Econ Final Exam

(Table: Prices and Demand) Look at the table Prices and Demand. The New Orleans Saints have a monopoly on Saints logo baseball hats. The Saints sell at most one hat to each customer, and the table shows each customer's willingness to pay. The marginal cost of producing a hat is $18. If the Saints were a perfectly competitive firm in a perfectly competitive industry, their profit-maximizing price and output, respectively, would be:

$18; 6

(Figure: The Profit-Maximizing Output and Price) Look at the figure The Profit-Maximizing Output and Price. Assume that there are no fixed costs and AC = MC = $200. At the profit-maximizing output and price for a perfect competitor, consumer surplus is:

$6,400

(Figure: The Profit-Maximizing Output and Price) Look at the figure The Profit-Maximizing Output and Price. Assume that there are no fixed costs and AC = MC = $200. At the profit-maximizing output and price for a monopolist, deadweight loss is:

1,600$

Suppose that a monopoly computer chip maker increases production from 10 microchips to 11 microchips. If the market price declines from $30 per unit to $29 per unit, marginal revenue for the eleventh unit is:

19$

(Table: Demand for Crude Oil) Look at the table Demand for Crude Oil. Assume that the crude oil industry is a duopoly and the marginal cost of producing crude oil equals zero. Suppose that the two firms are maximizing industry profit and splitting the profit evenly. If firm 1 decides to cheat and increase production by 10 more barrels, total industry output will be ______ barrels.

90

Which of the following statements about environmental standards and emissions taxes is correct?

An emissions tax is a more efficient way to reduce pollution than an environmental standard, because an emissions tax leads to an equalization of the marginal benefit of pollution from all sources.

Suppose that each of the only two firms in an industry has the independent choice of advertising its product or not advertising. If neither advertises, each gets $10 million in profit; if both advertise, their profits will be $5 million each; and if one advertises while the other does not, the advertiser gets profit of $15 million and the other gets profit of $2 million. According to game theory, the Nash equilibrium is:

Both will advertise

An industry that consists of two firms is:

Duopoly

When the government attempts to reduce the noise from airplanes by restricting the noise level from a jet engine to less than 50 decibels, it is using a(n):

Environmental standard

To maximize society's welfare, the government should produce a public good up to the point at which the marginal social benefit ________ the marginal social cost.

Equals

An example of a common resource is:

Fishing in the ocean

Pharmaceutical companies typically face very high fixed costs when developing new drugs. The marginal cost of producing a drug after development is very low. When these companies set price and output to maximize profit, patients pay a ________ price for ________ amounts of the drug than are socially optimal.

Higher, Lower

A monopolist or an imperfectly competitive firm practices price discrimination primarily to:

Increase Profits

When tradable emissions permits are used, if the demand for goods that produce emissions shifts to the right, the equilibrium price of permits ________, and the equilibrium quantity ________.

Increases, Stays the same

The municipal swimming pool charges lower entrance fees to local residents than to nonresidents. Assuming that this pricing strategy increases the profits of the pool, we can conclude that nonresidents must have a ________ for swimming at the pool than residents.

Less Elastic Demand

Which of the following is an example of a nonexcludable good?

National Defense

A key element that a public good displays is:

Non exclusion

The market structure that is characterized by only a small number of producers is referred to as a(n):

Oligopoly

In the short run, a monopoly will stop producing if:

P < AVC.

Two identical firms make up an industry in which the market demand curve is represented by Q = 5,000 - 4P, where Q is the quantity demanded and P is price per unit. The marginal cost of producing the good in this industry is constant and equal to $650. Reference: Ref 14-20 (Scenario: Two Identical Firms) Suppose the two firms in the scenario Two Identical Firms decide to cooperate and collude, resulting in the same amount of production for each firm. What is the profit-maximizing price and output for the industry?

P = $950; Q = 1,200 units.

DeVonda owns a music store. One night, vandals broke her store's front window. DeVonda called the police, and the police investigated the crime. The police services that DeVonda used are best described as:

Public Goods

An example of a good that is rival in consumption and nonexcludable is:

Public Parks

Which of the following is not an example of price discrimination?

Street vendors increase the price of umbrellas when it is raining

Which of the following would make it difficult for oligopolists to collude?

