Questions - Page 710 - Questions 1 - 32 MCQ. On the last page you can skip FRQ part. don't do it! Please list the letter that best answers the question AND give a brief explanation as to why you pick this answer. You can use mathematics, fully labeled graphs, sentences in your explanation part. Thank you!!!

Multiple-Choice Questions 1. The demand curve for a monopolist producing a normal good is downward-sloping because of a. the substitution effect being larger than the income effect. 1). the income effect being larger than the substitution effect c. diminishing marginal returns. d. price discrimination. e. diminishing marginal utility. 2. The marginal revenue curve for a monopolist lies below the demand curve because of a. the income effect. b. the quantity effect. c. price discrimination. d. the price effect. e. the substitution effect. 3. If a monopolist charges a price such that marginal revenue is greater than marginal cost, then the monopolist a. will earn prot. b. will earn losses. c. will break even. d. can improve its profit by reducing its price. e. can improve its prot by raising its price. 4. For a monopolist, when marginal revenue is p05itive, a. the quantity effect outweighs the price effect. 13. the price effect outweighs the quantity effect. c. total revenue is rising at an increasing rate. d. total revenue is declining at an increasing rate. e. total revenue is declining at a declining rate. 710 Micro 0 Unit4 Imperfect Competition 5. Relative to a competitive industry with the same costs. a monopolist charges a. a higher price and produces more output. b. a lower price and produces more output. c. a higher price and produces less output. d. a lower price and produces less output. e. a higher price and produces the same level of output. 6. lfa monopolist nds that demand is elastic at the level of output where marginal revenue is equal to marginal cost, the monopolist will a. maintain that level of c. decrease output. output. (:1. raise the price. I). increase output. e. lower the price. 7.A perfectly competitive industry will likely have a. more consumer surplus, more producer surplus. and more deadweight loss than a monopoly. b. more consumer surplus, less producer surplus. and less deadweight loss than a monopoly. c. less consumer surplus, more producer surplus, and more deadweight loss than a monopoly. d. more consumer surplus, less producer surplus. and more deadweight loss than a monopoly. e. less consumer surplus, more producer surplus. and less deadweight loss than a monopoly. 8. lfa regulatory commission wants to ensure that a monopolist produces the largest quantity UFOUIP'" that is consisrent with earning a normal prot, it will requm' the monopolist to charge a price equal to its a. marginal cosr. d. average total 05:- b. average xed cost. e. total COSI- c. average variable cost. UR REVIEW a In order to practice price discrimination, a firm must have a. market power. is zero and the industry demand schedule for the preservative b. customers of different ages. in a typical month is as follows: c customers with the same price elasticity of demand. Price d. customers with different income levels. (per pound) Quantity demanded (millions of pounds) e. customers in different locations. $6 0 10 Perfect price discrimination will result in 5 10 a. more output and more consumer surplus. 4 20 b. more output and less consumer surplus. 3 30 c. less output and more producer surplus. 2 40 d. less output and less consumer surplus. e. less output and more consumer surplus. 50 0 60 I1. Monopolistically competitive industries are 14. If the two companies agree to each produce half of the characterized by a. standardized products, many firms, and easy entry quantity that maximizes their combined profits and to share the revenue equally, what is the dollar amount (in and exit. millions) of revenue that each firm collects? b. standardized products, few firms, and easy entry a. $100 d. $45 and exit. b. $90 e. $40 c. differentiated products, many firms, and easy entry c. $50 and exit. 15. Suppose Firm A continues to honor the production d. differentiated products, many firms, and high agreement from Question 18 while Firm B breaks it barriers to entry. and produces more. Now what is the maximum dollar e. differentiated products, few firms, and high barriers amount (in millions) that Firm B would collect? to entry. a. $100 d. $45 1. Government regulators should be concerned b. $90 e. $40 with if firms in an industry have c. $50 Suppose a breakfast cereal market consists of only two firms, a. a prisoner's