Micro Ch. 12,13,14,16,17

Which of the following statements is CORRECT? A) An emissions tax is a more efficient way to reduce pollution than an environmental standard, because an emissions tax equalizes the marginal benefit of pollution from all sources. B) An environmental standard is a more efficient way to reduce pollution than an emissions tax, because an environmental standard can be structured to equalize the reduction in pollution from all sources. C) If an emissions tax and environmental standards lead to the same total reduction in pollution, then they will also lead to the same reduction in pollution by individual polluters. D) It is easy to set emissions taxes at the "correct" level, since the relationship between emissions taxes and the reduction in emissions that they induce has been extensively studied and is well known.

A) An emissions tax is a more efficient way to reduce pollution than an environmental standard, because an emissions tax equalizes the marginal benefit of pollution from all sources.

Oligopolistic firms often choose not to compete on price. A) True B) False

A) True

Dell and Gateway are close competitors in the personal computer market. Suppose that each year Dell and Gateway have to decide whether to spend money on costly research and development (R&D). If both spend money on R&D, each firm will earn $30 million. If neither spends money on R&D, each firm will earn $40 million. If one firm spends money on R&D and the other does not, the firm that engaged in R&D would earn $45 million and the firm that did not would earn $25 million. A) Use a payoff matrix to depict this problem. B) What is the noncooperative solution to this game?

A) Use a payoff matrix to depict this problem.

Antitrust policy refers to government: A) attempts to prevent the acquisition of monopoly power. B) attempts to encourage the exercise of monopoly power. C) encouragement of collusion in the marketplace. D) attempts to limit private enterprise.

A) attempts to prevent the acquisition of monopoly power.

The most important source of oligopoly in an industry is: A) economies of scale. B) government regulation. C) technological inferiority. D) ownership of plentiful resources.

A) economies of scale.

When government attempts to reduce climate change by establishing a minimum level of fuel efficiency on new cars, it is using a(n): A) environmental standard. B) emissions tax. C) Pigouvian tax. D) tradable emissions permit.

A) environmental standard.

If a player has an incentive to cheat no matter what the other player does and if both players act in this manner, both players will be worse off. This is a: A) prisoners' dilemma. B) tit-for-tat strategy. C) price leadership model. D) kinked demand curve model.

A) prisoners' dilemma.

Although most citizens have access to police protection, they also take measures, such as putting locks on their doors, to protect themselves. For most citizens police protection is a(n) _____ good, while self-protection is a(n) _____ good. A) public; private B) public; artificially scarce good C) common resource; private D) artificially scarce good; common resource

A) public; private

If a monopolist can perfectly price discriminate, then A) there will be no consumer surplus. NOTE; EACH UNIT IS SOLD AT ITS MAXIMUM PRICE, SO CONSUMER DOES NOT GET ANY EXTRA BENEFIT FROM THE PURCHASE THAN WHAT THEY PAID FOR. B) it will not give a discount to those who buy in bulk. C) it will charge just two different prices in two different markets.

A) there will be no consumer surplus. NOTE; EACH UNIT IS SOLD AT ITS MAXIMUM PRICE, SO CONSUMER DOES NOT GET ANY EXTRA BENEFIT FROM THE PURCHASE THAN WHAT THEY PAID FOR

A public good is a good: A) whose consumption is nonexcludable and nonrival. B) for which the marginal cost of adding another consumer is high. C) that the market will usually provide efficiently. D) whose consumption is rival.

A) whose consumption is nonexcludable and nonrival

The Orlando, Florida, theme park industry tends to follow a price leadership model. This means that: A) each theme park sets its own price and operating hours independent of what other parks do. B) Disney often sets a price and rival theme parks then follow with similar if not identical prices. C) Disney often sets prices only to be undercut by rival firms who prefer to engage in price wars. D) firms use explicit written agreements to charge identical prices.

B) Disney often sets a price and rival theme parks then follow with similar if not identical prices.

In which of the following situations does overt collusion take place? A) Smaller firms in an industry have an unspoken agreement to charge the same price as the largest firm. B) Firms in an industry agree openly on price and output, and they jointly make other decisions aimed at achieving monopoly profits. C) Competition among a large number of small firms generates similar but slightly different prices. D) Competition among a large number of small firms generates a stable market price.

B) Firms in an industry agree openly on price and output, and they jointly make other decisions aimed at achieving monopoly profits.

Suppose the production of roses generates a positive externality in that travelers enjoy the scenic beauty of the garden. 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.

B) Pigouvian subsidy.

