Micro econ exam 4

d

A monopolistically competitive firm chooses A) the quantity of output to produce, but the market determines price. B) the price, but competition in the market determines the quantity. C) price, but output is determined by a cartel production quota. D) the quantity of output to produce and the price at which it will sell its output.

b

A monopolistically competitive market could be considered inefficient because A) marginal revenue exceeds average revenue. B) price exceeds marginal cost. C) efficient scale is realized in the long run, but not in the short run. D) markup pricing does not occur in any other market structure.

A

A profit-maximizing firm in a monopolistically competitive market is characterized by which of the following? A) Average revenue exceeds marginal revenue. B) Marginal revenue exceeds average revenue. C) Average revenue is equal to marginal revenue. D) Revenue is always maximized along with profit

C

A similarity between monopoly and monopolistic competition is that, in both market structures, A) strategic interactions among sellers are important. B) there are fewer than "many" sellers. C) sellers are price makers rather than price takers. D) product differentiation is important.

B

As the number of firms in an oligopoly grows very large, the quantity of output produced(i)decreases.(ii)increases.(iii)approaches the socially optimal level. A) (i) and (ii) B) (ii) and (iii) C) (i) and (iii) D) (ii) only

A

All externalities A) cause markets to fail to allocate resources efficiently. B) cause equilibrium prices to be too high. C) benefit producers at the expense of consumers. D) cause equilibrium prices to be too low.

A

An externality A) results in an equilibrium that does not maximize the total benefits to society. B) causes demand to exceed supply. C) strengthens the role of the "invisible hand" in the marketplace. D) affects buyers but not sellers.

B

An externality is A) the costs that parties incur in the process of agreeing and following through on a bargain. B) the uncompensated impact of one person's actions on the well-being of a bystander. C) the proposition that private parties can bargain without cost over the allocation of resources. D) a market equilibrium tax.

C

An externality is the impact of A) society's decisions on the well-being of society. B) a person's actions on that person's well-being. C) one person's actions on the well-being of a bystander. D) society's decisions on the poorest person in the society.

C

An externality is the impact of society's decisions on the well-being of society. a person's actions on that person's well-being. one person's actions on the well-being of a bystander. society's decisions on the poorest person in the society.

c

As some incumbent firms exit a monopolistically competitive market, profits of existing firms A) decline and product diversity in the market decreases. B) decline and product diversity in the market increases. C) rise and product diversity in the market decreases. D) rise and product diversity in the market increases.

c

Dioxin emission that results from the production of paper is a good example of a negative externality because A) self-interested paper firms are generally unaware of environmental regulations. B) there are fines for producing too much dioxin. C) self-interested paper producers will not consider the full cost of the dioxin pollution they create. D) toxic emissions are the best example of an externality.

D

Each year the United States considers renewal of Most Favored Nation (MFN) trading status with China. Historically, legislators have made threats of not renewing MFN status because of human rights abuses in China. The non renewal of MFN trading status is likely to involve some retaliatory measures by China. The Game below reflects the potential economic gains associated with a two-outcome game in which China may impose trade sanctions against U.S. firms and the United States may not renew MFN status with China. The following table contains the dollar value of all trade flow benefits to the United States and China under two trade-relationship scenarios. Refer to Table 16-4. This particular game A) features a dominant strategy for Firm A. B) features a dominant strategy for Firm B. C) is a version of the prisoners' dilemma game. D) All are correct.

A

Externalities tend to cause markets to be A) inefficient. B) unequal. C) unnecessary. D) overwhelmed.

c

Game theory is important for the understanding of A) competitive markets. B) monopolies. C) oligopolies. D) All are correct.

C

How large would a subsidy need to be in this market to move the market from the equilibrium level of output to the socially-optimal level of output? A) $3 B) $5 C) $7 D) $9

A

If a firm in a monopolistically competitive market was producing the level of output depicted as Qd in panel d, it would A) not be maximizing its profit. B) be minimizing its losses. C) be losing market share to other firms in the market. D) be operating at excess capacity.

