Society Exam 2

Assume a perfectly competitive market with an upward sloping supply schedule and a downward sloping demand schedule where production generates pollution that imposes external costs on society. There is no pollution tax or environmental regulation of production. Which of the following statements is TRUE in this market? The supply schedule underestimates the marginal cost of production to society. The demand schedule underestimates the marginal benefit of output to society. The demand schedule underestimates the marginal cost of production to society. The supply schedule underestimates the marginal benefit of output to society.

The supply schedule underestimates the marginal cost of production to society.

Assume that production produces pollution that imposes external costs on society. Below is the marginal benefit (MB) to consumers, marginal private cost (MPC) of production to producers, and the marginal external cost (MEC) of production to society at different quantities (Q) of output in a perfectly competitive market: Q = 10, MB = $480, MPC = $180, MEC = $180 Q = 20, MB = $440, MPC = $200, MEC = $240 Q = 30, MB = $400, MPC = $220, MEC = $300 Q = 40, MB = $360, MPC = $240, MEC = $360 Q = 50, MB = $320, MPC = $260, MEC = $420 Q = 60, MB = $280, MPC = $280, MEC = $480 Q = 70, MB = $240, MPC = $260, MEC = $540 At what level should the government set the pollution tax per unit of output? $240 $360 $180 $480

$240

A firm with market power can sell the following units of output Q at the given price P: At Q = 1, P = $120 At Q = 2, P = $100 At Q = 3, P = $80 At Q = 4, P = $60 At Q = 5, P = $40 At Q = 6, P = $20 Marginal cost of production is a constant $80 and fixed costs are zero for the firm. How much profit does the firm earn? $0 $120 $240 $40

$40

Alpha is a company that generates 10,000 units of pollution. For Alpha, at this level of pollution, marginal private benefit of pollution is $220, marginal private cost of pollution is $120, and marginal external cost of pollution is $70. The government allocates free tradeable permits to Alpha that allows it to generate up to 10,000 units of pollution. Of the following prices listed, what is the highest permit market price at which Alpha is willing to buy permits? $20 $90 $210 $140

$90

Firms A and B sell similar but differentiated products. They simultaneously choose one of three price points. Firm A chooses between $24.95, $29.95, and $39.95. Firm B chooses between $14.95, $19.95, and $24.95. Firm A and Firm B each earn the following profits (in millions of dollars) under each combination of prices where the first number is Firm A's profit and the second number is Firm B's profit: FIG 1 Assuming collusion is not possible, what is the expected outcome? A charges $29.95, B charges $24.95 A charges $24.95, B charges $14.95 A charges $24.95, B charges $19.95 A charges $39.95, B charges $24.95

A charges $24.95, B charges $19.95

Firms A and B sell similar but differentiated products. They simultaneously choose to produce and bring to market different quantities of their product. Firm A chooses either to produce and sell 2000 or 3000 units of its product. Firm B chooses either to produce and sell 2750 or 4000 units of its product. Firm A and Firm B each earn the following profits (in millions of dollars) under each combination of quantities where the first number is Firm A's profit and the second number is Firm B's profit: Firm A is fearful of bankruptcy and follows a secure strategy. Firm B is not fearful of bankruptcy and makes choices that maximizes expected payoff. Assuming collusion is not possible, what is the expected outcome? A produces 3000 units, B produces 2750 units A produces 2000 units, B produces 2750 units A produces 2000 units, B produces 4000 units A produces 3000 units, B produces 4000 units

A produces 2000 units, B produces 4000 units

Which of the following did Levi Strauss NOT do to advance the Screened Chemistry Program as an industry standard? A. agree to pay the screening costs for chemical companies if profits were too low B. subsidize the research and development of safer chemical substitutes C. suggest not framing Screen Chemistry as a Levi Strauss program D. leverage the GreenScreen and EPA Safer Choice assessment methodologies

