ECON Exam 3
Suppose the demand curve for a good is downward sloping and the supply curve is upward sloping. At the market equilibrium, if demand is more elastic than supply in absolute value, a $1 specific tax will A. raise the price to consumers by less than 50 cents. B. raise the price to consumers by $1. C. raise the price to consumers by more than 50 cents. D. raise the price to consumers by 50 cents.
A
Suppose the market demand curve for tacos can be expressed as QD = 120− 3P − Pb, where QD is the quantity of tacos demanded, P is the price of a taco, and Pb is the price of a burrito. What is the relationship between burritos and tacos, from the point of view of consumers? A. They are complements. B. They are substitutes. C. They are independent. D. Not enough information to answer the question.
A
Television stations have seemingly synchronized their commercial breaks. This is likely an example of A. tacit collusion. B. pure strategies. C. mixed strategies. D. explicit collusion.
A
The deadweight loss generated by a perfect−price−discriminating monopoly A. equals zero. B. is greater than the deadweight loss of a single−price monopoly. C. equals the sum of all lost consumer surplus. D. equals the deadweight loss of a singleminus−price monopoly.
A
The effect of a shift in demand on a monopoly's output depends on A. the shapes of both the marginal cost curve and the demand curve. B. only the shape of the marginal cost curve. C. only the shape of the demand curve. D. None of the above are correct.
A
Why don't we see firms tie-in the sales of fish filets with the sales of pencils? A. Because the demands for these two goods are positively correlated. B. Because the demands for these two goods are independent. C. It violates the Clean Food Act of 1908. D. Because the demands for these two goods are negatively correlated.
B
Risk-averse individuals make risky investments A. never. B. when the investment's expected return adequately compensates for the risk. C. only when they are feeling irrational. D. when the investment's expected return exceeds the return on a non-risky investment.
B
What is the profit-maximizing amount of advertising? A. The point where gross profit as a function of advertising is maximized. B. The output level that minimizes the marginal cost of advertising. C. The point where the marginal benefit of advertising is equal to the marginal cost of advertising. D. The point where the additional gross profit from advertising is equal to the marginal cost of production.
C
Which of the following average cost functions suggests the presence of a natural monopoly? A. AC = 2 B. TC = 100/Q + 2Q C. AC = 100/Q + 2 D. All of the above.
C
Which of the following conditions can help prolong the life of a cartel? A. It is difficult to know what price any cartel member is actually charging. B. There are many firms in the market that are not members of the cartel. C. There are only a few firms in the market and they all belong to the cartel. D. The cartel has no ability to punish members who cheat on the cartel.
C
Which of the following conditions must be true so that a firm can price discriminate? A. There are no other firms in the market. B. The good is a nonminus−durable. C. The good cannot be easily resold. D. All of the above.
C
Which of the following conditions must be true so that a firm can price discriminate? A. The good is a non-durable. B. There are no other firms in the market. C. The good cannot be easily resold. D. All of the above must be true.
C
Which of the following is an example for group price discrimination? A. the fact that a razor is cheap and blades are expensive B. a BMW selling for more than a VW C. local residents receiving a discount at the local golf course D. a hotel charging more for a room if the customers bring pets
C
Which of the following statements is false? A. Although tacit collusion can result in higher prices for consumers, it does not necessarily conflict with competition laws. B. The U.S. government has helped support cartel behavior in major league baseball since 1922. C. It is illegal for a firm to charge monopoly-level prices. D. A firm may collude despite the risk of being caught if the penalty is insignificant relative to the additional profits it can earn.
C
Declining-block quantity discrimination makes sense if A. buyers of smaller quantities are more price sensitive than buyers of larger quantities. B. the lower price for larger quantities encourages all consumers to purchase the larger quantity. C. buyers of smaller quantities are less price sensitive than buyers of larger quantities. D. demand for the good is perfectly elastic.
C
Which of the following is a means of detection and enforcement of cartel agreements? A. Firms agree to divide a market into exclusive territories. B. Firms include a most favored nation clause in their contracts. C. A store guarantees to meet or beat any competitor's price. D. All of the above E. None of the above
D
Which of the following market structures is (are) capable of earning positive economic profits in the long run? A. monopoly B. oligopoly C. monopolistic competition D. Both A and B.
