Economics 110 - Practice Final Exam

A price floor will be binding only if it is set ...

above the equilibrium price

Monopolistic competition is characterized by which of the following attributes? (i) free entry (ii) product differentiation (iii) many sellers

all of the above

Foregone investment opportunities are an example of ...

an implicit cost

The fundamental source of monopoly power is ...

barriers to entry

**Refer to Figure 16-9** Efficient scale is reached ...

beyond 133.33 units

A group of firms that act in unison to maximize collective profits is called a ...

cartel

A legal maximum on the price at which a good can be sold is called a price ...

ceiling

Product differentiation causes the seller of a good to face what type of demand curve?

downward sloping (product differentiation comes from monopoly)

**Refer to Table 17-21** If John chooses turn, what will Paul chose to do and what will Paul's payoff equal?

drive straight, 20

A production possibilities frontier is bowed outward when ...

the rate of tradeoff between the two goods being produced depends on how much of each good is being produced

**Refer to Table 17-21** If Paul chooses to drive straight, what will John choose to do and what will John's payoff equal?

turn, 5

**Refer to Figure 16-9** The firm's maximum profit is ...

$0

**Refer to Figure 15-7** A profit-maximizing monopolist would earn profits of ...

$120

**Refer to Scenario 15-7** If Black Box Cable TV is able to price discriminate, what would the maximum amount of profit it could generate?

$850,000

**Refer to Figure 15-7** In order to maximize profits, the monopolist should charge a price of ...

$20

**Refer to Table 17-1** If Rochelle and Alec operate as a profit-maximizing monopoly in the market for water, what price will they charge?

$30

Bob purchases a book for $6, and his consumer surplus is $2. How much is Bob willing to pay for the book?

$8

The market demand curve for a monopolist is typically

downward sloping

**Refer to Table 17-1** If the market for water were perfectly competitive instead of monopolistic, how many gallons of water would be produced and sold?

1,200 gallons

**Refer to Figure 15-7** In order to maximize profits, the monopolist should produce ...

12 units

**Refer to Table 17-21** How many Nash Equilibria are there in this chicken game?

2

**Refer to Table 17-21** What is (are) the Nash Equilibrium (equilibria) in this chicken game?

John: turn, Paul: drive straight & John: drive straight, Paul: turn

For a profit maximizing monopolist ...

P > MR = MC

**Refer to Table 17-21** What is Paul's dominant strategy?

Paul has no dominant strategy

If Shawn can produce donuts at a lower opportunity cost than Sue, then ...

Shawn has a comparative advantage in the production of donuts

If Shawn can produce more donuts in one day than Sue can produce in one day, then ...

Shawn has an absolute advantage in the production of donuts

A situation in which forms choose their best strategy given the strategies chosen by the other firms in the market is called ...

a Nash equilibrium

What is the shape of the monopolist's marginal revenue curve?

a downward-sloping line that lies below the demand curve

Which of the following is an example of a barrier to entry?

a key resource is owned by a single firm, the costs of production make a single producer more efficient than a larger number of producers, the government has given the existing monopolist the exclusive right to produce the good

Elasticity is ...

a measure of how much buyers and sellers respond to changes in market conditions

A firm that is the sole seller of a product without close substitutes is ...

a monopolist

An agreement among firms in a market about quantities to produce or prices to charge is called ...

collusion

Goods that are rival in consumption but NOT excludable would be considered?

common resources

On a graph, the area below a demand curve and above the price measures ...

consumer surplus

Critics of advertising argue that advertising ...

creates desires that otherwise may not exist, hinders competition, often fails to convey substantive information

The decrease in total surplus that results from a market distortion, such as tax, is called a ...

deadweight loss

The prisoner's dilemma provides insights into the ...

difficult of maintaining cooperation

In the prisoners' dilemma game, self-interest leads ...

each prisoner to confess, to a breakdown of any agreement that the prisoners might have made before being questioned, to an outcome that is not particularly good for either prisoner

In a perfectly competitive market, the process of entry and exit will end when ...

economic profits are zero

Suppose the income of buyers in a market for an inferior good decreases and a technological advancement occurs also. What would we expect to happen in the market?

