Ex3As10 to Post

8/7/2019 Ex3As10 to Post

1/5

ECONOMICS 202 EXAM 3A SPRING 2010

ANSWER THE NEXT 9 QUESTIONS USING THESE OPTIONS:

1. Oligopoly; 2. Perfect Competition; 3. Monopoly; 4. Monopolistic Competition

1. In which market structure(s) are both producers and consumers price-searchers?

a. 1; b. 2; c. 3; d. 1 and 2; e. none above

2. The short-run shut-down rule is applicable in:a. 1; b. 2; c. 3; d. 4; e. all above.

3. In this market structure there is a large number of sellers, the product of each seller has many good, but notperfect substitutes and in the long-run economic profits = 0.

a. 1; b. 2; c. 3; d. 4; e. none above

4. In which market structure is it true that, if TR > TC, then economic profits > 0, and normal profits > 0?

a. 1; b. 2; c. 3; d. 4; e. all above

5. In both the short-run and long-run in _____ , the firm produces a quantity at which P > MC.

a. 1; b. 3; c. 4; d. all above; e. none above

6. In this industry an important feature is mutual interdependence among firms.

a. 1; b. 2; c. 3; d. 4; e. none above

7. In this industry the firms demand curve is also the market demand curve.

a. 1; b. 2; c. 3; d. 4; e. 2 & 3.

8. In this industry, in the long-run economic profits = 0.

a. 1 & 2; b. 2 & 3; c. 3 & 4; d. 2 & 4; e. none above

9. In this industry, firms have some degree of monopoly power.

a. 1 & 2; b. 2 & 3; c. 1, 2 & 3; d. 1, 3 & 4; e. 1, 2, 3 & 4

10. If an airline is charging different fares to different customers who are flying to the same destination andsitting in the same class, this is an example of:a. a collusive cartel; b. price discrimination; c. a barrier to entry; d. covering variable costs; e. kinked demand.

11. Ignoring the shut-down option, in perfect comp. the loss minimizing rule is: produce the quantity where:a. MC = ATC; b. MR = P; c. MC = MR; d. P = AVC; e. none above

ANSWER THE NEXT QUESTION BY IDENTIFYING THE APPROPRIATE SET FROM THESE EIGHT OPTIONS:

1. AVC = S; 2. P = ATCMIN ; 3. P = MC; 4. P > MR; 5. P = AVCMIN;

6. QS = QD; 7. Ec Profits > 0; 8. Ec Profits = 0;

12. The long-run equilibrium conditions in perfect competition are:

a. 2, 3, 5, 6; b. 1, 4, 6, 8; c. 2, 3, 6, 8; d. 2, 3, 5, 8; e. none above.

13. In all market structures (environments) it is assumed the objective of the firm is to:a. maximize total revenue; b. minimize total costs; c. maximize marginal economic profits;d. maximize total economic profits; e. a, b and d.

14 Which of the following is an example of a barrier to entry in monopoly:a. patents; b. economies of scale; c. exclusive government franchise to sell; d. all above; e. none above.


2/5

2

ANSWER THE NEXT 6 QUESTIONS WITH REFERENCE TO THE ADJACENT DIAGRAM OF A PERFECTLYCOMPETITIVE FIRM THAT BEHAVES CONSISTENT WITH THE PROFIT-MAXIMIZING RULE. ASSUME THIS ISA CONSTANT-COST INDUSTRY.

15. If P = X, this firm will produce Q = :

a. zero; b. B; c. C; d. D; e. E

16. At which price will firms enter this industry in the long-run?a. V; b. W; c. X; d. Y; e. none above.

17. At which price would economic profits = 0?

a. V; b. W; c. X; d. Y; e. Z

18. If P = Z and Q = G, marginal economic profits are:

a. = 0; b. > 0; c. < 0; d. not enough information to answer.

19. If P = X and Q = D, this must be a short-run equilibrium. After we have reached the new long-runequilibrium, all of the following is correct except:

a. Price will have risen above X; b. there will be fewer firms in the industry; c. economic profits will have risen;d. total market output will have decreased; e. none above, i.e., a - d are all correct.

20. Assume the market price = Y and firm is producing at E. If the firm raises its price to Z and increases itsproduction to F, the change in its economic profits will be:

a. = 0; b. < 0; c. > 0; d. could be equal to or greater than 0; e. none above.

21. Assume a perfectly competitive firm is producing where Q = 100, TR = 900, MC = 10, ATC = 11,and AVC = 8. In the short-run, this firm should:a. increase production; b. decrease production but not shut-down; c. not change the level of production;d. shut-down; e. none above.

22. A cruise ship is departing tomorrow for five days in the south seas. It has five unsold cabins. Theaverage variable cost per cabin is $2,000, the average fixed cost is $3,000 per cabin. Prior to today theprice per cabin was $8,000. Not wanting to sail with empty cabins, it is clear that it must reduce its priceto attract more passengers. What is the lowest price it can charge for each cabin and be better off thansailing with empty cabins. (Assume no other prices than the following are possible.)

a. $2,010; b. $1,990; c. $2,990; d. $3,010; e. $7,990.

