Micro Exam 3 Self Study MC Questions (no graph questions)

Oligopoly firms acting individually may seek to gain profits _______________. A. by expanding levels of output and cutting prices B. by selling products that are distinctive in some way C. by having a mini-monopoly on a particular brand name D. by having a mini-monopoly or through tough competition

A. by expanding levels of output and cutting prices

Governments grant patents to A. compensate firms for research and development costs. B. encourage competition. C. encourage low prices. D. encourage firms to reveal secret production techniques.

A. compensate firms for research and development costs.

Regulations that permit a regulated firm to cover its costs and to make a normal level of profit are commonly referred to as A. cost-plus regulation. B. price cap regulations. C. regulatory capture. D. profit regulation.

A. cost-plus regulation.

If the quality differences of similar products are mostly imperceptible to the average consumer's eyes, which of the following will most likely play a major role in influencing the decisions of purchasers? A. price of competing products B. size of competing products C. purchaser's opportunity cost D. geographic origin of products

A. price of competing products

Monopolistic competitors can make a __________ in the short-run, but in the long run, ___________ will drive these firms toward ____________. A. profit or loss; entry and exit; a zero-profit outcome B. loss; exit; losses on their earnings C. profit or loss; exit; economic profits D. profit; entry; a price that lies at the very bottom of the AC curve

A. profit or loss; entry and exit; a zero-profit outcome

Copyright protection legislation provides protection for original works A. during the author's life plus 70 years B. during the author's life plus 20 years C. until the author is 70 years of age D. until the author is 75 years of age

A. during the author's life plus 70 years

In a free market economy, firms operating in a perfectly competitive industry are said to have only one major choice to make. Which of the following correctly sets out that choice? A. what quantity to produce B. what price to charge C. what quantity of labor is needed D. what quality to produce

A. what quantity to produce

The following table shows a monopolist's demand curve and cost information for the production of its good. What is the amount of this monopolist's profit? A. $68 B. $72 C. $124 D. $192

A. $68

City Gas is a natural monopoly that supplies natural gas to a particular city. Its cost and demand information are given below. An unregulated monopoly will produce ____________ million therms of natural gas and sell each therm for __________. A. 3; $38 B. 2; $44 C. 38; $3 D. 44; $2

A. 3; $38

The following table shows a monopolist's demand curve and cost information for the production of its good. What is this monopolist's profit-maximizing output? A. 4 units B. 5 units C. 6 units D. 7 units

A. 4 units

The information below sets out the estimated market shares for a certain industry. If the firm F were to acquire the firm G, the Herfindahl-Hirschman Index would be A. 1,272 B. 1,884 C. 1,836 D. 2,216

B. 1,884

Is there a dominant strategy for Saudi Arabia and, if so, what is it? A. Yes, the dominant strategy is to produce a high output. B. Yes, the dominant strategy is to produce a low output. C. No, there is no dominant strategy. D. Yes, it has a dominant strategy depending on what Ecuador does.

B. Yes, the dominant strategy is to produce a low output.

When the regulator sets a price that a firm cannot exceed over the next few years, the regulator is enforcing A. deregulation. B. price cap regulation. C. cost-plus regulation D. regulatory capture rules.

B. price cap regulation.

4. At price P2, the firm would A) lose an amount equal to its fixed cost. B) lose an amount more than fixed cost. C) lose an amount less than fixed cost. D) break even.

C) lose an amount less than fixed cost.

The form of legal protection intended to prevent reproduction of original works is referred to as _________ law. A. patent B. trademark C. copyright D. trade secret

C. copyright

3. At price P1, the firm would produce A) Q1 units B) Q3 units. C) Q5 units. D) zero units.

D) zero units.

What is the maximum value that can be reached using the HHI? A. 100 B. 1,000 C. 10,000 D. 100,000

D. 100,000

The information below sets out the estimated market shares for a certain industry. If the firm F were to acquire the firm G, the four-firm concentration ratio would be A. 70 B. 68 C. 65 D. 73

D. 73

A monopolistically competitive industry does not display _____________ in either the shortrun, when firms are making ____________, nor in the long-run, when firms are earning _________________. A. allocative efficiency; profits and losses; negative profits B. productive efficiency; profits and losses; zero profits C. productive and allocative efficiency; profits and losses; zero profits D. productive and allocative efficiency; profits and losses; negative profits

C. productive and allocative efficiency; profits and losses; zero profits

An unregulated monopoly will have a ____________ of ______________. A. loss, $24 million B. loss, $7 million C. profit, $24 million D. profit, $7 million

C. profit, $24 million

If one firm operating in an oligopoly raises its price and other firms do not do so, A. the sales of the firm with the higher price will decline slightly. B. the egos of all the top executives will eventually lead to cooperation at that higher price. C. the sales of the firm that increased its price will decline sharply. D. the firm with the increased price will have its higher profits sustained through cooperation.

