1.

(04.01 MC)

The government of a small country is trying to encourage competition in the market for product X and offers a significant per-unit subsidy. However, it fails to incentivize an increase in competition. Which of the following could explain this scenario? (2 points)

The price elasticity of demand is very high.

A per-unit subsidy does not change output decisions.

No firm in the industry has market power.

The firms in the market are selling indistinguishable units of product X.

There are insurmountable barriers to entry into the market.

2.

(04.01 MC)

Deniques Limited is the only provider of sophisticated medical equipment in Farland. It perceives the demand curve it faces to be the same as the market demand curve. If its demand is represented by P = 100 2Q, which of the following is correct about Deniques Limited? (2 points)

An increase in the price decreases economic losses.

A decrease in price decreases the quantity sold.

A decrease in price increases the quantity sold.

Higher levels of output bring in increasingly lower total revenue if demand is elastic.

Maintaining the current price decreases the quantity sold over time.

3.

(04.02 MC)

A monopolist is forced to lower its price in order to sell another unit of its product. This describes the problem of (2 points)

persistent economic profits

market power

diseconomies of scale

economies of scale

diminishing marginal returns

5.

(04.02 MC)

A firm is the only supplier of sprockets. The allocatively efficient output of sprockets is 40 million units. Consumers would pay $6 per sprocket at that price level. The firm is producing 30 million sprockets. Which of the following statements must be true? (2 points)

The firm is producing too much output.

The firm is charging more than the competitive price.

The firm is operating in a monopolistically competitive market.

The firm's marginal revenue is higher than its market demand.

The firm's average total cost is equal to price at its current output level.

7.

(04.03 HC)

A monopolist begins to engage in perfect price discrimination where previously it charged a single price for all its customers. Its profit would ________, quantity produced would ________, and deadweight loss would ________. (2 points)

Increase; stay constant; disappear

Increase; increase; disappear

Increase; increase; increase

Decrease; decrease; increase

Decrease; decrease; decrease

9.

(04.04 MC)

Which of the following accurately describes a monopolistically competitive market? (2 points)

Barriers to entry or exit secure firms' long-term economic profits.

An individual firm's demand curve is perfectly elastic.

Firms will earn normal profit in long-run equilibrium.

Production is inefficient in the short run and efficient in the long run.

Firms will produce more and charge less than firms in perfect competition.

10.

(04.04 MC)

A firm operating in monopolistic competition is maximizing its profit and earning positive economic profits. Which of the following must be true of its production? (2 points)

The price is equal to average total cost at the quantity where marginal revenue equals marginal cost.

The price is equal to average total cost, and marginal revenue is less than marginal cost.

The price is less than average total cost at the quantity where marginal revenue equals marginal cost.

The price is greater than average total cost at the quantity where marginal revenue is less than marginal cost.

The price is greater than average total cost at the quantity where marginal revenue is equal to marginal cost.

11.

(04.05 MC)

What is the key difference between monopolistic competition and an oligopoly market? (2 points)

In an oligopoly, the number of firms is so small they strategize their production interdependently.

In monopolistic competition, the marginal revenue is beneath the demand curve because of market power.

Oligopolies generally have a lower market concentration and a lower minimum efficient scale.

Monopolistically competitive markets have more significant barriers to entry into and exit from the industry.

Oligopolies see consistent economies of scale across their entire product demand.

12.

(04.05 MC)

An oligopoly market produces ________ output and charges a ________ price than a perfectly competitive market. (2 points)

equal; higher

greater; lower

less; lower

less; higher

equal; lower

13. (04.05 MC) Patricia owns a cleaning business with Sarah. They both have other jobs and are trying to determine the number of hours to work at the cleaning business. The following payoff matrix shows their daily incomes depending on the number of hours they work at the cleaning business. Sarah Full time Part time Patricia Full time $60, $60 $50, $80 Part time $80, $50 $55, $55 Which of the following accurately describes the payoff matrix above? (2 points) Neither Patricia nor Sarah have a dominant strategy. Patricia has a dominant strategy to work full-time, and Sarah has no dominant strategy. O Sarah has a dominant strategy to work full-time, and Patricia has no dominant strategy. Patricia and Sarah both have a dominant strategy to work full time. Patricia and Sarah both have a dominant strategy to work part time.14. (04.05 HC) Company A and Company B are each telecommunications manufacturers. Both companies manufacture the same products, and they make their decisions based on the other's actions. Both companies are considering opening retail outlets to increase their profits. The payoff matrix shows the profits of the companies in millions of dollars if they choose to open retail outlets. Company B Retail outlets No retail outlets Company A Retail outlets $25, $25 $30, $15 No retail outlets $35, $35 $34, $20 The government imposes a new $5 million tax to open retail outlets. What is the expected outcome of the new payoff matrix, given the tax? (2 points) The Nash equilibrium is for Company A to not open retail outlets and for Company B to open retail outlets. The Nash equilibrium is for Company A to open retail outlets and for Company B to not open retail outlets. The Nash equilibrium is for both Company A and Company B to open retail outlets. The Nash equilibrium is for both Company A and Company B to not open retail outlets. There is no Nash equilibrium after the change given in the scenario.15. (04.05 MC) Megan and Martha own competing hair salons that are in the same neighborhood. They are both considering offering their clients discounts in order to increase business. The payoff matrix shows their yearly incomes in thousands of dollars if they offer and do not offer discounts to their customers. Martha Discount No Discount Megan Discount $50, $75 $75, $60 No Discount $35, $90 $70, $85 If both Megan and Martha did not discount, what would each earn in yearly income? (2 points) Megan would earn $50,000; Martha would earn $75,000. Megan would earn $75,000; Martha would earn $60,000. Megan would earn $35,000; Martha would earn $90,000. Megan would earn $70,000; Martha would earn $85,000. Megan would earn $35,000; Martha would earn $85,000.E 00000 D 8.{04.U4 MC) Use the graph to answer the question that follows. (2 points} Quantity (units) In monopolistic competition, which of the following conditions (A through D} would cause the shift in demand from D2 to D1? Firms enter the market; competitors increase advertising. Firms enter the market; differentiation in similar products decreases. Firms exit the market; competitors increase advertising. Firms exit the market; differentiation in similar products decreases. Competitors increase advertising; differentiation in similar products decreases. 4. (04.02 MC) Use the graph to answer the question that follows. (2 points) Price MC HY AC M N AR G MR Q1 Quantity (units) What would be the area of this firm's total revenue? P3, G, Q2, and 0 O P2, N, Q2, 0 P1, M, Q2, 0 P1, M, N, P2 O P1, M, G, P3m D 6404.03 MC) Mm\" he graph below represents the demand graph of a monopolist. (2 points) ::: /////, 5:2 '2 5 no as 35 u 32 ID 20 30 40 50 93 70 80 90 [DO (murky The firm uses price discrimination to increase its prots what is the change in the price level? Assume the firm is acting to maximize profits before and after price discrimination. O From $3 to $14 0 From $14 to $9 0 From $14 to $12 0 From $8 to demand level at every output quantity 0 From $14 to demand level at every output quantity