Microecon Last Unit RETEST

The government of Annapolita has determined that the country’s power company, an unregulated natural monopolist, should be required to produce the allocatively efficient quantity of electricity. Which of the following actions will achieve the government’s goal?

• The government imposes a per-unit tax on each unit of output the monopoly produces and imposes a lump-sum tax on the monopolist to eliminate any remaining profit.

• The government sets the price at the point where demand and average total cost curves intersect and provides a lump-sum subsidy to the monopolist equal to the monopolist’s normal profit.

• The government sets the price at the point where demand and average total cost curves intersect and imposes a lump-sum tax on the monopolist to eliminate the monopolist’s normal profit.

• The government sets the price at the point where demand and marginal cost curves intersect and imposes a lump-sum tax on the monopolist to eliminate the monopolist’s normal profit.

• The government sets the price at the point where demand and marginal cost curves intersect and provides a lump-sum subsidy to the monopolist to earn normal profit.

At the current quantity that a firm is selling, the firm has marginal revenue of $750 and marginal cost of $800. Which of the following is true?

• The firm is maximizing profit.

• The firm’s profits would increase if the firm increased the quantity sold.

• The firm’s profits would increase if the firm decreased the quantity sold.

• The firm earns negative economic profit.

• The firm earns zero accounting profit.

A monopolistically competitive firm is currently producing the profit-maximizing level of output. If the price of a variable input increases, which of the following will occur?

• The firm will increase its output to increase its revenue.

• The firm will increase the price of its output by the same amount.

• The firm’s average total cost and marginal cost curves will shift upward.

• The firm’s average fixed cost will decrease as it decreases production.

• The firm’s fixed cost will increase, but its output level will be unaffected.

Which of the following is true of both monopolistically competitive and perfectly competitive firms in long-run equilibrium?

• Marginal revenue equals average total cost.

• Marginal cost equals average total cost.

• Price equals average total cost.

• Price is greater than marginal cost.

• Production occurs at minimum average total cost.

Rover’s Rest and Dave’s Den are the only two dog daycare companies in a town. Each firm is considering whether to run ads or to not run ads. The first entry in each cell shows Dave’s Den’s profit, and the second entry shows Rover’s Rest’s profit. Each dog daycare company independently and simultaneously chooses its strategy. Assume the two firms know all the information in the matrix and do not cooperate. Use the payoff matrix provided to answer the question.

Which of the following represents the Nash equilibrium?

• Dave’s Den chooses “Run Ads,” and Rover’s Rest chooses “No Ads.”

• Both Dave’s Den and Rover’s Rest choose “Run Ads.”

• Both Dave’s Den and Rover’s Rest choose “No Ads.”

• Dave’s Den chooses “No Ads,” and Rover’s Rest chooses “Run Ads.”

• There are multiple Nash equilibria.

When two firms interact in an oligopolistic market, which of the following statements is true?

• If one firm has a dominant strategy, then the other firm does not have a dominant strategy.

• If one firm has a dominant strategy, then the other firm also has a dominant strategy.

• Both firms must have dominant strategies.

• If one firm has a dominant strategy, then there is no Nash equilibrium.

• If both firms have dominant strategies, then there is a Nash equilibrium.

If the three largest widget producers control 85 percent of the total widget market, then these producers are operating in

• an oligopoly

• monopolistic competition

• perfect competition

• a monopoly

• a cartel

If the monopolist produces the allocatively efficient level of output rather than the profit-maximizing level of output, consumer surplus will

• decrease by the area P5JKP4

• decrease by the area P5JMP2

• increase by the area P5JGP1

• increase by the area P5JKP4

• increase by the area P5JMP2

If the monopolist chooses to maximize total revenue rather than total profit, it will choose which combination of price and output?

• Price: P1, Output: Q5

• Price: P2, Output: Q4

• Price: P3, Output: Q3

• Price: P4, Output: Q4

• Price: P5, Output: Q5

The socially optimal quantity of a public good is provided when

• the marginal private cost equals the marginal private benefit.

• total private cost equals total social benefit

• total social cost equals total social benefit

• the marginal private cost exceeds the marginal social benefit.

• marginal social cost equals marginal social benefit