econ final 31-60

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 they do? A. Confess regardless of the partner's decision B. Confess only if the partner confesses C. Don't confess regardless of the partner's decision D. Don't confess only if the partner doesn't confess

A. Confess regardless of the partner's decision

Which of the following statements best reflects a price-taking firm? A. If the firm were to charge more than the going price, it would sell none of its goods. B. The firm has an incentive to charge less than the market price to earn higher revenue. C. The firm can sell only a limited amount of output at the market price before the market price will fall. D. Price-taking firms maximize profits by charging a price above marginal cost.

A. If the firm were to charge more than the going price, it would sell none of its goods

For a certain firm, the 100th unit of output that the firm produces has a marginal revenue of $11 and a marginal cost of $10. It follows that the A. production of the 100th unit of output increases the firm's profit by $1. B. production of the 100th unit of output increases the firm's average total cost by $1. C. firm's profit-maximizing level of output is less than 100 units. D. production of the 101st unit of output must increase the firm's profit by more than $1.

A. production of the 100th unit of output increases the firm's profit by $1.

The accountants hired by Forever Fitness have determined total fixed cost to be $75,000, total variable cost to be $130,000, and total revenue to be $125,000. Because of this information, in the short run, Forever Fitness should A. shut down because staying open would be more expensive. B. lower their prices to increase their profits. C. stay open because shutting down would be more expensive. D. stay open because the firm is making an economic profit.

A. shut down because staying open would be more expensive.

A monopolistically competitive firm is currently producing 23 units of output. At this level of output, the firm is charging the highest price it can at $25, has marginal revenue equal to $19, has marginal cost equal to $19, and has average total cost equal to $22. From this information we can infer that A. the firm is currently maximizing its profit. B. the firm is earning zero profit. C. increasing the quantity produced will raise per-unit costs. D. firms are likely to leave this market in the long run.

A. the firm is currently maximizing its profit.

Adibok knows that it produces and sells high-quality athletic shoes. Wurkout knows that it produces and sells low-quality athletic shoes. According to the signaling theory of advertising, A. both Adibok and Wurkout have incentives to spend large amounts of money on advertising for their athletic shoes. B. Adibok has an incentive to spend a large amount of money on advertising for its athletic shoes, but Wurkout does not. C. Wurkout has an incentive to spend a large amount of money on advertising for its athletic shoes, but Adibok does not. D. neither Adibok nor Wurkout has an incentive to spend a large amount of money on advertising for their athletic shoes.

B. Adibok has an incentive to spend a large amount of money on advertising for its athletic shoes, but Wurkout does not.

Bob's Butcher Shop is the only place within 250 miles that sells bison burgers. Assuming that Bob is a monopolist and maximizing his profit, which of the following statements is true? A. The price of Bob's bison burgers will be less than Bob's marginal cost. B. The price of Bob's bison burgers will exceed Bob's marginal cost. C. The price of Bob's bison burgers will equal Bob's marginal cost. D. Costs are irrelevant to Bob because he is a monopolist.

B. The price of Bob's bison burgers will exceed Bob's marginal cost.

Suppose that Zion and Haidy are duopolists in the music industry. In May, they agree to work together as a monopolist, charging the monopoly price for their music and producing the monopoly quantity of songs. By June, each singer is considering breaking the agreement. What would you expect to happen next? A. Zion and Haidy will determine that it is in each singer's self-interest to maintain the agreement. B. Zion and Haidy will each break the agreement. Both singers' profits will decrease. C. Zion and Haidy will each break the agreement. Both singers' profits will increase. D. Zion and Haidy will each break the agreement. The new equilibrium quantity of songs will increase, and the new equilibrium price also will increase.

B. Zion and Haidy will each break the agreement. Both singers' profits will decrease.

If a competitive firm is currently producing a level of output at which marginal cost exceeds marginal revenue, then A. a one-unit increase in output will increase the firm's profit. B. a one-unit decrease in output will increase the firm's profit. C. total revenue exceeds total cost. D. total cost exceeds total revenue.

