Question 1

Professor Kremepuff has published a new textbook.This book will be used in classes for two years, at which time it will be replaced by a new edition.The publisher charges a price of $p₁ in the first year and $p₂ in the second year.After the first year, bookstores buy back copies from students for $p₂/2 and resell them to students in the second year for $p₂.(Students are indifferent between new and used copies.)The cost to a student in the first year of owning the book for a year is therefore $(p₁ - p₂/2).In the first year of publication, the number of students willing to pay $v to own the book for a year is 60,000 - 1,000v.The number of students taking the course in the first year who are willing to pay at least $w to keep the book for reference rather than resell it is 60,000 - 5,000w.In the second year, the number of students who have not previously taken the course and are willing to pay at least $p for a copy of the book is 50,000 - 1,000p.If the publisher sets a price of $p₁ in the first year and $p₂ in the second year, with p₁ B3 p₂, then the total number of copies that the publisher sells over two years will be equal to A)110,000 - 1,000(p₁ + p₂/2). B)120,000 - 1,000(p₁ - p₂/2). C)120,000 - 3,000p₂. D)120,000 - 1,000p₁ - 1,000p₂. E)110,000 - 1,500p₂.

Accepted Answer

E

Question 2

Intel produces the overwhelming majority of computer central processing units (CPUs)that run the Microsoft Windows operating system.Systems competition reasoning would suggest that Intel could only benefit from an outcome of the Microsoft antitrust case that is unfavorable to Microsoft.

Accepted Answer

This statement is incorrect. If an unfavorable outcome for Microsoft leads to the promotion of alternative operating systems or software, it could potentially harm Intel's position as the main CPU provider for Microsoft Windows. Therefore, Intel may not necessarily benefit from an unfavorable outcome for Microsoft in the antitrust case.

Question 3

Why might a profit-maximizing firm producing a new product with network externalities want to give its product away for free?
A)To lock customers in then raise prices at a later date.
B)Although this practice loses money, it can get the firm valuable publicity.
C)By building market share, the product becomes much more valuable and the firm can make money by offering a premium version of the product for sale.
D)The product becomes a more valuable place to advertise if it doesn't cost anything.
E)A profit-maximizing firm would never give its product away for free.

Accepted Answer

By giving the product away for free, the firm can build market share and increase the value of the product through network externalities. Once a significant portion of the market is using the free product, the firm can introduce a premium version of the product with additional features or benefits and charge a higher price for it. This allows the firm to monetize its user base and generate profits while still taking advantage of the benefits of network externalities.

Question 4

A group of 9 consumers are trying to decide whether to connect to a new communications network.Consumer 1 is of type 1, consumer 2 of type 2, consumer 3 of type 3, and so on.Each consumer's willingness to pay to belong to the network is proportional to the number of consumers who belong.Where k is the number of consumers who belong, the willingness to pay of a type n consumer is equal to k times n.What is the highest price at which 7 consumers could all connect to the network and either make a profit or at least break even?
A)$23
B)$19
C)$18
D)$26
E)$21

Accepted Answer

The answer of A group of 9 consumers are trying...

Question 5

A group of 9 consumers are trying to decide whether to connect to a new communications network.Consumer 1 is of type 1, consumer 2 of type 2, consumer 3 of type 3, and so on.Each consumer's willingness to pay to belong to the network is proportional to the number of consumers who belong.Where k is the number of consumers who belong, the willingness to pay of a type n consumer is equal to k times n.What is the highest price at which 7 consumers could all connect to the network and either make a profit or at least break even?
A)$23
B)$26
C)$18
D)$19
E)$21

Accepted Answer

To find the highest price at which 7 consumers can connect and break even, calculate the total willingness to pay for 7 consumers. The consumers with the highest willingness to pay are types 9, 8, 7, 6, 5, 4, and 3. For each, the willingness to pay is 7 times their type number. The total willingness to pay is 7*(9+8+7+6+5+4+3) = 7*42 = 294. Dividing by 7 consumers gives a price of 294/7 = 42. However, the price must be such that each consumer pays at most their willingness to pay, so the highest price is determined by the lowest willingness to pay among the 7 consumers, which is 7*3 = 21.

Question 6

If the demand curve for the DoorKnobs operating system is related to perceived market share s and actual market share t by the equation p = 98s(1 - x), then in the long run, the highest price at which DoorKnobs would maintain a market share of 6/7 would be
A)$18.
B)$15.60.
C)$10.80.
D)$12.
E)$14.40.

Accepted Answer

The answer of If the demand curve for the DoorKnobs...

Question 7

Given the many components of a personal computer that are perfect complements, which of the following factors would NOT contribute to increased profit for Microsoft as a supplier of operating systems?
A)A single corporation (Intel)controls the overwhelming majority of the market for CPU chips.
B)Hardware has largely become a commodity.
C)The market for DRAM memory chips is highly competitive.
D)Microsoft Office is frequently bundled with PCs.
E)More than one of the above answers is correct.

