Exam #3 (Microeconomics)

2) A pure monopoly exists when: A) a single firm produces a good with no close substitutes. B) only a single firm is present in the market. C) many firms produce a good with no close substitutes. D) a single firm produces a good with many close substitutes.

A) a single firm produces a good with no close substitutes.

29) Patents, which confer market power, are intended to: A) encourage innovation by helping firms recoup the costs of research and development. B) maintain the dominance of U.S. firms. C) enable patent holders to charge lower prices for new and innovative products. D) protect consumers from imitations or knock-offs.

A) encourage innovation by helping firms recoup the costs of research and development.

9) For all firms, the additional revenue collected from the sale of one additional unit of output is termed: A) marginal revenue. B) marginal profit. C) average revenue. D) price.

A) marginal revenue.

8) The primary objective of an imperfectly competitive firm is to: A) maximize profit. B) maximize total revenue. C) charge the highest possible price. D) minimize total cost.

A) maximize profit.

19) A cost of an activity that falls on people not engaged in the activity is called a(n): A) negative externality. B) positive externality. C) external benefit. D) prisoner's dilemma.

A) negative externality.

5) "Market power" refers to a firm's ability to: A) raise its price without losing all of its sales. B) influence the price its competitors charge. C) undercut its competitors' prices. D) force consumers to buy high-priced products.

A) raise its price without losing all of its sales.

7) When a pharmaceutical company introduces a new drug, its research and development costs are _______ and the cost of the chemicals used in manufacturing the drug are ______ A) start-up costs; variable costs B) marginal costs; variable costs C) start-up costs; fixed costs D) fixed costs; start-up costs

A) start-up costs; variable costs

14) The three elements of a game are: A) the players, the strategies, and the payoffs. B) the firm, the consumers, and the profit. C) the model, the graph, and the costs. D) the costs, the revenue, and the profit.

A) the players, the strategies, and the payoffs.

31) Price discrimination means charging: A) the same price to all buyers even if production costs are different. B) different prices to different buyers for essentially the same good or service. C) higher prices to women and minorities. D) different prices for different products because production costs are different.

B) different prices to different buyers for essentially the same good or service.

10) For perfectly competitive firms, marginal revenue ________ price; for monopolists marginal revenue _________ price. 10) A) is less than; equals B) equals; is greater than C) equals; is less than D) equals; equals

B) equals; is less than

20) If the consumption of good generates an external benefit, then the market equilibrium quantity will be:) A) greater than the socially optimal quantity. B) less than the socially optimal quantity. C) socially optimal. D) equal to zero.

B) less than the socially optimal quantity.

3) If a firm functions in an oligopoly, it is: A) one of a large number of firms that produce a good with no close substitute. B) one of a small number of firms that produce goods that are either close or perfect substitutes. C) one of a large number of firms that produce goods that are either close or perfect substitutes. D) the only firm that produces a good with no close substitutes.

B) one of a small number of firms that produce goods that are either close or perfect substitutes.

11) The demand curve for a perfectly competitive firm is _________, while the demand curve for a monopolist is _________ . A) perfectly elastic; perfectly inelastic B) perfectly elastic; downward-sloping C) vertical; downward-sloping D) perfectly inelastic; perfectly elastic

B) perfectly elastic; downward-sloping

34) A benefit of an activity received by people not participating in the activity is called a(n): A) external cost. B) positive externality. C) negative externality. D) winner's curse.

B) positive externality.

27) Technological advances that increase the marginal product of labor will lead to: A) a decrease in the demand for labor because the fire won't need as many workers. B) no change in demand for labor because the demand for labor depends on the wage. C) an increase in the demand for labor because workers will be more productive. D) a decrease in the supply of labor because fewer workers can get the job done.

C) an increase in the demand for labor because workers will be more productive.

4) An imperfectly competitive firm faces a demand curve that is: A) more than perfectly elastic. B) perfectly inelastic. C) downward-sloping. D) perfectly elastic.

