Class: Microeconomics (MWF 10; MW 1:25)
Exam 2a Exam Dates: Monday-Tuesday, April 7 or 8, 2003
Instructions:
I) On your Scantron card you must print three things:
1) Print your full name clearly;
2) Print today's date, day and time of your section (for example 4-7-03, MW 1:25);
3) Print the number I have written in ink on the upper right corner of
your copy of this test. (This number tells me which version of the
test you have. Without it your test cannot be graded properly and
you get no credit for your answers.)
II) Answer on your Scantron card, using a #2 pencil.
III) Warning: SOME QUESTIONS MUST BE ANSWERED SEVERAL
TIMES! Such questions will begin with a phrase such as this:
(Repeat answer on lines 37, 38 and 39)
Remember to do it!
Questions:
1. (Repeat answer on Scantron lines 23 and 24.) Social welfare is maximized when price equals:
A) marginal cost.
B) marginal revenue.
C) average total cost.
D) average variable cost.
2. Patents are given on new inventions to:
A) help firms earn positive economic profit.
B) encourage firms to devote resources to the development of new inventions.
C) prevent firms from earning positive economic profits.
D) guarantee that the products created by new inventions are affordable to consumers.
3. Having government buy patent rights has been suggested as an alternative to regulating the price charged by a patent-holding monopolist. The major benefit of this approach is that:
A) government would have to increase taxes to cover the cost of the buyout.
B) it would be difficult for government to determine which patents to buy.
C) it could have negative incentive effects.
D) it would maintain the incentive for companies to engage in research and development.
4. Which of the following statements best summarizes the text's conclusions regarding the likelihood of technological innovation in a monopolized industry?
A) Monopolies earn the profits needed for research and development and have the strongest incentive to innovate.
B) Monopolies may earn the profits needed for research and development, but they seldom have the incentive to innovate.
C) Monopolies seldom earn the profits needed for research and development, but they have the strongest incentive to innovate.
D) Monopolies seldom earn the profits needed for research and development and they have no incentive to innovate.
5. (Repeat answer on Scantron line 25.) The market structure in which many different firms supply similar, but slightly differentiated products, is:
A) monopoly.
B) oligopoly.
C) monopolistic competition.
D) perfect competition.
6. (Repeat answer on Scantron line 26.) Long-run equilibrium for firms in monopolistically competitive industries is similar to that for firms in perfect competition in that:
A) price equals minimum possible average total cost.
B) price equals marginal cost.
C) marginal revenue equals average total cost.
D) economic profit equals zero.
7. (Repeat answer on Scantron lines 27 and 28.) As discussed in lecture the following statement(s) is/are true about the welfare cost of price discrimination compared to the welfare cost of monopoly:
A) If the price discriminator only charges prices above the monopoly price, welfare costs are likely to be larger than for monopoly.
B) If the price discriminator only charges prices which are equal to or lower than the monopoly price, welfare costs will definitely be lower than for monopoly.
C) If the price discriminator charges prices which are both higher and lower than the monopoly price, welfare costs will be be less than for monopoly.
D) Three of the other answers are correct.
E) A is wrong, but B and C are definitely right.
8. In the United States lobbying is:
A) not important to most monopolies.
B) one of the tools used by firms to acquire a monopoly.
C) illegal.
D) important to firms in perfectly competitive markets.
9. The problem of technological lock-in occurs because:
A) more efficient technologies replace less efficient ones.
B) less efficient technologies replace more efficient ones.
C) prior use of a technology makes the adoption of subsequent technologies difficult.
D) prior use of a technology makes the rewards for subsequent innovations greater.
10. (Repeat answer on Scantron line 29.) Cost-conscious consumers use cents-off coupons when purchasing items such as soap or frozen dinners. As a result, they pay a lower price. This is an example of:
A) welfare loss.
B) breaking even.
C) quantity discrimination.
D) price discrimination.
11. (Repeat answer on Scantron line 30.) The cartel model of oligopoly assumes that:
A) a monopoly acts as if it is an oligopoly.
