Econ Exam 3

Damien produces 400 gallons of milk a day in a very competitive industry. The market price for a gallon of milk is $2. Damien's marginal revenue per gallon of milk is: $800. $0. $200. $2.

$2

Who is least likely to buy health insurance when individuals have private information about their health and health insurance is optional? A young adult in good health A person who is 60 years old and in good health A person who has a family history of cancer An obese person

A young adult in good health

The death spiral in health insurance is caused by: asymmetric information. adverse selection. moral hazard. the principal-agent problem.

adverse selection.

A characteristic of oligopoly that is not present in other market structures is that there are a small number of sellers and they have market power. are many sellers that produce identical products. is only one seller and that seller holds a high level of market power. are many sellers and each produces a differentiated version of the product.

are a small number of sellers and they have market power.

In the long run, each firm in an industry will: earn only enough to cover the opportunity costs of all resources used in production. produce where MR is less than MC. offer more than one variation of the same good. set price in coordination with other producers in the market.

earn only enough to cover the opportunity costs of all resources used in production.

According to the principal-agent problem, when the principal hires the agent to complete a task but is unable to watch the agent complete it, the agent has an incentive to overdeliver. underdeliver. do exactly what is requested. do the opposite of what is asked.

underdeliver.

Which of the following is NOT an outcome of a market where sellers have market power? Larger economic profits Higher prices Lower costs An inefficiently small output

Lower costs

Which of the following is an example of a principal-agent problem? Maria slacks off at work when her boss is on vacation. Ingrid is highly risk-averse and tends to over-insure against loss. Jeff, a CEO, puts pressure on his staff to increase productivity. Jordan buys a new car that seems to have more flaws than the average new car.

Maria slacks off at work when her boss is on vacation.

Markus is considering an investment that has a 30% chance of providing a value in utility worth $20,000 and a 70% chance of incurring a loss of utility worth $7,000. What is Markus's expected utility from this investment? $4,900 $10,900 $1,100 $6,000

$1,100

Under the Five Forces framework, how can the market power of customers impact a seller's profitability? Customers with market power can use their leverage to lower the selling price that sellers charge. They can raise the selling price sellers charge. The market power increases the total number of customers, raising market demand. The market power reduces the total number of customers, raising market demand.

Customers with market power can use their leverage to lower the selling price that sellers charge.

In which of the following situations would a company have a lower chance of losing customers when it raises the price of its product? The product is differentiated across companies. Customers have many sellers to choose from. There are low switching costs. Companies advertise their prices.

The product is differentiated across companies.

In which of the following situations would the supplier have the greatest power to hurt a business that is its customer? The supplier rents building space to a bakery in a real estate market with a vacancy rate of less than .5%. The supplier is one of 100 companies selling the input needed by the business. The business could use an alternative input mix that uses significantly less of the supplier's product. The cost for the business to switch to a different supplier is low.

The supplier rents building space to a bakery in a real estate market with a vacancy rate of less than .5%.

Which statement is correct? When MR = P, the average cost curve is at its minimum point. When the marginal cost curve is above the average cost curve, the average cost curve must be rising. When MR = MC, the average cost curve is at its minimum point. When the marginal cost curve is below the average cost curve, the average cost curve must be rising.

When the marginal cost curve is above the average cost curve, the average cost curve must be rising.

Which of the following sellers faces the least competitive pressure? a monopolist with no direct rivals an oligopolist with a few direct rivals one of 800 sellers in a market, each producing a differentiated product one of 800 sellers in a market, each producing identical products

a monopolist with no direct rivals

Most U.S. grocery stores sell a variety of boxed breakfast cereals. This observation indicates that the boxed breakfast cereal market is a monopolistically competitive market. a perfectly competitive market. an oligopoly. a monopoly.

a monopolistically competitive market.

Price takers set their market prices. charge the prevailing prices and do not have any effect on the market price. produce only agricultural items in the market. can control the market prices of the products they sell.

charge the prevailing prices and do not have any effect on the market price.

