Exam 2 Flashcards
Firms in a monopolistically competitive market face \_\_\_\_\_\_\_\_ demand curves and earn \_\_\_\_\_\_\_\_ economic profits in the long run. A) downward sloping; zero B) downward sloping; negative C) horizontal; zero D) horizontal; negative
A) downward sloping; zero
A monopoly advertises A) to encourage entry by other firms. B) to decrease costs. C) to increase demand. D) to reduce deadweight loss.
C) to increase demand.
Assuming a homogeneous product, the Bertrand duopoly equilibrium price is
A) less than the Cournot equilibrium price.
B) equal to the monopoly price.
C) greater than the Cournot equilibrium price.
D) the same as the Cournot equilibrium price.
A) less than the Cournot equilibrium price.
Consumers are better off with pricing in the following order: 1)________; 2)________;
3)________. (The most prefereed goes first.)
A) single-price monopoly; perfectly competitive market; perfect price discrimination
B) perfectly competitive market; perfect price discrimination; single-price monopoly
C) perfectly competitive market; single-price monopoly; perfect price discrimination
D) perfect price discrimination; perfectly competitive market; single-price monopoly
C) perfectly competitive market; single-price monopoly; perfect price discrimination
Consumer surplus
A) is the difference between the maximum amount a consumer would willingly pay for a
good and the price actually paid.
B) equals zero in the long run.
C) is the extra money a consumer pays above the minimum necessary price for the producer to
produce it.
D) is the difference between what a consumer pays for a good and the producer’s cost.
A) is the difference between the maximum amount a consumer would willingly pay for a
good and the price actually paid.
One difference between a monopoly and a competitive firm is that
A) a monopoly is a price taker.
B) a monopoly maximizes profit by setting marginal revenue equal to marginal cost.
C) a monopoly faces a downward sloping demand curve.
D) a monopoly must worry about the free entry of competitors.
C) a monopoly faces a downward sloping demand curve.
A market failure occurs
A) when price equals the marginal cost of the last unit produced.
B) when deadweight loss is minimized.
C) whenever a firm shuts down.
D) when there is a non-optimal allocation that leads to an inefficient market.
D) when there is a non-optimal allocation that leads to an inefficient market.
(I allowed for 2 different correct answers on this problem.) If market price is greater than the
minimum of AVC but below the minimum of AC, then
A) economic profit is zero.
B) revenue covers variable costs and some of the fixed costs and profit is positive.
C) revenue covers variable costs and some of the fixed costs, although profit is negative.
D) the firm will shut down.
C) revenue covers variable costs and some of the fixed costs, although profit is negative.
D) the firm will shut down.
If two identifiable markets differ with respect to their price elasticity of demand and resale is
impossible, a firm with market power will
A) set a lower price in the market that is more price elastic.
B) set a higher price in the market that is more price elastic.
C) set price equal to marginal cost in both markets.
D) set price equal to variable cost in both markets.
A) set a lower price in the market that is more price elastic.
In the simplest version of the Cournot model, we assume the firms
A) are not in a Nash equilibrium.
B) set quantities independently and sequentially.
C) set quantities independently and simultaneously.
D) set price independently and simultaneously.
C) set quantities independently and simultaneously.
If ATC < p where MR = MC
A) firms earn negative profits and existing firms will leave.
B) firms earn positive profits and new firms will enter.
C) firms earn zero profits and new firms will not enter.
D) None of the above.
B) firms earn positive profits and new firms will enter.
In a sealed-bid, second-price auction, you should bid
A) a small amount less than you expect any other player to bid.
B) your reservation value.
C) the known common value of the good.
D) your estimate of what others value the good at.
B) your reservation value.
Which is an important aspect of perfectly competitive markets that leads to long run equilibrium? A) perfect information B) homogeneous products C) freedom of entry and exit D) price taking behavior
C) freedom of entry and exit
A consumer’s reservation price is the
A) minimum amount she will pay for a good or service.
B) price that maximizes her surplus.
C) maximum amount she will pay for a good or service.
D) maximum amount she would accept in order to resell a good or service.
C) maximum amount she will pay for a good or service.
If a market is controlled by a perfect-price-discriminating monopoly, then
A) consumer surplus is the same as under perfect competition.
B) output is less than that of a single-price monopoly.
C) there is no consumer surplus.
D) a deadweight loss is generated.
C) there is no consumer surplus.
Which of the following is NOT a characteristics of a perfectly competitive market?
A) There are only one or two sellers.
B) There are zero transaction costs.
C) There is free entry and exit.
D) Buyers and sellers have complete information.
A) There are only one or two sellers.
The term prisoners’ dilemma refers to a game in which
A) there are no Nash equilibria.
B) there are no dominant strategies.
C) the payoff from both players playing their dominant strategies is the same for each player.
D) the payoff from both players playing their dominant strategies is not the highest payoff
possible for both players.
D) the payoff from both players playing their dominant strategies is not the highest payoff
possible for both players.
With identical firms, constant input prices, and all the other characteristics of a competitive
market
A) a shift in demand will change the long-run equilibrium price and quantity.
B) a shift in demand has no effect on the long-run average cost, resulting in a change in
equilibrium quantity but not price.
C) a shift in demand has no effect on the long-run average cost, resulting in a change in
equilibrium price but not quantity.
D) a shift in demand has no effect on the long-run average cost and so there is no change in
equilibrium price and quantity.
B) a shift in demand has no effect on the long-run average cost, resulting in a change in
equilibrium quantity but not price.
A firm that has market power
A) can charge whatever it wants for its product and make a profit.
B) always has positive economic profits.
C) does not lose sales when increasing price.
D) can charge a price above marginal cost.
D) can charge a price above marginal cost.
A coordination game
A) always has no Nash equilibria.
B) is a game with multiple Nash equilibria where players can credibly coordinate to select one
of the equilibria.
C) cannot be solved with cheap talk.
D) always has one Nash equilibrium and no dominated strategies.
B) is a game with multiple Nash equilibria where players can credibly coordinate to select one of the equilibria.
All firms can increase profits using price discrimination.
A) false, because consumers aren’t forced to buy a producer’s products
B) false, because some firms are in competitive markets
C) true, because all market demand curves are downward sloping
D) true, because all firms can sell different versions of a product that are just right for an
individual consumer
B) false, because some firms are in competitive markets
A cartel is a group of firms that attempts to A) maximize joint profit. B) behave independently. C) increase consumer surplus. D) maximize joint revenue.
A) maximize joint profit.
If a firm is a price taker, then its marginal revenue will always equal A) zero. B) total cost. C) one. D) price.
D) price.
In the long run, firms in a competitive market
A) shut down because profit goes to zero.
B) are not profit maximizing.
C) lose money.
D) earn zero economic profit.
D) earn zero economic profit.
Two identical firms that share a market and produce identical products will find which of the following market outcomes LEAST desirable? A) Bertrand Oligopoly B) Cournot Oligopoly C) Cartel D) All are equally preferable.
A) Bertrand Oligopoly
A monopoly shuts down in the short-run when
A) the price is below its average variable costs.
B) never, because it can raise its prices as high as necessary to keep operating and maximize profits.
C) the price is above its average (total) costs.
D) the price is below its average fixed costs.
A) the price is below its average variable costs.
