Q1: The Snow City Ski Resort caters to both out-of-town skiers and local skiers. The demand for ski tickets of out-of-town skiers is given by  Q  _o = 800 - 16   P  _o, while the demand for ski tickets of local skiers is given by  Q  _l = 800 - 20  P  _l . The marginal cost of servicing a skier of either type is $10. If Snow City Ski Resort (third-degree) price discriminates then the profit maximizing prices (for a ski ticket) are:

1. P  _o = $35 and  P  _l = $20 
2. P  _o = $30 and  P  _l = $25 
3. P  _o = $15 and  P  _l   = $28 
4. None of the above

Q2: The Snow City Ski Resort caters to both out-of-town skiers and local skiers. The demand for ski tickets of out-of-town skiers is given by   Q  _o   = 800 - 16   P  _o,   while the demand for ski tickets of local skiers is given by   Q  _l   = 800 - 20   P  _l     . The marginal cost of servicing a skier of either type is $10. If Snow City Ski Resort (third-degree) price discriminates then the price elasticity of demand is

1. -3 for local skiers 
2. -1.4 for out-of-town skiers 
3. the same for local skiers and for out-of-town skiers 
4. None of the above

Q3: Consider the following game between player 1, who chooses among strategies row 1, row 2, and row 3, and player 2, who chooses among strategies column 1, column 2, column 3, and column 4 (in the table, payoffs for player 1 are expressed first): 

Column 1 Column 2 Column 3 Column 4

Row 1. 8,0. 10,1 1,2 4,5

Row 2. 6,1. 2,1. 2,4. 5,2

Row 3. 5,6. 10,0. 1,1. 3,0

Using the technique of iterated elimination of dominated strategies, we obtain that the most reasonable prediction(s) in this game is (are) 

1. Player 1 will choose  row 3 and player 2 will choose  column 1 
2. Player 1 will choose  row 2 and player 2 will choose  column 3 
3. Player 1 will choose  row 1 and player 2 will choose  column 4
4. None of the above

Q4: Ives LeFancy and Donna Gabbana are two top fashion designers who own stores on Trendy St. Each has to decide whether to present their 'ready-to-wear' collection at the Los Angeles Fashion Week (L.A.) or at the New York Fashion Week (N. Y.) (they can only present at one of them). If Ives chooses L.A. and Donna chooses N.Y., then Ives' (estimated) profits are $160,000 and Donna's are $110,000. If both choose to present in L.A., then Ives' (estimated) profits are $120,000 and Donna's are $120,000. If both choose to present in N.Y., then Ives' (estimated) profits are $110,000 and Donna's are $140,000. And if Ives chooses N.Y. and Donna chooses L.A., then Ives' (estimated) profits are $130,000 and Donna's are $100,000. If they make their choices simultaneously and independently then, using the Nash equilibrium concept, we find that 

1. The only Nash equilibrium is: Ives chooses L.A. and Donna chooses L.A. 
2. There are two Nash equilibria: 1) Ives chooses L.A. and Donna chooses N.Y.; 2) Ives chooses N.Y. and Donna chooses L.A. 
3. The only Nash equilibrium is: Ives chooses L.A. and Donna chooses N.Y. 
4. None of the above

Q5: Ives LeFancy and Donna Gabbana are two top fashion designers who own stores on Trendy St. Each has to decide whether to present their 'ready-to-wear' collection at the Los Angeles Fashion Week (L.A.) or at the New York Fashion Week (N. Y.) (they can only present at one of them). If Ives chooses L.A. and Donna chooses N.Y., then Ives' (estimated) profits are $160,000 and Donna's are $110,000. If both choose to present in L.A., then Ives' (estimated) profits are $120,000 and Donna's are $120,000. If both choose to present in N.Y., then Ives' (estimated) profits are $110,000 and Donna's are $140,000. And if Ives chooses N.Y. and Donna chooses L.A., then Ives' (estimated) profits are $130,000 and Donna's are $100,000. If the interaction is sequential and Donna makes her choice first while Ives makes his decision after observing Donna's choice, then, using backward induction, we find that 

1. Donna chooses L.A. and Ives chooses L.A. 
2. Donna chooses L.A. and Ives chooses N.Y.
3. Donna chooses N.Y. and Ives chooses L.A. 
4. Donna chooses N.Y. and Ives chooses N.Y 

Q6: A firm has just introduced a product in a market and would like to increase its market share by focusing on maximizing revenue in the current period. It has estimated that the demand for the product is Q = 2,000 - 125 P. Then to maximize revenue, the firm should charge 

1. P=$8 
2. P=$10 
3. P=$5.5 
4. None of the above 

Q7: CompuTrip Inc. offers two softwares, Street Finder and Trip Planner, which are produced at zero marginal cost (and zero fixed costs). The market research department has estimated that there are two groups of customers of equal size that buy the two products: professionals and ordinary consumers. Professionals have a reservation price of $40 for Street Finder and $30 for Trip Planner. Ordinary consumers have a reservation price of $15 for Street Finder and $10 for Trip Planner. Based on this information, 

1. Pure bundling yields more profits than selling the two goods separately.  
2. Pure bundling yields less profits than selling the two goods separately.  
3. Pure bundling yields the same amount of profits as selling the two goods separately. 
4. It is not profitable for the firm to sell these products.

Q8: Consider the following sequential game between firm 1 and firm 2. First, firm 1 decides to adopt either technology A or technology B. Second, Firm 2 observes firm 1's decision and then also decides between technology A or technology B. The profits (in millions of dollars) of the firms are as follows. If both adopt technology A, then firm 1's payoff is $65 and firm 2's is $75. If firm 1 adopts technology A and firm 2 adopts technology B, then the payoff for firm 1 is $50 and for firm 2 is $70. If firm 1 adopts technology B and firm 2 adopts technology A, firm 1's payoff is $70 and firm 2's is $50. If both adopt technology B, then firm 1 makes $75 in profits and firm 2 makes $55. Finally, if the two firms adopted different technologies the game ends. But if firm 2 adopts the same technology as firm 1 then firm 1 can sue firm 2 for infringement. If firm 1 chooses not to sue the game ends . If firm 1 decides to sue then firm 2 must pay firm 1 $10 in damages. Using the principle 'look ahead and reason back' (i.e., backward induction), the most reasonable prediction is

1. that both firms adopt technology  A and firm 1 sues. 
2. that firm 1 adopts technology   B and firm 2 adopts technology   A. 
3. that both firms adopt technology  B and firm 1 does not sue. 
4. that firm 1 adopts technology A   and firm 2 adopts technology B. 

Q9: Amy and  Ben are bargaining over a business opportunity that is worth $100,000.  Amy has an outside option that will give her $25,000 if she does not reach an agreement with  Ben, while  Ben's outside option is also $25,000. Bargaining proceeds as follows: First  Amy proposes a division, then  Ben accepts or rejects. If  Ben accepts, the division is implemented (and the game ends). If  Ben rejects, then the business opportunity drops $30,000 in value and   Ben himself gets to propose a division. Finally,  Amy accepts or rejects. If she accepts then the division is implemented (and the game ends). If she rejects then each player obtains their outside option (and the game ends). Assume that if a player is indifferent between accepting or rejecting a division, then the player always accepts the division. Using backward induction, the prediction is that 

1. Amy proposes $45,000 for herself and $55,000 for  Ben. 
2. Amy proposes $50,000 for herself and $50,000 for  Ben. 
3. Ben rejects  Amy's proposal. 
4. None of the above