C. the sales of the firm that increased its price will decline sharply.

Is there a dominant strategy for Ecuador and, if so, what is it? A. Yes, it has a dominant strategy depending on what Saudi Arabia does. B. No, there is no dominant strategy. C. Yes, the dominant strategy is to produce a low output. D. Yes, the dominant strategy is to produce a high output.

D. Yes, the dominant strategy is to produce a high output.

In the _____________, the perfectly competitive firm will react to profits by __________________. A. short run; increasing quality of products B. long run; tailoring their quality controls C. short run; reducing its labor inputs D. long run; increasing its production

D. long run; increasing its production

Which of the following statements is true? A. The Nash equilibrium is a noncooperative, dominant strategy equilibrium. B. The Nash equilibrium is a cooperative equilibrium. C. The Nash equilibrium is a collusive equilibrium. D. There is no Nash equilibrium in this game because each party pursues its dominant strategy.

A. The Nash equilibrium is a noncooperative, dominant strategy equilibrium.

Does Alpha have a dominant strategy and if so, what is it? A. Yes, Alpha should offer a student discount. B. Yes, Alpha should not offer a student discount. C. There are two dominant strategies: if Beta offers a student discount then Alpha's best bet is to not offer a student discount, but if Beta does not offer a student discount then Alpha should offer a student discount. D. No, there is no dominant strategy.

A. Yes, Alpha should offer a student discount.

An _________________ is calculated by subtracting the firm's costs from its total revenues, _______________________. A. accounting profit; excluding opportunity cost B. accounting profit; including opportunity cost C. economic profit; excluding opportunity cost D. opportunity cost; including economic profit

A. accounting profit; excluding opportunity cost

A ___________ exists when the quantity demanded in the market is less than the quantity at the bottom of the long-run average cost curve. A. natural monopoly B. monopoly C. oligopoly D. monopolistic competition

A. natural monopoly

Following the assumption that firms maximize profits, how will the price and output policy of an unregulated monopolist compare with ideal market efficiency? A. output will be too small and its price too high. B. output will be too large and its price too high. C. output will be too small and its price too low. D. output will be too large and its price too low.

A. output will be too small and its price too high.

If a perfectly competitive firm is a price taker, then A. pressure from competing firms will force acceptance of the prevailing market price. B. it must be a relatively small player compared to its competitors in the overall market. C. it can increase or decrease its output without affecting overall quantity supplied in the market. D. quality differences will be very perceptible and will play a major role in purchasers' decisions.

A. pressure from competing firms will force acceptance of the prevailing market price.

Which of the following concerns would groups like the Consumer Federation of America and Public Knowledge most likely raise with regulators considering a merger application? A. the merger would reduce competition B. the merger would create regulatory capture C. the merger would lead to future decades of lower prices D. the merger would increase output and all of the above

A. the merger would reduce competition

In order to produce 100 oatmeal cookies, GeneseoCookieCo incurs an average total cost of $0.25 per cookie. The company's marginal cost is constant at $0.10 for all oatmeal cookies produced. The total cost to produce 50 oatmeal cookies is A. $25 B. $20 C. $50 D. $60

B. $20

____________ arises when firms act together to reduce output and keep prices high. A. Collusion B. A cartel C. A monopoly D. An oligopoly

B. A cartel

If Alpha assumes that Beta would offer a student discount, what should it do? A. Alpha should not offer a student discount. B. Alpha should also offer a student discount. C. Alpha should wait at least a year to see if Beta stops offering a student discount before making a decision. D. Being a duopolist, Alpha is not affected by Beta's choices because it has a secure 50 percent market share.

B. Alpha should also offer a student discount.

A narrowly defined market will tend to make concentration appear ____________, while a broadly defined market will tend to make it appear _____________. A. concerning; less concerning B. higher; smaller C. less concerning; concerning D. smaller; higher

B. higher; smaller

3. Economic profit can be derived from calculating total revenues minus all of the firm's costs, A. excluding its opportunity costs. B. including its opportunity costs. C. including its marginal revenue. D. excluding its marginal revenue.

B. including its opportunity costs.

Kate's 24-Hour Breakfast Diner menu offers one item, a $5.00 breakfast special. Kate's costs for servers, cooks, electricity, food, etc. average out to $3.95 per meal. Her costs for rent, insurance cleaning supplies and business license average out to $1.25 per meal. Since the market is highly competitive, Kate should A. raise her prices above the perfectly competitive level set by the market. B. keep the business open in the short-run, but plan to go out of business in the long-run. C. keep the business open in the short-run, and plan to expand the business in the longrun. D. lay-off her staff, break her lease, and close the business down immediately.

