Question 1

For productive efficiency to hold,

Accepted Answer

A)  price must equal the marginal cost of the last unit produced. 
B)  price must equal the marginal revenue of the last unit sold. 
C)  average variable cost is minimised in production. 
D)  average total cost is minimised in production. 
A)  price must equal the marginal cost of the last unit produced. 
B)  price must equal the marginal revenue of the last unit sold. 
C)  average variable cost is minimised in production. 
D)  average total cost is minimised in production. D

Question 2

Which of the following is true for a firm with a downward-sloping demand curve for its product?

Accepted Answer

A)  Price, average revenue and marginal revenue are all equal. 
B)  Price, average revenue and marginal revenue are all different. 
C)  Price equals average revenue, but is greater than marginal revenue. 
D)  Price equals average revenue, but is less than marginal revenue. 
A)  Price, average revenue and marginal revenue are all equal. 
B)  Price, average revenue and marginal revenue are all different. 
C)  Price equals average revenue, but is greater than marginal revenue. 
D)  Price equals average revenue, but is less than marginal revenue. C

Question 3

Every firm that has the ability to affect the price of the good or service it sells will

Accepted Answer

A)  have a perfectly elastic demand curve. 
B)  have a marginal revenue curve that lies below its demand curve. 
C)  earn a short-run profit but break even in the long run. 
D)  shut down in the short run. 
A)  have a perfectly elastic demand curve. 
B)  have a marginal revenue curve that lies below its demand curve. 
C)  earn a short-run profit but break even in the long run. 
D)  shut down in the short run. B

Question 4

OPEC periodically meets to agree to restrict the cartel's oil output,and yet almost every member of OPEC produces more than its own output quota.This suggests that OPEC has

Accepted Answer

A)  a cooperative equilibrium. 
B)  a non-cooperative equilibrium. 
C)  new potential entrants. 
D)  a threat of substitute goods. 
A)  a cooperative equilibrium. 
B)  a non-cooperative equilibrium. 
C)  new potential entrants. 
D)  a threat of substitute goods.

Question 5

Why does a prisoner's dilemma lead to a non-cooperative equilibrium?

Accepted Answer

A)  Because each player agreed before the game started to minimise the harm that he can inflict on the other players. 
B)  Because each player is uncertain how other players will play the game. 
C)  Because players must choose from a limited number of non-dominant strategies. 
D)  Because each rational player has a dominant strategy to play a certain way regardless of what other players do. 
A)  Because each player agreed before the game started to minimise the harm that he can inflict on the other players. 
B)  Because each player is uncertain how other players will play the game. 
C)  Because players must choose from a limited number of non-dominant strategies. 
D)  Because each rational player has a dominant strategy to play a certain way regardless of what other players do.

Question 6

Figure 9-14  
-Refer to Figure 9-14.Economies of scale are exhausted at which output level?

Accepted Answer

A)  Q1 units 
B)  Q2 units 
C)  Q3 units 
D)  More than Q1 units 
A)  Q1 units 
B)  Q2 units 
C)  Q3 units 
D)  More than Q1 units

Question 7

Figure 9-15   Figure 9-15 illustrates a monopolistically competitive firm.
-Refer to Figure 9-15.It is possible to lower the average cost of production by expanding output beyond Q0 to Q1.Why wouldn't a firm expand its output to Q1?

Accepted Answer

A)  The firm wants to maximise accounting profit rather than economic profit. 
B)  The firm would suffer an economic loss at Q1 while it would break even at Q0. 
C)  The firm's marginal revenue would be negative at Q1. 
D)  Demand is not sufficient for consumers to buy Q1. 
A)  The firm wants to maximise accounting profit rather than economic profit. 
B)  The firm would suffer an economic loss at Q1 while it would break even at Q0. 
C)  The firm's marginal revenue would be negative at Q1. 
D)  Demand is not sufficient for consumers to buy Q1.

Question 8

In most business situations where firms compete,often they can escape the prisoner's dilemma and reach the most profitable outcome.Which of the following is a reason for this?

Accepted Answer

A)  Firms engage in aggressive advertising to overcome the barriers to loyalty. 
B)  Most games are one-shot games so firms learn from their mistakes. 
C)  Most games are repeated games and firms can employ retaliation strategies against those who do not cooperate. 
D)  Firms are constantly improving their products and anticipating changing consumer tastes. 
A)  Firms engage in aggressive advertising to overcome the barriers to loyalty. 
B)  Most games are one-shot games so firms learn from their mistakes. 
C)  Most games are repeated games and firms can employ retaliation strategies against those who do not cooperate. 
D)  Firms are constantly improving their products and anticipating changing consumer tastes.

