Microeconomics 2 Final verbal questions (2021)

Which of the following statements about externality is incorrect? Select one: a. Extra output sold by a firm that lowers the market price creates negative externalities to its rivals. b. None of the listed. c. Trees planted in the backyard of a house could create positive externalities to the pedestrians passing under. d. Pollution of a chemical plant will create negative externalities to the residents living in the neighborhood. e. A single action may confer positive externalities on some people, but negative externalities on others.

a. Extra output sold by a firm that lowers the market price creates negative externalities to its rivals.

In the absence of any government regulation on price, if a firm has no power to set price on its own, one can safely conclude that Select one: a. demand for the firm's product is perfectly own-price elastic. b. the market is in long-run equilibrium. c. the industry is monopolistic. d. the firms in this industry are not profitable. e. there aren't many firms in the industry.

a. demand for the firm's product is perfectly own-price elastic.

With respect to production, the short run is best defined as a time period Select one: a. in which at least one input is fixed. b. in which at least one input is variable. c. lasting about two years. d. in which all inputs are fixed. e. in which all inputs are variable.

a. in which at least one input is fixed.

The Stackelberg model is more appropriate than the Cournot model in situations where Select one: a. one firm makes its output decision before the other. b.there are more than two firms. c. there are two firms. d. firms will be likely to collude. e. all firms enter the market simultaneously.

a. one firm makes its output decision before the other.

A monopolist has decreasing average costs as output increases. If the monopolist sets price equal to average cost, it will Select one: a. produce too little output from the standpoint of efficiency. b. make positive profits. c. make negative profits. d. produce too much output from the standpoint of efficiency. e. maximize its profits.

a. produce too little output from the standpoint of efficiency.

Long-run producer surplus in a perfectly competitive industry accrues mainly to Select one: a. suppliers of inputs with inelastic supply curves. b. suppliers of inputs with elastic supply curves. c. owners of the firms. d. marginal consumers and owners of the firms. e. marginal consumers.

a. suppliers of inputs with inelastic supply curves.

In the short run, the point at which average total cost is minimized, the line from the origin to the point on the Select one: a. total cost curve is tangent to the curve. b. total cost curve has the largest slope. c. total cost curve is horizontal. d. variable cost curve has the largest slope. e. variable cost curve has the smallest slope.

a. total cost curve is tangent to the curve.

In the short run, average total costs and average variable costs converge as output increases because Select one: a. marginal cost is below average total cost. b. average fixed costs continually decrease. c. total cost continually increases. d. average fixed costs continually increase. e. marginal cost is below average fixed cost.

b. average fixed costs continually decrease.

Long-run producer surplus in a perfectly competitive industry accrues mainly to Select one: a. marginal consumers. b. suppliers of inputs with inelastic supply curves. c. marginal consumers and owners of the firms. d. suppliers of inputs with elastic supply curves. e. owners of the firms.

b. suppliers of inputs with inelastic supply curves.

If an allocation is Pareto optimal and if indifference curves between the two goods have no kinks, then Select one: a. two consumers with the same income who consume both goods must have the same MRS, but if their incomes differ, their MRS-s may differ. b. two consumers who consume both goods must have the same MRS between them, but consumers may consume the goods in different ratios. c. for any two consumers who consume both goods, neither will prefer the other consumer's bundle to his own. d. any two consumers who consume both goods must consume them in the same ratio. e. all consumers receive the bundle that they prefer to any other bundle the economy could produce for them.

b. two consumers who consume both goods must have the same MRS between them, but consumers may consume the goods in different ratios.

Positive externalities exist because------- benefits are------- than------- benefits. Select one: a. internal; greater; social b. internal; greater; external c. internal; less; social d. internal; less; external e. external; greater; social

c. internal; less; social

When a firm has a monopoly in a market and also perfectly price discriminates, total welfare Select one: a. is lower than in an oligopolistic market. b. is lower than in a perfectly competitive market. c. is maximized. d. is minimized. is higher than in a perfectly competitive market

c. is maximized.

Increasing trade barriers creates------- competition-----------, the influence of monopoly, and -------the efficient use of resources. Select one: a. more; increases; hinders b. more; reduces; hinders c. less; increases; hinders d. less; reduces; promotes e.less; reduces; hinders

c. less; increases; hinders

A certain monopolist has a positive marginal cost of production. Despite this fact, the monopolist decides to produce a quantity of output that maximizes total revenues. Assume that the marginal revenue curve for this monopolist always has a negative slope. Then the monopolist Select one: a. produces less output than it would if it maximized profits. b. none of the listed. c. produces more output than it would if it were maximizing profits. d. is minimizing its profits. e. produces the same output that it would if it were maximizing profits.

c. produces more output than it would if it were maximizing profits.

According to the Coase theorem, negative externalities can be internalized if Select one: a. property rights are assigned to the party who is being damaged. b. the government takes action to solve the problem. c. property rights are assigned to either party. d. property rights are assigned to the party who is doing the damage. e. the party causing the damage is forced out of business.

c. property rights are assigned to either party.

If two markets differ with respect to their price elasticity of demand and resale is impossible, a monopolist will Select one: a. set price so as to equate the elasticity of demand across markets. b. not serve the market that is more price elastic. c. set a lower price in the market that is more price elastic. d. set price equal to marginal cost in both markets. e. set a higher price in the market that is more price elastic

c. set a lower price in the market that is more price elastic.