D
Why do firms engage in price discrimination? A. to increase consumer surplus B. to decrease cost C. to prohibit the resale of their products D. to increase profits
D
In the long run a monopolistic competitor A. set MR = MC. B. sets Pfollows≻MC. C. produces where P = AC. D. All of the above.
D
A competitive firm observing a rival firm raising its price will: A. ignore its rival's action. B. lower its price and capture the entire market. C. increase production because it knows that consumers will substitute toward its relatively less expensive product. D. increase its profits by also raising its price.
A
A firm should charge a low introductory price in a two-period monopoly model if A. the foregone profit in the first period is less than the additional profit in the second period. B. the total profit in both periods is greater than the additional profit in the second period. C. the foregone profit in the second period is greater than the additional profit in the first period. D. the total profit in both periods is greater than the additional profit in the first period.
A
A leftward shift of the supply curve will lead to an A. increase in equilibrium price. B. excess supply at the old equilibrium price. C. increase in quantity supplied. D. All of the above.
A
A perfect price discriminator A. charges each buyer her reservation price. B. charges lower prices to customers who buy greater quantities. C. generates a deadweight loss to society. D. charges different prices to each customer based upon different costs of delivery.
A
As the ratio of price to marginal cost decreases, the Lerner index A. decreases. B. increases. C. stays the same. D. can increase or decrease depending upon the shape of the demand curve.
A
Bundling sales are most advantageous to the seller when A. the demands for the two goods are negatively correlated. B. the demands for the two goods are positively correlated. C. there are economies of scope. D. the demands for the two goods are unrelated.
A
Charging higher prices to residential customers than to industrial customers is an example of A. third-degree price discrimination. B. perfect price discrimination. C. quantity price discrimination. D. second-degree price discrimination. E. first-degree price discrimination.
A
Coupons represent a form of price discrimination because they offer a lowminus−cost way for firms to A. identify customers with apparently more elastic demand and offer them a lower price. B. offer discounts to consumers who buy larger quantities. C. retain loyal customers who are not price sensitive. D. perfectly price discriminate.
A
If the inverse demand function for a monopoly's product is p = 100− 2Q, then the firm's marginal revenue function is A. 100 − 4Q. B. 200 − 2Q. C. 200 − 4Q. D. −2.
A
If two identifiable markets differ with respect to their price elasticity of demand and resale is impossible, a firm with market power will A. set a lower price in the market that is more price elastic. B. set price equal to marginal cost in both markets. C. set price so as to equate the elasticity of demand across markets. D. set a higher price in the market that is more price elastic.
A
In the short run a monopolistic competitor A. sets MR = MC. B. produces where P = AC. C. produces at minimum efficient scale. D. sets P = MC.
A
Suppose that government used to requires airline companies to have at least 30 airplanes and serve at least 20 different airports. Now, this requirement changed to a minimum of 10 airplanes and 4 different airports. Such change in regulation will lead to A. lower profits due to increased competition. B. higher profits due to weaker labor unions. C. lower profits due to larger regulatory burden. D. higher profits due to decreased competition.
A
One difference between a monopoly and a competitive firm is that A. a monopoly faces a downward sloping demand curve. B. a monopoly is a price taker. C. a monopoly maximizes profit by setting marginal revenue equal to marginal cost. D. None of the above.
A
Optimal price regulation sets price equal to A. marginal cost. B. minimum average cost. C. average cost. D. average variable cost.
A
Perfect competition and monopolistic competition are similar in that both market structures include A. no barriers to entry. B. very few firms. C. price−taking behavior by firms. D. a homogeneous product.
A
Suppose a profit-maximizing monopoly is able to employ group price discrimination. The marginal cost of providing the good is constant and the same in both markets. The marginal revenue the firm earns on the last unit sold in the market with the lower price will be A. equal to the marginal revenue the firm earns on the last unit sold in the market with the higher price. B. greater than the marginal cost of the last unit. C. greater than the marginal revenue the firm earns on the last unit sold in the market with the higher price. D. less than the marginal revenue the firm earns on the last unit sold in the market with the higher price.
A
If identical firms sell an undifferentiated product, advertising is likely to be A. focused on secret ingredients. B. collectively undertaken by the industry group. C. strategically aimed at deterring entry. D. used to attack the rivals' products.
