ec
The oligopoly model that is most appropriate when one large firm usually takes the lead in setting price is the ________ model. Cournot Correct! Stackelberg game theory Prisoners' Dilemma
Stackelberg
Suppose a stream is discovered whose water has remarkable healing powers. You decide to bottle the liquid and sell it. The market demand curve is linear and is given as follows: P = 30 - Q The marginal cost to produce this new drink is $3. What will be the price of this new drink in the long run if the industry is a Bertrand duopoly? Correct! $3 $9 $12 $13.50
$3
In monopolistic competition, the products of different sellers are assumed to be Correct! similar but slightly different. identical perfect substitutes. either identical or differentiated. unique without any close or perfect substitutes.
similar but slightly different.
The Acme Company is a perfect competitor in its input markets and its output market. Its average product of labor is at its maximum and equals 30. The marginal revenue product of labor is $300. The price of its output is $
10$
Monopolistic Competitive firms use advertising to influence a consumer's buying decision. convince customers that their product is worth its price. persuade buyers that their product is superior to others. Correct! All of the above answers are correct.
All of the above answers are correct.
A monopolistically competitive firm in short-run equilibrium: will make negative profit (lose money). will make zero profit (break-even). will make positive profit. Correct! Any of the above are possible.
Any of the above are possible.
Which of the following is true for both perfectly competitive and monopolistically competitive firms in the long run? P = MC. MC = ATC. P > MR. Correct! Profit equals zero.
Profit equals zero
Consider the following scenario: Two soft-drink firms, Fizzle & Sizzle, operate on a river. Fizzle is farther upstream, and gets cleaner water, so its cost of purifying water for use in the soft drinks is lower than Sizzle's by $500,000 yearly. Refer to the information in the previous scenario. If Fizzle and Sizzle sell the same output at the same price and are otherwise identical, Fizzle's profit will be: higher than Sizzle's by $500,000 yearly. higher than Sizzle's by just less than $500,000 yearly. zero in the long run, and Sizzle will be out of business. Correct! the same as Sizzle's because Fizzle must be assigned an implicit cost of $500,000 yearly for economic rent.
the same as Sizzle's because Fizzle must be assigned an implicit cost of $500,000 yearly for economic rent.
The demand curve facing a perfectly competitive firm is the same as its average revenue curve, but not the same as its marginal revenue curve. Answer the same as its average revenue curve and its marginal revenue curve. the same as its marginal revenue curve, but not its average revenue curve. not the same as either its marginal revenue curve or its average revenue curve.
the same as its average revenue curve and its marginal revenue curve.
If only one firm in an industry could take advantage of a reduced wage and all other firms continue paying the old wage, how would one best describe the one firm's reaction to this reduced wage assuming labor is the only variable input? The marginal revenue product of labor curve: Correct! would remain unchanged, and the firm would hire more labor at the lower wage. shifts to the left, and the firm hires more labor at the lower wage on the new curve. shifts to the right, and the firm hires more labor at the lower wage on the new curve. shifts to the left, and the firm hires less labor at the lower wage on the new curve.
would remain unchanged, and the firm would hire more labor at the lower wage.
