Review for Exam 2
In which of the following industries may price discrimination be good? A. Industries with poor consumers B. Industries with high fixed costs of production C. Industries with low marginal costs of production D. price discrimination is never good as it lowers total surplus in society
B. Industries with high fixed costs of production
Economists call selling the same product at different prices to different customers: A. price racism B. price discrimination C. arbitrage D. bundling
B. price discrimination
Price discrimination is good if output: A. falls under price discrimination B. stays the same under price discrimination C. increases under price discrimination D. is no longer produced under price discrimination
C. increases under price discrimination
An important lesson of price discrimination is that: A. price discrimination always leads to lower profits in one of the two markets B. firms can increase profits by differentiating their products C. all firms can perfectly price discriminate D. it only increases profits when the demand curves in two different markets are NOT the same
D. it only increases profits when the demand curves in two different markets are NOT the same
Figure: Cleaners' Wages Refer to the figure. How many workers will this firm hire at a wage of $29? a. 2 b. 3 c. 0 d. 1
a. 2
Products can be differentiated only by taste and style. a. False b. True
a. False
When P > MC, output is at the socially efficient level in a monopolistically competitive firm. a. False b. True
a. False
Advertising can create market power by product differentiation. a. True b. False
a. True
Advertising can make potential customers more interested in buying, or at least sampling, the product. a. True b. False
a. True
Monopolistic competition is a very common industry structure. Firms in this industry face downward-sloping demand curves, but they earn only normal profits in the long run because potential firms can easily enter the industry. a. True b. False
a. True
Antitrust laws: a. give the government the power to prohibit or regulate anticompetitive business practices. b. give the government the power to tax the trust funds of the children of rich families. c. offer subsidies for cartels. d. ensure that everyone keeps his or her promises.
a. give the government the power to prohibit or regulate anticompetitive business practices.
Barriers to entry are factors that: a. increase costs to new firms entering the market. b. decrease costs to new firms entering the market. c. increase costs to existing firms in the market. d. decrease costs to existing firms in the market.
a. increase costs to new firms entering the market.
Monopolistic competition is a: a. market with a large number of firms selling similar but not identical products. b. market that is dominated by a small number of firms. c. group of suppliers that try to act as if they were a monopoly. d. group of suppliers that try to act as if they were a perfectly competitive market.
a. market with a large number of firms selling similar but not identical products.
An example of a monopolistic competitive industry is: a. sodas. b. produce. c. white T-shirts. d. sugar.
a. sodas.
(Figure: Perfect Price Discrimination) Refer to the figure. For a firm practicing perfect price discrimination, calculate the dollar amount of consumer surplus in this market. a. $0 b. $20,000 c. $5,000 d. $15,000
a. $0
(Figure: Monopolist) Refer to the figure. Based on the demand curves for a monopolist's product in two different markets—market A and market B—what price should the monopolist charge in market A? a. $10 b. any price higher than $10 c. $7 d. $5
a. $10
Table: Sunshine Flower Vase Co. Refer to the table. What is the marginal product of labor for the fifth worker? a. $180 b. $1,580 c. $1,760 d. $135
a. $180
(Table: Fast Food) This table represents Chris's and Jim's maximum willingness to pay for certain fast-food items. The marginal cost of making a hamburger is $0.50 and the marginal cost of an order of French fries is $0.25. If this firm sets prices individually, what price for hamburgers would maximize profits across these two consumers? a. $4.00 b. a price between $2.00 and $4.00 c. $0.50 d. $2.00
a. $4.00
Figure: Market for Plumbers If the market in this figure is in equilibrium, the hourly wage paid to plumbers is ______, and the marginal product of a plumber is ______. a. $40; $40 b. $40; $20 c. $30; $50 d. $20; $30
a. $40; $40
(Figure: Monopolist) Refer to the figure. Based on the demand curves for a monopolist's product in two different markets—Market A and Market B—through the process of price discrimination, how much profit is the monopolist making in Market A? a. $450 b. $627.50 c. $830 d. $270
a. $450
(Figure: Monopolist) Refer to the figure. Based on the demand curves for a monopolist's product in two different markets—market A and market B—through the process of price discrimination, how much profit is the monopolist making in market B? a. $520 b. $780 c. $260 d. $1,040
a. $520
Which of the following best explains why cartel agreements are hard to maintain? a. Each firm in the cartel has the incentive to increase production and earn larger profits. b. Each firm in the cartel has the incentive to raise prices and earn larger profits. c. It is hard for each firm in the cartel to maintain a level of production equal to that of the other firms. d. Cartels are typically very profitable for firms in the short run, but not in the long run.
a. Each firm in the cartel has the incentive to increase production and earn larger profits.
