A) diminishing returns.
B) economies of scale.
C) diseconomies of scale.
D) declining fixed costs.
A) the lowest average cost of producing every level of output in the long run.
B) where the most profitable level of output occurs.
C) the average cost of producing where diminishing returns are not present.
D) the plant size or scale that the firm should build.
A) All possible economies of scale have been exhausted.
B) The short-run average total cost curve's minimum point is equal to the long run average cost curve's minimum point.
C) Any increase in the scale of operation will encounter diseconomies of scale.
D) An increase in the output level will increase profit.
A) all possible economies of scale have not been exhausted.
B) the firm has achieved the lowest possible average cost of production.
C) any increases in the scale of operation will encounter further economies of scale.
D) marginal cost is at its minimum.
A) It is upward-sloping.
B) It is downward-sloping.
C) It is a ray from the origin.
D) It is U-shaped.
a.) produces more than one product.
b.) has monopoly power in world markets.
c.) controls the raw materials used as inputs.
d.) narrows the scope of its regional markets.
a.) quadratic returns to scale.
b.) diseconomies of scope.
c.) economies of scope.
d.) diseconomies of scale and diseconomies of scope.
a.) will increase if the price of the firm's output increases.
b.) is the firm's demand curve for labor. c.) will decrease if the firm hires more labor.
d.) All of the above are correct.
a.) Over time, more experienced workers will demand higher wage and therefore, will lead to an increased in the cost of production for the producers.
b.) When you produce more, average cost of production increases.
B.) False
A) each additional unit of labor hired is less efficient than previously hired units.
B) in the short run, as more labor is hired, labor's marginal product falls because of the law of diminishing returns.
C) the extra cost of hiring additional units of labor increases as a firm hires more units of labor.
D) the firm's demand curve for the product that uses labor is downward sloping.
A) the demand for financial products called derivatives.
B) the demand for a factor of production that is derived from the demand for the good the factor produces.
C) a firm's estimated demand curve derived from sales data.
D) a demand curve that derives from the availability of resources.
A) economic rent.
B) economic profit.
C) a compensating differential.
D) opportunity cost.
Select one:
a.) As the size of the firm increases, it must operate in other countries where differences in language, customs and laws increase its average costs.
b.) As the size of the firm increases it becomes more difficult to coordinate the operations of its manufacturing plants.
c.) To finance an increase in the size of its plant a firm must borrow more money or sell more shares of stock.
d.) As the size of the firm increases, it becomes more difficult to find markets where it doesn't already have operations.
Select one:
a.) level of operation where long-run average costs are lowest.
b.) the plant size that yields the most profit.
c.) the level of output where diminishing returns have not set in yet.
d.) the smallest output level where the firm finally reaches productive efficiency.
Select one:
a.) Technology can make it possible to increase production with a smaller increase in at least one input.
b.) Workers and managers can become more specialized, enabling them to be more productive.
c.) Larger firms may be able to purchase inputs at lower costs than smaller competitors.
d.) As output increases, the managers can begin to have difficulty coordinating the operations of their firms.
Select one:
a.) the cost of publishing a book falls over time as the publisher acquires more experience.
b.) the cost of a publishing a book is not subject to diminishing marginal returns.
c.) the cost of publishing a magazine is lower for book publishers than for other firms.
d.) the cost of publishing a magazine is lower for firms that publish many magazines than for firms that publish only one magazine.
Select one:
a.) average variable cost and the rate of increase in technology
b.) average variable cost and the number of units produced per time period
c.) average variable cost and the cumulative number of units produced
d.) total cost and technology
Select one:
a.) Hold output constant, but hire more labor and less capital
b.) Increase output by hiring more labor, more capital, or both
c.) Decrease output by reducing the quantity of capital, reducing the number of units of labor, or both
d.) None of the above is correct
Select one:
a.) of rising marginal product.
b.) workers supply less labor services as the wage rate falls.
c.) firms supply less labor as the wage rate rises.
d.) of the law of diminishing marginal returns.
Select one:
a.) what you pay to rent your apartment or house.
b.) the surplus received by employing a factor of production in its highest valued use.
c.) the price of a factor of production that is fixed in supply.
d.) the revenue received by a factor of production with an upward sloping supply curve.
Select one:
a.) the firm can afford more sophisticated technology in production.
b.) labor and management can specialize even further in their tasks.
c.) as a firm expands its production, its profit margin per-unit of output increases.
d.) as a larger input buyer, the firm can purchase inputs at a lower per unit cost.
Select one:
a.) diminishing returns to labor in farming
b.) diseconomies of scale in farming
c.) economies of scale in farming
Select one:
a.) as Toyota expanded its capacity, it experienced diseconomies of scale.
b.) Toyota was focused on "churning" out cars for which it did not invest
sufficiently in training its workers.
c.) Toyota was experiencing an excess demand for its automobiles which it had difficulty keeping up with.
d.) high demand for Toyota's cars prevented the company from focusing on its strength: auto design.
Select one:
a.) more labor should be used and less capital.
b.) more capital should be used and less labor.
c.) the price of capital must fall.
d.) more labor should be used but the use of capital should remain constant.
Select one:
a.) is the firm's demand curve for labor.
b.) All of the above are correct.
c.) will decrease if the firm hires more labor.
d.) will increase if the price of the firm's output increases.
Select one:
a.) I cannot answer based on the available information
b.) Yes
c.) No
d.) I do not know.
Select one:
a.) I do not know
b.) Cannot be determined based on the provided information
c.) Yes
d.) No
Select one:
a.) it is derived by producers seeking to make profits by starting new businesses.
b.) it is derived from the demand for products that use labor in the production process.
c.) it is derived by workers seeking to earn income to fund the consumption of goods and services.
d.) it is derived from government institutions which rely on labor markets for the purpose of raising tax revenue.
Select one:
a.) 5 units
b.) 3 units
c.) 4 units
d.) 6 units
Select one:
a.) Those with low wages which can be paid because their jobs have other very pleasant aspects.
b.) Those with low wages which result from no need to have a period of training.
c.) Those with high wages which compensate them for unpleasant aspects of their jobs.
d.) Those with high wages which result from them possessing the innate ability to develop some skill to a very high level
Select one:
a.) Both concepts explain why average total cost increases after some point but diminishing marginal returns applies only in the short run when there is at least one fixed factor, while diseconomies of scale applies in the long run when all factors are variable.
b.) Diminishing marginal returns, which applies only in the short run when at least one factor is fixed, explains why marginal cost increases, while diseconomies of scale, which applies in the long run when all factors are variable, explains why average cost increases.
c.) Diminishing marginal returns, which applies only in the long run when all factors are variable, explains why average variable cost increases, while diseconomies of scale, which applies in the short run when at least one factor is fixed, explains why average total cost increases.
d.) Both concepts explain why marginal cost increases after some point but diminishing marginal returns applies only in the short run when there is at least one fixed factor, while diseconomies of scale applies in the long run when all factors are variable.