Suppose that a recent study shows that non‑fatal traffic accidents have risen due to an increase in aggressive driving. This information comes after the implementation of mandatory seat belt laws requiring all drivers and passengers to wear seat belts. This relationship could be an example of adverse selection. moral hazard. the free‑rider problem. tragedy of the commons. a public good.

moral hazard.

Which of the following conditions is present for all sellers in a perfectly competitive market? The number of sellers is small. The product price varies across the sellers. All sellers are selling identical products. All sellers have an equal and high level of market power.

All sellers are selling identical products.

In the long run, the number of sellers and the level of profit in a market are both affected heavily by the _____ in the market. strength of the barriers to entry type of product level of variable costs income tax levels

strength of the barriers to entry

Which is NOT an example of moral hazard? A dentist recommends an unnecessary dental procedure. A cab driver takes a longer route to the destination to collect a higher fare. A car salesman recommends a car that has been wrecked. A hairdresser colors a client's hair poorly.

A hairdresser colors a client's hair poorly.

Which of the following is NOT one of the three steps to take in segmenting customers into groups? Base discounts on characteristics that are hard to change. Give discounts to chosen groups based on identifiable characteristics. Divide the consumers into groups whose demand differs. Charge higher prices to groups with more elastic demand.

Charge higher prices to groups with more elastic demand.

Arturo makes and sells organic frozen yogurt with fresh fruit toppings. He wants to price discriminate according to a preference for organic food so that those with the most inelastic demand for organic food pay the highest price. To accomplish this, to which group should he give discount coupons for his yogurt? People who come to the community's weekly farmer's market Customers of the local fast-food restaurant Members of the local organic food co-op Students at the local art school

Customers of the local fast-food restaurant

When looking at a firm's behavior, you know it is engaging in price discrimination when it charges a different price to different customers that is not reflective of the firm's costs. asks about personal information such as race, gender, and sexual orientation before offering services. does not accept payment with a smartphone. charges customers more than they would prefer to pay.

charges a different price to different customers that is not reflective of the firm's costs.

All of the following are commonly used to create a hurdle for price-sensitive consumers to overcome in order to get a lower price EXCEPT group pricing. coupons. haggling. bundling.

group pricing.

If the price of health insurance is set so that health insurance companies can cover the expected costs of selling the policies: unhealthy people will find health insurance policies worth more. doctors will prescribe more health services than their insured patients need. healthy people may find the cost of the policies too high and not purchase them. insurance companies will be able to lower the price of the policies.

healthy people may find the cost of the policies too high and not purchase them.

The competitive forces in a market largely determine the _____ of the companies in the market. short-term vision demand product long-term profitability

long-term profitability

Erika is the owner of a cherry orchard. The price of cherries is high enough that Erika is earning positive economic profits. In the long run, Erika should expect _____ cherry prices due to the _____ firms. lower; entry of new higher; exit of existing lower; exit of existing higher; entry of new

lower; entry of new

When government regulations are influenced by lobbyists for the producers in a market, the regulations often: are biased in favor of consumer safety. reduce costs of production, increasing competitive pressures. make it more difficult for new producers to enter the market. raise market demand.

make it more difficult for new producers to enter the market.

Consider a used car market in which half the cars are good and half are bad (lemons). A rational buyer in this market should offer to pay a price equal to the most she would pay for a good car. offer to pay a price equal to the most she would pay for a lemon. save up and buy a new car. offer to pay a price somewhere between the price she would pay for a good car and the price she would pay for a lemon.

offer to pay a price somewhere between the price she would pay for a good car and the price she would pay for a lemon.

A company's profit margin per unit sold equals: total revenue minus total cost. total cost minus total revenue. price minus average cost. average cost minus price.

price minus average cost.

Private, or asymmetric, information: is an important explanation of the variation, or asymmetric performance, of individuals on standardized tests. refers to personal information—for instance, regarding gender or ethnicity—that a person is not obligated to reveal on a job application. is information known only to a subset of parties involved in a transaction and that limits the potential for mutually beneficial transactions. is information protected by patents or copyrights.

is information known only to a subset of parties involved in a transaction and that limits the potential for mutually beneficial transactions.

