Econ 102 Final Exam
Suppose the demand for a product is given by P = 60 -2Q. Also, the supply is given by P = 10 + 3Q. If a $10 per-unit excise tax is levied on the buyers of a good, the deadweight loss created by this tax will be
$10 (The deadweight loss is the difference between total surplus without the tax and total surplus with the tax.)
Refer to the figure above. The marginal damage cost associated with the efficient level of air travel is ________.
$100
Suppose the demand for a product is given by P = 30 - 3Q. Also, the supply is given by P = 10 + Q. If a $4 per-unit excise tax is levied on the buyers of a good, after the tax, the total amount of tax paid by the consumers is
$12 (The total tax paid by the consumer is equal to (Pt + t -P*. times Qt.)
Suppose the demand for a product is given by P = 50 -Q. Also, the supply is given by P = 10 + 3Q. If a $12 per-unit excise tax is levied on the buyers of a good, producer surplus is equal to
$73.5 (Producer surplus is the area under the price that producers receive, and above the supply curve.)
Suppose there are 7 firms in an industry and they each have total sales given in the table below. The 4-firm concentration ratio for this industry is Firm Total Sales 1 $10 million 2 $8 million 3 $6 million 4 $4 million 5 $2 million 6 $1 million 7 $1 million
.875
Suppose an industry has 2 firms each with 30% of sales, and 8 firms each with 5% of sales. The HHI for this industry is
2000
Mergers that substantially reduce competition are outlawed by the
Clayton Act
According to the Coase theorem, bargaining will bring the contending parties to the correct solution only if the rights are initially assigned to the party causing the externality.
False
An efficient outcome can always be reached by requiring the individual who produces the externality to fully compensate individuals for any damage inflicted.
False
Does Player A have a dominant strategy? If so, what is it?
There is no dominant strategy for Player A
An industry with a few dominant firms that are strategically interdependent is called
an oligopoly
Suppose the demand for a product is given by P = 30 - 3Q. Also, the supply is given by P = 10 + Q. If a $4 per-unit excise tax is levied on the buyers of a good, government revenue is equal to
$16 (Government revenue equals the amount of the tax times the number of units sold after the tax.)
Refer to the figure above. Suppose the government assigns property rights to the airlines. No negotiations occur between the parties. The marginal damage cost associated with the resulting level of air travel is ________.
$120
Suppose the demand for a product is given by P = 30 - 3Q. Also, the supply is given by P = 10 + Q. If a $4 per-unit excise tax is levied on the buyers of a good, then after the tax sellers will receive _________ for each unit of the good.
$14 (The demand curve will shift down by an amount exactly equal to the tax. This allows you to find the equation for the new demand curve. The sellers will receive a price equal to the new equilibrium price.)
Which of the following industries is most similar to monopolistic competition?
The pizza industry in State College (The pizza industry in State College has many firms that produce differentiated products. It is also easy to enter and exit the industry.)
If firms C and D decide to merge. This merger would be ________ by the FTC because _______.
challenged, the merger would increase HHI by more than 100
The ________ is the share of industry output in sales or employment accounted for by the top firms in an industry.
concentration ratio
When a paper manufacturer emits pollution levels above the socially efficient level, we can conclude that the manufacturer
does not pay the entire cost of producing the paper. (When a negative production externality exists, the firm does not bear the full social cost of production, the firm only pays the private cost of production.)
If Neat and Trim maximizes profits, it ________ of $80.
earns a profit
Persuasive advertising is usually associated with
experience goods (Persuasive advertising is designed to change a consumer's preferences..)
In a monopolistically competitive industry, in long run equilibrium
firms produce at greater than minimum average total cost and make zero economic profit. (In long run equilibrium, firms make zero economic profit because of free entry and exit. However they do not produce at minimum average total cost.)
Property rights are protected by
injunctions and liability rules.
The restaurant industry is an example of a(n).
monopolistically competitive industry. (Definitions of the different industry structures)
The four largest firms account for approximately 90% of U.S. beer sales. The U.S. beer industry would be best classified as a(n)
oligopoly.
