CH-310-A Microeconomics - Theory and Policy

Chapter 13 and 14 of Krugman and Wells

Tutorial I, November 11, 2020

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Monopoly and demand

The demand curve facing a monopolist is:

(a) horizontal, the same as that facing a perfectly competitive
rm.
(b) downward-sloping, the same as that facing a perfectly
competitive rm.
(c) upward-sloping, the same as that facing a perfectly
competitive rm.
(d) downward-sloping, unlike the horizontal demand curve facing a
perfectly competitive rm.

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Monopoly: Quantity eect

Wendy has a monopoly in the retailing of motor homes. She can

sell ve per week at $21,000 each. If she wants to sell six, she must
charge $20,000 each. The quantity eect of selling the sixth motor
home is:
(a) $20,000.
(b) $10,000.
(c) $15,000.
(d) $21,000.

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Monopoly and demand

A monopoly responds to an increase in demand by blank price and

blank output.
(a) increasing; decreasing
(b) increasing; increasing
(c) decreasing; increasing
(d) decreasing; decreasing

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Monopoly and production

Producing at point N would: (a) result in MR = MC; (b) result in

positive economic prots; (c) never be prot-maximizing, since at
this output MR < 0 and MC > 0; (d) result in the rm breaking
even.

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Monopoly and equilibrium

When the rm is in equilibrium (that is, maximizing its economic

prot), its total cost is the area of rectangle: (a)0PDJ; (b) 0IHJ;
(c) IPDH; (d) 0SBJ.

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Monopoly and demand

The demand curve facing a monopolist is:

(a) vertical, the same as that facing a perfectly competitive rm.
(b) perfectly inelastic, the same as that facing a perfectly
competitive rm.
(c) upward-sloping, the same as that facing a perfectly
competitive rm.
(d) downward-sloping, like the industry demand curve in perfect
competition.

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Monopoly and price discrimination

To practice eective price discrimination, a monopolist must be

able to:
(a) estimate its own production and cost functions.
(b) avoid detection by government regulatory agencies.
(c) prevent the resale of goods among groups of buyers.
(d) calculate the utility level of each buyer in the market.

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Oligopoly

Oligopoly is a market structure characterized by:

(a) independence in decision making.
(b) a horizontal demand curve.
(c) a small number of interdependent rms.
(d) relatively easy entry and exit.

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Herndahl-Hirschman Index (HHI)

A monopoly will have a Herndahl-Hirschman Index (HHI) equal to

about:
(a) 1.
(b) 100.
(c) 1000.
(d) 10000.

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Cartels

Collusive agreements are typically dicult for cartels to maintain

because each rm can increase prots by:
(a) producing more output than the quantity that maximizes joint
cartel prots.
(b) producing less output than the quantity that maximizes joint
cartel prots.
(c) increasing the price above the price that maximizes joint cartel
prots.
(d) engaging in less advertising than the level of advertising that
maximizes joint cartel prots.

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Payo and price setting

Jake and Zoe are the only producers of slushies in Vacatown. Each
week, each rm decides whether to price high or price low for the
following week. The gure shows the prot per week earned by the
two rms. What is the Nash equilibrium for Jake and Zoe? (a) Jake
prices high; Zoe prices high; (b) Jake prices high; Zoe prices low; (c)
Jake prices low; Zoe prices high; (d) Jake prices low; Zoe prices low.
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Payo and production

Gehrig and Gabriel sell handmade gurines in San Antonio. Both

Gehrig and Gabriel have two strategies available to them: to
produce 5,000 gurines each month or to produce 7,000 gurines
each month. For Gehrig and Gabriel, the dominant strategy is to:
(a) produce 5,000 gurines; (b) produce 7,000 gurines; (c)
produce between 5,000 and 7,000 gurines; (d) collude and
increase production to more than 14,000 gurines. 13 / 14
Advertising and Nash equilibrium

Suppose that each of two rms has the independent choice of

advertising its product or not advertising. If neither advertises, each
gets $10 million in prot; if both advertise, their prots will be $5
million each; and if one advertises while the other does not, the
advertiser gets prot of $15 million while the other gets prot of $2
million. According to game theory, the Nash equilibrium is:
(a) both may or may not advertise.
(b) one will advertise and the other will not.
(c) both will advertise.
(d) neither will advertise.

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