Robert got a new job and relocated to a different city. He initially decided to stay in a small apartment close to his office.​ However, he decided to stay in a much bigger and costlier apartment when he found out that his employer would pay him a house rent allowance. This is an example of​ ________. the free-rider problem moral hazard none of these adverse selection

moral hazard

The threat of potential substitutes is high when the substitutes: have higher production costs than the original product. cause customers to incur high switching costs. offer greater value for their price than the original product. face high barriers to enter the market.

offer greater value for their price than the original product.

Which of the following would be a long-run decision for McDonald's? open a new restaurant in a city replace the manager of a restaurant hire one more worker in a restaurant location supply more hamburgers in one restaurant

open a new restaurant in a city

When a principal-agent problem occurs, the agent engages in actions that are impulsive rather than planned and that end up working against the agent's best interest. are based on risk aversion rather than the principal's best interest. result in lemons that harm the agent rather than the principal. the principal can't observe, and they are not in the principal's best interest.

the principal can't observe, and they are not in the principal's best interest.

Complete the sentences to illustrate how economists and accountants view profit differently. Economic profit is typically higher than accounting profit. typically lower than accounting profit. always zero. Economic costs and accounting costs differ because accountants include neither explicit nor implicit costs. only implicit costs. both explicit and implicit costs. only explicit costs.

typically lower than accounting profit. only explicit costs.

Which of the following is correct about the discount effect facing companies in perfectly and imperfectly competitive markets? Companies in perfect competition _____ it. Companies in imperfect competition _____ it. face; do not face face; face do not face; face do not face; do not face

do not face; face

To maximize profit, firms should keep producing as long as marginal revenue is: greater than total cost. equal to marginal cost. less than marginal cost. greater than marginal cost.

greater than marginal cost.

When setting prices for different groups of customers, a manager should charge lower prices to groups that have a more elastic demand. value the product more. have a more inelastic demand. have a higher demand.

have a more elastic demand.

Customers would be less loyal and more price sensitive in which of the following situations? There is only one seller in the market. The market's companies sell differentiated products. Customers are aware of the prices of all sellers. The switching costs are low.

The switching costs are low.

If a monopolist engages in perfect price discrimination: it produces the efficient quantity of output. there is no producer surplus. the producer surplus is equal to the monopoly profit. the government will impose an average cost pricing rule on the monopoly.

it produces the efficient quantity of output.

Peter's Pencils is a perfectly competitive company producing pencils. Suppose Peter is producing 1,000 pencils an hour. If the total cost of 1,000 pencils is $500, the market price per pencil is $2, and the marginal cost is $2, then Peter should decrease his output to increase his profit. is maximizing his profit and is making an economic profit. should increase his output to increase his profit. is not maximizing his profit but is making zero economic profit anyway. makes an economic profit because marginal revenue is equal to marginal cost at this output level.

is maximizing his profit and is making an economic profit.

Indicate whether each of the statements below about a perfectly competitive market is true or false. a. In general, the market demand curve in a perfectly competitive market is perfectly elastic. TrueFalse b. In general, an individual firm in a perfectly competitive market faces a perfectly elastic demand curve. TrueFalse c. An individual firm in a perfectly competitive market can obtain a higher price for its product by reducing output. FalseTrue d. An individual firm in a perfectly competitive market must lower its price to sell more of its product. TrueFalse f. In a perfectly competitive market, average revenue is equal to the market price. FalseTrue e. In a perfectly competitive market, marginal revenue is equal to the market price. FalseTrue

F,T,F,F,T,T

All of the following government policies would create a barrier to entry in a market EXCEPT: the granting of a patent to the developer of the product. a requirement that only companies with a license to produce the specific product can sell it. a requirement that there can be no switching costs for consumers. a requirement that all versions of the product for sale are subject to extensive safety testing.

a requirement that there can be no switching costs for consumers.

