Economics Final
94. Which of the following is not an example of an activity that generates an externality? A) Bob's Service Station dumps used oil in the river. B) Bob renovates a run - down house in the neighborhood. C) Bob occasionally drives while drunk. D) Bob's Service Station donates a car to charity.
Bob's service station donates a car to charity
102. The proposition that if bargaining is costless, then the market can achieve an efficient outcome is the: A) Coase theorem. B) property rights paradigm. C) market rights theorem. D) efficient environment paradigm.
Coase theorem
2. If all firms in an industry are price-takers, then: A) Each firm can sell at the price it wants to charge, provided it is not too different from the prices other firms are charging. B) Each firm takes the market price as given for its current output level, recognizing that the price will change if it alters its output significantly. C) An individual firm cannot alter the market price even if it doubles its output. D) The market sets the price, and each firm can take it or leave it (by setting a different price).
Each firm take the market price as given for its current output, recognizing that price will change if it changes its output significantly.
3. The assumptions of perfect competition imply that: A) Individuals in the market accept the market price as given. B) Individuals can influence the market price. C) the price will be fair. D) the price will be low.
Individuals in the market accept the market price as given
15. A perfectly competitive firm maximizes profit by producing the quantity at which: A) TR= TC. B) MR= MC. C) Q ×(P-ATC) = 0. D) P> AVC.
MR=MC
26. In perfect competition, the profit-maximizing level of output occurs where the: A) MR= MC above minimum AVC. B) price < marginal cost above minimum AVC. C) MR> MC below minimum AVC. D) P= MR above MC.
MR=MC above minimum AVC
39. Which of the following is true? A) A monopoly firm is a price-taker. B) MR> P if the demand curve is downward sloping. C) MR= MC is a profit-maximizing rule for any firm. D) In monopoly P= MC when profits are maximized
MR=MC is a profit-maximizing rule for any firm
49. Which of the following is true regarding monopolies? A) Monopolies produce too much and charge too much from the standpoint of efficiency. B) Monopolies usually are economically efficient because they have economic profits with which to work. C) Monopolies produce too little and charge too much from the standpoint of efficiency. D) Monopolies create an efficiency problem but are not associated with an equity problem.
Monopolies produce too little and charge too much from the standpoint of efficiency
106. Suppose the production of roses generates a positive externality in that travelers enjoy the scenic rural vistas. An appropriate government policy yielding the efficient outcome would be a: A) Pigouvian tax. B) Pigouvian subsidy. C) system of rose production permits. D) reduction in transaction costs.
Pigouvian subsidy
44. A downward-sloping demand curve will ensure that: A) P= MR. B) P> MR. C) P< MR. D) P= MC.
Price is greater than marginal revenue
1. If a local California avocado stand operates in a perfectly competitive market, that stand owner will be a: A) price-maker. B) price-taker. C) price-discriminator. D) price-maximizer.
Price taker
72. Gary's Gas and Frank's Fuel are the only two providers of gasoline in their town. Gary and Frank decide to form a cartel. Later, Gary summarizes his pricing strategy as, "I'll cheat on the cartel because regardless of what Frank does, cheating gives me the best payoff." This is an example of: A) a dominant strategy. B) a tit-for-tat strategy. C) an irrational strategy. D)product differentiation.
a dominant strategy
28. Which of the following statements concerning monopoly is true? A) Monopoly firms are automatically larger than perfectly competitive firms. B) A monopoly has no rivals. C) Barriers to entry do not prevent other firms from entering a monopolized industry. D) Monopolists produce more output than competitive firms.
a monopoly has no rivals
107. Tony has a cell phone, and his cell phone service provider is Verizon. When he calls his wife, Meleah, another Verizon customer, he does not have to pay for those minutes. The more Verizon customers there are in the market, the more benefit Tony receives. This is an example of: A) a network externality. B) the Coase theorem. C) a Pigouvian subsidy. D) a technology spillover.
a network externality
29. A monopoly is a market characterized by: A) a single seller. B) a product with many close substitutes. C) a large number of small firms. D) a small number of large firms.
a single seller
42. The demand curve for a monopoly is: A) the MR curve above the AVC curve. B) the MR curve above the horizontal axis. C) the entire MR curve. D) above the MR curve.