Suppose a stream is discovered whose water has remarkable healing powers. You decide to bottle the liquid and sell it. The market demand curve is linear and is given as follows: P = 30 - Q The marginal cost to produce this new drink is $3. What will be the price of this new drink in the long run if the firms in the industry collude with one another to maximize joint profit? $3 $9 $12 Correct! $16.50
$16.50
Suppose labor and capital are variable inputs. The wage rate is $20 per hour, the marginal product of labor is 30 units, the rental rate of capital is $100 per machine hour, and the marginal product of capital is 150 units. If the wage rate declines to $15 per hour, the firm employs more labor and the marginal product of labor declines to 20 units. Assuming the rental rate of capital remains the same, what is the marginal product of capital at the new optimal level of input usage? units
133 units
You are the manager of a firm producing green chalk. The marginal product of labor is: MPL = 24L-1/2 Suppose that the firm is a competitor in the green chalk market. The price of green chalk is $1 per unit. Further suppose that the firm is a competitor in the labor market. The wage rate is $12.00 per hour. How much labor will be hired to maximize profit? Correct!4
4$
The market for an industrial chemical has a single dominant firm and a competitive fringe comprised of many firms that behave as price takers. The dominant firm has recently begun behaving as a price leader, setting price while the competitive fringe follows. The market demand curve and competitive fringe supply curve are given below. Marginal cost for the dominant firm is $0.75 per gallon. QM = 140,000 - 32,000P QF = 60,000 + 8,000P, where QM = market quantity demanded, and QF = supply of competitive fringe. Quantities are measured in gallons per week, and price is measured as a price per gallon. The output for the competitive fringe is Correct! 71,000 25,000 96,000 100,000
71,000
In which oligopoly model(s) do firms earn zero profit? Cournot Correct! Bertrand Stackelberg Oligopoly firms always earn positive economic profits.
Bertrand
Which oligopoly model(s) have the same results as the competitive model? Cournot Correct! Bertrand Stackelberg Both Cournot and Stackelberg
Bertrand
Use the following statements to answer this question: I. Cartels are illegal in the United States. II. Once price and production levels are agreed upon, each member of a cartel has an incentive to "cheat" on the agreement. Correct! Both I and II are true. I is true, and II is false. I is false, and II is true. Both I and II are false.
Both I and II are true.
This market situation is much like a pure monopoly except that its member firms tend to cheat on agreed upon price and output strategies. What is it? Duopoly Correct! Cartel Dominant firm Natural monopoly
Cartel
Conigan Box Company produces cardboard boxes that are sold in bundles of 1000 boxes. The market is highly competitive, with boxes currently selling for $100 per thousand. Conigan's total and marginal cost curves are: TC = 3,000,000 + 0.001Q2, where Q is measured in thousand box bundles per year. Correct! Conigan's profit maximizing quantity is Q = 50,000 and Conigan is losing $500,000 per year. Conigan's profit maximizing quantity is Q = 5,000 and Conigan is losing $50,000 per year. Conigan's profit maximizing quantity is Q = 500 and Conigan is losing $50,000 per year. Conigan's profit maximizing quantity is Q = 5,000 and Conigan is losing $500,000 per year.
Conigan's profit maximizing quantity is Q = 50,000 and Conigan is losing $500,000 per year.
Suppose the supply of non-OPEC oil increases due to new petroleum discoveries in other countries. What happens to OPEC's share of the world oil market? Increases Correct! Decreases Remains the same We do not have enough information to answer this question.
Decreases
Is there a first-mover advantage in the Bertrand duopoly model with homogenous products? Yes, first-movers always hold the advantage over other firms. Yes, first-movers may have an advantage, but it depends on the model assumptions. No, first-movers cannot choose a profit maximizing quantity because the second-mover can always produce a bit less and earn higher profits. Correct! No, the second-mover would be able to set a slightly lower price and capture the full market share.
No, the second-mover would be able to set a slightly lower price and capture the full market share.
The market structure of the local pizza industry is best characterized by monopolistic competition. One Guy's Pizza is one of the producers in the local market. The demand for One Guy's Pizza is Q = 225-10P. One Guy's cost function is TC=0.15Q2. One Guy's is not operating in a long-run equilibrium because it is earning negative profits. Correct! One Guy's is not operating in a long-run equilibrium because it is earning positive profits. One Guy's is operating in a long-run equilibrium with Q= 45. One Guy's is operating in a short-run equilibrium because it is earning negative profits.
One Guy's is not operating in a long-run equilibrium because it is earning positive profits.
Because of the relationship between a perfectly competitive firm's demand curve and its marginal revenue curve, the profit maximization condition for the firm can be written as: P = MR. P = AVC. AR = MR. Correct! P = MC. P = AC.