C) downward-sloping.

6) According to the textbook, the most important and enduring source of market power is: A) government franchises. B) copyrights. C) economies of scale. D) patents.

C) economies of scale.

21) If either the production or consumption of a good generates an external cost, then the market equilibrium quantity will be: A) equal to zero. B) less than the socially optimal quantity. C) greater than the socially optimal quantity. D) socially optimal.

C) greater than the socially optimal quantity.

25) The additional output a firm gets from hiring an additional unit of labor is the A) total product of labor. B) value of the marginal product of labor. C) marginal product of labor. D) average product of labor.

C) marginal product of labor.

15) Game theory is not useful in understanding perfect competition because in a perfectly competitive market: A) each firm only cares about its own profit, so there is no interdependence. B) the payoffs to firms' choices are unknown. C) no single firm can influence the market price, so firms' decisions are not interdependent. D) there are too many firms to be able to model their behavior accurately using game theory.

C) no single firm can influence the market price, so firms' decisions are not interdependent.

13) The profit maximizing rule P=MC applies to: A) all firms. B) monopolists only. C) perfectly competitive firms only. D) both perfectly competitive firms and imperfectly competitive firms.

C) perfectly competitive firms only.

32) If an activity generates a positive externality, the government can increase total economic surplus by _________ the activity, and if an activity generates a negative externality, the government can increase total economic surplus by _________ the activity. A) subsidizing; banning B) publicizing; taxing C) subsidizing; taxing D) taxing; banning

C) subsidizing; taxing

28) A firm is unlikely to hire a worker if: A) the additional output a firms gets by hiring the worker is greater than his or her wage. B) there are diminishing marginal returns to labor. C) the additional revenue generated by hiring the worker is less than his or her wage. D) the minimum wage set by law is less than the equilibrium wage in the market.

C) the additional revenue generated by hiring the worker is less than his or her wage.

16) A payoff matrix shows: A) the payoff to being a perfectly competitive firm. B) the payoff to being a monopolist. C) the payoffs for each possible combination of strategies. D) the demand curve facing a firm when there are only two firms.

C) the payoffs for each possible combination of strategies.

18) The dilemma in a prisoner's dilemma is that: A) the outcome is random, so players are uncertain about which strategy to play. B) the players may be trapped in a game they don't know how to play. C) the players would be better off if they both played a dominated strategy. D) only one player has a dominant strategy, but the other player is uncertain about what to do.

C) the players would be better off if they both played a dominated strategy.

17) A dominant strategy exists if: A) both players make the same choice. B) both players have the highest payoff when they make the same choice. C) one strategy yields the highest possible payoff. D) a player has a strategy that yields the highest payoff regardless of the other player's choice.

D) a player has a strategy that yields the highest payoff regardless of the other player's choice.

30) An imperfectly competitive firm faces a demand curve that is _________, while a perfectly competitive firm faces a demand curve that is ______ A) horizontal; downward-sloping. B) perfectly inelastic; perfectly elastic. C) perfectly inelastic; downward-sloping. D) downward-sloping; perfectly elastic.

D) downward-sloping; perfectly elastic.

35) Taken together, factors such as education, training, experience, intelligence, and work habits are known as: A) statistical discrimination factors. B) productivity factors. C) learned behaviors. D) human capital.

D) human capital.

1) In many cities in the United States, a single firm provides electricity. Those firms are: A) oligopolists. B) monopolistic competitors. C) perfect competitors. D) monopolists

D) monopolists:

22) If coal mining produces a negative externality because it leads to environmental damage, then, at the market equilibrium, the: A) supply curve will lie to the left of the regulated supply curve. B) quantity of coal produced will be less than the socially optimal quantity. C) price of coal will be higher than the socially optimal price. D) quantity of coal produced will be greater than the socially optimal quantity.

D) quantity of coal produced will be greater than the socially optimal quantity.