above the MR curve
63. A firm that is in an oligopoly knows that its ________ affect its ________ and that the ________ of its rivals will affect it. A) actions; rivals; reactions B) price changes; total revenue in a positive way; reactions C) actions rarely; rivals; actions D) price increases; total revenue in the long run only; large but not small price changes
actions; rivals; reactions
99. If external costs exist, the competitive free market: A) allocates resources inefficiently. B) allocates resources efficiently. C) automatically corrects an over allocation of resources. D) automatically corrects an under allocation of resources.
allocates resources inefficiently
61. An industry that is dominated by a few firms, each of whose firms recognizes that its own choices can affect the choices of its rivals and vice versa, is: A) a monopoly. B) an oligopoly. C) characterized by monopolistic competition. D) characterized by perfect competition.
an oligopoly
23. The lowest point on a perfectly competitive firm's short-run supply curve corresponds to the minimum point on the ________ curve. A) ATC B) AVC C) AFC D) MC
average variable cost
32. Conditions that prevent the entry of new firms in a monopoly market are: A) barriers to entry. B) terms of sale. C) labor market stipulations. D) production controls.
barriers to entry
104. An external benefit is a(n): A) example of a negative externality. B) benefit that accrues to domestic firms due to the actions of foreign (external) firms. C) benefit that accrues to foreign (external) firms due to the actions of domestic firms. D) benefit that individuals or firms confer on others without receiving compensation.
benefit that individuals or firms confer on others without receiving compensation
88. Pollution has ________ and ________. A) no benefits; only costs B) benefits; costs C) no opposition; only advocates D) short - term impacts; very little long - term impact
benefits and costs
81. Suppose that each of the only two firms in an industry has the independent choice of advertising its product or not advertising. If neither advertises, each gets $10 million in profit; if both advertise, their profits will be $5 million each; and if one advertises while the other does not, the advertiser gets profit of $15 million and the other gets profit of $2 million. According to game theory, the Nash equilibrium is: A) both may or may not advertise. B) one will advertise and the other will not. C) both will advertise. D) neither will advertise.
both will advertise
17. If a perfectly competitive firm is producing a quantity where MC> MR, then profit: A) is maximized. B) can be increased by increasing production. C) can be increased by decreasing production. D) can be increased by decreasing the price.
can be increased by decreasing production
46. If a monopolist is producing a quantity that generates MC> MR, then profit: A) is maximized. B) is maximized only if MC= P. C) can be increased by increasing production. D) can be increased by decreasing production.
can be increased by decreasing production
47. If a monopolist is producing a quantity that generates MC< MR, then profit: A) is maximized. B) is maximized only if MC= P. C) can be increased by increasing production. D) can be increased by decreasing production.
can be increased by increasing production
87. The marginal social benefit of pollution: A) is zero, since pollution is not beneficial. B) can be measured as the additional gain to society from one additional unit of pollution. C) is easy to estimate, since polluters are required to file this information in their tax returns. D) is equal to the marginal social cost of pollution, since benefits to producers are equal to costs to consumers.
can be measured at the additional gain to society from one additional unit of pollution
69. An extreme case of oligopoly in which firms collude to raise joint profits is known as a: A) duopoly. B) cartel. C) dominant producer. D) price war.
cartel
51. Price discrimination is the practice of: A) charging different prices to buyers of the same good. B) paying different prices to suppliers of the same good. C) equating price to marginal cost. D) equating price to marginal revenue.
charging different prices to buyers of the same good
68. If the only two firms in an industry agree to fix the price at a given level, this is an example of: A) collusion. B) satisfying demand. C) price extortion. D) price leadership.
collusion
12. The slope of the total revenue curve is: A) marginal cost. B) net revenue. C) constant under perfect competition. D) varying under perfect competition.
constant under perfect competition
91. The marginal benefit from pollution ________ as the quantity of pollution emissions ________. A) remains constant; increases B) decreases; increases C) increases; increases D) remains constant; decreases
decreases, increases
105. A Pigouvian subsidy is: A) designed to discourage activities generating externalities. B) designed to encourage activities generating external benefits. C) appropriate when the marginal social cost curve is above the marginal cost of production curve. D) appropriate when the marginal social cost curve and the marginal social benefit curve intersect at an inefficient level.
designed to encourage activities generating external benefits
41. 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 inelastic; perfectly elastic C) downward-sloping; perfectly inelastic D) perfectly elastic; downward-sloping
downward sloping, perfectly elastic
38. The demand curve facing a monopolist is: A) horizontal, the same as that facing a perfectly competitive firm. B) downward sloping, the same as that facing a perfectly competitive firm. C) upward sloping, the same as that facing a perfectly competitive firm. D) downward sloping, unlike the horizontal demand curve facing a perfectly competitive firm.
downward sloping, unlike the horizontal demand curve facing a perfectly competitive firm.
