econ test 2
Refer to Table 17-11. If both firms follow a dominant strategy, Firm A's profits (losses) will be
$-10
Refer to Table 17-11. When this game reaches a Nash equilibrium, profits for Firm A and Firm B will be
$-10 and $-10, respectively.
Refer to Figure 16-2. At the profit-maximizing level of output, what is this firm's total cost of production?
$1,400
Refer to Figure 8-2. The per-unit burden of the tax on sellers is
$2.
Because monopoly firms do not have to compete with other firms, the outcome in a market with a monopoly is often
All of the above are correct.
Refer to Table 17-12. This particular game
All of the above are correct.
Which of the following is not an example of a barrier to entry?
An entrepreneur opens a popular new restaurant.
Which of the following is not a reason for the existence of a monopoly?
diseconomies of scale
Many species of animals are common resources, and many must be protected by law to keep them from extinction. Why is the cow not one of these endangered species even though there is such a high demand for beef?
Cows are privately owned, whereas many endangered species are owned by no one.
Which of the following statements is not correct?
Monopolistic competition is similar to oligopoly because both market structures are characterized by barriers to entry
Deadweight loss measures the loss
in a market to buyers and sellers that is not offset by an increase in government revenue
Refer to Figure 16-1. The firm's profit-maximizing level of output is
12 units.
Refer to Table 17-13. If both stores follow a dominant strategy, Lopes's annual profit will grow by
$1.0 million.
Refer to Table 17-13. When this game reaches a Nash equilibrium, annual profit will grow by
$1.5 million for HomeMax and by $1.0 million for Lopes.
Refer to Figure 16-1. In order to maximize profit, the firm will charge a price of
$18
Refer to Table 17-13. Suppose the owners of Lopes and HomeMax meet for a friendly game of golf one afternoon and happen to discuss a strategy to optimize growth related profit. If they both agree to cooperate on a strategy that maximizes their joint profits, annual profit will grow by
$2.0 million for Lopes and by $2.5 million for HomeMax
Refer to Figure 8-2. The amount of deadweight loss as a result of the tax is
$2.50.
Refer to Figure 8-2. The loss of producer surplus as a result of the tax is
$3.
Refer to Figure 8-2. The per-unit burden of the tax on buyers is
$3.
Refer to Figure 16-1. If the average total cost is $15 at the profit-maximizing quantity, then the firm's maximum profit is
$36.
Refer to Figure 8-2. The loss of consumer surplus as a result of the tax is
$4.50.
Refer to Figure 16-1. If the average variable cost is $13 at the profit-maximizing quantity, and if the firm's profit is $20 at that quantity, then its fixed costs amount to
$40.
Refer to Figure 16-1. If the average variable cost is $12 at the profit-maximizing quantity, and if the firm's fixed costs amount to $30, then the firm's maximum profit is
$42.
Refer to Figure 8-2. The amount of tax revenue received by the government is
$5.
Refer to Figure 8-2. The amount of the tax on each unit of the good is
$5.
Refer to Figure 8-2. Consumer surplus without the tax is
$6, and consumer surplus with the tax is $1.50.
Refer to Table 17-12. If both countries follow a dominant strategy, the value of trade flow benefits for the United States will be
$65 b.
Refer to Table 17-12. If both countries follow a dominant strategy, the value of trade flow benefits for Farland will be
$75 b.
Games that are played more than once generally
. d. make collusive arrangements easier to enforce.
. Refer to Table 17-13. If both stores follow a dominant strategy, HomeMax's annual profit will grow by
. $1.5 million.
Refer to Figure 10-19. The socially optimal quantity of output is
73 units.
Taxes cause deadweight losses because taxes
All of the above are correct.
Refer to Table 17-11. Pursuing its own best interests, Firm A will concede that cigarette smoke causes lung cancer
None of the above. In pursuing its own best interests, Firm A will in no case concede that cigarette smoke causes lung cancer.
Refer to Figure 16-2. Which of the following will occur in the long run in this industry?