B
The monopoly maximizes profit by setting A. marginal revenue equal to marginal cost. B. marginal revenue equal to zero. C. price equal to marginal revenue. D. price equal to marginal cost.
A
The situation in which a person places greater value on a good as fewer and fewer people possess it is called the A. Snob Effect. B. Greater Value Effect. C. Behavioral Effect. D. Bandwagon Effect.
A
Which of the following average cost functions suggests the presence of a natural monopoly? A. AC = 100/Q + 2 B. AC = 2 C. TC = 100/Q + 2Q D. All of the above.
A
A flour mill holding exclusive contracts to 95% of the wheat in a large geographic area may operate as a flour producing monopoly locally because A. the mill is a natural monopoly. B. the mill controls a key input. C. the government will declare it a monopoly. D. the mill has a very inelastic supply curve.
B
A justification for patents is that without patents consumer surplus would be A. zero since the monopoly would be a revenue maximizer. B. zero since the product would not be invented. C. only slightly smaller than with the patent. D. larger than with the patent.
B
A monopolist spent $450 in TV commercials. Such advertisement changed the monopolist inverse demand curve from p = 40 − q to p = 50 − q. The monopolist marginal cost is $4 and it has no fixed cost. The TV commercials A. did not affect the monopolist's profit. B. decreased the monopolist's profit. C. increased the monopolist's profit. D. decreased the monopolist's revenue.
B
A monopoly will not be able to perfectly price discriminate if A. demand is very elastic. B. obtaining information about each buyer's reservation price is too costly. C. demand is very inelastic. D. resale is impossible.
B
Consumers with low reservation prices who purchase from the perfectly price-discriminating monopoly but not from the single-price monopoly A. prefer purchasing from a single-price monopoly. B. are indifferent between purchasing from a perfectly price-discriminating monopoly or a single-price monopoly. C. prefer purchasing from a perfectly price-discriminating monopoly. D. None of the above are true.
B
Economies of scope A. are an example of the gains from specialization. B. is a situation in which it is more expensive to produce goods separately than jointly. C. occur whenever only one good is produced at a time. D. is the opposite of economies of scale.
B
Firms seek to differentiate their product A. to create an illusion of value. B. to strengthen their demand and to make it more inelastic. C. to strengthen their demand and to make it more elastic. D. to avoid state and federal regulation.
B
If you purchase one pound of apples the price is $1.50 per pound. If you buy a five pound bag of apples, the cost is $5.00. This is most likely an example of A. lower marginal benefit. B. quantity discounts. C. lower marginal cost. D. price gouging.
B
Limited government licenses that create a monopoly do so because A. the firm will become a natural monopoly. B. the license is an entry barrier. C. the license grants a marginal cost advantage. D. All of the above.
B
Mergers are closely scrutinized by the government because A. they always result in lower joint profits of the firms involved. B. they might allow the firms involved to dominate the market and act as a legalized cartel (monopoly). C. they always result in a more efficient market. D. all mergers are undesirable.
B
Minimum efficient scale refers to the lowest level of output at which A. the firm can earn a profit. B. average cost is minimized. C. the firm will operate. D. the average cost curve is downward sloping.
B
Oligopoly differs from monopolistic competition in that an oligopoly includes A. no barriers to entry. B. barriers to entry. C. downward−sloping demand curves facing the firm. D. product differentiation.
B
Piracy of intellectual property, such as music, videos, and software A. may or may not affect social welfare in the short run but increases innovation in the long-run. B. may or may not affect social welfare in the short run but reduces innovation in the long-run. C. increases social welfare. D. reduces social welfare in the short run but stimulates innovation in the long-run. E. reduces social welfare.
B
Price discrimination is welfare reducing. A. True, price discrimination can increase the coverage of a market thereby increasing welfare. B. False, price discrimination can increase the coverage of a market thereby increasing welfare. C. True, price discrimination limits the coverage of a market thereby increasing welfare. D. False, price discrimination limits the coverage of a market thereby increasing welfare.
B
Regardless of market structure, all firms A. consider the actions of rivals. B. maximize profit by setting marginal revenue equal to marginal cost. C. produce a differentiated product. D. have the ability to set price.