equilibrium quantity would decrease, but the impact on equilibrium price would be ambiguous

**Refer to Figure 16-3** Which of the following will occur in the long run in this industry?

firms will enter this industry

Negative externalities lead markers to produce ...

greatest than efficient output levels and positive externalities lead markets to produce smaller than efficient output levels

**Refer to Figure 16-3** This firm is operating ...

in the short run and earning a positive economic profit

**Refer to Table 16-1** Which industry is the most competitive?

industry D

A negative externality ...

is an adverse impact on a bystander

A dominant strategy is one that ...

is best for the player, regardless of what strategies other players follow

A tax burden falls more heavily on the side of the market that ...

is more inelastic

"Other things equal, when the price of a good rises, the quantity supplied of the good also rises, and when the price falls, the quantity supplied falls as well". This relationship between price and quantity supplied ...

is referred to as the law of supply

Demand is inelastic if the price elasticity of demand is ...

less than 1

For a monopolist, marginal revenue is ...

less than price, whereas marginal revenue is equal to price for a perfectly competitive firm

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

lower its price

A monopolistically competitive firm chooses the quantity to produce where ...

marginal revenue equals marginal cost

A profit-maximizing monopolist will produce the level of output at which ...

marginal revenue is equal to marginal cost

The higher the concentration ratio, the ...

more control an individual firm has to set prices; less competitive the industry

**Refer to Figure 15-1** Considering the relationship between average total cost and marginal cost, the marginal cost curve for this firm ...

must lie entirely below the average total cost curve

**Refer to Figure 15-1** The shape of the average total cost curve reveals information about the nature of the barrier to entry that might exist in a monopoly market. Which of the following monopoly types best coincides with this figure?

natural monopoly

**Refer to Figure 17-3** If this game is played only once, then the most likely outcome is that ...

neither Hector nor Bart cleans

What must be given up to obtain an item is called ...

opportunity cost

**Refer to Figure 16-5** Which of the following graphs depicts a short-run equilibrium that will not encourage either the entry or exit of firms in a monopolistically competitive industry?

panel A

A good is excludable if ...

people can be prevented from using it

**Refer to Scenario 15-7** If Black Box Cable TV is unable to price discriminate, what price will it choose to maximize its profit, and what is the amount of the profit?

price = $150; profit = $450,000

A profit maximizing firm will shut down in the short run when ...

price is less than average variable cost

Advertising ...

provides information about products, including prices and seller locations; has been proven to increase competition and reduce prices compared to markets without; signals quality to consumers, because advertising is expensive

**Refer to Figure 17-3** The dominant strategy for Hector is to ...

refrain from cleaning, and the dominant strategy for Bart is to refrain from cleaning

If one person's use of a good diminishes another person's enjoyment of it, the good is ...

rival in consumption

Price discrimination is the business practice of ...

selling the same good at different prices to different customers

**Refer to Figure 16-10** In response to the situation represented by the figure, we would expect ...

some of the firms that are currently in the market to exit; the demand for this firm's product to increase, amusing this firm doesn't exit; this firm's profit to move from its current value toward zero

If the cross-price elasticity of two goods is positive, then the two goods are ...

substitutes

A tax on an imported good is called a ...

tariff

The proposition that if private parties can bargain without cost over the allocation of resources, they can solve the problem of externalities on their own, is called ...

the coarse theorem

The term tax incidence refers to ...

the distribution of the tax burden between buyers and sellers

"Other things equal, when the price of a good rises, the quantity demanded of the good falls, and when the price falls, the quantity demanded rises". This relationship between price and quantity demanded is referred to as ...

the law of demand

At present, the United States uses a systems of quotas to limit the amount of sugar imported into the country. Which of the following statements is most likely true?

the quotas are probably the result of lobbying from U.S. producers of sugar. The quotas increase producer surplus for the U.S., reduce consumer surplus for the U.S., and harm foreign sugar producers

If a firm produces nothing, which of the following costs will be zero?

variable cost

The price of a good that prevails in a world market is called the ...

world price