1. Each point on an LAC for an individual firm Select one: a. Is NOT on the expa
ID: 1121774 • Letter: 1
Question
1. Each point on an LAC for an individual firm
Select one:
a. Is NOT on the expansion path in an isoquant analysis
b. Is the minimum point on a firm’s short – run average cost curve
c. Is associated with a tangency in the isoquant analysis
d. Reflects the Law of Diminishing Marginal Returns
2. Which of the following is true of a firm in a monopoly market?
Select one:
a. The price charged by the monopolist is less than the marginal cost of production.
b. The equilibrium output in a monopoly market is larger compared to a competitive market.
c. There is a deadweight loss in a monopoly market.
d. In a monopoly market long-run economic profits are zero.
3. The deadweight loss of a monopoly arises from:
Select one:
a. the loss of consumer surplus being greater than the gain in firm profits.
b. the transfer of firm profits to consumers.
c. the loss in firm profits being greater than the gain in consumer surplus.
d. the combined loss of consumer and firm profits.
4. Which of the following is a condition for long-run equilibrium in a competitive industry?
Select one:
a. Each firm in the industry is earning zero economic profit.
b. The inputs employed in the industry earn less than they would had they been used elsewhere.
c. Each firm in the industry will produce that level of output at which marginal cost is the lowest.
d. The number of new entrants into the industry is positive.
5. After Uber, which of the following would positively affect the price of a medallion given sufficient time for the industry to adjust?
Select one:
a. Increase in population
b. Increase in the number of conventions
c. Economic growth
d. None of the above since each of these would shift the demand for passenger service to the right, increase economic profits of current firms which, in turn, would induce entry from firms like Uber even with the licensing restrictions on traditional cabs
6. A firm divides its market into two submarkets to practice price discrimination. The elasticity of demand (measured in absolute value) in market A is smaller than the elasticity of demand in market B.
Select one:
a. Submarket A will have a lower price than market B
b. Submarket B will have a lower price than submarket A
c. Each submarket will have the same price
d. Submarket A will have a higher MR than Submarket B
7. If a Prisoners’ Dilemma game is played repeatedly as in the Beauregard case (or Tit for Tat in the text),
Select one:
a. Each player can punish the other player in subsequent plays of the game for not choosing the collectively best strategy of the game
b. Each player will still choose their dominant strategy on each play of the game
c. Neither a. or b. are correct
8. Each point on an expansion path:
Select one:
a. has a different input price ratio.
b. has a different marginal rate of technical substitution [MRTS].
c. has the same total cost.
d. is cost-minimizing.
9.If quantity demanded increases while total revenue falls, then
Select one:
a. The percentage change in price must be less than the percentage change in quantity
b. The percentage change in price must be greater than the percentage change in quantity
c. The percentage change in price must be the same as the percentage change in quantity
d. Demand must be elastic
10. In the short-run, if the price falls, the competitive firm will respond by:
Select one:
a. reducing output along its marginal cost curve as long as price exceeds average variable cost.
b. increasing its output in order to sell higher quantities.
c. liquidating its assets and shutting down.
d. producing at the output level where average variable cost is equal to marginal revenue.
11.For the same demand and cost conditions, which of the following is true?
Select one:
a. Consumer surplus is less in a monopoly market compared to pure competition.
b. Consumer surplus is greater in a monopoly market compared to pure competition.
c. Consumer surplus is the same in a competitive market compared to monopoly.
d. None of the above.
12. In a Prisoners’ Dilemma model,
Select one:
a. Each player will have a dominant strategy
b. Each player will choose a strategy (her dominant strategy) that makes her better off individually but makes both players worse off
c. If players have a payoff associated with the strategy that makes them both better off rather than the strategies chosen in the game, each player will have an incentive to change their strategies
d. a.,b., and c. are correct
e. a.,b., and c. are each incorrect
13. Removal of the restrictions in the taxicab industry is most likely to result in:
Select one:
a. an increase in the operation of illegal cabs.
b. reduced safety of passengers.
c. a shift of taxicab services from poor neighborhoods to the city.
d. a large financial loss for those who currently own medallions.
14. Which of the following are not assumptions underlying a price discrimination model?
Select one:
a. The firm must have some monopoly power
b. It is impossible to resell a product from one market to another
c. Different elasticities of demand in different submarkets
d. The product involved is a service (like an appendectomy)
15. Before Uber under the restrictions, which of the following would positively affect the price of a medallion?
Select one:
a. An increase in the population of a city in which cabs operated
b. An increase in the number of conventions in city in which cabs operate
c. Economic growth which increases in the income of residents in the city in which cabs operate
d. All of the above
e. Neither A). B) or C) are correct
Explanation / Answer
1) Each point on the LAc shows the minimum point of the short run average cost. Each point on the LAC is the point of tangency with the corresponding SAC curve. Thus it the locus of all the tangency points and called the envelope curve. It also shows the behavior of the cost as quantity increases. A decrease in LaC with increase in quantity shows economies of scale and increase in lac shows diseconomies of scale. Thus the right option is b.
2) In a monopoly, equilibrium is reached where marginal revenue equals marginal cost and price is charged according to the denand curve. Thus price charged is more than the marginal cost. It produces a quantity which is less than the perfect competition output (where output produced is at the point where price equals demand). Thus the monopoly earns excess profits both in short and long run. This leads to a deadweight loss in the economy as consumer surplus is reduced and their preferences are affected. Thus the answer is c.
3) The deadweight loss arises due to the (a) loss in consumer surplus being more than the gain in producers profit. Consumer pay higher price and are provided lesser quantity and the decrease in their consumption and changed consumption pattern leads to deadweight loss.
4) In the long run, the competitive firm earns zero economic profits. Each firm produces at its minimum average cost. In short run there can be entry of new firms due to positive economic profits or exit of firms due to losses, but in long run there is no entry or exit of the firms. Thus the answer is a.
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