There are few buyers in the market.

Suppose government officials have set an emissions tax to reduce pollution. Further suppose that with the emissions tax, the marginal social cost of pollution exceeds the marginal social benefit of pollution. The emissions tax is:

Too low

A duopoly is an industry that consists of:

Two firms

The marginal cost of producing an artificially scarce good is equal to:

Zero

Bluefin tuna travel in schools throughout the world's oceans. Fishing boats from many nations harvest bluefin tuna as the schools migrate through their national waters. The schools of bluefin tuna are best described as:

a common resource

A firm that is in an oligopoly knows that its ________ affect its ________ and that the ________ of its rivals will affect it.

actions; rivals; reactions

If external costs exist, the competitive free market:

allocates resources inefficiently

Your community requires the sewage treatment plant to process raw sewage so that it is safe to return the water to the environment. This is an example of:

an environmental standard

A monopoly is an industry structure characterized by:

barriers to entry and exit

Firms will choose a tit-for-tat strategy if they:

believe that the firms in the industry will be competing with each other for a long time

If a monopolist is producing a quantity that generates MC < MR, then profit:

can be increased by increasing production.

Suppose a monopoly is producing at the level of output where marginal revenue equals marginal cost. If the monopolist reduces output, it:

can charge a higher price

Large barriers to entry in the gas station business explain why the two only gas stations in a small town:

can earn an economic profit in the long run.

Which of the following goods is most likely a public good?

fire protection provided by the local fire department

The monopoly firm's profit-maximizing price is:

given by the point on the demand curve for the profit-maximizing quantity

A natural monopoly exists whenever a single firm:

has economies of scale over the entire range of production that is relevant to its market.

Damage to the environment occurs because:

in the process of producing the goods and services we enjoy, pollution occurs.

Suppose the production of roses generates a positive externality in that travelers enjoy the scenic rural vistas. Then the market price of roses:

is less than the marginal social benefit of roses

In an industry characterized by extensive economies of scale:

large companies are more profitable than small companies

When an activity like education generates a positive externality, the:

market demand curve is below the marginal social benefit curve.

When the market does not result in an efficient allocation of scarce resources, economists say there has been ________.

market failure

A firm that is a natural monopoly will:

maximize profit by producing where MR = MC

Which of the following is an example of an artificially scarce good?

music that is downloadable from the Internet for a fee

As a big music fan, you want to attend a weekend blues festival in your town. The purchase of a wristband gives you and thousands of other fans access to the outdoor concert pavilion. The blues festival is a good that has the characteristics of being:

nonrival and excludable

An artificially scarce good is similar to a public good in that it is ________, but it is also similar to a private good in that it is ________.

nonrival in consumption; excludable

Since the public safety that a police force provides is ________ in consumption, the efficient price ________.

nonrival; is zero

An industry characterized by a few interdependent firms and by barriers to entry is called:

oligopoly

A firm that has economies of scale:

over the entire range of output demanded is called a natural monopoly

An artificially scarce good is a good or service for which exclusion is:

possible and is nonrival in consumption.

Collusive agreements are typically difficult for cartels to maintain because each firm can increase profits by:

producing more output than the quantity that maximizes joint cartel profits.

If the marginal benefit received from a good is less than the marginal social cost of production, then:

society's well-being can be improved if production decreases.

Unwritten or unspoken understandings through which firms collude to restrict competition are called:

tacit collusion

The demand curve for a monopoly is:

the industry demand curve

The socially optimal amount of pollution occurs where:

the marginal social benefit of pollution is equal to the marginal social cost of pollution.

If the marginal benefit received from a good is equal to the marginal social cost of production, then:

the market is producing an efficient quantity

A familiar example of a negative externality is loud music on a college campus. In principle, it should be possible to internalize this externality by permitting students to negotiate about rights to play music during particular time periods. The most likely reason that this does not happen is that:

the transaction costs associated with identifying and establishing communication with students would be high

When individuals take external costs and benefits into account:

they internalize the externality.

The licenses that can be bought and sold by polluters and that enable the holder to pollute up to a specified amount during a given period are called:

tradable emissions permits

The licenses that are exchanged and that enable the holder to pollute up to a specified amount during a given period are called:

tradable emissions permits.