Question 9

If a monopolistically competitive firm lowers its price and,as a result,its total revenue decreases,then

Accepted Answer

A)  the output effect of the price change was less than the price effect. 
B)  the output effect of the price change was greater than the price effect. 
C)  the firm's demand curve must have decreased. 
D)  the substitution effect of the price change was greater than the income effect. 
A)  the output effect of the price change was less than the price effect. 
B)  the output effect of the price change was greater than the price effect. 
C)  the firm's demand curve must have decreased. 
D)  the substitution effect of the price change was greater than the income effect.

Question 10

Figure 9-8   Figure 9-8 shows cost and demand curves for a monopolistically competitive producer of iced tea.
-Refer to Figure 9-8.Based on the diagram,one can conclude that

Accepted Answer

A)  some existing firms will exit the market. 
B)  new firms will enter the market. 
C)  the industry is in long-run equilibrium. 
D)  firms achieve productive efficiency. 
A)  some existing firms will exit the market. 
B)  new firms will enter the market. 
C)  the industry is in long-run equilibrium. 
D)  firms achieve productive efficiency.

Question 11

Interdependence of firms is most common in

Accepted Answer

A)  monopolistically competitive industries. 
B)  monopolistic industries. 
C)  monopolistically competitive and oligopolistic industries. 
D)  oligopolistic industries. 
A)  monopolistically competitive industries. 
B)  monopolistic industries. 
C)  monopolistically competitive and oligopolistic industries. 
D)  oligopolistic industries.

Question 12

Long-run equilibrium under monopolistic competition is similar to that under perfect competition in that

Accepted Answer

A)  firms produce at the minimum point of their average cost curves. 
B)  price equals marginal cost. 
C)  firms earn normal profits. 
D)  price equals marginal revenue. 
A)  firms produce at the minimum point of their average cost curves. 
B)  price equals marginal cost. 
C)  firms earn normal profits. 
D)  price equals marginal revenue.

Question 13

Figure 9-6  
-Refer to Figure 9-6.Suppose Dell finds the relationship between the average total cost of producing notebook computers and the quantity of notebook computers produced is as shown by Figure 9-6.Dell will maximise profits if it produces ________ notebook computers per month.

Accepted Answer

A)  100 000 
B)  200 000 
C)  300 000 
D)  Not enough information is given to determine the profit-maximising quantity. 
A)  100 000 
B)  200 000 
C)  300 000 
D)  Not enough information is given to determine the profit-maximising quantity.

Question 14

Suppose Jason owns a small pastry shop.Jason wants to maximise his profit,and thinking back to the university microeconomics class he took,he decides he needs to produce a quantity of pastries which will minimise his average total cost.Will Jason's strategy necessarily maximise profits for his pastry shop?

Accepted Answer

A)  Yes; since Jason's pastry shop is in a perfectly competitive market, the only way to maximise profit is to produce the quantity where average total cost is minimised. 
B)  Not necessarily; this strategy will only maximise Jason's profit in the long run, but not in the short run. 
C)  No; in order to maximise profit, Jason would never want to produce the quantity where average total cost is minimised. 
D)  Not necessarily; depending on demand, Jason may maximise profit by producing a quantity other than that where average total cost is at a minimum. 
A)  Yes; since Jason's pastry shop is in a perfectly competitive market, the only way to maximise profit is to produce the quantity where average total cost is minimised. 
B)  Not necessarily; this strategy will only maximise Jason's profit in the long run, but not in the short run. 
C)  No; in order to maximise profit, Jason would never want to produce the quantity where average total cost is minimised. 
D)  Not necessarily; depending on demand, Jason may maximise profit by producing a quantity other than that where average total cost is at a minimum.

Question 15

Which of the following economists did not help to develop game theory analysis?

Accepted Answer

A)  Adam Smith 
B)  John Nash 
C)  John von Neumann 
D)  Oskar Morgenstern 
A)  Adam Smith 
B)  John Nash 
C)  John von Neumann 
D)  Oskar Morgenstern

Question 16

Figure 9-14  
-Refer to Figure 9-14.What is the area that represents the firm's profit?