B. a one-unit decrease in output will increase the firm's profit.

In monopolistically competitive markets, free entry and exit suggests that A. the market structure will eventually be characterized by perfect competition in the long run. B. all firms earn zero economic profits in the long run. C. some firms will be able to earn economic profits in the long run. D. some firms will be forced to incur economic losses in the long run.

B. all firms earn zero economic profits in the long run.

If a firm experiences constant returns to scale at all output levels, then its long-run average total cost curve would A. slope downward. B. be horizontal. C. slope upward D. slope downward for low output levels and upward for high output levels.

B. be horizontal

Robin owns a horse stable and riding academy and gives riding lessons for children at "pony camp." His business operates in a competitive industry. Robin gives riding lessons to 20 children per month. His monthly total revenue is $4,000. The marginal cost of pony camp is $250 per child. In order to maximize profits, Robin should A. give riding lessons to more than 20 children per month. B. give riding lessons to fewer than 20 children per month. C. continue to give riding lessons to 20 children per month. D. We do not have enough information to answer the question.

B. give riding lessons to fewer than 20 children per month.

In a prisoners' dilemma game, A. the solution when playing the game once will be the same as the solution when the players play the game repeatedly, since agreements cannot be maintained in a prisoners' dilemma. B. if the players play the game repeatedly, the players can achieve a higher payoff, on average, than when they play the game only once. C. repeated play will result in a worse outcome for both players than when the game is played only once. D. the tit-for-tat strategy in repeated play requires players to always select the opposite strategy as their opponent.

B. if the players play the game repeatedly, the players can achieve a higher payoff, on average, than when they play the game only once.

A law that restricts the ability of hotels/motels to advertise on billboards outside of a resort community would likely lead to A. no change in profits for all hotels/motels. B. reduced efficiency of local lodging markets. C. a request by consumers to increase the number of billboards. D. increased price competition among hotels/motels in the community.

B. reduced efficiency of local lodging markets.

Suppose a firm in a competitive market increases its output by 30 percent. As a result, the price of its output is likely to A. decline by 30 percent. B. remain unchanged. C. increase by less than 30 percent. D. decline by more than 30 percent.

B. remain unchanged.

If we observe a great deal more advertising for Mucinex, an over-the-counter drug, than for a Grainger drill press, we can infer that A. more money is spent on Mucinex than on Grainger drill presses. B. the market for Mucinex is more highly differentiated than the market for Grainger drill presses. C. Grainger has lower costs of production than Mucinex. D. Mucinex operates in an oligopoly, while Grainger operates in a monopolistically competitive market.

B. the market for Mucinex is more highly differentiated than the market for Grainger drill presses.

Suppose that in a competitive market the equilibrium price is $2.50. What is the marginal revenue for the last unit sold by the typical firm in this market? A. Less than $2.50 B. More than $2.50 C. Exactly $2.50 D. The marginal revenue cannot be determined without knowing the actual quantity sold by the typical firm.

C. Exactly $2.50

Hotels in New York City frequently experience an average vacancy rate of about 20 percent (re., on an average night, 80 percent of the hotel rooms are full). This kind of excess capacity is indicative of what kind of market? A. Perfect competition and monopolistic competition B. Perfect competition only C. Monopolistic competition only D. Oligopoly

C. Monopolistic competition only

If Stella's Fashion Jewelry sells its product in a competitive market, then A. the price of that product depends on the quantity of the product that Stella's Fashion Jewelry produces and sells because the firm's demand curve is downward sloping. B. Stella's Fashion Jewelry total cost must be a constant multiple of its quantity of output. C. Stella's Fashion Jewelry total revenue must be proportional to its quantity of output. D. Stella's Fashion Jewelry total revenue must be equal to its average revenue.

C. Stella's Fashion Jewelry total revenue must be proportional to its quantity of output.

Tom produces commemorative t-shirts in a competitive market. If Tom decides to decrease his output, this will A. increase his revenue, since the output decrease leads to a higher market price. B. increase his revenue, since Tom's competitors will also decrease their output, so that price rises to offset the drop in Tom's output. C. decrease his revenue, since his output has decreased and the price remains the same. D. decrease his revenue, since the price falls as competitors increase their output to make up for his decrease in output.

