econ-208-practice-exam-3

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StuDocu is not sponsored or endorsed by any college or university Econ 208 practice exam 3 Microeconomic Analysis and Applications (McGill University) StuDocu is not sponsored or endorsed by any college or university Econ 208 practice exam 3 Microeconomic Analysis and Applications (McGill University) Downloaded by Nicholas Sun (sun_nicholas@yahoo.com) lOMoARcPSD|16672699

Exam Name___________________________________ MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) The average revenue curve for a single - price monopolist A) is a horizontal line, equal to the price of its product. B) coincides with its demand curve. C) does not exist. D) slopes upward to the right. E) lies below its demand curve. 1) 2) A single - price monopolist is currently producing an output level where P = $320, MR = $200, AVC = $327, and MC = $200. In order to maximize profits, this firm should A) decrease production and increase prices. B) increase production and reduce prices. C) produce zero output. D) not change its output level, because the firm is currently at its profit maximizing level. E) There is insufficient information to make a recommendation. 2) 3) At the profit - maximizing level of output for a single - price monopolist, price A) is below marginal revenue. B) always exceeds average total cost. C) equals marginal revenue. D) exceeds marginal cost. E) equals marginal cost. 3) 4) Suppose the technology of an industry is such that the typical firm's minimum efficient scale is 18 units per day at an average long - run cost of $1600 per unit. If the total quantity demanded at a price of $1750 per unit is 16 units per month, the likely result would be A) a competitive industry. B) a cartel. C) a concentrated oligopoly. D) price discrimination. E) a natural monopoly. 4) 5) Natural barriers to firms to entering an industry include A) large economies of scale in the industry. B) a patent which allows production by only the patent holder. C) control or ownership of the entire supply of an essential raw material. D) a government - awarded franchise. E) increasing - cost production. 5) 1 Downloaded by Nicholas Sun (sun_nicholas@yahoo.com) lOMoARcPSD|16672699

6) The main argument of Joseph Schumpeter's idea of "creative destruction" is that A) monopoly profits lead to innovation in an effort to sustain those profits. B) perfectly competitive industries are characterized by more productive innovation and productivity growth than monopolistic industries, which Schumpeter regarded as destructive. C) monopolies create profits for themselves at the expense of the destruction of consumer surplus. D) the existence of monopolies leads to destruction of the environment. E) short - run profits created by the existence of monopolies will lead to antitrust legislation, which will force the fragmentation of monopolies into competitive industries. 6) 7) It is common for a cartel to collapse when one or more firms in the cartel A) is much larger than other cartel members. B) produce more efficiently than other member firms. C) exit the industry. D) exceed its output quota. E) increase its price above the monopoly price. 7) 8) The cartelization of an industry with a homogeneous product usually means that A) the demand curve facing the industry must be linear. B) member firms have agreed to reduce investment. C) member firms have agreed to reduce their joint output. D) member firms have agreed to cooperate in reducing costs. E) the demand curve facing the industry must be elastic. 8) 9) Suppose you go to a retailer's website and print a coupon that gives you a discount on your next purchase at their store. But your friend, who also plans to purchase there, can't be bothered. You are revealing to the store that A) elasticity of demand changes according to the size of the discount offered. B) you have a lower income than your friend. C) you understand price discrimination and your friend does not. D) you have a lower elasticity of demand than your friend. E) you have a higher elasticity of demand than your friend. 9) 10) By calculating a concentration ratio, economists measure the A) degree to which firms in the industry use similar technologies. B) concentration of firms in one geographic location. C) degree to which a monopolist's output is lower than in perfect competition. D) fraction of total industry sales accounted for by the largest firms. E) control of a monopolist over its input prices. 10) 11) Consider the following characteristics of a particular industry: - there is freedom of entry and exit - in long - run equilibrium, each firm is producing a level of output where there are increasing returns to scale This industry is likely to be A) perfectly competitive. B) highly concentrated. C) monopolistically competitive. D) an oligopoly. E) a cartel. 11) 2 Downloaded by Nicholas Sun (sun_nicholas@yahoo.com) lOMoARcPSD|16672699

