chapter 1 sample quiz 9/26/17 - linn-benton community...

ECON 201 – Fall 2017

Chapter 1 Sample Quiz – 9/26/17

1) Economists assume that rational people do all of the following except

A) use all available information as they act to achieve their goals.

B) minimize their opportunity costs.

C) weigh the benefits and costs of all possible alternative actions.

D) respond to economic incentives.

2) The basic economic problem of ________ has always existed and will continue to exist.

A) scarcity

B) efficiency

C) inflation

D) recession

3) Voluntary exchange between buyers and sellers generates ________ in a market economy.

A) scarcity

B) allocative efficiency

C) productive efficiency

D) equity

4) Which of the following is a positive economic statement?

A) The standard of living in the United States should be higher.

B) If the price of iPhones falls, a larger quantity of iPhones will be purchased.

C) The government should revamp the health care system.

D) The U.S. government should not have bailed out U.S. auto manufacturers.

TRUE or FALSE

5) North Korea is an example of a country with a market economy. F

6) A trade-off is where producing more of one good or service means producing less of another good or service.

T

7) Market economies always produce fully efficient outcomes. F

8) Equity is the fair distribution of economic benefits. T


Chapter 2 – 9/28/17

1. What is Cinder’s opportunity cost/day for producing a bird?

1 mouse (4 mice/ 4 birds = 1 mouse per 1 bird)

2. What is Flounder’s opportunity cost/day for producing a mouse?

4/3 birds (8 birds / 6 mice = 4/3 birds per 1 mouse)

3. Who has the absolute advantage in the production of birds?

Flounder

4. Who has the comparative advantage in the production of birds?

Flounder

5. Assuming each entrepreneur specializes in producing a single good, what

would Cinder and Flounder produce?

Cinder – mice

Flounder - birds

Birds/Day Mice/Day

Cinder 4 4

Flounder 8 6


Chapter 3 Pt 1 – 10/3/17

What effect will each of the following, ceteris paribus, have on the demand or

quantity demanded for gasoline?

For each situation a) explain in your own words and b) demonstrate graphically.

1. GM and Ford come out with new low-priced electric cars.

Demand decreases; demand curve shifts to the left

2. The price of gas increases.

Quantity demanded decreases; move up along the demand curve

3. Due to a new tax on gas-powered engines, the price of automobiles that use

gasoline increases.


Pri

ce

Quantity


4. There is a major population boom in driving-age consumers.

Demand increases, demand curve shifts to the right

5. Due to growing environmental concerns, many people refuse to drive their

gas-powered cars.



Chapter 3 Pt 2 – 10/5/17

1.) You work in the local pizza parlor. You noticed that the price of pizza has decreased

recently and the pizza parlor is busier than ever; that is, the equilibrium quantity has

increased.

a. Ceteris paribus, would this likely be caused by a shift in the demand curve or the supply

curve for pizza?

Shift in supply curve

b. Use a graph to illustrate your conclusions to part (a).

c. What is a factor that could explain this shift in the supply or demand curve?

• Decrease in price of input to pizza production

o example inputs = cheese, flour (for dough), labor

• Technological change reducing costs of pizza production

• More pizza parlors enter market


2.) It was recently reported that the supply of cherries has fallen due to unsuitable weather

and that the demand for cherries has increased due to changes in consumer taste.

a. Draw a supply and demand model of lumber products to represent the scenario

described above.

b. Will the equilibrium price for cherries increase, decrease, or cannot be determined with

the information provided?

Equilibrium price will increase

c. Will the equilibrium quantity for cherries increase, decrease, or cannot be determined

with the information provided?

The change in quantity is indeterminate; it could go up, go down, or remain unchanged.