67. An industry with only two firms is generally called: A) a monopoly. B) monopolistic competition. C) a duopoly. D) perfect competition.
duopoly
103. Pigouvian taxes are designed to reduce: A) the marginal cost of production. B) the marginal benefit of consumption. C) external costs. D) external benefits.
external costs
6. Which of the following is a necessary condition for perfect competition? A) A small number of firms control a large share of the total market. B) Movement into and out of the market is limited. C) Firms produce a standardized product. D) Extensive advertising is used to promote the firm's product.
firms produce a standardized product
60. In an oligopoly: A) there are many sellers. B) there are no barriers to entry. C) firms recognize their interdependence. D) total surplus is maximized.
firms recognize their interdependence
48. The profit-maximizing rule MR= MC is: A) followed by a monopoly but not by a perfectly competitive firm. B) followed by a perfectly competitive firm but not by a monopoly. C) followed by all types of firms. D) not followed by a monopoly because it would reduce economic profit to zero.
followed by all types of firms
70. An analytical framework used in the analysis of strategic choices is: A) the tacit supply curve model. B) game theory. C) perfect competition. D) risk assessment.
game theory
21. In perfectly competitive markets, if the price is ________, the firm will________. A) greater than ATC; make an economic profit B) greater than the minimum AVC; shut down C) greater than the minimum AVC but less than ATC; make an economic profit D) less than ATC; make an economic profit
greater than ATC, make an economic profit
33. 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.
has economies of scale over the entire range of production that is relevant to its market
31. Because of monopoly, consumers experience ________ than with perfect competition. A) more choices B) larger quantities C) higher quality D) higher prices
higher prices
54. In order to maximize profits, an airline will offer ________ prices to customers with ________ demand. A) higher; inelastic B) higher; elastic C) lower; inelastic D) the lowest; the least
higher, inelastic
52. A monopolist or an imperfectly competitive firm practices price discrimination primarily to: A) increase profits. B) expand plant size. C) lower total costs. D) reduce marginal costs.
increase profits
97. An externality is said to exist when: A) individuals impose costs or benefits on others but have no incentive to take these costs and benefits into account. B) individuals impose costs or benefits on others, and the market provides incentives to take these costs and benefits into account. C) individual actions are affected by external forces like the loss of U.S. jobs because of competition from abroad. D) individual actions are affected by government policies (such as taxes) that are externally imposed on the market.
individuals impose costs or benefits on others but have no incentive to take these costs and benefits into account
92. A negative externality: A) is any cost above the economic cost. B) equals the social cost plus the firm's private cost. C) is an uncompensated cost imposed by an individual or firm on others. D) equals the opportunity cost minus the social costs.
is an uncompensated cost imposed by an individual or firm
18. If a perfectly competitive firm is producing a quantity where P=MC, then profit: A) is maximized. B) can be increased by decreasing the quantity. C) can be increased by decreasing the price. D) can be increased by increasing production.
is maximized
55. If a monopolist can engage in perfect price discrimination, then: A) it produces at the socially efficient level. B) consumer surplus is maximized. C) producer surplus is minimized. D) the government may impose fines on the monopolist.
it produces at the socially efficient level
43. Marginal revenue for a monopolist is: A) equal to price. B) greater than price. C) less than price. D) equal to average revenue.
less than price
13. The slope of the total cost curve is: A) marginal cost. B) marginal revenue. C) constant under perfect competition. D) always negative.
marginal cost
82. Suppose that each of the only two firms in an industry has the independent choice of advertising its product or not advertising. If neither advertises, each gets $10 million in profit; if both advertise, their profits will be $5 million each; and if one advertises while the other does not, the advertiser gets profit of $15 million and the other gets profit of $2 million. According to game theory, if the firms could collude to maximize profit: A) both may or may not advertise. B) one will advertise and the other will not. C) both will advertise. D) neither will advertise.
neither will advertise
36. Situations in which the more users of a product there are, the more useful the product becomes are: A) network effects. B) monopolies. C) conglomerates. D) exclusive franchises.
network effects
71. In the classic prisoners' dilemma with two accomplices in crime, the dominant strategy for each individual is to: A) not confess. B) confess. C) confess only if the other confesses. D) This game does not have a dominant strategy.
