Monday, March 14th, 2011

Answers to the Market Structures Study Review Guide:

1. close substitutes

2. owns a key resource

3. Natural monopoly

4. no resale of good, market power, and the ability to separate customers according to their willingness to pay.

5. deadweight loss and consumer surplus

6. Collusion

7. Prisoners’ dilemma

8. dominant strategy

9. figure out what the dominant strategy is for the player that has one and then choose the best option given that information.

10. interdependent

11. tacit collusion

12. differentiated (similar but not identical)

13. socially/allocatively

14. productively

15. ease of entry/exit

16. left

17. legal services in a big city

18. ATC curve at Q

19. lose

20. lump sum tax

21. per unit subsidy

22. Organization of Petroleum Exporting Countries

23. MR = MC

24. implicit costs (normal profit)

25. normal profit

AP Open Response 2001 (Game Theory Question):

a. Oligopoly because they are two firms selling similar products that are interdependent

b. Evening

c. Morning

d. No because if Windward chooses morning, Airtouch should choose morning, but if Windward chooses evening, Airtouch should choose evening.

e. $700

AP Open Response 2004 #3 (Monopolistic Competition question):

a. 1 pt for a graph with a downward-sloping demand curve with correctly labeled axes

1 pt for downward-sloping marginal revenue curve below the demand curve

1 pt for Q found where MR = MC and P from demand directly above Q

1 pt for long-run equilibrium, ATC tangent to demand at Q

b. 1 pt for individual firm’s output level does not change

1 pt for the explanation that a license fee is a fixed cost, thus it does not affect the firm’s marginal cost.

1 pt for stating economic profits increase

1 pt for explanation that if fixed cost is decreased, ATC decreases.

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