Unit 2 Exam Econ CENGAGE
If the marginal cost of producing the tenth unit of output is $2.50, and if the average total cost of producing the tenth unit of output is $3, then at ten units of output, average total cost is rising.
False
When firms form a cartel in an oligopoly market, the total output is always the same as if the market were perfectly competitive.
False
Some business practices that appear to reduce competition, such as resale price maintenance, may have legitimate economic purposes.
True
Assume a firm in a competitive industry is producing 800 units of output, and it sells each unit for $6. Its average total cost is $4. Its profit is
$1,600
A monopoly firm maximizes its profit by producing Q = 500 units of output. At that level of output, its marginal revenue is $30, its average revenue is $60, and its average total cost is $34.
$13,000.
Tommy's Tie Company, a monopolist, has the following cost and revenue information. Assume that Tommy's is able to engage in perfect price discrimination. Refer to Table 15-3. If the monopolist can engage in perfect price discrimination, what is the total revenue when 3 ties are sold?
$450
What is the total revenue from selling 4 units?
$480
Refer to Figure 16-6. In order to maximize its profit, the firm will choose to produce
100 units of output.
Suppose a certain firm is able to produce 165 units of output per day when 15 workers are hired. The firm is able to produce 181 units of output per day when 16 workers are hired, holding other inputs fixed. The marginal product of the 16th worker is
16 units of output.
How much output will the monopolistically competitive firm produce in this situation?
20 units
Average revenue for a monopoly is the total revenue divided by the quantity produced.
True
If a firm produces nothing, it still incurs its fixed costs.
True
The decisions of the US and Soviet Union to build nuclear weapons is much like the prisoners' dilemma.
True
The socially efficient quantity is found where the demand curve intersects the marginal cost curve.
True
When a firm operates with excess capacity, it must be in a monopolistically competitive market.
True
What is the area of deadweight loss?
a. The triangle 1/2[(A − C) × (Y − X)]
In a long-run equilibrium where firms have identical costs, it is possible that some firms in a competitive market are making a positive economic profit.
b. False
Consider the problem facing two firms, YumYum and Bertollini, in the frozen food market. Each firm has just come up with an idea for a new "frozen meal for two" which it would sell for $9. Assume that the marginal cost for each new product is a constant $2, and the only fixed cost is for advertising. Each company knows that if it spends $12 million on advertising it will get 1.5 million consumers to try its new product. YumYum has done market research which suggests that its product does not have any "staying" power in the market. Even though it could get 1.5 million consumers to buy the product once, it is unlikely that they will continue to buy the product in the future. Bertollini's market research suggests that its product is very good, and consumers who try the product will continue to be consumers over the ensuing year. On the basis of its market research, Bertollini estimates that its initial 1.5 million customers will buy one unit of the product each month in the coming year, for a total of 18 million units. On the basis of a theory that people buy a product because it is advertised, the content of advertisements for Bertollini's product
b. is less important than the fact that they are willing to spend money on advertising
When an oligopoly market reaches a Nash equilibrium,
c. a firm will have chosen its best strategy, given the strategies chosen by other firms in the market
If one firm left a duopoly market where the firms did not cooperate then
c. price would rise and quantity would fall.
In response to the situation represented by the figure, we would expect
c. some of the firms that are currently in the market to exit.
Two suspected drug dealers are stopped by the highway patrol for speeding. The officer searches the car and finds a small bag of marijuana and arrests the two. During the interrogation, each is separately offered the following: "If you confess to dealing drugs and testify against your partner, you will be given immunity and released while your partner will get 10 years in prison. If you both confess, you will each get 5 years." If neither confesses, there is no evidence of drug dealing, and the most they could get is one year each for possession of marijuana. If each suspected drug dealer follows a dominant strategy, what should he/she do?
d. Confess regardless of the partner's decision
Which of the following represents the firm's short-run condition for shutting down?
d. Shut down if TR < VC
Refer to Figure 17-1. Suppose this market is served by two firms who each face the marginal cost curve shown in the diagram and have zero fixed cost. The marginal revenue curve that a monopolist would face in this market is also shown. If the firms are able to collude successfully, each firm should earn a profit equal to
not %6
Ziva is an organic lettuce farmer, but she also spends part of her day as a professional organizing consultant. As a consultant, Ziva helps people organize their houses. Due to the popularity of her home-organization services, Farmer Ziva has more clients requesting her services than she has time to help if she maintains her farming business. Farmer Ziva charges $25 an hour for her home-organization services. One spring day, Ziva spends 10 hours in her fields planting $130 worth of seeds on her farm. She expects that the seeds she planted will yield $300 worth of lettuce.
not -80
Two companies, Acme and Pinnacle, each decide whether to produce a good quality product or a poor quality product. In the figure, the dollar amounts are payoffs and they represent annual profits (in millions of dollars) for the two companies. Acme and Pinnacle agree to cooperate so as to maximize total profit. If this game is played repeatedly and Acme uses a tit-for-tat strategy, it will choose a
poor quality product in the first round and in subsequent rounds it will choose whatever Pinnacle chose in the previous round.
For firms operating in a perfectly competitive market, price must always be greater than marginal revenue.
true
In cartels, the reason that the monopoly output is unstable is due to the factors that are present in a prisoner's dilemma.
ture
Monopolistically competitive firms, like monopoly firms, maximize their profits by charging a price that exceeds marginal cost.
ture
In a prisoner's dilemma situation where firms are setting prices, the dominant strategy is always to charge the price that leads to maximum profits for all firms.
False
Refer to Figure 15-3. A profit-maximizing monopoly will produce an output level of
Q3.
When a monopolist increases the quantity that it sells, price decreases, which, all else equal, decreases total revenue; this is called the price effect.
True
As long as as a monopolist is able to control the resale of its product, then it can successfully practice price discrimination.
True
When an industry has many firms, the industry is
a. monopolistically competitive if the firms sell differentiated products, but it is perfectly competitive if the firms sell identical products.
Only two firms, ABC and XYZ, sell a particular product. The following table shows the demand curve for their product. Each firm has the same constant marginal cost of $8 and zero fixed cost. What is the socially efficient quantity of the product?
(not) 35
Assuming the firm is maximizing profit, this firm is operating
(not)a. in the long run and incurring and economic loss.
All firms operating in a perfectly competitive market produce unique goods.
. False
If the market price is $5, the firm will earn
. negative economic profits and shut down.
In the following figure, graph (a) depicts the linear marginal cost (MC) of a firm in a competitive market, and graph (b) depicts the linear market supply curve for a market with a fixed number of identical firms. If there are 300 identical firms in this market, what level of output will be supplied to the market when price is $1.00?
30,000
Cartels are difficult to maintain because
each firm has an incentive to deviate from its agreed output level.