Accepted Answer

A)  Profit = 0 
B)  P4edP2 
C)  P4eaP1 
D)  P3baP2 
A)  Profit = 0 
B)  P4edP2 
C)  P4eaP1 
D)  P3baP2

Question 17

Table 9-8   Firm A (Alistair's) and Firm B (Baine's) are the only firms selling luggage in the upscale city of Adelaide. Each firm must decide on whether to increase its advertising spending to compete for customers. If one firm increases its advertising budget but the other does not, then the firm with the higher advertising budget will increase its profit. Table 9-8 shows the payoff matrix for this advertising game.
-Refer to Table 9-8.Does Alistair have a dominant strategy and,if so,what is it?

Accepted Answer

A)  Yes, Alistair should increase its advertising budget. 
B)  Yes, Alistair should keep its advertising budget as is. 
C)  There are two dominant strategies: if Baine increases its advertising budget, then Alistair's best bet is to keep its budget the same, but if Baine does not increase its spending, then Alistair should increase its advertising budget. 
D)  No, there is no dominant strategy. 
A)  Yes, Alistair should increase its advertising budget. 
B)  Yes, Alistair should keep its advertising budget as is. 
C)  There are two dominant strategies: if Baine increases its advertising budget, then Alistair's best bet is to keep its budget the same, but if Baine does not increase its spending, then Alistair should increase its advertising budget. 
D)  No, there is no dominant strategy.

Question 18

Which of the following is true of a typical firm in a monopolistically competitive industry?

Accepted Answer

A)  Product differentiation allows a successful firm to emerge as a market leader in the industry. 
B)  All firms have identical cost structures. 
C)  The more successful firms have an incentive to merge in order to exert greater market power. 
D)  Each firm acts independently. 
A)  Product differentiation allows a successful firm to emerge as a market leader in the industry. 
B)  All firms have identical cost structures. 
C)  The more successful firms have an incentive to merge in order to exert greater market power. 
D)  Each firm acts independently.

Question 19

In monopolistic competition,if a firm produces a highly desirable product relative to its competitors,the firm will be able to raise its price without losing any customers.

Accepted Answer

A) True 
 B)False

Question 20

Tony's Italian Ice is a monopolistically competitive firm.If Tony's earns a profit in the short run,which of the following is most likely to occur?

Accepted Answer

A)  New firms that sell Italian ice will enter the market and Tony's cost curves will shift to the left. 
B)  New firms that sell Italian ice will enter the market and Tony's demand curve will shift to the left. 
C)  New firms that sell Italian ice will enter the market and Tony's demand curve will shift to the right. 
D)  New firms that sell Italian ice will enter the market and Tony's demand curve will become more inelastic. 
A)  New firms that sell Italian ice will enter the market and Tony's cost curves will shift to the left. 
B)  New firms that sell Italian ice will enter the market and Tony's demand curve will shift to the left. 
C)  New firms that sell Italian ice will enter the market and Tony's demand curve will shift to the right. 
D)  New firms that sell Italian ice will enter the market and Tony's demand curve will become more inelastic.

For productive efficiency to hold,

Which of the following is true for a firm with a downward-sloping demand curve for its product?

Every firm that has the ability to affect the price of the good or service it sells will

OPEC periodically meets to agree to restrict the cartel's oil output,and yet almost every member of OPEC produces more than its own output quota.This suggests that OPEC has

Why does a prisoner's dilemma lead to a non-cooperative equilibrium?

Figure 9-14 -Refer to Figure 9-14.Economies of scale are exhausted at which output level?

Figure 9-15 Figure 9-15 illustrates a monopolistically competitive firm. -Refer to Figure 9-15.It is possible to lower the average cost of production by expanding output beyond Q₀ to Q₁.Why wouldn't a firm expand its output to Q₁?

In most business situations where firms compete,often they can escape the prisoner's dilemma and reach the most profitable outcome.Which of the following is a reason for this?

If a monopolistically competitive firm lowers its price and,as a result,its total revenue decreases,then

Figure 9-8 Figure 9-8 shows cost and demand curves for a monopolistically competitive producer of iced tea. -Refer to Figure 9-8.Based on the diagram,one can conclude that

Interdependence of firms is most common in

Long-run equilibrium under monopolistic competition is similar to that under perfect competition in that

Figure 9-6 -Refer to Figure 9-6.Suppose Dell finds the relationship between the average total cost of producing notebook computers and the quantity of notebook computers produced is as shown by Figure 9-6.Dell will maximise profits if it produces ________ notebook computers per month.