Accepted Answer

Although Intel being the dominant market player for CPU chips may affect the overall profit in the personal computer industry, it does not directly impact Microsoft's profits as a supplier of operating systems. The other options, such as hardware becoming a commodity, competitive market for DRAM memory chips, and Microsoft Office being bundled with PCs, all directly impact Microsoft's profits as a supplier of operating systems.

Question 8

Professor Kremepuff has published a new textbook.This book will be used in classes for two years, at which time it will be replaced by a new edition.The publisher charges a price of $p₁ in the first year and $p₂ in the second year.After the first year, bookstores buy back copies from students for $p₂/2 and resell them to students in the second year for $p₂.(Students are indifferent between new and used copies.)The cost to a student in the first year of owning the book for a year is therefore $(p₁ - p₂/2).In the first year of publication, the number of students willing to pay $v to own the book for a year is 40,000 - 1,000v.The number of students taking the course in the first year who are willing to pay at least $w to keep the book for reference rather than resell it is 40,000 - 5,000w.In the second year, the number of students who have not previously taken the course and are willing to pay at least $p for a copy of the book is 30,000 - 1,000p.If the publisher sets a price of $p₁ in the first year and $p₂ in the second year, with p₁ B3 p₂, then the total number of copies that the publisher sells over two years will be equal to A)80,000 - 3,000p₂. B)80,000 - 1,000(p₁ - p₂/2). C)80,000 - 1,000p₁ - 1,000p₂. D)70,000 -1,000(p₁ - p₂/2). E)70,000 -1,500p₂.

Accepted Answer

The answer of Professor Kremepuff has published a new textbook.This...

Question 9

Banks have started offering electronic bill pay for free.This decision can best be explained as
A)matching free services provided by competitor banks to win over new customers.
B)increasing switching costs.Customers would have to set up electronic bill pay again at their new bank.
C)banks wanting to enhance their reputation for good service.
D)banks reducing their costs of paper check processing.
E)a fad or novelty.

Accepted Answer

The answer of Banks have started offering electronic bill pay...

Question 10

If the demand curve for the DoorKnobs operating system is related to perceived market share s and actual market share t by the equation p = 144s(1 - x), then in the long run, the highest price at which DoorKnobs would maintain a market share of 4/6 would be
A)$48.
B)$41.60.
C)$32.
D)$28.80.
E)$38.40.

Accepted Answer

The answer of If the demand curve for the DoorKnobs...

Question 11

Video marketers and publishers are more likely to profit from allowing rentals of their products, the higher the ratio of cost of production of originals to the transaction cost of rentals.

Accepted Answer

This is because if the cost of production is high compared to the transaction cost of rentals, renting out the product can result in significant profits. However, if the production cost is low and the transaction cost is high, it may not be profitable to offer rentals.

Question 12

Systems competition reasoning would suggest that when setting prices of its operating systems, Microsoft need not consider the profitability of PC manufacturers who purchase Microsoft Windows to install on their PCs.

Accepted Answer

Systems competition reasoning actually implies that Microsoft must consider the profitability of PC manufacturers when setting prices for its operating systems, as the demand for Windows is directly affected by the health and competitiveness of the PC manufacturers. If the prices are too high, it could reduce the manufacturers' margins, potentially decreasing their demand for Windows or pushing them towards alternative operating systems.

Question 13

Economic theory suggests that the existence of a used-book market lowers the profits of publishers below what they would be if every reader had to buy a new copy.

Accepted Answer

The answer of Economic theory suggests that the existence of...

Question 14

Copyright protection discourages the production of new software.

Accepted Answer

Copyright protection incentivizes the production of new software by allowing developers to protect their creations and potentially profit from them. Without copyright protection, there would be less incentive for developers to invest time and resources into creating new software.

Question 15

For a good with network externalities, the number of people who are willing to buy a unit of the good is uniquely determined by the price.

Accepted Answer

For a good with network externalities, the demand and the willingness to pay of the individual depends not only on the price but also on the number of people using or owning the good. Therefore, the number of people willing to buy a unit of the good is not uniquely determined by the price.

Question 16

If the demand curve for the DoorKnobs operating system is related to perceived market share s and actual market share t by the equation p = 147s(1 - x), then in the long run, the highest price at which DoorKnobs would maintain a market share of 4/7 would be
A)$36.
B)$46.80.
C)$54.
D)$32.40.
E)$43.20.

Accepted Answer

The answer of If the demand curve for the DoorKnobs...

Question 17

Network externalities are a special kind of externality in which people care about the number of other people who consume the good.

Accepted Answer

Network externalities occur when the value of a good or service increases for users as more people use it, creating a positive feedback loop. This is also known as the "network effect." Examples include social media platforms, telecommunication networks, and video game consoles.

