online mcc microecon test 4 (ch 26,27,31)

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Suppose a polluting firm is faced with a pollution tax. The firm will choose to abate pollution so long as the

marginal benefit of avoiding the tax exceeds the marginal cost of abatement.

A pollution tax will increase the amount of pollution a firm generates if the tax is less than the ____________ of abatement

marginal cost

In the​ long-run equilibrium in a perfectly competitive​ market, price is equal to both _________ and _________

marginal cost, avg total cost

A​ long-run equilibrium in a monopolistically competitive market satisfies the following two​ conditions:

marginal rev equals marginal cost, avg cost equals price

A​ profit-maximizing firm picks the quantity of output at which ____________ equals _____________.

marginal rev, marginal cost

The strategy of reducing the price to deter entry is __________ pricing. The price that is just low enough to deter entry is the _____________ price.

limit, limit

In some monopolistically competitive​ markets, differentiation is simply a matter of

location

A contestable market has relatively __________ _________ costs,

low entry and exit

Buzz and Moe are duopolists in the​ lawn-care market. The game tree to the right shows the possible pricing outcomes and their payoffs. The outcome of the pricing game is that Buzz will pick the _______ price and Moe will pick the _________ price.

low, low

When products are differentiated by​ location, the entry of firms generates benefits for consumers in the form of ____________

lower travel costs

The phenomenon of​ "happy hour" pricing ​(_________prices when demand is relatively​ high) results from relatively ____________ demand.

lower,elastic

Changes in regulatory policy in the 1980s _________ the price of trucking services and _____________ the profits of trucking firms.

lowered, decreased

Lawn-Cutting Equilibrium. Consider the market for cutting lawns. Each firm has a fixed daily cost of​ $18 for​ equipment, and the marginal cost of cutting a lawn is​ $4. Suppose each firm can cut up to three lawns per day. The market demand curve for lawn cuts is​ linear, with a vertical intercept of​ $70 and a slope of −​$1 per lawn. a. If each firm in the market cuts three​ lawns, what is the average cost per​ lawn? b. What is the equilibrium price under monopolistic​ competition? c. How many lawns will be cut in​ total, and how many firms will be in the​ market? ________ lawns and _______ firms

10,10,60,20

Equilibrium? In your​ city, there are currently three firms providing oil changes. For each​ firm, there is a fixed cost of ​$8080 per day and a marginal cost of ​$1010 per oil change. Each firm currently maximizes its profit by providing 2020 oil changes per day. a. For each​ firm, marginal revenue equals b. This is a​ long-run, monopolistically competitive equilibrium if ___________ equals _______.

10, price, 14.00

To internalize the external cost associated with traffic​ collisions, the appropriate VMT tax is about ​$_______ per mile

.04

If a CO2 washing machine can trap CO2 at a cost of​ $30 per​ ton, a gasoline tax of roughly _____________ per gallon of gasoline would cover the cost of capturing the CO2 it generates.

.25

To internalize the external cost associated with automobile emissions that cause urban​ smog, the appropriate gasoline tax is about

.40 per gallon

A market is considered unconcentrated if the​ Herfindahl-Hirschman Index​ (HHI) is below _________; it is considered highly concentrated if the​ Herfindahl-Hirschman Index​ (HHI) is above _________

1000,1800

Consider the demand​ for, and supply​ of, CO2 allowances in the European Union. Initially the supply of allowance is set at 10 thousand tons and the initial price is​ $20 per ton. Suppose the supply of allowances increases by 25 ​percent, and the price elasticity of demand for permits is 2.0. The new equilibrium quantity is ________ and the new equilibrium price is ______

