Micro Econ Hw Questions

Given the large amount of interdependence among them, cooperation with one's competitors is the most profitable strategy for: A. oligopolists. B. monopolists. C. monopolistic competitors. D. perfect competitors.

A

If a monopolist is producing a quantity that generates MC > MR, then profit: A. can be increased by increasing price. B. is maximized. C. is maximized only if MC = P. D. can be increased by decreasing price.

A

If economic profits exist in perfect competition, then firms will enter in the long run because of easy entry, the ________ curve will shift to the right, and ________ in the market will ________. A. supply; output; increase B. demand; price; increase C. supply; demand; also shift to the right D. demand; supply; fall

A

One of the major differences between a monopolist and a purely competitive firm is that the monopolist has a ________ demand curve, while the purely competitive firm has a ________ demand curve. A. downward-sloping; perfectly elastic B. perfectly elastic; downward-sloping C. downward-sloping; perfectly inelastic D. perfectly inelastic; perfectly elastic

A

Suppose a monopolistically competitive firm can increase its profits by decreasing its output. Then it must be the case that at the current output: A. marginal revenue is less than marginal cost. B. price is less than average total cost. C. price is less than marginal revenue. D. marginal revenue is less than zero.

A

Suppose that each of two prisoners has the independent choice of confessing to a crime or not confessing to a crime they were both alleged to commit. If neither confesses, they spend 2 years in jail; if both confess, they spend 3 years in jail. If one confesses and the other does not, the confessor gets off with 1 year in jail while the other gets 6 years in jail. According to game theory, the likely strategy of the prisoners is that: A. both will confess. B. both may or may not confess. C. neither will confess. D. one will confess and the other will not.

A

You own a lemonade stand in a competitive lemonade market, and as such, you are a price-taking firm. Which of the following events would most likely increase your market power? A. You own exclusive rights to harvest lemons from all domestic citrus orchards. B. The average total cost curve for firms in the industry is horizontal. C. A booming economy increases the demand for lemonade and attracts entry into the market. D. The government abolishes the system of patents and copyrights.

A

A Japanese steel firm sells steel in the United States and in Japan. Since the United States buys steel from a number of sources, the U.S. demand for Japanese steel is more price-elastic than the Japanese demand for Japanese steel. If the Japanese steel firm wishes to maximize its profits, it should: A. figure out which market is more profitable and sell only in that market. B. charge a lower price in the United States and a higher price in Japan. C. charge the same price in both countries (after adjusting for transportation costs). D. charge a higher price in the United States and a lower price in Japan; otherwise it would be accused of unfair trade practices.

B

If a perfectly competitive firm increases production from 10 units to 11 units and the market price is $20 per unit, total revenue for 11 units is: A. $20. B. $220. C. $10. D. $200.

B

In perfect competition, the firm produces the output such that ________, and in monopoly, the firm produces the output such that ________. A. P > MR = MC; P = MR = MC B. P = MR = MC; P > MR = MC C. P = MR = MC; P = MR = MC D. P = MR = MC; P < MR = MC

B

In the short run, if AVC < P < ATC, a perfectly competitive firm: A. does not produce output and earns an economic profit. B. produces output and incurs an economic loss. C. does not produce output and earns zero economic profit. D. produces output and earns an economic profit.

B

Monopolistically competitive firms have zero economic profits in the long run because of: A. price wars among firms. B. easy entry and exit. C. excessive advertising. D. excess capacity.

B

The profit-maximizing rule MC = MR is followed by firms operating within: A. either monopolistic competition or perfect competition, depending on the costs of production. B. both monopolistic competition and perfect competition. C. perfect competition but not monopolistic competition. D. monopolistic competition but not perfect competition.

B

To calculate the Herfindahl-Hirschman index (HHI), one must: A. sum the market shares of all of the firms in the industry. B. sum the squared market shares of all firms in the industry. C. sum the market shares of the four largest firms in the industry. D. divide the market share of the largest firm by the sum of the four largest firms in the industry.

