Exam questions

A monopolist has four distinct groups of customers: group A has an elasticity of demand of 0.2, group B has an elasticity of demand of 0.8, group C has an elasticity of demand of 1.0, and group D has an elasticity of demand of 2.0. The group paying the highest price for the product will be group:

A.

suppose a perfectly competitive firm faces the following situation: P= $8, output = 2,000, ATC = $6.50, and MC = $7. Which statement is an accurate description of the firm's situation?

the firm incurs profits but is not maximizing its profits

(Figure: Predicting Demand Shifts 2) What would cause a shift from D1 to D2? (Honey)

a new study that shows that honey cures cancer

A monopolistically competitive firm will produce its product as long as the marginal revenue is:

above marginal costs.

The market shares in a six-firm industry equal 45, 25, 15, 10, 3, and 2, respectively. The Herfindahl-Hirschman Index for the industry is:

answer is NOT 203

If a Prisoner's Dilemma game is repeated daily, such that two rival stores choose a price simultaneously each morning for an extended number of days, which outcome can happen?

answer is NOT The Nash equilibrium will continue to be played only until one firm engages a trigger strategy against the other.

Which of these will NOT help a monopolistically competitive firm generate brand loyalty?

answer is NOT advertising

In the short run, if output is declining:

answer is NOT average variable costs must be declining.

Rate of return regulation will often create an incentive for a natural monopoly to:

answer is NOT reduce costs

Price caps:

can drive monopolies into bankruptcy if a large part of the regulated firm's output is purchased on the open market.

If the price elasticity of demand for Rip's Punch is 1.5 and he increases the price for each bottle, total revenue will then

decrease because the % change in quantity demanded will be greater than the % change in price

A trigger strategy is a strategy that:

depends on an opponent's past decisions.

The purpose of an economic model is to

explain the behavior of the issue being examined

The consumer's demand curve slopes down and to the right because as price rises, the consumer gets:

fewer units of marginal utility per dollar and makes fewer purchases.

For a given supply of a product, the _____ the price elasticity of demand, the _____ the share of the total tax burden borne by consumers, and the _____ the share borne by sellers.

greater; smaller; greater

If a competitive firm in the short run finds that its average total costs exceed its price, the firm:

has an economic loss.

Monopolistic competition is like perfect competition in that they both:

have numerous competitors.

For a perfectly competitive firm, if MR > AVC and MR > MC, then the firm should:

increase production.

When consumers are loyal to a particular product and the product's price increases, the producer's total revenue:

increases

What are the two types of advertising?

informational and persuasive

Total utility:

is the total satisfaction derived from the consumption of given quantity of a good.

Sales of luxury consumer products for cats and dogs, such as pet spas and hotels, have experienced ____ over the past decade

large increase

The cotton industry is experiencing less than normal profits. You can expect some firms to:

leave the industry in the long run.

Price elasticity of supply is greatest in the

long run

For a perfectly competitive firm, total revenue is equal to:

marginal revenue × quantity.

Economists assume that firms try to ___. Other theories suggest that firms might, among other things, try to ____.

max profits, max sales

a price floor is a legally mandated

minimum price below which goods or services cannot be sold

Which condition will NOT contribute to a cartel's stability?

nonprice discounts

Before deciding on a pricing strategy, Worldwide Widgets consults with its market intelligence team to understand what discounts the Gargantuan Gizmo Company is offering. The model that BEST fits this industry is:

oligopoly

Assuming fixed quantities of other inputs, the total product curve relates

output to variable input

A strategy in which a firm takes the same action that another firm did in the last period is a:

tit-for-tat strategy.

The demand curve for an individual perfectly competitive firm is:

perfectly elastic.

the resource known as labor includes

physical and mental skills and talents

Trade based on comparative advantage leads to a result that is a:

positive-sum game.

Today, the primary role of antitrust law is to:

prevent allocative inefficiency associated with monopoly behavior.

