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WorksheetsFinal Study guild
Total questions: 94
Worksheet time: 24hrs 30mins
Compared to a firm under perfect competition, a monopolist ________.
charges more and produces less
charges less and produces more
charges less and produces less
charges more and produces more
A firm with market power ________.
has long-run economic profits of zero
faces a horizontal demand curve
faces a downward-sloping demand curve
has no ability to affect price
The monopoly market structure is characterized by ________.
free entry and exit
government regulation of price
high barriers to entry
low barriers to entry
Natural barriers to entry ________.
include patent laws and exclusive franchises
must be sustained by government regulation
result from an increasing long-run average cost curve
most commonly arise through economies of scale
A ________ is the privilege granted to an individual or company by the government that gives them the sole right to produce and sell a good.
copyright
trademark
brand
patent
Natural monopolies are characterized by facing a(n) ________.
constant average cost curve
declining average cost curve
increasing average cost curve
horizontal demand curve
If a monopolist decides to charge a higher price for its product, it will yield a ________ revenue per unit sold and ________ number of units sold.
higher; lower
lower; lower
lower; higher
higher; higher
Marginal revenue is less than the price for a monopolist because ________.
the firm sets the price
there are no close substitutes for the firm's product
a monopolist must lower its price to sell another unit of output
none of the above
The quantity effect of a price reduction causes a(n) ________.
decrease in labor demand due to a lower price of the final product
increase in revenue due to increased sales
increase in labor demand due to increased sales of the product
decrease in revenue due to a lower price
At the profit-maximizing level of production of a monopolist, ________.
both marginal revenue and marginal cost are negative
marginal revenue exceeds marginal cost
marginal revenue is less than marginal cost
marginal revenue equals marginal cost
Which of the following statements is true?
Under monopoly, prospective buyers may not be able to buy a good even if they have a willingness to pay above marginal costs.
Under perfect competition, prospective buyers may not be able to buy a good even if they have a willingness to pay above marginal costs.
Under perfect competition, sellers set the price of their goods below marginal costs.
Under monopoly, the seller sets the price of its good below marginal costs.
When firms charge different prices to different consumers for the same good or service, it is referred to as ________.
price discrimination
a price bias
shadow pricing
predatory pricing
If a monopoly engages in first-degree price discrimination, ________.
consumer surplus is maximized
deadweight loss is maximized
producer surplus is minimized
social surplus is maximized
The policy that aims to regulate and prevent anti-competitive pricing in the United States is referred to as ________ policy.
monopoly regulation
antitrust
consumer protection
anticompetition
If the government imposes marginal cost pricing on a firm with a natural monopoly, the firm will ________.
earn a positive economic profit
earn any level of profit or loss
earn a negative economic profit
earn zero economic profit
Fair-returns pricing describes a situation in which government regulation of price sets the monopolist's price at ________.
minimum average variable cost
marginal cost
average total cost
minimum average total cost
Game theory is the study of ________.
strategic interactions
irrational decision making
program evaluation
policy analysis
________ helps an individual make economic decisions when the individual's behavior determines the payoffs to others.
Empiricism
Game theory
Public economics
Macroeconomics
A ________ is a complete plan describing how a player will act.
policy
strategy
hypothesis
payoff
A payoff matrix shows the ________.
different combinations of two goods that can be bought with a given income
payments made to the owners of each factor of production for the production of a good
return from each action that players can take in a game
various combinations of inputs required to produce a good
In a simultaneous-move game, ________.
each player has to make his choice without knowing his rival's choice
each player has to make his choice after knowing his rival's choice
there is always more than one Nash equilibrium
there is always more than one dominant strategy equilibrium
Yes. Regardless of whether Mountain Dew chooses to advertise, Mello Yello's profits are always highest if it advertises.
Yes. Regardless of whether Mountain Dew chooses to advertise, Mello Yello's profits are always highest if it does not advertise.
No.
Not enough information is provided to answer the question.
