Question;Page 1ECO 102 (Online) Exam 4Questions 1-32 are worth 3 points each, thus there are 4 free points in this exam.Question 33 is pure extra credit worth up to 6 points of extra credit.Use the following to answer question 1:1. Assume the above figure applies to a perfectly price discriminating monopolist, that is, to a monopolistwho is able to extract from each buyer the maximum price that buyer is willing to pay. The profitmaximizingoutput:A) will be l.B) will be j.C) will be k.D) cannot be determined from the information given.Use the following to answer questions 2:2. Refer to the above diagram where the numerical data show profits in millions of dollars. Beta'sprofits are shown in the northeast corner and Alpha's profits in the southwest corner of each cell. If bothfirms follow a high-price policy:A) Alpha will realize a $10 million profit and Beta a $30 million profit.B) each will realize a $20 million profit.C) Beta will realize a $10 million profit and Alpha a $30 million profit.D) each will realize a $15 million profit.Page 2Exhibit 9-13. Refer to Exhibit 9-1. If the product is produced under perfect competition, what quantity will be producedand what price will be charged?a. Q1 units at P1b. Q2 units at P1c. Q1 units at P2d. Q2 units at P24. Refer to Exhibit 9-1. If the product is produced under single-price monopoly, what quantity will beproduced and what price will be charged?a. Q2 units at P1b. Q1 units at P1c. Q1 units at P2d. Q2 units at P25. Refer to Exhibit 9-1 The deadweight loss of monopoly is identified by what area?a. area Q1BAQ2b. area BCAc. area P1P2CBd. area 0P1BQ1e. none of the above6. The difference between profit seeking under perfect competition and profit seeking under monopolyis thata. under the former output will increase and price will decrease, whereas under the latter onlyoutput will increase.b. under the former output will increase and price may increase, whereas under the latteroutput will increase and price will decrease.c. under the former new firms will enter the industry, whereas under the latter the firm willsimply raise its price and earn higher profits.d. none of the abovePage 37. Barriers to entry for the monopolist include all of the following excepta. exclusive ownership of a scarce resource.b. patents.c. public franchises.d. diseconomies of scale.e. government licenses.8. A monopolya. can charge whatever price it wants.b. always earns a positive economic profit.c. is constrained by marginal cost in setting price.d. is constrained by demand in setting price.e. all of the aboveExhibit 9-29. Refer to Exhibit 9-2. The monopolist is operating ata. a zero economic profit.b. a positive economic profit.c. an economic loss.d. a normal profit.10. In a monopolistically competitive market, which of the following factors probably does not give rise toproduct differentiation?a. packaging of the productb. brand namesc. loyalty of customers to a particular producerd. quality differencee. the small number of sellers11. Compared to a monopolistic competitor, a monopolist produces a good with __________ substitutes andso has a __________ elastic demand curve.a. fewer, moreb. fewer, lessc. more, mored. more, lessPage 412. One of the ways in which monopolistic competitors differ from perfect competitors is thata. perfect competitors produce the quantity of output at which marginal revenue equalsmarginal cost and monopolistic competitors do not.b. perfect competitors produce a homogeneous product and monopolistic competitors do not.c. there is easy entry and exit for a perfect competitor, but not for a monopolistic competitor.d. a and ce. b and c13. In the price leadership theory,a. all fringe firms are price searchers.b. all fringe firms are price takers.c. the dominant firm is a price taker.d. a and c14. A cartel is an organization of firmsa. dominated by one firm, which is usually referred to as the price leader.b. that attempts to increase total (or industry) demand for their product.c. that reduces output and increases price in an effort to increase joint profits.d. that deliberately attempts to disrupt the market for political reasons.15. For a monopolist to sell more units of output,A) the price must be increased.B) the price must be reduced.C) demand must become more elastic.D) the other competing firms must sell fewer units.16. For a monopolist, priceA) equals marginal revenue at all output levels.B) is less than marginal revenue.C) is greater than marginal revenue.D) can be greater than or less than marginal revenue.17 Relative to a competitively organized industry, a monopoly is more likely to produceA) more output, charges higher prices, and earns economic profits.B) less output, charges lower prices, and earns economic profits.C) less output, charges lower prices, and earns only a normal profit.D) less output, charges higher price, and earns economic profits.18 ________ is(are) protected by barriers to entry, specifically ________.A) State lotteries, government rulesB) DeBeers Company, economies of scaleC) Cable