One of the assumptions of the perfectly competitive model is
perfect information (The perfectly competitive model assumes that there is perfect information for all market participants.)
Vaccinations convey ________ to third parties.
positive externalities
The picture depicts a graph with P on the y-axis and Q on the x-aixs. Three lines are drawn: MB, MSC, MPC. MB is drawn like a Demand curve. MSC and MPC are upward sloping lines originating from the y-axis at different points, but almost at the same slope. MPC sits below MSC. They intersect MB at two different points. MSC at x=Q1 and y=P1, and MPC at x=Q2 y =P2. Q1 sits to the left of Q2. P1 sits above P2. Two other points are marked on MB. A point above and to the right of MSC (P0, Q0) and below and to the right of MPC. Consider the graph above. If this market is currently producing an output level of Q2, total economic surplus would increase if
production decreased to Q1 (The optimal production point occurs where MSC=MB, this is where total economic surplus is maximized.)
In the Cournot Model of Oligopoly,
quantity is higher than the monopoly quantity, but lower than the perfectly competitive quantity (Quantity is between the monopoly price and the perfectly competitive quantity.)
Suppose the demand for a product is given by P = 100 - 2Q. Also, the supply is given by P = 20 + 6Q. If an $8 per-unit excise tax is levied on the buyers of a good, government revenue is equal to
$72 (Government revenue equals the amount of the tax times the number of units sold after the tax.)
Suppose the demand for a product is given by P = 40 - 4Q. Also, the supply is given by P = 10 + Q. If a $10 per-unit excise tax is levied on the buyers of a good, after the tax, the total amount of tax paid by the producers is
$8 (The total tax paid by the producer is equal to (P* - Pt. times Qt.)
Suppose there are 8 firms in an industry and they each have total sales given in the table below. The 4-firm concentration ratio for this industry is Firm Total Sales 1 $30 million 2 $28 million 3 $26 million 4 $15 million 5 $4million 6 $3 million 7 $2 million 8 $2 million
.90 (The 4 firm concentration ratio is the sum of the total sales of the 4 largest firms divided by the total sales in the industry)
Suppose the demand for a product is given by P = 30 - 2Q. Also, the supply is given by P = 5 + 3Q. If a $5 per-unit excise tax is levied on the buyers of a good, after the tax, the total quantity of the good sold is
4 (Qt can be found by the intersection of the new demand curve and the original supply curve.)
Suppose the demand for a product is given by P = 40 - 4Q. Also, the supply is given by P = 10 + Q. If a $10 per-unit excise tax is levied on the buyers of a good, what proportion of the tax will be paid by the buyers?
80% (The proportion of the tax paid by buyers depends on the relative price elasticities of supply and demand.)
Suppose an industry has 8 firms each with 9% of sales, and 4 firms each with 7% of sales. The HHI for this industry is
844 (The HHI is calculated as the sum of the squares of the percentage of sales by each firm in the industry.)
A monopolistically competitive firm faces
A downward sloping demand curve. (Because of product differentiation, if a monopolistically competitive firm raises its price, it will lose some, but not all of its customers.)
Suppose the demand for a product is given by P = 50 -Q. Also, the supply is given by P = 10 + 3Q. If a $12 per-unit excise tax is levied on the buyers of a good, the deadweight loss created by this tax will be
None of these (The deadweight loss is the difference between total surplus without the tax and total surplus with the tax.)
Suppose the demand for a product is given by P = 50 -Q. Also, the supply is given by P = 10 + 3Q. If a $12 per-unit excise tax is levied on the buyers of a good, what proportion of the tax will be paid by the buyers?
None of these (The proportion of the tax paid by buyers depends on the relative price elasticities of supply and demand.)