B
Regulation is guaranteed to be more efficient than a monopoly. A. True, the consumers are better off if government provides the product rather than a private firm. B. False, the government does not always have sufficient information to provide a more efficient market outcome. C. True, the government is able to internalize the dead weight loss of the monopoly. D. False, the consumers are worse off under government regulation.
B
Suppose a monopolistically competitive industry evolved into a perfectly competitive industry. Which of the following statements is correct? A. This industry would produce the same level of output at lower prices in the long run than before the change. B. The industry would produce more output and charge a lower price after the change. C. Elasticity of demand for the firm's product would remain the same after this change occurred. D. The industry would produce at decreasing returns to scale.
B
Suppose that government requires airline companies to have at least 30 airplanes and serve at least 20 different airports. This is an example of A. perfect information. B. barriers to entry. C. labor union power. D. safety concerns.
B
The Organization of Petroleum Exporting Countries (OPEC) is an example of a(n) A. monopolistically competitive arrangement. B. cartel. C. competitive arrangement. D. oil monopoly.
B
The aspect of imperfect competition most distinct from perfect competition? A. Perfect information B. Differentiated Products C. Zero profits. D. Free entry/exit
B
The monopolist A. faces multiple demand curves. B. does not have a supply curve. C. can determine output by just considering the marginal cost. D. None of the above are correct.
B
The number of firms in a monopolistically competitive market will be smaller if A. the market demand curve shifts rightward. B. fixed costs are larger. C. fixed costs are smaller. D. the minimum efficient scale is lower.
B
The possibility that a firm can earn positive long-run profits is determined by: A. the ability to set price B. entry conditions C. the number of firms D. the degree of product differentiation
B
The situation in which one firm can produce the total output of the market at lower cost than several firms is called a A. ruling monopoly. B. natural monopoly. C. pure monopoly. D. cost monopoly.
B
The welfare loss from an import quota is greater than that of an equivalent tariff because A. tariff revenues represent an additional deadweight loss. B. tariff revenues can be used to society's benefit. C. domestic producers gain more from a quota than from a tariff. D. the loss in consumer surplus is not as large.
B
A monopoly will not be able to perfectly price discriminate if A. demand is very elastic. B. resale is impossible. C. demand is very inelastic. D. obtaining information about each buyer's reservation price is too costly.
D
Which of the following is NOT an example of a good with network externalities? A. social clubs. B. supermarket bonus cards. C. local telephone service. D. computer game systems.
B
A cartel is a group of firms that attempts to A. maximize joint revenue. B. increase consumer surplus. C. maximize joint profit. D. behave independently.
C
A cartel is likely to fail if: A. there are only a small number of firms that can punish cheaters. B. there are barriers to entry. C. noncartel members can supply consumers with large quantities of the good. D. market share and pricing data are readily available to firms in the industry.
C
As other firms enter a monopoly's market, the monopoly's market power A. is unaffected. B. increases. C. declines. D. increases according to the Lerner Index but decreases according to the price/marginal cost ratio.
C
At the current price of a good Al's consumer surplus equals 8 and Ben's consumer surplus equals 15. By using twominus−part tariff pricing, a monopolist could increase his profit by A. 30. B. 8. C. 16. D. 15.
C
Brand loyalty in monopolistically competitive markets manifests itself as A. upward sloping marginal cost curves. B. downward sloping marginal cost curves. C. downward sloping demand curves. D. upward sloping demand curves.
C
Charging a higher price for a motel room to customers with dogs or cats than to customers with no pets is most likely an example of A. first−degree price discrimination. B. second−degree price discrimination. C. actual cost differences. D. third−degree price discrimination.
C
For a monopoly, marginal revenue is less than price because A. the firm can sell all of its output at any price. B. the demand for the firm's output is perfectly elastic. C. the firm must lower price if it wishes to sell more output. D. the firm is a price taker.
C
A natural monopoly occurs when A. marginal cost is constant. B. average cost is declining. C. marginal cost is below average cost. D. All of the above are true.
D
If the inverse demand curve a monopoly faces is p = 100 minus− 2Q, and MC is constant at 16, then profit maximization A. is achieved by setting price equal to 21. B. is achieved only by shutting down in the short run. C. is achieved when 21 units are produced. D. cannot be determined solely from the information provided.
