Deck 16: Information, Risk, and Insurance

Question 1

A)(50, 50) and (48, 60)
B)0, 45.
C)45, 45.
D)(48, 60) and (45, 45)

Answer 1

A

Question 2

For two players in a game, a Nash equilibrium is differentfrom a dominant strategy in that:

A)the outcome in the Nash equilibrium may not be the best outcome for either of the players.
B)the Nash equilibrium always has unequal outcomes whereas the dominant strategy always has even outcomes.
C)there is always only one Nash equilibrium but there may be more than one dominant strategy.
D)None of the answers is correct.

Answer 2

D

Question 3

Firms that are competing to be the dominant standard:

A)try to lower their prices so as to drive other firms out of business.
B)work to get consumers to recognize both standards.
C)work to get content producers and distributors to sign on to one standard or the other.
D)try to produce the cheapest technology so as to win the standard war.

Answer 3

C

Question 4

Which of the following statements is TRUE regarding networkgoods?

A)Network goods are usually sold by monopolies or oligopolies.
B)Microsoft Word has always been the dominant word processing software.
C)Microsoft Excel has always been the dominate spreadsheet software.
D)All of the answers are correct.

Question 5

I. (12, 12)II. (4, 4)III. (8, 8)IV. (3, 3)

A)I and IV only
B)II and IV only
C)III only
D)I and III only

Question 6

Which of the following statements is TRUE?

A)Network goods are sold mostly in price-taker markets.
B)The network good is always the "best" good.
C)Monopolies may sell network goods.
D)All of these statements are true.

Question 7

Which of the following goods represent network goods?

A)Pepsi, toilet paper, headphones
B)calculator, oven, couch
C)Twitter, Microsoft Excel, Facebook
D)fireworks, lighthouse, swimming pool

Question 8

Which of the following statements about network goods isTRUE?

A)They are goods that are usually sold by large firms with a great deal of market power.
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.

Question 9

Which of the following conditions is required for a networkgood to succeed over a better good in the market?

A)The network good should have a minimal number of consumers so that customers are not competing for the same
Network.
B)The network good should have a much larger number of consumers or users than the better good.(True Answer
)Correct
C)The network good should be a free good.
D)All of these conditions are required.

Question 10

The equilibrium in a market in which no participant has anincentive to change his or her strategy unilaterally is called a:

A)market equilibrium.
B)Nash equilibrium.
C)coordinating equilibrium.
D)financial equilibrium.

Question 11

What is meant by the concept of a Nash equilibrium?

A)It is an outcome where the player has played his or her dominant strategy.
B)It is an outcome where both players have the incentive to change their strategy.
C)It is the outcome where neither player wishes to change his or her strategy unilaterally.
D)It is the same as a dominant strategy outcome.

Question 12

Which of the following would NOT be considered a networkgood?

A)cell phones
B)quiet study rooms
C)e-mail programs
D)online player versus player games

Question 13

Which of the following best explains why monopolies oroligopolies tend to dominate the market for network goods?
I) Their products are the most likely to be compatible withother products
II)They produce the "best" products in terms of quality andcompatibility
III) The power of coordination is so strong that monopolistsand oligopolists can dominate the market even when theycharge prices higher than their competitors.

A)I only
B)I and II only
C)I and III only
D)I, II, and III

Question 14

The Blu-ray standard war illustrates that:

A)once a product standard is established the rival product disappears from the market.
B)government protection may lead to the demise of the superior product.
C)bilateral monopolies sometimes price below average cost.
D)complementary goods have high income elasticities.

Question 15

A network good is a good whose value to one consumer:

A)increases the network of the consumer.
B)increases some, but to less value as other consumers use the good.
C)also creates the same value to other consumers as they use the good.
D)increases the more that other consumers use the good.

Question 16

Which of the following is NOT a feature of markets fornetwork goods?

A)Network goods are usually sold by monopolies or oligopolies.
B)Standard wars are common in establishing network goods.
C)Competition in the market for network goods is "in the market" instead of "for the market."
D)When networks are important the "best" product may not always win.

Question 17

A Nash equilibrium:

A)means that no players have an incentive to change their strategy.
B)means that some players could be made better off by changing their strategy.
C)is suboptimal compared to Raj's equilibrium.
D)None of the answers is correct.

Question 18

When many people are involved and when they do not allagree about whether one good really is better than another,the best final equilibrium is usually determined by:

A)consumers.
B)the market.
C)the government.
D)historical accidents.

Question 19

Which of the following statements is FALSE?

