A surprising outcome of the Rock-Paper-Scissors game is that A) it is a clear example of a first mover advantage. B) there is no pure-strategy Nash equilibrium. C) it is best not to play the game. D) it is a good way to determine who goes first in a sequential move game. ANSWER B […]

In the 1980s, the USA and the USSR negotiated a reduction in nuclear arms; this is an example of a A) non-cooperative equilibrium. B) cooperative outcome that may not be a Nash equilibrium. C) cooperative outcome that was a Nash equilibrium. D) sub-game perfect equilibrium. ANSWER B

An electric utility is going to use a block-pricing schedule. They plan to charge P1 for the first Q1 units and P2 for the subsequent units. The units sold at P2 are the total units sold, Q2, minus the total units sold at P1. The inverse demand curve is P = $100 – Q, and […]

A Nash equilibrium occurs when A) players choose their best strategy given the strategies chosen by others. B) the efficient allocation of resources is achieved by setting marginal revenue equal to marginal cost. C) a monopolist is forced to produce the efficient level of output. D) oligopolists cooperate with each other. ANSWER A

If the payoff to the United States to pursuing nuclear weapons is 100 if the USSR does not pursue nuclear weapons and 50 if they do, and the payoff to the USSR to pursuing nuclear weapons is 80 if the USA doesn’t pursue nuclear weapons and 30 if they do, what is the non-cooperative equilibrium? […]

At the current price of a good, Al’s consumer surplus equals 8, and Ben’s consumer surplus equals 15. By using two-part pricing, a monopolist could increase his profit by A) 8. B) 16. C) 15. D) 30. ANSWER B

Suppose all individuals are identical, and their monthly demand for Internet access from a certain leading provider can be represented as p = 5 – (1/2)q where p is price in $ per hour and q is hours per month. The firm faces a constant marginal cost of $1. If the firm will charge a […]

Two-part pricing offers a mechanism whereby the firm can A) charge two different prices to distinct groups of customers. B) collect two times as much from consumers as a single-price monopoly can. C) capture some or all of the consumer surplus. D) reduce some of its fixed costs. ANSWER C

At the current price of a good, Al’s consumer surplus equals 15 and Ben’s consumer surplus equals 15. By using two-part pricing, a monopolist could increase his profit by A) 8. B) 16. C) 15. D) 30. ANSWER D

The above figure shows a payoff matrix for two firms, A and B, that must choose between a high-price strategy and a low-price strategy. Both firms setting a high price is not a Nash equilibrium because A) setting a high price is the dominant strategy for each firm. B) neither firm can improve its payoff […]