SECO241- Microeconomics Final

Market power means the ability to: A) earn a normal profit. B) earn an economic profit. C) have some control over price. D) eliminate competition.

C) have some control over price.

An action is a dominant strategy when it is a player's best action: A) regardless of the actions by other players. B) given the actions of other players. C) assuming the other players do not correctly anticipate the action. D) if there is only one other competitor.

A) regardless of the actions by other players.

Price leadership occurs if: A) smaller firms in an industry silently agree to charge the same price as the largest firm. B) two or more firms in an industry agree to fix the price at a given level. C) competition among a large number of small firms generates a stable market price. D) competition among a large number of small firms generates similar, but slightly different, prices.

A) smaller firms in an industry silently agree to charge the same price as the largest firm.

In the "Prisoners' Dilemma" game: A) When the prisoners follow their dominant strategy and confess, both will be worse off than if each had remained silent. B) a player would be better off if he did not confess and the other player confessed C) a player would be better off if both he and the other player confessed. D) None of the above is true.

A) When the prisoners follow their dominant strategy and confess, both will be worse off than if each had remained silent.

The most important source of oligopoly is: A) economies of scale. B) government-created barriers. C) technological superiority. D) ownership of resources.

A) economies of scale.

Suppose a monopolistically competitive firm is in long-run equilibrium. Then: A) price equals average total cost. B) price equals marginal cost. C) marginal revenue equals price. D) price is greater than average total cost.

A) price equals average total cost.

Collusive agreements are typically difficult to maintain because each firm can increase profits by: A) producing more output than the quantity that maximizes joint cartel profits. B) producing less output than the quantity that maximizes joint cartel profits. C) increasing the price above the price that maximizes joint cartel profits. D) engaging in less advertising than the level of advertising that maximizes joint cartel profits.

A) producing more output than the quantity that maximizes joint cartel profits.

Using the utility maximization rule, if Vicky's marginal utility of the last orange consumed is 20 and her marginal utility of the last pineapple consumed is 80, what is the price of pineapples if the price of oranges is $1 and Vicky has maximized her utility? A. $4 B. $2 C. $1 D. $0.25

A. $4

If the government feels that the equilibrium price in the market is too high for the _______, it can impose a _______. A. consumers, price ceiling B. consumers, price floor C. producers, price ceiling D. producers, price floor

A. consumers, price ceiling

An increase in demand, with no change in supply, will lead to ________ in equilibrium quantity and ________ in equilibrium price A. increase, increase B. increase, decrease C. decrease, increase D. decrease, decrease

A. increase, increase

If a firm experiences lower costs per unit as it increases production in the long run, this is an example of: A. increasing returns to scale. B. decreasing returns to scale. C. increasing opportunity costs. D. scale reduction.

A. increasing returns to scale.

The price of elasticity of demand measures the responsiveness of the change in: A. quantity demanded to a change in price B. price to a change in quantity demanded C. the slope of the demand curve to a change in price D. the slope of the demand curve to a change in quantity demanded

A. quantity demanded to a change in price

Gains from trade arise because of: A. specialization in production B. specialization in consumption C. marginal analysis D. individual choice

A. specialization in production

An inverse relationship between price and quantity is represented by: A. the demand curve B. the supply curve C the PPF D. equilibrium

A. the demand curve

Which of the inputs can be altered in the short run? A. the number of hours that existing employees work B. The amount of heavy machinery used in the plant C. the capacity of the plant D. the total number of plants in operation

A. the number of hours that existing employees work

Which of the following is true? A) A Nash equilibrium maximizes a player's welfare, regardless of the behavior of a competitor while a dominant strategy maximizes a player's welfare, given the actions of its competitor. B) A Nash equilibrium maximizes a player's welfare, given the actions of its competitor, while a dominant strategy maximizes a player's welfare, regardless of the behavior of its competitor. C) A Nash equilibrium is just another name for a dominant strategy. D) A Nash equilibrium may or may not be a self-enforcing equilibrium.

