Micro Econ Final

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When a consumer must take some sort of additional action to receive a lower price, the consumer is being subjected to:

the "hurdle" method of price discrimination.

Economies of scale exist when:

the average cost of production falls as output rises.

The dilemma in a prisoner's dilemma is that:

the players would be better off if they both played a dominated strategy.

A prisoner's dilemma is a game in which:

the players' payoffs are smaller when both play their dominant strategy compared to when both play a dominated strategy.

Consider a laboratory experiment in which subjects are given the chance to bid on a $20 bill. The initial bid must be at least 50 cents, and each succeeding bid must exceed the previous bid by 50 cents. The rules of the auction specify that when the bidding ceases, the $20 bill will be given to the top bidder, and both the highest bidder and the second highest bidder must pay their final bid. In experimental settings such as this, researchers have found that:

the sum of the top two bids typically exceeds $20

If it is possible to place a commonly held resource under private ownership, then:

the tragedy of the commons can be solved.

If the production of a good generates a positive externality, then:

there will be deadweight loss at the market equilibrium quantity.

Which of the following is NOT an example of a good with network economies?

A computer printer

Imagine that you are an entrepreneur, making designer t-shirts in your garage. Your total cost (in dollars) is given by the equation TC = 300 + 10Q, where Q represents the number of t-shirts you make. If you make 1,000 t-shirts, your average total cost is ______.

$10.30

Suppose the department of defense proposes to build a third base in the state of New Porkswick. Apart from the value of the additional security to the nation, the state economy will benefit by ______ per resident, and each resident's taxes will increase by ______.

$200; $80

Given the total cost function TC = 2,000 + 2Q, when output is 1,000 units average total cost is ______ and total fixed cost is ______.

$4; $2,000

The villagers will buy a year-old goat if the goat can be sold for a price of at least _____ when it is 2 years old.

$55

Suppose that the government knows each resident's reservation price. To collect no more than $900 in tax revenue, each resident should be charged ______ percent of their ______.

90; reservation price

If the demand curve facing the monopolist is P = 70 - 14Q, then the slope of its marginal revenue curve is:

-28.

If the regulated pay-per-view charge to watch a fight were $15 per household, then ______ households would watch the fight, and the loss is total economic surplus would be ______ relative to when there is no charge to watch the fight.

20 million; $225 million

Which of the following industries does not fit the natural monopoly model?

Fast food restaurants

A pure monopoly exists when:

a single firm produces a good with no close substitutes.

Which of the following is NOT a commitment device?

High fines for illegal parking on campus.

A strategy that limits defection in a repeated prisoner's dilemma game is:

a tit-for-tat strategy.

If the government proposes to pay for the public good with a head tax of $300 per resident, then

Max will vote in favor of the tax, but Kris and Taylor will vote against it.

Which of the following is NOT an example of the hurdle method of price discrimination?

Permanently reducing all prices by 10%.

Which one of the following government actions is intended to generate positive externalities?

Subsidies for planting trees on hillsides

Pure public goods:

are frequently provided by the government, and are sometimes provided by private firms.

A good is characterized by network economies if it:

becomes more valuable as more people own it.

Before it became illegal, cigarette manufacturers once relied heavily on TV advertising. According to the textbook, when the government banned TV advertising, the cigarette manufacturers:

benefited because the decision about whether to advertise on TV was a prisoner's dilemma.

Shel and Fran are neighbors. They work at the same firm and hold the same title. Shel finds that when Fran's consumption rises, Shel feels worse off. Fran feels the same way about Shel's consumption. Suppose the firm that employs both Fran and Shel begins to offer one hour of overtime at 1.5 times their base hourly wage. It is likely that:

both Fran and Shel will work more.

Suppose a monopolist offers a $20 mail-in rebate on an item with a list price of $100. In order for the rebate to be a perfect hurdle, it must be the case that:

buyers use the rebate if and only if they have a reservation price between $80 and $100.

Something that changes incentives so as to make otherwise empty threats or promises credible is called a:

commitment device.