C

If a sawmill creates too much noise for local residents, A) noise restrictions will force residents to move out of the area. B) a sense of social responsibility will cause owners of the mill to reduce noise levels. C) the government can raise economic well-being through noise-control regulations. D) the government should avoid intervening because the market will allocate resources efficiently.

b

If all external costs were internalized, then the market's equilibrium output would be A) Q1. B) Q2. C) Q3. D) Q4.

b

If an aluminum manufacturer does not bear the entire cost of the smoke it emits, it will A) emit a lower level of smoke than is socially efficient. B) emit a higher level of smoke than is socially efficient. C) emit an acceptable level of smoke. D) not emit any smoke in an attempt to avoid paying the entire cost.

D

If an externality is present in a market, economic efficiency may be enhanced by A) increased competition. B) weakening property rights. C) better informed market participants. D) government intervention.

b

If firms in a monopolistically competitive market are earning economic profits, which of the following scenarios would best reflect the change facing incumbent firms as the market adjusts to its new equilibrium? A) an increase in demand B) a decrease in demand C) a downward shift in their marginal cost curve D) an upward shift in their marginal cost curve

D

If firms in a monopolistically competitive market are earning positive profits, A) firms will likely be subject to regulation. B) barriers to entry will be strengthened. C) some firms must exit the market. D) new firms will enter the market.

D

If this market is currently producing at Q2, then total economic well-being would increase if output A) increased beyond Q4. B) decreased to Q1. C) increased to Q3. D) stayed at Q2.

b

If this market is currently producing at Q4, then total economic well-being would be maximized if output A) decreased to Q1. B) decreased to Q2. C) decreased to Q3. D) stayed at Q4.

c

In a market economy, government intervention A)will always improve market outcomes. B) reduces efficiency in the presence of externalities. C) may improve market outcomes in the presence of externalities. D) is necessary to control individual greed.

b

In monopolistically competitive markets, economic profits A) signal some incumbent firms to exit the market. B) signal new firms to enter the market. C) are maintained through government-imposed barriers to entry. D) are never possible.

b

In monopolistically competitive markets, the property of free entry and exit suggests that A) the market structure will eventually be characterized by perfect competition in the long run. B) all firms earn zero economic profits in the long run. C) some firms will be able to earn economic profits in the long run. D) some firms will be forced to incur economic losses in the long run.

c

In the short run, a firm in a monopolistically competitive market operates much like a(n) A) perfectly competitive firm. B) oligopoly firm. C) monopoly. D) All are correct.

C

Lines in the figures below reflect the potential effect of entry and exit in a monopolistically competitive market on the demand and/or marginal cost curves of incumbent firms. Use these figures to answer the following questions Panel d in the set of figures shown depicts the effect on incumbent firms of A) long-run economic losses. B) a decrease in the diversity of products offered in the market. C) new entrants in the market. D) existing firms exiting the market.

c

Lines in the figures below reflect the potential effect of entry and exit in a monopolistically competitive market on the demand and/or marginal cost curves of incumbent firms. Use these figures to answer the following questions. Which of the diagrams depicts the effect on incumbent firms of some existing firms leaving the market? A) panel a B) panel b C) panel c D) panel d

C

Monopolistic competition differs from perfect competition because in monopolistically competitive markets A) there are barriers to entry. B) all firms can eventually earn economic profits. C) each of the sellers offers a somewhat different product. D) strategic interactions between firms is vitally important.

D

Monopolistic competition is characterized by which of the following attributes?(i)free entry(ii)product differentiation(iii)many sellers A) (i) and (iii) only B) (i) and (ii) only C) (ii) and (iii) only D) (i), (ii), and (iii)

C

Private markets fail to account for externalities because A) externalities don't occur in private markets. B) sellers include costs associated with externalities in the price of their product. C) decisionmakers in the market fail to include the costs of their behavior to third parties. D) the government cannot easily estimate the optimal quantity of pollution.

A

Product differentiation causes the seller of a good to face what type of demand curve? A) downward sloping B) upward sloping C)horizontal D)vertical

b

Product differentiation in monopolistically competitive markets ensures that, for profit-maximizing firms, A) marginal revenue will equal average total cost. B) price will exceed marginal cost. C) marginal cost will exceed average revenue. D) average variable cost will be declining.

b

Refer to Figure 17-1. The firm depicted in panel b faces a horizontal demand curve. If panel b depicts a profit-maximizing firm, A) it could be operating in either a perfectly competitive market or in a monopolistically competitive market. B) it would not have excess capacity in its production as long as it is earning zero economic profit. C) it is able to choose the price at which it sells its product. D) All are correct.

