# Econ

```ECON 1014
Name: ________________ Student #:_____________
HOMEWORK #5
Pawprint: ____________
Due by 9pm on Wednesday, October 31. Homework assignments must be scanned
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What should you do after you upload your homework file on Canvas? (1 pt)
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Chapter 14:
1a. (Figure: Monopolist) Refer to the figure. Based on the demand curves for a
monopolist's product in two different markets—market A and market B—what price
should the monopolist charge in each market? Which market has the more elastic
demand curve? (2 pts)
\$15
\$13
Market B = 9
Market A= 10
Market B is more Elastic
b. How much profit is the monopolist making in both markets combined? (1 pt)
\$970
c. Now suppose that the monopolist finds a way to practice perfect price
discrimination. What is the total value of consumer surplus and of deadweight loss?
What is the effect on total surplus in these markets? What is the total monopoly
profit across both markets under perfect price discrimination? (4 pts)
CS= 0
Total Profit=\$1940
2a. (Table: Willingness to Pay) Refer to the table. Assume the firm has zero costs. If the
firm were to set individual prices for each of the two goods, what prices would it
set? How much total profit would it earn? (2 pts)
Firm A= \$90
Firm B = \$70
Total Profit 160
b. If the firm now decides to bundle Good A and Good B, what price will they set
for that bundle? How much profit will they earn now? (2 pts)
Price Set at 105
Bundle Price 210
3. A pharmaceutical company sells a drug in Country A for \$8 and in Country B for \$22.
If each country gets rid of laws limiting arbitrage, what would you expect to happen
to the price of the drug in Country A? Why? (2 pts)
Chapter 15:
4. Firms operating in a cartel have a large incentive to cheat on the agreement and
increase their profit by ________
Increasing (increasing/decreasing) production and ________
Decreasing
(increasing/decreasing) prices. (1 pt)
5. Which of the following statements is TRUE? (1 pt)
A) Cartels are an important source of economic growth in developing countries.
B) Economists are not opposed to government-created cartels, since they usually provide
high-quality products and service.
C) One cost of government-sponsored cartels is that people spend resources trying to
obtain or maintain a cartel rather than produce better products.
D) Government supported cartels usually mean more innovation.
6. (Figure: Demand 1) Refer to the figure. A successful cartel facing the market in this
6
3
diagram would result in total output of ________
and a market price of ________.
(2 pts)
MC
7. (Table: Christie's and Sotheby's) Refer to the table. Each cell of this table presents the
revenues earned by the auction houses Christie's and Sotheby's. Revenues are based
on the type of commission each firm charges its clients, as well as what commission
the other charges. Christie's revenues are listed first in each cell, then Sotheby's.
a) If both firms cooperate and act like a cartel, what type of commission will each
firm charge? What will be each firm's payoff? (2 pts)
b) What is the dominant strategy for each firm? (1 pt)
low commission
c) What is/are the Nash equilibrium/equilibria? (1 pt)
low commission
d) What type of game is this? (1 pt)
prisoner's dilemma
Chapter 16:
8. Operating systems have network-good characteristics because of ______ issues. (1 pt)
A) complexity
B) simplicity
C) intangibility
D) compatibility
9. When social media platforms were first being developed in the mid-2000s, the only
costs of entry were the costs of designing a new website. In addition, there were no
legal barriers to entry and consumers were willing to switch between platforms.
Today, costs of entry include much more fixed costs in order to compete at a scale
regulations relating to data protection have increased the legal requirements for new
platforms, and consumers are more likely to be set on the platforms they currently
use. In comparison to the mid-2000s, would you expect the cost of using social
media to be higher or lower today? Why? (2 pts)
10. Which statement about network goods is TRUE? (1 pt)
A) They are goods that are usually sold by large firms with a great deal of market share.
B) They are goods that tend to have a large number of users or consumers.
C) They are goods whose value to one consumer increases the greater the total number of
consumers.
D) All of the answers are correct.
11. Why is music considered a network good? (1 pt)
Because it’s popular is a more valuable good and most people want to listen that popular music.
12. Table: Jim, Dan Payoff Table
a)a
Refer to the table. Circle all the options below that are a Nash Equilibrium: (1 pt)
I. (12, 12)
II. (4, 4)
III. (8, 8)
IV. (3, 3)
a
b) Does either player have a dominant strategy? If so, what is it? (1 pt)
Yes.Both the players have the same dominant strategies
c) What is the name of this game? (1 pt)
Game Theory
12,12
Chapter 17:
13a. (Figure: Monopolistic Competition) Refer to the figure. Label the point on the x-axis
that represents the quantity the monopolistically competitive firm produces at, and
the price on the y-axis that is currently being charged by the firm. (1 pt)
b. (Figure: Monopolistic Competition) Refer to the figure. Suppose the figure
represents a firm that operates in a monopolistically competitive market. In the long
run you would expect firms to ________
(enter/exit/neither enter nor exit) this
Enter
market. Therefore, in the long run you would expect demand for the individual firm
to _______
______
Decrease (increase/decrease/remain constant) and price to Decrease
(increase/decrease/remain constant) until price equals ________: (2 pts)
Remain
Constant
14. A monopolistically competitive firm operates where: (1 pt)
A) MR < MC.
B) MR = MC.
C) MR > MC.
D) MR + MC = 0.
15. Firms in monopolistic competitive industries: (1 pt)
I. sell their products at a higher price than if their industry were strictly competitive.
II. sell their products at the same price as if they were in a monopoly market.
III. have a high incentive to innovate with new products and better quality.
A) I and II only
B) II and III only
C) I and III only
D) I, II, and III
16. Consumers benefit from advertising: (1 pt)
I. by gaining product information.
II. by being persuaded to try a new product they might like.
III. when the ad provides a signal of the product's quality.
IV. if the ad leads to a lower price for the product.
A) IV only
B) II and III only
C) I and II only
D) I, II, III, and IV
17. Monopolistic competition is a market that has: (1 pt)
A) many sellers, free entry, and product differentiation.
B) few sellers, free entry, and product differentiation.
C) many sellers, high barriers to entry, and product differentiation.
D) many sellers, free entry, and identical products.
```