Marginal cost curve is curve A.
Average variable cost curve Is C.
Consider the table. Does the firm have economies of scope? Explain.
A) Your university offers Saturday morning classes next fall.
B) Ford Motor Company lays off 2,000 assembly line workers.
C) A soybean farmer turns on the irrigation system after a month long dry spell.
D) Wal-Mart builds another Supercenter.
A) A local bakery purchases another commercial oven as part of its capacity expansion.
B) Your local Wal-Mart hires two more associates.
C) Smith University completed negotiations to acquire a large piece of land to build its new library.
D) Toyota builds a new assembly plant in Texas.
A) The equilibrium price is likely to increase and profits are likely to remain unchanged.
B) The equilibrium price is likely to remain unchanged and profits are likely to increase.
C) The equilibrium price is likely to decrease and profits are likely to decrease.
D) The equilibrium price is likely to increase and profits are likely to increase
A) P2 deP1
B) P3cbP1
C) P3caP0
D) 0P1 bQ1
A) marginal cost curve.
B) marginal cost curve above its minimum average total cost.
C) marginal cost curve above its minimum average variable cost.
D) marginal cost curve above its minimum average fixed cost.
A) the supply curve shifted to the right resulting in an increase in the equilibrium price.
B) the supply curve shifted to the left resulting in an increase in the equilibrium price.
C) the demand curve shifted to the right resulting in an increase in the equilibrium price.
D) the demand curve shifted to the left resulting in a decrease in the equilibrium price.
A) an increase in consumer income
B) a drought that sharply reduces cotton output
C) a decrease in consumer income
D) unusually good weather that results in a bumper crop of cotton
A) both the equilibrium price and quantity of MP3 players will decrease.
B) the equilibrium price of MP3 players will decrease; the equilibrium quantity will increase.
C) the equilibrium price of MP3 players may increase or decrease; the equilibrium quantity will decrease.
D) the equilibrium price of MP3 players will increase; the equilibrium quantity will decrease.
A) a decrease in demand and an increase in supply
B) an increase in supply
C) an increase in supply and an increase in demand greater than the increase in supply
D) a decrease in demand and a decrease in supply
10) Refer to Figure 4-3. What is the value of consumer surplus at a price of $18?
A) $60
B) $120
C) $180
D) $240
A) $240
B) $300
C) $340
D) $720
A) $100
B) $180
C) $660
D) $1,040
Explanation
At price 18, consumer surplus = Area of the triangle below the demand curve and above the price line 18 = Area of the triangle with base 40 and height (21-18) = (1/2)40(21-18) = (1/2) x 40 x 3 = 60
At price 18, producer surplus = Area of the trapezoid above the supply curve and below the price line 18 = Area of the Rectangle with sides (18-13) and 40 + area of the triangle with base 40 and height (13-11) = (5x40) + {(1/2) x40x2} = 200 + 40 = 240
At price 18, deadweight loss = Area of the Triangle with base (18-13) and height (80-40)
= (1/2) x 5 x 40 = 100
A) Firms produce identical products.
B) Entry barriers into the industry are low.
C) Each firm faces a downward -sloping demand curve.
D) Firms take market prices as given.
A) it is able to control price and quantity demanded.
B) there are few substitutes for its product.
C) of product differentiation.
D) its market decisions are affected by the decisions of its rivals.
A) it has a product offering that is differentiated from the product offerings of rivals.
B) its customers exhibit a high degree of loyalty to the company's brand.
C) it has more core competences than its rivals.
D) it has a better credit rating than rivals.
E) it has an edge over rivals in attracting customers and coping with competitive forces.
A) using an everyday low pricing strategy to gain the biggest market share.
B) bigger profit margins than rival firms.
C) high buyer switching costs because of the company's differentiated product offering.
D) meaningfully lower overall costs than competitors.
E) a reputation for charging the lowest prices in the industry.
A) gain buyer loyalty to its brand (because some buyers prefer the differentiating features and are thus brand loyal).
B) set the industry ceiling on price.
C) attract many more buyers by charging a lower price than rivals and thereby take sales and market share away from rivals.
D) command a premium price for its product and/or increase unit sales (because additional buyers are won over by the differentiating features), and/or.
E) Both A and D.
Select one:
a. bankrupt.
b. operating in the short run.
c. operating in the long run.
d. losing money.
Select one:
a. the supply curve will shift to the left and the equilibrium price will increase.
b. the demand curve will shift to the left and the equilibrium price will decrease.
c. the supply curve will shift to the left, the demand curve will shift to the left, and the equilibrium price will increase.
d. the supply curve will shift to the right, the demand curve will shift to the left, and the equilibrium price will decrease.
Refer to Figure 12-4. If the market price is $30, the firm's profit-maximizing output level is
Select one:
a. 240.
b. 0.
c. 130.
d. 180.
Select one:
a. the marginal cost curve from d and above
b. the marginal cost curve from a and above
c. the marginal cost curve
d. the marginal cost curve from b and above
Assume that both the demand curve and the supply curve for MP3 players shift to the right but the demand curve shifts more than the supply curve. As a result
Select one:
a.
the equilibrium price of MP3 players will increase; the equilibrium quantity may increase or decrease.
b.
the equilibrium price of MP3 players may increase or decrease; the equilibrium quantity will increase.
c.
the equilibrium price of MP3 players will decrease; the equilibrium quantity may increase or decrease.
d.
both the equilibrium price and quantity of MP3 players will increase.
Which of the following would cause an increase in the equilibrium price and an increase in the equilibrium quantity of watermelons?
Select one:
a.
a decrease in demand and an increase in supply
b.
an increase in supply
c.
an increase in demand and an increase in supply
d.
an increase in supply and an increase in demand greater than the increase in supply
Figure 4-3 shows the market for tiger shrimp. The market is initially in equilibrium at a price of $15 and a quantity of 80. Now suppose producers decide to cut output to 40 in order to raise the price to $18. Refer to Figure 4-3. What is the value of consumer surplus at the equilibrium price of $15?
Select one:
a.
$60
b.
$120
c.
$240
d.
$180
Figure 4-3 shows the market for tiger shrimp. The market is initially in equilibrium at a price of $15 and a quantity of 80. Now suppose producers decide to cut output to 40 in order to raise the price to $18.
Refer to Figure 4-3. What is the value of producer surplus at the equilibrium price of $15?
Select one:
a.
$400
b.
$240
c.
$160
d.
$80
Figure 4-3 shows the market for tiger shrimp. The market is initially in equilibrium at a price of $15 and a quantity of 80. Now suppose producers decide to cut output to 40 in order to raise the price to $18.
Refer to Figure 4-3. What is the value of the deadweight loss at the equilibrium price of $15?
Select one:
a.
$40
b.
$0
c.
$60
d.
$100
A monopolistically competitive firm will
Select one:
a.
always produce at the minimum efficient scale of production.
b.
charge the same price as its competitors do.
c.
produce an output level that is productively and allocatively efficient.
d.
have some control over its price because its product is differentiated.