Fill in the blanks. If market price exceeds _________cost, profit will be _________ marginal variable fixed average positive negative zero

average positive

When a product is characterized by network effects, then the product _____ when more customers use the product. becomes more valuable to each customer is compatible with more and more other products drops in price is sold to other companies or organizations that have a group of customers

becomes more valuable to each customer

Suppose that the market for cab rides is initially in long-run equilibrium. Subsequently, an increase in population increases the demand for cab rides. In the long run, cab drivers will _____ the market, driving the price of cab rides _____ and the profits of individual drivers _____. enter; up; back to zero enter; down; back to zero leave; up; up leave; up; back to zero

enter; down; back to zero

When a company owner practices price discrimination, the marginal revenue of an extra unit sold is less than marginal cost. is greater than its price. equals its price. is less than its price.

equals its price.

Average fixed costs will fall then rise as output rises. rise as output rises. fall as output rises. rise then fall as output rises.

fall as output rises.

Pak is one of many sellers of green beans in local farmer's markets where consumers are willing to pay more for organically grown green beans than regular green beans. However, the buyers have no way to verify whether any of the green beans for sale are grown organically. As a result of this most of the green beans sold will be organic because sellers want to cater to customers. green beans end up selling at low prices because buyers are skeptical. the market price tends to be high because all sellers claim to sell organic green beans. green beans are not sold because there is no trust in the market.

green beans end up selling at low prices because buyers are skeptical.

Companies with market power face a trade-off between having a higher profit margin and selling a larger quantity. having a higher marginal cost and a reduction in output. reducing costs and increasing profit. gaining market share and reducing costs.

having a higher profit margin and selling a larger quantity.

The main difference between the short run and the long run is that in the short run, at least one of the firm's inputs is fixed. in the short run all inputs are fixed, while in the long run all inputs are variable. in the long run, the firm is making a constrained decision about how to use existing plant and equipment efficiently. in the short run the firm varies all of its inputs to find the least-cost combination of inputs.

in the short run, at least one of the firm's inputs is fixed.

The principal-agent problem is the problem of: one party to an exchange having more information than the other party. incentivizing an employee to work in the interest of the owner. an agent trying to exploit an information advantage in a dishonest way. an offer conveying negative information about the product being offered.

incentivizing an employee to work in the interest of the owner.

A perfectly competitive industry is characterized by a single firm with control over the market price producing a product with no close substitutes. a single firm with limited control over the market price producing a product with many close substitutes. many firms with control over the market price producing differentiated products. many firms with no control over the market price producing identical products.

many firms with no control over the market price producing identical products.

The change in total variable cost which accompanies one extra unit of output is marginal cost. the average total cost. the average fixed cost. the average variable cost.

marginal cost.

Some health insurance providers pay a single, set amount for the diagnosis and treatment of a specific illness. This payment scheme is meant to reduce: the likelihood that doctors will prescribe too few tests to diagnose the patient. moral hazard. poor incentives. asymmetric information.

moral hazard.

When firms in a market with free entry and exit have economic profits, then: new companies will enter the market, raising average company profits. new companies will enter the market, reducing average company profits. some companies will exit the market, raising average company profits. some companies will exit the market, reducing average company profits.

new companies will enter the market, reducing average company profits.

Moral hazard: occurs when incentives are distorted because an individual knows more about his or her own actions than other people do. is a term used to describe the additional remuneration received for hazardous jobs. is a term used synonymously with normative economics. occurs when the seller knows more about the product than the buyer.

occurs when incentives are distorted because an individual knows more about his or her own actions than other people do.

A 2009 article in the Economist explained a barrier to entry that existed 40 years ago for foreign banks wanting to operate in Britain. Foreign banks could not operate in Britain unless they had an office that was within walking distance of the Bank of England, which served as the industry's regulator at the time. This requirement served as a barrier to entry into the banking industry in Britain because existing banks threatened to crush any competitors that entered the market. customers faced high switching costs to transfer their bank accounts to foreign banks. there was a surplus of office space in this area of London. office space within walking distance to the Bank of England was limited.

office space within walking distance to the Bank of England was limited.

When a health insurance company sells an insurance policy, adverse selection suggests that: people who purchase the policies will demand more expensive procedures. doctors will prescribe more health services than their insured patients need. people will purchase the insurance and then use more health care than they need. only unhealthy people will purchase a policy.

only unhealthy people will purchase a policy.