C
If two identifiable markets differ with respect to their price elasticity of demand and resale is impossible, a firm with market power will A. set price equal to marginal cost in both markets. B. set price so as to equate the elasticity of demand across markets. C. set a lower price in the market that is more price elastic. D. set a higher price in the market that is more price elastic.
C
In a monopolistically competitive market, firms face a downward-sloping demand curve because _____________. Monopolistically competitive firms earn ____________ profits. A. they produce a differentiated good; positive economic B. there are barriers to entry; zero economic C. they produce a differentiated good; zero economic D. they benefit from economies of scale; positive economic
C
Monopolistically competitive firms face downward sloping residual demand curves because these firms A. sell differentiated products. B. have relatively few rivals (compared to competition). C. A and/or B. D. None of the above.
C
Optimal price regulation sets price equal to A. average variable cost. B. average cost. C. marginal cost. D. minimum average cost.
C
Purchasing a season pass to the local symphony A. is an example of first degree price discrimination. B. is an example of third degree price discrimination. C. is an example of second degree price discrimination. D. All of the above.
C
Regulation is guaranteed to be more efficient than a monopoly. A. False, the consumers are worse off under government regulation. B. True, the consumers are better off if government provides the product rather than a private firm. C. False, the government does not always have sufficient information to provide a more efficient market outcome. D. True, the government is able to internalize the dead weight loss of the monopoly.
C
The firm can make the most profit if A. the same two-part tariff is charged to all non-identical customers. B. different two-part tariffs are charged to all identical customers. C. different two-part tariffs are charged to all non-identical customers. D. None of the above.
C
The monopoly can shift the demand for its product rightward by A. accommodating entry. B. moving along the learning curve. C. advertising new uses for its product. D. All of the above.
C
The more elastic the demand curve, a monopoly A. will have a larger Lerner Index. B. will face a lower marginal cost. C. will lose more sales as it raises its price. D. will earn more profit.
C
There are currently N identical firms in a market. If it is a perfectly competitive market, the short−run market supply curve at any given price is A. N plus the supply of an individual firm. B. N − 1 times the supply of an individual firm. C. N times the supply of an individual firm. D. It cannot be determined from the information provided.
C
Tieminus−in sales are most advantageous to the seller when A. the demands for the two goods are positively correlated. B. the demands for the two goods are unrelated. C. the demands for the two goods are negatively correlated. D. there are economies of scope.
C
Consider a car dealership that advertises a three-year lease at $250 per month. When you arrive to apply, you discover that the lease requires a down payment of $3,600. You will undertake the lease if A. you value the lease at least $250 per month, the $3600 is a sunk cost. B. you value buying a new car at $400 per month. C. you value the lease less than $350 per month. D. you value the lease at least $350 per month.
D
If a cartel is unable to monitor its members and punish those firms that violate their agreement, then A. the cartel will prosper in the long run. B. the member firms will each act as price setters. C. the market will become a monopoly. D. the cartel will fail.
D
If a firm buys a building so as to have office space for its workers, the monthly opportunity cost of the building is best measured as A. zero. B. the monthly mortgage payment the firm must pay. C. the price the firm paid divided by twelve. D. the rent the firm could earn if it rented the building to another firm.
D
If a market is controlled by a perfect−price−discriminating monopoly, then A. a deadweight loss is generated. B. consumer surplus is the same as under perfect competition. C. output is less than that of a singleminus−price monopoly. D. there is no consumer surplus.
D
If a monopoly charges higher prices to consumers who buy smaller quantities than to consumers who buy larger quantities, then A. consumer surplus is larger than under single−price monopoly. B. social welfare is larger than under perfect competition. C. the monopoly's profits are larger than under perfect price discrimination. D. the monopoly's profits are larger than under singleminus−price monopoly.
D
If a monopoly charges higher prices to consumers who buy smaller quantities than to consumers who buy larger quantities, then A. the monopoly's profits are larger than under perfect price discrimination. B. consumer surplus is larger than under single-price monopoly. C. social welfare is larger than under perfect competition. D. the monopoly's profits are larger than under single-price monopoly.