We need more information on the relative magnitudes of shifts in the demand and

supply curves. (Note that the graph I drew above shows the situation in which quantity

is unchanged, only 1 of 3 possibilities)

Pri

ce

Quantity

D1 D2 S1 S2

Q1 Q2

P2

P1

D1

D2

S1

S2


Chapter 6, Pt. 1 (10/10/17)

TRUE or FALSE (#1 – 9) ; #10 Graphing 1) The price elasticity of demand for tacos is -5. If the price were to increase by 5%, the percentage change in quantity demanded would be -25%.

True. % 𝑪𝒉𝒂𝒏𝒈𝒆 𝑸𝒖𝒂𝒏𝒕𝒊𝒕𝒚 𝑫𝒆𝒎𝒂𝒏𝒅𝒆𝒅

% 𝑪𝒉𝒂𝒏𝒈𝒆 𝑷𝒓𝒊𝒄𝒆= 𝒑𝒓𝒊𝒄𝒆 𝒆𝒍𝒂𝒔𝒕𝒊𝒄𝒊𝒕𝒚 𝒐𝒇 𝒅𝒆𝒎𝒂𝒏𝒅 (𝑷𝑬𝑫)

−𝟐𝟓%

𝟓%= −𝟓

2) If the absolute value of price elasticity of demand for gasoline is 0.5, the demand is elastic.

False. If PED < 1, then inelastic. 3) Perfectly inelastic demand is represented by a demand curve which is vertical, and relatively inelastic demand is represented by a demand curve which is downward sloping.

True. 4) A key difference between slope and elasticity is that slope is calculated using the percentage changes in quantity and price.

False. Elasticity is calculated using percentages, not slope.

5) The price elasticity of demand measures how responsive quantity demanded is to changes in buyers’ incomes.

False. PED measures the responsiveness of quantity demanded to price changes.

6) When there are few close substitutes available for a good, demand tends to be elastic.

False. When few substitutes, then demand tends to be inelastic.

7) A demand curve that is horizontal indicates that the product has a large number of substitutes.

True. Horizontal demand curve is perfectly elastic; the more substitutes, the more elastic demand will be.

8) Ski vacations in the French Alps will tend to have inelastic demand.

False. The Alps ski vacation is a luxury good, which has more elastic demand than necessities like milk or gas. 9) With the increased usage of cell phone services, the price elasticity of demand for land-line telephone

services has become more price elastic. True


10) Using the standard price-quantity graph, draw two demand curves. D1 shows relatively elastic demand and D2 shows perfectly elastic demand.

0

1

2

3

4

5

6

1 2 3 4 5

Pri

ce

Quantity

D1 D2


Chapter 6, Pt. 2 (10/12/17)

1) Studies show that the income elasticity of demand for wine is approximately 5. What does this mean? A) A 1% decrease in the price of wine leads to a 5% increase in wine consumption. B) A 1% increase in income leads to a 5% increase in wine consumption. C) A 5% increase in income leads to a 1% increase in wine consumption. D) Wine is a relatively elastic good.

2) The cross-price elasticity of demand between orange juice and grapefruit juice will be __________ because they are ___________ . A) positive, complements C) negative, complements B) positive, substitutes D) negative, substitutes 3) If a 5 percent increase in income leads to a 10 percent increase in quantity demanded for airline travel, then airline travel is A) a necessity. C) a luxury. B) a substitute for another good. D) an inferior good.

4) Suppose a 4 percent increase in price results in a 2 percent increase in the quantity supplied of a good.

Calculate the price elasticity of supply and characterize the product.

A) 2; The product is elastic. C) 0.5; The product is inelastic. B) 0.2; The product is inelastic. D) 50%; The product is inelastic.

5) If, for a given percentage increase in price, quantity supplied increases by a proportionately larger percentage, then supply is A) unit elastic. B) perfectly elastic. C) relatively inelastic. D) elastic.

6) Using a standard price-quantity graph, draw a supply curve that is inelastic (S1) and a supply curve that is

perfectly elastic (S2).