A best response is ________.
an action choice that results in equal payoffs to all the players in a game
one player's optimal action choice taking the other player's action as given
an action choice that always results in a zero payoff to the opponent
one player's optimal action choice taken irrespective of the action of the other player
A player has a dominant strategy when ________.
she has only one best response to every possible strategy of the other player
her chosen strategy matches the best response of the other player in the game
she has many best responses to any strategy of the other player in the game
her chosen strategy gives her a lower payoff than the other player
Which of the following is true of a Nash equilibrium?
A Nash equilibrium cannot occur if each player is aware of the strategies of other players.
A Nash equilibrium occurs if each player earns a zero payoff irrespective of the strategy he chooses.
A game can have only one Nash equilibrium.
No player can improve his payoff by changing his strategy in a Nash equilibrium.
This game has two dominant strategy equilibria.
This game has two Nash equilibria.
This game has a dominant strategy equilibrium.
This game has one Nash equilibrium.
Firm 2 will dump its waste into the river, and Firm 1 will not dump its waste.
Firm 1 will dump its waste into the river, and Firm 2 will not dump its waste.
Neither of the firms will dump its waste into the river.
Both firms will dump their waste into the river.
A strategy is called a mixed strategy if it involves choosing ________.
different actions randomly
an action that yields a higher payoff to the opponent
one particular action for a situation
an action that yields a zero payoff to the player
The optimal strategy of a goalie in penalty kicking is similar to that in ________.
the prisoners' dilemma
an extensive-form game
a symmetric game
a zero-sum game
Which of the following is true of an extensive-form game?
It involves simultaneous decision making by the players.
It involves sequential decision making by the players.
The players in the game earn equal payoffs in equilibrium.
The sum of the payoffs to the players in the game is always constant.
Firm 1 should never choose to offer a discount regardless of Firm 2's plan.
Firm 2 should offer a discount if Firm 1 offers a discount.
Firm 2 should never offer a discount regardless of Firm 1's choice.
Firm 2 should always offer a discount regardless of Firm 1's plan.
Goods that are similar but are not perfect substitutes are called ________ goods.
normal
differentiated
homogeneous
inferior
Which option correctly sorts different market structures in terms of competitiveness, from the most competitive to the least?
Monopolistic competition, perfect competition, monopoly, oligopoly
Perfect competition, monopolistic competition, oligopoly, monopoly
Perfect competition, monopolistic competition, monopoly, oligopoly
Perfect competition, monopolistic competition, monopoly, oligopoly
________ is a market structure in which many rival firms produce differentiated products.
An oligopoly
A monopoly
Perfect competition
Monopolistic competition
Which of the following is a difference between an oligopoly with homogeneous products and a monopoly?
The firms in an oligopoly with homogeneous products earn positive economic profits in the long run, while a monopoly earns zero economic profits in the long run.
There are huge barriers to entry in an oligopoly with identical products, while there are no barriers to entry in a monopoly.
The firms in an oligopoly with identical products charge a price higher than marginal cost in the long run, while a monopoly charges a price lower than marginal cost in the long run.
The firms in an oligopoly with homogeneous products face stiff competition from their rivals, while there is no competition in a monopoly.
Which of the following is a feature of an oligopoly?
There are a large number of sellers in this market.
Each firm in this market earns zero economic profits.
Each firm's actions affect the decisions of its rivals in this market.
There are no barriers to entry in this market.
Under Bertrand competition, ________.
the Nash equilibrium is marginal cost pricing (the perfectly competitive outcome)
there are multiple Nash equilibria
the Nash equilibrium is monopoly pricing
there is no set of strategies that lead to a Nash equilibrium
La Dila and Swiss Pro are the only two firms in an industry. The firms initially charge equal prices for their products, which are perfect substitutes. What happens if La Dila decides to lower its price slightly?
La Dila will face the entire market demand.
La Dila will lose all its market share.
Swiss Pro will earn positive economic profits.
Swiss Pro will gain market share.