12.50,17.50

Take the Pen Money and​ Run? Consider the example of Reynolds International Pen and the ballpoint pen. Suppose the unit cost of a ballpoint pen is​ $1.00. Reynolds has two options. 1. Passive. Pick the monopoly price of ​$14. In the first​ year, Reynolds will sell​ 100,000 pens. Over time as other firms enter the market with lower​ prices, the quantity sold by Reynolds will decrease by​ 20,000 per​ year, to​ 80,000 in the second​ year, and so​ on, down to zero in the sixth year. 2. Deterrence. Commit to produce 1 million pens per​ year, an amount large enough to deter entry. The limit price is ​$1.05. a. Under the passive​ strategy, the profit per year is _________ in the first year, ________ in the second​ year, and so​ on, down to zero in the sixth year. The total profit over the​ six-year period would be _________. b. Under the deterrence​ strategy, the profit per year is ___________ Over a​ 20-year period, total profit would be ________. c. Taking a​ 20-year perspective, the _________ strategy is more profitable. d.If the limit price were ​$2.50 rather than ​$1.05​, then ______________ would be the most profitable strategy

1300000, 1040000, 3900000, 50,000 , 1mil, passive, deterrence

In the table​ above, the profit from repeat customers will equal the cost of the advertisement if there are ____ million repeat customers.

2.5

For a market with four ​firms, each with a 25​-percent market​ share, the​ Herfindahl-Hirschman Index​ (HHI) is equal to

2500

Bidding for Bookstore Licenses. Paige initially has the only license to operate a bookstore in Bookville. She charges a price of ​$1212 per​ book, has an average cost of ​$55 per​ book, and sells 501501 books per year. When​ Paige's license​ expires, the city decides to auction two bookstore licenses to the highest bidders. Suppose the relevant variables​ (price, average​ cost, and output per​ firm) take on only integer valueslong dash—no fraction or decimals. a. Suppose Paige is optimistic and imagines the best possible outcome with a​ two-firm market. What is the maximum amount she is willing to pay for one of the two​ licenses? Suppose Paige is pessimistic and imagines the worst possible outcome with a​ two-firm market. What is the maximum amount she is willing to pay for one of the two​ licenses?

2500,0

Word-of-Mouth Book Sales. Consider a publisher who earns a profit of ​$1 per book sold. An advertisement that costs ​$380,000 would sell 100,000 books directly. To make the advertisement​ worthwhile, how many of the original buyers must each persuade just one other person to buy the​ book?

280000

Suppose that Jack and Jill use a​ tit-for-tat scheme to encourage cartel pricing. Jill chooses the low price for two successive​ months, and then switches to the high price. The two firms will deviate from cartel pricing for a total of ________ months

3

The external accident cost per mile for the typical driver between the ages of 25 and 70 is about ________ cents compared to ________ cents for a young driver

3.4,11

How Many​ Bookstores? The city of Bookburg initially allows only one​ bookstore, which sells books at a price of​ $20 and an average cost of​ $11. Suppose the city eliminates its restrictions on​ bookstores, allowing additional stores to enter the market. According to an expert in the book​ market, "Each additional bookstore will decrease the price of books by​ $2 per book and increase the average cost of selling books by​ $1 per​ book." The equilibrium number of bookstores is _________ stores

4

Consider a market with an insecure monopolist. The​ zero-profit quantity is 50 units and the minimum entry quantity is 10 units. The​ entry-deterring quantity is _________ units. The​ zero-profit price is ​$90. The slope of the market demand curve is −​$2 per unit of output. The limit price is ​_______

40,70

The lesson from the Dear Abby column is that

all of the above

Advertising for Loans. Consider the numbers provided on South African consumer loans in the Application. Suppose a lender initially charges an interest rate of 10 percent and uses male models in its advertisements. The firm wants to increase its uptake rate among male consumers. Suppose the firm switches to female models in its advertisements. The male uptake rate will increase by ______%

8

An outcome of a game in which each player is doing the best he or she​ can, given the action of the other​ players, is

A Nash EQUILLIBRIUM

Which of the following statements is​ false?

A vehicle identification system records the number of times a vehicle uses any roadway for more than twenty miles.