S1 S2


Chapter 4 (10/19/17)

1) If the price for a concert ticket is $35, how many consumers will buy tickets?

3 consumers

2) If the price for a concert ticket is $35, what would Rachel’s consumer surplus be?

$7 ($42 - $35=)

3) If the price for a concert ticket is $18, how many tickets would be purchased?

7 tickets (also accept 4 tickets since didn’t specify if consumers would buy more than one ticket)

4) If the price for a concert ticket is $18, what would the total consumer surplus be?

$76 (also accept $22 if assume that consumers purchase more than one ticket)

5) Jen earned some extra money working overtime and her WTP changed to $40. At the $18 price per

ticket, what would the total consumer surplus be?

$97 (also accept $25 if assume that consumers purchase more than one ticket)

Consumer Willingness to

Pay

Rafael $50

Rachel $42

Randy $37

Jen $19

The table lists the highest prices

four consumers are willing to pay

for a concert ticket.


2) Market for Corn

(a) What is the equilibrium price of this market?

$7

(b) At the equilibrium price, what is the area representing Consumer Surplus?

A+B+C

(c) At the equilibrium price, what is the area representing Producer Surplus?

D+E

(d) If the market price were $9.00, what area would represent the Deadweight Loss?

C+E

(e) If the government were to set a price floor of $9.00 in this market, what is likely to result (other than

Deadweight Loss)?

A surplus of corn


Chapter 5 (10/19/17)

1) Values of houses adjacent to a nature preserve are higher than for houses far from the preserve. This is an example of A) Coase Theorem B) Positive externality C) Negative externality D) Opportunity costs 2) Which of the following must be present to reach a private solution to an externality problem? A) A majority of the parties affected by the externality must agree to a solution. B) The transactions costs to negotiate a solution must be relatively low. C) The total number of people, creators of the problem and those affected, must be relatively large to justify negotiating a solution. D) The government must approve the solution for it to be a legal solution. 3) Conceptually, the efficient level of a pollutant, such as carbon emissions, is the level for which A) the marginal benefit of reducing carbon emissions is maximized. B) the marginal cost of reducing carbon emissions is minimized. C) the marginal benefit of reducing carbon emissions is equal to the marginal cost of reducing carbon emissions. D) the marginal benefit of reducing carbon emissions is minimized and the marginal cost of reducing carbon emissions is maximized. 4) If there is pollution in producing a product, then the market equilibrium price A) is too high and equilibrium quantity is too low. B) and equilibrium quantity are too low. C) and equilibrium quantity are too high. D) is too low and equilibrium quantity is too high. 5) An advantage of imposing a tax on the producer that generates pollution is that A) it forces the polluting producer to internalize the external cost of the pollution. B) the government can keep tabs on exactly what is produced in an industry. C) it will eliminate pollution. D) a producer can pass the cost of the pollution to consumers.

6) Private producers have no incentive to provide public goods because A) the government subsidy granted is usually insufficient to enable private producers to make a profit. B) production of huge quantities of public goods entails huge fixed costs. C) they cannot avoid the tragedy of the commons. D) once produced, it will not be possible to exclude those who do not pay for the good.

7) A product is considered to be rival if A) you can keep those who did not pay for the item from enjoying its benefits. B) you cannot keep those who did not pay for the item from enjoying its benefits. C) your consumption of the product reduces the quantity available for others to consume. D) it is jointly owned by all members of a community.


8) Common resources differ from public goods in that A) common resources are non-excludable while public goods are excludable to those who do not pay for the good. B) unlike public goods, common resources are rival in consumption. C) common resources are collectively owned by a group of people while public goods are government owned. D) common resources are resources that cannot be renewed but the production of public goods can be increased any time.

Companies producing toilet paper bleach the paper to make it white. The bleach is discharged into rivers and lakes and causes substantial environmental damage. Figure 5-9 illustrates the situation in the toilet paper market. 9) Refer to Figure 5-9. The efficient level of output (from the social perspective) is A) Q1. B) Q2. C) Q3. D) Q4.

