ECON 102 - Principles of Microeconomics Professor Elliott Parker ...

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6. In a perfectly competitive industry, a binding price ceiling will _________, but in a monopolistic industry,a price ceiling will _____________ as long as it remains above marginal cost.A) reduce quantity-supplied and the deadweight loss; increase quantity and the deadweight loss.B) increase quantity-supplied and create a deadweight loss; increase quantity and reduce deadweight loss.C) reduce quantity-supplied and create a deadweight loss; reduce quantity and the deadweight loss.D) reduce quantity-supplied and create a deadweight loss; increase quantity and reduce deadweight loss.7. Suppose a monopoly can separate its customers into two groups. If the monopoly practices pricediscrimination, it will charge the lower price to the group with:A) the higher price elasticity of demand.B) the lower price elasticity of demand.C) the fewer close substitutes.D) The answer cannot be determined with the information given.7(b). Assuming marginal cost is constant, draw graphs showing price discrimination for the two groups, and theprofit-maximizing price and quantity for each. (4 points)8. In the classic prisoners' dilemma withtwo accomplices in crime, the NashEquilibrium is for:A) both individuals to not confess.B) both individuals to confess.C) one to confess and the other notconfess.D) This game does not have a NashEquilibrium.9. If there are two gas stations in the town ofGerlach, then the gasoline industry inGerlach is probably best characterized as:A) monopolistic competitive.B) monopolistic.C) oligopolistic.D) Perfect competitive.8(b). Create a payoff matrix for prisoners X and Y, using onlypayoffs of 0, -1, -2, and -3. (4 points)10. If Bruno's Gas and Frank's Fuel are the only two firms providing gasoline in Gerlach, and they decide toform a cartel to raise the price of gasoline. The total industry profits are highest when ______, and Bruno'sprofits are highest when ______.A) Neither firm cheats on the agreement; neither firm cheats on the agreementB) Neither firm cheats on the agreement; Bruno cheats on the agreement and Frank does not cheatC) both firms cheat on the agreement; Bruno cheats on the agreement and Frank does not cheatD) both firms cheat on the agreement; both firms cheat on the agreement11. Bruno summarizes his pricing strategy as: "I'll do to Frank what Frank did to me last time." This is anexample of:A) a tit-for-tat strategy. C) an irrational strategy.B) a dominant strategy. D) a Cournot strategy.Page 2
12. Toby operates a small deli downtown. The deli industry is monopolistically competitive. If some delisleave the industry, Toby's _____ curve will shift _____.A) marginal cost; leftB) marginal cost; rightC) demand; leftD) demand; right13. Suppose a monopolisticallycompetitive firm is in long-runequilibrium. Then:A) price equals marginalrevenue.B) price equals marginal cost.C) price is greater than averagetotal cost.D) all of the above are true.E) none of the above are true.13(b) Show the Demand, MR, MC, and ATC curves for this firm.(4 points)14. The restaurant industry is characterizedby excess capacity. This means:A) restaurants are producing morethan their profit-maximizing level.B) the profit-maximizing level is less than the level that minimizes average total costs.C) the restaurants are producing less than their profit-maximizing level.D) the quantity of restaurant meals supplied exceeds the quantity of restaurant meals demanded.15. The broccoli market is perfectly competitive. This means that the price of broccoli is _____ than the pricewould be if the market was monopolistically competitive, and broccoli output is _____ than if it wasmonopolistically competitive.A) lower; greater C) greater; lessB) lower; less D) greater; greater16. Monopolistic competitors often hire a celebrity spokesperson to advertise their product. One explanationfor why such advertising works is that:A) celebrities are better informed about the relative merits of different products than the rest of us.B) consumers assume that the celebrity has researched the product and that the claims being made on hisor her behalf are true.C) the fact that a firm is willing to pay the large fees associated with celebrity advertising signalsconsumers that it is a major company, and that it is therefore likely to have a reliable product.D) None of the above17. Lower wages in China reflect ______ labor productivity in China. If the United States has a comparativeadvantage in high-tech industries, then if these industries moved to China, their average total productioncosts would be ______ in China than in the United States.A) lower; higher C) higher; higherB) lower; lower D) higher; lower18. Suppose that wages were so much lower in China than in the United States, that China could produceeverything more cheaply. Thus, unless China’s government intervened in China’s foreign exchangemarket, we would expect:A) China’s currency would appreciate, but the U.S. price of Chinese goods would be unchanged.B) China’s currency would depreciate, and Chinese goods would become cheaper.C) China’s currency would appreciate, and Chinese goods would become cheaper in the U.S.D) China’s currency would appreciate, and Chinese goods would become more expensive in the U.S.Page 3
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