A graphical representation of the consequences of different actions in a strategic setting is a

game tree

Got​ Milk? Bessie and George are milk​ producers, and each must decide whether to spend ​$16 million on an advertising campaign. If neither​ advertises, each will earn ​$9 million in net revenue from sales​ (net revenue). If both​ advertise, each will earn ​$30 million in net revenue and ​$1414 million in profit ​($30 million minus ​$16 million for​ advertising). If only one producer​ advertises, that firm will earn ​$20 in net​ revenue, and the other firm will earn ​$19 million in net revenue. This is depicted in the game tree to the right. What is the outcome of the​ game? Is there an​ advertiser's dilemma? Does this dilemma differ from the​ advertisers' dilemma discussed earlier in the​ chapter? How might the dairy industry solve this​ dilemma? (Think white​ mustaches.)

Bessie and George will both not advertise. Yes. The dilemma is that Bessie and George would be better off if both would advertise but neither do. Yes.​ Earlier, the dilemma was that firms would be better off if neither would advertise but both do. Collect funds from firms for​ industry-wide advertising.

Reforestation versus Abatement. Suppose your firm joins the Chicago Climate Exchange and commits to reducing greenhouse gases by 11 tons per year. You can pay for a reforestation project that offsets your emissions at a cost of ​$14 per ton of carbon offset. Or you can modify your production cost to abate pollution. Your marginal cost of abating the first ton is ​$6​; the marginal cost increases by ​$2 for each additional​ ton, to ​$8 for the second​ ton, ​$10 for the third​ ton, and so on. a. Which of the following is the best combination of reforestation offsets and​ abatement? b. How much money does your firm save by using the​ offsets

Eliminate 4 tons of pollution and pay for 7 reforestation offsets 42

Automobile Advertising. Consider two automobile companies that are considering advertising campaigns. If neither firm​ advertises, each will earn net revenue of ​$9 million. If each spends ​$10 million on​ advertising, each​ firm's net revenue will be ​$17 million. If one advertises and the other does​ not, the firm that advertises will earn ​$23 million in net​ revenue, while the firm that does not will earn ​$1 million. This is depicted in the game tree to the right. What is the outcome of the​ game? From the industry​ perspective, do the benefits of advertising exceed the​ costs?

Firm 1 and firm 2 will both advertise. no

Which of the following does not describe a way in which a carbon tax would reduce greenhouse​ emissions?

Higher oil price would result in more imported oil.

Which of the following is not true of a pollution​ tax?

It is shifted backward to producers and results in less production of the polluting good.

The Cost of Celebrities. Consider a firm that hires an expensive celebrity to advertise its products. Does the firm have an incentive to prevent its customers from discovering how much it pays the​ celebrity?

No. Large spending for a celebrity endorsement signals that the producer expects the product to be popular.

Which of the following statements is​ false?

On​ average, the​ collision-related external cost of travel is about 10.4 cents per mile driven.

Uniform​ Trade-Offs. A prominent feature of​ Mao's Communist China in the 1940s through the 1970s was the blue uniform worn by all citizens. a. Which of the following statements best describe the​ trade-off associated with the use of​ uniforms? b. Suppose people had a choice among five uniform colors rather than being required to wear blue uniforms. Would you expect the benefits of requiring uniforms to decrease by a little or a​ lot?

The benefit of a lower average cost of production means less variety for consumers. a little

Which of the following statements is​ false?

The economic approach to air pollution is to externalize the internal cost with a pollution tax.

Which of the following statements is​ false?

The first program of marketable pollution permits was started in 1996 by the U.S. Environmental Protection Agency.

Which of the following statements is​ false?

The higher the abatement cost that can be​ avoided, the smaller the amount a firm is willing to pay for a permit.

Suppose firms in a monopolized market are earning economic profits and a second​ firm, producing a slightly different​ product, enters the market. Which of the following does not explain why the​ monopolist's profits​ fall?

The monopoly moves upward along its positively sloped​ average-cost curve.

Which of the following statements is​ false?

The uniform abatement policy achieves the same reduction in pollution as a pollution tax at a lower cost.