What condition must exist for a monopolist to effectively price discriminate? A) The monopolist must face consumers with identical willingness to pay. B) The monopolist must produce a good that cannot be resold. C) The monopolist must produce a good or service that can be resold. D) The monopolist must charge the highest price possible.

B) The monopolist must produce a good that cannot be resold.

The existence of economies of scale can create ________. A) a market in which many firms make identical products B) a natural monopoly C) a government monopoly D) a legal monopoly

B) a natural monopoly

The assumption that a perfectly competitive industry has many sellers, each selling an identical product, leads to the conclusion that_______ A) there are many buyers. B) firms are price takers. C) consumers get to see a variety of outputs. D) the economic profit will be positive in the long run.

B) firms are price takers.

One framework used to analyze strategic choices is: A) the tacit supply curve model. B) game theory. C) perfect competition. D) risk assessment.

B) game theory.

In the short run, an increase in demand for a good that is sold in a perfectly competitive market A) increases the number of firms in the market. B) increases the economic profits of existing firms in the market. C) causes more firms to shut down. D) has no effect on the price.

B) increases the economic profits of existing firms in the market.

A natural monopoly that is regulated to set its price according to the marginal cost pricing rule will A) produce a quantity of output such that price is above average total cost. B) incur an economic loss. NOTE: SO THE REGULATOR OR THE GOVERNMENT MAY ALLOW THE MONOPOLY TO PRICE DISCRIMINATE TO COVER THE LOSS. ONE FORM OF PRICE DISCRIMINATION IS TO CHARGE ONE PRICE FOR INSTALLATION AND A DIFFERENT PRICE FOR PER UNIT SERVICE OR USEAGE FEE AS IN ELECTRICITY (UTILITIES) SERVICE. C) maximize its profit. D) produce a quantity of output such that marginal cost is above average total cost.

B) incur an economic loss.

Oligopoly is a market structure characterized by: A) independence in decision making. B) interdependence: each firm's decision affects the profit of the other firms. C) substantial diseconomies of scale. D) a large number of small firms.

B) interdependence: each firm's decision affects the profit of the other firms.

A market in which competition and entry are restricted by the granting of a public franchise, government license, patent, or copyright is called a A) single-price monopoly. B) legal monopoly. C) natural monopoly. D) price-discriminating monopoly.

B) legal monopoly.

Sue's Surfboards is the sole renter of surfboards on Big Wave Island. Sue does not price discriminate. For Sue's Surfboards, the change in total revenue from each additional surfboard rented is her A) marginal cost and is constant regardless of how many surfboards are rented. B) marginal revenue and is less than the rental price of a surfboard. C) marginal cost and is greater than the rental price of a surfboard. D) marginal revenue and is equal to the rental price of a surfboard.

B) marginal revenue and is less than the rental price of a surfboard.

Television programs are nonrival because: A) the supplier cannot prevent consumption by people who do not pay for it. B) more than one person can consume the same unit of the good at the same time. C) individuals ignore the effect of their use on the amount of the resource remaining for others. D) the market suffers from inefficiently low consumption.

B) more than one person can consume the same unit of the good at the same time.

Which of the following is an example of an artificially scarce good? A) diamonds, because their supply is artificially restricted by monopoly producers B) music that is downloadable from the Internet for a fee C) a daily newspaper D) hot dogs in a sports stadium, because the number of suppliers is restricted

B) music that is downloadable from the Internet for a fee

An unregulated monopoly will A) produce only where marginal revenue is zero. B) produce in the elastic range of its demand curve. NOTE: AT MIDPOINT OF A LINEAR DEMAND, ELASTICITY IS UNIT. BELOW THAT POINT (THAT IS AT LARGER QUANTITY), DEMAND IS RELATIVELY ELASTIC. AND AT QUANTITIES LESS THAN THAT AT MID POINT (THAT IS LEFT OF MIDPOINT), THE DEMAND IS RELATIVELY INELASTIC. C) flood the market with goods to deter entry. D) produce in the inelastic range of its demand curve.

B) produce in the elastic range of its demand curve. NOTE: AT MIDPOINT OF A LINEAR DEMAND, ELASTICITY IS UNIT. BELOW THAT POINT (THAT IS AT LARGER QUANTITY), DEMAND IS RELATIVELY ELASTIC. AND AT QUANTITIES LESS THAN THAT AT MID POINT (THAT IS LEFT OF MIDPOINT), THE DEMAND IS RELATIVELY INELASTIC.

