Econ 301 Final MC Questions

If a product is perceived by consumers as homogeneous, which of the following strategies will work to induce brand loyalty?

Frequent buyer rebate programs

The own price elasticity of demand for apples is −1.2. If the price of apples falls by 5 percent, what will happen to the quantity of apples demanded?

It will increase 6 percent.

Firms have market power in:

Correct answer: monopolistically competitive markets and monopolistic markets

Snowpeak Ski Resort offers a price for a lift ticket that is barely over its marginal cost, but the high equipment rental fee keeps generating big profits. Which pricing strategy is the management using?

Cross-subsidization

Which of the following statements is NOT correct?

It is always desirable to have more information than the person one is trading with.

What is implied when the total cost of producing Q1 and Q2 together is less than the total cost of producing Q1 and Q2 separately?

Economies of scope

If insurance companies are required to offer coverage to all interested people, it is said that premiumsfor each person will be increased. Assume that the insurance market is perfectly competitive. What is themajor reason for raising the premium?

Less healthy people join the pool of insured and hence increase the risk and the premium.

Which of the following pricing strategies is NOT used in markets with special cost and demand structures?

Low-price guarantees

In a competitive industry with identical firms, long-run equilibrium is characterized by:

MR = MC = min ATC

________ occurs when people smoke more after buying life insurance.

Moral hazard

The idea of charging two different groups of consumers two different prices is practiced in:

None of the answers are correct.

Which of the following is true under monopolistic competition in the short run?

P > MC

Which of the following is true under monopolistic competition in the long run?

Profits are always zero

A monopoly has produced a product with a patent for the last few years. The patent is going to expire. What will happen after the patent expires?

Some firms will enter the industry

Which of the following is NOT a condition for a firm to engage in price discrimination?

The consumers are sincere in revealing their true natures

People with a bad driving record find it difficult to buy automobile insurance because insurancecompanies fear that ________ may happen if they raise the premiums

adverse selection

Assume that the price elasticity of demand is −2 for a certain firm's product. If the firm raises price, the firm's managers can expect total revenue to:

decrease.

Suppose the long-run average cost curve is U-shaped. When LRAC is in the increasing stage, there exist:

diseconomies of scale.

It is profitable to hire additional unit of labor as long as the value of marginal product of labor:

exceeds wage rate.

Price-matching strategies may fail to enhance profits when:

firms cannot prevent customers from making deceptive claims or firms have different marginal costs.

Despite a 21 percent drop in the average selling price of its line of phones, a major smartphone manufacturer's product shipment increased by 108 percent. Given this information, we would expect the company's revenue to:

increase

The quantity consumed of a good is relatively unresponsive to changes in price whenever demand is:

inelastic.

According to Wikipedia.com, former Philippines President Marcos authorized construction of a newnuclear power plant on a known earthquake fault line in the province of Bataan. The projected $500million power plant was to be constructed by Westinghouse. The project was backed by EXIR—a U.S.government-backed Export Credit Agency—which guaranteed the Philippine loan to Westinghouse. Theactual cost of the completed project was $2.3 billion. Westinghouse was paid despite the fact that thenuclear plant never went online since it was built on a fault line. This is an example of:

moral hazard

We would expect the demand for jeans to be:

more elastic than the demand for clothing.

Suppose the marginal product of labor is 8 and the marginal product of capital is 2. If the wage rate is $4 and the price of capital is $2, then in order to minimize costs the firm should use:

more labor and less capital.

Differentiated goods are NOT a feature of a:

perfect competition and monopoly

A Broadway theater sells weekday show tickets at a lower price than for a weekend show. This is an example of

price discrimination or peak-load pricing.

A mixed strategy is a strategy that:

randomizes over two or more available actions in order to keep rivals from being able to predict a player's action.

In order to reduce the undesirable effects of moral hazard, an insurance company can:

reject the renewal of policies of those people with really bad records.

When a one percent change in price causes a change in quantity demanded greater than one percent, demand for the product is

relatively elastic

The long run is defined as:

the horizon in which the manager can adjust all factors of production.