P = MC.
Suppose two firms with differentiated products are competing on price. The reaction curve for Firm 1 is P1 = 4 + 0.5 P2, and the reaction curve for Firm 2 is P2 = 4 + 0.5P1. What is the equilibrium price outcome in this market? P1= P2= 4 P1= P2= 6 Correct! P1= P2= 8 P1= 6 and P2= 8
P1= P2= 8
Which of the following conditions, if present, is sufficient to make a game cooperative? Individual payoffs are greater if all players choose the same strategy. Players can communicate with each other. Correct! Players can negotiate binding contracts committing them to particular strategies. Players must agree unanimously on any set of strategies.
Players can negotiate binding contracts committing them to particular strategies.
Suppose the downward sloping labor demand curve shifts rightward in a labor market with a single employer (monopsony). What happens to the marginal expenditure curve? Shifts left Shifts right Correct! Remains the same We do not have enough information to answer this question.
Remains the same
Ronny's Pizza House is a profit maximizing firm in a perfectly competitive local restaurant market, and their optimal output is 80 pizzas per day. The local government imposes a new tax of $250 per year on all restaurants that operate in the city. How does this affect Ronny's profit maximizing decisions? No impact on the restaurant's decisions Ronny's will remain in business but will definitely produce less pizza. Ronny's will definitely shut down. Correct! Ronny's decision depends on the circumstances—if their profits are larger than $250 per year, then the tax does not impact output; otherwise, Ronny's Pizza House will shut down.
Ronny's decision depends on the circumstances—if their profits are larger than $250 per year, then the tax does not impact output; otherwise, Ronny's Pizza House will shut down.
Collusion can earn higher prices and higher profits under the Bertrand model, but why is this an unlikely outcome in practice? Firms prefer to remain independent of other firms so that their pricing plans can be more flexible over time. Correct! The collusive firms have an incentive to gain market share at the expense of the other firms by cutting prices. The federal antitrust authorities have an easier time catching firms that collude on price rather than quantity. none of the above
The collusive firms have an incentive to gain market share at the expense of the other firms by cutting prices
What condition may provide for a relatively small degree of inefficiency under monopolistic competition? There is a single seller and no product differentiation. The marginal cost of production is less than the market price. Correct! The demand curve is relatively elastic so that the price is near the long-run minimum average cost. There is only one buyer in the market.
The demand curve is relatively elastic so that the price is near the long-run minimum average cost.
Which of the following is TRUE concerning equilibrium in a monopsonistic factor market? The firm uses the efficient level of the input but does not maximize profit. Correct! The firm maximizes profit but does not use the efficient level of the input. The firm maximizes profit and uses the efficient level of the input. The firm either maximizes profit or uses the efficient level of the input, but it cannot do both
The firm maximizes profit but does not use the efficient level of the input.
What does it mean to say that a game is in "extensive form"? Strategies are described, rather than just numbered. All payoffs are shown. The game is presented as a matrix. Correct! The game is presented as a decision tree.
The game is presented as a decision tree.
Which of the following statements is TRUE when comparing monopsony and competitive labor markets? The monopsony hires more workers but pays a lower wage. The monopsony hires more workers at a higher wage. The monopsonist's wage is lower and quantity of labor higher than would prevail under competition. Correct! The monopsonist's wage and quantity of labor are lower than would prevail under perfect competition.
The monopsonist's wage and quantity of labor are lower than would prevail under perfect competition.
A firm operating in a monopolistically competitive market faces demand given by P = 10 - 0.1Q and a total cost of TC= -10Q+0.0333Q3 + 130, where P is in dollars per unit, output rate Q is in units per time period, and total cost C is in dollars. Correct! The price and output that will allow the firm to maximize profit are Q = 13.17 and P = 8.68. The Lerner index is 0.154. The price and output that will allow the firm to maximize profit are Q = 13.17 and P = 8.68. The Lerner index is 514. The price and output that will allow the firm to maximize profit are Q = 12.12 and P = 9.5. The Lerner index is 154. The price and output that will allow the firm to maximize profit are Q = 12.12 and P = 9.5. The Lerner index is 514.