A cartel can remain powerful even when all the members engage in secret price cuts. a. False b. True
a. False
(Table: Ozzie's, Manny's Payoff Table) Refer to the table. Which of the following statements is TRUE? a. Manny's dominant strategy is low price, and Ozzie's dominant strategy is low price. b. Manny's dominant strategy is low price, and Ozzie's dominant strategy is high price. c. Manny's dominant strategy is high price, and Ozzie's dominant strategy is high price. d. Manny and Ozzie do not have dominant strategies.
a. Manny's dominant strategy is low price, and Ozzie's dominant strategy is low price.
A perfectly price-discriminating monopolist produces until: a. P = MC. b. MR = MC. c. MR = AC. d. P = MR
a. P = MC.
A dominant strategy is a strategy that has a higher payoff than any other strategy, no matter what the other player does. a. True b. False
a. True
Cartels such as OPEC are difficult to maintain because cheating is a dominant strategy for all firms involved. a. True b. False
a. True
Fishing is a relatively dangerous profession, a factor that raises the wage for fishermen. a. True b. False
a. True
Which of the following industries would find it easier to establish a cartel? a. automobile manufacturing b. book publishing c. agricultural products d. retail clothing
a. automobile manufacturing
A newly imposed binding minimum wage: a. decreases employment. b. leads to full employment. c. maintains employment. d. increases employment.
a. decreases employment.
Which of the following lists of products and services would be the most resistant to arbitrage? a. dental root canals, haircuts, cosmetic surgery b. gasoline, movie tickets, consumer bleach c. computer software, computer hardware, tickets to sporting events d. third-party car stereos, full-service restaurant meals, novels
a. dental root canals, haircuts, cosmetic surgery
If consumers observe a lot of advertising for a product, they can infer that the producer: a. expects the product to be successful. b. does not want his brand name associated with that product. c. needs to rely on misinformation to get people to try the product. d. thinks the product is of poor quality.
a. expects the product to be successful.
If the marginal product of labor is constant in labor, then a market labor demand curve is: a. flat. b. negatively sloped. c. positively sloped. d. varied.
a. flat.
A firm is willing to hire a worker when the marginal product of labor is: a. greater than the wage. b. efficient. c. less than the wage. d. equal to or less than the wage.
a. greater than the wage.
A government-supported cartel usually means: a. higher prices. b. higher quality of service. c. lower prices. d. more innovation.
a. higher prices.
A government-supported cartel usually means: a. higher prices. b. lower prices. c. more innovation. d. higher quality of service.
a. higher prices.
Informative advertising: a. improves the competitive process by educating the consumer about prices and new products. b. degrades the competitive process by increasing the costs of firms. c. degrades the competitive process by confusing the consumer with information about prices and new products. d. improves the competitive process by making all products appear to be the same.
a. improves the competitive process by educating the consumer about prices and new products.
Monopolistic competition is a market that has: a. many sellers, free entry, and product differentiation. b. many sellers, free entry, and identical products. c. few sellers, free entry, and product differentiation. d. many sellers, high barriers to entry, and product differentiation.
a. many sellers, free entry, and product differentiation.
An individual's labor supply curve: a. may be backward bending if the wage is high enough. b. is typically vertical. c. is always upward sloping. d. is identical to the market labor supply curve.
a. may be backward bending if the wage is high enough.
A firm receives the largest profit from cheating on a cartel agreement when: a. none of the other cartel members cheats. b. all members of the cartel cheat. c. all cartel members expand output. d. its demand curve is more inelastic than other cartel members.
a. none of the other cartel members cheats.
A market dominated by a small number of firms is called a(n): a. oligopoly. b. monopoly. c. natural monopoly. d. network market.
a. oligopoly.
A museum in Russia has two entrances: one for locals (written in Russian) and one for tourists (written in English). People who enter through the entrance written in Russian will end up paying 81.93 rubles ($3.00). English-speaking tourists will use the entrance written in English, but they will end up paying 409.67 rubles ($15.00). This practice is an example of: a. price discrimination. b. price manipulation. c. price exploitation. d. international price mediation.
a. price discrimination.
(Figure: Price-Discriminating Monopolist) Refer to the figure. In order to maximize profits, the monopolist should charge a: a. price of $16 in market A and $10 in market B. b. price of $16 in market A and $6 in market B. c. uniform price of $6 in both markets. d. price of $14 in market A and $9 in market B.
a. price of $16 in market A and $10 in market B.
A union can raise wages by: a. reducing the supply of labor. b. demanding better working conditions. c. promoting a smoother labor market. d. increasing the demand for labor.
a. reducing the supply of labor.