10) Refer to Figure 5-9. Suppose the government wants to use a Pigovian tax to bring about the efficient level of production for society. What should the value of the tax be? A) (P2- P1) per unit of output B) (P2- P0) per unit of output C) (P1- P0) per unit of output D) P1 per unit of output


Chapter 10 (10/24/17)

TRUE or FALSE (1 – 10) 1) The Atlantic article suggests that, using Big Data and complicated algorithms, customers currently have the upper hand in the war between buyers and sellers.

False – sellers seem to have advantage; title of article is “How online shopping makes suckers of us all”

2) Showrooming is when customers research merchandise online with the intention of purchasing it in brick-and-mortar stores.

False – consumers research merchandise in brick-and-mortar stores and then buy online

3) Benefits of fixed price approach for retailers include faster sales process and less training of salespersons.

True 4) According to the article, online consumers do not comparison shop as zealously for expensive items as they do for cheaper ones.

False – …for cheaper items as they do for expensive ones.

5) Celebrity endorsements often work because consumers get to hang out with the celebrity if they buy the product s/he endorses.

False

6) Network externalities result when the usefulness of a product decreases as the number of consumers that use the product increases.

False – the usefulness of a product increases as number of users increases

7) Due to the switching costs, path dependence may occur where the technology that became available first has advantages over better technology developed later.

True

8) In the Ultimatum game, many recipients reject shares of 10% or less of the total cash amount because they don’t want to participate in a transaction they consider unfair.

True


9) The endowment effect is explained by people not typically taking into account nonmonetary opportunity costs into their consumption decisions.

True 10) Sunk costs should be ignored in decision-making because the cost has already been paid

and cannot be recovered.

True


Chapter 11 (11/2/17)

1) A firm has successfully adopted a positive technological change when

A) it sees an increase in worker productivity.

B) it produces less pollution in its production process.

C) it can pay its workers less yet increase its output.

D) it can produce more output using the same inputs.

2) A characteristic of the long run is

A) there are fixed inputs. C) plant capacity cannot be increased or decreased.

B) all inputs can be varied. D) there are both fixed and variable inputs

3) Provide an example of a variable cost of pizza production. Labor; ingredients such as cheese. 4) Total fixed costs + Total variable costs = Total Costs 5) The average total cost of production

A) is the extra cost required to produce one more unit.

B) equals the explicit cost of production.

C) equals total cost of production divided by the level of output.

D) equals total cost of production multiplied by the level of output.


Chapter 12 (11/7/17)

1) The price of a seller's product in a perfectly competitive market is determined by A) the individual seller. C) market demand and market supply. B) a few of the biggest sellers. D) the individual demander. 2) Both buyers and sellers are price takers in a perfectly competitive market because A) the price is determined by government intervention and dictated to buyers and sellers. B) each buyer and seller knows it is illegal to conspire to affect price. C) both buyers and sellers in a perfectly competitive market are concerned for the welfare of others. D) each buyer and seller is too small relative to others to independently affect the market price. 3) Perfect competition is characterized by all of the following except A) heavy advertising by individual sellers. B) identical products. C) no barriers to entry for new firms entering the market. D) a horizontal demand curve for individual sellers. 4) If market price is $15 in a perfectly competitive market, the average revenue of selling six units is A) $3 B) $5 C) $15 D) $75 5) If market price is $5 in a perfectly competitive market, the marginal revenue from selling the 10th unit is A) $2 B) $5 C) $10 D) $50 6) If a perfectly competitive firm's price is above its average total cost, the firm A) is earning a profit. C) should shut down. B) is incurring a loss. D) is breaking even. 7) When a perfectly competitive firm finds that the market price is below its minimum average variable cost, it will sell A) the output where MR = MC. B) any positive output the firm decides upon because all of it can be sold. C) nothing at all; the firm shuts down. D) the output where average total cost equals price. 8) In a perfectly competitive industry, if the market price is below the average total cost of the typical firm, then A) firms are breaking even. B) new firms are attracted to the industry. C) existing firms will exit the industry. D) market supply will remain constant. 9) Assume that the tuna fishing industry is perfectly competitive. As demand for tuna increases, what best characterizes the industry if the fishing boats of new entrants have to go farther into the ocean to harvest tuna? A) a constant-cost industry C) a decreasing-cost industry B) an increasing-cost industry D) a fixed-cost industry

