A firm with market power has a demand curve that slopes downward; this implies that

Select one:

a.

price is less than marginal revenue.

b.

the selling price of the current unit must be set equal to the selling price of the previous unit sold.

c.

marginal revenue is greater than marginal cost.

d.

it must continually lower price on successive units in order to continue selling.

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Firms with market power determine the optimal price and quantity by

Select one:

a.

equating MR

with MC

to find quantity, then setting the price that yields that quantity on the firm demand curve.

b.

adding the average fixed cost to the average total cost to find price, and producing the quantity that yields that price on the firm's demand curve.

c.

setting quantity at the point of minimum average total cost (ATC

), and setting price equal to that ATC

times the concentration ratio.

d.

setting the price equal to the market price, and then equating that price with MC

to find quantity.

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A monopoly is producing a level of output at which price is $320, marginal revenue is $290, average total cost is $300, marginal cost is $290.The firm's current choice of output is

Select one:

a.

More information is needed to answer this question.

b.

too low.

c.

at the optimal level.

d.

too high.

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A monopoly is producing a level of output at which price is $320, marginal revenue is $290, average total cost is $330, marginal cost is $290, and average fixed cost is $25.In the short run, this firm should choose to

Select one:

a.

produce and break even (zero profit).

b.

shut down.

c.

produce, because it would earn $30 profit per unit.

d.

produce but take a loss of $10 per unit (better than shutting down).

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Use the graph below for the following three questions:

A graph showing demand (D

) and marginal revenue (MR

), average total cost (ATC

), average variable cost (AVC

), and short-run marginal cost (MC

), with quantity (Q

) on the horizontal axis and demand, marginal revenue, and costs in dollars on the vertical axis. D

and MR

both have vertical intercepts of $8; MR

has horizontal intercept at 80 units and D

has horizontal intercept at 160 units. At Q=45

, ATC=MR

at $3.50; at this Q,MC=$1.50,AVC=$2,D=$6

.At Q=60

, MR

, AVC

, and MC

all intersect at $2; at this Q,ATC=$3,D=$5

. At Q=75

, ATC=MC

at $3; at this Q,MR=$0.50,AVC=$2,D=$4

.At Q=80

, MC=D

at $4; at this Q,MR=$0,AVC=$2,ATC=$3

.At Q=100

, ATC=D

at $3; at this Q, AVC=$2.50

.At Q=105

, AVC=D

at $2.50; at this Q,ATC=$3.25

.

The profit-maximizing level of output is

Select one:

a.

80 units.

b.

60 units.

c.

75 units.

d.

105 units.

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In the graph above, the firm will sell its output at a price of

Select one:

a.

$2.

b.

$3.

c.

$6.

d.

$5.

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In the graph above, the firm will be

Select one:

a.

breaking even.

b.

earning a loss and should shut down.

c.

earning positive profit.

d.

earning a loss but should stay open.

In a monopolistically competitive market,

Select one:

a.

firms produce relatively close (but not perfect) substitutes.

b.

every firm's demand curve is equivalent to every other firm's demand curve.

c.

one firm has a significant advantage in terms of market share compared to the other firms.

d.

it is prohibitively expensive for new firms to enter.

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A monopolistic competitor is similar to a monopolist in that

Select one:

a.

both earn positive economic profit in the long run.

b.

both are able to maximize their per-unit profit margin.

c.

both can set price above marginal cost.

d.

both are able to enforce significant entry barriers against potential competitors.

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In the long run, monopolistically competitive firms will

Select one:

a.

break even.

b.

increase the amount of substitute products produced in the industry.

c.

deter entry of new firms and thus restrict market supply.

d.

set price equal to marginal cost and thus earn normal profit.

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Use the graph below for the following three questions:

A graph showing demand (D

) and marginal revenue (MR

), average total cost (ATC

), average variable cost (AVC

), and short-run marginal cost (MC

), with quantity of output (Q

) on the horizontal axis and revenue and costs in dollars on the vertical axis. D

and MR

both have vertical intercepts of $40; MR

has horizontal intercept at 400 units and D

has horizontal intercept at 800 units. At Q=150

, MC=$5

, MR=AVC=$24

, D=$33

, and ATC=$35

. At Q=300

, MR=MC=$10

, AVC=$20

, D=$25

, and ATC=$30

. At Q=450

, MR

is negative, D

, AVC

, and MC

all intersect at $17, and ATC=$26

. At Q=550

, MR

is negative, D=$13

, AVC=$17

, and MC=ATC

at $26.

If the firm decided to produce 200 units of output, what would be the marginal revenue and the price?