The price and output that will allow the firm to maximize profit are Q = 13.17 and P = 8.68. The Lerner index is 0.154.
Which of the following is NOT conducive to the successful operation of a cartel? Market demand for the good is relatively inelastic. The cartel supplies all of the world's output of the good. Cartel members have substantial cost advantages over non-member producers. Correct! The supply of non-cartel members is very price elastic.
The supply of non-cartel members is very price elastic.
Which of the following is true for both perfect and monopolistic competition? Firms produce a differentiated product. Firms face a downward sloping demand curve. Firms produce a homogeneous product. Correct! There is freedom of entry and exit in the long run.
There is freedom of entry and exit in the long run.
Suppose the downward sloping labor demand curve shifts rightward in a labor market with a single employer (monopsony). What happens to the equilibrium wage and level of employment in the market? Correct! Wage and level of employment increase. Wage increases and level of employment declines. Wage decreases and level of employment increases. Wage and level of employment decline.
Wage and level of employment increase.
Suppose a labor market has perfectly inelastic supply that is composed of union and non-union workers, and both groups of workers initially earn the perfectly competitive wage. What happens to the equilibrium employment level and wage for union workers if the union exercises its bargaining power? Both increase. Employment increases and wage declines. Correct Answer Wage increases and employment declines. Both decline.
Wage increases and employment declines.
Suppose the upward sloping labor supply curve shifts leftward in a labor market with a single employer (monopsony). What happens to the equilibrium wage and level of employment in the market? Wage and level of employment increase. Correct! Wage increases and level of employment declines. Wage decreases and level of employment increases. Wage and level of employment decline.
Wage increases and level of employment declines.
If a monopolistically competitive seller can convince buyers that its product is of better quality and value than products sold by rival firms, demand increases. the firm gains more control over its price. demand becomes more inelastic. Correct! all of the above occur.
all of the above occur.
Under a Cournot duopoly, the collusion curve represents: Correct! all possible allocations of the pure monopoly quantity among the two firms in the duopoly. all possible allocations of the pure monopoly quantity that would be possible if the two firms in the duopoly did not cooperate. all optimal price-quantity outcomes for a cartel rather than a Cournot duopoly. the potential profits to be earned by firms in a collusive cartel.
all possible allocations of the pure monopoly quantity among the two firms in the duopoly.
The marginal expenditure curve for labor is based on the assumption that: the most productive workers are hired first. the wage rate is independent of the quantity of labor employed. the market supply curve for labor is infinitely elastic. Correct! all workers are paid the same wage rate.
all workers are paid the same wage rate.
An increase in technology that enhances labor productivity will likely result in: a decrease in labor employment and an increase in the wage rate. Correct! an increase in labor employment and an increase in the wage rate. a decrease in labor employment and a decrease in the wage rate. an increase in labor employment and a decrease in the wage rate.
an increase in labor employment and an increase in the wage rate.
All of the payment to a factor of production will be economic rent when the factor of production has: Correct! an infinitely inelastic supply curve. an infinitely elastic supply curve. a constant, unit elastic supply curve. an infinitely inelastic demand curve.
an infinitely inelastic supply curve.
In the dominant firm model, the fringe firms: Correct! are price takers. maximize profit by equating average revenue and average cost. determine their price and output before the dominant firm determines its price and output. all of the above
are price takers.
Repetition of a game: yields the same outcome, over and over. Correct! can result in behavior that is different from what it would be if the game were played only once. is not possible. makes cooperative games into non-cooperative games.
can result in behavior that is different from what it would be if the game were played only once.
