Econ

Price discrimination adds to social welfare in the form of

increased total surplus.

According to the Coase theorem, private parties can solve the problem of externalities if

the cost of bargaining is small.

Which of the following is NOT a way of internalizing technology spillovers?

Taxes

In a competitive market the price is $8. A typical firm in the market has ATC = $6, AVC = $5, and MC = $8. How much economic profit is the firm earning in the short run?

$2 per unit

Scenario 15-1 A monopoly firm maximizes its profit by producing Q = 500 units of output. At that level of output, its marginal revenue is $30, its average revenue is $60, and its average total cost is $34. Refer to Scenario 15-1. At Q = 500, the firm's marginal cost is

$30.

Which of the following statements about a well-maintained yard best conveys the general nature of the externality?

A well-maintained yard conveys a positive externality because it increases the value of adjacent properties in the neighborhood.

Two firms, A and B, each currently emit 100 tons of chemicals into the air. The government has decided to reduce the pollution and from now on will require a pollution permit for each ton of pollution emitted into the air. The government gives each firm 40 pollution permits, which it can either use or sell to the other firm. It costs Firm A $200 for each ton of pollution that it eliminates before it is emitted into the air, and it costs Firm B $100 for each ton of pollution that it eliminates before it is emitted into the air. After the two firms buy or sell pollution permits from each other, we would expect that Firm A will emit

20 fewer tons of pollution into the air, and Firm B will emit 100 fewer tons of pollution into the air.

Which of the following is not an example of a barrier to entry?

An entrepreneur opens a popular new restaurant.

Whether an oligopoly consists of 3 firms or 10 firms, the level of output likely will be the same.

False

Two suspected drug dealers are stopped by the highway patrol for speeding. The officer searches the car and finds a small bag of marijuana and arrests the two. During the interrogation, each is separately offered the following: "If you confess to dealing drugs and testify against your partner, you will be given immunity and released while your partner will get 10 years in prison. If you both confess, you will each get 5 years." If neither confesses, there is no evidence of drug dealing, and the most they could get is one year each for possession of marijuana. If each suspected drug dealer follows a dominant strategy, what should he/she do?

Confess regardless of the partner's decision

Which of the following industries is most likely to exhibit the characteristic of free entry?

Dairy farming

A monopolistically competitive market is characterized by barriers to entry.

False

Game theory is just as necessary for understanding competitive or monopoly markets as it is for understanding oligopolistic markets.

False

Negative externalities lead markets to produce a smaller quantity of a good than is socially desirable, while positive externalities lead markets to produce a larger quantity of a good than is socially desirable.

False

Research into new technologies conveys neither negative externalities nor positive externalities.

False

Which of the following statements is correct?

If duopolists successfully collude, then their combined output will be equal to the output that would be observed if the market were a monopoly.

Which of the following is true about a monopolistically competitive firm?

It can earn an economic profit in the short run, but not the long run.

In which of the following market structures can firms earn economic profits in the long run?

Monopoly only

Suppose that cookie producers create a positive externality equal to $2 per dozen. What is the relationship between the equilibrium quantity and the socially optimal quantity of cookies to be produced?

The equilibrium quantity is less than the socially optimal quantity.

Suppose that Company A's railroad cars pass through Farmer B's corn fields. The railroad causes an externality to the farmer because the railroad cars emit sparks that cause $1,500 in damage to the farmer's crops. There is a special soy-based grease that the railroad could purchase that would eliminate the damaging sparks. The grease costs $1,200. Suppose that the farmer has the right to compensation for any damage that his crops suffer. Assume that there are no transaction costs. Which of the following characterizes the efficient outcome?

The railroad will purchase the grease for $1,200 and pay the farmer nothing because no crop damage will occur.

A patent gives a single person or firm the exclusive right to sell some good or service for a specific period of time.

True

Because there are many buyers and sellers in a perfectly competitive market, no one seller can influence the market price.