A patch of edible mushrooms growing wild in a national forest is a ______ good.

commons

From the perspective of an externality, most communities have zoning laws to:

control external costs.

Some people oppose deficit spending because it:

crowds out private investment.

If a monopolist calculates its marginal revenue to be $15 and marginal cost to be $16, then the monopolist should:

decrease its output.

Suppose that the EPA has proposed strict controls on the amount of sulfur that diesel fuel contains. These controls were designed to fully offset the cost of pollution generated by diesel fuel vehicles. The effect of the regulation is estimated to increase the equilibrium price of a gallon of diesel fuel by 10 cents. Assuming that the supply of diesel fuel has a positive slope and demand has a negative slope, the quantity of diesel fuel sold after imposition of the regulation will:

decrease.

A firm whose production process exhibits constant returns to scale would find that if it doubled all of its inputs, its output would ______.

double

The reason that the prisoner's dilemma presents a dilemma is that:

each player has an incentive to play his or her dominant strategy, but when both choose the dominant strategy each player has a lower payoff than if they both had chosen the dominated strategy.

Early settlers in the town of Dry Gulch drilled wells to pump as much water as they wanted from the single aquifer beneath the town. (An aquifer is an underground body of water.) As more people settled in Dry Gulch, the aquifer level fell and new wells had to be drilled deeper at higher cost. The residents of Dry Gulch will overuse water relative to the social optimum because ______.

each resident will fail to adequately consider the external cost of his or her own water use

A natural monopoly is a monopoly that arises from:

economies of scale.

Patents, which confer market power, are intended to:

encourage innovation by helping firms recoup the costs of research and development.

The essential feature that differentiates imperfectly competitive firms from perfectly competitive firms is that an imperfectly competitive firm:

faces a downward-sloping demand curve.

One thousand adults live in Milltown. Every day, they all leave work at 4:30 p.m., arrive home at exactly 5:00 p.m., and go to bed at 9:00 p.m. Three fundraisers, Alpha, Beta, and Charlie, have targeted Milltown's population. To get a donation, they must call Milltown's residents after they get home from work but before they go to bed. Because the charities raising the funds are identical, the first to call a willing donor will get the donation. To an economic naturalist, this scenario would explain why:

fundraising calls typically occur shortly after people arrive home from work.

The taxing agency in your state would like to impose a sales tax in a way that minimizes deadweight loss. To achieve this goal it should tax:

goods whose supply and demand curves are relatively inelastic.

If the production of a good generates a negative externality, then at the market equilibrium quantity, the marginal cost to society of another unit of the good will be:

greater than the marginal benefit of another unit.

A price setter is a firm that:

has some degree of control over its price.

Early settlers in the town of Dry Gulch drilled wells to pump as much water as they wanted from the single aquifer beneath the town. (An aquifer is an underground body of water.) As more people settled in Dry Gulch, the aquifer level fell and new wells had to be drilled deeper at higher cost. Compared to a town in which all residents collectively decide on how much water to use, water use will likely be ______ in Dry Gulch.

higher

In order to effectively price discriminate, one requirement is that a seller must be able to:

identify customers with different reservation prices.

When Brady is driving he throws his cigarette butts out the window, reasoning that other people will clean up the litter on the side of the road. By throwing his cigarette butts out the window, Brady is:

imposing an external cost on others.

The combination of pork barrel spending and logrolling leads to:

inefficiently large government spending.

One problem with cost-plus regulation is that:

it blunts regulated firms' incentives to cut costs.

The essential reason some species of whales have nearly been driven to extinction is that:

it is difficult to define and enforce property rights to whales.

Cartel agreements are difficult to sustain because:

it's a dominant strategy for each cartel member to cheat on the cartel agreement.

If a natural monopoly increases the quantity of output it produces, then:

its average cost will decrease.

If a natural monopoly decreases the quantity of output it produces, then:

its average cost will increase

De Beers accounts for approximately 80% of diamond sales worldwide. The source of its market power is:

its exclusive ownership of South African diamond mines.