No Permits​ Exchanged? A state issued marketable permits for sulfur dioxide emissions to several electricity generators. Most of the permits were given to the utilities with the oldest generating facilities. One year​ later, none of the permits had been bought or sold. Which of the following most likely explains the absence of permit​ exchanges?

The utilities that received permits had the highest costs of pollution abatement.

The​ "command" part of a​ command-and-control pollution policy specifies

a certain volume of pollution and requires the abatement be done with a particular technology.

Under a​ price-leadership model, a sudden drop in price by the leader is unlikely to trigger a price war if other firms believe that the price cut was caused by

a change in consumer demand.

A gasoline tax will be shifted forward to ________ and backward to _________ such as the suppliers of __________

gas consumers, input suppliers, crude oil

We can predict the equilibrium of the​ price-fixing game by

a process of elimination.

Pollution taxes reduce pollution by

all of the above

For firms with a​ low-price guarantee, the promise of matching a lower price is ____________ promise, because all firms will charge the same ________ price

an empty, high

When two firms would be better off if neither spent money on​ advertising, but each firm​ advertises, the firms are suffering from

an​ advertisers' dilemma.

The​ trade-off with entry is that an increase in the number of firms leads to higher _____________, but greater _________

avg production costs, variety

The entry of a third firm into a market with two original firms __________ the market price, ____________ the average production​ cost, ____________ the quantity produced per​ firm, and ______________ the profit of each original firm.

decrease, increase, decrease, decrease

As the minimum entry quantity increasesincreases​, the​ entry-deterring quantity _____________, ​, the limit price ____________ and the profit from the​ entry-deterrence strategy _______________

decrease, increase, increase

If two firms expect to be in the market together for a long​ time, the _____________ of underpricing will be large relative to the __________.

cost, benefit

The marginal __________ of abatement is a positively sloped curve and the marginal _____________ of abatement is a negatively sloped curve. The efficient outcome is where the marginal benefit of abatement ______________ the marginal cost. For any smaller quantity than the efficient​ outcome, the marginal benefit ____________ is less than the marginal​ cost, so ___________ abatement should occur.

cost, benefit, equals, exceeds, more

A switch from regular pollution permits to marketable permits ___________ the total cost of abatement

decreases

In the figure depicted to the​ right, it is not a Nash equilibrium for Jill to choose the low price and Jack to choose the high price​ (rectangle 2) because

if Jill picks a low​ price, the best response of Jack is to pick the low price.

A technological advance that decreases abatement costs will ____________ the demand for marketable pollution permits and __________ the equilibrium price of permits.

decrease, decrease

Advertising for eyeglasses ___________the price of eyeglasses because advertising promotes _____________

decreases,price competition

A pollution tax on automobiles provides an incentive to

do all of the above

The​ prisoners' dilemma is that each prisoner would be better off if both prisoners ____________ but both end up _________

do no confess, confessing

The​ cheaters' dilemma is that all three cheaters would be better off if each ___________ but each cheater has an incentive to ______________.

do not confess, confess

A dominant strategy is the strategy that allows one firm to dominate the market.

false

Monopolistic competition refers to a market in which old boys act naturally as they transport tight slacks in the back of Dodge Ram pickup trucks.

false

To deter​ entry, a monopolist can simply threaten that if a second firm​ enters, the monopolist will cut its price to the average cost.

false

The​ advertisers' dilemma is that

firms would be better off not advertising but each firm will advertise

Beware the​ Too-Easy Answer. Your city initially restricts the number of pizzerias to one. The existing monopolist sells 4,000 pizzas per day. A pizzeria reaches the horizontal portion of its​ long-run average cost curve at an output of about 2,000 pizzas per day. Suppose the city eliminates the entry restrictions. In​ equilibrium, the number of firms will be ___________ two.

greater than

The​ duopolists' dilemma is that each firm would make more profit if both picked the __________ price, but both firms pick the __________ price

high, low

Under a system of marketable pollution​ permits, a firm with ___________ abatement costs will buy permits frombuy permits from a firm with ___________ abatement costs

high, low

If a seller promises to refund any difference between its price and the price of its​ competitors, this practice will lead to __________ prices.