Figure 4-5 shows the market for apartments in Springfield. Recently, the government imposed a rent ceiling of $1,000 per month.
Refer to Figure 4-5. What is the value of consumer surplus after the imposition of the ceiling at $1000 per month?
Select one:
a.
$270,000
b.
$230,000
c.
$430,000
d.
$120,000
Figure 4-5 shows the market for apartments in Springfield. Recently, the government imposed a rent ceiling of $1,000 per month. Refer to Figure 4-5. What is the value of producer surplus after the imposition of the ceiling?
Select one:
a.
$100,000
b.
$40,000
c.
$430,000
d.
$300,000
Figure 4-5 shows the market for apartments in Springfield. Recently, the government imposed a rent ceiling of $1,000 per month. Refer to Figure 4-5. What is the value of the deadweight loss after the imposition of the
Select one:
a.
$50,000
b.
$175,000
c.
$260,000
d.
$125,000
An increase in input costs in the production of electric automobiles caused the price of electric automobiles to rise. Holding everything else constant, how would this affect the market for gasoline-powered automobiles (a substitute for electric automobiles)?
Select one:
a.
The supply of gasoline-powered automobiles would increase and the equilibrium price of gasoline-powered automobiles would decrease.
b.
The demand for gasoline-powered automobiles would decrease because consumers could afford to buy fewer gasoline-powered automobiles.
c.
The demand for gasoline-powered automobiles would increase and the equilibrium price of gasoline-powered automobiles would increase.
d.
The demand for gasoline-powered automobiles would increase and the equilibrium price of gasoline-powered automobiles would decrease.
A perfectly competitive firm produces 3,000 units of a good at a total cost of $36,000. The fixed cost of production is $20,000. The price of each good is $10. Should the firm continue to produce in the short run?
Select one:
a.
There is insufficient information to answer the question.
b.
No, it should shut down because it is making a loss.
c.
Yes, it should continue to produce because its price exceeds its average fixed cost.
d.
Yes, it should continue to produce because it is minimizing its loss.
Figure 12-5 shows cost and demand curves facing a typical firm in a constant-cost, perfectly competitive industry. Refer to Figure 12-5. If the market price is $20, what is the firm's profit-maximizing output?
Select one:
a.
1,100 units
b.
1,350 units
c.
750 units
d.
1,800 units
Max Shreck, an accountant, quit his $80,000-a-year job and bought an existing tattoo parlor from its previous owner, Sylvia Sidney. The lease has five years remaining and requires a monthly payment of $4,000. Max's explicit cost amounts to $3,000 per month more than his revenue. Should Max continue operating his business?
Select one:
a.
Max should continue to run the tattoo parlor until his lease runs out.
b.
Max's explicit cost exceeds his total revenue. He should shut down his tattoo parlor.
c.
If Max's marginal revenue is greater than or equal to his marginal cost, then he should stay in business.
d.
This cannot be determined without information on his revenue.
A perfectly competitive firm's short-run supply curve is
Select one:
a.
perfectly elastic at the market price.
b.
upward sloping and is the portion of the marginal cost curve that lies above the average variable cost curve.
c.
horizontal at the minimum average total cost.
d.
upward sloping and is the portion of the marginal cost curve that lies above the average total cost curve.
If a typical firm in a perfectly competitive industry is earning profits, then
Select one:
a.
all firms will continue to earn profits.
b.
new firms will enter in the long run causing market supply to decrease, market price to rise and profits to increase.
c.
new firms will enter in the long run causing market supply to increase, market price to fall and profits to decrease.
d.
the number of firms in the industry will remain constant in the long run.
A perfectly competitive wheat farmer in a constant-cost industry produces 3,000 bushels of wheat at a total cost of $36,000. The prevailing market price is $15. What will happen to the market price of wheat in the long run?
Select one:
a.
The price rises above $15.
b.
There is insufficient information to answer the question.
c.
The price falls to $12.
d.
The price remains constant at $15.
The reason that the coffeehouse market is monopolistically competitive rather than perfectly competitive is because
Select one:
a.
entry into the market is blocked.
b.
products are differentiated.
c.
barriers to entry are very low.
d.
there are many firms in the market.
Figure 13-4 shows short-run cost and demand curves for a monopolistically competitive firm in the market for designer watches. Refer to Figure 13-4. If the firm represented in the diagram is currently producing and selling Qa units, what is the price charged?
Select one:
a.
P0
b.
P1
c.
P2
d.
P34434
Economists have long debated whether there is a significant loss of well-being to society in markets that are monopolistically competitive rather than perfectly competitive. Which of the following offers the best reason why some economists believe that monopolistically competitive markets benefit consumers despite any loss of well-being?
Select one:
a.
Although consumers may pay a price greater than marginal cost for a product, the product is produced at the minimum average total cost.
b.
Consumers pay a price equal to the marginal cost of producing a product, even though it is not produced at the minimum average total cost.
c.
Consumers are better off choosing from a variety of differentiated products, even though product differentiation causes barriers that restrict entry into monopolistically competitive markets.
d.
Although consumers may pay a price greater than marginal cost and the product is not produced at minimum average total cost, they benefit from being able to buy a differentiated product more closely suited to their tastes.
When a credit card company offers different services with its card, like travel insurance for air travel tickets purchased with the credit card or product insurance for items purchased with the card, the credit card company is trying to
Select one:
a.
create a barrier to entry for competing firms.
b.
convince customers that its card has greater value than those offered by rival firms.
c.
shift the demand curve for competing firms to the right.
d.
create a perfectly competitive market in which to sell its credit card.
Juicy Couture has been successful in selling women's clothing using an unusual strategy.
According to an article in the Wall Street Journal, the key to the firm's strategy is to "limit distribution to maintain the brand's exclusive cachet, even if that means sacrificing sales, a brand-management technique once used only for high-end luxury brands." In 2006, Juicy clothes were sold in only four department stores: Neiman Marcus, Saks, Bloomingdale's, and Nordstrom. In 2006, its sales have more than quadrupled since 2002.
Source: Rachel Dodes, "From Track Suits to Fast Track," Wall Street Journal, September 13, 2006.
How does limiting the number of stores in which Juicy's products are sold contribute to its success?
Select one:
a.
It enables Juicy to price its products at a premium and differentiate them from lower priced products.
b.
It helps establish Juicy's products as luxury items favored by the very wealthy.
c.
Maintaining the exclusivity of a product increases the demand for the product.
d.
By sacrificing sales, the company was able to focus on producing high quality products.
Which of the following statements is true about advertising by a monopolistically competitive firm?
Select one:
a.
Advertising will be more beneficial if a monopolistic competitor colludes with other firms to advertise the products of the industry as a whole rather than an individual firm's product.
b.
Monopolistically competitive firms tend to shun advertising because advertising draws attention to the variety of differentiated products available in the industry.
c.