B) oligopolies act as if they were perfectly competitive.
C) oligopolies act as if they were monopolists.
D) monopolistically competitive firms act as if they were monopolists.
12. (Repeat answer on Scantron line 31.) Collusion is most likely occur in a(n):
A) monopoly.
B) oligopoly.
C) monopolistically competitive industry.
D) perfectly competitive industry.
13. (Repeat answer on Scantron lines 32, 33 and 34.) __________ activities are designed to transfer surplus from one group to another.
A) Welfare
B) Surplus
C) External
D) Rent-seeking
14. (Repeat answer on Scantron lines 35, 36 and 37.) Based on both text and lecture, decide which of the following numbered statements about monopolistic competition are correct and then choose the best answer from among A through E below:
1) Firms in monopolistically competitive markets are not expected to earn as high an economic profit as firms with monopolies.
2) Monopolistic competition is a type of market in which the goods of individual producers differ in some of the the individual features they possess, but there are many sellers of goods possessing at least a basic list of features in common, and there is easy entry into the markets in the long run.
3) In monopolistically competitive markets, firms are able to capture a permanent monopoly profit by inventing and incorporating a unique feature into the basic good, so they earn a monopoly profit, the same as monopolists.
4) Based on information from the text, monopolistically competitive markets earn zero economic profit, the same as perfectly competitive markets.
A) Only statement 4 is correct.
B) Only statements 3 and 4 are correct.
C) Only statements 2, 3 and 4 are correct.
D) Statements 1 through 4 are all correct.
E) Only statements 1,2 and 4 are correct.
15. (Repeat answer on Scantron line 38 and 39.) Consider the following statements about price discrimination, based on the discussion in lecture, and then choose the best answer from A) through E) below:
1) Realistically, only monopolists can engage in price discrimination.
2) If the price discriminating monopolist charges only two prices, one the regular monopoly price and the other a price below that monopoly price, the "deadweight loss" (social "efficiency cost") of the monopoly will actually be lower than the efficiency cost without price discrimination.
3) If the price discriminating monopolist charges only two prices, one the regular monopoly price and the other a price above that monopoly price, the "deadweight loss" (social "efficiency cost") of the monopoly will actually be the same as the efficiency cost without price discrimination.
4) In order to successfully practice price discrimination, a seller must be a monopolist, and also must be able to segment the market so that buyers in one segment cannot resell to buyers in other segments, and also the two segments must place different values on the good being sold.
A) All the above statements are correct.
B) All except one of the statements 1 through 4 are correct except statement 1.
C) Only statements 2 and 4 are correct.
D) Only statements 3 and 4 are correct.
E) Only statement 4 is correct.
16. (Repeat answer on Scantron lines 40 and 41.) Based on the discussion in lecture, "perfect price discrimination" would exist if:
A) Members of minority groups were all paying a discriminatory high price for the good (higher than the regular price).
B) Buyers of goods which are bad for your health, such as cigarettes, pay a higher price which reflects the costs of providing them with extra medical care.
C) Some buyers of the good are permitted to purchase the good at a price which is lower than the regular monopoly price.
D) Each purchaser of the good was paying as much as s/he was willing to pay and no purchaser could resell to any other buyer.
E) No other answer is correct.
17. (Repeat answer on Scantron lines 42 and 43.) The demand curve faced by a perfectly competitive firm is the same as:
A) its marginal cost curve.
B) its marginal revenue curve.
C) its average total cost curve.
D) its average fixed cost curve.
18. (Repeat answer on Scantron line 44.) In which of the following market structures is marginal cost equal to average total cost in long-run equilibrium?
A) Monopoly.
B) Oligopoly.
C) Monopolistic competition.
D) Perfect competition.
19. (Repeat answer on Scantron lines 45 and 46.) An oligopoly has:
A) the possibility of long-run economic profits.
B) no possibility of long-run economic profits.
C) no possibility of short-run economic profits.
D) no possibility of long-run normal profits.