The marginal product of labor for Acme, Inc. is 15. The average product of labor is 25, and the price of labor is $10. Assuming that Acme, Inc. is a competitor in its output and input markets, the marginal revenue product of labor: is $10. is $150. is $250. Correct! cannot be determined with the information provided.
cannot be determined with the information provided.
In the dominant firm model, the smaller fringe firms behave like: Correct! competitive firms. Cournot firms. Stackelberg firms. Bertrand firms.
competitive firms.
Bette's Breakfast, a perfectly competitive eatery, sells its "Breakfast Special" (the only item on the menu) for $5.00. The costs of waiters, cooks, power, food etc. average out to $3.95 per meal; the costs of the lease, insurance and other such expenses average out to $1.25 per meal. Bette should: close her doors immediately. continue producing in the short and long run. Correct! continue producing in the short run, but plan to go out of business in the long run. raise her prices above the perfectly competitive level.
continue producing in the short run, but plan to go out of business in the long run.
In a competitive labor market, with one variable factor, the supply of labor to the firm is: Correct! equal to the marginal expenditure curve. equal to the demand curve for labor. greater than the marginal expenditure curve. equal to the marginal revenue product curve.
equal to the marginal expenditure curve.
The most important factor in determining the long-run profit potential in monopolistic competition is: Correct! free entry and exit. the elasticity of the market demand curve. the elasticity of the firm's demand curve. the reaction of rival firms to a change in price
free entry and exit
The industry demand curve for labor is the: Correct! horizontal sum of individual firm labor demand curves. vertical sum of individual firm demand curves. representative firm's demand curve multiplied by the number of firms. none of the above
horizontal sum of individual firm labor demand curves.
If all producers in a market are cartel members, then the demand curve facing the cartel is: the market demand curve. horizontal. identical to the demand curve in the dominant firm model. Correct! identical to the monopolist's demand curve.
identical to the monopolist's demand curve.
Under an upward sloping supply curve for land, the economic rents to land ________ as the demand for land shifts rightward. decrease Correct! increase remain the same We do not have enough information to answer this question.
increase
The marginal revenue product can be expressed as the: additional revenue received from selling one more unit of product. Correct! increment to revenue received from one additional unit of input hired. marginal physical product of an input times the average revenue received from the sale of the product. average physical product of the input times the marginal revenue received from the sale of the final product.
increment to revenue received from one additional unit of input hired.
The Acme Company is a perfect competitor in its input markets and its output market. Its average product of labor is 30, the marginal product of labor is 20, the price of labor is $20, and the price of the output is $5. For Acme Company, the marginal revenue product of labor: Correct! is $100. is $150. is $400. is $600.
is $100.
A "Credible Threat": is also called a "tit-for-tat" strategy. always sets a low price. minimizes the return of your opponent. Correct! is a strategy selection that is in your best interest.
is a strategy selection that is in your best interest.
In the short run, a perfectly competitive profit maximizing firm that has not shut down: is operating on the downward-sloping portion of its AVC curve. is operating at the minimum of its AVC curve. Correct! is operating on the upward-sloping portion of its AVC curve. is not operating on its AVC curve.
is operating on the upward-sloping portion of its AVC curve.
If a competitive firm's marginal cost curve is U-shaped, then: its short-run supply curve is U-shaped too its short-run supply curve is the downward-sloping portion of the marginal cost curve its short-run supply curve is the upward-sloping portion of the marginal cost curve Correct! its short-run supply curve is the upward-sloping portion of the marginal cost curve that lies above the short-run average variable cost curve its short-run supply curve is the upward-sloping portion of the marginal cost curve that lies above the short-run average total cost curve
its short-run supply curve is the upward-sloping portion of the marginal cost curve that lies above the short-run average variable cost curve
Consider the following scenario: Two soft-drink firms, Fizzle & Sizzle, operate on a river. Fizzle is farther upstream, and gets cleaner water, so its cost of purifying water for use in the soft drinks is lower than Sizzle's by $500,000 yearly. According to the described scenario, Fizzle and Sizzle: would be perfectly competitive if their purification costs were equal; otherwise, not. would be perfectly competitive if it costs Fizzle $500,000 yearly to keep that land. Correct! may or may not be perfect competitors, but their position on the river has nothing to do with it.
may or may not be perfect competitors, but their position on the river has nothing to do with it.