companies, patentsD) All of the above are correct.19 Although patents are a ________, they also provide ________.A) collusive agreement, for free entry of new firmsB) collusive agreement, an incentive for invention and innovationC) barrier to entry, for free entry of new firmsD) barrier to entry, an incentive for invention and innovationPage 520 Which of the following statements regarding perfect price discrimination is FALSE?A) Perfect price discrimination is charging different prices to different buyers.B) Perfect price discrimination is an attempt by monopolists to capture consumer surplusas profit.C) Perfect price discrimination can eliminate the deadweight loss to society of amonopoly.D) Perfect price discrimination yields the same market price and output result as perfectcompetition.21 Entry to and exit from a ________ market are ________.A) oligopolistic, easyB) perfectly competitive, difficultC) perfectly contestable, difficultD) perfectly contestable, easy22 In contestable markets, large oligopolistic firms end up behaving likeA) monopolistically competitive firms.B) a monopoly.C) perfectly competitive firms.D) a cartel.23 The colluding oligopoly will face market demand and produce up until the point at whichA) price and marginal cost are equal and price will be set equal to marginal cost.B) marginal revenue and marginal cost are equal and price will be set abovemarginal cost.C) price and marginal revenue are equal and price will be set below marginal cost.D) marginal revenue and marginal cost are equal and price will be set belowmarginal cost.24 A form of oligopoly in which a dominant firm sets the price and all smaller firms in theindustry follow the dominant firm's pricing policy is calledA) the Cournot model.B) the contestable markets model.C) a cartel.D) the price-leadership model.25 Predatory pricing isA) often effective and a relatively inexpensive means of eliminating competition.B) legal under the U.S. antitrust laws.C) the practice by which a large, powerful firm attempts to drive its competitors out of the market by temporarily setting an artificially low price.D) generally more effective when barriers to entry exist.Page 6Refer to the information provided in Table 14.2 below to answer the question that follows.Table 14.2B's StrategyAdvertise Don't AdvertiseA's profit $100millionA's profit $200millionAdvertiseB's profit $100million B's profit $50 millionA's StrategyDon'tA's profit $50millionA's profit $75millionAdvertiseB's profit $200millionB's profit $75million26 Refer to Table 14.2. Firm A's dominant strategy is to not advertise.A) TrueB) False27 The case for advertising includes the fact thatA) it wastes society's scarce resources.B) firms spend large sums of money to create meaningless differences among products.C) it provides consumers with valuable information about product availability, quality,and price.D) it creates wants that otherwise would not have existed.28 The case AGAINST advertising includes the fact thatA) firms spend large sums of money to create artificial differences among products.B) it provides consumers with valuable information about product availability, quality,and price.C) it increases competition by decreasing barriers to entry of new firms into an industry.D) it ensures high quality and efficient production.29 Critics of advertising contend all of the following EXCEPT:A) the information content of advertising is minimal at best and deliberately deceptiveat worst.B) advertising is intended to change peoples'?preferences and to create wants thatotherwise would not have existed.C) advertising may reduce competition by creating a barrier to entry of new firms intoan industry.D) advertising can easily turn into productive competition that increases welfare.30 The right answer to the debate regarding the welfare effects of advertising is thatA) advertising always leads to concentration in an industry.B) advertising always leads to positive economic profits in an industry.C) advertising always improves the functioning of the market.D) there is no right answer.Page 731 A monopolistically competitive firm produces whereA) marginal revenue equals price.B) its marginal revenue curve lies above its demand curve.C) its marginal revenue curve intersects the quantity axis.D) marginal revenue equals marginal cost.32 If firms in a monopolistically competitive industry are earning economic profits, then inthe long runA) these firms can continue earning economic profits because entry into the industryis blocked.B) new firms producing close substitutes will enter the industry and this entry willcontinue until economic profits are eliminated.C) new firms producing the exact same product will enter the industry and this entry willcontinue until economic profits are eliminated.D) the government will most likely regulate firms in this industry to reduce theseeconomic profits.33 Explain what is meant by the tit-for-tat strategy. Explain it by referring to the payoffmatrix in question 26.
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