not confess
45. Marginal revenue for a monopolist is: A) equal to price. B) greater than price. C) not equal to price. D) the change in total revenue divided by the change in output.
not equal to price
34. A firm that has economies of scale: A) at lower levels of output and then encounters diseconomies of scale at higher levels of output is a natural monopoly. B) over the entire range of output demanded is called a natural monopoly. C) at any particular level of output is called a natural monopoly. D) has a continually rising long-run average cost curve.
over the entire range of output demanded is called a natural monopoly
35. The land you own has the only known source of aloe needed to make anti-itch lotion. In this case, your monopoly results from which of the following? A) government restrictions B) location C) sunk costs D) ownership of scarce inputs
ownership of scarce inputs
80. The outcome of a strategic choice is called a: A) payoff. B) game. C) product. D) dilemma.
payoff
10. The demand curve for a perfectly competitive firm is: A) perfectly inelastic. B) perfectly elastic. C) downward sloping. D) relatively but not perfectly elastic.
perfectly elastic
53. To practice effective price discrimination, a monopolist must be able to: A) estimate its own production and cost functions. B) avoid detection by government regulatory agencies. C) prevent the resale of goods among groups of buyers. D) calculate the utility level of each buyer in the market.
prevent the resale of goods among groups of buyers
50. The practice of charging different prices to different customers for the same good or service, even though the cost of supplying those customers is the same, is: A) privatization. B) monopolization. C) output competition. D) price discrimination.
price discrimination
19. In the short run, a perfectly competitive firm produces output and earns an economic profit if: A) P> ATC. B) P= ATC. C) P< AVC. D) AVC>P>ATC.
price is greater than ATC
40. A firm that faces a downward-sloping demand curve is a: A) price-setter. B) quantity-minimizer. C) quantity-taker. D) price-taker.
price setter
30. Which of the following statements best characterizes a monopoly? A monopoly: A) produces a product with no close substitutes. B) is composed of a single buyer and several sellers. C) is composed of a large number of small firms. D) is composed of a small number of large firms.
produces a product with no close substitutes
20. In the short run, if P= ATC, a perfectly competitive firm: A) produces output and earns zero economic profit. B) produces output and earns an economic profit. C) produces output and incurs an economic loss. D) does not produce output and incurs an economic loss.
produces output and earns an economic profit
100. The Coase theorem states that in the presence of externalities, a market economy will: A) always reach an efficient solution. B) never reach an efficient solution. C) reach an efficient solution if transaction costs are sufficiently low. D) reach an efficient solution only in the case of government regulation.
reach an efficient solution if transaction costs are sufficiently low
73. An action is a dominant strategy when it is a player's best action: A) regardless of the actions by other players. B) given certain profit-maximizing actions of other players. C) assuming the other players do not correctly anticipate the action. D) if there is only one other competitor.
regardless of the actions by the other player
90. As the quantity of pollution emissions rises, the marginal social cost of pollution: A) remains constant. B) falls. C) rises. D) rises at first but eventually falls.
rises
24. If the price is consistently below the average variable cost, then in the short run a perfectly competitive firm should: A) raise price. B) sell more output. C) shut down. D) lower price to sell more.
shut down
62. Oligopoly is a market structure that is characterized by a: A) small number of interdependent firms producing identical or differentiated products. B) small number of independent firms producing identical or differentiated products. C) large number of relatively small independent firms producing differentiated products. D) large number of relatively small independent firms producing identical products.
small number of interdependent firms producing identical or differentiated products
7. The perfectly competitive model assumes all of the following except: A) a great number of buyers. B) easy entry into and easy exit from the market. C) complete information on the part of buyers and sellers. D) that firms attempt to maximize their total revenue.
that firms attempt to maximize their total revenue
4. Perfect competition is characterized by: A) rivalry in advertising. B) fierce quality competition. C) the inability of any one firm to influence price. D) widely recognized brands.
the inability of any one firm to influence price
84. Tacit collusion is difficult to achieve in practice: A) the larger the number of firms in the industry. B) the fewer the number of products being sold. C) the more similar the marginal costs of each firm. D) if customers have little or no bargaining power.
the larger the number of firms in the industry
86. Given the general agreement that pollution is undesirable and social welfare is increased by reducing pollution, the optimal level of pollution in a society is: A) zero. B) the level that reduces the marginal social costs of pollution to zero. C) the level of pollution at which the marginal social cost of pollution is equal to the marginal social benefit of pollution. D) the level of pollution that minimizes the average total cost of producing the product that generates the pollution.