The picture depicts a graph with $ on the y-axis and Q on the x-axis. Four curves are drawn: D, MR, MC, ATC. D and MR start from the same place on the y-axis, but MR slopes downward at twice the rate of D. This leads D to meet the x-axis at 50 and MR meets at 25. MC curve starts low on the y-axis , sharply decreasing at first. It then quickly levels out and begins to increase at a steady rate passing through the ATC. ATC is a bowl shape that is declining at its start, but at a decreasing rate. It lvels out where it meets MC and increases at a increasing rate until it ends. Several intersections are marked out. The inter section of MR and MC sits where x=20 and y=10. A line is drawn up from here through ATC (at y=20) until it meets the D curve where x=20 and y=23. ATC meets D where x=25 and y=18. MC meets D where x=30 and MC meets ATC where x=32 and y=18. Refer to the figure above. If this firm is monopolistically competitive, in order to maximize profit, it should charge a price of
$23 (The firm should produce where MR = MC, and charge as much as the demand curve will allow at that quantity.)
Suppose the demand for a product is given by P = 30 - 3Q. Also, the supply is given by P = 10 + Q. If a $4 per-unit excise tax is levied on the buyers of a good, consumer surplus is equal to
$24 (Consumer surplus is the area under the demand curve and above the price that the consumer pays.)
Suppose the demand for a product is given by P = 30 - 2Q. Also, the supply is given by P = 5 + 3Q. If a $5 per-unit excise tax is levied on the buyers of a good, after the tax, producer surplus is equal to
$24 (Producer surplus is the area under the price that producers receive, and above the supply curve.)
Suppose the demand for a product is given by P = 40 - 4Q. Also, the supply is given by P = 10 + Q. If a $10 per-unit excise tax is levied on the buyers of a good, then after the tax buyers will pay _________ for each unit of the good.
$24 (The demand curve will shift down by an amount exactly equal to the tax. This allows you to find the equation for the new demand curve. The buyers will pay a price equal to the new equilibrium price plus the tax.)
Suppose the demand for a product is given by P = 40 - 4Q. Also, the supply is given by P = 10 + Q. If a $10 per-unit excise tax is levied on the buyers of a good, consumer surplus is equal to
$32 (Consumer surplus is the area under the demand curve and above the price that the consumer pays.)
Suppose the demand for a product is given by P = 60 -2Q. Also, the supply is given by P = 10 + 3Q. If a $10 per-unit excise tax is levied on the buyers of a good, after the tax, the total amount of tax paid by the consumers is
$32 (The total tax paid by the consumer is equal to (Pt + t -P*. times Qt.)
Suppose the demand for a product is given by P = 60 -2Q. Also, the supply is given by P = 10 + 3Q. If a $10 per-unit excise tax is levied on the buyers of a good, after the tax, the total amount of tax paid by the producers is
$48 (The total tax paid by the producer is equal to (P* - Pt. times Qt.)
For the next seven questions, suppose a per-unit excise tax of $50 per Derp is levied on the consumers. What price will sellers receive after the tax is levied? What price will consumers pay after the tax is levied? What percent of the tax will be paid by the consumers of Derp? (give an answer between 0 and 100) What percent of the tax will be paid by the suppliers of Derp? (give an answer between 0 and 100) How many Derps will be sold after the tax is imposed? How much consumer surplus do consumers get after the tax? What is the deadweight loss created by this tax?
Answer 1: 450 Answer 2: 300 Answer 3: 3 Answer 4: 3 Answer 5: 425 Answer 6: 475 Answer 7: 50 Answer 8: 50 Answer 9: 250 Answer 10: 15625 Answer 11: 1250
Suppose that two players are playing the following game. Player 1 can choose either Top or Bottom, and Player 2 can choose either Left or Right. The payoffs are given in the following table: where the number on the left is the payoff to Player A, and the number on the right is the payoff to Player B. If each player plays their maximin strategy, the outcome of the game will be Player B Player A Left Right Top 8 4 0 5 Bottom 3 3 1 2
Both/Left (definition of maximin strategy)
Suppose that two players are playing the following game. Player 1 can choose either Top or Bottom, and Player 2 can choose either Left or Right. The payoffs are given in the following table: where the number on the left is the payoff to Player A, and the number on the right is the payoff to Player B. The Nash Equilibrium in pure strategies in this game is Player B Player A Left Right Top 4 20 2 1 Bottom 5 1 3 2
Bottom/Right (Definition of Nash Equilibrium.)
