Econ Exam 3

Natural Monopoly:

economies of scale are so large that one firm can supply the entire market at a cheaper price then other firms

Oligopoly:

few competitors, products can be same or differentiated, and some barriers to entry.

Explicit Costs (accounting costs):

firm spending money/purchasing things

Monopolistic Competition:

many competitors, products are differentiated, low barriers to entry.

monopoly:

no competitors, unique products, and barriers to entry

Implicit Costs:

non-monetary opportunity costs (value of next best alternative)

Economies of scale:

when long run average costs fall as quantity increases

The result of adverse selection is that A) lower-quality producers drive higher-quality producers out of the market. B) higher-quality producers receive a higher price than they would if adverse selection was not present. C) higher-quality producers drive lower-quality producers out of the market. D) consumers will be able to purchase only high-quality products.

A) lower-quality producers drive higher-quality producers out of the market.

An example of adverse selection is A) when consumers are not willing to pay top dollar for a used car because of imperfect information. B) when high-quality loan applicants drive low-quality loan applicants out of the market for bank loans. C) when a person discovers that he has a serious illness and then purchases health insurance. D) All of the above are examples of adverse selection.

A) when consumers are not willing to pay top dollar for a used car because of imperfect information.

A monopolist faces A) a perfectly elastic demand curve. B) a downward-sloping demand curve. C) a perfectly inelastic demand curve. D) a horizontal demand curve.

B) a downward-sloping demand curve.

For a natural monopoly to exist A) a firm must have a government-imposed barrier. B) a firm's long-run average cost curve must exhibit economies of scale throughout the relevant range of market demand. C) a firm must continually buy up its rivals. D) a firm's long-run average cost curve must exhibit diseconomies of scale beyond the economically efficient output level.

B) a firm's long-run average cost curve must exhibit economies of scale throughout the relevant range of market demand.

To maintain a monopoly, a firm must have A) marginal revenue equal to demand. B) an insurmountable barrier to entry. C) a perfectly inelastic demand. D) few competitors.

B) an insurmountable barrier to entry.

Why does a monopoly cause a deadweight loss? A) because it appropriates a portion of consumer surplus for itself B) because it stops producing output at a point where price is above marginal cost C) because it increases producer surplus at the expense of consumer surplus D) because it does not produce some output for which demand exceeds supply

B) because it stops producing output at a point where price is above marginal cost

Which of the following statements represents the signaling effect of a college education? A) The information gained in a college classroom increases the productivity of graduates. B) Education can turn an unproductive person into an productive person. C) A person who is naturally more productive is likely to invest in education. D) all of the above

C) A person who is naturally more productive is likely to invest in education.

In a prisoner's dilemma, the Nash equilibrium occurs where A) only one ends up with his best outcome. B) the one who goes first ends up with his best outcome. C) neither person ends up with their best outcome. D) both end up with their best outcome.

C) neither person ends up with their best outcome.

Which of the following is NOT one of the four steps for making good strategic decisions? Consider all the possible outcomes. Play your best response. Consider all the possible "what ifs" simultaneously. Put yourself in other people's shoes.

Consider all the possible "what ifs" simultaneously.

Peet's Coffee and Teas produces some flavorful varieties of Peet's brand coffee. Is Peet's a monopoly? A) No, Peet's is not a monopoly because there are many branches of Peet's. B) Yes, Peet's is the only supplier of Peet's coffee in a market where there are high barriers to entry. C) Yes, there are no substitutes to Peet's coffee. D) No, although Peet's coffee is a unique product, there are many different brands of coffee that are very close substitutes.

D) No, although Peet's coffee is a unique product, there are many different brands of coffee that are very close substitutes.

In the area of market signaling, education is a strong signal in the job market because A) education is costly to obtain. B) it tells employers that you have gained skills that will be useful in the work place. C) firms can easily verify your level of education. D) education is less costly to obtain for highly productive individuals who are also likely to be highly productive in the work place.

D) education is less costly to obtain for highly productive individuals who are also likely to be highly productive in the work place.

If a monopolist wishes to increase its output and quantity sold A) it must raise its price, so its marginal revenue is less than its price. B) it must reduce its price, so its marginal revenue is greater than its price. C) it must raise its price, so its marginal revenue is greater than its price. D) it must reduce its price, so its marginal revenue is less than its price.

D) it must reduce its price, so its marginal revenue is less than its price.

Explicit + Implicit Costs =

Economic Costs

When looking at a payoff table, what does it mean to "Put yourself in someone else's shoes"? Look at the other party's options to see if those options are better than yours. Try to take on the roles of both parties to determine which choices lead to the best of all possible outcomes. Negotiate with the other party to switch places with that party. Figure out what decision the other party is likely to make, given the other party's incentives.

Figure out what decision the other party is likely to make, given the other party's incentives.

hidden characteristics

One party knows something about the good/service that the other doesn't.

Perfectly competitive

Three conditions, firstly has many buyers and sellers, all of which are small. Second, sell identical products. Thirdly, no barriers to entry