1) Which of the following may lead to allocative
efficiency for a natural monopoly:
a. AC pricing
b. MC pricing
c. price discrimination
d. both b and c
e. all of the above
2) Which of the following market structures involves allocative
efficiency:
a. monopolistic competition
b. oligopoly
c. monopoly
d. perfect competition
e. both a and d
3) To simply be a price discriminator, a price setting firm must
separate consumers into identifiable groups. To successfully
price discriminate, a firm must:
a. charge higher prices to all consumers
b. produce less output, in order to raise the price
c. prevent resale of the product between consumers
d. all of the above
4) If a monopolist engages in price discrimination, what could
happen as a result?
a. the monopolist's profits would increase
b. the monopolist's output would increase
c. consumer surplus would be zero
d. all of the above
5) A merger between McDonalds and Burger King is an example of
a:
a. horizontal merger
b. vertical merger
c. diagonal merger
d. lateral merger
6) The best example of monopolistic competition is:
a. industries where there are many firms producing
slightly different versions of a product
b. industries where there are many firms producing
the same product
c. industries where only a few firms produce slightly
different versions of a product
d. industries where only a few firms produce the same
product
7) The best explanation as to why Kroger and Winn Dixie
don't form a cartel is:
a. cartels are a violation of the Sherman Antitrust Act
b. forming a cartel increases output and lowers prices
c. cartels are easier to form with many firms, rather than just
two
d. cartels produce output that involves allocative inefficiency
The following is a list of pricing "schemes" that are
either used by firms or that government agencies impose on firms.
This list corresponds with questions #8-11.
a. In foreign countries, local merchants sometimes assume that people with American accents have more money to spend than local residents - causing them to charge the American a higher price than the local resident normally pays.
b. When regulators set LG&E's rates, they will allow LG&E to break even.
c. When regulators set South Central Bell's rates, they try to get Bell's output to be allocatively efficient.
d. When you move to a new home, LG&E charges you a fee to get your electricity hooked up. Afterwards, you can "buy" all the electricity you need at a specific rate.
e. In the early 1900s, Standard Oil attempted to create a monopoly
by pricing below the costs of competing firms.
8) What's the best example of price discrimination?
9) What's the best example of a two part tariff?
10) What's the best example of AC pricing?
11) What's the best example of MC pricing?
12) If a firm charges a flat fee as part of a two part tariff,
what is the most that a group of consumers will pay for the fee?
a. marginal cost
b. average cost
c. the value of their consumer surplus
d. the value of their producer surplus
13) When a firm introduces a new product and the
firm's rivals must react, what game theory approach
can be used to analyze this situation?
a. a sequential game
b. a simultaneous game
c. a Prisoner's dilemma game
d. a monopoly game
14) A simultaneous game is one in which
a. player A moves, then player B moves
b. players A and B move at the same time
c. player A knows player B's move in advance of any move by A
d. players A and B analyze their choices simultaneously, but move
in turns
The two firms in an oligopoly can advertise a lot or just a little.
If advertising is heavy their profits are lower than if advertising
were light. Each box in the table below shows the profits for
firms 1 and 2 when they choose heavy or light advertising, given
the advertising level of their competitor (firm 1's profits are
listed first, then 2's). Questions #15-16 correspond with this
situation.
15) Which box represents the non-cooperative equilibrium?
16) What is the most likely outcome if the two firms really are
able to cooperate?
17) Which of the following is true about a monopolist?
a. A monopolist takes price as given (i.e. the monopolist
is a price taker)
b. A monopolist produces where P = MC, which is also
where MR = MC
c. A monopolist produces where MR = MC, which is also
where P > MC
d. A monopolist's marginal revenue and demand curves
have equal slopes
18) In the short run, a profit maximizing monopolist
will never (willingly) produce:
a. when P > AC
b. when the own price elasticity is less than one
c. when P = AC
d. when P < AC
e. both b and d
19) Why do cartels fall apart?
a. firms within the cartel may have difficulty in
monitoring whether everyone is going along with the
cartel agreement
b. firms have an incentive to maximize their
(individual) benefit over that of the cartel
c. firms can gain by cheating on cartel agreements
d. the punishment for cheating on a cartel agreement
may not be great enough
e. all of the above
20) When do monopolists experience negative economic profits?
a. monopolists don't make losses, as they can always set a price that makes at least some profit
b. whenever their price is below their average cost
c. whenever marginal revenue is less than marginal cost
d. monopolists always make zero economic profits because there are no barriers to entry in their industry