Econ Final Study Guide- Multiple Choice Flash Cards

Suppose your firm develops a new pharmaceutical product that may be used to reduce blood cholesterol levels, so the firm is the monopoly seller of this drug. If the elasticity of demand for this new product is -4, what markup should your firm use to set the profit-maximizing price for the product? a. Price cost markup is 25% of price b. 25% of MC c. 4% of MC d. 4% of Price

a. 25% of Price

5) In the ________, each firm treats the output of its competitor as fixed and then decides how much to produce. a. Cournot model b. model of monopolistic competition c. Stackelberg model d. kinked-demand model e. none of the above

a. Cournot model

A situation in which each firm selects its best action, given what its rivals are doing, is called a: a. Nash equilibrium. b. Cooperative equilibrium. c. Stackelberg equilibrium. d. zero sum game.

a. Nash equilibrium.

In a Cournot duopoly, we find that Firm 1's reaction function is Q1 = 50 - 0.5Q2, and Firm 2's reaction function is Q2 = 75 - 0.75Q1. What is the Cournot equilibrium outcome in this market? a. Q1 = 20 and Q2 = 60 b. Q1 = 20 and Q2 = 20 c. Q1 = 60 and Q2 = 60 d. Q1 = 60 and Q2 = 20

a. Q1 = 20 and Q2 = 60 Two firms operating in the same market must choose between a collude price and a cheat price. Firm A's profit is listed before the comma, B's outcome after the comma.

Under which of the following scenarios is it most likely that monopoly power will be exhibited by firms? a. When there are few firms in the market and the demand curve faced by each firm is relatively inelastic b. When there are many firms in the market and the demand curve faced by each firm is relatively inelastic c. When there are few firms in the market and the demand curve faced by each firm is relatively elastic d. When there are many firms in the market and the demand curve faced by each firm is relatively elastic

a. When there are few firms in the market and the demand curve faced by each firm is relatively inelastic

A firm can hire labor at the minimum wage of $4.25 per hour. Assume that labor works 8 hours a day. The firm's production function is as follows: Number of Days Number of Units of Labor of Output 0 0 1 8 2 15 3 21 4 26 5 30 If each unit of output sells for $5, how many days of labor will the firm hire to maximize profit? a. 1 b. 2 c. 3 d. 4 e. 5

b. 2

A firm can hire labor at the minimum wage of $4.25 per hour. Assume that labor works 8 hours a day. The firm's production function is as follows: Number of Days Number of Units of Labor of Output 0 0 1 8 2 15 3 21 4 26 5 30 What is the marginal revenue product of the 4th worker? a. 20 b. 25 c. 30 d. 32.5 e. 35

b. 25

Johnny's Shop-and-Pay is a regional grocery chain, and their marketing manager is trying to determine the profit-maximizing coupon program for the store's laundry detergent brand. Coupon users at the store have an elasticity of demand for this product that equals -3, and the elasticity of demand for non-users of the coupon for the store brand equals -1.5. If the full retail (undiscounted) price of the detergent is $10 per box, what is the optimal discount to provide for coupon users? a. 25% off b. 50% off c. 75% off d. The optimal strategy is to charge the same price to both groups

b. 50% off

What characteristic of monopolistic competition may help to offset the inefficiency of this market structure? a.Free entry and exit imply that firms produce at minimum long-run average cost. b. Consumers may value the product diversity that allows them to choose from a wide variety of differentiated products. c. Consumers may feel better about the inefficiency if they know that firms earn zero profits. d. Consumers may prefer this outcome to monopoly or monopsony.

b. Consumers may value the product diversity that allows them to choose from a wide variety of differentiated products.

The oligopoly model that is most appropriate when one large firm usually takes the lead in setting price is the ________ model. a. Cournot b. Dominant firm c. game theory d. Prisoners' Dilemma

b. Dominant firm

Use the following statements to answer this question: I. Under the dominant firm model, the dominant firm effectively acts like a monopolist who is facing the excess market demand that cannot be supplied by the fringe firms. II. Under the dominant firm model, the fringe firms also act like profit maximizing monopolists. a. I and II are true b. I is true and II is false c. I is false and II is true d. I and II are false

b. I is true and II is false

If a monopolist sets her output such that marginal revenue, marginal cost and average total cost are equal, economic profit must be: a. Negative b. Positive c. Zero d. Indeterminate from given info

b. Positive

An increase in technology that enhances labor productivity will likely result in: a. a decrease in labor employment and an increase in the wage rate. b. an increase in labor employment and an increase in the wage rate. c. a decrease in labor employment and a decrease in the wage rate. d. an increase in labor employment and a decrease in the wage rate. e. employers using less labor and more capital while the wage effect is unknown.

b. an increase in labor employment and an increase in the wage rate

The market structure in which strategic considerations are most important is: a. monopolistic competition. b. oligopoly. c. pure competition. d. pure monopoly

b. oligopoly.