10) Which of the following describes a situation in which a good or service is produced at the lowest possible cost? A) productive efficiency B) allocative efficiency C) marginal efficiency D) profit maximization


Chapter 13 (5/18/17)

1) One characteristic common to perfectly competitive and monopolistically competitive markets is low barriers to entry. True 2) Monopolistically competitive firms sell products that are identical. False 3) Under monopolistic competition, any firm with the ability to affect the price of its product will have a marginal cost curve that is below its demand curve. True 4) A monopolistically competitive firm maximizes its profit by producing a quantity such that marginal revenue equals marginal cost. True 5) In the long run (under monopolistic competition), there is an incentive for firms to exit the market if price is less than average cost. True 6) A firm’s accounting profit is its total revenue minus all of its explicit and implicit costs. False 7) Under monopolistic competition, excess capacity results over the long run because the firm produces at a quantity that is not allocatively efficient. False 8) Consumers can benefit from monopolistic competition by being able to choose from products

more closely suited to their tastes. True

9) Brand management is the actions of a firm intended to maintain the differentiation of a

product over time. True

10) Two factors important to a firm’s profitability that are under the firm’s control are the

ability to differentiate its product and the ability to produce it at lower cost. True


Chapter 14 (11/14/17)

Alistair's (A) Choices

Baine's (B)

Choices

High Price Low Price

High Price A: $20,000 profit B: $20,000 profit

A: $30,000 profit B: $5,000 profit

Low Price A: $5,000 profit

B: $30,000 profit A: $10,000 profit B: $10,000 profit

Alistair’s Electronics and Baine’s Gadgets are the only two firms selling electronics in Torrentialton in

coastal OR. Each firm is about to get in the newest Virtual Reality (VR) device and must decide whether

to sell it at a low price or high price. The table shows the payoff matrix for this pricing game.

(1) Does Alistair have a dominant strategy and if so, what is it? 1) __A___

A) Yes, Alistair should choose a low price.

B) Yes, Alistair should choose a high price.

C) There are two dominant strategies: if Baine chooses the high price, then Alistair's best bet is to go low, but if

Baine goes with the low price then Alistair should choose the high price.

D) No, there is no dominant strategy.

(2) How are the firms in this pricing game caught in a prisoner's dilemma? 2) __B___

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 used the high price but each fears that if it goes with the high price, it

will lose profits because the other will undercut it with the low price.

C) Since each firm is uncertain about the other's behavior, each will adopt a wait-and-see attitude.

D) Only the first mover is caught in a prisoner's dilemma because the second has a chance to observe and

respond.

(3) Suppose Alistair and Baine both advertise that they will match the lowest price offered 3) __C___

by any competitor. What is the purpose of such a strategy?

A) to signal to each other not to charge below the current low price

B) to signal to each other that they will not hesitate to initiate a price war

C) to signal to each other that they intend to charge the high price

D) to signal to each other to share the market equally

(4) Suppose pricing the VR device is a repeated game in which Alistair and Baine will be 4) __B___

selling the device in competition over a long period of time. In this case, what is the

most likely outcome?

