Econ101_W23_MT1_vA_questions

.pdf

School

University of California, Los Angeles *

*We aren’t endorsed by this school

Course

101

Subject

Economics

Date

Feb 20, 2024

Type

pdf

Pages

Uploaded by GeneralOryx4061

UCLA Economics 101 - Winter 2023 Professor Daniel Haanwinckel MIDTERM 1 — Version A NAME: ID: INSTRUCTIONS This exam has a total of 21 multiple-choice questions. Make sure you fill out your name, exam version, and UID in the Scantron form before you start. You should mark only one option—(a), (b), (c), (d), or (e)—in each question. All information must be filled out in No. 2 pencil. Fields/bubbled answers completed in pen will not be read by the scanners. Two of the 21 questions are “bonus.” You are not required to answer them, but they may help you. Your score will be given by the number of correct answers (including the bonus questions) divided by 19. If you have more than 19 correct answers, your score will be 100%. Good luck! SHORT QUESTIONS 1. Consider the following statements about the monopoly model seen in class: (I) The main goal of the monopolist is to maximize revenues. (II) For the monopolist, total revenue is always an increasing function of quantity. (III) The model of monopoly can only be used when marginal costs are strictly decreas- ing (i.e., the market is a natural monopoly). (a) All options are incorrect. (b) Only I is correct. (c) Only II is correct. (d) Only III is correct. (e) More than one option is correct. 2. Consider the following statements about welfare in the basic monopoly model: 1

(I) In a market that would be a monopoly if left unregulated, it may be possible to design regulation that achieves better outcomes for both consumers and the firm. (II) Monopolists exploit their market power to sell more than competitive firms would, generating deadweight losses from overconsumption. (III) Consumers would typically benefit if the government prohibited any economic activity in a market, if the alternative is a monopoly in that market. That’s because the monopolist extracts rents from consumers, and if there is no market activity, then no rents will be extracted. (a) All options are incorrect. (b) Only I is correct. (c) Only II is correct. (d) Only III is correct. (e) More than one option is correct. 3. Consider the following statements about models of price discrimination seen in class: (I) In a model with first-degree price discrimination, consumer surplus is higher than in the basic model of monopoly. That’s because there is no deadweight loss with first-degree price discrimination. (II) If a monopolist can set different prices in two different markets, and faces the same marginal cost in both markets, then we should expect prices to be lower in the market where demand is more elastic. (III) If the monopolist can produce two versions of a good and there are two types of consumers, the monopolist will always implement second-degree price discrimina- tion (that is, choose prices such that consumers self-select into buying different goods), because it always leads to higher profits compared to selling only one of the goods. (a) All options are incorrect. (b) Only I is correct. (c) Only II is correct. (d) Only III is correct. (e) More than one option is correct. 2

4. Consider the following statements about monopoly and price discrimination: (I) To implement second-degree price discrimination, the firm must choose prices subject to a set of contraints. These contraints ensure that consumers want to buy a good, and that the specific version they choose is the one that the monopolist wants them to pick. (II) Monopolists are able to set prices higher than marginal costs. (III) Monopolists always achieve strictly positive profits in any market, regardless of its cost function. (a) All options are incorrect. (b) Only I is correct. (c) Only II is correct. (d) Only III is correct. (e) More than one option is correct. 5. Evaluate the following statements about duopoly models (part 1). (I) If an economist is studying a market where it is difficult to adjust quantities produced in the short run, and thus production capacity is a key strategic variable, then Cournot is probably a better modeling option than Bertrand. (II) While the choice variables are different in Cournot and Bertrand, both models lead to the same results regarding the consumer surplus in the market. (III) Cournot and Bertrand are the only possible models of duopoly. (a) All options are incorrect. (b) Only I is correct. (c) Only II is correct. (d) Only III is correct. (e) More than one option is correct. 3

6. Evaluate the following statements about duopoly models (part 2). (I) Duopoly games are always solved by dominance, like the prisoner’s dilemma game. (II) In a Bertrand model where all firms have the same constant marginal cost and no fixed costs, the equilibrium quantity consumed is the same as would be predicted in a perfectly competitive model. (III) In a Cournot model where all firms have the same constant marginal cost and no fixed costs, the equilibrium quantity consumed is the same as would be predicted in a perfectly competitive model. (a) All options are incorrect. (b) Only I is correct. (c) Only II is correct. (d) Only III is correct. (e) More than one option is correct. 7. Evaluate the following statements about game theory. (I) Game Theory is most useful in economic applications where there are many agents which consider themselves small relative to their markets. (II) In every Nash equilibrium, the strategy of every player is a best response to the strategies chosen by the other players. (III) Every game has at least one dominant strategy. (a) All options are incorrect. (b) Only I is correct. (c) Only II is correct. (d) Only III is correct. (e) More than one option is correct. 8. A monopolist faces a demand curve Q ( p ) = 4 - p/ 3. The cost curve is C ( q ) = 2 + q . The monopolist decides to enter the market if they can achieve profits of at least zero. Does the monopolist enter the market, and if so, what is the equilibrium price in the market? 4

(a) The monopolist does not enter the market. (b) The monopolist enters and the price is p = 13 / 2. (c) The monopolist enters and the price is p = 11 / 6. (d) The monopolist enters and the price is p = 5 / 2. (e) The monopolist enters, but chooses a price not listed above. 9. A monopolist faces an inverse demand curve P ( q ) = 10 - 2 q . The cost curve is C ( q ) = 2 q . What is the deadweight loss in this market? (a) This market has no deadweight loss. (b) DWL = 2 (c) DWL = 3 (d) DWL = 4 (e) None of the options above. 10. A monopolist faces a demand curve Q ( p ) = 5 p - 4 . The marginal cost is constant at 3 and there is no fixed cost. What is the profit-maximizing price? (a) The monopolist would not enter this market. (b) p = 4. (c) p = 9 / 4. (d) p = 15 / 4. (e) The monopolist enters, but chooses a price not listed above. For the next two questions, consider the following game: Player 1 Player 2 L M R U 3 , 2 4 , 1 3 , 5 C 1 , 9 8 , 4 4 , 8 D 1 , 4 4 , 3 6 , 9 11. Evaluate the following statements. 5

(I) If Player 1 plays C and Player 2 plays R , the probability of Player 1 winning the game is given by 4 / (4 + 8) = 1 / 3. (II) The set of possible strategies for each player is { U, C, D, L, M, R } . (III) After the choices of each player are revealed, they can negotiate based on their payoffs in a way that leads to mutual profits and ensure equal outcomes. (a) All options are incorrect. (b) Only I is correct. (c) Only II is correct. (d) Only III is correct. (e) More than one option is correct. 12. Evaluate the following statements. (I) M is a strictly dominated strategy for Player 2. (II) The game table represents a model of second degree price discrimination. (III) This game has more than one Nash equilibria in pure strategies. (a) All options are incorrect. (b) Only I is correct. (c) Only II is correct. (d) Only III is correct. (e) More than one option is correct. 13. Two firms who make identical products engage in Cournot competition. The inverse market demand curve is: P ( Q ) = 40 - 5 Q, where Q = q 1 + q 2 Firm 1’s cost function is: C 1 ( q 1 ) = 2 + 4 q 1 Firm 2’s cost function is: C 2 ( q 2 ) = 4 q 2 6

Your preview ends here

Eager to read complete document? Join bartleby learn and gain access to the full version