Firms will enter this industry
Refer to Table 17-12. Pursuing its own best interests, the U.S. will renew MFN status with Farland
None of the above is correct. In pursuing its own best interests, the United States will in no case renew MFN status with Farland.
Refer to Table 17-11. Pursuing its own best interests, Firm B will concede that cigarette smoke causes lung cancer
None of the above; in pursuing its own best interests, Firm B will in no case concede that cigarette smoke causes lung cancer.
Refer to Figure 16-2. What is the profit-maximizing price, quantity, and resulting profit?
P=$80, Q=20 units, profit=$200
Refer to Figure 10-4. Without government intervention, the equilibrium quantity would be
Q3.
Refer to Table 17-12. Pursuing its own best interests, Farland will impose trade sanctions against U.S. firms
Refer to Table 17-12. Pursuing its own best interests, Farland will impose trade sanctions against U.S. firms
Refer to Figure 17-1. Which of the following statements is correct?
Regardless of the strategy pursued by ABC, XYZ's best strategy is to produce a high level of output, and for that reason producing a high level of output is a dominant strategy for XYZ.
Suppose that cookie producers create a positive externality equal to $2 per dozen. What is the relationship between the equilibrium quantity and the socially optimal quantity of cookies to be produced?
The equilibrium quantity is less than the socially optimal quantity.
Other things the same, in which case is the quantity produced the highest?
There are a very large number of firms.
What happens to the total surplus in a market when the government imposes a tax?
Total surplus decreases.
Refer to Table 17-12. If trade negotiators are able to communicate effectively about the consequences of various trade policies (i.e., enter into an agreement about the policy they should adopt), then we would expect the countries to agree to which outcome?
United States $130 b and Farland $275 b
Refer to Table 17-12. When this game reaches a Nash equilibrium, the value of trade flow benefits will be
United States $65 b and Farland $75 b.
Who among the following is a free rider?
Wilma watches many public television programs, but she has never sent in a contribution to the station.
When oligopolistic firms interacting with one another each choose their best strategy given the strategies chosen by other firms in the market, we have
a Nash equilibrium.
In the prisoners' dilemma game with Bonnie and Clyde as the players, the likely outcome is
a bad outcome for both players.
Suppose a market is initially perfectly competitive with many firms selling an identical product. Over time, however, suppose the merging of firms results in the market being served by only three or four firms selling this same product. As a result, we would expect
a decrease in market output and an increase in the price of the product.
Refer to Figure 10-4. This market is characterized by
a negative externality.
Refer to Figure 10-19. The social optimum can be reached if
a subsidy of $36 is applied to each unit of the good.
Each of the following is likely to be a successful way for the government to solve the problem of overuse of a common resource except
asking individuals to voluntarily reduce their use of the resource
Refer to Figure 17-1. If this game is played only once, then the most likely outcome is that
both firms produce a high level of output
Refer to Table 17-13. Increasing the size of its store and parking lot is a dominant strategy for
both stores.
Which of the following would not be considered a private good?
cable TV service
The Mansfield Public Library has a large number of books that anyone with a library card may borrow. Anyone can obtain a card for free. Because the number of copies of each book is limited, not everyone can have the same book at the same time. What type of good would the library books be classified as in this case?
common resources
Goods that are rival in consumption include both
common resources and private goods.
Three business people meet for lunch at an Indian restaurant. They decide that each person will order an item off the menu, and they will share all dishes. They will split the cost of the final bill evenly among each of the people at the table. When the food is delivered to the table, each person faces incentives similar to the
consumption of a common resource good.
Refer to Figure 10-13. Each unit of plastics that is produced results in an external
cost of $8.
The decrease in total surplus that results from a market distortion, such as a tax, is called a
deadweight loss
Refer to Figure 8-2. The imposition of the tax causes the price received by sellers to
decrease by $2.
Refer to Figure 8-2. The imposition of the tax causes the quantity sold to
decrease by 1 unit.
Refer to Figure 10-4. If this market is currently producing at Q4, then total economic well-being would be maximized if output
decreased to Q2
A tax levied on the buyers of a good shifts the
demand curve downward (or to the left).