A) a noncooperative equilibrium in which each firm charges the high price

B) a cooperative equilibrium in which each firm charges the high price

C) a noncooperative equilibrium in which each firm charges the low price

D) a cooperative equilibrium in which each firm charges the low price


The government of a developing country plans to award two firms, Gigacom and Xenophone, the

exclusive rights to share the market for high speed internet service. Gigacom and Xenophone can both

provide the service either via television cable lines or via direct subscriber line (DSL). Suppose the

government is considering a proposal to delay one firm's entry into the market on the grounds that it

wants to prevent "harmful" competition. Figure 14-2 shows the decision tree for this game.

(5) If the government delays Gigacom's entry and Xenophone moves first, is a threat by 5) __A___

Gigacom that it will provide DSL service if Xenophone provides cable service a credible threat?

A) No, because Gigacom will lose $4.5 million in profits if it carries out its threat.

B) Yes, because Gigacom's DSL service will drive Xenophone out of business.

C) No, because as a second mover, it has no choice but to abide by the choices of the first mover.

D) Yes, Xenophone stands to lose $3 million in profit.

(6) If the government delays Gigacom's entry and Xenophone moves first, what is the likely 6) __B___

outcome in the market?

A) Both offer internet service via cable.

B) Both offer DSL internet service.

C) Xenophone offers DSL internet service while Gigacom offers internet service via cable line.

D) Xenophone offers internet service via cable line while Gigacom offers DSL internet service.

(7) Now suppose that the government delays Xenophone's entry and Gigacom moves first, 7) __A___

what is the likely outcome in the market?

A) Both offer internet service via cable; Xenophone and Gigacom earn profits of $6M and $9M, respectively.

B) Both offer DSL internet service; Xenophone and Gigacom earn profits of $8M and $7M, respectively.

C) Xenophone offers DSL internet service and earns a profit of $5 million while Gigacom offer internet service

via cable line and earns a profit of $6.5 million.

D) Xenophone offers internet service via cable line and earns a profit of $4 million while Gigacom offers DSL

internet service and earns a profit of $4.5 million.


Chapter 15 Take-home Assignment

1) The reason that the Fisherman's Friend restaurant in Stonington, Maine had a monopoly on selling 1) _C_____

seafood dinners in that town is most likely due to

A) a government-imposed barrier.

B) occupational licensing.

C) no competitors apparently found the profit level attractive enough to enter the market.

D) the restaurant owned all the fresh seafood in the state.

2) A monopoly is characterized by all of the following except 2) __A____

A) there are only a few sellers, each selling a unique product.

B) entry barriers are high.

C) there are no close substitutes to the firm's product.

D) the firm has market power.

3) In 2014, the NCAA was the subject of two antitrust lawsuits related to video games. The NCAA 3) __C____

reached a settlement in which it agreed to

A) stop authorizing the production of NCAA-branded video games.

B) allow schools to pay athletes so it could continue to use their images in the video games.

C) pay current and former athletes whose names or images had been used in NCAA-branded video games.

D) split into two separate entities, one which monitors college athletics and the other which markets products.

4) Which one of the following about a monopoly is false? 4) __C____

A) A monopoly could make profits in the long run.

B) A monopoly could break even in the long run.

C) A monopoly must have some kind of government privilege or government imposed barrier to maintain its monopoly.

D) A monopoly status could be temporary.

5) A local electricity-generating company has a monopoly that is protected by an entry barrier that takes 5) __C____

the form of

A) control of a key raw material.

B) network externalities.

C) economies of scale.

D) a perfectly inelastic demand curve.

6) Ordinarily, governments attempt to promote competition in markets. Why do governments use 6) __A____

patents to block entry into some markets when this prohibits competition?

A) Patents encourage firms to spend money on research necessary to create new products.

B) Politicians sometimes succumb to pressure from lobbyists to grant favors to businesses for political reasons.

C) Patents are an important source of government revenue.

D) Patents are justified because they are an important means for creating network externalities.

7) The Aluminum Company of America (Alcoa) had a monopoly until the 1940s because 7) __D____

A) it was a public enterprise.