D
If the inverse demand curve a monopoly faces is p = 100 minus− 2Q, and MC is constant at 16, then maximum profit A. equals $882. B. equals $1,218. C. equals $336. D. cannot be determined solely from the information provided.
D
If the price of orange juice rises 10%, and as a result the quantity demanded falls by 10%, then one can conclude that the demand for orange juice A. is inelastic. B. is perfectly elastic. C. has a constant elasticity. D. has a unitary elasticity.
D
In monopolistically competitive markets A. quantity is greater than it would be in perfect monopoly. B. price is greater than it would be in perfect competition. C. price is less than it would be in perfect monopoly. D. All of the above.
D
Mergers may result in A. anticompetitive behavior. B. more efficient production. C. fewer firms in a market. D. All of the above.
D
Monopolistic competition and monopoly have all of the following in common EXCEPT A. MR = MC. B. firms are price setters. C. P≻MC. D. barriers to entry.
D
Patents A. will create a profit incentive to do research. B. might be welfare reducing if granted for too long a period. C. serve as a barrier to entry. D. All of the above.
D
Perfect competition and monopolistic competition are similar in that both market structures include A. price−taking behavior by firms. B. a homogeneous product. C. very few firms. D. no barriers to entry.
D
Stores such as Costco and Sam's Club require an annual membership before you can shop there. This is a form of A. a tie−in sale. B. anti−competitive behavior. C. price gouging. D. two part pricing.
D
Suppose a monopolistically competitive industry evolved into a perfectly competitive industry. Which of the following statements is correct? A. Elasticity of demand for the firm's product would remain the same after this change occurred. B. The industry would produce at decreasing returns to scale. C. This industry would produce the same level of output at lower prices in the long run than before the change. D. The industry would produce more output and charge a lower price after the change.
D
The ability of a monopoly to charge a price that exceeds marginal cost depends on the A. shape of the marginal cost curve. B. slope of the demand curve. C. price elasticity of supply. D. price elasticity of demand.
D
The ability of diversification to reduce risk A. is greater the more risk averse the individual is. B. is greater the more positively correlated the two events are. C. is greater the more uncorrelated the two events are. D. is greater the more negatively correlated the two events are.
D
The more block prices a monopoly can set instead of setting a single price, the A. more producer surplus. B. smaller the deadweight loss. C. larger the total welfare. D. All of the above.
D
The situation where one person's demand for a good depends on the consumption of the good by others is called a A. production externality. B. network internality. C. consumption externality. D. network externality.
D
Theatres charge lower prices for a matinee and usually don't accept coupons for the night showing of movies because A. consumers that attend the matinee have a higher price elasticity of demand. B. consumers that attend the night show have a lower price elasticity of demand. C. it increases profits compared to charging a single price. D. All of the above.
D
Which of the following is true for firms considering the bundling of products? A. When a good or service is sold to different people, the price is determined by the purchaser with the lowest reservation price. B. If reservation prices differ substantially across consumers, a monopoly has to charge a relatively low price to make many sales. C. By bundling when demands are negatively correlated, the monopoly reduces the dispersion in reservation prices, so it can charge more and still sell to a large number of customers. D. All of the above are true.
D
When a firm practices perfect price discrimination, it A. takes all consumer surplus from consumers. B. charges each consumer her reservation price. C. captures all the social gain. D. produces the same quantity as would be produced by a competitive market. E. All of the above are true.
E
Which of the following is not a source of cost advantage for a monopoly? A. the firm uses superior technology. B. the firm develops a better production method and patents it. C. the firm develops a better production method and keeps it secret. D. the firm controls a key input. E. All of the above are sources of cost advantage for a monopoly.
E
Which of the following is true regarding product resales? A. Some firms act to raise transaction costs or otherwise make resales difficult. B. The biggest obstacle to price discrimination is a firm's inability to prevent resales. C. Governments may take action to prevent resales. D. Warranties can be used to prevent resales. E. B and D. F. All of the above are true.
F
If the firm raises the price in the elastic range of demand, total revenue will increase. T or F
False
The absolute value of the price elasticity of demand increases as you move down the demand curve. T or F
False
When demand is unit elastic, marginal revenue = 1. T or F
False
When the marginal revenue is positive, demand is elastic. T or F
True
When the total revenue is increasing, demand is elastic. T or F
True