Select one:

a.

MR=$0

, P=$20

b.

MR=$20

, P=$7.50

c.

MR=$20

, P=$30

d.

MR=$20

, P=$20

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In the graph above, the firm's optimal price is _____ and optimal quantity is _____.

Select one:

a.

$25; 300 units

b.

$30; 350 units

c.

$20; 250 units

d.

$10; 300 units

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In the graph above, the firm in the short run would be

Select one:

a.

earning a loss but should stay open.

b.

earning a loss and should shut down.

c.

earning positive profit.

d.

breaking even.

A distinguishing characteristic of oligopoly markets is that

Select one:

a.

a firm's profitability depends on its own, as well as rival firms', decisions.

b.

there are a large number of firms, each producing close substitutes for each other.

c.

the output of a single firm is extremely small relative to the output of all firms in the industry.

d.

entry barriers are sufficiently high to prevent any more than one firm existing in the industry.

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In game theory, a dominated strategy is

Select one:

a.

a strategy that allows one firm to achieve greater profits than the profits of rival firms.

b.

a strategy with the lowest payoff which nonetheless is chosen by both firms.

c.

a strategy whose payoffs are always lower than other strategies.

d.

a strategy that is chosen second in a sequential game.

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Two law firms compete for most of the market in the small town of Grumbleton, and must choose their advertising levels simultaneously.The following payoff table facing the two firms, Jackie Chiles Law, LLCand Lionel Hutz Law Firm, shows the weekly profit outcomes for the various advertising decision combinations.Use this payoff table to answer the following three questions.

[Blank for Formatting] Hutz Advertising Level: Low Hutz Advertising Level: High Chiles Advertising Level: Low $2500/$2500 $1500/$3500 Chiles Advertising Level: High $3500/$1500 $2000/$2000

Jackie Chiles Law, LLC has

Select one:

a.

a dominated strategy; never choose a high level of advertising.

b.

no dominant strategy; choose a high level if Hutz chooses high, and a low level if Hutz chooses low.

c.

a dominant strategy: choose a low level of advertising.

d.

a dominant strategy: choose a high level of advertising.

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Lionel Hutz Law Firm has

Select one:

a.

no dominant strategy since Hutz profits are earned after profits are earned byChiles.

b.

a dominated strategy: never choose a low level of advertising ifChiles chooses high, and never choose a high level of advertising ifChiles chooses low.

c.

a dominant strategy: choose a low level of advertising.

d.

a dominant strategy: choose a high level of advertising.

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Where is the Nash equilibrium outcome?

Select one:

a.

Chiles choose high and Hutz choose low since Hutz has a dominant strategy whileChileshas a dominated strategy.

b.

Both choose low with Chiles getting a slightly larger profit.

c.

Both choose high and earn a relatively low combined profit.

d.

Chiles choose low and Hutz choose high because Hutz's low strategy is dominated.

Kramerica Industries and Vandelay Industries are two companies that make pricingdecisions (high or low). Because of different schedules for their annual meetings, every yearKramerica makes its pricing decision first, then Vandelay makes its decision. The game tree looks like this:

A game tree showing decisions between Kramerica and Vandelay. Kramericamakes the first choice at node 1, choosing either high or low. If Kramericachooses high, Vandelay(at node 2) chooses either high (in which case Kramericaearns $20,000 and Vandelayearns $8,500) or low (in which case Kramericaearns $16,000 and Vandelayearns $9,700).If Kramericachooses low at node 1, Vandelay(at another node 2) chooses either high (in which case Kramericaearns $23,000 and Vandelayearns $7,300) or low (in which case Kramericaearns $14,000 and Vandelayearns $6,800).

Using backward induction, Kramericapresumes that if it chooses high, Vandelaywill choose

Select one:

a.

high.

b.

low.

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Vandelay has

Select one:

a.

a strategy of choosing low if Kramericachooses high, and high if Kramericachooses low.

b.

a dominant strategy of choosing low.

c.

a dominant strategy of choosing high.

d.

a strategy of choosing high if Kramericachooses high, and low if Kramericachooses low.

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The Nash equilibrium outcome is for Kramericato choose _______ and then Vandelayto choose ______.

Select one:

a.

low; high

b.

low; low

c.

high; low

d.

high; high

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While they may be used to better inform or attract consumers, why else might firms use practices like price matching and sale-price guarantees?

Select one:

a.

To make their products seem more homogenous (having closer substitutes).

b.

To better conceal their pricing behavior from their rivals.

c.

To reduce their fixed costs.

d.

They are implicit ways firms can monitor each other's pricing and better cooperate with each other.