Luz sells cupcakes. According to market economics, which is the BEST signal that consumers value her product highly?

that they readily pay full price per cupcake

Which of these is NOT a government-imposed restriction that could keep potential entrants out of a market?

subsidizing imported goods

If the price elasticity of demand is 10, then for every 1% increase in price there is a

10% decrease in quantity demanded

Based on the table, what is the output with 7 workers?

54

Which equation is not correct?

ATC=VC/Q

Which curve is NOT bowl-shaped

Average fixed cost curve

Which of these is among the top 5 US exports to china

soybeans

When the producer of Doritos tortilla chips spends money for television commercials, it intends to shift the:

Demand curve to the right and make demand less elastic

Which of these is NOT a significant barrier to entry?

I THINK opportunity costs

If everyone drives his or her car to work, taking the city bus would take a lot of time due to the congestion caused by everyone driving his or her car, so you would also drive your car. But if everybody rides the bus to work, the roads would be less congested so you would again drive your car. In this example, driving your car would be classified as a:

I THINK prisoner's dilemma

All players within a game maximizing their expected outcome given the information they have is called a:

Nash equilibrium.

Suppose a perfectly competitive firm is in the following situation: P = $9, output = 4,000, ATC = $8, AVC = $6, and MC = $9. Which statement accurately describes the firm's and the market's situation?

The firm incurs economic profits; the market is in a short-run equilibrium.

Assume that the ruby market shares of six different countries are: 30%, 25%, 20%, 15%, 6%, and 5%. However, the quality of the rubies and the mining costs vary across the six countries. Which statement accurately describes the likelihood of success for a cartel among the ruby mining companies in the six countries?

The likelihood of success is low because of uneven market shares, product quality, and costs of production.

Normal profits for a competitive firm occur when:

The price equals average total cost (ATC)

(Table) HH Gregg and Best Buy are competing for sales for their new GPS devices. Each firm has a pricing strategy of either a high price or a low price. Profits for each store are listed in the payoff boxes. Based on the table, why is the above game characterized as a Prisoner's Dilemma game?

There exists a mutually better outcome for both players; however, it is not rational to play this outcome (which requires collusion) in a one-time game

A nation's standard of living is primarily a function of

productivity

Assume that at a given level of output, a monopoly firm has marginal revenue of $9, its average total cost is $9, and marginal cost is $7. If this firm were to continually increase its output, then:

profits will increase.

Players making decisions that improve their chances of achieving a defined goal, is called:

rational decision making.

all of the following purchases are subject to a state sales tax, EXCEPT a

rent payment

If demand is extremely elastic, it is likely that ____ will bear most of the burden of a tax and that deadweight loss will be relatively _____

sellers, large

Suppose that Joe sells fish in a perfectly competitive market. He can sell each fish for $5. Today he brought twenty fish to the fish market. If his total variable cost is $110 and his total fixed cost is $50, he:

should have stayed home.

In terms of the actual time period, the long run is probably the shortest for a (n)

small business providing house-painting services

The resources needed for growing cucumbers are relatively abundant. Many new firms could enter this industry with no change in costs. If that happens:

the long-run industry supply curve will be horizontal.

Consider that the corn industry is a perfectly competitive industry with constant returns to scale. The price per bushel is $2. If the long-run, minimum ATC is $1.50 per bushel, it should follow that (ceteris paribus):

the long-run price will be $1.50 per bushel.

The fundamental constraint on a monopoly firm's exercise of market power is:

the market demand curve.

In the short run, the perfectly competitive firm will continue to produce even though it might experience an economic loss if:

the market price exceeds the average variable cost.

If a market is NOT at equilibrium:

the price will change and, in response, market participants will move along the existing supply and demand curves until the market reaches equilibrium.

If output falls below equilibrium in a perfectly competitive market, then:

the public interest will suffer.

When markets are efficient

the sum of consumer and producer surplus is maximized

4 more questions

to put in here

Marginal cost is equal to the change in:

variable cost divided by the change in total output.

Economists refer to the payment to labor as

wages

Which statement regarding total and marginal utility is true?

when marginal utility is positive, total utility is rising

Microeconomics is concerned with issues such as

which job to take

How large is deadweight loss in equilibrium?

zero