B

Firms A and B sell similar but differentiated products. They simultaneously choose one of two price points. Interaction between Firm A and Firm B is repeated and neither knows when interaction will end. Both Firm A and Firm B choose between $19.95 and $29.95. Firm A and Firm B each earn the following profits (in millions of dollars) under each combination of prices where the first number is Firm A's profit and the second number is Firm B's profit: Firm A and Firm B agree to collude and both charge $29.95. The market interest rate is 2/5. Which of the following is a true statement? Both firms charging $29.95 is the Nash equilibrium and collusion is unstable. Both firms charging $19.95 is the Nash equilibrium and collusion is stable. Both firms charging $29.95 is the Nash equilibrium and collusion is stable. Both firms charging $19.95 is the Nash equilibrium and collusion is unstable.

Both firms charging $29.95 is the Nash equilibrium and collusion is stable.

When did it make sense for De Beers to flood the market with an extraordinary quantity of diamonds from the stockpile that it carefully managed over time? A. when the global economy expanded and the demand for diamonds increased B. when the global economy contracted and the demand for diamonds decreased C. when producers defected from the cartel and leaked diamonds to the market D. when producers complied with the cartel and sold diamonds to De Beers

C

Which of the following is a true statement about imperfect price discrimination? Consumer surplus is greater than zero and production is socially inefficient. Consumer surplus is zero and production is socially efficient. Consumer surplus is zero and production is socially inefficient. Consumer surplus is greater than zero and production is socially efficient.

Consumer surplus is greater than zero and production is socially inefficient.

Which chemical management strategy achieved the highest level of environmental risk reduction in garment manufacturing? A. maintaining restricted chemicals in garment products below safety thresholds B. banning or restricting use of certain chemicals in the manufacturing process C. directly compensating individuals who file a claim Of damage from pollution D. designing products that only incorporate use Of environmentally safe chemicals

D

Which of the following is a FALSE statement? A. Unilever charged a price greater than marginal cost and imposed a social welfare loss with its market power. B. A brand based upon sustainability imposes a higher fixed cost than more traditional brand strategies. C. Market growth under the USLP strategy allowed Unilever to raise prices ,increase producer surplus, and reduce consumer surplus. D. An emphasis on short-term operational efficiency and lowest cost inputs defined Unilever's brand and drove the early success of the USLP.

D

Which of the following was NOT a reason for De Beers to promote its own unique differentiated global brand? Russian, Angolan, and Australian producers were stealing more market share. De Beers only spent 1% of revenue on marketing. The market value of the company's diamond stockpile was $4.8 billion. De Beers had not been successfully prosecuted by the U.S. Justice Department.

De Beers had not been successfully prosecuted by the U.S. Justice Department.

Which of the following is a TRUE statement about a tradeable pollution permit market where the government initially allocates free permits and the market price for permits is greater than zero? The higher the market price for permits, the weaker the incentive to invest in cleaner production technology. A firm chooses a level of pollution that equates the marginal private benefit of pollution with the marginal private cost of pollution. For firms that sell permits, their marginal abatement cost at the allocated quantity of permits is greater than the market price for permits. Environmental activist groups can directly reduce the aggregate quantity of pollution.

Environmental activist groups can directly reduce the aggregate quantity of pollution.

Epsilon sells a differentiated widget in an imperfectly competitive market. Widget production at Epsilon generates N pounds of pollution which increases with the quantity of output. The marginal private benefit (MPB) of pollution to Epsilon is the revenue from additional output generated by one more pound of pollution. The marginal private cost (MPC) of pollution to Epsilon is the production cost of additional output generated by one more pound of pollution. Below is the MPB and MSC to Epsilon at different levels of pollution N: N = 10, MPB = $1600, MPC = $100 N = 20, MPB = $1400, MPC = $200 N = 30, MPB = $1200, MPC = $300 N = 40, MPB = $1000, MPC = $400 N = 50, MPB = $800, MPC = $500 N = 60, MPB = $600, MPC = $600 N = 70, MPB = $400, MPC = $700 N = 80, MPB = $200, MPC = $800 The government implements a pollution permit program where 1 permit allows 10 pounds of pollution. Permits can be bought and sold on the open market. The government allocates 4 permits to Epsilon for free. The market price for a permit is $1200. What does Epsilon do? Epsilon produces 30 pounds of pollution. Epsilon produces 20 pounds of pollution. Epsilon produces 60 pounds of pollution. Epsilon produces 40 pounds

Epsilon produces 20 pounds of pollution.

