Econ Final
Suppose you are a manager of a firm that operates in a duopoly. Recently, the state attorney general fined you and your competitor for price fixing. In your market, firms only set prices, not total quantities to sell. From previous experience you know your competitor has a marginal cost of $2.90. Further, your marginal costs are $2.88. The previous cartel price was $10.00 (when you and your competitor were price fixing). What price level do you now choose to maximize profits? 10 10.10 2.90 2.88 2.89 2.78
2.89
Which of the following is true of the Prisoner\'s Dilemma? In the game that includes two prisoners, from which this game derives its name, neither prisoner will confess and they will both walk free. In the prisoner\'s dilemma, firms could do better if they both did exactly the opposite of what they ultimately choose to do. Firms in a repeated game are more likely to fall into the prisoner\'s dilemma. One player has a dominant strategy and the other has a mixed strategy. The prisoner\'s dilemma is an example of a cooperative equilibrium.
In the prisoner\'s dilemma, firms could do better if they both did exactly the opposite of what they ultimately choose to do.
In the short run, perfectly (or purely) competitive firms will maximize their profit by producing (select all options that apply): A quantity where marginal revenue > marginal cost. The quantity where marginal revenue = marginal cost. The largest quantity possible, not considering costs or revenues. A small quantity to drive up the price. The quantity where price equals marginal cost.
The quantity where price equals marginal cost. The quantity where marginal revenue = marginal cost.
Which of the following firms is most likely to be a natural monopoly? a. Municipal Power Light, the local supplier of electricity. b.A pharmaceutical company that has the exclusive right to sell a patented drug. c. A restaurant that is unable to practice price discrimination and must charge all consumers the same price. d. A firm that owns nearly all of the diamond mines in the world.
a. Municipal Power Light, the local supplier of electricity.
The large barriers to entry are a reason a monopoly: a. earns an economic profit in the long run. b. produces at the minimum average total cost in the long run. c. produces with no fixed costs in the long run. d. maximizes its profits by producing where P = MC.
a. earns an economic profit in the long run.
Price discrimination leads to a _____ price for consumers with a _____ demand. a. higher; less elastic b. higher; more elastic c. higher; perfectly elastic d. lower; less elastic
a. higher; less elastic
In the short run, if P = ATC, a perfectly competitive firm: a. produces output and earns zero economic profit. b. produces output and earns an economic profit. c. produces output and incurs an economic loss. d. does not produce output and incurs an economic loss.
a. produces output and earns zero economic profit.
Collusive agreements are typically difficult for cartels to maintain because each firm can increase profits by: a. producing more than the quantity that maximizes joint profits. b. producing less than the quantity that maximizes joint profits. c. charging more than the price that maximizes joint cartel profits. d. advertising less than will maximize joint cartel profits.
a. producing more than the quantity that maximizes joint profits.
If a perfectly competitive firm sells 10 units of output at $30 per unit, its marginal revenue is: a. $10. b. $30. c. more than $30. d. $300.
b. $30.
The market for breakfast cereal contains hundreds of similar products, such as Froot Loops, cornflakes, and Rice Krispies, that are considered to be different products by different buyers. This situation violates the perfect competition assumption of: a. many buyers and sellers. b. a standardized product. c. ease of entry. d. ease of exit.
b. a standardized product.
In perfectly competitive long-run equilibrium: a. all firms make positive economic profits. b. all firms produce at the minimum point of their average total cost curves. c. the industry supply curve must be upward-sloping. d. all firms face the same price, but the value of marginal cost will vary directly with firm size.
b. all firms produce at the minimum point of their average total cost curves.
One framework used to analyze strategic choices is: a. the tacit supply curve model. b. game theory. c. perfect competition. d. risk assessment.
b. game theory.
Product differentiation is most likely to occur when firms: a. engage in price wars. b. have tacit agreements not to engage in price wars. c. behave in a Bertrand model environment. d. follow a kinked demand curve model.
b. have tacit agreements not to engage in price wars.
Price in a perfectly competitive industry: a. is determined by each firm, depending on its costs of production. b. is always equal to marginal revenue for the firm. c. must be greater than average total cost or the firm will shut down in the short run. d. is indeterminate in the short run.
b. is always equal to marginal revenue for the firm.