Marián Hossa was paid $7.4 million by the Detroit Red Wings for the 2008-2009 season. We can conclude that: a. the Red Wings expected Marián Hossa to increase the team's revenue by at least $7.4 million. b. Marián Hossa was overpaid. c. the marginal product of labor of Marián Hossa must be less than $7.4 million. d. the marginal product of labor of Marián Hossa is 0.90 times the marginal cost.
a. the Red Wings expected Marián Hossa to increase the team's revenue by at least $7.4 million.
Game theory is the study of independent decision making. a. True b. False
b. False
As long as profits are possible, more firms will enter the market, reducing the profits to each individual firm in a monopolistic competition. a. False b. True
b. True
Cartel member strategy can be like a prisoner's ______ game. a. cooperation b. dilemma c. call d. release
b. dilemma
Under steady state monopolistic competition firms face ______ demand and earn ______ economic profits on average. a. perfectly elastic; positive b. downward-sloping; zero c. perfectly elastic; zero d. downward-sloping; positive
b. downward-sloping; zero
Informative advertising: a. degrades the competitive process by confusing the consumer with information about prices and new products. b. improves the competitive process by educating the consumer about prices and new products. c. improves the competitive process by making all products appear to be the same. d. degrades the competitive process by increasing the costs of firms.
b. improves the competitive process by educating the consumer about prices and new products.
Cartels for natural resources tend to be ______ than cartels for manufactured goods. a. less cumbersome b. more successful c. less successful d. more cumbersome
b. more successful
(Table: Willingness to Pay) Refer to the table. What is John's maximum willingness to pay for the bundled goods? a. $30 b. $120 c. $105 d. $90
b. $120
(Table: Ozzie's, Manny's Payoff Table) Refer to the table. The equilibrium outcome is: a. $20, $130 or $130, $20. b. $60, $60. c. undefined in this game. d. $80, $80.
b. $60, $60.
(Figure: Monopolist) Refer to the figure. Based on the demand curves for a monopolist's product in two different markets—Market A and Market B—what price should the monopolist charge in Market B? a. $5 b. $9 c. $7 d. any price higher than $5
b. $9
Table: Stone Masons A construction company builds stone fireplaces. The market wage for a stonemason is $350 per day. The table depicts the marginal product of labor (MPL) per day for a given number of stonemasons. To maximize profits, this company should hire ______ stonemasons. a. 3 b. 2 c. 4 d. 5
b. 2
Which of the following explains why the NBA cartel is sustainable? a. NBA games compete against other professional and collegiate sports. b. Access to the NBA league is the good that the cartel controls to keep its members from cheating. c. Consumers benefit from the salary cap that prevents rich teams from buying up all the great players. d. Team owners make more money, but players make less money.
b. Access to the NBA league is the good that the cartel controls to keep its members from cheating.
All cartels and cartel-like behavior are illegal in the United States. a. True b. False
b. False
Firms that are monopolistically competitive face a demand curve that is identical to one of a perfectly competitive firm. a. True b. False
b. False
Another possible source of why cartels break down is the growth potential of the industry. Although industries with a lot of potential are more willing to invest in the time to form a collusive agreement, such growth potential also deters them from making this investment. Why would that be? a. High-growth industries are less likely to have the support of the government. b. High-growth industries are less likely to face an inelastic demand curve. c. High-growth industries are more likely to be monitored by the government. d. High-growth industries are more likely to have lots of entrants.
d. High-growth industries are more likely to have lots of entrants.
Why might the benefits of monopolistic competition outweigh the inefficiencies? a. Monopolistic competition has higher deadweight loss than monopoly. b. In monopolistic competition, firms do not price at marginal cost. c. In monopolistic competition, firms do not produce at their minimum average cost. d. If we had perfect competition instead of monopolistic competition, we would not have all the variety and innovation that we have today.
d. If we had perfect competition instead of monopolistic competition, we would not have all the variety and innovation that we have today.
A monopolistically competitive firm operates where: a. MR + MC = 0. b. MR < MC. c. MR > MC. d. MR = MC.
d. MR = MC.
Cartels are ______ by new market entrants. a. reinforced b. discovered c. ignored d. challenged
d. challenged
Monopolistically competitive firms set price: a. sometimes greater than, sometimes less than, and sometimes equal to marginal cost. b. less than marginal cost. c. equal to marginal cost. d. greater than marginal cost.
d. greater than marginal cost.
(Figure: Demand 1) Refer to the figure. A successful cartel facing the market in this diagram would cause the industry price to: a. decrease from $8 to $4. b. increase from $7 to $8. c. not change at all. d. increase from $4 to $7.
d. increase from $4 to $7.