C. decrease his revenue, since his output has decreased and the price remains the same.

When a firm experiences economies of scale, A. short-run average total cost is maximized. B. long-run average total cost is maximized. C. long-run average total cost decreases as output increases. D. long-run average total cost increases as output increases.

C. long-run average total cost decreases as output increases.

Ms. Joplin sells colored pencils. The colored-pencil industry is competitive. Ms. Joplin hires a business consultant to analyze her company's financial records. The consultant recommends that Ms. Joplin increase her production. The consultant must have concluded that, at her current level of production, Ms. Joplin's A. total revenues equal her total economic costs. B. marginal revenue exceeds her total cost. C. marginal revenue exceeds her marginal cost. D. marginal cost exceeds her marginal revenue.

C. marginal revenue exceeds her marginal cost.

As the number of firms in an oligopoly increases, A. the output effect decreases. B. the oligopoly has more market power and firms earn a greater profit. C. the price approaches marginal cost. D. the price of the product greatly exceeds marginal cost.

C. the price approaches marginal cost.

Farmer McDonald sells wheat to a broker in Kansas City, Missouri. Because the market for wheat is generally considered to be competitive, Mr. McDonald maximizes his profit by choosing A. to produce the quantity at which average variable cost is minimized. B. to produce the quantity at which average fixed cost is minimized C. the quantity at which market price is equal to Mr. McDonald's marginal cost of production. D. the quantity at which market price exceeds Mr. McDonald's marginal cost of production by the greatest amount.

C. the quantity at which market price is equal to Mr. McDonald's marginal cost of production.

Which of the following is not an example of a barrier to entry? A. Mighty Mitch's Mining Company owns a unique plot of land in Tanzania, under which lies the only large deposit of Tanzanite in the world. B. A pharmaceutical company obtains a patent for a specific allergy medication. C. A musician obtains a copyright for their original song. D. An entrepreneur opens a popular new hair salon.

D. An entrepreneur opens a popular new hair salon.

Which of the following statements is not correct? A. Monopolistic competition is different from monopoly because monopolistic competition is characterized by free entry, whereas monopoly is characterized by barriers to entry. B. Both monopolistic competition and oligopoly fall in between the more extreme market structures of competition and monopoly. C. Monopolistic competition is different from oligopoly because each seller in monopolistic competition is small relative to the market, whereas each seller can affect the actions of other sellers in an oligopoly. D. Both monopolistic competition and perfect competition are characterized by product differentiation.

D. Both monopolistic competition and perfect competition are characterized by product differentiation.

Which of the following statements regarding a competitive firm is correct? A. Because each firm faces a downward sloping demand, if a firm increases its level of output, the firm will have to charge a lower price to sell the additional output. B. If a firm raises its price, the firm may be able to increase its total revenue even though it will sell fewer units. C. By lowering its price below the market price, the firm will benefit from selling more units at the lower price than it could have sold by charging the market price. D. For all firms, average revenue equals the price of the good.

D. For all firms, average revenue equals the price of the good.

Which of the following is unique to a monopolistically competitive firm when compared to an oligopoly? A. The monopolistically competitive firm advertises. B. The monopolistically competitive firm produces a quantity of output that falls short of the socially optimal level. C. Monopolistic competition features many buyers. D. Monopolistic competition features many sellers.

D. Monopolistic competition features many sellers.

A movie theater can increase its profits through price discrimination by charging a higher price to adults and a lower price to children if it A. only shows G-rated movies. B. has no monopoly pricing power. C. cannot easily distinguish between the two groups of customers. D. can prevent children from buying the lower-priced tickets and selling them to adults.

D. can prevent children from buying the lower-priced tickets and selling them to adults.

A monopolistically competitive firm chooses A. the quantity of output to produce, but all firms in the market agree upon a single price. B. the price, but competition in the market determines the quantity. C. the price, but output is determined by a cartel production quota. D. the quantity of output to produce, but the price of its output is determined by demand.

D. the quantity of output to produce, but the price of its output is determined by demand.