Which of the scenarios is the best example of a firm practicing perfect price discrimination? An airline that charges higher fares to customers who purchase their tickets within one week of the flight. A psychic who is able to divine exactly what her information is worth to each customer. A Cancun hotel that increases the price of a room during spring break. A restaurant that offers an "early bird special" to any customer that eats dinner before 5 p.m.

A psychic who is able to divine exactly what her information is worth to each customer.

Which is NOT an example of moral hazard? A car repair shop recommends new tires to replace old ones that are still good. A car salesman recommends an overpriced warranty. A physician recommends an unnecessary diagnostic test. A restaurant serves an undercooked meal.

A restaurant serves an undercooked meal.

Which statement describes a monopoly? Many firms produce identical products with no control over the market price. Many firms produce differentiated products with control over market price. A single firm produces a product with no close substitutes and control over the market price. A single firm produces a product with many close substitutes and limited control over the market price.

A single firm produces a product with no close substitutes and control over the market price.

What worsens adverse selection in a dental insurance market where buyers have private information? Selling only to risk-averse buyers. Requiring that each buyer's premium be based on that specific buyer's costs. Grouping buyers by a risk factor and charging a premium based on risk. Allowing buyers to opt-in and opt-out of the market at any time they desire.

Allowing buyers to opt-in and opt-out of the market at any time they desire.

Mario's Bed & Breakfast is willing to offer discounts to customers, but it does not advertise discounts. Discounts are given only to customers who ask if any discounts are available or who seem very indecisive when inquiring rates. As a result of this practice, some customers pay full price, and others pay lower prices. Mario is practicing _____ through _____. price discrimination; the hurdle method segmentation; group pricing hurdle method; segmentation price discrimination; quantity discounts

price discrimination; the hurdle method

When firms in a market with free entry and exit experience economic losses, then: new sellers will enter the market, raising average seller losses. some sellers will exit the market, reducing average seller losses. some sellers will exit the market, raising average seller losses. new sellers will enter the market, reducing average seller losses.

some sellers will exit the market, reducing average seller losses.

When the hurdle method is used to price discriminate, buyers are put into a price group based on an observable, personal characteristic. are unaware that they are paying a different price than some of the other buyers. sort themselves into reservation price groups based on their willingness to overcome the hurdle. face insurmountable obstacles to accessing the product.

sort themselves into reservation price groups based on their willingness to overcome the hurdle.

Bree's Bait Shop is a successful store that specializes in highly effective fishing tackle. Bree has employed a high‑tech computer tracking system that allows her to separate her customers into two different groups of consumers with differing price elasticities of demand. Bree is interested in increasing her profits through price discrimination and approaches your marketing firm for advice. Assuming her demand curve is downward sloping, you tell her there is one more crucial piece of information you must have in order to advise her. What do you ask Bree?What are your fixed costs? What is your current output? Are your profits greater than your costs? Are you able to prevent selling between customers?

Are you able to prevent selling between customers?

The adverse selection of sellers is the skew in markets when sellers cannot observe quality that leads to lower prices. skew in markets toward buyers who pay less when sellers cannot tell a buyer's willingness to pay. tendency for the mix of goods to be skewed toward more low-quality goods when buyers can't observe quality. tendency for buyers to choose to buy from sellers who are not trustworthy even when product quality is high.

tendency for the mix of goods to be skewed toward more low-quality goods when buyers can't observe quality.

The marginal cost curve intersects the minimum of the average fixed cost, average variable cost and the average total cost curves. the average total cost curve at its maximum. the minimum of the average variable cost and average total cost curves. the average fixed cost curve at its minimum.

the minimum of the average variable cost and average total cost curves.

Price equals marginal revenue for a competitive firm because: marginal cost is constant. the price does not change when the firm changes output. total revenue is constant. the production of marginal units affects the value of other units.

the price does not change when the firm changes output.

