BU224 Unit 10 quiz

Daniel Kevins

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Question 1 (8 points)

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For a monopoly, what is the quantity effect?

Question 1 options:

a)

The change in total revenue caused by old customers now paying the new price.

b)

The change in marginal revenue caused by old customers now paying the new price.

c)

The change in total revenue caused by the new customers now paying the old price.

d)

The change in marginal revenue caused by the new customers now paying the new price.

e)

The change in total revenue caused by the new customers now paying the new price.

Question 2 (8 points)

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Media Cable, a typical utility based monopoly, provides cable service in a rural community. Table 1 shows the demand that Media Cable experiences at each price and Graph 1 depicts Media Cable’s demand curve. Why does such a monopoly face a downward sloping demand curve?

Table 1

Price Amount Demanded
$160 0
$130 100
$100 200
$80 400
$40 600
$0 850

Graph 1

Question 2 options:

a)

More people are going to want to pay the minimum price offered. If they are offering free cable then many people will want to take advantage of that.

b)

More people are willing to pay for cable as the price of cable service decreases.

c)

Because the price Media Cable expects to receive for its output will not remain constant as output increases.

d)

Because fewer people are willing to pay a higher price. More people are willing to pay a lower price but Media Cable is less willing to provide the service at the lower price.

e)

Because Media Cable is the only producer of cable in this market, so its demand curve is the market demand curve for the entire industry.

Question 3 (8 points)

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Table 2 shows Media Cable’s demand table, total revenue, and marginal revenue at each price. What is the price effect of reducing the price from $100 to $80?

Table 2

Price

Amount Demanded

Total Revenue

Marginal Revenue

$160

0

$0

n/a

$130

90

$11,700

$130.00

$100

200

$20,000

$75.45

$80

350

$28,000

$53.33

$40

600

$24,000

-$16.00

$0

850

$0

-$96.00
Question 3 options:

a)

$4,000

b)

-$20,000

c)

$28,000

d)

-$4,000

e)

$12,000

Question 4 (8 points)

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Governmental pricing regulation of a monopoly should strive to accomplish which of the following?

Question 4 options:

a)

Setting a legal price ceiling equal to the monopoly’s lowest average variable cost.

b)

Setting a legal price ceiling equal to the monopoly’s lowest average total cost.

c)

Setting a legal price ceiling below the monopoly’s lowest average total cost.

d)

Setting a legal price ceiling below the monopoly’s lowest average variable cost.

e)

Setting a legal price ceiling above the monopoly’s lowest average total cost.

Question 5 (8 points)

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For a monopoly, why is marginal revenue less than price?

Question 5 options:

a)

If a monopoly wishes to increase sales, it must lower the price to all customers, and the impact of the price effect, working with the quantity effect causes marginal revenue to be less than price.

b)

If a monopoly wishes to increase sales, it must raise the price to all customers, and the impact of the price effect causes marginal revenue to be less than price.

c)

If a monopoly wishes to increase sales, it must lower the price to all customers, and the impact of the quantity effect causes marginal revenue to be less than price.

d)

If a monopoly wishes to increase sales, it must raise the price to all customers, and the impact of the price effect, working with the quantity effect causes marginal revenue to be less than price.

e)

If a monopoly wishes to increase sales, it must lower the price to all customers, and the impact of the price effect causes marginal revenue to be less than price.

Question 6 (8 points)

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Table A shows the pricing options for two hair salons, one operated by Sue and the other by Jane, as an oligopoly in a rural market. Which of the following pricing strategies does Table 5 depict?

Table A

Pricing strategies for Sue’s Hair Salon when charging the LOW Price Pricing strategies for Sue’s Hair Salon when charging the HIGH Price
If Sue and Jane both charge HIGH price, BOTH get $400 each If Sue charges the HIGH price and Jane charges the LOW price, Sue GETS $0, and Jane gets $800
If Jane charges HIGH price and Sue charges LOW price, Jane gets $0 and Sue gets $800 If Sue and Jane both charge the HIGH price, BOTH get $600 each

TABLE 5 First Period Choose High or low price First Period Profit Second Period Choose High or low price Second Period Profit Total Profit in both periods
Sue High $600 High $600 $1,200
Jane High $600 High $600 $1,200
Question 6 options:

a)

Sue always plays “Tit-for-Tat” and Jane always plays “Tit-for-Tat.”

b)

Sue always plays “Tit-for-Tat” and Jane always chooses the “Low” price.

c)

Jane always plays “Tit-for-Tat” and Sue always chooses the “Low” price.

d)

Jane always chooses the “Low” price and Sue always chooses the “Low” price.

e)

When there is only a single period in which to choose and Jane does not know what Sue will do, Jane always chooses the Nash Noncooperative Equilibrium price strategy.

Question 7 (8 points)

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Table B shows the pricing options for two medical doctors operating as an oligopoly in a rural market. Which of the following pricing strategies does Table 8 depict?