Advertising could make the monopolistic competitor's demand more inelastic, but advertising has no effect on a perfect competitor's demand.
d.
Since the monopolistic competitor, like the perfect competitor, makes zero profit in the long run, it is a waste of resources to advertise its products.
One of your classmates asserts that advertising, marketing research, and brand management are redundant expenditures because a firm can obtain the same information by simply looking at what customers are already buying. Which of the following is not a response you might offer her?
Select one:
a.
Conducting market research is a good way for firms to keep abreast of changing consumer tastes and preferences.
b.
If a firm successfully manages its brand, customers become less price sensitive as they perceive fewer substitutes for the firm's brand.
c.
Advertising and brand management allow a firm to create an entry barrier which will insulate the firm from competition and from undertaking further product innovations.
d.
Marketing research could allow a firm to identify new market opportunities and at least, in the short run, a firm can make a profit supplying products to this market segment
A company's competitive strategy deals with
Select one:
a.
the specific actions management plans to take to gain a competitive advantage over rivals
b.
the specific actions management intends to take to strongly differentiate its product offering from the offerings of rival companies in the industry.
c.
how it plans to unify its functional and operating strategies into a cohesive effort aimed at successfully taking customers away from rivals.
d.
how to compete successfully-its plans for positioning the company in the marketplace, its specific efforts to please customers and improve its competitive strength, and the type of competitive advantage it intends to establish.
e.
its plans for under-pricing rivals and achieving product superiority.
A competitive strategy of striving to be the low-cost provider is particularly attractive when
a.
buyers are not swayed by advertising and are not very brand-loyal.
b.
most rivals are pursuing best-cost or broad differentiation strategies.
c.
there are many ways to achieve higher product quality that have value to buyers.
d.
buyers are large, have significant power to bargain down prices, use the product in much the same ways, and have common user requirements.
e.
most rivals are trying to differentiate their product offering from those of rivals.
To be successful with a differentiation strategy, a company has to
Select one:
a.
outspend rivals on R&D in order to have differentiating attributes that rivals don't have.
b.
study buyers" needs and behavior very carefully to learn what they consider important, what they think has value, and what they are willing to pay for
c.
incorporate more differentiating features into its product/service offering than rivals and also charge a price no higher than the prices charged by rivals.
d.
Concentrate on differentiating its product on the basis of superior product quality or personalized customer service.
e.
have a state-of-the-art value chain and concentrate on providing buyers with a technologically superior product
8 units
Profit Maximization is when MC=MR=P
MR=40
TC=VC+FC
7 units: TC= 150+76= 226
8 units: TC= 190+76= 266
MC= 40
MC=MR=40 at 8 units
Discuss the correct and incorrect economic analysis in the following statement.
"If good weather in Hawaii creates a bumper crop of pineapples, the supply of pineapples will increase. This will result in a price decrease, which will then cause the supply of pineapples to decrease."
1. Refer to Figure 15-4. If the monopoly firm wants to maximize its profit, it should operate at a level of output equal to
a. Q1.
b. Q2.
c. Q3.
d. Q4.
A four-firm concentration ratio measures
A) the fraction of an industry's sales accounted for by the four largest firms.
B) the production of any four firms in an industry.
C) how the four largest firms became so concentrated.
D) the fraction of employment of the four largest firms in an industry.
Which of the following is not part of an oligopolist's business strategy?
A) deciding on how to manage relations with suppliers
B) choosing what new technologies to adopt
C) selecting which new markets to enter
D) independently setting a product's price without consideration of its rivals' pricing policies
(Table 10.4) The table shows consumer valuations (maximum willingness to pay per month) for two cable television networks. In which of the scenarios would a cable television company have an increase in producer surplus from using a bundling strategy as opposed to selling channel access separately?
A)
Scenario A
B)
Scenario B
C)
Scenario C
D)
Scenario D
Which of the following is an example of strategic behavior that we see in oligopoly?
a. A firm builds excess capacity to discourage the entry of competitors.
b. A firm adopts the pricing behavior of a dominant firm under the assumption that other firms will do likewise.
c. Firms in an industry increase advertising expenditures to avoid losing market share.
d. All of the above are examples of strategic behavior.
If the 4-firm concentration ratio for industry A is 80:
a. the four largest first account for 20 percent of total output.
b. the four largest firms account for 80 percent of total output.
c. the industry is a monopoly.
d. the industry is competitive.
If firms are in Cournot equilibrium:
a) Each firm could increase profits by unilaterally increasing output.
b) Each firm could increase profits by unilaterally decreasing output.
c) Firms could increase profits by jointly increasing output.
d) Firms could increase profits by jointly reducing output.
Sue and Jane own two local petrol stations. They have identical constant marginal costs, but earn zero economic profits. Sue and Jane constitute
a) a Sweezy oligopoly.
b) a Cournot oligopoly.
c) a Bertrand oligopoly.
d) none of the above.
What is the incentive for a firm to join a cartel?
A) to be able to earn profits in the long run but not in the short run
B) to be able to earn larger profits than if it was not part of the cartel
C) to completely insulate itself from competition
D) to produce a larger amount of output than if it was not part of the cartel
A cartel is
A) a temporary storage facility for automobiles.
B) a group of firms that enter into an informal agreement to fix prices to maximize joint profits.
C) a group of firms that enter into a formal agreement to fix prices to maximize joint profits.
D) an example of a group of firms that collectively regulate a competitive industry.
A characteristic found only in oligopolies is
A) break even level of profits.
B) interdependence of firms.
C) independence of firms.
D) products that are slightly different.
Refer to Figure 15-10. The deadweight loss due to a monopoly is represented by the area
A) FHE.
B) FGE.
C) GEH.
D) FQ1Q2E.
Refer to Figure 15-10. What is the area that represents producer surplus under a monopoly?
A) the triangle 0P2E
B) the triangle 0P3H
C) the trapezium 0P1FH
D) the rectangle P1P3HF
Refer to Figure 15-10. What is the area that represents consumer surplus under a monopoly?
A) the triangle P0P1F
B) the triangle P0P2E
C) the trapezium P1P2EF
D) the rectangle P1P3HF
Refer to Figure 15-9. What is the economically efficient output level?
A) 600 units
B) 800 units
C) 940 units
D) 1160 units
C
P=MC=MR=DD
Figure 15-2 above shows the demand and cost curves facing a monopolist.Refer to Figure 15-2. To maximize profit, the firm will produce
Relative to a perfectly competitive market, a monopoly results in
Select one:
a.
greater economic efficiency.
b.
a gain in producer surplus equal to the loss in consumer surplus.
c.
a gain in producer surplus equal to the gain in consumer surplus.
d.
a gain in producer surplus less than the loss in consumer surplus
An oligopolistic industry is characterized by all of the following except
Select one:
a.
production of standardized products.
b.
existence of entry barriers.
c.
the possibility of reaping long run economic profits.
d.
firms pursuing aggressive business strategies, independent of rivals' strategies.
