by firms such that, holding the quantities of all other firms constant, no firm can obtain a higher profit by choosing a different quantity

Question 21

What is the Cournot-Nash equilibrium MR in duopoly

Answer 21

MR = D - 2qa - qb

Question 22

What is the Stackelberg Oligopoly

Answer 22

One firm acts before the other (leader)(follower)

Question 23

What is the Bertrand Oligopoly

Answer 23

Oligopolies setting prices instead of quantities

Question 24

What is a sealed-bid auction

Answer 24

Everyone submit simultaneously without seeing other bids, and the highest bid wins

Question 25

What is a double auction

Answer 25

All potential buyers and sellers may make public offers stating prices at which they are willing to buy or sell.