B. keep the business open in the short-run, but plan to go out of business in the long-run.

In the ______________, the perfectly competitive firm will react to losses by ______________________. A. short run; reducing production or shutting down B. long run; reducing production or shutting down C. short run; increasing physical inputs D. long run; increasing capital inputs

B. long run; reducing production or shutting down

If the government decides to regulate this natural monopoly by forcing them to produce at the point where the demand curve intersects marginal cost, then the firm will make a ________________ and ____________ continue in the long run. A. loss of $24 million, will not B. loss of $33 million, will not C. profit of $33 million, will D. profit of $24 million, will

B. loss of $33 million, will not

Firms operating in a market situation that creates ______________________, sell their product in a market with other firms who produce identical or extremely similar products. A. a perfect monopoly B. perfect competition C. an oligopoly D. a free-market

B. perfect competition

Splitting up a natural monopoly held by a public utility that produces and provides electricity would A. raise the total cost of production for all and force their profits to zero. B. raise the average cost of production and force consumers to pay more. C. evolve the structure of costs and demand to make competition less costly. D. evolve the structure of costs and demand to make competition more likely

B. raise the average cost of production and force consumers to pay more.

A manufacturer that only allows a consumer to purchase one product if they also buy another product is using _____________ to increase its profits. A. exclusive dealing B. tie-in sales C. predatory pricing D. bundle dealing

B. tie-in sales

If the largest four firms in an industry control less than half the market, their competitive concentration ratio A. would be considered to be especially high. B. would not be considered particularly high C. would not be considered particularly low. D. would be considered to be especially low.

B. would not be considered particularly high

_________________ occurs when circumstances have allowed several large firms to have all or most of the sales in an industry. A. Collusion B. A monopoly C. An oligopoly D. A cartel

C. An oligopoly

What was created by the U.S. government in 1914 to specifically define what types of competition were legally unfair? A. Department of Justice B. Antitrust Act C. Federal Trade Commission D. Supreme Court

C. Federal Trade Commission

What is the Nash equilibrium in this game? A. In the Nash equilibrium both Saudi Arabia and Ecuador produce a low output and earn a profit of $100 million and $15 million respectively. B. In the Nash equilibrium both Saudi Arabia and Ecuador produce a high output and earn a profit of $60 million and $15 million respectively. C. In the Nash equilibrium Saudi Arabia produces a low output and earns a profit of $80 million and Ecuador produces a high output and earns a profit of $22 million. D. There is no Nash equilibrium.

C. In the Nash equilibrium Saudi Arabia produces a low output and earns a profit of $80 million and Ecuador produces a high output and earns a profit of $22 million.

An agreement between a manufacturer and a distributor stipulating that a dealer will only distribute that manufacturer's products would be classified as a form of A. predatory pricing. B. tie-in-sales arrangement. C. exclusive dealing. D. price maintenance.

C. exclusive dealing.

If the government decides to regulate this natural monopoly by forcing them to produce at the point where the demand curve intersects average cost, then compared to the unregulated natural monopoly, the price will ____________ and the quantity will ___________. A. rise, rise B. rise, fall C. fall, rise D. fall, fall

C. fall, rise

A patent or copyright is a barrier to entry based on A. ownership of a key necessary raw material. B. large economies of scale as output increases. C. government action to protect a producer. D. widespread network externalities.

C. government action to protect a producer.

The use of sharp, temporary price cuts as a form of ________ would enable traditional US automakers to discourage new competition from smaller electric car manufacturers. A. natural monopoly B. monopolistic competition C. predatory pricing D. oligopolistic competition

C. predatory pricing

In the ________________, if profits are not possible, the perfectly competitive firm will seek out the quantity of output where __________________________. A. long run; increasing production B. short run; fixed costs can be reduced C. short run; losses are smallest D. long run; fixed costs can be eliminated

C. short run; losses are smallest

In the _______________, the perfectly competitive firm will seek out _______________. A. long run; the quantity of output where profits are highest B. short run; profits by ignoring the concept of total cost analysis C. short run; the quantity of output where profits are highest D. long run; methods to reduce production and shut down

C. short run; the quantity of output where profits are highest

In the 1980s, the FTC followed guidelines stipulating that, should a proposed merger result in an HHI of less than 1,000, A. the FTC would probably challenge it. B. the FTC would scru&nize the proposal. C. the FTC would probably approve it. D. the FTC make a case-by-case decision.