In the ________, one firm sets its output first, and then a second firm, after observing the first firm's output, makes its output decision. Cournot model model of monopolistic competition Bertrand model Correct! none of the above
none of the above
A "sequential game" is: another term for a repeated game. another term for a cooperative game. the term for a game in which individuals receive their payoffs at different times. Correct Answer the term for a game in which individuals do not commit to strategy choices at the same time.
the term for a game in which individuals do not commit to strategy choices at the same time.
In monopolistic competition, each firm supplies a small part of the market. This occurs because there are barriers to entry. firms produce differentiated products. there are no barriers to entry. Correct! there are a large number of firms.
there are a large number of firms.
In the short run, a perfectly competitive firm earning negative economic profit is: Correct! on the downward-sloping portion of its ATC curve. at the minimum of its ATC curve. on the upward-sloping portion of its ATC curve.
on the downward-sloping portion of its ATC curve
If the firms in an industry could take advantage of a reduced wage, how would one best describe the firms' demand for labor? The MRPL: Correct! schedule would remain unchanged, and the firms would hire more labor at the lower wage. schedule would shift to the left and the firms would move down the new schedule. schedule would shift to the right and the firms would move down the new schedule.
schedule would remain unchanged, and the firms would hire more labor at the lower wage.
A "mixed strategy" equilibrium means that: the strategies chosen by the players represent different behaviors. one player has a dominant strategy, and one does not. one player has a pure strategy, and one does not. Correct! the equilibrium strategy is an assignment of probabilities to pure strategies.
the equilibrium strategy is an assignment of probabilities to pure strategies.
If a graph of a perfectly competitive firm shows that the point occurs where MR is above AVC but below ATC, the firm is earning negative profit, and will shut down rather than produce that level of output.B) the firm is earning negative profit, but will continue to produce where in the short run. Correct! the firm is earning negative profit, but will continue to produce where in the short run. the firm is still earning positive profit, as long as variable costs are covered. the firm is covering explicit, but not implicit, costs.
the firm is earning negative profit, but will continue to produce where in the short run.
If an individual's labor supply curve is backward bending, then: Correct! the income effect associated with a higher wage is greater than the substitution effect. the substitution effect associated with a higher wage is greater than the income effect. the substitution effect associated with a higher wage encourages more leisure. A and C
the income effect associated with a higher wage is greater than the substitution effect.
In the Bertrand model with homogeneous products, the firm that sets the lower price will capture all of the market. the Nash equilibrium is the competitive outcome. both firms set price equal to marginal cost. Correct! all of the above
all of the above
For a monopsony buyer of an input, the marginal expenditure curve: Correct! lies above the average expenditure curve. lies below the average expenditure curve. is identical to the average expenditure curve. lies below the input demand curve.
lies above the average expenditure curve.
For which of the following market structures is it assumed that there are barriers to entry? Perfect competition Monopolistic competition Correct! Monopoly
Monopoly
The market for an industrial chemical has a single dominant firm and a competitive fringe comprised of many firms that behave as price takers. The dominant firm has recently begun behaving as a price leader, setting price while the competitive fringe follows. The market demand curve and competitive fringe supply curve are given below. Marginal cost for the dominant firm is $0.75 per gallon. QM = 140,000 - 32,000P QF = 60,000 + 8,000P, where QM = market quantity demanded, and QF = supply of competitive fringe. Quantities are measured in gallons per week, and price is measured as a price per gallon. The price that would prevail in the market under the conditions described above is 1.572 per gallon 1.754 per gallon 1.271 per gallon Correct! 1.375 per gallon
1.375 per gallon
Under what circumstances will the economic rent earned by a factor of production always be zero? Infinitely inelastic supply curve Correct! Infinitely elastic supply curve Somewhat inelastic supply curve Elastic demand curve
Infinitely elastic supply curve
Which of the following is true in the Stackelberg model? The first firm produces less than its rival. Correct Answer The first firm produces more than its rival. Both firms produce the same quantity. Both firms have a reaction curve.