If rival solar roof panel manufacturers in Reno limit production and _____ prices in a way that increases their profits without meeting with one another in a formal way, they are engaging in _____ collusion. a. lower; tacit b. raise; tacit c. lower; explicit d. raise; explicit
b. raise; tacit
Suppose that a monopoly computer chip maker increases production from 10 microchips to 11 microchips. If the market price declines from $30 per unit to $29 per unit, marginal revenue for the eleventh unit is: a. $1. b. $9. c. $19. d. $29.
c. $19
What is a natural monopoly? a. A monopoly resulting from one firm\'s exclusive ownership of a natural resource required to produce a good. b.A market in which there is only one firm. c. A monopoly that results when one firm is able to produce at a lower cost than multiple firms, giving large firms with higher levels of output an advantage over smaller competitors. d. A monopoly that results from government issuing patents.
c. A monopoly that results when one firm is able to produce at a lower cost than multiple firms, giving large firms with higher levels of output an advantage over smaller competitors.
Which of the following scenarios best describes an oligopolistic industry? a. A single cable company serves customers in a small town. b. Thousands of soybean farmers sell their output in a global commodities market. c. Coca-Cola and Pepsi sell most of the soft drinks consumed around the world. d. A college has one bookstore selling textbooks to students.
c. Coca-Cola and Pepsi sell most of the soft drinks consumed around the world.
Which of the following is TRUE? a. Once an industry has achieved tacit collusion, producers have an incentive to raise prices. b. The fact that one firm changes its price shortly after another firm does is proof of tacit collusion. c. It is difficult to determine how much tacit collusion exists in a particular industry; hence tacit collusion remains hard to prosecute in the United States.
c. It is difficult to determine how much tacit collusion exists in a particular industry; hence tacit collusion remains hard to prosecute in the United States.
Consider a perfectly competitive firm in the short run. Assume the firm produces the profit-maximizing output and earns economic profits. Which statement is FALSE? a. Price is equal to marginal cost. b. Price is equal to marginal revenue. c. Price is equal to average total cost. d. Marginal cost is greater than average total cost.
c. Price is equal to average total cost.
A monopoly is characterized by the which of the following? a. Many firms producing identical products with no control over the market price. b. Many firms producing differentiated products with control over market price. c. A single firm producing a product with no close substitutes and control over the market price. d. A single firm producing a product with many close substitutes and limited control over the market price.
c. a single firm producing a product with no close substitutes and control over the market price.
To be called an oligopoly, an industry must have: a. independence in decision making. b. a horizontal demand curve. c. a small number of interdependent firms. d. relatively easy entry and exit.
c. a small number of interdependent firms.
The short-run supply curve for a perfectly competitive firm is its: a. demand curve above its marginal revenue curve. b. marginal revenue curve to the right of its marginal cost curve. c. marginal cost curve above its average variable cost curve. d. average total cost curve below its marginal cost curve.
c. marginal cost curve above its average variable cost curve.
The city bus system charges lower fares to senior citizens than to other passengers. Assuming that this pricing strategy increases the profits of the bus system, we can conclude that senior citizens must have a _____ demand for bus service than other passengers. a. greater b. lower c. more elastic d. less elastic
c. more elastic
Perfect competition is characterized by: a. rivalry in advertising. b. fierce quality competition. c. the inability of any one firm to influence price. d. widely recognized brands.
c. the inability of any one firm to influence price.
Lieutenant Idaho is a superhero who can change any object into a potato with his special wok. Chicken Wing has a bow that shoots magical drumsticks at people, and Cast Iron Woman wields an impossibly heavy skillet. Since all three have racked up massive student loans, they each decided to form sole proprietorships and fight super-villains and repel alien invasions for a fee. Being the only people in the world able to withstand the super-villains and aliens, they formally agree to team up, restrict how much work they each do, and charge a price much higher than their marginal cost. What is the economic term for this group? duopoly department of justice cartel monopoly dominant strategists
cartel
Mr. Porter sells 10 bottles of champagne per week at $50 per bottle. He can sell 11 bottles per week if he lowers the price to $45 per bottle. The quantity and the price effects on total revenue would be, respectively, an increase of _____ and a decrease of _____. a. $450; $500 b. $495; $550 c. $45; $5 d. $45; $50
d. $45; $50
A monopoly will have a Herfindahl-Hirschman index equal to: a. 1. b. 100. c. 1,000. d. 10,000.
d. 10,000.