Barbara is a producer in a monopoly industry. Her demand curve, total revenue curve, marginal revenue curve and total cost curve are given as follows: Q = 160 - 4P TR = 40Q - 0.25 MR = 40 - 0.5Q TC = 4Q MC = 4 How much profit will she make? a. $-996 b. $0 c. $1296 d. $1568

c. $1296

Barbara is a producer in a monopoly industry. Her demand curve, total revenue curve, marginal revenue curve and total cost curve are given as follows: Q = 160 - 4P TR = 40Q - 0.25 MR = 40 - 0.5Q TC = 4Q MC = 4 The price of her product will be: a. $4 b. $32 c. $22 c. $32 d. $72

c. $22

A monopolist has set her level of output to maximize profit. The firm's marginal revenue is $20, and the price elasticity of demand is -2.0. The firm's profit maximizing price is approximately: a. $0 b. $20 c. $40 d. $10 e. Can't be answered w/o MC

c. $40

Suppose that the marginal cost of an additional ton of steel produced by a Japanese firm is the same whether the steel is set aside for domestic use or exported abroad. If the price elasticity of demand for steel is greater abroad than it is in Japan, which of the following will be correct? a. The Japanese firm will sell more steel abroad than they will sell in Japan. b. The Japanese firm will sell more steel in Japan than they will sell abroad. c. The Japanese firm will sell steel at a lower price abroad than they will charge domestic users. d. The Japanese firm will sell steel at a higher price abroad than they will charge domestic users. e. Insufficient information exists to determine whether the price or quantity will be higher or lower abroad.

c. The Japanese firm will sell steel at a lower price abroad than they will charge domestic users.

A market with few entry barriers and with many firms that sell differentiated products is: a. purely competitive. b. a monopoly. c. monopolistically competitive. d. oligopolistic.

c. monopolistically competitive.

A ________ shows how much a firm will produce as a function of how much it thinks its competitors will produce. a. contract curve b. demand curve c. reaction curve d. Nash equilibrium curve e. none of the above

c. reaction curve

A firm can hire labor at the minimum wage of $4.25 per hour. Assume that labor works 8 hours a day. The firm's production function is as follows: Number of Days Number of Units of Labor of Output 0 0 1 8 2 15 3 21 4 26 5 30 Refer to Scenario 14.2. What is the average product of the 4th worker? a. 4 b. 5 c. 6 d. 6.5 e. 7

d. 6.5

Barbara is a producer in a monopoly industry. Her demand curve, total revenue curve, marginal revenue curve and total cost curve are given as follows: Q = 160 - 4P TR = 40Q - 0.25 MR = 40 - 0.5Q TC = 4Q MC = 4 How much output will Barbara produce? a. 0 b. 22 c. 56 d. 72 e. None of the above

d. 72

Suppose that a firm can produce its output at either of two plants. If profits are maximized, which of the following statements is true? a. MC at first plant must = MR b. MC at second plant must = MR c. MC at two plants must be = d. All the Above

d. All the Above

Which of the following statements is TRUE when comparing monopsony and competitive labor markets? a. The monopsony hires more workers but pays a lower wage. b. The monopsony hires more workers at a higher wage. c. The monopsonist's wage is lower and quantity of labor higher than would prevail under competition. d. The monopsonist's wage and quantity of labor are lower than would prevail under perfect competition.

d. The monopsonist's wage and quantity of labor are lower than would prevail under perfect competition.

In comparing the Cournot equilibrium with the competitive equilibrium, a. both profit and output level are higher in Cournot. b. both profit and output level are higher in the competitive equilibrium. d. profit is higher, and output level is lower in the competitive equilibrium. e. profit is higher, and output level is lower in Cournot.

e. profit is higher, and output level is lower in Cournot.