B) it had a patent on the manufacture of aluminum.

C) the company had a secret technique for making aluminum from bauxite.

D) it had control of almost all the available supply of bauxite.

8) In 1935, the U.S. Patent and Trademark Office issued Parker Brothers a trademark on the 8) __B____

use of the name Monopoly for a board game. Hasbro bought Parker Brothers in 1991. Which of the following statements

is true regarding the trademark on the name Monopoly for a board game?

A) The original trademark expired well before Hasbro bought Parker Brothers, so they never had a trademark on

Monopoly.

B) Trademarks never expire, so Hasbro continues to have a trademark on the name Monopoly.

C) The trademark expired in 2011, 20 years after Hasbro's purchase of Parker Brothers.

D) The trademark expired in 1955, 20 years after the trademark was issued to Parker Brothers.


9) For a natural monopoly to exist 9) __C____

A) a firm must continually buy up its rivals.

B) a firm's long-run average cost curve must exhibit diseconomies of scale beyond the economically efficient output level.

C) a firm's long-run average cost curve must exhibit economies of scale throughout the relevant range of market demand.

D) a firm must have a government-imposed barrier.

10) Which one of the following is not a possible barrier to entry high enough to keep competing 10) __D____

firms out of a monopoly industry?

A) The monopoly firm has control of a key resource necessary to produce a good.

B) There are important network externalities in supplying a good or service.

C) large economies of scale that result in a natural monopoly

D) a high concentration ratio

11) Some economists argue that Microsoft become a monopoly in the market for computer software 11) __C____

by developing MS-DOS, an operating system used for the first IBM personal computers. The more people

who used MS-DOS-based programs, the greater the usefulness of a using a computer with an MS-DOS operating system.

The explanation for Microsoft's monopoly is

A) the development of new technology that other firms could not copy.

B) control of a key resource which, in this case, is the MS-DOS operating system.

C) network externalities.

D) patents Microsoft obtained when it developed the MS-DOS operating system.

Price per Unit

Quantity Demanded

(units)

Total Cost of Production

(dollars)

$85 10 $530

80 11 540

75 12 550

70 13 560

65 14 575

60 15 595

55 16 625

A monopoly producer of foreign language translation software faces a demand and cost structure as given above

12) Refer to Table above. What is the marginal revenue from the sale of the 12th unit? 12) __C____

A) $75

B) $50

C) $20

D) -$5

13) The demand curve for a monopoly's product is 13) __A____

A) the market demand for the product.

B) more elastic than the market demand for the product.

C) more inelastic than the market demand for the product.

D) undefined.

14) A profit maximizing monopoly's price is 14) __C____

A) the same as the price that would prevail if the industry was perfectly competitive.

B) less than the price that would prevail if the industry was perfectly competitive.

C) greater than the price that would prevail if the industry was perfectly competitive.

D) not consistently related to price that would prevail if the market was perfectly competitive.

15) Relative to a perfectly competitive market, a monopoly results in 15) __B____

A) a gain in producer surplus equal to the gain in consumer surplus.

B) a gain in producer surplus equal to the loss in consumer surplus.

C) a gain in producer surplus less than the loss in consumer surplus.

D) greater economic efficiency.


16) Refer to Figure. Use the figure above to answer the following questions.

a. Identify the curve labeled B. a) MR

b. What is the profit-maximizing quantity and what price will the monopolist charge? b) Q2; P3

c. What area represents total revenue at the profit-maximizing output level? c) 0P3XQ2

d. What area represents total cost at the profit-maximizing output level? d) 0P0VQ2

e. What area represents profit? e) P0P3XV

f. If this industry was organized as a perfectly competitive industry, what would be the f) P2; Q4

profit-maximizing price and quantity?

g. What area represents the deadweight loss as a result of a monopoly? g) XYZ

17) Market power refers to 17) _D___

A) the ability of consumers to dictate what products should be produced.