Suppose that two players are playing the following game. Player 1 can choose either Top or Bottom, and Player 2 can choose either Left or Right. The payoffs are given in the following table: where the number on the left is the payoff to Player A, and the number on the right is the payoff to Player B. If each player plays their maximin strategy, the outcome of the game will be Player B Player A Left Right Top 1 1 7 6 Bottom 3 5 3 2
Bottom/Right (Definition of maximin strategy.)
Suppose the demand for a product is given by P = 40 - 4Q. Also, the supply is given by P = 10 + Q. If a $10 per-unit excise tax is levied on the buyers of a good, after the tax, the total quantity of the good sold is
None of these (The Qt can be found by the intersection of the new demand curve and the original supply curve.)
Does Player B have a dominant strategy? If so, what is it?
There is no dominant strategy for Player B
What is the maximin strategy for Player A?
Top
Refer to the graph again. The profit-maximizing price of haircuts by Neat and Trim is
$16
Suppose the demand for a product is given by P = 60 -2Q. Also, the supply is given by P = 10 + 3Q. If a $10 per-unit excise tax is levied on the buyers of a good, then after the tax sellers will receive _________ for each unit of the good.
$40 (The demand curve will shift down by an amount exactly equal to the tax. This allows you to find the equation for the new demand curve. The sellers will receive a price equal to the new equilibrium price.)
The picture depicts a graph with $ on the y-axis and Q on the x-axis. Four curves are drawn: D, MR, MC, ATC. D and MR start from the same place on the y-axis, but MR slopes downward at twice the rate of D. This leads D to meet the x-axis at 50 and MR meets at 25. MC curve starts low on the y-axis , sharply decreasing at first. It then quickly levels out and begins to increase at a steady rate passing through the ATC. ATC is a bowl shape that is declining at its start, but at a decreasing rate. It lvels out where it meets MC and increases at a increasing rate until it ends. Several intersections are marked out. The inter section of MR and MC sits where x=20 and y=10. A line is drawn up from here through ATC (at y=20) until it meets the D curve where x=20 and y=23. ATC meets D where x=25 and y=18. MC meets D where x=30 and MC meets ATC where x=32 and y=18. Refer to the figure above. If this firm is monopolistically competitive and is maximizing profit, its total cost is
$400 (TC = ATC*Q)
Refer to the figure above. Suppose the government assigns property rights to the nearby residents affected by the airlines. No negotiations occur between the parties. The resulting level of air travel is ________.
0 units
Refer to the figure above. Suppose the government assigns property rights to the airlines. No negotiations occur between the parties. The resulting level of air travel is ________.
120 units
If firms C and D decide to merge, what would the new HHI be? (don't assume that firms F and G have merged from the previous question). The new HHI after firms C and D merge is
1330
Suppose that a monopolistically competitive firm must build a production facility in order to produce a product. The fixed cost of this facility is FC = $24. Also, the firm has constant marginal cost, MC = $3. Demand for the product that the firm produces is given by P = 27-3Q. Calculate the missing values in the following table below. Missing values are denoted by a number inside a bracket [X]. Some numbers have been filled in for you. Place your answers in the corresponding numbered fields below the table. Hint: All answers that you fill in will be integers (no decimals). Be sure to just type the numbers and do not type in dollar signs. If you enter negative numbers, be sure to include a minus sign (-) to the left of the number.
1. 24 2. 21 3. 18 4. 15 5. 12 6. 9 7. 6 8. 3 9. 0 10. 27 11. 30 12. 33 13. 36 14. 39 15. 42 16. 45 17. 48 18. 51 19. 27 20. 15 21. 11 22. 9 23. 7 24. 6 25. 24 26. 42 27. 54 28. 60 29. 60 30. 54 31. 42 32. 24 33. 0 34. -3 35. 12 36. 21 37. 24 38. 21 39. 12 40. -3 41. -24 42. -51
Refer to the figure above. Suppose the government assigns property rights to the airlines, then the airlines and the residents engage in negotiations. The resulting efficient level of air travel is ________.
