Economics of Network Industries MCQs and Notes

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📊 Economics of Network Industries
Q. Support-oriented consumers would prefer buying software over pirating software .
  • (A) if p > σq; i.e., if the price of the software package exceeds the value of service provided by the software firm to its legal users.
  • (B) if software is not copy protected.
  • (C) if service provided by software firm is not available.
  • (D) if p ≤ σq; i.e., if the price of the software package does not exceed the value of service provided by the software firm to its legal users.
💬 Discuss
✅ Correct Answer: (D) if p ≤ σq; i.e., if the price of the software package does not exceed the value of service provided by the software firm to its legal users.
📊 Economics of Network Industries
Q. When there are two software industries, each producing brand-specific software, an increase in the degree of compatibility of the A- machine with the software written for the B- machine,
  • (A) will reduce the variety of software specifically written for the A machine
  • (B) will increase the variety of software specifically written for the A machine
  • (C) will reduce the variety of software specifically written for the B machine
  • (D) none of the above.
💬 Discuss
✅ Correct Answer: (A) will reduce the variety of software specifically written for the A machine
📊 Economics of Network Industries
Q. Equilibrium duopoly hardware prices and profits are higher when the machines are compatible than when they are incompatible.
  • (A) TRUE
  • (B) FALSE
  • (C) ---
  • (D) ---
💬 Discuss
✅ Correct Answer: (A) TRUE
📊 Economics of Network Industries
Q. An increase in consumers’ preference for variety of software .
  • (A) increases both hardware prices and profits.
  • (B) decreases both hardware prices and profits.
  • (C) increase hardware prices and decrease profits.
  • (D) decrease hardware prices and increase profits.
💬 Discuss
✅ Correct Answer: (B) decreases both hardware prices and profits.
📊 Economics of Network Industries
Q. The price charged by a monopoly hardware firm .
  • (A) increases with consumers’ love for software variety parameter, α; consumers’ income, ω; and the number of consumers buying this machine, η
  • (B) decrease with consumers’ love for software variety parameter, α; consumers’ income, ω; and the number of consumers buying this machine, η
  • (C) increases with consumers’ love for software variety parameter, α; consumers’ income, ω; and decrease in the number of consumers buying this machine, η
  • (D) increases with consumers’ love for software variety parameter, α; decrease in consumers’ income, ω; and the number of consumers buying this machine, η
💬 Discuss
✅ Correct Answer: (A) increases with consumers’ love for software variety parameter, α; consumers’ income, ω; and the number of consumers buying this machine, η
📊 Economics of Network Industries
Q. Production of software exhibits sharp _.
  • (A) economies of scope
  • (B) economic welfare
  • (C) economic sustainabil
  • (D) economies of scale
💬 Discuss
✅ Correct Answer: (D) economies of scale
📊 Economics of Network Industries
Q. The firm with the higher market share under incompatibility earns _ under incompatibility whereas the firm with the smaller market share under incompatibility earns _ under compatibility.
  • (A) a higher profit, a lower
  • (B) a lower profit, a lower
  • (C) a higher profit, a hig
  • (D) hB) a lower profit, a hig
💬 Discuss
✅ Correct Answer: (C) a higher profit, a hig
📊 Economics of Network Industries
Q. In Duopoly, Social welfare is maximized when _
  • (A) there is one-way compatibility.
  • (B) both machines are compatible.
  • (C) both machines are incompatible to each other.
  • (D) none of the above.
💬 Discuss
✅ Correct Answer: (B) both machines are compatible.
📊 Economics of Network Industries
Q. When users’ preferences exhibit network externalities,
  • (A) computer producers charge higher prices and earn higher profits when they make their machines compatible;
  • (B) consumers are worse off when firms sell compatible machines.
  • (C) consumers are well off when firms sell compatible machines
  • (D) Both A & B
💬 Discuss
✅ Correct Answer: (D) Both A & B
📊 Economics of Network Industries
Q. When users’ preferences exhibit network externalities, and if computer brands are differentiated and incompatible, then _
  • (A) prices and profit levels decline with an increase in consumers’ preference toward the network size.
  • (B) prices and profit levels increases with an increase in consumers' preference towards the network size.
  • (C) price increases and profit level decreases with an increase in consumers' preference toward the network size.
  • (D) price declines while profit level increase with an increase in consumers' preference towards the network size.
💬 Discuss
✅ Correct Answer: (A) prices and profit levels decline with an increase in consumers’ preference toward the network size.

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