20. (Repeat answer on Scantron line 47.) A single firm produces a unique product in ____________ industry.
A) a monopolistic
B) an oligopolistic
C) a monopolistic competitive
D) a perfectly competitive
21. Implicit collusion is more likely to occur if:
A) cheating is difficult to identify and firms play the same game against one another repeatedly.
B) cheating can be easily identified and firms play the same game against one another repeatedly.
C) cheating is difficult to identify and firms play the game only once.
D) cheating can be easily identified and firms play the game only once.
22. (Repeat answer on Scantron lines 48, 49 and 50.) Based on what you learned in lecture, consider whether each of the following statements 1 through 7 describes part of the data needed to calculate the number of firms in an industry. Then select the best answer from A through E below.
1) The value of marginal cost at the lowpoint of the long run marginal cost curve of the typical firm.
2) The level of output at the lowpoint of the long run marginal cost curve of the typical firm.
3) The level of output at the lowpoint of the long run average cost curve of the typical firm.
4) The value of short run average cost at the lowpoint of the short run average cost curve of the typical firm.
5) The value of long run average cost at the lowpoint of the long run average cost curve of the typical firm.
6) Total industry demand at a price equal to the lowpoint of the long run average cost curve of the typical firm.
7) Total industry demant at a price equal to the lowpoint of the long run marginal cost curve of the typical firm.
A) The data in statement 4 is needed but also additional data.
B) The data in statements 1, 2 and 7 are all that is needed to make the calculation.
C) The data in statements 3, 5 and 6 are all that is needed to make the calculation.
D) The data in statements 1 and 2 are needed and also additional data.
E) None of this data is needed.
Answer Key -- MicroEc Ex 2a--Thy of Firms + Markets
1. A marginal cost.
Origin: GTA Subset--Taxes + Market Thy....47
2. B encourage firms to devote resources to the development of new inventions.
Origin: GTA Subset--Taxes + Market Thy....54
3. D it would maintain the incentive for companies to engage in research and development.
Origin: GTA Subset--Taxes + Market Thy....57
4. B Monopolies may earn the profits needed for research and development, but they seldom have the incentive to innovate.
Origin: GTA Subset--Taxes + Market Thy....87
5. C monopolistic competition.
Origin: GTA Subset--Taxes + Market Thy....61
6. D economic profit equals zero.
Origin: GTA Subset--Taxes + Market Thy....67
7. D Three of the other answers are correct.
Origin: GTA Subset--Taxes + Market Thy....55
8. B one of the tools used by firms to acquire a monopoly.
Origin: GTA Subset--Taxes + Market Thy....84
9. C prior use of a technology makes the adoption of subsequent technologies difficult.
Origin: GTA Subset--Taxes + Market Thy....91
10. D price discrimination.
Origin: GTA Subset--Taxes + Market Thy....44
11. C oligopolies act as if they were monopolists.
Origin: GTA Subset--Taxes + Market Thy....72
12. B oligopoly.
Origin: GTA Subset--Taxes + Market Thy....74
13. D Rent-seeking
Origin: GTA Subset--Taxes + Market Thy....16
14. E Only statements 1,2 and 4 are correct.
Origin: GTA Micro Questions....15
15. A All the above statements are correct.
Origin: GTA Micro Questions....14
16. D Each purchaser of the good was paying as much as s/he was willing to pay and no purchaser could resell to any other buyer.
Origin: GTA Micro Questions....13
17. B its marginal revenue curve.
Origin: GTA Subset--Taxes + Market Thy....25
18. D Perfect competition.
Origin: Chapter 13: Monopolistic Competition.......143
19. A the possibility of long-run economic profits.
Origin: Chapter 13: Monopolistic Competition.......141
20. A a monopolistic
Origin: Chapter 13: Monopolistic Competition.......139
21. B cheating can be easily identified and firms play the same game against one another repeatedly.
Origin: Chapter 13: Monopolistic Competition.......133
22. C The data in statements 3, 5 and 6 are all that is needed to make the calculation.
Origin: GTA Micro Questions....16