ANSWER THE NEXT 4 QUESTIONS WITH REFERENCE TO THE

ADJACENT DIAGRAM OF A PERFECTLY COMPETITIVE INDUSTRY.

23. If there are no price controls, the gains from trading received

by all participants in this market is represented by the area:

a. OAMZ; b. CAM; c. FEK; d. FCM; e. FAM

24. If a price flooris set at B, Total Producer Surplus = :

a. OCHL; b. OAGL; c. FBGK; d. CAGH; e. none above.

25. If a price ceilingwere set at E, what part of the dead-weight

loss was lost by producers?

a. KGM; b. LGMZ; c. KHM; d. HGM; e. LHMZ

26. Assume this market was in equilibrium without any price controlsand then a price ceilingwas set at E. Then the area that representsa wealth transfer from consumers to producers is:

a. ECHK; b. CBGH; c. EBGK; d. FAGK; e. none above.


3/5

3

27. Assume neither demand nor supply is perfectly elastic or perfectly inelastic and the perfectly competitivemarket is initially in equilibrium with no price controls. Then an effective price floor:a. may or may not enlarge TCS, but it will always diminish TPS.b. may or may not enlarge TPS, but will always enlarge TCS.c. may or may not enlarge TPS, but will always diminish TCS and TMSd. may or may not diminish TPS or TCS, but will always diminish TMSe. none above.

ANSWER THE NEXT 5 QUESTIONS WITH REFERENCE TO THE FOLLOWING DIAGRAM OF A SINGLE-PRICEMONOPOLIST THAT BEHAVES CONSISTENT WITH THE PROFIT-MAXIMIZING RULE.

28. The profit-maximizing price and quantity are, respectively:

a. X, T; b. Y, K; c. Z, K; d. W, G; e. none above.

29. If P = X, total economic profits > zero, but the marginal

economic profit on unit T is negative.

30. If the salary of this monopolys CEO is 10 percent of its

total revenues, and if this CEO wanted to maximize her salary,

she would set price =:

a. Y; b. X; c. W; d. Z; e. V.

31. If this monopoly were at Q = T, it could raise its

its price to W, and the result would be an increase in

both total revenue and economic profits.

32. The price that would maximize the total gains to trading is:

a. Y; b. X; c. W; d. Z; e. V.

33. The Classic Case Against Monopoly concludes that as compared to perfect competition the monopolistproduces a larger quantity and charges a higher price.

34. To be a successful multi-price monopolist, the firm must satisfy all of the following conditions EXCEPT:a. it must have a negatively sloping demand function.b. must have some degree of monopoly powerc. it must be able to identify differences in willingness to pay among its customers.d. it must discourage and minimize the resale of its product.e. none above, that is, there is no exception; a - d are all necessary conditions.

35. If a firm is a multi-price monopolist, c.p., it will charge a lower price to customers whose demand is moreelastic and a higher price to customers whose demand is less elastic.

36. Assume two firms, X and Y, engage in advertising programs with the same cost. For firm X the programcaused its |ED| to change from 3.3 to 4.7 while for Firm Y its |ED| changed from 6.4 to 5.1. Ceteris paribus,

we conclude that Xs program was more successful than Ys.

37. Assume industries G and H have four-firm concentration ratios of 83 percent and 21 percent,respectively. If the only information we have about these industries is that one is Oligopoly and the otheris Monopolistic Competition, we conclude that H is Oligopoly and G is Monopolistic Competition.

38. The capability of a product sold by one firm to function together with another firms complementaryproduct is the definition of:a. the network effect; b. product compatibility; c. positive market feed back;d. a cooperative game; e. a positive sum game.


4/5

4

39. Actions that focus on short-run gains because long-run benefits of cooperation are perceived to besmaller, is the definition of:a. cooperative behavior; b. opportunistic behavior; c. a collusive cartel;d. tit-for-tat behavior; e. none above.

Using the procedure we discussed in class when we studied the prisoners dilemma type of game,consider the following matrix of profitpayoffs. Assume the game is played only once and the participantsare unable to communicate with each other. ANSWER THE NEXT QUESTION BASED UPON THIS TABLE

FIRM A

Strategy 1 Strategy 2

FIRM B

Strategy 1A: 20

B: 60

A: 40

B: 30

Strategy 2A: 10

B: 50

A: 30

B: 40

40. The best (dominant) strategy for Firms A and B are, respectively:a. 1 and 1b. 2 and 2c. 1 and 2;d. 2 and 1;e. 2, there is no single best strategy for B because the best is different with each strategy followed by A.


5/5

5

ECONOMICS 202, SPRING 2010OFFICIAL KEY TO EXAM 3

WHITE ANS

1 E

2 E

3 D

4 E

5 D

6 A

7 C

8 D

9 D

10 B

11 C

12 C

13 D

14 D

15 D

16 E17 D

18 C

19 E

20 B

21 B

22 A

23 E

24 C

25 C

26 E

27 C

28 C29 A

30 C

31 A

32 B

33 B

34 E

35 A

36 B

37 B

38 B

39 B

40 E

Ex3As10 to Post

Documents

Transcript of Ex3As10 to Post