In an oligopoly industry with differentiated products, price ________.
is always the same as the monopoly price
is unaffected by the number of firms in the industry
typically increases as the number of firms increases
typically decreases as the number of firms increases
As the number of firms in an oligopolistic market increases, ________.
prices tend to rise above marginal cost
the profits earned by firms tend to rise
the market demand for a good tends to fall
prices tend to decline toward marginal cost
Collusion occurs when firms ________.
compete with one another by setting a price slightly lower than their rivals' prices
charge a price equal to their marginal cost of production
conspire to set the quantity they produce or the prices they charge
compete with one another by differentiating their products
A ________ is a plan by one firm to price a good at marginal cost forever if the other cheats on an agreement.
pure strategy
grim strategy
collusion
price discrimination
A ________ is a formal organization of producers who agree on anticompetitive actions.
partnership
duopoly
monopoly
cartel
The residual demand curve facing a firm in a monopolistically competitive industry is ________.
identical to the demand curve facing a perfectly competitive firm
the demand that is not satisfied by other producers
the firm's marginal revenue schedule
identical to the market demand curve
A monopolistically competitive firm ________.
loses all of its business if it increases price slightly
faces a perfectly inelastic demand curve
can increase price without losing all of its business
faces a perfectly elastic demand curve
A monopolistically competitive firm makes positive economic profits if ________.
price is less than average total cost
price equals average fixed cost
price is higher than average total cost
price equals marginal cost
A monopolistically competitive firm shuts down in the short run if ________.
average total cost exceeds price
marginal revenue covers average fixed costs
marginal revenue equals marginal cost
total revenues do not cover variable costs
The exit of firms from a monopolistically competitive market structure causes the demand curves facing the existing sellers to shift ________ and to become ________.
leftward; steeper
rightward; steeper
rightward; flatter
leftward; flatter
A firm is said to have market power if it charges a price ________ of production.
higher than the marginal cost
equal to the marginal cost
lower than the marginal cost
equal to the average fixed cost
The long-run equilibrium for a monopolistically competitive firm occurs ________.
along the upward-sloping portion of its average total cost curve
at the minimum point of its marginal cost curve
along the downward-sloping portion of its average total cost curve
at the minimum point of its average cost curve
Oligopolists merge to ________.
reduce prices
increase market power
increase market supply
increase market demand
An industry is deemed concentrated when ________.
each firm in that industry has a small market share
a few firms account for a large fraction of the total sales in that industry
all the firms in that industry charge a price lower than the average cost of production
most of the firms in that industry earn zero economic profits in the long run
The ________ the Herfindahl-Hirschman Index, the ________ is.
higher; less concentrated an industry
higher; more concentrated an industry
lower; more concentrated an industry
lower; higher the profits earned in an industry
When one firm merges with one of its suppliers, this is referred to as a:
horizontal merger
output merger
conglomerate merger
vertical merger
Under the dominant-firm ("Godfather") price leadership model,
all firms but the dominant firm are price takers.
the market can be characterized as a balanced oligopoly
the demand curve faced by the dominant firm is steeper than the market demand curve.
All of the above are correct.
All of the above are correct.
a vertical merger
a horizontal merger
a leveraged buyout
a diversified merger
In which of the following market structures is there at least the possibility of earning profits in the long-run equilibrium?
Monopoly only
Monopolistic competition, monopoly, and oligopoly
Perfect competition and monopolistic competition
Monopoly and oligopoly
Which of the following describes a feature of a monopolistically competitive market?
Social surplus is not maximized, but product diversity may add to consumer welfare.
Social surplus is maximized, and some products will be priced below the competitive level.
Social surplus is not maximized, but the prices will be lower than the competitive level.
Social surplus is maximized but at prices possibly above the competitive level.
