Scenario 17-1 Assume that the countries of Irun and Urun are the only two produc
ID: 2441282 • Letter: S
Question
Scenario 17-1
Assume that the countries of Irun and Urun are the only two producers of crude oil. Further assume that both countries have entered into an agreement to maintain certain production levels in order to maximize profits. In the world market for oil, the demand curve is downward sloping.
____ 18. Refer to Scenario 17-1. What will invariably be the agreed-upon production level between the two countries?
a.
lower than the Nash equilibrium level
b.
equal to the Nash equilibrium level
c.
equal to the duopoly market equilibrium level
d.
higher than the duopoly market equilibrium level
Scenario 17-4
Assume that a local bank sells two services, chequing accounts and ATM card services. Mr. Tang is willing to pay $8 a month for the bank to service his chequing account and $2 a month for unlimited use of his ATM card. Ms. Gardner is willing to pay only $5 for a chequing account, but is willing to pay $9 for unlimited use of her ATM card. To keep this example simple, assume that the bank can provide each of these services at zero marginal cost.
____ 19. Refer to Scenario 17-4. If the bank is unable to use tying, what is the profit-maximizing price to charge for unlimited use of an ATM card?
a.
$8
b.
$9
c.
$11
d.
$14
____ 20. As a legitimate means of discouraging the problem of free riders, what do economists suggest using?
a.
tying
b.
resale price maintenance
c.
marginal cost pricing
d.
cost plus pricing
____ 21. Which of the following is a characteristic of the demand for a factor of production?
a.
It is based on the supply curve of the product market.
b.
It is a derived demand.
c.
It is a differentiated demand.
d.
It is likely to be upward sloping, in violation of the law of demand.
a.
lower than the Nash equilibrium level
b.
equal to the Nash equilibrium level
c.
equal to the duopoly market equilibrium level
d.
higher than the duopoly market equilibrium level
Explanation / Answer
18)
B)
below the Nash equilibrium level of output
19) Bank cannot do tying in fixing price. In tying, two services are combined or bundled and a single price is charged. Here it is not possible. So a single price is charged separately for each service. First consider atm service. Tang is ready to pay $2 and gardner $9. So if price is fixed at $2, then both will buy but as gardner willinw to pay $9 so total revenue is $9 but if the prpri is fixfi $2 then there will be loss of $5
So profit of the bank is maximized at $9
Answer: Price fixed for checking service per month is $9
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