question
When an isocost line is just tangent to an isoquant, we know that:
answer
output is being produced at minimum cost.
question
If two different fuel sources (e.g., coal and natural gas) are perfect substitutes in the long-run production of energy. How will a profit maximizing firm choose between these two inputs? :
answer
The firm will only use the input with lower cost
question
Suppose that the price of labor (PL) is $10 and the price of capital (PK) is $20. What is the equation of the isocost line corresponding to a total cost of $100? :
answer
100 = 10L + 20K
question
Which of the following statements identifies a key difference between condominiums and cooperative housing? :
answer
Co-op owners have more control over who can move into their building.
question
Which of the following cases are examples of industries that have potentially increasing costs due to scarce inputs? (Choices: petroleum factory, legal services, medical care)
answer
all of these
question
Which of following is a key assumption of a perfectly competitive market?
answer
Each seller has a very small share of the market
question
Which of following is an example of a homogeneous product? (choices, copper, winter parka, gasoline, personal comps)
answer
Gas and copper
question
When the price faced by a competitive firm was $5, the firm produced nothing in the short run. However, when the price rose to $10, the firm produced 100 tons of output. From this we can infer that:
answer
the minimum value of the firm's average variable cost lies between $5 and $10.
question
You work as a marketing analyst for a pharmaceutical firm, and you are trying to gather information about the marginal cost of production for a competing firm. You know that they have a patent on a popular medication that sells for $20 per dose, and you believe the elasticity of demand for this product is roughly -4. Assuming the competing firm acts as a profit-maximizing monopolist, what is the competing firm's approximate marginal cost of production? :
answer
remember p=mc/1+(1/Ed) ..... $15 per dose
question
Which of the following is NOT true regarding monopoly? :
answer
Monopolist can charge as high a price as it likes.
question
Which of the following is NOT true for monopoly? (choices- The profit maximizing output is the one at which marginal revenue and marginal cost are equal, The profit maximizing output is the one at which the difference between total revenue and total cost is largest, Average revenue equals price, The monopolist's demand curve is the same as the market demand curve, At the profit maximizing output, price equals marginal cost.)
answer
ANS- At the profit maximizing output, price equals marginal cost.
question
Which of the following is NOT associated with a high degree of monopoly power?
answer
Significant price competition among firms in the market
question
When the demand curve is downward sloping, marginal revenue is
answer
less than price
question
The supply curve for a competitive firm is:
answer
its MC curve above the minimum point of the AVC curve.
question
When a drug company develops a new drug it is granted a ________ making it illegal for other firms to enter the market until the ________ expires.
answer
patent, patent
question
Suppose that the competitive market for rice in Japan was suddenly monopolized. The effect of such a change would be:
answer
to decrease the consumer surplus of Japanese rice consumers
question
Suppose your firm develops a new pharmaceutical product that may be used to reduce blood cholesterol levels, so the firm is the monopoly seller of this drug. If the elasticity of demand for this new product is -4, what markup should your firm use to set the profit-maximizing price for the product?
answer
The price-cost markup is 25% of the price
1/-(Ed) =
1/-(Ed) =
question
The Lerner index measures
answer
the amount of monopoly power a firm chooses to exercises when maximizing profits.
question
The ________ elastic a firm's demand curve, the greater its ________. :
answer
less; monopoly power
question
The cartel of oil-producing nations (OPEC) once controlled about 80% of the world petroleum market, but OPEC's market share has declined to about half of its former level. This outcome is a good example of how firms may have:
answer
relatively high short-run monopoly power that declines in the long run.
question
The firms in a market have decided not to compete with one another and have agreed to limit output and raise price.
answer
This practice is known as collusion and is illegal in the United States.
question
The marginal cost of a monopolist is constant and is $10. The demand curve and marginal revenue curves are given as follows: Dem : Q= 100 - p MR: 100-2Q The deadweight loss from monopoly power is ________.
answer
ans: $1012.50
question
The monopolist that maximizes profit:
answer
imposes a cost on society because the selling price is above marginal cost.
question
The more elastic the demand facing a firm:
answer
the lower the value of the Lerner index
question
To find the profit maximizing level of output, a firm finds the output level where: (choices :price equals marginal cost, marginal revenue and average total cost, price equals marginal revenue)
answer
ans- none of these
question
You produce stereo components for sale in two markets, foreign and domestic, and the two groups of consumers cannot trade with one another. If your firm practices third-degree price discrimination to maximize profits, the marginal revenue : (coices: in the foreign market will equal the marginal cost, in the domestic market will equal the marginal cost, in the domestic market will equal the marginal revenue in the domestic market.)