B

When a monopolistically competitive firm is making zero economic profits, it is producing at the output level at which the average total cost curve is tangent to the demand curve faced by the firm. At this output: A. the condition that marginal revenue equals marginal cost continues to be relevant, but the marginal revenue and marginal cost curves need not intersect directly below the point of tangency between the average total cost curve and the demand curve faced by the firm. B. the firm is maximizing profits, and marginal cost must equal marginal revenue. C. since economic profits are equal to zero, the condition that marginal revenue equals marginal cost is irrelevant and need not hold. D. the firm is not maximizing profits, and a slight increase or decrease in output will lead to positive profits

B

When a perfectly competitive industry is in longrun equilibrium, its firms: A. earn more than zero economic profits. B. allocate all of their resources efficiently. C. are not in short-run equilibrium. D. combine their variable and fixed resources inefficiently.

B

A natural monopoly exists whenever a single firm: A. is owned and operated by the federal or local government. B. is investor owned but has been granted the exclusive right by the government to operate in a market. C. has economies of scale over the entire range of production that is relevant to its market. D. has gained control over a strategic input of an important production process.

C

A perfectly competitive firm maximizes profit by producing the quantity at which: A. TR = TC. B. P > AVC. C. MR = MC. D. Q × (P - ATC) = 0.

C

An extreme case of oligopoly in which firms collude to raise joint profits is known as a: A. dominant producer. B. duopoly. C. cartel. D. price war.

C

Because business travelers' demand for airline flights is relatively ________, small increases in price will result in relatively ________ in additional business travelers. A. price-inelastic; large decreases B. price-elastic; large decreases C. price-inelastic; small decreases D. price-elastic; small decreases

C

For the monopolistically competitive wild-caught seafood market, the demand curve for any individual firm is ________, and there are ________ producers of seafood. A. vertical; few B. upward sloping; many C. downward sloping; many D. downward sloping; few

C

If a Florida strawberry wholesaler operates in a perfectly competitive market, that wholesaler will have a ________ share of the market, and consumers will consider her strawberries to be ________. Therefore, ________ advertising will take place in this market. A. large; standardized; no B. large; differentiated; extensive C. small; standardized; little, if any D. small; differentiated; no

C

If firms are experiencing economic losses in the short run, firms will leave the industry, industry output will ________, and economic losses will ________ in the long run. A. fall; rise B. rise; rise C. fall; fall D. rise; fall

C

In the short run, if P = ATC, a perfectly competitive firm: A. produces output and earns an economic profit. B. produces output and incurs an economic loss. C. produces output and earns zero economic profit. D. does not produce output and incurs an economic loss.

C

Marginal revenue: A. is the change in quantity divided by the change in total revenue. B. is the slope of the average revenue curve. C. equals the market price in perfect competition. D. is the price divided by the change in quantity.

C

A monopolistically competitive industry is characterized by a: A. small number of firms producing similar products, with relatively easy entry for firms. B. large number of firms producing identical products, with relatively easy entry for firms. C. small number of firms producing identical products, with barriers to entry for firms. D. large number of firms producing similar products, with relatively easy entry for firms.

D

In an industry characterized by extensive economies of scale: A. small companies will drive out large companies. B. small and large companies are equally profitable. C. small companies are more profitable than large companies. D. large companies are more profitable than small companies.

D

In the short run, a perfectly competitive firm produces output and earns an economic profit if: A. P = ATC. B. P < AVC. C. AVC > P > ATC. D. P > ATC.

D

Marginal revenue for a monopolist is: A. equal to average revenue. B. equal to price. C. greater than price. D. less than price.

D

The GoSports Company is a profit-maximizing firm with a monopoly in the production of school team pennants. The firm sells its pennants for $10 each. We can conclude that GoSports is producing a level of output at which: A. marginal revenue equals $10. B. average total cost equals $10. C. average total cost is greater than $10. D. marginal cost equals marginal revenue.

D