ECON 323

Which of the following statement is WRONG? Negative externality results in over-production. Negative externality results in efficiency loss. Positive externality results in under-production. Positive externality results in efficiency loss. Internalizing positive externality results in efficiency loss.

Internalizing positive externality results in efficiency loss.

A monopolist? Produces a quantity less than its production at the Bertrand competition outcome when there is another competitor with lower costs (when both have constant MC). Produces a quantity greater than its production at the Bertrand competition outcome when there is another competitor with equal marginal costs (when both have constant MC). Produces a quantity that is greater than the competitive outcome. Never makes a positive profit. Produces a quantity that is generally less than the competitive outcome.

Produces a quantity that is generally less than the competitive outcome.

A tennis coach charges $15 per hour for tennis lesson for children and $30 per hour for tennis lessons for adults. This can be viewed as a practice of ______. Perfect first-degree price discrimination Imperfect first-degree price discrimination Second-degree price discrimination Third-degree price discrimination None of the above

Third-degree price discrimination -Such a practice charges different prices for groups of consumers with different demand, and thus is a practice of third-price discrimination.

A monopolist's marginal revenue is 0 whenever the price elasticity of demand is -1. True False

True

Perfect competition increases the aggregate welfare in the society compared to the monopoly outcome. True False

True -Competition reduces DWL, so increases aggregate welfare.

Which of the following statements is WRONG? Under the first-degree price discrimination, consumer surplus is equal to zero. Under the first-degree price discrimination, producer surplus is maximized. Under the first-degree price discrimination, social welfare is minimized. Under the first-degree price discrimination, the dead-weight loss is zero. Under the first-degree price discrimination, the total welfare is higher than that under the profit-maximizing single price scheme.

Under the first-degree price discrimination, social welfare is minimized. -Under the first-degree price discrimination, CS=0, PS is maximized, DWL=0, and social welfare is maximized.

Which of the following effect is NOT considered an externality? Drunk driving jeopardizes public safety. Your neighbor's dog keeps barking at night so that you cannot sleep. Air pollution emitted by motor vehicles is detrimental to public health. Recycling reduces landfills. You drink too much coffee and cannot sleep at night.

You drink too much coffee and cannot sleep at night.

If the inverse demand function for a monopoly's product is p = a - bQ, then the firm's marginal revenue function is: a - 2bQ a 2bQ a - bQ/2 a - bQ

a - 2bQ -If p = a - bQ then Revenue = pQ = aQ - bQ 2. Therefore, MR = a - 2bQ.

A Nash Equilibrium is a profile of actions in which each agent is playing ________ to the other player's action. a strictly dominant action a strictly dominated action a best response a worst response a dynamic response

a best response

A strictly dominant action produces: a higher payoff than any other action the player can use for every possible action of the other players. a lower payoff than any other action the player can use for every possible combination of the other players. the same payoff as any other action the player can use for every possible combination of the other players. a lower or the same payoff as any other action the player can use for every possible combination of the other players. a lower payoff than any other action the player can use for one possible combination of the other players.

a higher payoff than any other action the player can use for every possible action of the other players.

Loud music from a neighbor's party is: a negative externality whether or not you like it. a positive externality whether or not you like it. a positive externality if you like the music, and a negative externality if you don't. a negative externality if you like the music, and a positive externality if you don't. never an externality.

a positive externality if you like the music, and a negative externality if you don't.

The profile of actions in which each agent plays ________ is always a Nash equilibrium. a strictly dominant action a strictly dominated action a dominated action a strict action a dynamic action

a strictly dominant action

A monopolist maximizes profits by: charging price equal to marginal cost. by setting marginal profit equal to marginal cost. by charging price equal to average cost. by setting MR(q)=MC(q) at a q for which p(q) is at least AVC(q) by setting marginal revenue equal to marginal profit at a q for which p(q) is at least AVC(q)

by setting MR(q)=MC(q) at a q for which p(q) is at least AVC(q) -The monopolist maximizes profits by setting marginal profit equal to 0. Since marginal profit=MR-MC, this is equivalent to setting MR=MC.

