ECO202 MICROECON MODULE 4 QUIZ

Refer to the payoff matrix. Suppose that Speedy Bike and Power Bike are the only two bicycle manufacturing firms serving the market. Both can choose large or small advertising budgets. If this is a one-time, simultaneous game, which cell represents the final outcome we would expect to occur? A) A. B) B. C) C. D) D.

A) A. Where both firms use large budget

Excess capacity refers to the: A) amount by which actual production falls short of the minimum ATC output. B) fact that entry barriers artificially reduce the number of firms in an industry. C) differential between price and marginal costs that characterizes monopolistically competitive firms. D) fact that most monopolistically competitive firms encounter diseconomies of scale.

A) amount by which actual production falls short of the minimum ATC output.

The Herfindahl index for a pure monopolist is: A) 100. B) 10,000. C) 100,000. D) 10.

B) 10,000.

Refer to the diagram for a monopolistically competitive firm in short-run equilibrium. The profit-maximizing output for this firm will be: A) 100. B) 160. C) 180. D) 210.

B) 160 : where MR =MC

If the four-firm concentration ratio in an oligopolistic industry is 100 percent and each firm has an equal percentage of sales, the Herfindahl index is: A) 10,000. B) 2,500. C) 3,750. D) 1,000.

B) 2,500.

Which of the following is not a basic characteristic of monopolistic competition? A) The use of trademarks and brand names. B) Recognized mutual interdependence. C) Product differentiation. D) A relatively large number of sellers.

B) Recognized mutual interdependence.

A breakdown in price leadership leading to successive rounds of price cuts is known as: A) limit pricing. B) a price war. C) informal pricing. D) price discrimination.

B) a price war.

Cartels are difficult to maintain in the long run because: A) they are illegal in all industrialized countries. B) individual members may find it profitable to cheat on agreements. C) it is more profitable for the industry to charge a lower price and produce more output. D) entry barriers are insignificant in oligopolistic industries.

B) individual members may find it profitable to cheat on agreements.

The MRP curve for labor: A) intersects the firm's labor demand curve from above. B) is the firm's labor demand curve. C) lies below the firm's labor demand curve. D) lies above the firm's labor demand curve.

B) is the firm's labor demand curve.

The demand for a resource depends primarily on: A) the supply of that resource. B) the demand for the product or service that it helps produce. C) the price of that input. D) the elasticity of supply of substitute inputs.

B) the demand for the product or service that it helps produce.

Marginal resource cost is: A) the increase in total resource cost associated with the production of one more unit of output. B) the increase in total resource cost associated with the hire of one more unit of the resource. C) total resource cost divided by the number of inputs employed. D) the change in total revenue associated with the employment of one more unit of the resource.

B) the increase in total resource cost associated with the hire of one more unit of the resource.

Assume labor is the only variable input and that an additional input of labor increases total output from 72 to 78 units. If the product sells for $6 per unit in a purely competitive market, the MRP of this additional worker is: A) $6. B) $12. C) $36. D) $72.

C) $36.

Answer the question on the basis of the following information. A farmer who has fixed amounts of land and capital finds that total product is 24 for the first worker hired; 32 when two workers are hired; 37 when three are hired; and 40 when four are hired. The farmer's product sells for $3 per unit and the wage rate is $13 per worker. Refer to the given information. What is the farmer's profit-maximizing output? A) 20. B) 32. C) 37. D) 40.

C) 37.

A profit-maximizing firm employs resources to the point where: A) MRC = MP. B) resource price equals product price. C) MRP = MRC. D) MP = product price.

C) MRP = MRC.

In the short run, a profit-maximizing monopolistically competitive firm sets it price: A) equal to marginal revenue. B) equal to marginal cost. C) above marginal cost. D) below marginal cost.

C) above marginal cost.

The mutual interdependence that characterizes oligopoly arises because: A) the products of various firms are homogeneous. B) the products of various firms are differentiated. C) each firm in an oligopoly depends on its own pricing strategy and that of its rivals. D) the demand curves of firms are kinked at the prevailing price.

C) each firm in an oligopoly depends on its own pricing strategy and that of its rivals.

The general rule for hiring any input (say, labor) in the profit-maximizing amount is MRC = MRP. This rule takes the special form W = MRP (where W is the wage rate) when the: A) labor supply curve is upsloping. B) supply of labor is inelastic. C) firm is hiring labor under purely competitive conditions. D) firm is hiring labor under imperfectly competitive conditions.

C) firm is hiring labor under purely competitive conditions.

The monopolistic competition model assumes that: A) allocative efficiency will be achieved. B) productive efficiency will be achieved. C) firms will engage in nonprice competition. D) firms will realize economic profits in the long run.

C) firms will engage in nonprice competition.

A significant difference between a monopolistically competitive firm and a purely competitive firm is that the: A) former does not seek to maximize profits. B) latter recognizes that price must be reduced to sell more output. C) former sells similar, although not identical, products. D) former's demand curve is perfectly inelastic.

C) former sells similar, although not identical, products.

Monopolistic competition is characterized by a: A) few dominant firms and low entry barriers. B) large number of firms and substantial entry barriers. C) large number of firms and low entry barriers. D) few dominant firms and substantial entry barriers.

C) large number of firms and low entry barriers.

In an oligopolistic market: A) one firm is always dominant. B) products may be standardized or differentiated. C) the four largest firms account for 20 percent or less of total sales. D) the industry is monopolistically competitive.

C) the four largest firms account for 20 percent or less of total sales.

If the number of firms in a monopolistically competitive industry increases and the degree of product differentiation diminishes: A) the likelihood of realizing economic profits in the long run would be enhanced. B) individual firms would now be operating at outputs where their average total costs would be higher. C) the industry would more closely approximate pure competition. D) the likelihood of collusive pricing would increase.

C) the industry would more closely approximate pure competition.

Refer to the given data. If the firm is hiring workers under purely competitive conditions at a wage rate of $10, it will employ: A) 2 workers. B) 3 workers. C) 4 workers. D) 5 workers.

D) 5 workers. :where it costs the least amount for the most amount of revenue

Collusive agreements between two firms are most likely to be honored when the game: A) is a one-time game with the opportunity for a prisoner's dilemma. B) has a Nash equilibrium that differs from the outcome that maximizes the payoffs to the two firms. C) is a zero-sum game. D) is repeated and both firms offer credible threats if the other violates the agreement.

D) is repeated and both firms offer credible threats if the other violates the agreement.

Resource pricing is important because: A) resource prices are a major determinant of money incomes. B) resource prices allocate scarce resources among alternative uses. C) resource prices, along with resource productivity, are important to firms in minimizing their costs. D) of all of these reasons.

D) of all of these reasons.