The first firm produces more than its rival.
Andre Agassi, a star tennis player, is playing the number one player in the world, Roger Federer. Before the match, Agassi decided that he would serve 20 percent of his serves to Federer's backhand, 30 percent of his serves to Federer's forehand, and 50 percent of his serves straight at Federer. In the language of game theory, this is known as: a pure strategy. a dominant strategy. Correct! a mixed strategy. a maximin strategy.
a mixed strategy.
In the spring of 1994, Northwest Airlines took the independent action of reducing fares on its flights. Other competing airlines quickly matched the fare cuts. These actions might be interpreted as: Correct! a noncooperative game. a cooperative game. a constant sum game. a competitive game.
a noncooperative game.
Once the state environmental protection agency devises its new policy to protect the environment, firms decide whether to remain in the state or move their operations to a neighboring state. In the language of game theory, this is an example of: a cooperative game. Correct! a sequential game. a threat. the Prisoners' Dilemma.
a sequential game.
A dominant strategy can best be described as: a strategy taken by a dominant firm. the strategy taken by a firm in order to dominate its rivals. Correct! a strategy that is optimal for a player no matter what an opponent does. a strategy that leaves every player in a game better off.
a strategy that is optimal for a player no matter what an opponent does.
A price taker is A) a firm that accepts different prices from different customers. B) a consumer who accepts different prices from different firms. C) a perfectly competitive firm. D) a firm that cannot influence the market price. both C and D
both C and D
Suppose the labor market and all output markets are perfectly competitive. When the labor market is in equilibrium, the wage rate will: be less than the marginal revenue product of labor. Correct! equal the marginal revenue product of labor. be greater than the marginal revenue product of labor. None of the above is necessarily correct.
equal the marginal revenue product of labor.
A firm should hire more labor when the marginal revenue product of labor: equals the wage rate. Correct! exceeds the wage rate. is less than the wage rate. Any of these can be true.
exceeds the wage rate.
A firm maximizes profit by operating at the level of output where average revenue equals average cost. average revenue equals average variable cost. total costs are minimized. marginal revenue equals marginal cost. marginal revenue exceeds marginal cost by the greatest amount.
marginal revenue equals marginal cost.
A maximin strategy: Correct! maximizes the minimum gain that can be earned. maximizes the gain of one player, but minimizes the gain of the opponent. minimizes the maximum gain that can be earned. involves a random choice between two strategies, one which maximizes potential gain and one which minimizes potential loss.
maximizes the minimum gain that can be earned.
In the sequential version of a game using the same players, the same strategies, and the same possible outcomes as the original game, the equilibrium: Correct! may be different than in the original game. must be different than in the original game. will be the same as in the original game. is the same as the cooperative version of the original game.
may be different than in the original game.
Relative to the Nash equilibrium in the Cournot model, the Nash equilibrium in the Bertrand model with homogeneous products results in the same output but a higher price. results in the same output but a lower price. Correct! results in a larger output at a lower price. results in a smaller output at a higher price.
results in a larger output at a lower price.
An oligopolistic situation involving the possible creation of barriers to entry would probably best be modeled by a: cooperative game. Prisoners' Dilemma game. repeated game. Correct! sequential game.
sequential game.
A market structure in which there is one large firm that has a major share of the market and many smaller firms supplying the remainder of the market is called: the Stackelberg Model. the kinked demand curve model. Correct! the dominant firm model. the Cournot model.
the dominant firm model.