B) A Nash equilibrium maximizes a player's welfare, given the actions of its competitor, while a dominant strategy maximizes a player's welfare, regardless of the behavior of its competitor.

You own a lemonade stand in a very competitive lemonade market, and as such, you are a price-taking firm. Which of the following events would most likely increase your market power? A) The government abolishes the system of patents and copyrights. B) You own exclusive rights to harvest lemons from all domestic citrus orchards. C) A booming economy increases the demand for lemonade and attracts entry into the market. D) The average total cost curve for firms in the industry is horizontal.

B) You own exclusive rights to harvest lemons from all domestic citrus orchards.

Mr. Porter sells 10 bottles of champagne per week at a price of $50 per bottle. He can sell 11 bottles per week if he lowers the price to $45 per bottle. The quantity and the price effects on total revenue would be, respectively: A) an increase of $450 and a decrease of $500. B) an increase of $45 and a decrease of $50. C) an increase of $45 and a decrease of $5. D) an increase of $450 and a decrease of $500.

B) an increase of $45 and a decrease of $50.

When oligopolistic firms face production capacity constraints, they: A) are more likely to engage in price competition. B) are more likely to engage in quantity competition. C) are likely to set price equal to marginal cost. D) will be unable to make positive economic profits.

B) are more likely to engage in quantity competition.

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.

B) cartel.

In monopolistic competition, each firm: A) is a price-taker. B) has some ability to set the price of its differentiated good. C) will set price equal to marginal cost. D) has marginal revenue that is greater than price.

B) has some ability to set the price of its differentiated good.

Price discrimination leads to a ________ price in the market with a ________ demand. A) higher; less elastic B) higher; more elastic C) higher;perfectlyelastic D) lower; less elastic

B) higher; more elastic

In many cities you can stay at a Holiday Inn in the downtown area, in a suburban community, or near the airport. These Holiday Inn establishments are examples of product differentiation by: A) type. B) location. C) quality. D) style.

B) location.

The policies directed at dealing with natural monopolies are: A) competition among firms for a monopoly right. B) public ownership of firms. C) using external constraints regarding price and quantity on firm behavior. D) All of these policies are used to deal with natural monopolies.

B) public ownership of firms.

The kinked demand curve model assumes that: A) rivals will follow a price increase but not a price decrease. B) rivals will follow a price decrease but not a price increase. C) the firm with the kinked demand curve will always behave non-cooperatively. D) the firm with the kinked demand curve will always adopt a tit-for-tat strategy.

B) rivals will follow a price decrease but not a price increase.

Which of these is a characteristic shared by both oligopolies and monopolies? A) mutual interdependence B) significant barriers to entry into the market C) a few dominant firms in the industry D) normal profits in the long run

B) significant barriers to entry into the market

The demand curve for a monopoly is: A) the sum of the supply curves of all the firms in the monopoly's industry. B) the industry demand curve. C) horizontal. D) perfectly inelastic.

B) the industry demand curve.

The main difference between macroeconomics and microeconomics is that: A. Microeconomics largely deals with the fallacy of composition B. Macroeconomics focuses largely on the aggregate economy and micro focuses on small components of the economy C. Macroeconomics loos at how individuals make choices, and micro looks at the aggregate of those choices D. Macroeconomics is concerned with economic policy, and micro is concerned with international policies

B. Macroeconomics focuses largely on the aggregate economy and micro focuses on small components of the economy

The primary difference between a change in demand and a change in quantity demanded is: A. a change in demand is a movement along the demand curve and a change in quantity demanded is a shift in the demand curve B. a change in quantity demanded is a movement along the demand curve and a change in demand is a shift in the demand curve C. both a change in quantity demanded and a change in demand are shifts in the demand curve, only in different directions D. both a change in quantity demanded and a change in demand are movements along the demand curve, only in different directions

B. a change in quantity demanded is a movement along the demand curve and a change in demand is a shift in the demand curve

Which of the following factors would cause movement along the demand curve? A. change in the prices of related goods B. change in the price of the good C. change in the population D. both a change in the price of the good and a change in the population