100 units
The table shows an industry with 12 firms and the market share (percentage) owned by each firm. Enter a number only. Do NOT put in dollar signs, commas, decimals or units. Firm Percentage of total sales A 16 B 14 C 12 D 12 E 10 F 8 G 6 H 6 I 5 J 4 K 4 L 3 Calculate the HHI for this industry.
1042
If firms F and G decide to merge, what would the new HHI be?
1138
Enter just a number to answer this problem. What price should this firm charge if it wants to maximize its profit?
15
Quantity of the public good Willingness to pay of person 1 Willingness to pay of person 2 1 100 55 2 90 50 3 80 45 4 70 40 5 60 35 Consider the table above. If you use this information to construct the market demand curve for this public good, a point on the market demand would be
2, $140 (The market demand for a public good is the vertical summation of all of the individual demands for that good.)
Refer to the graph above, which represents the demand and cost curves for Neat and Trim Barber Shop, a monopolistically competitive firm. The profit-maximizing number of haircuts for the Barber Shop is
20
Refer to the graph. From society's point of view, the efficient output level is ______ haircuts.
25
Quantity of the public good Willingness to pay of person 1 Willingness to pay of person 2 1 100 55 2 90 50 3 85 45 4 70 40 5 60 35 Consider the table above. If the cost of one unit of the public good is $125, how many units of the public good should be provided?
3. (Combined willingness to pay at 3 units of the public good is $130.)
Enter just a number to answer this problem. How many units of output will the firm produce if maximizes its profit?
4
Suppose that two players are playing the following game. The picture depicts a 2x2 table. On the left is 'Player A' with Top for the top row and Bottom on the bottom row. Player B is located on the top of the table and has the choice of the left or right columns. The top left cell contains 2 and 5. Top right contains 1 and 4 Bottom left contains 0 and 1, with bottom right containing 3 and 8. Player A can choose either Top or Bottom, and Player B can choose either Left or Right. The two players choose their strategies simultaneously. The payoffs are given in the table, where the number on the left is the payoff to Player A, and the number on the right is the payoff to Player B. How many possible outcomes are there in this game?
4
Complete the table below by filling in ALL missing numbers. If your answer is a decimal rather than a whole number, round your answer to the nearest 1 decimal place (the nearest tenth). Also, do not enter leading zeroes. For example, if the answer to a field is 1/8, enter .1 Do not enter .125 or 0.13 or 0.1 Suppose you are hired by the Martin guitar company as an economic consultant. You estimate the demand for Martin guitars to be Q = 8000 - 2P. Suppose the supply of Martin Guitars is given by Q = -2000 +3P. What is the equilibrium price of Martin guitars? What is the equilibrium quantity of Martin guitars? What is the price elasticity of demand at the equilibrium price and quantity? What is the price elasticity of supply at the equilibrium price and quantity? For the next seven questions, suppose a per-unit excise tax of $40 per guitar is levied on the consumers. What price will sellers receive after the tax is levied? What price will consumers pay after the tax is levied? What percent of the tax will be paid by the consumers of Martin guitars? (give an answer between 0 and 100) What percent of the tax will be paid by the suppliers of Martin guitars? (give an answer between 0 and 100) How many guitars will be sold after the tax is imposed? How much consumer surplus do consumers get after the tax? What is the deadweight loss created by this tax?
Answer 1: 2000 Answer 2: 4000 Answer 3: 1 Answer 4: 1.5 Answer 5: 1984 Answer 6: 2024 Answer 7: 60 Answer 8: 40 Answer 9: 3952 Answer 10: 3904576 Answer 11: 960
The strategy combination of Player A choosing Bottom and Player B choosing Left is a Nash Equilibrium.
False
The strategy combination of Player A choosing Top and Player B choosing Right is a Nash Equilibrium.
False
Suppose that two players are playing the following game. Player 1 can choose either Top or Bottom, and Player 2 can choose either Left or Right. The payoffs are given in the following table: where the number on the left is the payoff to Player A, and the number on the right is the payoff to Player B. Player A has _____________________, and player B has ___________________ Player B Player A Left Right Top 4 2 2 1 Bottom 3 0 1 2
None of these (Definition of dominant strategy.)