If the marginal product of labor equals the average product of labor, then Select one: a. the profit of a firm is at a maximum b. the total cost of a firm is at a minimum c. the average product of labor is at a maximum. d. the marginal product of labor is at a maximum. e. the total average cost of a firm is at a minimum

c. the average product of labor is at a maximum.

1.According to the first theorem of welfare economics: Select one: a. at a Pareto optimum, all consumers must be equally wealthy. b. every competitive equilibrium is fair. c. if the economy is in a competitive equilibrium, there is no way to make anyone better off. d. None of the listed. e. a competitive equilibrium always exists.

d. None of the listed.

The deadweight loss generated by a perfect-price- discriminating monopoly Select one: a. equals or is greater than the deadweight loss of a single-price monopoly, depending on circumstances. b. equals the deadweight loss of a single-price monopoly. c. equals the sum of all lost consumer surplus. d. equals zero. e. is greater than the deadweight loss of a single-price monopoly.

d. equals zero.

Assuming a homogeneous product, the Bertrand duopoly equilibrium price is Select one: a. equal to the monopoly price. b. the same as the Cournot equilibrium price. c. greater than the Cournot equilibrium price. d. less than the Cournot equilibrium price. e. greater than the monopoly price.

d. less than the Cournot equilibrium price.

If marginal revenue equals marginal cost, the firm is maximizing profits as long as Select one: a. the average cost curve lies above the demand curve. b. the marginal cost curve lies above the demand curve. c. marginal revenue exceeds marginal cost for greater levels of output. d. marginal cost exceeds marginal revenue for greater levels of output. e.the resulting profits are positive

d. marginal cost exceeds marginal revenue for greater levels of output.

If the market price of a product is between the minimum average variable cost (AVC) and minimum average total cost (ATC) of a competitive firm, that firm will Select one: a. always shut down. b. always continue to produce. c. make positive economic profits. d. produce in the short run but shut down in the long run. e. produce in the long run but shut down in the short run.

d. produce in the short run but shut down in the long run.

Consider a market with a positive externality. The market will tend to ________ the good because the market participants tend to ignore the ________ of their decision. Select one: a. underproduce; internal benefit b. overproduce; external cost c. overproduce; external benefit d. underproduce; external benefit e. underproduce; external cost

d. underproduce; external benefit

Positive externalities are created when Select one: a. farmers spray pesticide in their fields and it washes into the local river after the first rainstorm. b. a driver drives recklessly on a busy highway. c. other consumers reduce their demand for coffee and price thereby declines. d. your neighbor plants beautiful trees and flowers in her yard. e. you purchase the "Mona Lisa" and lock it in a vault.

d. your neighbor plants beautiful trees and flowers in her yard.

Firms X and Y are identical, produce identical products, and are the only firms in a market. Firm X 's output is higher than Firm Y 's. This means that Firm Y is the Select one: a. Cournot follower. b. Stackelberg leader. c. Cartel leader. d. Cournot leader. e. Stackelberg follower

e. Stackelberg follower

In a Bertrand model with identical firms and a non-differentiated product, equilibrium price will increase in response to Select one: a. a decrease in marginal cost. b. an increase in the number of firms. c. a decrease in the number of firms. d. a decrease in fixed cost. e. an increase in marginal cost

e. an increase in marginal cost

A natural monopoly Select one: a. is needed to make a profit in the long run. b. exists when a firm has sole ownership of a natural resource. c. is an example of a government-created barrier. d. exists when many sellers experience lower average total costs than potential competitors do. e. exists when a single seller experiences lower average total costs than any potential competitor.

e. exists when a single seller experiences lower average total costs than any potential competitor.

The concept of Nash equilibrium states that Select one: a. all firms are earning the highest possible profit. b. none of the listed. c. firms make alternating output decisions. d. firms take into account their own actions only and neglect actions of other firms. e. no firm can improve their outcome holding the other firm's actions constant.

e. no firm can improve their outcome holding the other firm's actions constant.

The demand curve for the product of a firm in a competitive market is----- , and the demand curve for the product of a monopolist is -------. Select one: a. downward sloping; perfectly elastic b. perfectly inelastic; downward sloping c. horizontal; perfectly inelastic d. downward sloping; horizontal e. perfectly elastic; downward sloping

e. perfectly elastic; downward sloping

A situation is Pareto efficient if Select one: a. there is no way to make anyone better off. b. there is some way to make everyone better off. c. there is no way to make everyone worse off without making someone better off. d. aggregate profits are maximized. e. there is no way to make someone better off without making someone else worse off.

e. there is no way to make someone better off without making someone else worse off.

Consider a short-run production process in which only labor is variable input and all other inputs are fixed. If the marginal cost of producing a good is increasing as a firm produces more of the good, then which of the following must be true? Select one: a. Marginal cost is larger that average variable cost. b. Average fixed cost is rising. c. Average variable cost is falling. d. Average variable cost is rising. e.Marginal product of labor is falling.

e.Marginal product of labor is falling.

If a firm is able to set price, Select one: a. it is a competitive firm. b. it sells its output at a constant price. c. its marginal revenue is constant. d. it is a monopoly. e.it faces a downward-sloping demand curve

e.it faces a downward-sloping demand curve

The slope of the line from the origin to a given point on the total product of labor curve equals Select one: a. the marginal product of labor. b. the change in labor divided by the change in output. c. the increase in output. d. the average cost of production e.the average product of labor

e.the average product of labor