C. the FTC would probably approve it.

If a monopolistic competitor raises its price, it ___________ customers than a perfectly competitive firm, but ____________ customers compared to the number that a monopoly that raised its prices would. A. will lose more; it will lose as many B. will lose more; it will lose more C. will lose fewer; it will lose more D. will lose fewer; it will lose as many

C. will lose fewer; it will lose more

If monopolists are able to produce fewer goods and sell them at a higher price than they could under perfect competition, the result will be A. elimination of barriers to entry B. irregularly high unsustainable profits. C. government deregulation. D. abnormally high sustained profits.

D. abnormally high sustained profits.

Firms operating under cost-plus regulation have an incentive to generate high costs by building huge factories or employing lots of staff, A. because doing so creates efficiencies and innovation. B. because the market changes dramatically and they have incentive to meet new demand. C. because this will reduce the firm's costs more quickly and it can make a high level of profit. D. because what they can charge is linked to the costs they incur.

D. because what they can charge is linked to the costs they incur.

If the CEO of I'MaBigBank is playing prisoner's dilemma then, from his perspective, the gains to be had from cooperation are A. larger than the payoffs that will be received. B. smaller than the payoffs that will be perceived. C. smaller than the rewards from pursuing self-interest. D. larger than the rewards from pursuing self-interest.

D. larger than the rewards from pursuing self-interest.

In economics, the term "shutdown point" refers to the point where the A. marginal cost curve crosses the total revenue curve. B. average variable cost curve crosses the total revenue curve. C. average variable cost curve crosses the marginal cost curve. D. marginal cost curve crosses the average variable cost curve.

D. marginal cost curve crosses the average variable cost curve.

What happens in a perfectly competitive industry when economic profit is greater than zero? A. existing firms may expand their operations B. firms may move along their LRAC curves to new outputs C. there may be pressure on the market price to fall D. new firms may enter the industry and all of the above

D. new firms may enter the industry and all of the above

The term _____________ refers to a situation where the firms supposedly being regulated end up playing a large role in setting the regulations that they will follow. A. regulatory tie-in B. deregulation C. privatization D. regulatory capture

D. regulatory capture

Practices that reduce competition without actual documented agreements between firms to raise price are commonly referred to as . A. legal practices B. competitive practices C. regulated practices D. restrictive practices

D. restrictive practices

If monopolistic competitors must expect a process of entry and exit like perfectly competitive firms, A. they will be unable to earn higher-than-normal profits in the short run. B. they will wish to cooperate to make decisions about what price to charge. C. they will wish to cooperate to make decisions about what quantity to produce. D. they will be unable to earn higher-than-normal profits in the long run.

D. they will be unable to earn higher-than-normal profits in the long run.

The main challenge for antitrust regulators is A. to figure out how to best benefit consumers. B. to facilitate privatization of government assets. C. to promote the concept of a market-oriented economy. D. to determine when a merger may hinder competition.

D. to determine when a merger may hinder competition.

Would raising the price for a product create a larger decline in quantity demanded for a monopolistic competitor's than it would for a monopoly? A. no; a monopolistic competitor perceives demand as a price maker B. no; conditions of imperfect competition means demand is constant C. yes; but temporarily because price increases only create a short-run decline D. yes; consumers will buy from competitors offering lower priced substitutes

D. yes; consumers will buy from competitors offering lower priced substitutes

Does Beta have a dominant strategy and if so, what is it? a. Yes, Beta should offer a student discount. b. Yes, Beta should not offer a student discount. c. There are two dominant strategies: if Alpha offers a student discount then Beta's best bet is to not offer a student discount, but if Alpha does not offer a student discount then Beta should offer a student discount. d. No, there is no dominant strategy.

a. Yes, Beta should offer a student discount.

How are the firms in this game caught in a prisoner's dilemma? a. They are not in a prisoner's dilemma because there is one clear strategy for each. b. They would be more profitable if they refrained from offering a student discount, but each fears that if it does not offer a student discount it will lose customers. c. Since each firm is uncertain about the other's behavior, each will adopt a wait-and-see attitude which results in no increase in market share and no new customers. d. Only the first mover is caught in a prisoner's dilemma because the second has a chance to observe and respond.

b. They would be more profitable if they refrained from offering a student discount, but each fears that if it does not offer a student discount it will lose customers.

What is the Nash equilibrium in this game? a. There is no Nash equilibrium. b. Beta offers a student discount but Alpha does not. c. Alpha offers a student discount but Beta does not. d. Both Alpha and Beta offer a student discount.

d. Both Alpha and Beta offer a student discount.