Suppose the demand for a product is given by P = 60 -2Q. Also, the supply is given by P = 10 + 3Q. If a $10 per-unit excise tax is levied on the buyers of a good, then after the tax buyers will pay _________ for each unit of the good.
None of these (The demand curve will shift down by an amount exactly equal to the tax. This allows you to find the equation for the new demand curve. The buyers will pay a price equal to the new equilibrium price plus the tax.)
Suppose that two players are playing the following game. Player 1 can choose either Top or Bottom, and Player 2 can choose either Left or Right. The payoffs are given in the following table: where the number on the left is the payoff to Player A, and the number on the right is the payoff to Player B. Player A has _____________________, and player B has ___________________ Player A Left Right Top 4 2 2 3 Bottom 3 3 1 0
None of these (definition of dominant strategy)
Suppose that two players are playing the following game. Player 1 can choose either Top or Bottom, and Player 2 can choose either Left or Right. The payoffs are given in the following table: where the number on the left is the payoff to Player A, and the number on the right is the payoff to Player B. The Nash Equilibrium in pure strategies in this game is Player B Player A Left Right Top 2 3 2 1 Bottom 3 1 1 2
None of these (definition of nash equilibrium
We know that monopolistically competitive firms prevent the efficient use of resources because they produce where
P > MC.
Which two industry structures are characterized by easy entry and exit?
Perfect competition and monopolistic competition (Assumptions made about the different industry structures)
Now suppose the same game is played with the exception that Player A moves first and Player B moves second. Using the backward induction method discussed in the online class notes, what will be the outcome of the game? Hint: Draw the game tree associated with this situation.
Player A chooses Bottom and Player B chooses Right
What is the maximin strategy for Player B?
Right
Price discrimination that substantially reduces competition is outlawed by the
The Clayton Act (The Clayton Act outlaws tying contracts, mergers, and price discrimination that substantially lessen competition.)
Which of the following is true about antitrust law?
The Clayton act makes specific rules about economic actions being illegal if they result in a greatly reduced amount of competition
The picture depicts a decision tree. This tree starts with 'X Tracy Chooses'. From here, two branches emerge; 'Y Amy Chooses' and 'Z Amy Chooses'. From the Y choice, two more branches. One branch contains 100 for Tracy and 175 for Amy. The second contains 500 for Tracy and 150 for Amy. From the Z choice, two more choices branch out. One contains 175 for Tracy and 130 for Amy. The other contains 75 for Tracy and 140 for Amy Refer to the Game Tree above: If both players are trying to maximize their own payoffs, the likely outcome of this game is that
Tracy gets 100 and Amy gets 175.
The following four questions are True/False. The strategy combination of Player A choosing Top and Player B choosing Left is a Nash Equilibrium.
True
The strategy combination of Player A choosing Bottom and Player B choosing Right is a Nash Equilibrium.
True
Which of the following industry types is characterized by significant barriers to entry?
Two of these (Oligopoly and monopoly both have barriers to entry)
Which of the following industries is an oligopoly?
US Airline Industry
Which of the following industries is NOT an oligopoly?
US Corn Industry (Definition of oligopoly.)
An externality is
a cost or benefit resulting from some activity or transaction that is imposed or bestowed on parties outside the activity or transaction.
An example of an excludable good is
all of these (a house, a car, a slice of pizza)
Which of the following is a solution to the problem of externalities?
all of these are potential solutions to externalities (private bargaining, regulation, sale of the right to impose externalities)
A profit maximizing competitive firm in a market with NO externalities will produce the quantity of output where
all of these are true (price = marginal cost, marginal revenue = marginal cost, marginal benefit = marginal cost)
For a monopolistically competitive firm in long-run equilibrium,
at the profit-maximizing quantity, the demand curve must be tangent to the average total cost curve.