A member of a cartel like OPEC has an incentive to
Select one:
a.
argue for larger production quotas for each member of the cartel.
b.
agree to a low cartel production level and then produce more than its quota.
c.
abide by its individual production quota.
d.
support equal production quotas for each member.
"Tom and Jack are two local petrol stations. Although they have different constant marginal costs, they both survive continued competition." Tom and Jack do not constitute:
Select one:
a.
a Stackelberg oligopoly.
b.
a Cournot oligopoly.
c.
a Bertrand oligopoly.
d.
a monopolistically competitive industry.
Suppose that the duopolists competing in Cournot fashion agree to produce the collusive output. Given that firm two commits to this collusive output, it pays firm one to
Select one:
a.
cheat by producing a lower level of output.
b.
cheat by raising prices.
c.
none of the above.
d.
cheat by producing a higher level of output.
The following table provides hypothetical sales data for 10 firms that comprise the television industry. Ignoring the fact that these companies are from different countries, calculate the four-firm concentration ratio. Then answer the following question.The concentration ratio for the four largest firm is:
Select one:
a. 78%
b. 88%
c. 58%
d. 68%
An industry has a 4-firm concentration ratio of 85. We would call this industry a:
Select one:
a.
monopoly
b.
very competitive one
c.
purely competitive industry
d.
oligopoly
A firm that is threatened by the potential entry of competitors into a market builds excess production capacity. This is an example of
Select one:
a.
Cournot competition
b.
collusion or cartel
c.
Bertrand competition
d.
Entry Barriers to prevent potential entrants
Suppose two firms in a duopoly implicitly collude and charge a high price. How might each firm benefit from advertising that it will match the lowest price offered by its competitor?
Select one:
a.
The advertisement is meant to suggest to consumers that the offered price is actually the lowest price available
b.
The offer to match prices is a way of signaling to antitrust authorities that the firms are not engaged in illegal collusion
c.
The offer to match prices is a way of deterring entry by other large firms, thereby keeping the market share of the existing firms intact
d.
The advertisement ensures that the other firm does not cheat. If a firm cheats on the agreement and charges the lower price, the rival firm will retaliate by doing the same.
Which of the following is an example of bundling?
Select one:
a.
HP includes a toner cartridge with the purchase of a new laser printer
b.
A shoe store doesn't sell shoes for just one foot; it sells shoes for the left foot and right foot packaged together
c.
An automobile manufacturer includes Michelin tires on its new cars
d.
A $95 ticket to the Magic Kingdom gives you entrance to the park and free access to all the rides
Which of the following is a characteristic shared by a perfectly competitive firm and a monopoly?
Select one:
a.
Each maximizes profits by producing a quantity for which marginal revenue equals marginal cost.
b.
Each sets a price for its product that will maximize its revenue.
c.
Each maximizes profits by producing a quantity for which price equals marginal cost.
d.
Each must lower its price to sell more output.
Consider the following characteristics:
a. a market structure with barriers to entry
b. demand curves that are easily identified
c. firm cannot make zero profits in the long run
d. firm can reap long run profits.
Which of the characteristics in the list above is shared by an oligopolist and a monopolist?
Select one:
a.
a, b, c, and d
b.
a and d
c.
a, c, and d
d.
a, b, and d
Figure 15-2 below shows the demand and cost curves facing a monopolist. to Figure 15-2. To maximize profit, the firm will produce
Select one:
a.
Q1.
b.
Q4.
c.
Q3.
d.
Q2.
Interdependence of firms is most common in
Select one:
a.
oligopolistic industries.
b.
monopolistically competitive and oligopolistic industries.
c.
monopolistic industries.
d.
monopolistically competitive industries.
There are five firms in an industry with sales at $5 million, $10 million, $8 million, $12 million, and $10 million, respectively. The HHI is
Select one:
a.
1,805
b.
2138
c.
925
d.
2,014.
Collusion makes firms better off because if they act as a single entity (a cartel) they can reduce output and increase their prices and profits. But some cartels have failed and others are unstable. Which of the following is a reason why cartels often break down?
Select one:
a.
Each member of a cartel has an incentive to "cheat" on the collusive agreement by producing more than its share when everyone else sticks with the collusive agreement.
b.
Most cartels do not have a dominant strategy.
c.
When a cartel is profitable the amount of competition it faces increases.
d.
Members of a cartel may resent having to share their profits equally.
Select one:
a.
13M
b.
6M
c.
10M
d.
12M
Use the following information for this problem. Suppose that you know the following information about the potential buyers in the markets for two types of software for which your firm is a monopolist. You cost for producing the software is 0.If you sell the items separately, how much total profit can you make?
Select one:
a.
13M
13M
b.
12M
c.
10M
d.
6M
According to the Bertrand model, a firm will assume that rival firms will
Select one:
a.
match price increases but not price cuts
b.
match price cuts but not price increases
c.
keep their rates of production constant
d.
keep their prices constant
In the quantity leadership model:
Select one:
a.
prices are higher and quantities are slightly less than we would see if the firms colluded to achieve the monopoly outcome
b.
each firm takes the quantities produced by its competitors as given
c.
one firm plays a leadership role and its competitor's simply react to the leader's quantity
d.
each firm takes the prices charged by its competitors as given
The Bertrand model is a more plausible model of firm behavior than the Cournot model
Select one:
a.
when firms sell a differentiated product.
b.
when firms set the quantity to be sold
c.
because firms that sell a non-differentiated product typically act as price takers.
d.
because the Bertrand model predicts that firms will price at marginal cost.
If identical firms sell an undifferentiated product, advertising is likely to be
Select one:
a.
focused on secret ingredients.
b.
used to attack the rivals' products.
c.
collectively undertaken by the industry group.
d.
strategically aimed at deterring entry.
Oligopolists that have restrictions on productive capacity divide the market between themselves and charge prices greater than marginal costs. In this case they engage in:
Select one:
a.
Betrand competition.
b.
quality competition.
c.
Cournot competition.
d.
price competition.
There are five firms in an industry with sales at $5 million, $10 million, $8 million, $12 million, and $10 million, respectively. What is the proper conclusion that we can draw from the calculated four-firm concentration ratio and HHI?
Select one:
a.
Both measures indicate that the industry is not perfectly competitive.
b.
The four-firm measure suggests the industry is highly competitive, while the HHI suggests the industry is relatively uncompetitive.
c.
Both measures indicate the industry is served by a monopoly
d.
The four-firm measure suggests the industry is relatively uncompetitive, while the HHI suggests the industry is highly competitive
Excess capacity and high advertising expenditures are encountered in
Select one:
a.
perfect competition
b.
non-profit competition
c.
monopoly
d.
monopolistic competition
In which markets are network effects likely?
Select one:
a.
Market for trendy products.
b.
Markets subject to increasing returns
c.
Hi-tech product markets
d.