A)Network goods are usually sold by monopolies or oligopolies.
B)When networks are important the "best" products usually win.
C)Standard wars are common in establishing network goods.
D)Competition in network goods is for the market, not in the market.

Question 20

Firms that produce goods that are the dominant standardgoods in the market typically sell these goods at:

A)a loss.
B)a higher price than in a competitive market.(True Answer )Correct
C)a lower price than in a competitive market.
D)marginal cost.

Question 21

When the market for a network good is contestable:

A)there is little competition.
B)many firms operate and compete for consumers in the industry.
C)it is hard for consumers to get locked into a "bad" outcome.
D)monopoly firms always charge prices well above their average costs.

Question 22

When networks are important, the "best" product may notalways win.

Question 23

The online photo-sharing Web site Shutterfly offers unlimitedfree uploads. Which of the following best explains why theyoffer this service at no charge?

A)Shutterfly is trying to increase switching costs for their consumers.
B)Shutterfly is trying to decrease their average costs.
C)Shutterfly is trying to increase competition.
D)The marginal cost of uploading photos is near zero; setting price equal to marginal cost is simply an efficient pricing
Strategy.

Question 24

A network good is a good whose value to one consumerincreases the more that other consumers use the good.

Question 25

The market for Internet dating is dominated by eHarmony,Match.com, and Yahoo. This market is an example ofmonopolistic competition.

Question 26

An outcome where both players have played their dominantstrategy is also a Nash equilibrium.

Question 27

Firms that operate in contestable markets:

A)still price competitively since they face the threat of competition from new entrants.
B)are pure monopolies that set price equal to consumers' highest willingness to pay.
C)earn zero economic profits.
D)face more competition when fixed costs are high.

Question 28

An experiment by Duncan J. Watts, a sociologist at ColumbiaUniversity, showed that when consumers knew a particularsong had been downloaded by a lot of other people, moreconsumers wanted to download that song as well. If this istrue, this suggests that music itself may be:

A)a competitive good.
B)a network good.
C)a system good.
D)an association good.

Question 29

Duncan Watts' research suggested that:

A)the best music is also the most popular music.
B)people base their musical preferences on what other people think.
C)people are biased against free downloaded music.
D)QWERTY was inferior to Dvorak.

Question 30

The market for network goods:
I) is dominated by a single monopolist
II)is dominated by a series of monopolies
III) ensures long-term profits for those companies that win thestandard war.

A)I only
B)II only
C)I and III only
D)II and III only

Question 31

Customer loyalty programs, such as frequent flier programs,tend to lead to:

A)more competition and lower prices.
B)more competition and higher prices.
C)less competition and lower prices.
D)less competition and higher prices.

Question 32

A fax machine is a network good because it becomes moreuseful when greater numbers of people have them.

Question 33

Which of the following is NOT a good example of a contestablemarket?

A)low-cost airlines
B)electricity providers
C)a local Mexican restaurant
D)bottled water manufacturers

Question 34

Antitrust authorities have a difficult time with network goodsbecause:

A)they know that with network goods, only a few firms will always dominate the market.
B)profits tend to be higher in network markets, and thus firms are willing to fight harder.
C)when monopolies exist, there is no competition to help lower prices.
D)increased competition can easily lead to corruption in network markets.

Question 35

Which of the following explains why frequent flier programsreduce contestability in the airline industry?

A)Frequent flier programs make demand for each airline more elastic and thus lead to more competition.
B)Frequent flier programs make demand for each airline more inelastic and thus lead to more monopoly power and
Higher prices.
C)Frequent flier programs increase demand for each airline, ultimately leading to increased competition and lower
Prices.
D)Frequent flier programs lead to lower switching costs and therefore less contestability in the market.

Question 36

Competition for the market rather than in the market:

A)is the reason why Friendster is no longer the leading social network.
B)explains why Microsoft Word is the leading word processing network.
C)means that Facebook may one day no longer be one of the leading social networks.
D)All of the answers are correct.

Question 37

Music is an example of a ________ good.

A)network
B)played
C)reverse
D)mirrored

Question 38

Contestable markets tend to arise when:

A)fixed costs are high.
B)the threat of new firms entering the market is low.
C)the incumbent firm does not control access to an important resource.
D)government regulations are in effect.

Question 39

Markets tend to be more easily monopolized when:

A)marginal costs are low.
B)average costs are high.
C)the good is a network good.
D)fixed costs are high.

Question 40

Which of the following is FALSE?

A)Music is a network good.
B)Some musicians get lucky and become popular quickly.
C)Popularity is less important than musicianship.
D)A musician's current success is no guarantee of future success.

Question 41

Most contestable markets have high fixed costs.