D

Refer to Figure 17-2. Which of the graphs depicts a monopolistically competitive firm in long-run equilibrium? A) panel a B) panel b C) panel c D) None are correct.

D

Refer to Figure 17-4. Panel (a) shows a profit-maximizing monopolistically competitive firm that is A) earning a zero profit. B) in long-run equilibrium. C) charging a price that is equal to average total cost. D) All are correct.

A

Refer to Figure 17-4. Which of the panels depicts a firm in a monopolistically competitive market earning economic profits? A) panel c B) panel d C) both panels c and d D) None are correct.

D

Refer to Figure 17-4. Which of the panels shown could characterize short-run equilibrium for a firm in a monopolistically competitive market? A) panel a B) panel b C) panel c D) All are correct.

D

Since restored historic buildings convey a positive externality, local governments may choose to A) regulate the demolition of them. B) provide tax breaks to owners who restore them. C)increase property taxes in historic areas. D) Both a and b are correct.

B

The deadweight loss that is associated with a monopolistically competitive market is a result of A) price falling short of marginal cost in order to increase market share. B) price exceeding marginal cost. C) operating in a regulated industry. D) excessive advertising costs.

B

The difference between the social cost curve and the supply curve reflects the A) profit margin of each concert. B) cost of spillover effects from the concert (e.g., noise and traffic). C) value of concerts to society as a whole. D) amount by which the city should subsidize the concert organizers.

D

The impact of one person's actions on the well-being of a bystander is called A) an economic dilemma. B) deadweight loss. C) a multi-party problem. D) an externality.

A

The phenomenon of product differentiation contrasts sharply with the phenomenon of A) homogeneous products. B) industrial products. C) monopolistic competition. D) product integration.

A

The profit-maximizing rule for a firm in a monopolistically competitive market is to select the quantity at which A) marginal revenue is equal to marginal cost. B) average total cost is equal to marginal revenue. C) average total cost is at its minimum value. D) average revenue exceeds average total cost.

b

This figure reflects the market for outdoor concerts in a public park surrounded by residential neighborhoods. At the private market outcome, the equilibrium price will be A) P0 B) P1. C) P2. D) None of the above is correct.

A

This figure reflects the market for outdoor concerts in a public park surrounded by residential neighborhoods. The social cost curve is above the supply curve because A) it takes into account the external costs imposed on society by the concert. B) it takes into account the effect of local noise restrictions on concerts in parks surrounded by residential neighborhoods. C) concert tickets are likely to cost more than the concert actually costs the organizers. D) residents in the surrounding neighborhoods get to listen to the concert for free.

b

This graph represents the tobacco industry. The industry creates A) positive externalities. B) negative externalities. C) no externalities. D) no equilibrium in the market.

B

This graph represents the tobacco industry. The socially optimal price and quantity are A) $1.90 and 38 units, respectively. B) $1.80 and 35 units, respectively. C) $1.60 and 42 units, respectively. D) $1.35 and 58 units, respectively.

C

This graph represents the tobacco industry. Without any government intervention, the equilibrium price and quantity are A) $1.90 and 38 units, respectively. B) $1.80 and 35 units, respectively. C) $1.60 and 42 units, respectively. D) $1.35 and 58 units, respectively.

B

This market A) has no need for government intervention. B) would benefit from a tax on the product. C) would benefit from a subsidy for the product. D) would maximize total well-being at Q3.

c

This market is characterized by A) government intervention. B) a positive externality. C) a negative externality. D) None of the above is correct

c

Two cigarette manufacturers (Firm A and Firm B) are faced with lawsuits from states to recover the health care related expenses associated with cigarette smoking. Both cigarette firms have evidence that indicates that cigarette smoke causes lung cancer (and other related illness). State prosecutors do not have access to the same data used by cigarette manufacturers and thus will have difficulty recovering full costs without the help of at least one cigarette firm study. Each firm has been presented with an opportunity to lower their liability in the suit if they cooperate with attorneys representing the states. Pursuing its own best interests, Firm A will concede that cigarette smoke causes lung cancer A) only if Firm B concedes that cigarette smoke causes lung cancer. B) only if Firm B does not concede that cigarette smoke causes lung cancer. C) regardless of whether Firm B concedes that cigarette smoke causes lung cancer. D) none of the above; in pursuing its own best interests, Firm A will in no case concede that cigarette smoke causes lung cancer.