In a market with asymmetric information, ________.
sellers have very low bargaining power
buyers and sellers have different information about the good being traded
people tend to overuse a resource is such a way that it gets exhausted
people with an informational disadvantage experience positive externalities
In a market with asymmetric information, gains from trade occur if ________.
the opportunity cost of consuming a good is zero
the value of a good to a buyer is greater than its value to a seller
the value of a good to a seller is greater than its value to a buyer
the variable cost of producing a good is zero
Scenario: Tom wants to buy a used iPhone from an online exchange Web site. He expects 50 percent of the used phones to have some defect. He is willing to pay up to $80 for a phone without any defect and $0 for a defective phone. An owner of a good-quality iPhone is likely to sell his phone if he gets a price of $70.
Refer to the scenario above. Which of the following problems is likely to occur in this market?
Moral hazard
The fallacy of composition
Adverse selection
The free-rider problem
________ occurs when one agent in a transaction knows about a hidden characteristic of a good.
The tragedy of the commons
Adverse selection
The moral hazard problem
The free-rider problem
Which of the following is a problem that arises in a health insurance market?
A fierce competition exists between insurance providers.
A disproportionate number of high-risk individuals tend to buy insurance.
Only risk-averse individuals buy insurance.
There are a large number of buyers of various insurance programs.
________ refers to an action that an individual with private information takes to convince others about her information.
Signaling
Sniping
Speculating
Hedging
________ refers to actions taken by one party in a transaction that are relevant for, but not observed by, the other party.
Moral hazard
A negative externality
Bargaining
A positive externality
More people started building houses in the earthquake-prone regions of Polonia after its government launched a compensation scheme for houses damaged in earthquakes in these regions. This is an example of ________.
adverse selection
moral hazard
a positive externality
herd behavior
Christine works as a receptionist in an office. While at work, she is not supposed to access social networking Web sites. However, as her browsing activities are not monitored, she often uses the office network to access these Web sites. This is an example of ________.
adverse selection
moral hazard
a positive externality
the free-rider problem
A firm is likely to pay high efficiency wages when ________.
it is easy to monitor workers
there is excess supply of labor in the labor market
it is not easy to monitor workers
the minimum wages are set above the equilibrium wage rate
A car insurance company pays 90 percent of the total damage in case of an accident. This is an example of ________.
a brokerage fee
a subsidy
a dividend payment
a coinsurance
Which of the following is likely to be observed among unemployed individuals if government offers generous unemployment benefits?
Decreased motivation to look for a job
An increase in the acceptance of low-paying jobs
A decrease in current consumption
Increased motivation to look for a job
An open-outcry auction is an auction where ________.
public goods are sold
bidders know about one another's bids
free goods are distributed among the general public
bids are placed privately
In an English auction, ________.
the auctioneer begins the bidding process with a low starting bid
the bidders begin the bidding process with a high starting bid
the auctioneer begins the bidding process with a high starting bid
the bidders decide the starting bid
Kim is participating in an auction in which bids are placed publicly and the price of the good being auctioned increases until there is only one standing bid. This is an example of a(n) ________ auction.
Dutch
first-price
second-price
English
above her willingness to pay
up to her willingness to pay
equal to half the amount she is willing to pay
equal to 5/6 times her willingness to pay
In a Dutch auction, the ________ wins the good.
bidder with the lowest value for the good
second bidder
bidder who bids up to his value for the good
bidder who stops the auction
In a first-price auction, the ________ bidder wins the good being auctioned.
highest
second-highest
lowest
first
The winner of a second-price auction pays an amount equal to ________.
his valuation of the good
half of his bid
the lowest bid
the second-highest bid
Scenario: Tom, Pat, Arthur, and Julie are participating in a second-price auction for a good. Tom values the good at $150, Pat values it at $180, Arthur values it at $250, and Julie values it at $200.
Refer to the scenario above. The winner of this auction will earn a surplus of ________ if he or she follows his or her dominant strategy.
$50
$100
$400
$200
Overbidding in a second-price auction is likely to result in a ________.
negative producer surplus
negative consumer surplus
zero producer surplus
positive consumer surplus
Buyers and sellers in a flea market often determine the terms of exchange through a process of ________.
arbitration
bilateral bargaining
sniping
collective bargaining
Scenario: Neil and Claire are playing a game. Neil has been given five cookies and has been asked to decide how many he would like to give Claire. Claire has to decide whether to accept Neil's offer or reject it.
mixed strategy game
ultimatum game
symmetric game
prisoners' dilemma game
According to the ________, as long as property rights are clearly defined, two agents can always bargain to reach the efficient outcome.
