G202 ACTUAL PAPER 2026 QUESTIONS
WITH SOLUTIONS GRADED A+
◉Who has 100% market power?. Answer: Monopolies
◉Market power and rivalry firms. Answer: Can exist if products are
differentiated and/or markers are segmented (firms have loyalty
customers)
◉How do you gain market power?. Answer: the manager's job is to
attempt to sustain any factors which limit competition
◉Market Strategies to Restrict Competition. Answer: -guarding
trade secrets
-control of an essential resource
-exclusive contracts and customer lock-in
a. Coke on campus.
b. Extended cell phone contracts
-collusion (form a cartel and act as a monopoly)
◉Non-Market Strategies to Restrict Competition. Answer: -
Government Licensing
,-Patent or copyright protection
-Trade regulations
-Government or NGO certification
◉Optimal Sales Target (Qf). Answer: The profit maximizing sales
target occurs where marginal revenue equals marginal cost.
If MR>MC then the firm could make a profit by selling one more unit.
If MC>MR then the firm would lose money on selling the unit.
◉Optimal Price (Pf). Answer: Given the optimal sales target, price is
found as a markup over cost, where the markup factor depends on
the demand for the product.
-More inelastic demand results in a higher mark up over costs (a
higher posted price).
◉Market Power Pricing. Answer: A firm with market power sets
price higher and output lower than efficient levels
- From the viewpoint of social efficiency too few units are produced
and sold, giving up some that have value greater than costs
◉Customizing prices. Answer: - Consumers differ based on their
demand elasticity and willingness to pay
- Firms can exploit these differences to better customize prices and
extract more market surplus
,◉Relatively More inelastic. Answer: Supports a higher price and
closer to 0
◉relatively more elastic. Answer: Needs a lower price and closer to
negative infinity
◉Imperfect Price Discrimination. Answer: Groups of consumers are
charged different prices.
-Profits are increased relative to using a single price, but not as high
as using perfect price discrimination.
-Consumer surplus is decreased, but consumer surplus is not equal
to zero.
◉Increasing the number of segmented groups. Answer: - increases
producer surplus (profits), relative to using a single price
- decreases consumer surplus, but not down to zero
◉perfect price discrimination. Answer: each consumer is charged a
price equal to her willingness to pay
-no social inefficiency occurs, but all market surplus goes to the
producer (CS = 0)
-profits are increased relative to imperfect price discrimination
, ◉Game Theory. Answer: The tool that economists use to analyze
strategic behavior - behavior that recognizes mutual
interdependence and takes account of the expected behavior of
others
◉How can game theory be used?. Answer: Study the interaction
between executives, employees, policy-makers, activists
-Anyone making a decision can be modeled with game theory
◉Players for game theory. Answer: -These are the decision makers
within the game
-Usually within firms, government, or interest groups
-Rivals
◉Strategies in game theory. Answer: - These are the decision choices
-Price, products, advertising, campaigning, regulation
Ex. high quality goods
◉Payoffs for game theory. Answer: -These are the outcomes of the
decision choices
-Usually in terms of profits or losses
-We're going to be looking at decision makers who want to maximize
their payoff
WITH SOLUTIONS GRADED A+
◉Who has 100% market power?. Answer: Monopolies
◉Market power and rivalry firms. Answer: Can exist if products are
differentiated and/or markers are segmented (firms have loyalty
customers)
◉How do you gain market power?. Answer: the manager's job is to
attempt to sustain any factors which limit competition
◉Market Strategies to Restrict Competition. Answer: -guarding
trade secrets
-control of an essential resource
-exclusive contracts and customer lock-in
a. Coke on campus.
b. Extended cell phone contracts
-collusion (form a cartel and act as a monopoly)
◉Non-Market Strategies to Restrict Competition. Answer: -
Government Licensing
,-Patent or copyright protection
-Trade regulations
-Government or NGO certification
◉Optimal Sales Target (Qf). Answer: The profit maximizing sales
target occurs where marginal revenue equals marginal cost.
If MR>MC then the firm could make a profit by selling one more unit.
If MC>MR then the firm would lose money on selling the unit.
◉Optimal Price (Pf). Answer: Given the optimal sales target, price is
found as a markup over cost, where the markup factor depends on
the demand for the product.
-More inelastic demand results in a higher mark up over costs (a
higher posted price).
◉Market Power Pricing. Answer: A firm with market power sets
price higher and output lower than efficient levels
- From the viewpoint of social efficiency too few units are produced
and sold, giving up some that have value greater than costs
◉Customizing prices. Answer: - Consumers differ based on their
demand elasticity and willingness to pay
- Firms can exploit these differences to better customize prices and
extract more market surplus
,◉Relatively More inelastic. Answer: Supports a higher price and
closer to 0
◉relatively more elastic. Answer: Needs a lower price and closer to
negative infinity
◉Imperfect Price Discrimination. Answer: Groups of consumers are
charged different prices.
-Profits are increased relative to using a single price, but not as high
as using perfect price discrimination.
-Consumer surplus is decreased, but consumer surplus is not equal
to zero.
◉Increasing the number of segmented groups. Answer: - increases
producer surplus (profits), relative to using a single price
- decreases consumer surplus, but not down to zero
◉perfect price discrimination. Answer: each consumer is charged a
price equal to her willingness to pay
-no social inefficiency occurs, but all market surplus goes to the
producer (CS = 0)
-profits are increased relative to imperfect price discrimination
, ◉Game Theory. Answer: The tool that economists use to analyze
strategic behavior - behavior that recognizes mutual
interdependence and takes account of the expected behavior of
others
◉How can game theory be used?. Answer: Study the interaction
between executives, employees, policy-makers, activists
-Anyone making a decision can be modeled with game theory
◉Players for game theory. Answer: -These are the decision makers
within the game
-Usually within firms, government, or interest groups
-Rivals
◉Strategies in game theory. Answer: - These are the decision choices
-Price, products, advertising, campaigning, regulation
Ex. high quality goods
◉Payoffs for game theory. Answer: -These are the outcomes of the
decision choices
-Usually in terms of profits or losses
-We're going to be looking at decision makers who want to maximize
their payoff