Refer to Table 17-12. Assume that trade negotiators meet to discuss trade policy between the United States and Farland. If neither party to the negotiation is able to trust the other party, then
each should follow its dominant strategy.
Suppose planting flowering shrubs creates a positive externality equal to $7 per shrub. Further suppose that the local government offers a $7 per-shrub subsidy to planters. The number of shrubs that are planted is then
equal to the socially optimal quantity.
Refer to Figure 16-1. Suppose ATC = $18 when Q = 12. Then the
firm is in a long-run equilibrium when it produces 12 units of output.
The government provides public goods such as anti-poverty programs because
free-riders make it difficult for private markets to supply the socially optimal quantity.
A tax on a good
gives sellers an incentive to produce less of the good than they otherwise would produce
If an externality is present in a market, economic efficiency may be enhanced by
government intervention.
Negative externalities lead markets to produce
greater than efficient output levels and positive externalities lead markets to produce smaller than efficient output levels.
In both perfect competition and monopolistic competition, each firm
has many competitors
Refer to Figure 10-13. In order to reach the social optimum, the government could
impose a tax of $8 per unit on plastics.
Refer to Figure 16-2. This firm is operating
in the short run and earning a positive economic profit
Refer to Figure 8-2. The imposition of the tax causes the price paid by buyers to
increase by $3.
Refer to Table 17-13. Pursuing its own best interest, Lopes will
increase the size of its store and parking lot regardless of the decision made by HomeMax.
Refer to Table 17-13. Pursuing its own best interest, HomeMax will
increase the size of its store and parking lot regardless of the decision made by Lopes
When an externality is present, the market equilibrium is
inefficient, and the equilibrium does not maximize the total benefit to society as a whole.
In many cases selling pollution permits is a better method for reducing pollution than imposing a corrective tax because
it is hard to estimate the market demand curve and thus charge the "right" corrective tax.
If the use of a common resource is not regulated,
it will be overused.
A monopolistically competitive industry is characterized by
many firms, differentiated products, and free entry.
One difference between a perfectly competitive firm and a monopoly is that a perfectly competitive firm produces where
marginal cost equals price, while a monopolist produces where price exceeds marginal cost.
when property rights are not well established,
markets fail to allocate resources efficiently.
When a good is excludable,
people can be prevented from using the good.
Research into new technologies provides a
positive externality, and too few resources are devoted to research as a result
when a market is monopolistically competitive, the typical firm in the market is likely to experience a
positive or negative profit in the short run and a zero profit in the long run
In monopolistic competition as well as in monopoly,
price exceeds marginal revenue for each firm.
Goods that are excludable include both
private goods and club goods.
Because of the free-rider problem
private markets tend to undersupply public goods
Refer to Figure 17-1. The dominant strategy for ABC is to
produce high output, and the dominant strategy for XYZ is to produce high output.
Which of the following conditions distinguishes monopolistic competition from perfect competition?
product differentiation
A tax on a good
raises the price that buyers effectively pay and lowers the price that sellers effectively receive.
Refer to Table 17-13. Suppose the owners of Lopes and HomeMax meet for a friendly game of golf one afternoon and happen to discuss a strategy to optimize growth related profit. They should both agree to
refrain from increasing their store and parking lot sizes.
When a tax is levied on a good, the buyers and sellers of the good share the burden
regardless of how the tax is levied.
The Tragedy of the Commons results when a good is
rival in consumption and not excludable.
Suppose that smoking creates a negative externality. If the government does not interfere in the cigarette market, then
the equilibrium quantity of cigarettes smoked will be greater than the socially optimal quantity of cigarettes smoked.
Suppose that a steel factory emits a certain amount of air pollution, which constitutes a negative externality. If the market does not internalize the externality
the market equilibrium quantity will not be the socially optimal quantity.
When a free-rider problem exists,
the market will devote too few resources to the production of the good
The Laffer curve relates
the tax rate to tax revenue raised by the tax
Cartels are difficult to maintain because
there is always tension between cooperation and self-interest in a cartel.