12) A good example of a monopolistically competitive firm is 1) The Gap clothing store. 2) a neighbourhood drycleaner. 3) a Prince Edward Island potato farmer. A) 1 only B) 2 only C) 3 only D) 1 and 2 only E) 1 and 3 only 12) The diagram below shows selected cost and revenue curves for a firm in a monopolistically competitive industry. FIGURE 11 - 1 13) Refer to Figure 11 - 1. Assuming that this firm is producing its profit - maximizing level of output, what are the profits or losses being earned by this firm? A) $500 B) - $500 C) - $1000 D) $1000 E) $2000 13) 14) Which of the following is a characteristic of oligopoly? A) There are large numbers of significantly sized sellers. B) Firms compete solely on the basis of price. C) The industry usually has a low concentration ratio. D) Prices are usually above marginal costs. E) The pricing policies of one firm have no impact on pricing policies of other firms. 14) 3 Downloaded by Nicholas Sun (sun_nicholas@yahoo.com) lOMoARcPSD|16672699

Suppose two firms, Allstom from France, and Bombardier from Canada, are bidding on a contract to replace train cars for the subway system in Mexico City. If they bid the same amount, they share the contract  otherwise, the low bid wins. The figure below shows the payoff matrix for this contest. FIGURE 11 - 5 15) Refer to Figure 11 - 5. What is the Nash equilibrium in this bidding contest between Allstom and Bombardier? A) The two firms will co - operate and maximize their joint profits at $10 million each. B) Each firm will bid the high price, expecting a larger total profit. C) Each firm will bid the low price, and each will earn a profit of $2.5 million. D) There is no Nash equilibrium in this bidding contest, because each firm can expect to earn at least $5 million. E) both A and C are Nash equilibria. 15) 16) Refer to Figure 11 - 5. If Allstom and Bombardier co - operated with each other when bidding on the contract, then the likely outcome is that A) each firm bids $50 million, and earns profit of $10 million. B) Bombardier bids $50 million, and earns profit of $0, while Allstom bids $35 million and earns profit of $5 million. C) Bombardier bids $35 million, and earns profit of $5 million, while Allstom bids $50 million and earns profit of $0. D) each firm bids $35 million, and earns profit of $2.5 million. 16) 17) Which of the following industries in Canada can best be thought of as oligopolies? 1) breweries 2) women's clothing retailers 3) automobile manufacturers A) 1 only B) 2 only C) 3 only D) 1 and 3 only E) 1, 2, and 3 17) 4 Downloaded by Nicholas Sun (sun_nicholas@yahoo.com) lOMoARcPSD|16672699

18) "Brand proliferation" in an oligopolistic industry A) can shift the average total cost curve down and raise the overall minimum scale of operation. B) allows new entrants to the industry to gain significant market share. C) allows easier entry to a new entrant with small sales. D) will generally reduce the expected market share of new entrants to the industry. E) allows firms to cooperate to maximize their joint profits. 18) 19) A condition for the profit - maximizing use of any factor of production is (where MP = marginal product, w = the price of a factor of production, p = price of one unit of the firm's output, MR = marginal revenue, MC = marginal cost, MRP = marginal revenue product): A) MR = MRP P B) MC = MR × w C) MRP = MR × MC D) w = MP × p E) MRP = MP × p 19) Consider the following table for a firm. The first column shows the number of units of a variable factor of production employed by the firm. Total Number of Units of the Factor Total Number of Units of Output 2 100 3 110 4 128 5 148 6 162 7 170 8 166 TABLE 13 - 2 20) Refer to Table 13 - 2. Suppose this firm is a perfect competitor and faces a given price of the product equal to $10 per unit. The marginal revenue product of the 3rd unit of the factor is A) $1000. B) $1100. C) $100. D) $110. E) $30. 20) 5 Downloaded by Nicholas Sun (sun_nicholas@yahoo.com) lOMoARcPSD|16672699

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