Figure: Monopolistic Competition II The monopolistically competitive firm in this diagram is in ______ equilibrium and charging a price of ______. a. long-run; $8 b. short-run; $8 c. short-run; $11 d. long-run; $14
d. long-run; $14
Which of the following is the best example of a monopolistic competitive market? a. produce b. milk c. diamonds d. restaurants
d. restaurants
(Table: Myrtle Beach Golf) Refer to the table. Assume the firm has zero costs. If the resort sets prices for lodging and golf individually, it will charge ________ for one night's stay and ________ for one round of golf. a. $80; $57.50 b. $50; $110 c. $50; $35 d. $110; $80
d. $110; $80
(Table: Myrtle Beach Golf) Refer to the table. Assume the firm has zero costs. If the resort bundles a one-night stay with a round of golf, it will charge: a. $190. b. $110. c. $145. d. $130.
d. $130.
(Table: Fast Food) This table represents Chris and Jim's maximum willingness to pay for certain fast-food items. The marginal cost of making a hamburger is $0.50 and the marginal cost of an order of French fries is $0.25. If this firm bundles hamburgers and French fries into a combo meal, what price should it charge for the meal to maximize profits across these two consumers? a. $2.50 b. $2.00 c. $4.50 d. $4.00
d. $4.00
A Levitt and Fryer study tested how much African-American names mattered in the long run for earnings. Their study found that: I. résumés with names such as Lakisha and Jamal got many fewer interview requests. II. having an African-American name does not matter in the long run for earnings. III. once the neighborhood the person comes from is controlled for, there is not a significant difference in earnings. a. I and III only b. II and III only c. I only d. I, II, and III
d. I, II, and III
Adults have more money than teenagers and perhaps more inelastic demand for video games than teenage video gamers. Why might it be difficult to price discriminate based on this fact? a. It is impossible to tell who is a teenager and who is an adult. b. It is not true that adults have more money than teenagers. c. The monopolist might not want to segment the market. d. Teenage gamers could exploit arbitrage opportunities, buying games at the low price and reselling them to adult gamers.
d. Teenage gamers could exploit arbitrage opportunities, buying games at the low price and reselling them to adult gamers.
A high demand for labor in one industry will: a. decrease the number of hours worked in that industry. b. cause a shortage of workers. c. cause a surplus of workers. d. attract workers from another industry.
d. attract workers from another industry.
(Figure: Demand 1) Refer to the figure. A cartel facing the market in this diagram would try to cause industry output to: a. increase from 5 to 10. b. decrease from 5 to 2. c. increase from 3 to 6. d. decrease from 6 to 3.
d. decrease from 6 to 3.
The ______ is derived from a marginal product of labor function. a. supply of labor b. minimum wage c. salary cap d. demand for labor
d. demand for labor
A monopolist that is able to perfectly price discriminate will end up producing a level of output: a. less than the level of output of a monopolist that does not price discriminate. b. less than the efficient market output. c. greater than the efficient market output. d. equal to the efficient market output.
d. equal to the efficient market output.
A firm will hire workers as long as the marginal product of labor is: a. either greater than or less than the wage. b. less than the wage. c. equal to the wage. d. greater than the wage.
d. greater than the wage.
To maximize profit, a firm will hire workers when the ________ in revenue from hiring an additional worker ________ the worker's wage. a. increase; is less than or equal to b. decrease; is less than or equal to c. decrease; is greater than d. increase; is greater than
d. increase; is greater than
Persuasive ads: a. make people unambiguously worse off. b. lower the enjoyment people have for products. c. generally do not succeed in persuading people. d. make people feel good about a product, and this is potentially valuable.
d. make people feel good about a product, and this is potentially valuable.
The increase in a firm's revenues created by hiring an additional worker is called: a. marginal product. b. marginal revenue of labor. c. marginal revenue. d. marginal product of labor.
d. marginal product of labor.
A cartel member has _____ incentive to increase quantity than a standard monopolist does. a. equal b. no c. less d. more
d. more
A monopolistic competitive firm is able to charge P > MC because: a. it clearly has a superior product than its competitors. b. monopolistic competitive firms must not set prices above P = MC. c. of high barriers to entry into the industry. d. of product differentiation, some people will prefer its product.
d. of product differentiation, some people will prefer its product.
A firm that spends extra money to practice tying does so to: a. benefit customers. b. advertise. c. increase quality. d. prevent competition.
d. prevent competition.