In the United Kingdom, most public television programming is paid for by a yearly license fee assessed on every household. Television detection vans go through neighborhoods to detect unlicensed households and keep them from viewing without paying. This is a good example of the _____ provision of _____. x A) public; private goods B) public; goods that are made artificially excludable in consumption [NOTE: ARTIFICIAL BECAUSE THE EXCLUSION IS DUE TO THE PAYMENT SYSTEM; NOT BY THE NATURE OF THE PRODUCT] C) public; common resources D) private; artificially scarce goods

B) public; goods that are made artificially excludable in consumption [NOTE: ARTIFICIAL BECAUSE THE EXCLUSION IS DUE TO THE PAYMENT SYSTEM; NOT BY THE NATURE OF THE PRODUCT]

According to the Coase theorem, when negative externalities are present, a market will: A) always reach an efficient solution. B) reach an efficient solution if transaction costs are low and property rights are well-defined. C) reach an efficient solution only if the government intervenes in the market. D) reach an efficient solution only if the negative externalities are offset by positive externalities.

B) reach an efficient solution if transaction costs are low and property rights are well-defined.

Public goods should be produced up to the point at which the marginal cost of production equals: A) the maximum price any individual is willing to pay for that unit. B) the sum of the individual marginal benefits from all consumers of that unit. C) zero, which is the marginal cost of allowing another individual to consume the good. D) the highest marginal benefit from any individual consumer of the good.

B) the sum of the individual marginal benefits from all consumers of that unit.

If an emissions tax is too low: A) there will be too little pollution. B) there will be too much pollution. C) the marginal social cost of pollution will be less than the marginal social benefit of pollution. D) there could be either too much or too little pollution.

B) there will be too much pollution.

In the above figure, if the price is P1, the firm maximizes its profit by producing 7) _______ A) nothing. B) where MC equals P1. RULE IS: MR = MC but b/c Pnce, P=MR for a perfectly competitive firm, MC = P1 is correct. The profit maximizing quantity is Q1. In the graph, at Q1, ATC = MC, but it does not have to be. C) where MC equals ATC. D) where ATC equals P1.

B) where MC equals P1. RULE IS: MR = MC but b/c Pnce, P=MR for a perfectly competitive firm, MC = P1 is correct. The profit maximizing quantity is Q1. In the graph, at Q1, ATC = MC, but it does not have to be.

All of the following are examples of price discrimination EXCEPT A) lower ticket prices for matinee performances. B) buy-one-get-one-free offers. C) "buy now, pay later" payment options. D) "early bird specials" at a restaurant.

C) "buy now, pay later"

Suppose firms in a perfectly competitive industry are making economic profits. As a result, I. II. III. new firms enter the industry. the market price falls. the economic profits of the existing firms decrease. 19) ______ A) II and III B) I and III C) I, II and III D) I and II

C) I, II and III

A perfectly competitive firm is definitely making an economic profit when 12) ______ A) P = ATC. B) P < ATC. C) P > ATC. D) MR = MC.

C) P > ATC.

The best example of a good that is excludable in consumption is: A) a park. B) an ocean. C) a bicycle. D) national defense.

C) a bicycle.

Which of the following is NOT a characteristic of a monopoly? A) a single firm B) barriers to entry C) easy entry and exit D) no close substitutes for the product produced

C) easy entry and exit

A perfectly competitive firm's marginal revenue A) increases as the firm produces more output. B) decreases as the firm produces more output. C) equals the market price of its product. D) is less than the market price of its product.

C) equals the market price of its product.

Monopolies can make an economic profit in the long run because there A) is free entry and exit. B) is inelastic demand from consumers. C) is a barrier to entry. D) are close substitutes for the product.

C) is a barrier to entry.

Suppose that a monopoly is currently producing the quantity at which marginal revenue is less than marginal cost. The monopoly can increase its profit by ________. A) shutting down B) lowering its price and increasing its output C) raising its price and decreasing its output D) lowering its price and decreasing its output

C) raising its price and decreasing its output

For a nonexcludable good like national defense, the private market will lead to _____ of the good. A) too much production B) too much consumption C) too little production D) the efficient level of consumption

C) too little production

A perfectly competitive firm's supply curve _______ A) is the portion of the marginal cost curve above the average variable cost curve. B) is upward sloping. C) shows the relationship between the price and the quantity the firm will produce. D) All of the above are correct.

D) All of the above are correct.

The source of the inefficient use of artificially scarce goods is similar to the source of inefficiencies created by: A) externalities. B) an oligopoly. C) price discrimination. D) a natural monopoly.

D) a natural monopoly.

Economic profit sends a signal to entrepreneurs THAT by producing the specific product, they can earn 18) ______ A) the shutdown point is. B) price exceeds marginal cost. C) there are many buyers and many sellers. D) an above normal return on investment.

D) an above normal return on investment.