True

Copyrights and patents are examples of barriers to entry that give firms monopoly pricing powers.

True

Even if possible, it would be inefficient to prohibit all polluting activity.

True

Even with market power, monopolists cannot achieve any level of profit they desire because they will sell lower quantities at higher prices

True

If all of the firms in an oligopoly successfully collude and form a cartel, then total profit for the cartel is equal to what it would be if the market were a monopoly.

True

In a market characterized by externalities, the market equilibrium fails to maximize the total benefit to society as a whole.

True

In the long run, a firm should exit the industry if its total costs exceed its total revenues.

True

Like competitive firms, monopolies choose to produce a quantity in which marginal revenue equals marginal cost.

True

Markets sometimes fail to allocate resources efficiently.

True

Product differentiation always leads to some measure of market power.

True

The government can internalize externalities by taxing goods that have negative externalities and subsidizing goods that have positive externalities.

True

Which of the following statements about oligopolies is not correct?

Unlike monopolies and monopolistically competitive markets, oligopolies prices do not exceed their marginal costs.

Employing a lawyer to draft and enforce a private contract between parties wishing to solve an externality problem is an example of

a transaction cost.

Zaria and Hannah are roommates. Zaria assigns a $30 value to smoking cigarettes. Hannah values smoke-free air at $15. Which of the following scenarios is a successful example of the Coase theorem?

Zaria pays Hannah $16 so that Zaria can smoke.

When an oligopoly market reaches a Nash equilibrium,

a firm will have chosen its best strategy, given the strategies chosen by other firms in the market.

When an industry is a natural monopoly,

a larger number of firms will lead to a higher average total cost

If a competitive firm is currently producing a level of output at which marginal cost exceeds marginal revenue, then

a one-unit decrease in output will increase the firm's profit.

Monopolies are socially inefficient because the price they charge is

above marginal cost.

In monopolistically competitive markets, free entry and exit suggests that

all firms earn zero economic profits in the long run.

The fundamental source of monopoly power is

barriers to entry.

Whenever a perfectly competitive firm chooses to change its level of output, its marginal revenue

does not change.

​Cartels are difficult to maintain because

each firm has an incentive to deviate from its agreed output level.

A competitive market is in long-run equilibrium. If demand decreases, we can be fairly certain that price will

fall in the short run. All, some, or no firms will shut down, and some of them will exit the industry. Price will then rise to reach the new long-run equilibrium.

When deciding what price to charge consumers, the monopolist may choose to charge them different prices based on the customers'

geographical location.

In both perfect competition and monopolistic competition, each firm

has many competitors.

When Monique drives to work every morning, she drives on a congested highway. What Monique does not realize is that when she enters the highway each morning she increases the travel time of all other drivers on the highway. In this case, the external cost of Monique's highway trip

increases the social cost above the private cost.

Most economists prefer corrective taxes to regulation as a way to correct the problem of pollution because the market-based solution

is less costly to society.

If a competitive firm is selling 900 units of its product at a price of $10 per unit and earning a positive profit, then

its average total cost is less than $10.

In order to sell more of its product, a monopolist must

lower its price.

A monopolistically competitive industry is characterized by

many firms, differentiated products, and free entry.

When marginal revenue equals marginal cost, the firm

may be minimizing its losses rather than maximizing its profit.

A key characteristic of a competitive market is that

producers sell nearly identical products.

In the short run, a firm operating in a monopolistically competitive market

produces an output where marginal revenue equals marginal cost, and the price is determined by demand.

A similarity between monopoly and monopolistic competition is that in both market structures

sellers are price makers rather than price takers.

One problem with government operation of monopolies is that

the government typically has little incentive to reduce costs

As the number of sellers in an oligopoly becomes very large,

the quantity of output approaches the socially efficient quantity.

Whenever a cartel in a duopoly breaks down,​

total output in the market will rise.