dilemma found a Nash equilibrium Firm X and Firm Y. Each firm sets either high prices or low b. encouraging started a price war prices for one month at a time. Use the information on each competition firm's monthly profit in the following payoff matrix to answer c. regulating profits low barriers to entry Questions 16-19. d enforcing antitrust acted as a cartel and not Firm Y policy just in tacit collusion Set high prices Set low prices e. increasing nonprice differentiated their Set high prices $500, $700 $100, $800 competition products Firm X Set low prices $600, $400 $200, $300 I Which of the following is the most likely to lead to 16. Which of the following statements is true? lower prices in an oligopoly? a. Firm X and Firm Y are engaged in a prisoner's 2 the formation of a cartel dilemma. b. tacit collusion b. At the noncooperative equilibrium, the total profits L. low barriers to entry for both firms combined are equal to $1,200. d. price leadership c. At the Nash equilibrium, the total profits for both e product differentiation firms combined are equal to $1,000. the information and following table to answer Questions 14 and 15. d. At the noncooperative equilibrium, the total profits for both firms combined are equal to $900. Space that Firm A and Firm B are the only companies that make e. At the Nash equilibrium, the total profits for both common food preservative. The marginal cost of production firms combined are equal to $500.22. In a monopolistically competitive soda industry, assu 17. Which of the following accurately describes the the following facts: a typical firm produces 10,000 dominant strategies of Firm X and Firm Y? beverage cans in a month; the price per can is $1.00; Dominant strategy for Firm X Dominant strategy for Firm Y average total cost is $0.50 at the current production a. no dominant strategy high prices level; and marginal cost is $0.25 at the current b. high prices no dominant strategy production level. What will happen to the equilibrium c. low prices high prices quantity and profits for a typical firm in the soda d. low prices low prices industry in the long run? e. low prices no dominant strategy Equilibrium quantity for a Profit for a 18. Suppose the same payoff matrix applies every month. typical firm typical firm For the current month, Firm X has set low prices and a. increase decrease Firm Y has set high prices. If each firm follows a tit-for- b. decrease remain the same tat strategy, then c. remain the same increase a. Firm X would set high prices next time, earn $500 d. decrease decrease for one month, and then $200 thereafter. e. decrease increase b. Firm X would set low prices next time, earn $600 for one month, and then $200 thereafter. 23. Economists have argued that there may be inefficie c. Firm X would set high prices next time, earn $100 in monopolistically competitive industries. Which o for one month, and then $500 the following month. following is a reason cited for this inefficiency? d. Firm X would set low prices next time, earn $200 for a. There is excess capacity at the chosen production one month, and then $200 the following month. level. e. Firm X would set high prices next time, earn $100 b. The price is too low. for one month, and then $600 the following month. c. There is zero profit in the long run. 19. Suppose all the profit payoffs for Firm X double, but d. Price is set equal to marginal cost. they remain the same for Firm Y. Which of the following e. Production occurs along the upward-sloping se is a true statement? of the average total cost curve. a. The noncooperative equilibrium would remain the Use the following graph of a typical firm in a monopolistically same. competitive industry to answer Questions 24-26. b. The dominant strategy would change for Firm X but Price, remain the same for Firm Y. cost, c. There would be a second Nash equilibrium. marginal revenue d. Firm Y would be more likely to engage in a tit-for-tat strategy. e. Both firms would be more likely to engage in tacit MC collusion. P 20. Which of the following works in favor of tacit collusion PA in an oligopolistic industry? . . . . . . . . a. The bargaining power of large buyers can keep prices low. . . . .. . . . . . . b. Over time, firms realize it is in their best interest to . . . collectively restrict output. P1 c. Selling thousands of products makes it hard to keep track of competitors' output and prices. . . . . . . . MR . . . . . . D . . . . . . d. With a larger number of sellers, there is less incentive for any one firm to cooperate. Q1 Q2 Q3 e. The threat of enforcement of antitrust policy is Q4 Qs always present. 