Of the following, ________ is the best example of an oligopolistic industry.
automobiles production
Oligopolists must ________ to their strategy in order to determine their optimal strategy.
both A and B are correct (anticipate the reaction of their customers, anticipate the reaction of their rivals)
A national campaign is asking for contributions of $1.00 per citizen to fund the building of the September 11th memorial in New York City. The total cost of the memorial is estimated to be $260 million. You decide not to contribute, because your contribution would be small relative to the total that it wonʹt make any difference whether you contribute or not. This is an example of the ________ problem.
drop-in-the-bucket
Firms will ________ a monopolistically competitive market until ________ are eliminated.
enter; profits
Second hand cigarette smoke is an example of a(n) ________.
externality
The major distinguishing characteristic of oligopoly is that
firms are independent
Monopolistic competition differs from perfect competition primarily because in monopolistic competition,
firms can differentiate their products.
Refer to the graph again. Suppose that the profits or losses incurred by Neat and Trim are a reflection of the Barber Shop industry as a whole. In the Barber Shop industry, in the long run,
firms will enter until all firms earn zero economic profit.
You will still be able to listen to NPR (National Public Radio) whether or not you contribute to their fund-raising campaign, so you decide not to contribute. This is an example of the
free-rider probem.
Because people can enjoy the benefits of public goods whether they pay for them or not, they are usually unwilling to pay for them. This is known as the
free-rider problem.
Unlike a monopolist's product, a monopolistically competitive firm's product
has many close substitutes (Firms in monopolistic competition produce differentiated products which are close substitutes for each other,)
Refer to the figure above. The marginal damage cost ________ as the quantity of air travel increases.
increases
Persuasive advertising
is designed to change a consumer's preferences and is usually associated with experience goods. (Persuasive advertising is designed to change a consumer's preferences and is usually associated with experience goods.)
The Clean Air Act of 1990 reduces the negative externalities caused by power plant air and water pollution by
issuing tradable pollution permits to each power plant (Tradable pollution permits allow the U.S.to use a market based solution to limit power plant emissions.)
Compared to a perfectly competitive firm, the demand curve facing a monopolistically competitive firm is
less elastic. (Because of product differentiation, if a monopolistically competitive firm raises its price, it will lose some, but not all of its customers.)
Compared to a perfectly competitive firm with the same costs, a monopolistically competitive firm produces _________ output and charges a _________ price.
less; higher (A monopolistically competitive firm produces where MR = MC. Since P > MR, the firm produces less output and charges a higher price.)
When MR = MC and P = ATC for a monopolistically competitive firm, the firm is in
long‐run equilibrium.
Market price in a Cournot model is ____________ than the monopoly price and _________ than the perfectly competitive price.
lower; higher (Price is between the monopoly price and the perfectly competitive price.)
In order to maximize profit, a monopolistically competitive firm should produce the quantity where
marginal revenue equals marginal cost. (All firms maximize profit by producing the quantity where MR = MC.)
The demand facing a monopolistically competitive firm is ________ a monopoly firm and ________ a perfectly competitive firm.
more elastic than; less elastic than
If firms in a monopolistically competitive industry are earning economic profits, then in the long run
new firms producing close substitutes will enter the industry and this entry will continue until economic profits are eliminated.
When monopolistically competitive firms earn ________ economic profits, other firms ________ an industry in the long run.
positive; enter
For a monopolistically competitive firm,
price is greater than marginal revenue. (Since a monopolistically competitive firm faces a downward sloping demand curve, price is greater than marginal revenue.)
Suppose a monopolistically competitive firm in the short run is selling 100 units of output at $10 each. At that level of output, MR = MC and marginal cost is rising. Also, ATC = $15, AVC = $12 and AFC = $3. This firm should
shut down and produce 0 units of output. (Since P < AVC, the firm should shut down.)
If private bargaining to resolve an externality is to result in an efficient outcome,
the initial assignment of rights must be clear to both parties.
A steel factory emits air pollution and as a result a negative externality exists. If the government forces the steel factory to internalize the externality,
the supply of steel will decrease (When the firm must pay the entire cost of production in the presence of a negative externality, costs rise and the supply declines.)
If Neat and Trim maximizes profits, its ________ is $240.
total cost
If Neat and Trim maximizes profits, its ________ equals $320.
total revenue
The free-rider problem arises
when people realize they will still receive the benefits of a good whether they pay for it or not.