All of the above
The reason that the Fisherman's Friend restaurant in Stonington, Maine had a monopoly on selling seafood dinners in that town is most likely due to
Select one:
a.
occupational licensing.
b.
no competitors apparently found the profit level attractive enough to enter the market.
c.
the restaurant owned all the fresh seafood in the state.
d.
a government-imposed barrier.
1) If the marginal product of labor is 2, the marginal product of capital is 4, the wage rate is $3, the rental price of capital is $6, and the price of output is $1.50, then the firm should
a. Increase output by hiring more labor, more capital, or both. b. Hold output constant, but hire more labor and less capital. c. Decrease output by reducing the quantity of capital, reducing the number of units of labor, or both. d. None of the above is correct.
D
The cost minimizing principle of the firm is that the firm will choose its two inputs upto the point where the following condition is satisfied:
MP of Labor / Wage = MP of Capital / Rental Price of Capital
If this ratio is not met, the firm needs to adjust its use of inputs by changing the level of their use. In the question above, MP of Labor/Wage=2/3=MP of Capital/Rental Price of Capital= 4/6 =2/3
Therefore, no adjustment is necessary for the level of inputs.
1) When adding another unit of labor leads to an increase in output that is smaller than the increases in output that resulted from adding previous units of labor, the firm is experiencing
a. diminishing labor.
b. diminishing output.
c. diminishing marginal product.
D negative marginal product
Which of the following explains why long-run average cost at first decreases as output increases?
a. diseconomies of scale
b. less-efficient use of inputs
c. fixed costs becoming spread out over more units of output
d. gains from specialization of inputs
1) In the long run a company that produces and sells dog beds incurs total costs of $1,200 when output is 30 beds and $1,600 when output is 40 beds. Firm A exhibits
a. diseconomies of scale because total cost is rising as output rises.
b. constant returns to scale because average total cost is constant as output rises.
c. diseconomies of scale cost is rising as output rises.
d. economies of scale because average total cost is falling as output rises.because average total
Which of the following is a reason why a firm would experience diseconomies of scale?
A) To finance an increase in the size of its plant a firm must borrow more money or sell more shares of stock.
B) As the size of the firm increases, it becomes more difficult to find markets where it doesn't already have operations.
C) As the size of the firm increases it becomes more difficult to coordinate the operations of its manufacturing plants.
D) As the size of the firm increases, it must operate in other countries where differences in language, customs and laws increase its average costs.
Figure 12-4 shows the cost and demand curves for a profit-maximizing firm in a perfectly competitive market.
Refer to Figure 12-4. If the market price is $30, the firm's profit-maximizing output level is
A) 0.
B) 130.
C) 180.
D) 240.
Which of the following would cause an increase in the equilibrium price and an increase in the equilibrium quantity of watermelons?
A) an increase in demand and an increase in supply
B) an increase in supply
C) an increase in supply and an increase in demand greater than the increase in supply
D) a decrease in demand and an increase in supply
Figure 4-3 shows the market for tiger shrimp. The market is initially in equilibrium at a price of $15 and a quantity of 80. Now suppose producers decide to cut output to 40 in order to raise the price to $18.
Refer to Figure 4-3. What is the value of the deadweight loss at the equilibrium price of $15?
A) $0
B) $40
C) $60
D) $100
9) Which of the following characteristics is common to monopolistic competition and perfect competition?
A) Firms produce identical products.
B) Entry barriers into the industry are low.
C) Each firm faces a downward -sloping demand curve.
D) Firms take market prices as given.
Figure 13-4 shows short-run cost and demand curves for a monopolistically competitive firm in the market for designer watches.
Refer to Figure 13-4. If the firm represented in the diagram is currently producing and selling Qa units, what is the price charged?
A) P0
B) P1
C) P2
D) P3
In a monopolistically competitive market, a successful new restaurant
A) can earn economic profits in the long run if it uses barriers to restrict entry by new restaurants.
B) will earn zero economic profit in the long run because of free entry, but competition will lead restaurants to offer different versions of the same product.
C) will face high entry barriers because of health and safety regulations to which all restaurants are subject.
D) must obtain a trademark to ensure that it will break even in the long run.
A member of a cartel like OPEC has an incentive to
A) argue for larger production quotas for each member of the cartel.
B) agree to a low cartel production level and then produce more than its quota.
C) abide by its individual production quota.
D) support equal production quotas for each member.
If firms are in Cournot equilibrium:
a) Each firm could increase profits by unilaterally increasing output.
b) Each firm could increase profits by unilaterally decreasing output.
c) Firms could increase profits by jointly increasing output.
d) Firms could increase profits by jointly reducing output.
An industry has a 4-firm concentration ratio of 85. We would call this industry a:
a. purely competitive industry.
b. monopoly.
c. oligopoly.
d. very competitive one.
15) Which of the following is an example of bundling?
A)
A shoe store doesn't sell shoes for just one foot; it sells shoes for the left foot and right foot packaged together.
B)
An automobile manufacturer includes Michelin tires on its new cars.
C)
A $95 ticket to the Magic Kingdom gives you entrance to the park and free access to all the rides.
D)
HP includes a toner cartridge with the purchase of a new laser printer.
15) Selling tickets in the orchestra region of the Metropolitan Opera for $55 and selling tickets in the upper balcony for $28 to listen to Luciano Pavoratti describes which type of price discrimination?
a. first-degree price discrimination
b. bundling
c. third-degree price discrimination
d. This is not necessarily price discrimination.
15) Mr. Leghorn lives next door to Mr. Fudd. During hunting season, Mr. Fudd likes to shoot rabbits in his backyard, which activity he values at $900. The noise from the shooting disturbs Mr. Leghorn and prevents him from taking afternoon naps, which he values at $500. If Mr. Leghorn has the legal right to stop Mr. Fudd from hunting, the socially optimal outcome is for:
Mr. Fudd to stop hunting.
Mr. Fudd to pay Mr. Leghorn between $500 and $900 to continue hunting.
Mr. Leghorn to pay $500 or less to get Mr. Fudd to stop hunting.
Mr. Fudd to pay Mr. Leghorn less than $500 to continue hunting.
18) Which of the following statements is (are) TRUE?
I.
Public goods tend to be underprovided.
II.
One person's consumption of a public good diminishes its use to another person.
III.
The marginal cost of providing a public good to another consumer is infinite.
A. I and III
B. II and III
c.I
d. I, II, and III
Which of the following is a source of market failure?
A) unforeseen circumstances which leads to the bankruptcy of many firms
B) a lack of government intervention in a market
C) incomplete property rights or inability to enforce property rights
D) an inequitable income distribution
Which of the following activities create a negative externality?