A natural monopoly is defined as A) a market in which competition and entry are restricted by the granting of a patent. B) any market where one firm constitutes the entire industry. C) a market in which competition and entry are restricted by the granting of a government license. D) an industry in which economies of scale allow one firm to supply the entire market at the lowest possible cost.

D) an industry in which economies of scale allow one firm to supply the entire market at the lowest possible cost.

In the short run, perfectly competitive firms ________ but in the long run, perfectly competitive firms ________. A) must make an economic profit; make an economic profit B) can incur economic losses; make an economic profit C) can incur an economic loss; incur an economic loss D) can incur an economic loss; make zero economic profit B/C THOSE WITH LOSS EXIT THE BUSINESS AND SOME ENTER IF THERE ARE SOME FIRMS WITH POSITIVE ECONOMIC PROFIT. THE ONLY STABILIZING POINT IS: ZERO ECONOMIC PROFIT TO ALL THE EXISTING (OPERATING / PRODUCING) FIRMS.

D) can incur an economic loss; make zero economic profit B/C THOSE WITH LOSS EXIT THE BUSINESS AND SOME ENTER IF THERE ARE SOME FIRMS WITH POSITIVE ECONOMIC PROFIT. THE ONLY STABILIZING POINT IS: ZERO ECONOMIC PROFIT TO ALL THE EXISTING (OPERATING / PRODUCING) FIRMS.

Individual firms in perfectly competitive industries are price takers because A) the government sets all prices. B) firms decide together on the best price to charge. C) buyers set prices. D) each individual firm is too small to affect the market price.

D) each individual firm is too small to affect the market price.

In perfect competition, the elasticity of demand for the product of a single firm is _______ A) 1. B) 0. C) between 0 and 1. D) infinite. = perfectly elastic

D) infinite. = perfectly elastic

Relative to a perfectly competitive market with the same cost and demand, a single-price monopolist produces ________ output and charges a ________ price. A) less; lower B) more; lower C) more; higher D) less; higher

D) less; higher

In the long-run equilibrium in a perfectly competitive market, the firms produce at the ________ possible average total cost and the price equals the ________ possible average total cost. A) highest; lowest B) highest; highest C) lowest; highest D) lowest; lowest

D) lowest; lowest

A major difference between a single-price monopolist and a perfectly competitive firm is that the A) monopolist can maximize profit by setting the price of the output where demand is inelastic. B) monopolist can always increase its profits by increasing the price of its output. C) monopolist is guaranteed to earn an economic profit. D) monopolist's marginal revenue is less than price.

D) monopolist's marginal revenue is less than price.

An advantage of tradable emissions permits is that: A) pollution costs are easier to measure than emissions taxes. B) nondegradable pollutants can be more easily controlled than degradable pollutants. C) the value that future generations place on pollution damages can be determined. D) they provide incentives for firms to develop technologies that are less polluting.

D) they provide incentives for firms to develop technologies that are less polluting.

When a perfectly competitive firm produces the profit-maximizing output and it is at its shutdown point, the firm's _______________ A) marginal revenue equals its average fixed cost B) total revenue is less than its total variable cost C) marginal cost is less than its average variable cost D) total revenue equals its total variable cost ( EQUIVALENTLY, AT THE PROFIT MAXIMIZING QUANTITY, AVERAGE VARIABLE COST IS MINIMUM.

D) total revenue equals its total variable cost ( EQUIVALENTLY, AT THE PROFIT MAXIMIZING QUANTITY, AVERAGE VARIABLE COST IS MINIMUM.

Goods are said to be rival in consumption because they are substitutes in consumption, such as coffee and tea or road travel and air travel. A) True B) False

False

The economically efficient level of an externality is zero. HINT: MUST CONSIDER BOTH COSTS AND BENEFITS. A) True B) False

False

Emissions taxes and tradable emissions permits both ensure that any given reduction in total pollution is achieved at the lowest possible cost. This is not the case for environmental standards, since they fail to ensure that those who can reduce pollution most cheaply are in fact the ones to do so. A) True B) False

True

If externalities are fully internalized, an outcome is efficient even without government intervention. A) True B) False

True

Since individuals ignore the effect of their use on the amount of a resource remaining for others, common resources are subject to overuse when left to the private market. NOTE: SIMILAR TO NEGATIVE EXTERNALITY, LIKE POLLUTION. A) True B) False

True

The efficient level of provision of a public good is the level at which its marginal social benefit is equal to the marginal social cost of its production. A) True B) False

True

The optimal Pigouvian tax is equal to the marginal social cost of pollution at the socially optimal quantity of pollution. A) True B) False

True