In an imperfect competition market, consumers internalize the consequences of their pricing/consumption decisions. firms internalize the consequences of their pricing/production decisions. neither agents nor firms can affect prices. only firms are price takers. consumers do not maximize utility and firms do not maximize profits.

firms internalize the consequences of their pricing/production decisions. -In an imperfect competition market, firms internalize the consequences of their pricing/ production decisions. Agents are price takers.

The Bertrand equilibrium ____. has a lower social welfare than competitive equilibrium has a higher price than competitive equilibrium has a lower social welfare than Cournot equilibrium has a higher social welfare than competitive equilibrium has zero dead-weight loss

has zero dead-weight loss -Bertrand equilibrium has the same output, price, and welfare as the competitive equilibrium. As competitive equilibrium has zero dead-weight loss, Bertrand equilibrium has zero dead-weight loss. Bertrand equilibrium thus achieves higher social welfare than Cournot equilibrium.

A monopoly: is a market in which production is controlled by a small number of firms. takes prices as given. does not maximize profits. is a firm that controls 100% of the production of a certain good. does not induce a deadweight loss.

is a firm that controls 100% of the production of a certain good. - A monopoly is a firm that controls 100% of the production of a certain good. It internalize the consequences of their pricing/ production decisions.

The ability of a monopoly to charge a price that exceeds marginal cost depends on: price elasticity of demand price elasticity of supply the firm's cost function slope of the demand curve shape of the marginal cost curve

price elasticity of demand -A monopoly can charge a price over marginal cost when consumers are not perfectly elastic

In comparing the Cournot equilibrium with the competitive equilibrium, both profit and output level are higher in Cournot. both profit and output level are higher in the competitive equilibrium. profit is higher, and output level is lower in the competitive equilibrium. profit is higher, and output level is lower in Cournot. profit is higher, and output level is the same with Cournot.

profit is higher, and output level is lower in Cournot. -Cournot equilibrium has lower output level and high price.

Relative to the Nash equilibrium in the Cournot model, the Nash equilibrium in the Bertrand model with homogeneous products ____. results in the same output but a higher price results in the same output but a lower price results in a larger output at a lower price results in a smaller output at a higher price results in the larger output at a higher price

results in a larger output at a lower price

A monopolist sells at a price higher than its marginal cost at q*. sells at a price lower than its marginal cost at q*. sells at a price the same as its marginal cost at q*. sells at a price lower than the competitive price. sells at the same price as the competitive price.

sells at a price higher than its marginal cost at q*. -A monopolist (1) produces less than the competitive outcome, (2) sells at a price higher than the competitive price, (3) sells at a price higher than its marginal cost at q* and (4) has higher profits than what would have in a competitive market (q* is different from the competitive quantity).

A monopolist sells at a price lower than the competitive price. sells at a price higher than the competitive price. sells at the same price as the competitive price. produces the same units as the competitive outcome. has the same profits as what would have in a competitive market.

sells at a price higher than the competitive price.

For a monopoly, marginal revenue is less than price because: the firm must lower price if it wishes to sell more output. the demand for the firm's output is perfectly elastic. the firm can sell all of its output at any price. the firm is a price taker. the firm has no supply curve.

the firm must lower price if it wishes to sell more output. -Marginal revenue is less than price because a monopolist faces a downward sloping demand function.

Constructing plastic containers produces air pollutants. Therefore, in the market for plastic containers, _____. the marginal social cost curve is above the demand curve the marginal social cost curve is below the demand curve the marginal social cost curve is above the supply curve the marginal social cost curve is below the supply curve the marginal social cost curve is identical with the supply curve

the marginal social cost curve is below the supply curve

When we identify a strictly dominated action, it is reasonable to predict the strictly dominated action may be selected. the strictly dominated action will not be selected. the strictly dominated action may or may not be selected. the strictly dominated action must be selected. the strictly dominated profile will outperform the market.

the strictly dominated action will not be selected.