Microeconomics HW 6

1. A monopoly a. can set the price it charges for its output and earn unlimited profits. b. takes the market price as given and earns small but positive profits. c. can set the price it charges for its output but faces a downward-sloping demand curve so it cannot earn unlimited profits. d. can set the price it charges for its output but faces a horizontal demand curve so it can earn unlimited profits.

C. can set the price it charges for its output but faces a downward-sloping demand curve so it cannot earn unlimited profits.

1. Compared to the monopoly outcome with a single price, imperfect price discrimination (i) sometimes raises total surplus. (ii) sometimes lowers total surplus. (iii) always leads to a lower quantity of output. a. (i) and (ii) only b. (ii) and (iii) only c. (i) and (iii) only d. (i), (ii), and (iii)

a. (i) and (ii) only

1. Which of the following are necessary characteristics of a monopoly? (i) The firm is the sole seller of its product. (ii) The firm's product does not have close substitutes. (iii) The firm generates a large economic profit. (iv) The firm is located in a small geographic market. a. (i) and (ii) only b. (i) and (iii) only c. (i), (ii), and (iii) only d. (i), (ii), (iii), and (iv)

a. (i) and (ii) only

1. Refer to Table 17-8. If there are two suppliers of water, Victor and Sami, and if they have successfully formed a cartel, then what would be the price and the market quantity? a. The price would be $7 per bottle and the market quantity would be 600 bottles. b. The price would be $6 per bottle and the market quantity would be 800 bottles. c. The price would be $5 per bottle and the market quantity would be 1000 bottles. d. The price would be $4 per bottle and the market quantity would be 1200 bottles.

a. The price would be $7 per bottle and the market quantity would be 600 bottles.

1. Refer to Table 17-8. If there were only one supplier of water, what would be the price and quantity? a. The price would be $7 per gallon and the quantity would be 600 gallons. b. The price would be $6 per gallon and the quantity would be 800 gallons. c. The price would be $5 per gallon and the quantity would be 1000 gallons. d. The price would be $4 per gallon and the quantity would be 1200 gallons.

a. The price would be $7 per gallon and the quantity would be 600 gallons.

1. Refer to Table 17-14. If player A chooses his/her best strategy, player B should a. choose left and earn a payoff of 4. b. choose left and earn a payoff of 6. c. choose right and earn a payoff of 2. d. choose right and earn a payoff of 0.

a. choose left and earn a payoff of 4.

1. In general, game theory is the study of a. how people behave in strategic situations. b. how people behave when the possible actions of other people are irrelevant. c. oligopolistic markets. d. all types of markets, including competitive, monopolistic, and oligopolistic markets.

a. how people behave in strategic situations.

1. A monopolistically competitive firm chooses its a. price and quantity just as a monopoly does. b. quantity but faces a horizontal demand curve just as a competitive firm does. c. price but can sell any quantity at the market price just as an oligopoly does. d. price and quantity based on the decisions of the other firms in the industry just as an oligopoly does.

a. price and quantity just as a monopoly does.

1. An oligopoly is a market in which a. there are only a few sellers, each offering a product similar or identical to the products offered by other firms in the market. b. firms are price takers. c. the actions of one seller in the market have no impact on the other sellers' profits. d. there are many price-taking firms, each offering a product similar or identical to the products offered by other firms in the market.

a. there are only a few sellers, each offering a product similar or identical to the products offered by other firms in the market.

1. Refer to Figure 16-9. The firm's maximum profit is a. $-5,000.00. b. $0. c. $5,000.00. d. $8,887.78.

b. $0.

1. Refer to Table 15-9. What is the marginal revenue of the 3rd unit? a. $4 b. $12 c. $20 d. $28

b. $12

1. Refer to Table 15-9. What is the marginal cost of the 4th unit? a. $4 b. $14 c. $31 d. $62

b. $14

1. A profit-maximizing monopolist charges a price of $12. The intersection of the marginal revenue and marginal cost curves occurs where output is 10 units and marginal cost is $6. Average total cost for 10 units of output is $5. What is the monopolist's profit? a. $60 b. $70 c. $100 d. $120

b. $70

1. Refer to Figure 16-9. For this firm, the long-run equilibrium quantity of output is a. 100 and the long-run equilibrium price is $90. b. 100 and the long-run equilibrium price is $140. c. 133.33 and the long-run equilibrium price is $56.67. d. 133.33 and the long-run equilibrium price is $123.33.

b. 100 and the long-run equilibrium price is $140.

1. Refer to Figure 16-9. In order to maximize its profit, the firm will choose to produce a. 100 units of output, and its profit will be positive. b. 100 units of output, and its profit will be zero. c. 133.33 units of output, and its profit will be negative. d. 133.33 units of output, and its profit will be zero.

b. 100 units of output, and its profit will be zero.

1. Refer to Table 17-14. Which of the following statements about this game is true? a. Up is a dominant strategy for A and Right is a dominant strategy for B. b. Up is a dominant strategy for A and Left is a dominant strategy for B. c. Down is a dominant strategy for A and Right is a dominant strategy for B. d. Down is a dominant strategy for A and Left is a dominant strategy for B.

b. Up is a dominant strategy for A and Left is a dominant strategy for B.