D

Two cigarette manufacturers (Firm A and Firm B) are faced with lawsuits from states to recover the health care related expenses associated with cigarette smoking. Both cigarette firms have evidence that indicates that cigarette smoke causes lung cancer (and other related illness). State prosecutors do not have access to the same data used by cigarette manufacturers and thus will have difficulty recovering full costs without the help of at least one cigarette firm study. Each firm has been presented with an opportunity to lower their liability in the suit if they cooperate with attorneys representing the states. This particular game A) features a dominant strategy for Firm A. B) features a dominant strategy for Firm B. C) is a version of the prisoners' dilemma game. D) All are correct.

c

Two cigarette manufacturers (Firm A and Firm B) are faced with lawsuits from states to recover the health care related expenses associated with cigarette smoking. Both cigarette firms have evidence that indicates that cigarette smoke causes lung cancer (and other related illness). State prosecutors do not have access to the same data used by cigarette manufacturers and thus will have difficulty recovering full costs without the help of at least one cigarette firm study. Each firm has been presented with an opportunity to lower their liability in the suit if they cooperate with attorneys representing the states. When this game reaches a Nash equilibrium, profits for firm A and firm B will be A) $-5 b and $-50 b, respectively. B) $-10 band $-10 b, respectively. C) $-20 b and $-15 b, respectively. D) $-50 b and $-5 b, respectively

B

Two discount superstores (Ultimate Saver and SuperDuper Saver) in a growing urban area are interested in expanding their market share. Both are interested in expanding the size of their store and parking lot to accommodate potential growth in their customer base. The following game depicts the strategic outcomes that result from the game. Growth-related profits of the two discount superstores under two scenarios are reflected in the table below. The owners of SuperDuper Saver and Ultimate Saver meet for a friendly game of golf one afternoon and happen to discuss a strategy to optimize growth related profit. They should both agree to A) increase their store and parking lot sizes. B) refrain from increasing their store and parking lot sizes. C) be more competitive in capturing market share. D) share the context of their conversation with the Federal Trade Commission.

b

What is the equilibrium quantity of output in this market? A 3 units B 4 units C 5 units D 6 units

C

What is the socially-optimal level of output in this market? A) 3 units B) 4 units C) 5 units D) 6 units

b

When a profit-maximizing firm in a monopolistically competitive market is in long-run equilibrium, A) the demand curve will be perfectly elastic. B) price exceeds marginal cost. C) marginal cost is falling. D) marginal revenue exceeds marginal cost.

D

When a profit-maximizing firm in a monopolistically competitive market is producing the long-run equilibrium quantity, A) its average revenue will equal its marginal cost. B) its marginal revenue will exceed its marginal cost. C) it will be earning positive economic profits. D) its demand curve will be tangent to its average-total-cost curve.

C

When externalities exist, buyers and sellers A) neglect the external effects of their actions, but the market equilibrium is still efficient. B) do not neglect the external effects of their actions, and the market equilibrium is efficient. C) neglect the external effects of their actions, and the market equilibrium is not efficient. D) do not neglect the external effects of their actions, and the market equilibrium is not efficient.

c

Which of the following market structures features free entry and exit? (i)perfect competition (ii)monopolistic competition (iii)monopoly A) (i) only B) (i) and (ii) only C) (ii) and (iii) only D) All are correct.

C

Which of the following statements about a well-maintained yard best conveys the general nature of the externality? A) A well-maintained yard conveys a positive externality because it increases the home's market value. B) A well-maintained yard conveys a negative externality because it increases the property tax liability of the owner. C) A well-maintained yard conveys a positive externality because it increases the value of adjacent properties in the neighborhood. D) A well-maintained yard cannot provide any type of externality.

b

Which of the graphs shown would be consistent with a firm in a monopolistically competitive market that is doing its best but still losing money? A) panel a B) panel b C) panel c D) panel d

c

Which of the graphs shown would be consistent with a firm in a monopolistically competitive market that is earning a positive profit? A) panel a B) panel b C) panel c D) panel d

c

Without government intervention, the equilibrium quantity would be A) Q1. B) Q2. C) Q3. D) Q4.