Multiple Choice Chapters 10, 12, 14
Firms equate marginal revenue and marginal cost. True or False for the following: A) perfect competition B) monopoly C) monopolistic competition
A) true B) true C) true
In which of the following ways is a monopoly beneficial to an economy?
A. With natural monopolies, costs may be lower than those that would exist in competitive markets with many producers. B. Firms that are allowed monopoly profits search out innovative technologies that they can bring to market. C. Monopoly profits give firms more reason to invest in the creation of new products through research and development.
Which of the following statements are true regarding first-degree price discrimination? (Check all that apply.) A. There is extreme inequity in the allocation of surplus. B.The producer can be made better off without making consumers worse off. C.The consumer surplus is zero. D. The monopolist expands production until MCequalsMR.
A.There is extreme inequity in the allocation of surplus. C.The consumer surplus is zero. Your answer is correct.
Which of the following is not an example of paternalism? A. FDA warnings on all drugs B. a sin tax on tobacco C. repealing the Affordable Health Care Act D. public schools
C. repealing the Affordable Health Care Act
To restrict a firm's monopoly power, why can't antitrust authorities just set a floor or a ceiling in the market?
It is difficult to set a fair price, and even if regulators did, the firm would then have no incentive to innovate.
An example of a proportional tax is the ___________.
Medicare tax.
Both monopolies and monopolistically competitive firms set marginal revenue equal to marginal cost to maximize profit. Given the same cost curves, would you expect prices to be higher in a monopoly or a monopolistically competitive market?
Monopoly, because its demand is more inelastic.
What equation calculates economic profits for a monopoly?
Profits = (P-ATC) x Q
How is a monopolistically competitive market similar to a perfectly competitive market?
There are no restrictions on the entry of new firms.
Economies with lower taxes ______ production and ______ available social surplus. One possible cost of such economies is that the gap between the rich and poor may _____.
encourage; increase; increase
Consumer sovereignty suggests that ____________.
government should not interfere with consumer choices.
To reduce inequality and poverty in an economy, the government uses a ___________.
progressive tax system to fund transfer payments.
Lump-sum taxes are
regressive
Car insurance companies charge males more for insurance than females. This is an example of ___________.
third degree price discrimination
To say that a good has network effects means that the ____________.
value of the product increases as more people use it.
According to the Copyright Act of 1790, a copyright's life was limited to 28 years, including extensions. Today, copyrights are valid for the entire period of the author's life plus another 70 years. A copyright for a book that was published before 1923 is likely to have expired by now, but books published after 1923 are still under copyright protection. Research has shown that, of all the books that are in print today, a larger proportion were published before 1923. This is despite the fact that the number of books being published every year has been steadily increasing. What do you think could explain the fact that most of the books available today are from the period before 1923?
A copyright gives the owner an exclusive right to a piece of intellectual property, thus allowing them to act as a monopoly. Monopolists typically reduce quantity supplied to drive up the price of the good that they produce.
Firms earn economic profits in the long run. True or False for the following: A) perfect competition B) monopoly C) monopolistic competition
A) false B) true C) false
Firms equate price and marginal cost. True or False for the following: A) perfect competition B) monopoly C) monopolistic competition
A) true B) false C) false
Firms produce the quantity that minimizes long-run average cost. True or False for the following: A) perfect competition B) monopoly C) monopolistic competition
A) true B) false C) false
New firms are free to enter the industry in the long run. True or False for the following: A) perfect competition B) monopoly C) monopolistic competition
A) true B) false C) true
The total number of sandwiches per week demanded by Concord University's students at $12 or under is 800 sandwiches. The total demand for sandwiches becomes zero when the price rises above $12, as students cannot afford to spend more than $12 on a sandwich. A) Show the demand curve for the sandwiches sold per week with the help of the graph. In the above scenario, there are two cafes located on the University's campus, Capriotti and Gold Apple, that sell identical sandwiches. Suppose the price of sandwiches in both of the cafes is denoted as Upper P Subscript CA and Upper P Subscript GA respectively. B) The residual demand for Capriotti is _____ if Capriotti's price is $12 and Golden Apple's price is $14 C) The residual demand for Capriotti is 0, if the price of Golden Apple is $8 and the price of Capriotti is _______ D) The residual demand for Gold Apple is ______ if Capriotti charges $10 and Golden Apple is $10.
B) 800 C) greater than $8 D) 400
Which of the following common features do monopolistically competitive markets and monopolies share?
Firms face downward-sloping demand curves.
Monopolistically competitive firms earn zero economic profit in the long run as do perfectly competitive firms. Does this mean that total surplus is maximized in a monopolistically competitive market?
No, because firms restrict output to raise price.
Is the deadweight loss of taxation the same for different types of taxes?
No, it differs according to how taxes change incentives.
Is the entire burden of the tax always borne by those on whom it is imposed?
Not necessarily, since the burden of the tax depends on price elasticity.
Which of the following reasons explains why a subsidy creates deadweight loss?
The additional trade induced by the subsidy allows for consumption by buyers who value the good at below marginal cost.
What happens in a monopolistically competitive market when new firms enter the market?
The existing firm's demand curve shifts in and becomes flatter.
Why does a monopolistically competitive industry make zero economic profit in the long-run?
There is the free entry of many firms in the long-run.
Which of the following is a factor underlying government taxation and spending decisions?
To raise revenues to pay for operations.
A collusive agreement between two firms is likely to break down when ____________.
detection of cheaters is difficult.
In an oligopoly with differentiated products:
economic profit will exist.
A natural monopoly may develop because ____ make(s) it efficient to have only one provider of a good or service. It is characterized by fixed costs that are ____.
economies of scale; substantial
In the model of an oligopoly with identical (homogeneous) products, the price is likely to be ___________.
equal to marginal cost.
A price floor placed below the equilibrium price would __________ the market. If the price floor was set above the equilibrium price it would ________ the market. A price floor reallocates surplus to _________.
have no effect on; create a surplus in; producers
An example of a progressive tax is the __________.
income tax.
For a monopolist, total revenue _________ calculated the same way as in perfect competition; marginal revenue ________ equal to the price.
is; is not
Paternalism is the view that ___________.
people do not always know what is best for them, and government should encourage them to make the right choices.
The primary types of tax systems are ___________. (Check all that apply.)
regressive tax systems, proportional tax systems, progressive tax systems.
Upper A fast minus food combo meal costs less than if you bought each item separately. This is an example of ___________.
second-degree price discrimination
Upper A local grocery store charges more for one soda than for a six minus pack. This is an example of ___________.
second-degree price discrimination
What are the characteristics of monopolistic competition?
sellers are price-makers and Slope of the demand curve is negative.
An example of a regressive tax is the ___________.
social security tax
The government runs a budget surplus when ____________.
tax revenue exceeds its spending.
In recent years, some online firms have offered different consumers different prices for the same good. These firms use the consumer's IP address to find what city they are in and then charge a higher price to people in wealthier cities. This type of pricing behavior is ____________.
third degree price discrimination
The profit maximizing output and price is?
where MR = MC on the demand curve and where MR = MC on the ATC curve
Tax incidence refers to ____________.
who bears the burden of a tax.