B) the ability of a firm to advertise its product and succeed in selling more output.

C) the ability of a firm to sell at a lower price than rival sellers.

D) the ability of a firm to charge a price higher than the marginal cost of production.

18) When a proposed merger between two companies is reviewed by the government, the relevant 18) _A_____

market is defined by

A) whether or not there are close substitutes for the products of the two firms.

B) how elastic the demand is for each firm's product.

C) counting the number of firms that produce the same product.

D) how much advertising is done in the industry.

19) A possible advantage of a horizontal merger for the economy is that 19) _B_____

A) the merging firms could avoid losses.

B) the merged firm might reap economies of scale which could translate into lower prices.

C) the degree of competition in the industry will be intensified.

D) the government stands to collect more corporate income tax revenue.

MC

ATC


TRUE or FALSE

20) A monopoly is defined as a firm that has the largest market share in an industry. 20) __F___

21) A natural monopoly is characterized by large fixed costs relative to variable costs. 21) __T___

22) Most pharmaceutical firms selling prescription drugs continue to earn economic profits long after the 22) __F___

patents on the prescription drugs expire because they have established a strong foothold in the market.

23) Suppose an industry has 5 firms, each with an equal 20% share of the market. Two of the firms propose merging.

What is the HHI before the proposed merger? (202) * 5 = 2,000

What is the HHI after the proposed merger? 402 + (202 * 3) = 2,800

What would be the expected antitrust action by federal regulators? Likely to be challenged (see Table 15.2)

24) The figure above shows the market demand for electricity and the average total cost and marginal cost of producing

electricity for a utility company. Suppose the utility company is a regulated natural monopoly. If government regulators

want to achieve economic efficiency, then they will regulate at a price of

$ per kilowatt hour. (Enter a numeric response using a real number rounded to two decimal places.)

Allocatively efficiency at MC = MB

Now suppose instead that government regulators want to set the lowest price such that the utility company will not suffer

a loss so that it will continue to produce in the long run. If so, then government regulators will set a price of

$ per kilowatt hour. (Enter a numeric response using a real number rounded to two decimal places.)


Chapter 16 (11/21/17)

TRUE or FALSE 1) The law of one price is that identical products should cost the same everywhere, no matter what transaction costs are. False 2) An example of arbitrage would be buying iPads in Portland for $399 each, driving to Seattle, and then selling them in Seattle for $469 each. True 3) Differences in the costs to supply a product to different customers enables firms to engage in price discrimination. False 4) Firms that possess market power are price takers. False 5) Movie theaters charge lower prices for afternoon showings because demand for movies is lower in the afternoon relative to the evening. True 6) Airlines tend to charge business travelers more than leisure travelers since business travelers’ demand for tickets is generally more price elastic. False 7) Under perfect price discrimination, consumer surplus would be zero. True 8) Big data is information on buying behavior of high-spending customers. False 9) Many firms use cost-plus pricing, which involves adding a percentage markup to average total cost of the product(s). True 10) An example of a two-part tariff is an amusement park that charges an admission fee and then charges another fee per ride taken. True


Chapter 12-15 (11/28/17)

Which Market Model? – PC, MC, O, M 1) Type of product could be identical or differentiated. O 2) Price = Marginal Cost = Marginal Revenue PC 3) Few interdependent firms dominate industries. O 4) Barriers completely block other firms from entering to capture economic profits.

M 5) Under long-run equilibrium, firms have excess capacity. MC 6) All market participants are price takers. PC

7) Restaurants are an example industry. MC 8) Use payoff matrices and decision trees to analyze firm behavior. O 9) The least competitive market structure model. M 10) Local or state regulatory commissions may set price of good/service. M 11) Only market model that is both allocatively and productively efficient. PC 12) Your favorite market model. O is instructor’s favorite.

chapter 1 sample quiz 9/26/17 - linn-benton community...

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