Firms A and B sell similar but differentiated products. Firm A chooses its price first and Firm B chooses its price second. Firm A chooses between $59.95 and $64.95. Firm B chooses between $24.95 and $29.95. Firm A and Firm B each earn the following profits (in millions of dollars) under each combination of prices where the first number is Firm A's profit and the second number is Firm B's profit: Firm A charges $59.95, then Firm B charges $24.95: ($17m, $6m) Firm A charges $59.95, then Firm B charges $29.95: ($28m, $2m) Firm A charges $64.95, then Firm B charges $24.95: ($14m, $8m) Firm A charges $64.95, then Firm B charges $29.95: ($26m, $4m) What is the expected outcome? Firm A charges $64.95, then Firm B charges $24.95 Firm A charges $59.95, then Firm B charges $24.95 Firm A charges $64.95, then Firm B charges $29.95 Firm A charges $59.95, then Firm B charges $29.95

Firm A charges $59.95, then Firm B charges $24.95

The marginal private benefit (MPB) of pollution to a firm is the revenue from additional output generated by one more pound of pollution. The marginal private cost (MPC) of pollution to a firm is the production cost of additional output generated by one more pound of pollution. The marginal external cost (MEC) of pollution to a firm is the cost to third parties generated by one more pound of pollution. In the absence of tradeable emission permits or any other type of environmental regulation, which condition is TRUE at the quantity of pollution generated by a firm? MPB = 0 MPB = MEC MPB = MPC MEC = 0

MPB = MPC

Omicron sells a differentiated widget in an imperfectly competitive market. Widget production at Omicron generates N pounds of pollution which increases with the quantity of output. The marginal private benefit (MPB) of pollution to Omicron is the revenue from additional output generated by one more pound of pollution. The marginal private cost (MPC) of pollution to Omicron is the production cost of additional output generated by one more pound of pollution. Below is the MPB and MSC to Omicron at different levels of pollution N: N = 250, MPB = $155, MPC = $35 N = 500, MPB = $150, MPC = $50 N = 750, MPB = $145, MPC = $65 N = 1000, MPB = $140, MPC = $80 N = 1250, MPB = $135, MPC = $95 N = 1500, MPB = $130, MPC = $110 N = 1750, MPB = $125, MPC = $125 N = 2000, MPB = $120, MPC = $140 The government implements a pollution permit program where 1 permit allows 250 pounds of pollution. Permits can be bought and sold on the open market. The government allocates 6 permits to Omicron for free. The market price for a permit is $60. What does Omicron do? Omicron purchases 1 permit. Omicron does not buy or sell permits. Omicron sells 2 permits. Omicron purchases 2 permits.

Omicron sells 2 permits.

Which of the following statements is TRUE about the impact of a pollution tax imposed upon production that was not previously subject to any environmental regulation in a perfectly competitive market with an upward sloping supply schedule and a downward sloping demand schedule? Producer surplus rises and consumer surplus falls. Producer surplus falls and consumer surplus falls. Producer surplus falls and consumer surplus rises. Producer surplus rises and consumer surplus rises.