higher

With monopolistic​ competition, the average cost of production is

higher than the​ minimum, but there is more product variety

Perfectly competitive firms produce _________ ​products, while monopolistically competitive firms produce ___________ products

homogeneous, differentiated

Perfectly competitive firms sell ________ ​products, while monopolistically competitive firms sell __________ products

homogeneous, differentiated

A perfectly competitive firm has a​ ________ demand​ curve, whereas a monopolistic competitive firm has a​ ________ demand curve.

horizontal, downward sloping

A careful study of the retail tire market suggests that​ low-price guarantees __________ prices by about _________%

increase, 10

If we move from the duopolyduopoly outcome to the cartelcartel ​outcome, the price _______ the quantity per firm ____________ and the profit per firm ________________

increase, decrease, increase

Dry weather in the Nordic countries will __________ the demand for CO2 allowances and _________ the equilibrium price.

increase, increase

As product differentiation​ diminishes, the price elasticity of demand for the product of a monopolistically competitive firm _____________ and the average cost of production _________

increase,decrease

In the application on consumer loans in South​ Africa, the loan uptake rate __________ as the interest rate decreased and ___________ when the model on the offer was switched from a man to a woman.

increased, increased

The marginal cost of abatement typically __________ with the level of abatement

increases

The marginal cost of abating methane_______________ If the marginal benefit of methane abatement is​ $150 per metric​ ton, the optimal level of abatement is about _________ million metric tons

increases at an increasing rate. 69

The entry of a satellite TV firm ____________ consumer​ surplus, in part because the the cable company ___________ the quality of service while ______________ price by a relatively small amount.

increases, improve, either increase or decrease

Microsoft is __________ monopolist, and the limit price is roughly _________ percent of the pure monopoly price.

insecure, 40

A market with low entry and exit costs

is a contestable market.

A policy of uniform abatement

is inefficient because it does not take advantage of the differences in abatement costs.

A​ command-and-control policy of pollution abatement

is inefficient because it requires that each polluter use the same technology to abate pollution.

The entry of a second firm shifts the​ firm-specific demand curve of the first firm to the

left

Compared to a pollution​ tax, a​ uniform-abatement policy is ________ efficient efficient because it does not exploit differences in

less, abatement costs across firms.

In a​ cartel, the price that will be charged to consumers is the

monopoly price.

When the government eliminated entry restrictions on the trucking industry with the Motor Carrier Act of​ 1980,

new firms entered the trucking​ market, and freight prices dropped by about 22 percent.

When a​ duopolists' dilemma​ occurs, to eliminate the possibility of​ underpricing, one firm can

offer a​ low-price guarantee.

How does a pollution tax decrease the volume of​ pollution?

only a and b

Oligopolies occur for three​ reasons: ​(1) the government may limit the number of firms in a market by granting ___________ or limiting the number of _________ (2) large economies of _________​; and (3) to get a foothold in the​ market, large expenditures on ___________ are required.

patents, business licenses, scale in production, advertising

An example of implicit pricing agreements is

price leadership

abatement techniques for international shipping is arranged in order of increasing MAC​ (marginal abatement​ cost)?

propeller​ maintenance; switch to​ gas-powered engines; reduce​ speed; tap wind power with sails and wings

An advertisement that succeeds in getting consumers to try the product will be sensible only if the number of ___________ customers is large

repeat

An increase in the supply of marketable pollution permits will shift the supply curve for permits to the ________ and _________ the equilibrium price of permits.l

right, decrease

Entry deterrence​ won't be the best strategy for all insecure monopolists. The use of an entry deterrence strategy is more successful when

scale economies are relatively large.

Although there are relatively small ______________ in the production of breakfast​ cereal, the market is an oligopoly because of the substantial investment in _____________ required to enter the market.

scale economies, advertising

The salt cartels of the 19th Century were ___________ lived, in part because individual firms ______________ the cartel

short, cheated on

The​ advertisers' dilemma occurs when advertising causes a relatively _______ increase in total sales of an industry.

small

The Coase bargaining solution requires a

small number of affected parties and small transactions costs.