Heri owns one of three shoe repair shops in his city. Then he loses some of his customers when a luggage repair shop expands its services to include shoe repair as well as luggage repair. Which of the five forces in the Five Force framework is Heri facing when the luggage shop expands its services? threat of entry threat of potential substitutes bargaining power of buyers threat of existing competitors

threat of entry

Victor owns a shoe store that is losing money, and several other shoe stores in his market are also losing money. Which of the following guidelines will help him decide whether to remain in business or exit the market? Remain in the market only if average costs are greater than average revenue. Exit the market if price is less than average revenue. Exit the market if price is expected to be less than average costs. Remain in the market only if average costs exceed marginal revenue.

Exit the market if price is expected to be less than average costs.

Sergio sells identical shirts under two brand names — Rags and Bees. The shirts with the Rags label sell for $70, and the shirts with the Bees label sell for $40. The Rags shirts hang wrinkle-free on a hanger, and the Bees shirts are folded and have some wrinkles. This is an example of price discrimination through segmenting into groups based on customer income. using an imperfect product to create a hurdle. assuming that customers are unaware of quality. using shopping around to create a hurdle.

using an imperfect product to create a hurdle.

A firm's ___________________ are costs that increase as quantity produced increases. These costs often show _______________________ by increasing at an increasing rate. fixed costs; opportunity costs variable costs; diminishing marginal returns variable costs; constant returns to scale fixed costs; technological changes A firm's ___________________ are costs that are incurred even if there is no output. In the short run, these costs ___________________ as production increases. variable costs; increase variable costs; do not change fixed costs; do not change fixed costs; increase

variable costs; diminishing marginal returns fixed costs; do not change

Which is an example of moral hazard? A hairdresser colors a client's hair poorly. A driver drives faster than the speed limit. A car dealership offers a warranty. A car salesman recommends a car that has been wrecked and repaired.

A car salesman recommends a car that has been wrecked and repaired.

Which pricing approach for a restaurant would have the greatest risk of adverse selection due to buyers having private information? Offering small- and large-plate versions of each entrée with different prices. Pricing each menu item based on its cost of production. Charging a price per ounce and weighing each plate. Offering a set price all-you-can-eat buffet.

Offering a set price all-you-can-eat buffet.

A fruit retailer buys 50 pounds of apples from the wholesale market every day. The retailer has observed that​ 20% of the apples bought each time are not of good quality. Since it is not possible for the retailer to check each apple before​ buying, how much should he pay for each pound if he values good apples at​ $1.40 per pound and has a value of zero for​ bad-quality apples? $1.20 $0.70 $0.80 $1.12

$1.12

Your company sells 19 units at a price of $10 and must change price to $9.90 in order to sell 20 units. What is the marginal revenue of the twentieth unit? $8.00 $198.00 -$.10 $9.90

$8.00

You are a government policymaker with the responsibility to propose a policy that will reduce adverse selection in the health insurance market. Which of the following policies would achieve that goal? The government will subsidize the cost of health insurance. The government will ensure that people can opt-in and opt-out of health insurance at any time. The government will protect the people's right to keep their personal information private. The government will fund a public information campaign to reduce risk aversion.

The government will subsidize the cost of health insurance.

When setting prices for different groups of customers, a manager should charge higher prices for groups that have lower marginal benefit. have a lower demand. have a more elastic demand. value the product more.

value the product more.

Which of the following worsens adverse selection due to buyers having private information? Sellers have very limited ability to change price. Buyers have constraints on their ability to buy or not buy whenever they want to. Buyers have the choice to buy or not buy whenever they want to. Sellers have flexibility to lower price but not to raise price.

Buyers have the choice to buy or not buy whenever they want to.

Suppose there are only two types of people, healthy people who never get sick and unhealthy people who have very high health care costs. Suppose that each person can work for one of only two firms. The firm of Aperture Science pays all health insurance costs and their insurance covers all possible health issues. The company Wayne Enterprises pays a small part of the health insurance costs and requires high copayments, but they also pay higher wages to compensate healthy people for their health costs but not unhealthy people. Also, assume that the two firms produce the exact same product and the types of work employees perform at the firms are identical. Which type of workers will likely work for Aperture Science? healthy workers only unhealthy workers only both types Which type of workers will likely work for Wayne Enterprises? healthy workers only both types unhealthy workers only We see the sorting this way because of moral hazard. adverse selection.

unhealthy workers only healthy workers only adverse selection

What is a natural monopoly? A monopoly that faces a high fixed cost and low marginal costs so that the average total cost curve slopes downward. A monopoly resulting from one firm's exclusive ownership of a natural resource required to produce a good. A monopoly that results from government issuing patents. A market in which there is only one firm. Which of the firms is most likely to be a natural monopoly? A firm that owns nearly all of the diamond mines in the world. Municipal Power Light, the local supplier of electricity. A restaurant that is unable to practice price discrimination and must charge all consumers the same price. A pharmaceutical company that has the exclusive right to sell a patented drug.

