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Exam 3

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Question 1 (1.5 points)
Successful price discrimination requires:
  1. the ability to prevent transfers among customers in different submarkets.
  2. inelastic demand in each submarket.
  3. constant marginal costs.
  4. identical price elasticities among submarkets.
Question 2 (1.5 points)
In both monopolistic competition and oligopoly markets:
  1. there is easy entry and exit.
  2. consumers perceive differences among the products of various competitors.
  3. economic profits may be earned in the long run.
  4. there are many sellers.
Question 3 (1.5 points)
During peak periods:
  1. incremental costs are relevant for pricing purposes.
  2. fully allocated costs are relevant for pricing purposes.
  3. facilities are underutilized.
  4. expansion is not required to further increase production.
Question 4 (1.5 points)
With price discrimination, higher prices are charged when:
  1. the price elasticity of demand is high.
  2. the price elasticity of demand is low.
  3. the cross-price elasticity of demand is high.
  4. the cross-price elasticity of demand is low.
Question 5 (1.5 points)
A monopsony is a market with:
  1. many sellers.
  2. one buyer.
  3. many buyers.
  4. one seller.
Question 6 (1.5 points)
If the optimal markup on price is 50%, the optimal markup on cost is:
  1. 100%
  2. 75%
  3. 50%
  4. 25%
Question 7 (1.5 points)
When transferred products can be sold in perfectly competitive external markets, the optimal transfer price is the:
  • external market price.
  • marginal revenue of the transferred-to (buying) division.
  • marginal revenue in the output market.
  • marginal cost of the transferring (selling) division.
  • Question 8 (1.5 points)
    The demand faced by an industry price leader is:
    1. market demand.
    2. market demand plus the demand for output by follower firms.
    3. market demand less the supply of output by follower firms.
    4. kinked.
    Question 9 (1.5 points)
    In monopolistically competitive markets, the firm demand curve is:
    1. upward sloping.
    2. downward sloping.
    3. horizontal.
    4. vertical.
    Question 10 (1.5 points)
    Windfall profit is economic profit due to:
    1. superior operating efficiency.
    2. innovation.
    3. economies of scale.
    4. unexpected or unwarranted good fortune.
    Question 11 (1.5 points)
    For a firm in monopolistically competitive market equilibrium:
    1. MC ≥ AC
    2. MR ≤ AR
    3. MR = MC
    4. P ≥ AC
    Question 12 (1.5 points)
    Monopolistic competition always entails:
    1. declining LRAC.
    2. vigorous price competition.
    3. increasing LRAC.
    4. constant LRAC.
    Question 13 (1.5 points)
    The demand curve for a unique product without substitutes is:
    1. upward sloping.
    2. downward sloping.
    3. horizontal.
    4. vertical.
    Question 14 (1.5 points)
    When eP = -1, the optimal markup on price is:
    1. 100%
    2. 67%
    3. 50%
    4. 33%
    Question 15 (1.5 points)
    In monopoly markets, market demand is:
    1. perfectly inelastic with respect to price.
    2. perfectly elastic with respect to price.
    3. elastic with respect to price.
    4. inelastic with respect to price.
    Question 16 (1.5 points)
    An formal agreement to set prices and output is called:
    1. collusion.
    2. monopolistic competition.
    3. kinked demand.
    4. a cartel.
    Question 17 (1.5 points)
    The kinked demand curve theory of oligopoly assumes that rival firms:
    1. react to price increases.
    2. react to price increases and decreases.
    3. do not react to price changes.
    4. react to price decreases.
    Question 18 (1.5 points)
    The Celler-Kefauver Act specifically prohibits:
    1. mergers that reduce competition.
    2. asset acquisitions that reduce competition.
    3. tying contracts that reduce competition.
    4. conspiracies in restraint of trade.
    Question 19 (1.5 points)
    The Clayton Act specifically prohibits:
    1. monopolies.
    2. asset acquisitions that reduce competition.
    3. price discrimination.
    4. conspiracies in restraint of trade.
    Question 20 (1.5 points)
    A firm should increase advertising if the net marginal revenue derived is:
    1. equal to the marginal cost of advertising.
    2. greater than the marginal cost of advertising.
    3. greater than zero.
    4. less than the marginal cost of advertising.
    Question 21 (1.5 points)
    A firm supplying a single product to two distinct submarkets will maximizes profits by equating:
    1. average revenue in each market to average cost.
    2. average revenue in each market to marginal cost.
    3. marginal revenue in each market to marginal cost.
    4. price in each market to marginal cost.
    Question 22 (1.5 points)
    In the short run, a monopolist will:
    1. shut down if price equals average total cost.
    2. shut down if price is less than average total cost.
    3. shut down if price is less than average variable cost.
    4. never shut down.
    Question 23 (1.5 points)
    The competitive market pricing rule-of-thumb for profit maximization is to set:
    1. MR = MC
    2. MR = MC/[1 + (1/eP)]
    3. P = MC/[1 + (1/eP)]
    4. MC = MR/[1 + (1/eP)]
    Question 24 (1.5 points)
    Government seeks to aid economic efficiency in the case of natural monopoly through:
    1. creating government-financed corporations to compete with the natural monopolist.
    2. subsidizing competitors.
    3. price regulation.
    4. breaking the natural monopolist up into smaller competitors.
    Question 25 (1.5 points)
    A 50% markup on cost is equivalent to a markup on price of:
    1. 25%
    2. 33%
    3. 50%
    4. 100%
    Question 26 (1.5 points)
    A natural monopoly exists if:
    1. marginal revenue is falling as output expands.
    2. price equals average cost.
    3. average cost falls as output expands.
    4. marginal revenue equals marginal cost.
    Question 27 (1.5 points)
    The vigor of competition always decreases with a fall in:
    1. product differentiation.
    2. barriers to entry.
    3. the level of available information.
    4. the number of competitors.
    Question 28 (1.5 points)
    A perfectly functioning cartel results in a(n):
    1. monopoly equilibrium.
    2. oligopoly equilibrium.
    3. perfectly competitive equilibrium.
    4. monopolistically competitive equilibrium.
    Question 29 (1.5 points)
    If eP = -3, the optimal markup on cost is:
    1. 33%
    2. 50%
    3. 300%
    4. 25%
    Question 30 (1.5 points)
    In monopoly competitive markets, profits are maximized when:
    1. MC = AC
    2. P > AC
    3. MR = MC
    4. MR = P
    Exam 3 Problems
    Copyright 2008, by the Contributing Authors. Cite/attribute Resource . admin. (2009, January 27). Exam 3. Retrieved January 07, 2011, from Free Online Course Materials — USU OpenCourseWare Web site: http://ocw.usu.edu/economics/managerial-economics/exam3.htm. This work is licensed under a Creative Commons License Creative Commons License