1. Refer to Table 17-14. Which outcome is the Nash equilibrium in this game? a. Up-Right b. Up-Left c. Down-Right d. Down-Left

b. Up-Left

1. Which of the following is not a reason for the existence of a monopoly? a. patents b. marginal-cost pricing c. economies of scale d. trademarks

b. marginal-cost pricing

1. Under which of the following market structures would consumers likely receive the most product variety? a. perfect competition b. monopolistic competition c. oligopoly d. monopoly

b. monopolistic competition

1. When a monopoly increases its output and sales, a. both the output effect and the price effect work to increase total revenue. b. the output effect works to increase total revenue, and the price effect works to decrease total revenue. c. the output effect works to decrease total revenue, and the price effect works to increase total revenue. d. both the output effect and the price effect work to decrease total revenue.

b. the output effect works to increase total revenue, and the price effect works to decrease total revenue.

1. Refer to Table 15-9. What price should the monopoly charge to maximize profit? a. $16 b. $20 c. $24 d. $28

c. $24

1. Refer to Figure 16-9. When the firm is maximizing its profit, the markup over marginal cost amounts to a. $16.67. b. $33.33. c. $50.00. d. $66.66.

c. $50.00.

1. Refer to Figure 15-6. What area measures the monopolist's profit? a. (K-C)*W b. (L-A)*T c. (K-B)*W d. 0.5[(K-C)*(Z-T)]

c. (K-B)*W

1. Refer to Table 17-14. If both players choose their best strategies, player A will earn a payoff of a. 0. b. 2. c. 4. d. 6.

c. 4.

1. Refer to Figure 15-6. What price will the monopolist charge? a. A b. C c. K d. L

c. K

1. Which of the following statements is not correct? a. Monopolistic competition is similar to monopoly because in each market structure the firm can charge a price above marginal costs. b. Monopolistic competition is similar to perfect competition because both market structures are characterized by free entry. c. Monopolistic competition is similar to oligopoly because both market structures are characterized by barriers to entry. d. Monopolistic competition is similar to perfect competition because both market structures are characterized by many sellers.

c. Monopolistic competition is similar to oligopoly because both market structures are characterized by barriers to entry.

1. Refer to Table 17-8. If there were many suppliers of bottled water, what would be the price and quantity? a. The price would be $6 per gallon and the quantity would be 800 gallons. b. The price would be $5 per gallon and the quantity would be 1000 gallons. c. The price would be $4 per gallon and the quantity would be 1200 gallons. d. The price would be $3 per gallon and the quantity would be 1400 gallons.

c. The price would be $4 per gallon and the quantity would be 1200 gallons.

1. Refer to Figure 15-6. How much output will the monopolist produce? a. O b. T c. W d. Z

c. W

1. When an oligopoly market reaches a Nash equilibrium, a. the market price will be different for each firm. b. the firms will not have behaved as profit maximizers. c. a firm will have chosen its best strategy, given the strategies chosen by other firms in the market. d. a firm will not take into account the strategies of competing firms.

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

1. Critics of advertising argue that in some markets advertising may a. attract products of lower quality into the market. b. attract less informed buyers into the market. c. decrease elasticity of demand allowing firms to charge a larger markup over marginal cost. d. enhance competition in markets to an unnecessary degree.

c. decrease elasticity of demand allowing firms to charge a larger markup over marginal cost.

1. The socially efficient level of production occurs where the marginal cost curve intersects a. average variable cost. b. average total cost. c. demand. d. marginal revenue.

c. demand.

1. An agreement between two duopolists to function as a monopolist usually breaks down because a. they cannot agree on the price that a monopolist would charge. b. they cannot agree on the output that a monopolist would produce. c. each duopolist wants a larger share of the market to capture more profit. d. each duopolist wants to charge a higher price than the monopoly price.

c. each duopolist wants a larger share of the market to capture more profit.

1. In pursuing its own interest, an oligopoly firm will decide to increase production by 1 unit as long as a. there is no output effect. b. there is no price effect. c. the output effect is larger than the price effect. d. the price effect is larger than the output effect.

c. the output effect is larger than the price effect.

1. Refer to Table 15-9. At the profit-maximizing price, how much profit will the monopoly earn? a. $8 b. $10 c. $12 d. $14

d. $14

1. In the prisoners' dilemma game, self-interest leads a. each prisoner to confess. b. to a breakdown of any agreement that the prisoners might have made before being questioned. c. to an outcome that is not particularly good for either prisoner. d. All of the above are correct.

d. All of the above are correct.

1. The higher the concentration ratio, the a. more control an individual firm has to set prices. b. more competitive the industry. c. less competitive the industry. d. Both a and c are correct.

d. Both a and c are correct.

1. Refer to Figure 16-9. Efficient scale is reached a. at 100 units. b. between 100 and 133.33 units. c. at 133.33 units. d. beyond 133.33 units.

d. beyond 133.33 units.

1. Refer to Figure 16-9. Given this firm's cost curves, if the firm were perfectly competitive rather than monopolistically competitive, then in a long-run equilibrium it would produce a. less than 100 units of output. b. between 100 and 133.33 units of output. c. 133.33 units of output. d. more than 133.33 units of output.

d. more than 133.33 units of output.