ECON 202 EXAM 3 Prep

Which of the following is an example of signaling in a market with asymmetric information?

Certification of used cars by third parties

Adam spent $10,000 on new equipment for his small business, "Adam's Fitness Studio." Membership at his fitness center is very low and at this rate, Adam needs an additional $12,000 per year to keep his studio open. Which of the following is true?

Correct The $10,000 Adam spent on equipment is a fixed cost of business and the $12,000 he'll need to continue operations is a variable cost.

The processes a firm uses to turn inputs into outputs of goods and services is called

Technology

What happens to the equilibrium wage and quantity of labor if output price rises?

The equilibrium wage and the equilibrium quantity of labor rise.

A natural monopoly is most likely to occur in which of the following industries?

an industry where fixed costs are very large relative to variable costs

To maintain a monopoly, a firm must have

an insurmountable barrier to entry

Game theory is applicable to oligopoly behavior because oligopolists

Use strategic behavior

If a worker can produce 20 units of output which can be sold for $4 per unit, what is the maximum wage that firm should pay to hire this worker?

$80

Which one of the following about a monopoly is false?

A monopoly must have some kind of government privilege or government imposed barrier to maintain its monopoly.

If, for a given output level, a perfectly competitive firm's price is less than its average variable cost, then the firm

Should shut down

Which of the following statements is true?

Employers are willing to forego profits when engaging in taste-based discrimination.

In long-run perfectly competitive equilibrium, which of the following is false?

Firms earn economic profit.

Compensating differentials are associated most closely with which of the following?

Hazardous jobs

A ________ is an extensive -form representation of a game.

Payoff matrix

Consider the market for opticians. What is likely to happen to the equilibrium wage and quantity of opticians if more and more people turn to laser eye surgery instead of wearing glasses or contact lens?

The equilibrium wage and the equilibrium quantity of opticians fall.

Suppose the equilibrium price in a perfectly competitive industry is $15 and a firm in the industry charges $21. Which of the following will happen?

The firm will not sell any output.

Prisoner's dilemma games imply that cooperative behavior between two people or two firms always breaks down. But reality teaches us that people and firms often cooperate successfully to achieve their goals. Why do the results from prisoner's dilemma games fail to predict real-world results?

The prisoner's dilemma does not apply to most business situations that are repeated over and over.

which of the following statements is false?

When marginal cost equals average total cost, average total cost is at its highest value.

What is a prisoner's dilemma?

a game in which players act in rational, self-interested ways that leave everyone worse off

A duopolists' dilemma occurs when two firms in a market would be better off if

both firms act jointly as a cartel and chooses the best price.

Marginal cost is calculated for a particular increase in output by

dividing the change in total cost by the change in output.

The perfectly competitive market structure benefits consumers because

firms are forced by competitive pressure to be as efficient as possible.

A reason why a perfectly competitive firm's demand for labor curve slopes downward is that

in the short run, as more labor is hired, labor's marginal product falls because of the law of diminishing returns.

In situations where new technologies are considered complementary to workers, demand for these workers will ________, resulting in ________ in the equilibrium wage.

increase; an increase

A Nash equilibrium occurs when ________.

none of the players can increase their payoffs by choosing a different strategy

When a perfectly competitive firm finds that its market price is below its minimum average variable cost, it will sell

nothing at all; the firm shuts down.

A Nash equilibrium is

reached when each player chooses the best strategy for himself, given the other strategies chosen by the other players in the group.

Discrimination that occurs when people's preferences cause them to discriminate against a certain group is referred to as

taste based discrimination

Of the factors that are within the control of the firm's owners, the most important factors that make a firm successful are

the differentiation of its products and the production of products at a lower average cost than competing firms.

Which of the following factors will not cause the labor demand curve to shift?

the wage rate

An increase in wages raises the opportunity cost of leisure and leads to an increase in the quantity of labor supplied.

true

If the demand for labor is unchanged, population growth will increase the supply of labor and increase the equilibrium wage.

true