Question

1) Suppose two firms operate a duopoly-cartel. They decide they do not trust each other enough to form a cartel and act like a monopoly. They agree acting only in their self-interest is harms them both. By compromising, the price they sell their product as will be

Select one:

a. equal to the monopoly price

b. less than the monopoly price

c. equal to the perfectly competitive market price

d. more than the monopoly price

2) When total revenue is greater than total variable cost, a firm in a competitive market will

Select one:

a. shut down if average revenue exceeds marginal cost

b. shut down

c. continue to operate at a loss

d. continue to operate as long as average revenue exceeds average fixed cost

3) Profit-maximising firms enter a competitive market when:

Select one:

a. total revenue for existing firms in the market exceeds their total fixed costs

b. price exceeds average total cost for existing firms in the market

c. total revenue for existing firms in the market exceeds their total variable costs

d. average revenue is less than average total cost for existing firms in the market

4) Suppose a competitive market experiences an increase in demand. This induces an increase in producer costs. Which of the following is most likely to occur?

Select one:

a. The condition of free entry into the market will be violated

b. The long-run market supply curve will be upward sloping

c. Some firms will not be price-takers

d. Producer profits must fall in the long run

5) An important difference between natural monopolies and other forms of monopoly, is they are

Select one:

a. unable to make a profit without a government subsidy

b. not subject to regulations by the government

c. typically unconcerned about competition eroding their monopoly position

d. not subject to barriers to entry

6) Suppose a monopoly changes changes its pricing strategy. It now uses a price-discrimination strategy. This will cause

Select one:

a. the consumer surplus to increase

b. the output sold to increase

c. the deadweight loss to increase

d. the profit to decrease

7) Economic losses in a monopolistically competitive market are

Select one:

a. only possible of collusion between firms cannot be maintained

b. a signal to some incumbent firms to exit the market

c. a signal for new firms to enter the market

d. are never possible in the short run

8) The only way a cartel is able to maintain its market power is if:

Select one:

a. the government uses competition laws to break-up the cartel

b. the product has an inelastic demand curve

c. the product has a horizontal demand curve

d. all the cartel members continue to cooperate

9) What is the monopolist's profit under the following conditions?

• The profit-maximising price charged for the goods is $60
• Marginal cost and marginal revenue intersect at an output of 30
• The marginal cost at at output of 30 is $40 and the average cost is $45

Select one:

a. $1350

b. $1800

c. $1200

d. $450

10)

Suppose a Government agency is undertaking a cost-benefit analysis on a new toll road. Which of the following costs or benefits would be the hardest to estimate?

Select one:

a. The cost of adding cycle lanes to the road.

b. The reduction in road deaths generated by the improved road design

c. The labour costs of building the road

d. The reduction in fuel spending by trucking companies using the road

11)

Suppose a farmer decides to convert their sheep farm to a vineyard to grow grapes. The amount of money the farmer could have earned by sheep farming instead is called

Select one:

a. an accounting cost

b. an explicit cost

c. an implicit cost

d. a variable cost

12)

Tamati owns a car-detailing business. In summer demand for detailing is highest. Tamati hires students to help him detail cars in summer. If Tamati works by himself he can detail 20 cars in a week. If he hires one worker, the two of them will detail 35 cars over a week. A second worker increases that to 47 cars. The third worker increases that to 57 cars. The fourth worker increases the total to 65 cars.

The marginal product of the first worker is

Select one:

a. 8 cars per week

b. 15 cars per week

c. 12 cars per week

d. 10 cars per week

Answer 1

Answer 1: a. equal to the monopoly price.

if two firms form a cartel, then both will charge a price at the level where prices are equal to the monopoly price. Thus, both firms will agree to charge monopoly price from the consumer.It will not charge perfecltly competitive price because it will reduce profits.

Answer 2: Option d. continue to operate as long as average revenue exceeds average fixed cost.

Since the revenue of the firm is greater than cost of the firm, thus the firm will continue to operate. When the price falls below the minimum point of the average variable cost of the firm, the firm will be earning losses.

Answer 3: Option b. Price exceeds average total cost for existing firms in the market.

New firrms will enter the market when price that the firm charges is greater than the average total cost of the firms and thus the firm is earning super normal profits in this case.

Answer 4: Option d. Producer profits must fall in the long run.

An increase in demand will induce the entry of other firms in the industry. As new firms will enter the industry, the prices will fall with the rightward shift of the supply curve and profits of the firm will fall in the long run.