24. What price and quantity combination would wee 21. Which of the following business tactics are ways that firms from a profit-maximizing firm in this monopolis in an oligopolistic industry attempt to legally collude? competitive industry? a. engaging in nonprice competition a. P6, 21 b. using price leadership for signaling b. Ps, Q2 c. lowing prices in a trade war C. PA, Q3 d. differentiating their products d. P3, Qs e. advertising e. P2, Q4 712 Micro . Unit 4 Imperfect Competition25. Firms in this industry are experiencing UNIT FOUR REVIEW and over time we would expect these earnings to Use the payoff matrix provided to answer Questions 31 and 32. a. economic losses remain the same The values in the matrix represent the profits that WeSellLights b. economic profits increase and the Lighting Barn will earn depending on each firm's strat- c. economic losses decrease egy to build or not build a new store. The first entry in each d. economic profits decrease box represents the profit for WeSellLights; the second entry is e. economic losses increase the profit for the Lighting Barn. 6. Over time, what will happen to the number of firms in The Lighting Barn this industry and the output per firm? Build Don't build Number of firms Output per firm WeSellLights Build $25,000, $25,000 $100,000, SO a. decrease increase Don't build $0, $100,000 $0, $0 b. increase decrease 31. If WeSellLights believes that the Lighting Barn will not c. decrease decrease build a new store, WeSellLights will d. increase increase a. not build a new store and it will earn no profit. e. decrease remain the same b. not build a new store because not building is the . Which of the following is NOT an example of product dominant strategy. differentiation ? c. build a new store and earn a $25,000 profit. a a clothing store that advertises jean jackets that will d. build a new store and earn a $100,000 profit. make anyone cool e. be indifferent as to whether or not to build a new store. b. a grocery store that chooses to locate closer to 32. Assume that WeSellLights offers the Lighting Barn customers than a competing grocer $30,000 not to build a new store. Given that new c. a chef who chooses to put arugula and spinach on information, in which case will a Nash equilibrium his hamburgers occur? d. a coffee house that offers drinks made from Fair a. If both companies build a new store. Trade coffee beans b. If WeSellLights builds a new store and the Lighting e. a farmer who doesn't advertise his watermelons Barn does not. because consumers already know that watermelon c. If WeSellLights does not build a new store and the tastes better than other produce Lighting Barn does. d. If neither company builds a new store. 18. Daddio Don and Fabulous Fred are hairstyling e. A Nash equilibrium does not exist. oligopolists. Daddio Don follows a tit-for-tat strategy and Fabulous Fred charged low prices in the previous Free-Response Questions period. What will Daddio Don do now? a. go out of business d. avoid all Nash 1. The Desert Oasis Water Company is a natural monopoly in the town of Dryville. The firm experiences a constant b. charge high prices equilibria e. form a cartel marginal cost and is currently operating at a loss. c. charge low prices a. Using a correctly labeled graph, illustrate the market 29. The long run in a monopolistically competitive industry for water in Dryville. is characterized by i. Label the profit-maximizing quantity @1- a. productive efficiency. ii. Label the profit-maximizing price P. b. allocation efficiency. ifi. Shade the area that represents the firm's loss. c. firms earning positive economic profits. iv. Label the allocatingly efficient quantity Qs d. firms operating at the minimum of their average b. In an effort to achieve the allocationy efficient quantity, the government of Dryville is considering total cost curves. a lump-sum subsidy (a fixed contribution of money) e. firms with excess capacity. for the Desert Oasis Water Company. Assuming that 4. In the short run, Marta's Zen Bakery earns profit in the firm would continue to operate with or without a monopolistically competitive industry. What will the subsidy, what effect will this subsidy have on the happen in this industry in the long run? firm's output level? Explain. (7 points) 2. Marta's demand curve will shift to the left. b. Marta's profit will increase. Other firms will exit the industry. d Nonprice competition will become impossible. e. Product differentiation will become impossible. Micro . Unit 4 Review 713