answer
ANS- All of these
question
McDonald's restaurant located near the high school offered a Tuesday special for high school students. If high school students showed their student ID cards, they would be given 50 cents off any medium combination meal. This practice is an example of:
answer
price descrimination
question
Second-degree price discrimination is the practice of charging
answer
different prices for different quantity blocks of the same good or service.
question
Some grocery stores are now offering customers coupons which entitle them to a discount on certain items on their next visit when they go through the check-out line. This practice is an example of:
answer
third-degree price discrimination
question
Suppose a firm has market power and faces a downward sloping demand curve for its product, and its marginal cost curve is upward sloping. If the firm reduces its price, then:
answer
consumer surplus increases, producer surplus may increase or decrease.
question
What happens to the market outcome if cartel members cheat on the collusive agreement? :
answer
Price declines and quantity increases toward the perfectly competitive equilibrium
question
What happens to the profit-maximizing cartel price and quantity if the marginal cost of production declines? :
answer
If demand is downward sloping, the optimal cartel price should decline and the market quantity should increase.
question
What is one difference between the Cournot and Stackelberg models?
answer
In Cournot, both firms make output decisions simultaneously, and in Stackelberg, one firm sets its output level first.
question
Which of the following can be thought of as a barrier to entry? (choices: scale economies, patents, strategic actions by incumbent firms)
answer
all of these
question
Which of the following is NOT conducive to the successful operation of a cartel?
answer
The supply of non-cartel members is very price elastic.
remember for cartels to work 2 conditions must hold, 1- must hold almost all worlds supply and if not supply of non cartel must not be price elastic
2- total demand must not be price elastic
remember for cartels to work 2 conditions must hold, 1- must hold almost all worlds supply and if not supply of non cartel must not be price elastic
2- total demand must not be price elastic
question
Which of the following is true for both perfect and monopolistic competition?:
answer
There is freedom of entry and exit in the long run.
question
Which of the following is true in long-run equilibrium for a firm in a monopolistic competitive industry? :
answer
The demand curve is tangent to average cost curve
question
Which of the following is true of the output level produced by a firm in long-run equilibrium in a monopolistically competitive industry? :
answer
It does not produce at minimum average cost, and average cost is decreasing.
question
Which of the following is true in the Stackelberg model? :
answer
The first firm produces more than its rival.
question
Which oligopoly model(s) have the same results as the competitive model? :
answer
Bertrand Model
question
Which statement most nearly describes a Nash equilibrium applied to price competition? :
answer
Given the prices chosen by its competitors, no firm has an incentive to change their prices from the equilibrium level.
question
Why are many oligopolistic market outcomes conveniently described by a Prisoners' Dilemma? :
answer
The firms could do better than the Nash equilibrium if they collude.
question
Why can't two firms in a Prisoners' Dilemma enforce a better outcome that has higher payoffs? :
answer
Under an outcome with higher payoffs, the outcome is not a Nash equilibrium and each firm has an incentive to change their actions.
question
Why don't some firms in monopolistic competition earn losses in the long run? :
answer
Free exit implies that any unprofitable firms leave the market in the long run.
question
Why does cooperative behavior break down in games with finite endpoints? :
answer
Each player has an incentive to deviate from a cooperative strategy during the last period.
question
Repetition of a game :
answer
can result in behavior that is different from what it would be if the game were played only once.
question
You want to add a new room on your house, but you are not familiar with the local building contractors and are not sure who to consider for the job. If you ask your friends for referrals, you are using their past experience as a way to evaluate the ________ of the builders. :
answer
reputation
question
Why do workers tend to choose low effort levels when they are compensated with fixed wage payments? :
answer
The net compensation after deducting the cost of effort is always higher when the worker provides low effort.
question
Which of the following would be LEAST likely to contribute to a moral hazard problem among drivers? :
answer
Modify all cars to remove the driver's seatbelt and the steering wheel air bag.
question
Which of the following represent examples of adverse selection? :
answer
Unhealthy people are more likely to want health insurance and Careless drivers purchasing extra auto insurance only
question
Which of the following job market signals are less costly for high-quality workers to send than low-quality workers? :
answer
Spending long hours at the office
question
Which of the following is TRUE about producers' willingness to offer warranties on products? :
answer
Producers are more likely to offer warranties on high-quality goods, because the expected cost of repairs is lower for those goods.