A binding minimum wage is a(n) ______ for labor. a. equilibrium price b. price ceiling c. subsidy d. price floor
d. price floor
A cartel is a group of suppliers who act together in order to: a. increase supply, reduce prices, and increase profits. b. increase demand, reduce prices, and increase profits. c. increase demand, raise prices, and increase profits. d. reduce supply, increase prices, and increase profits.
d. reduce supply, increase prices, and increase profits.
(Figure: Perfect Price Discrimination) Refer to the figure. Which curve represents the marginal revenue ( MR) curve for the monopolist who practices perfect price discrimination? a. the average cost curve b. a downward-sloping line that lies beneath the demand curve c. the marginal cost curve d. the demand curve
d. the demand curve
Airlines price discriminate by offering both business-class and economy-class service on flights (it's not just the cost of the service that varies; the markup is higher on business class). If they wanted to ensure that everyone who could afford to travel business class did so, what might they do? a. lower the price of traveling economy class b. make the seats in economy class extra small and cramped, and serve terrible food c. hire more attractive flight attendants for all classes d. make the seats in business class extra small and cramped, and serve terrible food
b. make the seats in economy class extra small and cramped, and serve terrible food
A cartel member has _____ incentive to increase quantity than a standard monopolist does. a. less b. more c. no d. equal
b. more
(Figure: Monopolistic Competition) Refer to the figure. Suppose the figure represents a firm that operates in a monopolistically competitive market. In the long run you would expect: a. demand to become more inelastic. b. more firms to enter the market. c. less quality and innovation. d. prices to increase.
b. more firms to enter the market.
As the wage for janitors falls, firms will demand: a. no janitors. b. more janitors. c. fewer janitors. d. a constant number of janitors
b. more janitors.
A firefighter is likely to earn ________ than a receptionist because ________. a. more; the job is more fun. b. more; the job is more dangerous. c. more; the job is more prestigious. d. less; the job has unattractive characteristics.
b. more; the job is more dangerous.
If the marginal product of labor is decreasing in labor, then a market labor demand curve is: a. flat. b. negatively sloped. c. varied. d. positively sloped.
b. negatively sloped.
A top-performing used-car salesman is able to sell his cars to each customer at their maximum willingness to pay, a practice known as: a. pricing market-to-market. b. perfect price discrimination. c. price tying. d. insightful pricing.
b. perfect price discrimination.
Monopolistically competitive firms earn zero profits on average because: a. they price at marginal cost. b. positive profits cause competitors to enter the market, decreasing demand for each individual firm. c. new firms cannot enter the market. d. they price above marginal cost
b. positive profits cause competitors to enter the market, decreasing demand for each individual firm.
A crime scene cleaner earns about three to four times more than an office cleaner, even though neither job requires a college degree. This difference in wages: a. is caused by differences in labor market issues. b. reflects a compensating differential. c. is solely because of differences in demand. d. results from discrimination because most office cleaners are women.
b. reflects a compensating differential.
An example of a monopolistic competitive industry is: a. produce. b. sodas. c. sugar. d. white T-shirts.
b. sodas.
(Table: Mary, Silvia Payoff Table) Refer to the table. Mary and Silvia are producers. If Silvia cooperates, what is Mary's dominant strategy? a. to cheat and earn 15 b. to cheat and earn 40 c. to cooperate and earn 20 d. to cooperate and earn 40
b. to cheat and earn 40
DVDs may be encoded with one of six region codes, preventing videos sold in one region of the world from being used in another region. Why might film distributors use region codes? a. to reduce the cost of collecting sales taxes, especially in areas with different tax rates b. to prevent people from buying videos in a low-price region and then reselling them in a high-price region c. to make it easier to charge the same price in different locations d. to minimize the menu costs of frequent price changes
b. to prevent people from buying videos in a low-price region and then reselling them in a high-price region
Which of the following best explains why assembly-line workers in the United States earn significantly more than assembly-line workers in Mexico? I. The supply of low-skilled laborers, such as those that work on assembly lines, is higher in Mexico. II. The demand for assembly-line workers is higher in the United States. III. Assembly-line workers are more productive in the United States. a. I and III only b. II and III only c. I, II, and III d. I and II only
c. I, II, and III
As the price of oil goes up, what happens to the incentive to develop alternative fuels? a. It decreases. b. Nothing happens. c. It increases. d. It is impossible to say without more information.
c. It increases.
Most cartels in the United States were outlawed with the passage of the: a. Wagner Act of 1935. b. Fair Labor Standards Act of 1938. c. Sherman Antitrust Act of 1890. d. ACA Act of 1957.
c. Sherman Antitrust Act of 1890.