Question 18

Professor Kremepuff has published a new textbook.This book will be used in classes for two years, at which time it will be replaced by a new edition.The publisher charges a price of $p₁ in the first year and $p₂ in the second year.After the first year, bookstores buy back copies from students for $ p₂/2 and resell them to students in the second year for $p₂.(Students are indifferent between new and used copies.)The cost to a student in the first year of owning the book for a year is therefore $(p₁ - p₂/2).In the first year of publication, the number of students willing to pay $v to own the book for a year is 70,000 - 1,000v.The number of students taking the course in the first year who are willing to pay at least $w to keep the book for reference rather than resell it is 70,000 - 5,000w.In the second year, the number of students who have not previously taken the course and are willing to pay at least $p for a copy of the book is 60,000 - 1,000p.If the publisher sets a price of $p₁ in the first year and $p₂ in the second year, with p₁ B3 p₂, then the total number of copies that the publisher sells over two years will be equal to A)130,000 - 1,000(p₁ + p₂/2). B)140,000 - 1,000(p₁ - p₂/2). C)140,000 - 1,000p₁ - 1,000p₂. D)140,000 - 3,000p₂. E)130,000 - 1,500p₂.

Accepted Answer

The answer of Professor Kremepuff has published a new textbook.This...

Question 19

If the probability that a firm is caught making illegal copies of software increases with the number of copies that the firm makes, then the larger the fine assessed for copying, the smaller will be the number of copies made by each software-copying firm.

Accepted Answer

The answer of If the probability that a firm is...

Question 20

A group of 13 consumers are trying to decide whether to connect to a new communications network.Consumer 1 is of type 1, consumer 2 of type 2, consumer 3 of type 3, and so on.Each consumer's willingness to pay to belong to the network is proportional to the number of consumers who belong.Where k is the number of consumers who belong, the willingness to pay of a type n consumer is equal to k times n.What is the highest price at which 9 consumers could all connect to the network and either make a profit or at least break even?
A)$47
B)$50
C)$43
D)$42
E)$45

Accepted Answer

The willingness to pay for a type n consumer is k*n, where k is the number of consumers in the network. For 9 consumers to connect, we calculate the willingness to pay for the 9th consumer (the one with the lowest willingness to pay among the 9), which is 9*9 = 81. However, to find the highest price at which all 9 could connect and at least break even, we need to consider the consumer with the lowest willingness to pay who would still join, which is the 9th consumer. The total willingness to pay for the first 9 consumers is 1*9 + 2*9 + 3*9 + ... + 9*9 = 9(1+2+3+...+9) = 9*(9*10/2) = 405. To ensure all 9 consumers at least break even, the price must be at or below the average willingness to pay per consumer, which is 405/9 = 45. Therefore, the highest price at which all 9 consumers could connect and at least break even is $45.

Quiz 34: Information Technology-Part A

Intel produces the overwhelming majority of computer central processing units (CPUs)that run the Microsoft Windows operating system.Systems competition reasoning would suggest that Intel could only benefit from an outcome of the Microsoft antitrust case that is unfavorable to Microsoft.

Why might a profit-maximizing firm producing a new product with network externalities want to give its product away for free?

If the demand curve for the DoorKnobs operating system is related to perceived market share s and actual market share t by the equation p = 98s(1 - x) , then in the long run, the highest price at which DoorKnobs would maintain a market share of 6/7 would be

Given the many components of a personal computer that are perfect complements, which of the following factors would NOT contribute to increased profit for Microsoft as a supplier of operating systems?

Banks have started offering electronic bill pay for free.This decision can best be explained as

If the demand curve for the DoorKnobs operating system is related to perceived market share s and actual market share t by the equation p = 144s(1 - x) , then in the long run, the highest price at which DoorKnobs would maintain a market share of 4/6 would be

Video marketers and publishers are more likely to profit from allowing rentals of their products, the higher the ratio of cost of production of originals to the transaction cost of rentals.

Systems competition reasoning would suggest that when setting prices of its operating systems, Microsoft need not consider the profitability of PC manufacturers who purchase Microsoft Windows to install on their PCs.

Economic theory suggests that the existence of a used-book market lowers the profits of publishers below what they would be if every reader had to buy a new copy.

Copyright protection discourages the production of new software.

For a good with network externalities, the number of people who are willing to buy a unit of the good is uniquely determined by the price.

If the demand curve for the DoorKnobs operating system is related to perceived market share s and actual market share t by the equation p = 147s(1 - x) , then in the long run, the highest price at which DoorKnobs would maintain a market share of 4/7 would be

Network externalities are a special kind of externality in which people care about the number of other people who consume the good.

If the probability that a firm is caught making illegal copies of software increases with the number of copies that the firm makes, then the larger the fine assessed for copying, the smaller will be the number of copies made by each software-copying firm.