Table B

Pricing strategies Dr. Good charges LOW Price Pricing strategies Dr. Good charges HIGH Price
If Dr. Good and Dr. Fine both charge LOW price, BOTH get $350 each If Dr. Good charges the HIGH PRICE and Dr. Fine charges the LOW PRICE, Dr. Good GETS $0, and Dr. Fine gets $700
If Dr. Fine charges HIGH PRICE and Dr. Good charges LOW PRICE, Dr. Fine gets $0 and Dr. Good gets $700 If Dr. Good and Dr. Fine both charge the HIGH PRICE, BOTH get $500 each

TABLE 8 First Period Choose High or low price First Period Profit Second Period Choose High or low price Second Period Profit Total Profit in both periods
Dr. Good High $0 Low $350 $350
Dr. Fine Low $700 Low $350 $1,050
Question 7 options:

a)

Dr. Fine always plays “Tit-for-Tat” and Dr. Good always plays “Tit-for-Tat.”

b)

Dr. Fine always plays “Tit-for-Tat” and Dr. Good always chooses the “Low” price.

c)

Dr. Good always plays “Tit-for-Tat” and Dr. Fine always chooses the “Low” price.

d)

Dr. Good always chooses the “Low” price and Dr. Fine always chooses the “Low” price.

e)

When there is only a single period in which to choose and Dr. Fine does not know what Dr. Good will do, Dr. Fine always chooses the Nash Noncooperative Equilibrium price strategy.

Question 8 (8 points)

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Table B shows the pricing options for two medical doctors operating as an oligopoly in a rural market. Which of the following pricing strategies does Table 9 depict?

Table B

Pricing strategies Dr. Good charges LOW Price Pricing strategies Dr. Good charges HIGH Price
If Dr. Good and Dr. Fine both charge LOW price, BOTH get $350 each If DR. Good charges the HIGH PRICE and Dr. Fine charges the LOW PRICE, Dr. Good GETS $0, and Dr. Fine gets $700
If Dr. Fine charges HIGH PRICE and Dr. Good charges LOW PRICE, Dr. Fine gets $0 and Dr. Good gets $700 If Dr. Good and Dr. Fine both charge the HIGH PRICE, BOTH get $500 each

TABLE 9 First PeriodChoose High or low price First Period Profit Second PeriodChoose High or low price Second Period Profit Total Profit in both periods
Dr. Good Low $700 Low $350 $1,050
Dr. Fine High $0 Low $350 $350
Question 8 options:

a)

Dr. Fine always plays “Tit-for-Tat” and Dr. Good always plays “Tit-for-Tat.”

b)

Dr. Fine always plays “Tit-for-Tat” and Dr. Good always chooses the “Low” price.

c)

Dr. Good always plays “Tit-for-Tat” and Dr. Fine always chooses the “Low” price.

d)

Dr. Good always chooses the “Low” price and Dr. Fine always chooses the “Low” price.

e)

When there is only a single period in which to choose and Dr. Fine does not know what Dr. Good will do, Dr. Fine always chooses the Nash Noncooperative Equilibrium price strategy.

Question 9 (8 points)

Saved

Table B shows the pricing options for two medical doctors operating as an oligopoly in a rural market. Which of the following pricing strategies does Table 6a and 6b depict?

Table B

Pricing strategies Dr. Good charges LOW Price Pricing strategies Dr. Good charges HIGH Price
If Dr. Good and Dr. Fine both charge LOW price, BOTH get $350 each If DR. Good charges the HIGH PRICE and Dr. Fine charges the LOW PRICE, Dr. Good GETS $0, and Dr. Fine gets $700
If Dr. Fine charges HIGH PRICE and Dr. Good charges LOW PRICE, Dr. Fine gets $0 and Dr. Good gets $700 If Dr. Good and Dr. Fine both charge the HIGH PRICE, BOTH get $500 each

Table 6a First PeriodChoose High or low price First Period Profit
Dr. Good Low $350
Dr. Fine Low $350

Table 6b First Period Choose High or low price First Period Profit
Dr. Good High $0
Dr. Fine Low $700
Question 9 options:

a)

Dr. Fine always plays “Tit-for-Tat” and Dr. Good always plays “Tit-for-Tat.”

b)

Dr. Fine always plays “Tit-for-Tat” and Dr. Good always chooses the “Low” price.

c)

Dr. Good always plays “Tit-for-Tat” and Dr. Fine always chooses the “Low” price.

d)

Dr. Good always chooses the “Low” price and Dr. Fine always chooses the “Low” price.

e)

When there is only a single period in which to choose and Dr. Fine does not know what Dr. Good will do, Dr. Fine always chooses the Nash Noncooperative Equilibrium price strategy.

Question 10 (8 points)

Saved

Table A shows the pricing options for two hair salons, one operated by Sue and the other by Jane, as an oligopoly in a rural market. Which of the following pricing strategies does Table 1a and 1b depict?

Table A

Pricing strategies for Sue’s Hair Salon when charging the LOW Price Pricing strategies for Sue’s Hair Salon when charging the HIGH Price
If Sue and Jane both charge LOW price, BOTH get $400 each If Sue charges the HIGH price and Jane charges the LOW price, Sue GETS $0, and Jane gets $800
If Jane charges HIGH price and Sue charges LOW price, Jane gets $0 and Sue gets $800 If Sue and Jane both charge the HIGH price, BOTH get $600 each

TABLE 1a First Period Choose High or low price First Period Profit
Sue Low $400
Jane Low $400

TABLE 1b First Period Choose High or low price First Period Profit
Sue High $0
Jane Low $800
Question 10 options:

a)

Sue always plays “Tit-for-Tat” and Jane always plays “Tit-for-Tat.”

b)

Sue always plays “Tit-for-Tat” and Jane always chooses the “Low” price.

c)

Jane always plays “Tit-for-Tat” and Sue always chooses the “Low” price.

d)

Jane always chooses the “Low” price and Sue always chooses the “Low” price.

e)

When there is only a single period in which to choose and Jane does not know what Sue will do, Jane always chooses the Nash Noncooperative Equilibrium price strategy.

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Daniel Kevins

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