Suppose there are two small island countries: Avarice, which is populated by people who are completely self-interested, and Altruism, which is populated by people who have adopted social norms of generosity and cooperation. Commitment problems will be:

largely avoided in Altruism, but prevalent in Avarice.

National defense is an example of a good that is:

largely nonrival and nonexcludable.

If a firm functions in an oligopoly, it is:

one of a small number of firms that produce goods that are either close or perfect substitutes.

A firm is most likely to experience economies of scale if its start-up costs are high and its marginal cost is ______.

low

Given the demand curve it faces, if an imperfectly competitive firm wants to sell another unit of output, it must:

lower its price.

If the demand curve facing a monopolist shifts, then the monopolist's:

marginal revenue curve and profit-maximizing level of output will change.

If a firm collects $90 in revenue when it sells 4 units, $100 in revenue when it sells 5 units, and $105 in revenue when it sells 6 units, then one can infer the firm is a:

monopolist.

Spike pays $14,000 in taxes and earns $100,000. Ace earns $120,000. If the tax system is progressive, Ace will pay ______ in taxes.

more than $16,800.

If a firm's production process exhibits increasing returns to scale, then doubling all the firm's inputs will lead output to _____.

more than double

A monopoly that results from economies of scale is called a(n):

natural monopoly.

To sell an extra unit of output, a perfectly competitive firm ______, and an imperfectly competitive firm ______.

need not alter its price; must lower its price

Suppose you observe that Erie has not added a filter. You could conclude that the Coase Theorem failed to solve the externality problem because:

negotiation with many individual fishermen and bird watchers was too costly.

Dylan proposes that the city let a private company build the pool and charge residents a one-time fee to use the pool as much as they like. Only residents who pay the fee would be allowed to use the pool. If the private company were allowed to set a single fee, then:

no private company would offer to build the pool.

Airlines that charge higher prices for seats in the first class cabin are:

not price discriminating because the product is not the same.

Assume that each day ten thousand children watch Sesame Street on public television and that watching Sesame Street generates a benefit of $100 per child per year. Once a year, public televisions hold a pledge drive asking viewers to make voluntary contributions in order to keep the programming available to everyone. If public television stations collect less than $100 per child during the pledge drive, then this is evidence:

of the free-rider problem.

The use of psychological incentives to solve commitment problems would be least effective in games played:

once between strangers.

Under cost-plus regulation, a regulated firm is permitted to charges prices that cover the explicit cost of production plus a markup to cover the:

opportunity cost of the resources supplied by the firm's owners.

The profit maximizing rule P = MC applies to:

perfectly competitive firms only.

The demand curve for a perfectly competitive firm is ______, while the demand curve for a monopolist is ______.

perfectly elastic; downward-sloping

When one's performance is judged relative to others' performance and not by an absolute standard:

players will over invest in performance enhancements.

Imperfect price discrimination occurs when a monopolist:

price discriminates but some buyers pay less than their reservation price.

Because monopolists charge a price in excess of marginal cost, it must be the case that monopolists:

produce less than the socially optimal level of output.

The reason economists consider monopoly to be socially undesirable is that monopolists:

produce less than the socially optimal level of output.

If taxpayers pay a smaller fraction of their income in taxes as their incomes rise, the tax is ______ and if taxpayers pay a larger fraction of their income in taxes as their income rise, the tax is ______.

regressive; progressive

Industries in which firms have high fixed costs and low marginal costs are likely to have a:

small number of large firms.

A monopolistically competitive firm:

sometimes distinguishes its output from that of its competitors by locating in a more convenient place.

In order to achieve a socially optimal level of output, goods that entail positive externalities should be:

subsidized.

The demand curve for a public good is constructed by:

summing voters' reservation prices at each quantity.

Once a firm has determined the quantity of output it wishes to sell, the maximum price it can charge for each unit is determined by:

the demand curve facing the firm.

If a firm faces a downward-sloping demand curve, then:

the firm's marginal revenue from selling an additional unit of output is less than price.


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