In the Stackelberg model, there is an advantage: to waiting until your competitor has committed herself to a particular output level before deciding on your output level. Correct! to being the first competitor to commit to an output level. to the firm with a dominant strategy. to producing an output level which is identical to a monopolist's output level.
to being the first competitor to commit to an output level. to the firm with a dominant strategy.
A monopolistically competitive firm in long-run equilibrium: will make negative profit. Correct! will make zero profit. will make positive profit. Any of the above are possible.
will make zero profit
In general, does the demand for labor become more or less elastic as we increase the number of other variable inputs used in a production process? Correct! More elastic No change in elasticity Less elastic We cannot answer this question without more information about the other inputs.
More elastic
If the market for labor is perfectly competitive, the profit maximizing level of labor occurs where (W wage and P output price): MRPL< W MRPL= P MRPLjust exceeds W. Correct! MRPL= W.
MRPL= W.
Electric power utility companies use various fuel sources (e.g., coal, natural gas, nuclear) to generate electricity for their customers. What happens to the demand for natural gas used to generate electricity as we move from a short-run planning horizon to a long-run planning horizon? Why? Demand becomes more inelastic over time because the other fuel sources become more scarce, so there are fewer options available for electric power utilities in the long run. Demand becomes more inelastic over time because all of the power generation plants tend to choose the same technology, which makes the industry less responsive to prices in the long run. Demand becomes more elastic over time because the electric plant's technology becomes obsolete, and the power company has less flexibility to adjust to changes. Correct! Demand becomes more elastic over time because the power companies have more options available and can adopt new generating technologies or substitutes for natural gas over the long run.
Demand becomes more elastic over time because the power companies have more options available and can adopt new generating technologies or substitutes for natural gas over the long run.
Which statement most nearly describes a Nash equilibrium applied to price competition? Two firms cooperate and set the price that maximizes joint profits. Each firm automatically moves to the purely competitive equilibrium because it knows the other firm will eventually move to that price anyway. Correct! Given the prices chosen by its competitors, no firm has an incentive to change their prices from the equilibrium level. One dominant firm sets the price, and the other firms take that price as if it were given by the market.
Given the prices chosen by its competitors, no firm has an incentive to change their prices from the equilibrium level.
Homer's Boat Manufacturing cost function is (75/128)*Q4+10,240. If Homer can sell all the boats he produces for $1,200, then Correct! Homer will produce and make a loss of $3,040. Homer will not produce because it has a loss of $10,240. Homer will not produce because it has a loss of $3,040. There is no enough information to examine whether Homer stays or leaves the market
Homer will produce and make a loss of $3,040
Use the following two statements about monopolistic competition to answer this question. I. In the long run, the price of the good will equal the minimum of the average cost. II. In the short run, firms may earn a profit. I and II are true. I is true, and II is false. Correct! I is false, and II is true I and II are false.
I is false, and II is true
Use the following statements to answer this question: I. Under the dominant firm model, the dominant firm effectively acts like a monopolist who is facing the excess market demand that cannot be supplied by the fringe firms. II. Under the dominant firm model, the fringe firms also act like profit maximizing monopolists. I and II are true Correct Answer I is true and II is false I is false and II is true I and II are false
I is true and II is false
Which of the following is true of the output level produced by a firm in long-run equilibrium in a monopolistically competitive industry? It produces at minimum average cost. It does not produce at minimum average cost, and average cost is increasing. Correct! It does not produce at minimum average cost, and average cost is decreasing. Either B or C could be true.
It does not produce at minimum average cost, and average cost is decreasing.
What happens to the marginal revenue product curve of a factor as more of a complementary factor is hired? It shifts to the left, because its marginal product decreases. It shifts to the left, because its marginal product increases. It shifts to the right, because its marginal product decreases. Correct! It shifts to the right, because its marginal product increases.
It shifts to the right, because its marginal product increases.
The marginal revenue product of labor is equal to: MPL/ P Correct! MPL∗MR MPL/ MR MR / MPL
MPL∗MR