Barriers to entry include: a. government barriers. b. control over a key resource or input. c. These are all barriers to entry. d. economies of scale.
c. These are all barriers to entry.
Monopolistically competitive firms create: a. negative deadweight loss. b. zero deadweight loss. c. a small deadweight loss. d. a large deadweight loss.
c. a small deadweight loss.
Monopolistically competitive firms earn zero profits on average because: a. they price above marginal cost. b. new firms cannot enter the market. c. positive profits cause competitors to enter the market, decreasing demand for each individual firm. d. they price at marginal cost.
c. positive profits cause competitors to enter the market, decreasing demand for each individual firm.
What is the main difference between a perfectly competitive industry and a monopolistically competitive firm? a. zero economic profit b. no barriers to entry c. product differentiation d. the number of firms in the market
c. product differentiation
(Table: Maximum Willingness to Pay for Word and Excel) Refer to the table. If Microsoft bundles Word and Excel and sells them as Office, what is the maximum profit Microsoft can make from selling Office? (Assume the marginal costs of production are zero.) a. $160 b. $210 c. $300 d. $320
c. $300
Table: All-Stars Refer to the table. A Major League Baseball team is considering increasing the quality of its pitching staff by hiring all-star quality pitchers. If the going salary for an all-star pitcher is $12 million per season, this team will hire ________ pitchers. a. 5 b. 4 c. 2 d. 3
c. 2
(Figure: Price-Discriminating Monopolist 2) The perfectly price-discriminating monopolist in this diagram will produce _____ units of output, and a single-price monopolist would produce ______ units of output a. 10; 5 b. 6; 8 c. 8; 4 d. 1; 4
c. 8; 4
A cartel is characterized by firms that act together in order to:I. increase competition.II. raise prices.III. raise profit. a. I and II only b. III only c. II and III only d. I only
c. II and III only
Monopolistically competitive firms are able to charge: a. P = MC, maximizing social surplus. b. P > MC, eliminating any lost gains from trade. c. P > MC, causing an inefficiently lower level of output. d. P > MC, so output is produced at minimum per unit cost.
c. P > MC, causing an inefficiently lower level of output.
(Figure: Competitive Market) Refer to the figure. If all firms in the market form a successful cartel, price and output in the market would be: a. P1 and Q1. b. P2 and Q2. c. P2 and Q1. d. P1 and Q2.
c. P2 and Q1.
Which of the following regarding the outcome of perfect price discrimination is TRUE? a. The economy becomes more efficient. b. Deadweight loss increases. c. Producer surplus increases. d. Consumer surplus increases.
c. Producer surplus increases.
Women tend to pay more for haircuts than men. One possible explanation is price discrimination. Another possible explanation is that: a. women tend to take better care of their hair than men. b. women are less likely to be bald, which pushes up demand. c. women are more likely to be more demanding about their hair than men. d. women, on average, make less money than men.
c. women are more likely to be more demanding about their hair than men.
Writing in 1849, Jules Dupuit observed why the rail companies actively made third-class accommodations terrible, including removing the roof from the car and having nonupholstered seats:"It is not because of the several thousand francs which they would have to spend to cover the third-class wagons or to upholster the benches that a particular railway has uncovered carriages and wooden benches; it would happily sacrifice this for the sake of its popularity. . . It hurts the poor not because it wants them to personally suffer, but to scare the rich. "How does "scaring the rich" illustrate price discrimination? a. It creates profit opportunities by bundling services. b. It deters those who are willing to pay more from going to third class. c. It uses tying to charge more for people who ride the train a lot. d. It encourages consumers with a low willingness to not travel at all.
b. It deters those who are willing to pay more from going to third class.
In a monopolistically competitive market, new firms will enter the market as long as: a. P = MC. b. P > AC. c. P = AC. d. P < AC.
b. P > AC.
(Figure: Competitive Market) Refer to the figure. If the market is competitive, price and output in the market would be: a. P2 and Q1. b. P1 and Q2. c. P2 and Q2. d. P1 and Q1.
b. P1 and Q2.
A dominant strategy is a strategy that a player should take regardless of the strategy chosen by the other player. a. False b. True
b. True
Cartels in manufactured goods are difficult to maintain because other firms can enter the market and easily produce substitute products. a. False b. True
b. True
Monopolistic competition is similar to that of monopoly, but it allows for free entry and exit of competing firms. a. False b. True
b. True
Monopolistic competitive firms do not produce at the minimum of their average cost curves. a. False b. True
b. True
Monopolistically competitive firms create: a. a large deadweight loss. b. a small deadweight loss. c. negative deadweight loss. d. zero deadweight loss.
b. a small deadweight loss.
