Unit 4: Imperfect Competition
Micro · Unit 4 · Paper 2

Imperfect Competition unit test

A test on this unit alone, marked as a percentage and a letter grade — for the test your class is actually sitting, rather than for May. Answer everything, then submit once: seeing the answer to question 3 before attempting question 4 makes the final percentage meaningless.

Paper 1Paper 2Paper 3
Each paper is built from this unit’s 48 terms and is the same for everyone, so a teacher can assign “Unit 4, Paper 2” and every student sits the identical test. Multiple choice is marked objectively; the written sections you mark yourself against the model answer and rubric.
Suggested time 34 min 31 points0/17 attempted
1

Dominant strategy vs Nash equilibrium

2

Oligopoly

3

Cost-based pricing is not discrimination

4

Perfect price discrimination is efficient

5

MR curve of a linear monopolist

6

Prisoner's dilemma

7

Why a monopoly is productively inefficient

8

MR and elasticity

9

Where the deadweight loss triangle sits

10

What entry does to a differentiated firm

11

Monopoly deadweight loss

12

Transfer versus deadweight loss

Short answer 1. Define or explain: Socially optimal price regulation

3 pts

Short answer 2. Define or explain: Concentration ratio

3 pts

Short answer 3. Define or explain: Perfect price discrimination

3 pts

Short answer 4. Define or explain: Game theory in oligopoly

3 pts

Free response

7 pts

Two firms, Nordis and Sarveq, simultaneously choose whether to Advertise or Not Advertise. Payoffs in millions of dollars are given as (Nordis, Sarveq): both Advertise (4, 4); Nordis Advertises and Sarveq does not (10, 2); Sarveq Advertises and Nordis does not (2, 10); neither Advertises (7, 7). (a) Determine whether each firm has a dominant strategy, showing your reasoning for each firm separately. (b) Identify the Nash equilibrium and explain why it is stable. (c) Explain why the Nash equilibrium is not the outcome that maximizes joint payoffs, and name the structure this game illustrates. (d) Explain one change to the situation that could allow the firms to reach the jointly better outcome, and explain why it works.

Determine whether each firm has a dominant strategy, with reasoning for each.

Identify the Nash equilibrium and explain why it is stable.

Explain why it does not maximize joint payoffs and name the structure.

Explain one change that could achieve the jointly better outcome and why it works.