Question

What is the dominant strategy for Player 2?

		Player 2
	Strategy	A	B
Player 1	X	40, 41	58, 48
	Y	48, 54	60, 59

1)Player 2 does not have a dominant strategy.

2) B

3) X

4) Y

5) A

Which of the following is a problem typically seen with a monopoly? There is more than one answer to this question. You must mark all of the correct answers to receive full credit for this question.

more than one choice

1) A monopoly produces less output than is found in a perfectly competitive industry.

2) A monopoly is not efficient from the firm perspective.

3) A monopoly is not efficient from the society perspective.

4) A monopoly charges a higher price than is found in a perfectly competitive industry.

In all market structures, if the average total cost curve dips below the demand curve then the firm has an economic profit.

True

False

Where will the following game end? (Assume a one-shot, simultaneous game.)   

		Player 2
	Strategy	A	B
Player 1	X	40, 41	58, 48
	Y	48, 54	60, 59

1) X, B

2) Y, B

3) X, A

4) Y, A

The price elasticity of demand for jewelry is estimated to be 2.29 (in absolute value). If a jewelry store raises its prices, you would expect its total revenue to _______.

remain the same

decrease

increase

A graph contains three costs curves that are all U-shaped. One of the curves passes through the minimum points of the other two. Which three cost curves are shown the graph?

1) total fixed cost, average variable cost, average total cost

2) marginal cost, average fixed cost, average total cost

3) marginal cost, average total cost, average variable cost

4) marginal cost, average fixed cost, average variable cost

5) total fixed cost, total variable cost, total cost

Which characteristics make it so that perfectly competitive firms and monopolistically competitive firms have zero economic profit in the long run?

1) heterogeneous product and easy entry/exit

2) easy entry/exit and perfect information

3) homogeneous product and perfect information

4) many buyers/sellers and easy entry/exit

Assume that a traffic accident occurs and the person whose car was hit sues the other party for an amount far above the losses actually incurred. This behavior is an example of which market failure?

an externality

a public good

rent seeking

moral hazard

Assume a perfectly competitive firm has an economic profit. When the transition to the long run is complete, will the price it charges be higher or lower?

The selling price will be the same.

There is no way to answer this question without more information.

The selling price will be higher.

In the kinked demand curve model, a firm faces less elastic demand when it _______ its price than when it _______ its price.

increases, decreases

This question makes no sense since the price elasticity of demand is the same regardless of any price change.

decreases, increases

The selling price will be lower.

The supply curve of a perfectly competitive firm is the entire marginal cost curve of that firm.

True

False

In the kinked demand curve model, if the firm raises its price its total revenue _______. If the firm lowers its price its total revenue _______.

decreases, decreases

decreases, increases

increases, decreases

If you look at the graph of a perfectly competitive firm and see that it has an economic profit, you know the graph is of the short run. However, when you look at the graph of a monopoly and see that it has an economic profit, you are unable to tell if the graph is of the short run or the long run.

True

False

When a firm has increasing returns to scale its average total cost _______.

remains constant

decreases

increases

increases, increases

Assume you see the graph of a monopolistically competitive firm. In the graph, at the output where MR = MC, the average total cost curve is above the demand curve. Which of the following statements is not correct?

The firm’s total cost is greater than its total revenue.

The firm’s opportunity cost is larger than its accounting profit.

The firm is definitely in the long run.

The firm has an economic loss.

A store decreased its prices by 5% and the quantity demanded increased by 7.5%. The price elasticity of demand is _______ (in absolute value) and the demand is _______.  

0.67, elastic

0.67, inelastic

1.50, inelastic

1.50, elastic

Answer 1