A) cleaning up the sidewalk on your block
B) graduating from college
C) repainting the house you live in to improve its appearance
D) keeping a junked car parked on your front lawn
) In the city of Alvarez, with the exception of guide dogs for blind people, all dogs are banned from its three public parks, regardless of whether the animals are leashed. Many residents are pushing for a change in policy. Canine lover Sara Northridge observed, "There are 800 or more homes here. There are three parks within 10 minutes, and almost everyone has a dog, but we can't take our dogs there." Others fear that allowing dogs would detract from their enjoyment of the parks. Tim Cortis retorted, "We're not preventing dog lovers from enjoying the park, just come without your dog." Which of the following is a way of dealing with the problem by assigning property rights to a particular group?
A) impose a two-tier entry fee system - a lower fee for non dog owners and a higher fee for dog owners
B) impose a fee only for dog-owners to use the public parks; non dog owners do not pay a fee
C) dedicate some parks, or at least one park, exclusively for the use of visitors bringing dogs to the park
D) allow dog owners to bring their dogs to the park but insist that they keep watch over their dogs
In economics, the term "free rider" refers to
A) a person who evades taxes.
B) a supervisor who delegates menial time-consuming activities to others.
C) one who volunteers her services.
D) one who waits for others to produce a good and then enjoys its benefits without paying for it.
The Coase Theorem works best in places that transaction costs for contracts among people is low. Often in the world of torts and externalities both parties can claim that they have rights to impose on others. One case is that of a railroad that is noisy and scares the cattle and the rancher whose cattle sometimes wander in front of moving trains causing damage to them and the train. What does the Coase say would happen?
a.
The train should have property right to be safe from wandering cattle, and the rancher should be liable for train damage of rampaging cattle.
b.
The rancher should have the property right to be safe from noisy trains, and the railroad should be liable for weight loss of cattle from train whistles and rumbling noise.
c.
If transaction costs are low, the efficient activity will occur, either the rancher or railroad installing fences to protect from rampaging cattle and/or sound insulation with trees, or if it is cheaper, fewer train trips per day. The cheapest or most efficient solution will happen, regardless of who is assigned the original property right.
Mr. Leghorn lives next door to Mr. Fudd. During hunting season, Mr. Fudd likes to shoot rabbits in his backyard, which activity he values at $900. The noise from the shooting disturbs Mr. Leghorn and prevents him from taking afternoon naps, which he values at $500. If Mr. Leghorn has the legal right to stop Mr. Fudd from hunting, the socially optimal outcome is for:
Select one:
a.
Mr. Fudd to stop hunting
b.
Mr. Leghorn to pay $500 or less to get Mr. Fudd to stop hunting
c.
Mr. Fudd to pay Mr. Leghorn between $500 and $900 to continue hunting
d.
Mr. Fudd to pay Mr. Leghorn less than $500 to continue hunting
Which of the following statements is (are) TRUE?
I.
Public goods tend to be underprovided.
II.
One person's consumption of a public good diminishes its use to another person.
III.
The marginal cost of providing a public good to another consumer is infinite.
a.
II and III
b.
I, II, and III
c.
I
d.
I and III
Which of the following is a source of market failure?
Select one:
a.
incomplete property rights or inability to enforce property rights
b.
a lack of government intervention in a market
c.
an inequitable income distribution
d.
unforeseen circumstances which leads to the bankruptcy of many firms
Which of the following activities create a negative externality?
Select one:
a.
keeping a junked car parked on your front lawn
b.
repainting the house you live in to improve its appearance
c.
graduating from college
d.
cleaning up the sidewalk on your block
In the city of Alvarez, with the exception of guide dogs for blind people, all dogs are banned from its three public parks, regardless of whether the animals are leashed. Many residents are pushing for a change in policy. Canine lover Sara Northridge observed, "There are 800 or more homes here. There are three parks within 10 minutes, and almost everyone has a dog, but we can't take our dogs there." Others fear that allowing dogs would detract from their enjoyment of the parks. Tim Cortis retorted, "We're not preventing dog lovers from enjoying the park, just come without your dog." Which of the following is a way of dealing with the problem by assigning property rights to a particular group?
Select one:
a.
dedicate some parks, or at least one park, exclusively for the use of visitors bringing dogs to the park
b.
impose a fee only for dog-owners to use the public parks; non dog owners do not pay a fee
c.
impose a two-tier entry fee system - a lower fee for non dog owners and a higher fee for dog owners
d.
allow dog owners to bring their dogs to the park but insist that they keep watch over their dogs
Which of the following criteria should be used to evaluate if government intervention in a market for the purpose of environmental protection is justified?
Select one:
a.
Is the damage to the environment from government intervention as small as possible?
b.
Is the intervention program economically efficient?
c.
Does the intervention program make the amount of economic surplus as large as possible?
d.
Does the intervention program reduce pollution to zero using the least costly method?
In economics, the term "free rider" refers to
Select one:
a.
one who volunteers her services.
b.
a supervisor who delegates menial time-consuming activities to others.
c.
a person who evades taxes.
d.
one who waits for others to produce a good and then enjoys its benefits without paying for it.
Which of the following public policies has (have) the effect of restricting competition?
Select one:
a.
licensing
b.
patents
c.
all of the above
d.
copyrights
The Coase Theorem works best in places that transaction costs for contracts among people is low. Often in the world of torts and externalities both parties can claim that they have rights to impose on others. One case is that of a railroad that is noisy and scares the cattle and the rancher whose cattle sometimes wander in front of moving trains causing damage to them and the train. What does the Coase say would happen?
Select one:
a.
The train should have property right to be safe from wandering cattle, and the rancher should be liable for train damage of rampaging cattle.
b.
The two party should fight with each other. The winner will be able to establish their right while the loser will can do nothing.
c.
The rancher should have the property right to be safe from noisy trains, and the railroad should be liable for weight loss of cattle from train whistles and rumbling noise.
d.
If transaction costs are low, the efficient activity will occur, either the rancher or railroad installing fences to protect from rampaging cattle and/or sound insulation with trees, or if it is cheaper, fewer train trips per day. The cheapest or most efficient solution will happen, regardless of who is assigned the original property right
(Figure 17.2) Suppose the external marginal cost is constant at $5 per unit. Price (demand) equals social marginal cost at output level:
Select one:
a.
4
b.
7
c.
6
d.
3
(Figure 17.3) Which of the following statements is (are) TRUE?
I.
The socially optimal quantity is 3.
II.
The deadweight loss associated with the perfectly competitive output level is $4.50.
III.
The external marginal cost is $6.
a.
I
b.
II and III
c.
I and II
d.
I, II, and III
Use the following to answer question 2:
(Table 17.1) According to the table, what is the socially optimal output level?
Select one:
a.
4
b.
3
c.
0
d.
7
Which of the following statements is (are) TRUE?
I.
In the face of a positive externality, a perfectly competitive market produces less than the socially optimal quantity of output.
II.
If vaccinations generate an external marginal benefit, their marginal social benefit will always exceed their private marginal benefit.
III.
In unregulated markets, the presence of negative externalities—but not positive externalities—causes deadweight losses.
Select one:
a.
III
b.
I, II, and III
c.
I and II
d.
I and III
(Figure 17.7) Which of the following statements is TRUE?