B. change in the price of the good

Specialization of labor and management typically supports: A. overproduction B. economies of scale C. diseconomies of scale D. diminishing returns

B. economies of scale

Serena sells soybeans in a perfectly competitive market. If her MC=$3, her MR=$4, her ATC=$5, and her AVC=$2, then she should: A. shut down B. increase production C. decrease production D. increase her price

B. increase production

An increase in supply, with no change in decrease, will lead to ________ in equilibrium quantity and ________ in equilibrium price A. increase, increase B. increase, decrease C. decrease, increase D. decrease, decrease

B. increase, decrease

The perfectly competitive firm faces a perfectly elastic demand curve because: A. it has the ability to set the price and force consumers to buy their products at that price B. it has no ability to control price C. it doesn't; it faces a perfectly inelastic demand curve D. it doesn't; everyone knows that the demand curve slopes down and to the right

B. it has no ability to control price

Consumer surplus is the difference between the: A. minimum price the buyer is willing to pay and the market price B. maximum price the buyer is willing to pay and the market price C. minimum price the seller is willing to pay and the market price D. maximum price the seller is willing to pay and the market price

B. maximum price the buyer is willing to pay and the market price

If a good is a necessity with few substitutes, then the price elasticity of demand will tend to be: A. more price-elastic B. more price-inelastic C. equal to 1 D. the same as that of a luxury good

B. more price-inelastic

Under conditions of oligopoly markets, firms generally don't like to compete based on price. Why? A) Because no producer has a cost advantage in doing so. B) Because consumers rarely spend time making price comparisons between different brands. C) Because competing on the basis of price can set off a price war among competitors and significantly reduce profits to the firm. D) Because price competition is illegal in most states.

C) Because competing on the basis of price can set off a price war among competitors and significantly reduce profits to the firm.

The key characteristic of oligopoly markets is "interdependence among firms." This means that: A) the demand curve faced by each firm is perfectly elastic. B) each firm produces a product identical to its rivals. C) each firm must consider how its decisions will affect its competitors. D) firms will be able to earn above-normal profits in the long run.

C) each firm must consider how its decisions will affect its competitors.

Monopolistically competitive firms have zero economic profits in the long run because of: A) excess capacity. B) price wars among firms. C) easy entry and exit. D) excessive advertising.

C) easy entry and exit.

In a monopoly in the long run: A) economic profits will be eliminated by the entry of rival firms. B) economic profits will be reduced, but not eliminated entirely, by the entry of rival firms. C) entry will not occur. D) social surplus is maximized.

C) entry will not occur.

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.

C) firms recognize their interdependence.

Since a monopolistically competitive firm faces a downward-sloping demand curve for its product, its price will be: A) equal to marginal revenue. B) less than marginal revenue. C) greater than marginal revenue. D) equal to total revenue.

C) greater than marginal revenue.

Game theory is commonly used to explain behavior in oligopolies, because oligopolies are characterized by: A) large profits in the long run. B) either homogeneous or heterogeneous products. C) interdependence. D) imperfect competition.

C) interdependence.

Marginal revenue for a monopolist is: A) equal to price. B) greater than price. C) less than price. D) equal to average revenue.

C) less than price.

Compared to perfect competition: A) monopoly produces more at a lower price. B) monopoly produces where MR > MC, and a perfectly competitively firm produces where P = MC. C) monopoly may have economic profits in the long run, but in perfect competition in the long run economic profits are zero. D) perfect competition may have economic profits in the long run, but in monopoly the long run economic profits are zero.

C) monopoly may have economic profits in the long run, but in perfect competition in the long run economic profits are zero.

