Econ Micro Quiz Study Guide 2

The product-variety externality arises in monopolistically competitive markets because

firms try to differentiate their products

The long-run market supply curve in a competitive market will

typically be more elastic than the short-run supply curve

Refer to Table 14-13. What is the marginal cost of the 8th unit?

$120

In summarizing the research on the externalities associated with driving cars, a 2007 Journal of Economic Literature article concluded that the optimal corrective tax on gasoline in the United States, in 2012 dollars, would be about

$2.70 per gallon

Table 15-3 Consider the following demand and cost information for a monopoly. Quantity Price Total Cost 0 $30 $3 1 $25 $7 2 $20 $12 3 $15 $18 4 $10 $25 Refer to Table 15-3. To maximize profit, the monopolist sets price at

$20

Table 17-27 Each year the United States considers renewal of Most Favored Nation (MFN) trading status with Farland (a mythical nation). Historically, legislators have made threats of not renewing MFN status because of human rights abuses in Farland. The non-renewal of MFN trading status is likely to involve some retaliatory measures by Farland. The payoff table below shows the potential economic gains associated with a game in which Farland may impose trade sanctions against U.S. firms and the United States may not renew MFN status with Farland. The table contains the dollar value of all trade-flow benefits to the United States and Farland. Refer to Table 17-27. If both countries follow a dominant strategy, the value of trade flow benefits for the United States will be

$65 b

Refer to Table 14-12. What is the marginal revenue from selling the 1st unit?

$80

Scenario 13-18 Farmer Jack is a watermelon farmer. If Jack plants no seeds on his farm, he gets no harvest. If he plants 1 bag of seeds, he gets 30 watermelons. If he plants 2 bags of seeds, he gets 50 watermelons. If he plants 3 bags of seeds he gets 60 watermelons. A bag of seeds costs $100, and the costs of seeds are his only costs. Refer to Scenario 13-18. Which of the following statements is (are) true? (i) Farmer Jack experiences decreasing marginal product. (ii) Farmer Jack's production function is nonlinear. (iii) Farmer Jack's total cost curve is linear.

(i) and (ii) only

Name brand drugs are able to continue capitalizing on their market power even after generic drugs enter the market because (i) almost all people fear the generic drug companies are devoting too few resources to research and development. (ii) some people fear that generic drugs are inferior. (iii) some people are loyal to the name brand.

(ii) and (iii) only

Figure 10-8 Refer to Figure 10-8. What is the socially-optimal quantity of output in this market?

10 units

Table 11-1 Consider the town of Springfield with only three residents, Sophia, Amber, and Cedric. The three residents are trying to determine how large, in acres, they should build the public park. The table below shows each resident's willingness to pay for each acre of the park. Acres Sophia Amber Cedric 1 $10 $24 $6 2 8 18 5 3 6 14 4 4 3 8 3 5 1 6 2 6 0 4 1 7 0 2 0 Refer to Table 11-1. Suppose the cost to build the park is $9 per acre. How large should the park be to maximize total surplus from the park in Springfield?

5 acres

Which of the following illustrates the concept of a negative externality?

A college student plays loud music on his new stereo system at 2:00 a.m

A particular cable TV company requires a household to subscribe to its high-speed Internet service if it subscribes to cable TV, and vice versa. This practice

All of the above are correct

Table 17-29 Suppose that two firms, Wild Willy's Wonderdrink (Firm W) and Hyper Hank's Hydration (Firm H), comprise the market for energy drinks. Each firm determines that it could lower its costs and increase its profits if both firms reduced their advertising budgets. But for the plan to work, each firm must agree to refrain from advertising. Each firm believes that advertising works by increasing the demand for the firm's energy drinks, but each firm also believes that if neither firm advertises, the cost savings will outweigh the lost sales. Refer to Table 17-29. Which of the following statement(s) correctly characterizes the outcome of this game?

All of the above are correct

When deciding what price to charge consumers, the monopolist may choose to charge them different prices based on the customers'

All of the above are correct

If the marginal cost of producing the fifth unit of output is higher than the marginal cost of producing the fourth unit of output, then at five units of output, average total cost must be rising.

FALSE

Table 13-16 Listed in the table are the long-run total costs for three different firms. Quantity 1 2 3 4 5 Firm A 100 100 100 100 100 Firm B 100 200 300 400 500 Firm C 100 300 600 1,000 1,500 Refer to Table 13-16. Which firm is experiencing diseconomies of scale?

Firm C only

Scenario 16-2 Suppose market demand for a product is given by the equation P = 20 - Q. For this market demand curve, marginal revenue is MR = 20 - 2Q. Refer to Scenario 16-2. If the marginal cost of producing this good is 0, what price would a profit-maximizing monopolist charge for the product?

P = 10

Which of the following is true of markets characterized by positive externalities?

Social value exceeds private value, and market quantity is less than the socially optimal quantity.

Which of the following would be most likely to have monopoly power?

a municipal water company

If only a few people are affected by an externality, then it is likely that

a private solution to the inefficiency will occur

Which of the following would be considered a private good?

a swimming suit

The Tragedy of the Commons can be corrected by

assigning property rights to individuals

If all firms have the same costs of production, then in long-run equilibrium,

all firms have zero economic profits and just cover their opportunity costs

The average fixed cost curve

always declines with increased levels of output

Table 16-3 The following table shows the output produced by each of the top eight firms in four industries as well as the total industry output for those industries. Firm Industry A Industry B Industry C Industry D 1 50,000 18,000 37,000 40,000 2 47,000 17,750 36,500 39,000 3 43,000 17,250 35,500 37,000 4 38,000 16,500 34,000 34,000 5 32,000 15,500 32,000 30,000 6 25,000 14,250 29,500 25,000 7 17,000 12,750 26,500 19,000 8 8,000 11,000 23,000 12,000 Total 270,000 130,000 300,000 250,000 Refer to Table 16-3. What is the concentration ratio for Industry A?

approximately 66%

Goods that are not excludable include both

common resources and public goods

The fundamental reason that marginal cost eventually rises as output increases is because of

diminishing marginal product

If an aluminum manufacturer does not bear the entire cost of the smoke it emits, it will

emit a higher level of smoke than is socially efficient

A tit-for-tat strategy starts out

friendly, then penalizes unfriendly players, and forgives them if warranted

Each of the following explains why cost-benefit analysis is difficult except

government projects rarely have sufficient funding to complete them on time

When there are economies of scale over the relevant range of output for a monopoly, the monopoly

is a natural monopoly

Which of these types of firms can earn a positive economic profit in the long run?

monopolies, but not competitive firms or monopolistically competitive firms

A firm that exits its market has to pay

neither its variable costs nor its fixed costs

A competitive firm is producing 500 units of output and its efficient scale is 400 units of output. Can the market in which this firm operates be in a long-run equilibrium? Briefly explain.

no

Which of the following can eliminate the inefficiency inherent in monopoly pricing?

price discrimination

The primary purpose of antitrust legislation is to

protect the competitiveness of U.S. markets

Figure 16-2. The figure is drawn for a monopolistically competitive firm. Refer to Figure 16-2. Suppose you were to add the ATC curve to the diagram to show the firm in a situation of long-run equilibrium. You would draw the ATC curve

tangent to the demand curve at the point (Q = 24, P = $36)

A lighthouse might be considered a private good if

the owner of the lighthouse is able to exclude beneficiaries from receiving the benefits of the lighthouse

Marginal cost is equal to

ΔTC/ΔQ