Select one:
a.
The efficient quantity of pollution occurs at or below 6,000 units.
b.
At 2,000 units of pollution, the marginal benefit is less than the marginal cost, so there should be less pollution.
c.
At 2,000 units of pollution, the marginal benefit exceeds the marginal cost, so there should be less pollution.
d.
At 2,000 units of pollution, the marginal benefit exceeds the marginal cost, so there should be more pollution
Which of the following statements is (are) TRUE?
I.
Public goods tend to be underprovided.
II.
One person's consumption of a public good diminishes its use to another person.
III.
The marginal cost of providing a public good to another consumer is infinite.
Select one:
a.
I, II, and III
b.
I and III
c.
I
d.
II and III
Many livestock farmers give antibiotics to their herds. The antibiotics help breed drug-resistant bacteria, making them less effective. This harms future users of antibiotics, who will be using less-effective drugs.
a. What is the nature of the market failure?
b. Explain whether livestock farmers are more likely to overuse or underuse antibiotics.
a. The negative externality arising from the use of antibiotics causes market failure. The farmers are creating an external cost by helping the drug-resistant bacteria to evolve.
b. Farmers will overuse antibiotics in the case of negative externalities. Farmers don't think about the external marginal cost of using antibiotics because they don't pay those costs.
(Table 17.4) Answer the following questions.
a.
How many times will a self-interested person cut her lawn during the month?
b.
What is the socially optimal number of times to mow the lawn?
c.
How might lawn cutting generate positive externalities?
d.
Besides carrying external marginal costs, suppose that lawn cutting also generates an external marginal benefit of $10. What now is the socially optimal number of times that a lawn should be cut?
a. The person will choose to cut the lawn five times, where the private marginal benefit equals the private marginal cost, completely ignoring the external marginal costs.
b. The socially optimal number of lawn cuttings is four, where the private marginal benefit equals the social marginal cost. The social marginal cost is the private marginal cost plus the external marginal cost.
c. A neighbor's lawn that is frequently cut is aesthetically pleasing and may increase your property value.
d. Given that the external marginal benefit of $10 cancels out the external marginal cost of $10, the socially optimal number of lawn cuttings is five.
For the following situations, use the Coase theorem to explain how a socially efficient solution may arise.
a.
An adult bookstore, with a legal right to operate, causes psychic discomfort of $250,000 for a nearby church. The adult bookstore owner values his business at $200,000.
b.
A church has purchased a building with storefronts leased to several businesses. The church must decide whether to allow the businesses to renew their leases. One of the businesses is an adult bookstore whose owner values the location at $450,000. The continued operation of the adult bookstore would generate $250,000 of psychic discomfort to the church.
Mobile phone portability allows consumers to retain their phone number if they change to a different phone network, which will tend to:
Select one:
a.
reduce market power in the phone industry.
b.
discourage product differentiation and increase switching costs
c.
increase barriers to entry in the phone industry.
d.
encourage the formation of natural monopolies.
Which of the following are sources of market power?
I.
government-issued patents and copyrights
II.
a Minnesota law requiring all new funeral homes to have an embalming room, which costs upward of $30,000, whether or not it is functional or will be used
III.
a Portland, Oregon, law that makes it a crime for limousine companies to charge less than $50 per ride
Select one:
a.
I
b.
II
c.
III
d.
I, II, and III
Antitrust laws:
Select one:
a.
cannot be used to prevent the merger of two firms.
b.
restrict firms from engaging in behaviors that make markets less competitive.
c.
encourage firms to work together on setting prices, market share, and output levels.
d.
ensure that firms with market power are not penalized for colluding.
Government encouragement of monopoly:
Select one:
a.
usually leads to lower prices and higher consumer surplus.
b.
results in the regulated firm producing beyond the competitive output level.
c.
through patents causes higher consumer prices but encourages firms to innovate and bring new products to the market.
d.
reduces the market power of regulated firms.
Which of the following is (are) examples of moral hazard?
I.
An unemployed worker reduced his effort to find a job after he became eligible for unemployment insurance.
II.
Banks make exceptionally risky investments because they expect government bailouts if their investments fail.
III.
After a university made the morning-after pill available on campus, more students became sexually promiscuous.
Select one:
a.
I
b.
I and II
c.
I, II, and III
d.
II
Which of the following practices mitigates moral hazard?
I.
A health insurance company's policy requires a $500 deductible and a 20% coinsurance rate.
II.
Progressive Insurance offers drivers a discount for using a black box that records miles driven and the number of sudden stops.
III.
Homeowner insurance does not cover claims arising from backyard trampolines.
Select one:
a.
III
b.
II and III
c.
I
d.
I, II, and III
Explain how moral hazard could arise in the following situations.
a.
The federal government offers flood insurance for homes.
b.
An NBA player signs a long-term guaranteed contract.
c.
The government lengthens the time to collect unemployment benefits from 26 to 99 weeks.
d.
In an area where the roads are frequently snow-covered and icy, a person trades in her rear-wheel drive sports car for a four-wheel drive SUV.
A. People will be tempted to build homes closer to rivers than they normally would so that when it floods, it might destroy their homes and they can claim insurance from the government.
B. The player will not work as hard because he is guaranteed to be paid no matter what his performance looks like.
C. People will be less willing to find employment quickly because they can collect unemployment benefits for longer.
D.When the person drives suv then the speed of suv will be more on icy roads and so the chances of accidents will increase.
The antitrust laws regulate all of the following business decisions except ____.
Select one:
a.
monopolistic practices
b.
wage levels
c.
mergers
d.
collusion
Which of the following best describes the free-rider problem?
Select one:
a.
People can sometimes enjoy common goods without contributing to them
b.
Everyone would be better off if everyone refrained from pursuing self-interest
c.
A person who receives welfare from the government thereby loses the incentive to work
d.
Industrious people always attract others who try to capitalize on their success
When the free-rider problem occurs in a market for a good, what is true of the quantity of the good supplied relative to the efficient quantity of the good?
Select one:
a.
When the free-rider problem occurs, the good can be provided completely free of charge.
b.
The good is typically efficiently supplied in a market where the free-rider problem occurs.
c.
The good is typically oversupplied in a market where the free-rider problem occurs
d.
The good is typically under supplied in a market where the free-rider problem occurs
Which of the following statements is true if a government decides that it must provide a public good, other things constant?
Select one:
a.
Governments should minimize average total cost when providing a public good.
b.
Governments should supply an unlimited amount of public goods free of charge.
c.
Governments should provide the most profitable public goods
d.
Governments should supply the efficient quantity where the marginal cost is equal to the marginal social benefit.
How could the expansion of property rights be used to address a problem with public goods or common resources?
Select one:
a.
Property rights can never be used to address public good or common resource problems.
b.
Property rights will place the public good or common resource under the direct control of the government.
c.
Property rights could provide an incentive for individuals to better manage the public goods.
d.
Property rights will make the good non-rival and non-excludable
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