The external cost of production is the cost incurred by

someone other than the producer.

Which of the following is not a way that monopolistically competitive firms use​ advertising?

test the market for new products

When there is a​ prisoners' dilemma,

the Nash equilibrium is that each of two prisoners would be better off if neither​ confessed, but both people confess.

In a Nash​ equilibrium, each player is doing the best he or she​ can, given

the action of the other players

The optimal level of pollution abatement is

the level at which the marginal benefit equals the marginal cost.

The optimal level of pollution abatement is the level at which

the marginal benefit of abatement equals the marginal cost of abatement.

The social cost of production equals

the private cost plus the external cost.

Going Out of Business​ Sales? Many firms have​ going-out-of-business sales with remarkable bargains. What insights does the material in the chapter provide about such​ sales? Firms going out of business underprice their rivals because

there is limited time for retaliation.

with a ..... __________ strategy, starting in the second​ month, firm A chooses whatever price firm B chose the preceding month. _____________ ​strategy, when firm B underprices firm​ A, firm A responds by dropping the price to a level at which each firm will make zero economic profit.

tit for tat, grim trigger

A​ command-and-control policy is likely to be inefficient because it causes firms

to use inefficient abatement technologies.

A pollution tax encourages firms to develop more efficient abatement technology.

true

It is illegal for firms to discuss pricing strategies or methods of punishing a firm that underprices other firms.

true

Suppose firms in a monopolistically competitive market are earning economic profits. Entry will occur until the

typical firm makes zero economic profit.

A gasoline tax will shift the supply curve for gasoline _______ causing the equilibrium price to ____________ and the equilibrium quantity to ___________

up increase, decrease

At a​ firm's current level of​ output, marginal revenue exceeds the marginal cost. The firm should _________ its output and ________________ it's price.

up, down

A carbon tax will shift the supply curve for home heating oil _______ causing the equilibrium price to ________ and the equilibrium quantity to ____________

up, increase, decrease

A switch from a​ pollution-tax policy to a​ uniform-reduction policy will shift the supply curve of the polluting product _______ and ________ the equilibrium price

upward, increase

Between 1893 and​ 1940, Alcoa had a monopoly on aluminum production in the United States. During this​ period, Alcoa kept other firms out of the market by

using limit pricing

Split the Difference for a Pollution Permit. Consider two​ firms, each of which is issued 3 marketable pollution permits. For firm​ H, the marginal cost of abatement is ​$190. For firm​ L, the marginal cost of abatement is ​$130. a. Is there room for a mutually beneficial exchange of one​ permit? If​ so, which firm will buy a permit and which firm will sell a​ permit? b. If the two firms split the​ difference, what's the price of a​ permit? ​$ c. Suppose that after the exchange of one​ permit, the marginal cost of abatement for the firm that sold the permit is ​$170 and the marginal cost of the firm that bought the permit is ​$150. Will the firms exchange another​ permit, or are they done​ trading? d. What is the savings in abatement cost from allowing firms to buy and sell two​ permits?

yes, firm h buys and firm L sells, 160, they'll trade one more permit, 80

To enter the motel market as the operator of a Motel​ 6, you'll pay a franchise fee of

​$35,000 and royalties of 5 percent of sales.

When a person with the moniker​ "Dreading Winter" sought advice from the​ "Dear Abby" column about how to deal with the burning​ eyes, a stuffy​ nose, and painful sinuses caused when her neighbors heated their home with a​ wood-burning stove,

​Abby's readers came up with many suggestions.

In the figure depicted to the​ right, suppose Jack promises Jill that if she picks the high​ price, he will too. Is this promise​ credible?

​No, because by instead picking the low​ price, Jack's profit will increase.

The private cost of production includes the amount a firm pays for

​labor, capital, and materials.


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