question
When sellers have more information about products than buyers do, we would expect :
answer
low-quality goods to drive high-quality goods out of the market.
question
When states make car insurance mandatory for all drivers, it :
answer
may lower rates for all drivers to the extent that it keeps low-risk drivers in the pool.
question
When asymmetric information problems drive high quality products from a market, we refer to this situation as :
answer
adverse selection and a lemons problem are correct
question
a market with few entry barriers and with many firms that sell differentiated products is
answer
monopolistically Competetive
question
a monopolistically competitive from in the long run
answer
will make zero profit
question
a situation in which each firm selects its best action, given what its rivals are doing is called a
answer
Nash Equilibrium
question
confer which of the following are there assumed to be barriers to entry, monopoly, monopolistic comp. , perfect competition, monopolistic and monopoly only, or all of these
answer
monopoly
question
in a cornet duopoly, we find that firm 1 reaction function is Q1=50 - .5Q2, firm 2 reaction function is Q2 = 75 - 0.75Q1, what is the Cornet equilibrium outcome in this market?
answer
Q1= 20 and Q2=60
question
in the _____, one firm sets its output first, and then the second firm after observing the first firm's output makes its design, (choices- cornet model, model of mono comp. , Bertrand Model, Kinked Demand Model, none of these
answer
none of these, that model is the Stackelberg model
question
in which oligopoly model do firms earn Zero Profits
answer
Bertrand Model
question
is there a first-mover advantage in the Bertrand duopoly model with homogeneous products?
answer
No, the second mover would be able to set a slightly lower price and capture the full market share
question
the market structure in which there is interdependence among firms is
answer
oligopoly
question
A firm sells and identical product to two groups of consumers, A and B. The firm has decided that 3rd degree price discrimination is feasible and wishes to set prices that maximize profits. which of the following best describes the price and output strategy that will maximize profits?
answer
MRa=MRb=MC
question
a firm setting a two-part tariff with only one customer should set the entry fee equal to
answer
consumer surplus
question
A form of implicit collusion in which one firm consistently follows the actions of others is:
answer
parallel conduct
question
a local restaurant offers "early bird" price discounts for dinners ordered from 4:30 to 6:30. this is an example of
answer
peak load pricing
question
A monopolist has set her level of output to maximize profit. the firm's marginal revenue is $20, and the price elasticity of demand is -2.0 . the firms profit maximizing price is approximately
answer
$40
question
A national chain of bookstores has initiated a frequent buyer program. if you buy a frequent buyer card for $10, you are entitled to a 10% discount on all purchases for 1 year. This practice is an example of
answer
two-part tariff
b/c they are paying and "entry fee" then have to pay for items as well
b/c they are paying and "entry fee" then have to pay for items as well
question
a tennis pro charges $15 per hour for tennis lessons for children and #30 per hour for adults. the tennis pro is practicing
answer
3rd degree price descrimination
question
as the manager of a firm you calculate the marginal revenue is $152 and marginal cost is $100, you should....
answer
reduce output beyond the level where marginal revenue equal zero
question
assume that a firm's marginal cost is $10 and the elasticity of demand is -2.0 . we can conclude that the firm's profit maximizing price is approximately
answer
$20
question
compared to the equilibrium price and the quantity sold in a competitive market, a monopolist will charge a _______ price and sell a __________ quantity
answer
higher; smaller
question
A perfectly competitive hardware manufacturer has total revenue of $85 million, total variable costs of $45 million, and fixed costs of $10 million. What is the firm's producer surplus?
answer
$40 million
question
A decreasing-cost industry has a downward-sloping
answer
long-run industry supply curve
question
An association of businesses that are jointly owned and operated by members for mutual benefit is a
answer
cooperative.
question
An improvement in technology would result in
answer
downward shifts of MC and increases in output.
question
An increasing-cost industry is so named because of the positive slope of which curve?
answer
The industry's long-run supply curve
question
At the profit-maximizing level of output, marginal profit
answer
is zero
question
Because of the relationship between a perfectly competitive firm's demand curve and its marginal revenue curve, the profit maximization condition for the firm can be written as
answer
P = MC
question
Consider the following diagram where a perfectly competitive firm faces a price of $40.
answer
maximized and positive.
question
Economic rents are typically counted as:
answer
economic costs but not accounting costs.
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