If the market wage for electrical engineers in the United States is $50 per hour, then we know that the marginal product of electrical engineers is: a. less than $50 an hour. b. at least $50 an hour. c. exactly $50 an hour. d. approximately $50 an hour.
b. at least $50 an hour.
(Figure: PPD) Refer to the figure. A firm that perfectly price discriminates will sell: a. a units of output. b. b units of output. c. d units of output. d. c units of output.
b. b units of output.
Figure: PPD Monopolist Refer to the figure. A monopolist who cannot price discriminate earns profit equal to area(s) ________, and a monopolist practicing perfect price discrimination earns profit equal to areas ________. a. b; ab b. b; abc c. ab; abc d. b; bc
b. b; abc
Disneyland sells goods that are largely: a. aggregated. b. bundled. c. tied. d. separated.
b. bundled.
In general, wages are determined: a. by the skills of the worker, regardless of the country he or she works in. b. by the skills of the worker and the productivity of the entire economy. c. based on the average marginal product of labor of workers in similar countries. d. based on the average wage for all individuals in a particular country.
b. by the skills of the worker and the productivity of the entire economy.
A company that produces men's electric shavers reasons that people who highly value being clean-shaven will buy a lot of replacement blades; on the other hand, people who place a low value on being clean-shaven will rarely buy replacement blades. What type of pricing strategy will maximize profits for this company? a. charge a relatively low price for the electric shaver and offer free replacement blades b. charge a relatively low price for the electric shaver and a relatively high price for replacement blades c. charge the same price for the electric shaver and replacement blades d. charge a relatively high price for the electric shaver and a relatively low price for replacement blades
b. charge a relatively low price for the electric shaver and a relatively high price for replacement blades
A 2006 paper by Margeret Levenstein and Valerie Suslow ("What Determines Cartel Success?") found that the following causes are common reasons why cartels broke down: entering firms, the nature of the demand curve, growth of the industry, and difficulty of bargaining between conspirators. What other cause is also associated with bargaining difficulties? a. the nature of the supply curve b. cheating c. exiting firms d. the nature of the industry
b. cheating
(Figure: Monopolistic Competition) Refer to the figure. Suppose the figure represents a firm that operates in a monopolistic competitive market. In the long run you would expect prices in this market to: a. increase as unprofitable firms leave the industry. b. decrease to the point that P = AC. c. decrease to the point that P = MC. d. stay the same.
b. decrease to the point that P = AC.
As more workers are hired, the marginal product of labor typically: a. oscillates more rapidly. b. decreases. c. increases. d. remains the same.
b. decreases.
Customer-based discrimination is weakened by: a. country clubs. b. economic growth. c. segregation. d. higher wages.
b. economic growth.
A perfect price-discriminating seller: a. charges a single price. b. eliminates deadweight loss. c. maximizes consumer surplus. d. cannot prevent arbitrage.
b. eliminates deadweight loss.
Compared with imperfect price discrimination, deadweight loss under a nondiscriminating monopoly is: a. the same. b. higher. c. impossible to determine. d. lower.
b. higher.
We often think of technology and labor as substitutes for each other, but technology can lead to the hiring of more labor if it: a. increases the opportunity cost of labor. b. increases the marginal product of labor. c. decreases the compensating differential. d. decreases the average total cost of production.
b. increases the marginal product of labor.
(Table: Mary, Silvia Payoff Table) Refer to the table. Mary and Silvia are producers. If Mary cheats, what is Silvia's dominant strategy? a. to cooperate and earn 20 b. to cheat and earn 40 c. to cheat and earn 15 d. to cooperate and earn 40
c. to cheat and earn 15
(Figure: PPD) Refer to the figure. Which of the following statements best explains why a firm that perfectly price discriminates would sell additional units beyond a units of output? a. A firm will not sell beyond a units of output. The firm will sell only exactly a, as it is the profit-maximizing rate of output for this firm. b. The marginal cost is greater than consumers' willingness to pay for these units. c. The marginal cost is less than consumers' willingness to pay for these units. d. A firm will not sell beyond a units of output, since the marginal cost is greater than the marginal revenue for these units.
c. The marginal cost is less than consumers' willingness to pay for these units.
Suppose that a public accounting firm plans to hire some accountants for tax season. What will happen to the marginal product of labor as the firm hires more and more accountants? a. The marginal product of labor will increase because completing and filing tax returns requires team production techniques. b. The marginal product of labor will not change because the practice of accounting is quite standardized, forcing all accountants to follow the uniform procedures set forth in federal tax law. c. The marginal product of labor will decline because each subsequent accountant that is hired will be assigned to work on less important (i.e., less lucrative) tax returns. d. The marginal product of labor will increase because preparing tax returns requires high levels of education and experience.
c. The marginal product of labor will decline because each subsequent accountant that is hired will be assigned to work on less important (i.e., less lucrative) tax returns.