the level of pollution at which the marginal social cost of pollution is equal to the marginal social benefit of pollution
89. The efficient quantity of pollution emissions occurs where: A) there is absolutely no damage done to a pristine environment. B) government forces zero pollution to occur, no matter what the cost. C) the marginal social benefits of pollution exceed the marginal social costs of pollution. D) the marginal social benefit of pollution is equal to the marginal social cost of pollution.
the marginal social benefit of pollution is equal to the marginal social cost
25. The shut-down price is: A) the price at which economic profit is zero. B) the minimum of the AVC curve. C) the intersection of the MC and ATC curves. D) the minimum of the AFC curve.
the minimum of the AVC curve
22. The break-even price for a perfectly competitive firm is equal to: A) the minimum value of average variable cost. B) the marginal revenue, provided that marginal revenue is equal to marginal cost. C) the average fixed cost at the output level at which the firm is producing. D) the minimum value of average total cost.
the minimum value of ATC
37. Network externalities exist when a good's value to the consumer rises as: A) the number of people who use the good increases. B) the number of people who use the good decreases. C) the number of people who use the good remains constant. D) technology improves.
the number of people who use the good increases
96. Which of the following is an example of a negative externality? A) high prices for necessities such as drinking water in the aftermath of a natural disaster B) the risks to nonsmokers from second - hand smoke C) the increased risk of a traffic accident to an individual who uses a cell phone while driving D) unemployment in the steel industry caused by low prices of imported (external) steel
the risks to nonsmokers from secondhand smoke
5. Which of the following is not a characteristic of a perfectly competitive industry? A) Firms seek to maximize profits. B) Profits may be positive in the short run. C) There are many firms. D) There are differentiated products.
there are differentiated products
98. If at the current amount of pollution, the marginal social benefit of pollution is greater than its marginal social cost, then: A) there is too little pollution. B) there is too much pollution. C) society is achieving the optimal amount of pollution. D) the externality is minimized.
there is too little pollution
85. A market economy will produce ________ without any government regulation. A) too little pollution B) too much pollution C) the socially optimal amount of pollution D) the amount of pollution that maximizes total surplus
too much pollution
14. For a firm producing at any level of output greater than the most profitable one, a reduction in output decreases: A) total cost more than total revenue. B) total revenue more than total cost. C) total revenue by the same amount as total cost. D) total revenue but not total cost.
total cost more than total revenue
8. Total revenue is a firm's: A) change in revenue resulting from a unit change in output. B) ratio of revenue to quantity. C) difference between revenue and cost. D) total output times the price at which it sells that output.
total output times the price at which they sell that output
101. An externality is said to be internalized: A) when individuals take external costs and benefits into account in their decision making. B) when the Coase theorem is irrelevant or cannot be applied. C) when individuals successfully petition the government to ban or restrict activities that generate negative externalities. D) when individuals learn to adapt to negative externalities through introspection or internal acceptance of what are viewed as unchangeable facts of life.
when individuals take external costs and benefits into account in their decision making
27. Market structures are categorized by the following two criteria: A) the number of firms and the size of the firms B) whether or not products are differentiated and the extent of advertising C) the number of firms and whether or not products are differentiated D) the size of the firms and the extent of advertising
whether or not products are differentiated and the extent of advertising
95. Which of the following is an example of an activity generating a negative externality? A) You buy a new car, and then discover it needs a new transmission. B) Your next - door neighbor mows the lawn at 6 A.M. C) The only two coffee shops in town conspire to raise prices. D) After Jane bought health insurance, she began racing motorcycles on the weekends.
your neighbor mows the lawn at 6 am
93. In the absence of government action, polluters will pollute up to the point at which the marginal social benefit of pollution is: A) equal to the marginal social cost of pollution. B) zero. C) maximized. D) greater than the marginal social cost of pollution.
zero
11. If a perfectly competitive gardening shop sells 30 evergreen bushes at a price of $10 per bush, its marginal revenue is: A) $10. B) more than $10. C) less than $10. D) $300.
$10
16. If a perfectly competitive firm sells 10 units of output at a price of $30 per unit, its marginal revenue is: A) $10. B) $30. C) less than $30. D) $300.
$30
66. Which of the following Herfindahl-Hirschman indices is most likely to indicate a perfectly competitive market? A) 100 B) 1,800. C) 10,000. D) 100,000.
100
9. 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)$10. B)$20. C)$200. D)$220.
220