A monopoly that faces a high fixed cost and low marginal costs so that the average total cost curve slopes downward. Municipal Power Light, the local supplier of electricity.

Harvey and Lan just purchased a piece of land and a tractor. They plan to start growing and selling organic swiss chard. They have heard that the market for organic swiss chard is perfectly competitive. What does that mean in terms of long‑run profit? Firms will earn negative economic profit in the long run. Firms will earn positive economic profit in the long run. Firms will earn zero accounting profit in the long run. Firms will earn zero economic profit in the long run. Harvey and Lan want to know the quantity they should produce to maximize profit. As their economic advisor, you recommend that theyproduce until marginal revenue is equal to price.produce as much as possible, regardless of cost. produce until price falls below average variable cost. produce until marginal cost is equal to marginal revenue.

Firms will earn zero economic profit in the long run. produce until marginal cost is equal to marginal revenue.

A company produces a particular cell phone that requires accessories (such as chargers, cases, and ear plugs) that are specific to that phone and cannot be used with phones manufactured by other companies. The company that produces this cell phone is using what strategy to create a barrier to entry? Controlling the markets for key inputs needed by all firms in the product market. Creating cost advantages. Intimidating rivals. Increasing switching costs to ensure demand for its product.

Increasing switching costs to ensure demand for its product.

A certain city has four hospitals, and there are no other hospitals within 200 miles. Two of the hospitals are more specialized than the other two because one has a large cardiac unit and the other has a specialized cancer-treatment center. The local market for hospital services is what type of market? Perfect competition Monopolistic competition Monopoly Oligopoly

Oligopoly

In which of the following cases would a company's profits be threatened? Barriers to entry into its industry rise. The threat of potential substitutes for its product diminishes. One of its key input providers gains market power in the input market. Its customers face higher switching costs.

One of its key input providers gains market power in the input market.

Following the Rational Rule for Sellers, how does output for a seller who has market power compare to output for a seller who does not have market power? Output is higher without market power than with market power. Output is higher with market power than without market power. The level of market power has no impact on output. Output is the same in both situations.

Output is higher without market power than with market power.

Which of the following is NOT a strategy used by a company to "lock-in" customers to ensure demand for its product? Pressuring the government to require a license for entry into the market Building goodwill and loyalty among customers. Generating positive network effects. Increasing switching costs.

Pressuring the government to require a license for entry into the market

Suppose that the price of corn, a crop produced in a perfectly (or purely) competitive industry, increased 208% last year as demand for corn‑based ethanol fuel increased. What do you expect to happen in the long run for the corn industry given this recent success? The price per bushel of corn will continue to increase, yielding higher profits. Thus, more firms will enter the market indefinitely. Profits will become negative due to overfarming, which will result in the corn farming industry going under. Profits will be equal to zero. None of the above. Suppose the firms in the market for bacon, also a perfectly (or purely) competitive industry, experienced losses last quarter due to people becoming increasingly concerned about how high-fat diets negatively impact health. What do you expect to happen in the long run for the bacon industry? Seeing this as an opportunity to monopolize a fledging industry, firms will enter the industry, shifting supply to the right. Profits will remain negative, which will result in the closing down of the industry as a whole. Profits will be equal to zero. None of the above.

Profits will be equal to zero. Profits will be equal to zero.

Hassan is a student who received a coupon to buy pizza from Pizza House at $4 off the regular price. Students at Hassan's school seem to receive the coupons frequently. Which of the following is an assumption that the owners of Pizza House are making about students at Hassan's school? Their marginal benefit from pizza is very high. They have a high reservation price for pizza. They are price-sensitive. Their demand for pizza is highly inelastic.