(Figure: PPD) Refer to the figure. A firm that perfectly price discriminates will sell: a. c units of output. b. a units of output. c. b units of output. d. d units of output.
c. b units of output.
Airlines price discriminate prominently by charging _______ more than _________. a. vacationers; business travelers b. young adults; senior citizens c. business travelers; vacationers d. senior citizens; young adults
c. business travelers; vacationers
(Table: Russia, Saudi Payoff Table) Suppose that the oil market is dominated by two large firms, Saudi Arabia and Russia. Both Saudi Arabia and Russia have two choices or strategies: cooperate by cutting back production or cheat by increasing production. The payoff table below shows the potential revenues associated with each firm's strategies. For instance, if Saudi Arabia cheats and Russia cooperates, the payoff to Saudi Arabia is $1,000 and the payoff to Russia is $400. Refer to the table. What is Saudi Arabia's best strategy and associated payoff if Russia cooperates? a. cooperate; $1,000 b. cooperate; $800 c. cheat; $1,000 d. cheat; $600
c. cheat; $1,000
(Table: Russia, Saudi Payoff Table) Suppose that the oil market is dominated by two large firms, Saudi Arabia and Russia. Both Saudi Arabia and Russia have two choices or strategies: cooperate by cutting back production or cheat by increasing production. The payoff table below shows the potential revenues associated with each firm's strategies. For instance, if Saudi Arabia cheats and Russia cooperates, the payoff to Saudi Arabia is $1,000 and the payoff to Russia is $400. Refer to the table. What is Saudi Arabia's best strategy and associated payoff if Russia cheats? a.cheat; $600 b.cooperate; $400 c.cooperate; $800 d.cheat; $800
c. cheat; $600
When labor demand decreases, the wage is expected to: a. change in an indeterminate direction. b. increase. c. decrease. d. remain the same.
c. decrease.
Monopolistically competitive firms set price: a. less than marginal cost. b. sometimes greater than, sometimes less than, and sometimes equal to marginal cost. c. greater than marginal cost. d. equal to marginal cost.
c. greater than marginal cost.
A college education in the United States: a. is not counted as human capital market issues. b. does not command the same high wages as it did in the past. c. has been shown to earn a wage premium. d. does not lead to any difference in wages as compared with a high school education.
c. has been shown to earn a wage premium.
Monopolistic competitive products are usually _____ advertised. a. occasionally b. rarely c. highly d. never
c. highly
Human capital labor market issues: a. refers to a worker in a capital-intensive industry. b. include the equipment, tools, and computers that make workers more productive. c. include the skills, knowledge, and experience that people obtain. d. refers to workers who do highly repetitive work, which requires little thought and creativity.
c. include the skills, knowledge, and experience that people obtain.
When a cartel member produces more output and lowers prices: a. the entire cartel is made more profitable. b. it enjoys only a fraction of the benefits of selling more units. c. it receives all the benefits of the increased sales and the other members bear the burden of lower profits. d. it bears the entire cost of lower prices.
c. it receives all the benefits of the increased sales and the other members bear the burden of lower profits.
A firm practices price discrimination by selling at a high price in its larger market, market A, and a lower price in its smaller market, market B. If this firm is forced to sell at a single price in both markets and opts for the original price in market A, the new single-pricing strategy makes consumers in: a. both markets better off, as single pricing is always better for consumers than price discrimination. b. market B no worse off but consumers in market A worse off. c. market A no worse off but consumers in market B worse off. d. both market A and market B worse off.
c. market A no worse off but consumers in market B worse off.
If the marginal product of labor is decreasing in labor, then a firm-level labor demand curve is: a. varied. b. flat. c. negatively sloped. d. positively sloped.
c. negatively sloped.
A compensating differential is mainly a cause of a difference in wages because: a. of differences in productivity. b. all workers should be paid the same wage rate. c. of differences in working conditions. d. of differences in human capital.
c. of differences in working conditions.
A monopolist facing different demand curves in two separate markets maximizes profit by: a. completely ignoring the market with lower demand. b. completely ignoring the market with higher demand. c. setting marginal revenue equal to marginal cost and charging the maximum price that demand will bear in each market. d. setting marginal revenue equal to marginal cost for the combined demand curve and charging the maximum price for that quantity on the combined demand curve.
c. setting marginal revenue equal to marginal cost and charging the maximum price that demand will bear in each market.