Producer surplus falls and consumer surplus falls

Assume that production produces pollution that imposes external costs on society. Below is the marginal benefit (MB) to consumers, marginal social cost (MSC) of production to society, and the marginal external cost (MEC) of production to society at different quantities (Q) of output in a perfectly competitive market: Q = 25, MB = $270, MSC = $70, MEC = $40 Q = 50, MB = $240, MSC = $90, MEC = $50 Q = 75, MB = $210, MSC = $110, MEC = $60 Q = 100, MB = $180, MSC = $130, MEC = $70 Q = 125, MB = $150, MSC = $150, MEC = $80 Q = 150, MB = $120, MSC = $170, MEC = $90 Q = 175, MB = $90, MSC = $190, MEC = $100 In the absence of any government regulation of pollution, what quantity of output will the market deliver? Q = 100 Q = 150 Q = 175 Q = 125

Q = 175

Assume a perfectly competitive market with an upward sloping supply schedule and a downward sloping demand schedule where production generates pollution that imposes external costs on society. The marginal external cost imposed upon society from pollution rises as the quantity of output increases. In the absence of any government regulation of pollution, the market generates output of 20,000 units, a price of $350, and a marginal external cost to society from pollution of $130. Which of the following is a TRUE statement? The government should set a pollution tax greater than $130 and the rise in market price will be greater than the tax. The government should set a pollution tax less than $130 and the rise in market price will be less than the tax. The government should set a pollution tax equal to $130 and the rise in market price will be less than the tax. The government should set a pollution tax greater than $350 and the rise in market price will be less than the tax.

The government should set a pollution tax less than $130 and the rise in market price will be less than the tax.

A firm with market power can sell the following units of output Q at the given price P and incur the given total cost of production C: At Q = 0, P = $45 and C = $10 At Q = 1, P = $40 and C = $30 At Q = 2, P = $35 and C = $50 At Q = 3, P = $30 and C = $70 At Q = 4, P = $25 and C = $90 At Q = 5, P = $20 and C = $110 At Q = 6, P = $15 and C = $130 Which of the following is a true statement? The profit-maximizing price is $40 and the socially efficient price is $30. The profit maximizing price is $30 and the socially efficient price is $20. The profit maximizing price is $30 and the socially efficient price is $30. The profit maximizing price is $20 and the socially efficient price is $20.

The profit maximizing price is $30 and the socially efficient price is $20.

Firms A and B sell similar but differentiated products. They simultaneously choose one of two price points. Interaction between Firm A and Firm B is repeated and neither knows when interaction will end. Firm A chooses between $29.99 and $39.99. Firm B chooses between $59.99 and $69.99. Firm A and Firm B each earn the following profits (in millions of dollars) under each combination of prices where the first number is Firm A's profit and the second number is Firm B's profit: Firm A offers to charge $39.99 if Firm B cooperates and charges $69.99. Firm A indicates it will charge $29.99 in all future periods if B charges $59.99. Which interest rate range identifies all interest rates under which Firm B will cooperate? Firm B will not cooperate at any interest rate equal to zero or higher. interest rates less than 1/2 interest rates less than 3/4 interest rates less than 4/3

interest rates less than 3/4

What is the best way for a firm under perfect competition to increase profit? increase barriers to entry for new competitors invest in process innovation to reduce marginal cost reduce price to steal market share invest in marketing to raise price and shift the demand curve out

invest in process innovation to reduce marginal cost

Which of the following did NOT slow down investment by energy companies in IC02N? high economic returns from investment in renewable energy and expansion of extraction activities in the oil sands investment in EOR the Conservative government's recently announced Clean Air Bill weak carbon markets

investment in EOR

Which of the following was NOT an immediately feasible option for SunCor in 2006 to strategically manage and respond to GHG emissions from its oil sands operations in Alberta? lobby to impose pollution standards upon oilsands energy companies that meet goals of the Kyoto Protocol make no further investment in carbon abatement investment in offset credits purchased through Canada's carbon emission trading market investment in carbon capture and storage

investment in offset credits purchased through Canada's carbon emission trading

Which of the following both generate a socially efficient outcome? imperfect competition and imperfect price discrimination perfect competition and imperfect price discrimination perfect competition and perfect price discrimination imperfect competition and perfect price discrimination

perfect competition and perfect price discrimination