They are price-sensitive.

Jordan's food truck sells tacos and burritos. Her most popular items are chicken tacos and beef tacos. Bean burritos are the least popular item on her menu, although some buyers like the burrito's large size compared to the tacos. The tacos and the burritos both sell for $4. Jordan offers a special deal of a taco and a bean burrito for $7. How is this a form of price discrimination? Those who prefer tacos and those who prefer burritos are induced to get a unit of their less preferred product because they can buy it at a discounted price of $3 by buying a bundle. Buyers are grouped according to preferences for tacos or burritos. Those who prefer burritos pay a lower price for the burrito in the bundle. Buyers who buy the bundle are getting less satisfaction per dollar spent because they are getting a less preferred item instead of two of their more preferred items. Buyers are grouped according to preferences for tacos or burritos. Those who prefer tacos pay a lower price for the taco in the bundle.

Those who prefer tacos and those who prefer burritos are induced to get a unit of their less preferred product because they can buy it at a discounted price of $3 by buying a bundle.

A terminally ill person opts to purchase life insurance without disclosing his or her illness. What type of asymmetric information is this? adverse selection moral hazard screening signaling

adverse selection

Reginald, who is chronically ill, opts to purchase health insurance without disclosing his illness. Buffy, who is in perfect health, decides to forego purchasing health insurance altogether. This is an example of screening. moral hazard. signaling. adverse selection.

adverse selection.

Ilsia is driving home from work. She needs to buy gas and notices an Exxon-Mobil station on one side of the street and a Shell station on the other side of the street. Although run by different companies, the two stations sell gasoline at the same price. a. The most likely reason that the price is the same is that drivers need gas and are willing to pay whatever price a gas station charges. consumers view gasoline from different gas stations as perfect substitutes. gas stations always make a profit, so they can charge any price they want. government regulation requires both gas stations to charge the same price. b. If one station increases its price, it will be fined by the government. it will make a higher profit. it will sell more gasoline. it will lose customers to the cheaper station across the street.

consumers view gasoline from different gas stations as perfect substitutes. it will lose customers to the cheaper station across the street.

Consumer surplus will _____ when a monopolist goes from single-price monopoly to perfect price discrimination. remain the same increase decrease initially increase and then return to its original level

decrease

Perfect price discrimination is characterized by charging customers a different price, depending on their gender. different prices to customers based on when they purchase the good or service. customers a different price, depending on their income. each customer a price equal to his or her maximum willingness to pay. prices that are different from competitors' prices.

each customer a price equal to his or her maximum willingness to pay.

Which statement is the best definition of the term adverse selection? when more information is available to one side of the market (i.e., buyer or seller), resulting in the less knowledgeable party incurring costs as a result of this information deficiency when complete information is available to all parties involved in the purchase of a product when either a buyer or seller knows more about a product's quality than does the other party and this extra knowledge has no effect on either party when competitive forces drive inefficient firms out of the market and leave only efficient firms in existence when people engage in riskier behavior than they would otherwise because insurance prevents them from facing the true costs of their actions Which statement is not an example of adverse selection? A person does not buy a car alarm because auto theft is covered in her insurance policy. Relative to all cars with similar observable characteristics, those in the used car market are less reliable. Individuals who expect more health problems are more likely to buy generous health insurance policies.

when more information is available to one side of the market (i.e., buyer or seller), resulting in the less knowledgeable party incurring costs as a result of this information deficiency A person does not buy a car alarm because auto theft is covered in her insurance policy.

Which is the best definition for the term moral hazard? when imperfect information implies that people must choose from an undesirable selection of goods when people who are not responsible for the entire costs of their actions take riskier actions than they would otherwise take when one side of an economic transaction has more information about the good being exchanged than the other side has when businesses pursue profit at the expense of employee well-being when consumers must decide whether to purchase goods from firms with potentially objectionable business practices when people take unwise risks when people engage in hazardous activities because of a deficient moral code

when people who are not responsible for the entire costs of their actions take riskier actions than they would otherwise take