Which of the following statements about the differences between monopoly and perfect competition is INCORRECT? a. A monopolist has market power, while a perfect competitor does not. b. Unlike a perfectly competitive firm, a monopoly can make positive economic profits in the long run. c. A monopoly will charge a higher price and produce a smaller quantity than a competitive market with the same demand and cost structure. d. Monopoly profits can continue in the long run because the monopoly produces more and charges a higher price than a comparable perfectly competitive industry.
d. Monopoly profits can continue in the long run because the monopoly produces more and charges a higher price than a comparable perfectly competitive industry.
If the price is consistently below average total cost, then in the short run a perfectly competitive firm should: a. shut down. b. continue to produce to minimize losses. c. raise the price. d. There is not enough information given to answer this question.
d. There is not enough information given to answer this question.
You own a lemonade stand in a competitive market, and as such, you are a price-taking firm. Which of the following events would most likely increase your market power? a. The government abolishes the system of patents and copyrights. b. A booming economy increases the demand for lemonade and attracts entry into the market. c. The average total cost curve for firms in the industry is horizontal. d. You own exclusive rights to harvest lemons from all domestic citrus orchards.
d. You own exclusive rights to harvest lemons from all domestic citrus orchards.
If a monopolist is producing a quantity that generates MC > MR, then profit: a. is maximized. b. is maximized only if MC = P. c. can be increased by increasing production. d. can be increased by decreasing production.
d. can be increased by decreasing production.
Suppose that in the small town, Prairie, there are only two cable providers. What type of market structure does the local cable market have? perfect competition monopolistic competition duopoly monopoly
duopoly
Monopolies produce differentiated products.
false
Monopolistic competition is a market structure that consists of a small number of producers.
false
Perfect (pure) competition is characterized by product differentiation.
false
True or False? firms do not have incentive to price discriminate because it results in some groups paying a lower price than others
false
True or False? perfect price discrimination is when perfectly competitive firms charge some people higher prices than others
false
True or False? price discrimination is illegal under all circumstances
false
True or False? price discrimination only occurs with natural monopolies
false
true or false? price leadership is illegal
false
true or false? price leadership prevents cooperation among competing firms
false
help or impede collusion? charles and nola both charge a fixed per person price for a party
help
help or impede collusion? nola and charles are regulars at the same coffee house and talk regularly
help
help or impede collusion? a party planning school opens and the graduates are ready to plan
impede
help or impede collusion? charles develops a signature appetizer
impede
help or impede collusion? most of the parties are given by tridents largest supplier
impede
help or impede collusion? nola lowers her national price on tv
impede
help or impede collusion? nolas marginal cost is lower than charles
impede
is this a characteristic of a monopoly or a perfect competition? firms can earn positive economic profit in the long run
monopoly
is this a characteristic of a monopoly or a perfect competition? price is higher than in other market structures
monopoly
is this a characteristic of a monopoly or a perfect competition? there are significant barriers to entry
monopoly
is this a barrier to entry? tinseltown theaters shows almost all of the most popular movies
no
is this a characteristic of a monopoly or a perfect competition? an efficient quantity is produced
perfect competition
is this a characteristic of a monopoly or a perfect competition? firms have no market power
perfect competition
What is assumed in perfect competition? price taking behavior small number of producers significant barriers to entry firms selling a similar but differentiated good
price taking behavior
What is the definition of a dominant strategy in game theory? To allocate all personnel resources towards defensive talent in order to dominate opposing offenses The best strategy to pick no matter which moves are chosen by the other player The choice that causes the payoff for the other player to be minimized, regardless of the payoff it earns The best strategy to pick, assuming the other player picks their own best choice To make the exact same move that was made by the other player
the best strategy to pick no matter which moves are chosen by the other player
Oligopolies exist in a market that has a small number of producers that may or may not exhibit product differentiation.
true
True or False? airlines are often able to price discriminate
true
True or False? all else equal, single price monopolists earn lower profits than firms that can price disciminate
true
true or false? price leadership is a form of implicit (tacit) collusion
true
true or false? price leadership occurs when one firm announces a price and the other firms match the price
true
is this a barrier to entry? boeing already serves a large fraction of the jumbo jet market and is able to produce at a lower average cost than any potential competitors
yes
is this a barrier to entry? deBeers owning nearly all of the worlds diamond mines
yes
is this a barrier to entry? pfizer being the only firm to be legally allowed to produce and sell lipitor
yes
For firms in perfectly (purely) competitive markets, long run economic profits are ??? because firms will ??? this market if profits are less than that and ??? this market if profits are greater than that.
zero, exit, enter