Which of the following economists did not help to develop game theory analysis?

Figure 9-14 -Refer to Figure 9-14.What is the area that represents the firm's profit?

Which of the following is true of a typical firm in a monopolistically competitive industry?

In monopolistic competition,if a firm produces a highly desirable product relative to its competitors,the firm will be able to raise its price without losing any customers.

Tony's Italian Ice is a monopolistically competitive firm.If Tony's earns a profit in the short run,which of the following is most likely to occur?

Economics: Foundations and Models

Trade-Offs, comparative Advantage, and the Market System

Where Prices Come From: the Interaction of Demand and Supply

Market Efficiency and Market Failure

The Economics of Healthcare

Firms,the Stock Market,and Corporate Governance

Consumer Choice and Elasticity

Technology, production, and Costs

Monopoly and Antitrust

Monopolistic Competition and Oligopoly

GDP: Measuring Total Production and Income

Unemployment and Inflation

Economic Growth, the Financial System and Business Cycles

Aggregate Demand and Aggregate Supply Analysis

Money, banks, and the Federal Reserve System

Monetary Policy

Fiscal Policy

Comparative Advantage, international Trade, and Exchange Rates

Filters

Exam 9: Firms in Perfectly Competitive Markets

For productive efficiency to hold,

Which of the following is true for a firm with a downward-sloping demand curve for its product?

Every firm that has the ability to affect the price of the good or service it sells will

OPEC periodically meets to agree to restrict the cartel's oil output,and yet almost every member of OPEC produces more than its own output quota.This suggests that OPEC has

Why does a prisoner's dilemma lead to a non-cooperative equilibrium?

Figure 9-14 -Refer to Figure 9-14.Economies of scale are exhausted at which output level?

Figure 9-15 Figure 9-15 illustrates a monopolistically competitive firm. -Refer to Figure 9-15.It is possible to lower the average cost of production by expanding output beyond Q0 to Q1.Why wouldn't a firm expand its output to Q1?

In most business situations where firms compete,often they can escape the prisoner's dilemma and reach the most profitable outcome.Which of the following is a reason for this?

If a monopolistically competitive firm lowers its price and,as a result,its total revenue decreases,then

Figure 9-8 Figure 9-8 shows cost and demand curves for a monopolistically competitive producer of iced tea. -Refer to Figure 9-8.Based on the diagram,one can conclude that

Interdependence of firms is most common in

Long-run equilibrium under monopolistic competition is similar to that under perfect competition in that

Figure 9-6 -Refer to Figure 9-6.Suppose Dell finds the relationship between the average total cost of producing notebook computers and the quantity of notebook computers produced is as shown by Figure 9-6.Dell will maximise profits if it produces ________ notebook computers per month.

Which of the following economists did not help to develop game theory analysis?

Figure 9-14 -Refer to Figure 9-14.What is the area that represents the firm's profit?

Which of the following is true of a typical firm in a monopolistically competitive industry?

In monopolistic competition,if a firm produces a highly desirable product relative to its competitors,the firm will be able to raise its price without losing any customers.

Tony's Italian Ice is a monopolistically competitive firm.If Tony's earns a profit in the short run,which of the following is most likely to occur?

Economics: Foundations and Models

Trade-Offs, comparative Advantage, and the Market System

Where Prices Come From: the Interaction of Demand and Supply

Market Efficiency and Market Failure

The Economics of Healthcare

Firms,the Stock Market,and Corporate Governance

Consumer Choice and Elasticity

Technology, production, and Costs

Monopoly and Antitrust

Monopolistic Competition and Oligopoly

GDP: Measuring Total Production and Income

Unemployment and Inflation

Economic Growth, the Financial System and Business Cycles

Aggregate Demand and Aggregate Supply Analysis

Money, banks, and the Federal Reserve System

Monetary Policy

Fiscal Policy

Comparative Advantage, international Trade, and Exchange Rates

Filters

Figure 9-15 Figure 9-15 illustrates a monopolistically competitive firm. -Refer to Figure 9-15.It is possible to lower the average cost of production by expanding output beyond Q₀ to Q₁.Why wouldn't a firm expand its output to Q₁?