The perfectly competitive market structure assumes all of these EXCEPT: A. ease of entry and exit B. identical products C. a small number of buyers and sellers D. zero economic profit in the long run

C. a small number of buyers and sellers

In many parts of the US when Walmart opens a new store, some smaller retailers go out of business. One of the reasons for this development could be that: A. Walmart practices unfair pricing methods that reduce consumer surplus over time B. consumers in those areas receive no CS from Walmart C. consumers in those areas receive a larger CS from shopping at Walmart than from the smaller stores D. smaller stores increase prices to compete

C. consumers in those areas receive a larger CS from shopping at Walmart than from the smaller stores

Which of the following is a barrier to entry? A) control of scarce resources B) economies of scale C) government-created barriers such as patents and copyrights D) All of the above

D) All of the above

Monopolistic competition is similar to perfect competition in that firms in both market structures: A) are price-takers. B) produce goods that are perfect substitutes. C) find it beneficial to advertise. D) do not face any barriers to entry into the industry in the long run.

D) do not face any barriers to entry into the industry in the long run.

Which question would be considered a normative question? A. How many people participated in obstacle course racing last year? B. How much does an entry into an obstacle course race cost? C. When and where are the major obstacle races held? D. Should obstacle races be regulated to ensure the safety of its participants?

D. Should obstacle races be regulated to ensure the safety of its participants?

In the long run: A. all inputs are fixed B. inputs are neither variable nor fixed C. at least one input is variable and one input is fixed D. all inputs are variable

D. all inputs are variable

The tax incidence of items such as gasoline, tobacco, and alcohol tends to fall heavily on ________ because these goods have _______. A. producers, relatively elastic demand B. producers, relatively inelastic demand C. consumers, relatively elastic demand D. consumers, relatively inelastic demand

D. consumers, relatively inelastic demand

Justin owns a home entertainment installation company. One employee can complete two installations per month; two employees can complete 5 installations, three employees can complete 9 installations, four employees can complete 12 installations, and five employees can complete 11 installations. Diminishing marginal returns begin with the __________ worker. A. second B. third C. fourth D. fifth

D. fifth

Suppose a firm is selling a product at a price on the inelastic portion of the demand line. This firm could increase revenue by doing what? A. lowering the price, selling more units B. lowering the price, selling less units C. increasing the price, selling more units D. increasing the price, selling less units

D. increasing the price, selling less units

If you allocate your time between attending classes and practicing for an upcoming game, you will maximize your total utility by choosing a bundle in which the: A. marginal utility from each activity is maximized B. total utility per hour from each activity is equal C. total utility from each activity is equal D. marginal utility per hour from each activity is equal

D. marginal utility per hour from each activity is equal

The slope of the budget line is: A. negative, because of the marginal rate of substitution B. positive, since income and prices are positively related C. zero, since both prices and income are assumed to be constant D. negative, since to purchase more of one good means giving up some of the other good

D. negative, since to purchase more of one good means giving up some of the other good

A perfectly competitive firm should shut down in the short run if: A. price is below average total cost at all rates of output B. it is not making a profit C. price is below marginal cost at all rates of output D. price is below average variable cost at all rates of output

D. price is below average variable cost at all rates of output

A point on a nation's production possibilities frontier indicates: A. an undesirable combination of goods and services B. combinations of output that are unattainable, given the current stock of resources and technology C. levels of production that will cause both unemployment and inflation D. that resources are fully utilized in producing the given combination of goods and services

D. that resources are fully utilized in producing the given combination of goods and services

How can a country that does not have an absolute advantage in producing goods still benefit from trade?

Discuss Comparative Advantage

Use utility theory to explain why people would ever leave all you can eat buffets.

Discuss the concept of diminishing marginal utility

Why is the demand for gasoline relatively inelastic, while the demand for Exxon's gasoline is relatively elastic?

Gasoline in general is inelastic, but a specific brand such as Exxon is elastic due to the availability of substitutes for purchasing gas

Assume there is a positive relationship between aging and cholesterol levels. As the world population ages, will the demand for cholesterol drugs increase, decrease, or remain the same? Would this cause a change in demand or a change in quantity demanded?

Increase in demand; change in demand

Explain why deadweight loss can occur with a price below equilibrium even when some consumers benefit from it.

When QD>QS a shortage occurs. Some producers aren't willing to sell at the lower price, so even though consumers pay lower price, not at all who want the product will be able to get it