unit 4 microecon

When airlines price discriminates, this generally leads to more customers riding. This means that by varying prices, airlines can cater to different customer segments, allowing them to fill more seats and increase overall revenue.

What happens when a price-making firm (monopoly) discriminates? Society is better off even though producers capture more surplus. This occurs because the producer can serve more consumers who value the product differently, thus maximizing overall welfare, even as they capture excess profits from some consumers.

Based on the table above, the dominant strategy is to fight. In many competitive scenarios, such as those seen in game theory, fighting (like maintaining lower prices or engaging in marketing wars) becomes the optimal choice for firms to secure their market position.

And the Pareto efficient outcome is the bottom right of the decision matrix, representing the scenario where neither player can improve their situation without making the other worse off.

In a monopolistically competitive market, in the short run, there can be economic profit. This is due to lower barriers to entry, enabling new entrants to capture market share and profits. However, in the long run, there can’t be economic profit as new entrants increase supply, driving profits down to zero.

If a diner has the resources to only clean the kitchen or the dining area, which should it choose? The dining area is designed for the customer experience, hence investing resources there is more likely to enhance customer satisfaction and retention.

A monopoly generally sets prices lower than an oligopoly, which is false. In fact, monopolies often charge higher prices due to lack of competition, whereas an oligopoly may keep prices lower to avoid price wars.

For a family that earns $150,000 a year, if apples increase in price by 20%, this creates a substitutional effect only. This means that the family may choose to buy less expensive alternatives rather than reducing their overall fruit consumption.

A consumer is trying to decide whether or not to buy pizza or burgers. They get 60 utils of enjoyment from the pizza that costs $10 and 90 utils of enjoyment from the burger. The budget will have to be less than what price to justify them buying? $15 more would be justifiable, indicating that the consumer might be willing to pay more for the burger due to its higher utility.

Economists have to assume people are predictably irrational when studying behavioral economics, acknowledging that individuals often make decisions based on emotions or cognitive biases rather than pure rationality.

The indifference curve for socks and shoes would be close to a vertical curve (inelastic). This indicates that consumers are less willing to substitute socks for shoes, suggesting a strong preference for both goods.

Diminishing marginal utility begins when the difference in total utility begins to decrease. This principle reflects how the satisfaction gained from consuming an additional unit of a good diminishes as more units are consumed.

Which of these is an example of a gambler's fallacy? A number that has not hit in a while is due. This reflects a misunderstanding of probability where past outcomes influence perceived likelihood of future events.

What is true about risks, risk-taking, and risk preference? All activities involve probability and risk, and risk preferences vary among individuals, affecting their choices in uncertain situations.

It starts to diminish after the 4th because 26-29 produces a lower number than 3. This suggests that the marginal benefit of additional units decreases after a certain point.

Suppose the price of a particular house rises by 5% this creates: Both a substitution effect and an income effect. Buyers may shift towards cheaper homes (substitution effect) and feel financially constrained to buy less due to increased prices (income effect).

What is the Pareto efficient outcome in this game? It is if they don’t confess. The Pareto is to not confess because it yields the best possible outcome for both players, maximizing mutual benefit without cost to either.

For the monopolistic competitor, advertising does all EXCEPT increase profits in the long run. While advertising can attract customers, it may not guarantee long-term profitability as market dynamics change.

If you have unlimited data on your cell phone plan, the company is relying on diminishing marginal utility as users may not perceive additional usage as valuable after a certain point.

The Nash equilibrium occurs when players will not switch their strategies given the status quo. This reflects a stable outcome where each player's strategy is optimal given the strategy of others.

The strategy of backward induction is best described as always being one step in front of your rival, strategically planning future moves based on anticipating the opponent's actions.

This image illustrates the status quo bias and risk aversion, indicating tendencies where individuals prefer the current state of affairs over change, even if change could yield better outcomes.

Which of the following is an example of perfect price discrimination? A golf instructor charges each customer the maximum they are willing to pay. This practice optimally extracts consumer surplus, maximizing the instructor's revenue.

Lottery ticket holders who are unwilling to sell their ticket for more than face value exhibit: Regret avoidance, where they prefer to keep the ticket in hope of winning rather than risk the potential regret of selling it at a lower price