Ricardian theory on rent
Coase theorem
revenue equivalence theorem
envelope theorem
People giving to charity because they value helping others is categorized as ________.
pure altruism
impure altruism
consumerism
rationalism
George donates money to charity only when somebody he knows approaches him for such donations. This is an example of ________.
liberalism
rationalism
pure altruism
impure altruism
The willingness of individuals to sacrifice their own well-being to either improve the well-being of others or to punish those whom they perceive as behaving unkindly is called ________.
indoctrination
altruism
fairness
rationalism
Scenario: You are playing a game of "Friend or Foe?" You and your classmate are taken to two different rooms and asked to choose whether the other is a friend or foe. You are told that if both of you choose "friend," you will get $10 each. However, if both of you choose "foe," neither of you will get anything. If one of you chooses "friend" while the other chooses "foe," the one who chooses "foe" will get $20, while the one who chooses "friend" will get nothing.
Refer to the scenario above. If there is fairness penalty of $12, ________.
both you and your friend will choose "foe"
both you and your friend will choose "friend"
you will choose "foe," while your friend will choose "friend"
you will choose "friend," while your friend will choose "foe"
Scenario: Elly owns a small coffee shop. She has only one employee. One weekend, she decides to take a break from work. She is wondering whether she should trust her employee to run the shop in her absence. If she does not trust him, she would have to keep the shop closed, in which case neither she nor her employee will be able to make money. In contrast, if she trusts him, he can either cooperate and run the shop or he can defect and steal from the shop. If he cooperates, both of them will earn money. If he steals from the shop, he will make more money while she will lose.
Refer to the scenario above. Which of the following will happen in this case?
Elly will trust her employee, and her employee will cooperate.
Neither of them will make any money.
Elly will trust her employee, but her employee will defect.
Only Elly will make money.
Scenario: Elly owns a small coffee shop. She has only one employee. One weekend, she decides to take a break from work. She is wondering whether she should trust her employee to run the shop in her absence. If she does not trust him, she would have to keep the shop closed, in which case neither she nor her employee will be able to make money. In contrast, if she trusts him, he can either cooperate and run the shop or he can defect and steal from the shop. If he cooperates, both of them will earn money. If he steals from the shop, he will make more money while she will lose.
Refer to the scenario above. Which of the following is likely to happen if Elly is known to be vengeful?
Only Elly will make money.
Only Elly's employee will make money.
Neither of them will make money.
Both Elly and her employee will earn money.
A manufacturer of a sugar substitute has launched a campaign against the consumption of sugar. This is an example of ________.
sniping
backward induction
anchoring
indoctrination
Economists call the influences of the decisions of others on our decisions ________.
peer effects
herd effects
cluster effects
externalities
Voters are often influenced by opinion polls. They end up voting for the party that is likely to win according to the opinion poll. This occurs because of ________.
signaling
sniping
anchoring
herding
A teacher tells her students that she will give them a riddle that each student has to solve separately. Each student has to then announce his or her answer in the class. Those who get the correct answer will get a gift. Kate, a student in the class, decides to give the answer that most students give, although the answer she gets from solving the riddle is quite different. This is an example of ________.
adverse selection
moral hazard
a pecuniary externality
an information cascade
________ is a tendency to search for information that reaffirms individuals' own beliefs, thus entrenching them further in their own prejudices.
Confirmation bias
Negativity bias
Attentional bias
Attenuation bias
Stephanie wants to buy a laptop. She has chosen a particular model. However, before ordering it online, she decides to read some of the user reviews provided on the Web site. She overlooks negative feedback by some users and focuses only on positive feedback. This is an example of ________ bias.
confirmation
attentional
distinction
attenuation
