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Ateneo de Manila University

DEPARTMENT OF ECONOMICS
Econ.111 Microeconomics

Name: ___________________ Section: _____


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INSTRUCTION : Blot the appropriate “O” corresponding to your answer.

A B C D E A B C D E

1. O O O O O 26. O O O O O
2. O O O O O 27. O O O O O
3. O O O O O 28. O O O OO
4. O O O O O 29. O O O OO
5. O O O OO 30. O O O O O
6. O O O O O 31. O O O O O
7. O O O O O 32. O O O O O
8. O O O O O 33. O O O O O
9. O O O O O 34. O O O O O
10. O OO O O 35. O O O O O
11. O O O O O 36. O O O O O
12. O O O O O 37. O O O O O
13. O O O O O 38. O O O O O
14. O O O O O 39. O O O O O
15. O O O O O 40. O O O O O
16. O O O O O 41. O O O O O
17. O O O O O 42. O O O O O
18. O O O O O 43. O O O O O
19. O O O O O 44. O O O O O
20. O O O O O 45. O O O O O
21. O O O O O 46. O O O O O
22. O O O O O 47. O O O O O
23. O O O O O 48. O O O O O
24. O O O O O 49. O O O O O
25. O O O OO 50. O O O O O
Intermediate Microeconomics EC 111
Second Homework L. A. Lanzona
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1. As long as entry is restricted, a monopolist will tend to have


a. profits above opportunity costs.
b. its marginal revenue above its marginal cost.
c. marginal costs = average costs
d. all of the above
e. none of the above

2. Which of the following statements is true of a firm with a down sloping marginal revenue curve?
a. The firm has some control over the price
b. As the firm increases production, it must decrease its price
c. The firm has at least partial monopoly in its market
d. all of the above
e. none of the above

3. Which of the following statements is true of a firm with a horizontal marginal revenue curve?
a. The firm has some control over the price
b. The firm can sell all it produces at the given price
c. The firm is a price leader with partial monopoly power
d. all of the above
e. none of the above

4. Why is a monopolist likely to produce a lower quantity than the one who would minimize average costs?
a. Because restricting quantity drives up prices.
b. Because monopolist have to cut price as they increase quantity.
c. Because the monopolist profit maximizing level of output is likely to be lower than the cost-minimizing
level
d. all of the above

5. If a firm's marginal revenue decreases as quantity produced increases, what happens to the firm's
demand?
a. It decreases faster than average revenue
b. It is the same regardless of quantity.
c. It decreases at a faster rate than the average revenue
d. It is identical with average revenue

6. When the monopolist increases prices,


a. the deadweight loss decreases.
b. the deadweight loss increases.
c. the consumer surplus remains constant.
d. the consumer surplus increases.
e. none of the above

7. A monopolist exists because


a. the product is differentiated.
b. the marginal costs of the firm is upward sloping
c. the marginal revenue curve intersects the average cost curves at the latter's minimum point.
d. all of the above
e. none of the above

8. By adhering to the MC=MR, a monopolist will guarantee himself:


a. Either maximum profits or minimum losses
b. Large profits
c. Normal profits
d. No losses
e. All of the above

9. A monopolistically competitive firm is characterized by all of the following except


a. excess capacity.
b. economic profit in the long-run.
c. differentiated products.
d. easy entry and exit.
e. none of the above

10. Long-run equilibrium in a monopolistically competitive market is characterized by the following except
a. excess capacity.
b. zero economic profits.
c. price equal marginal costs.
d. quantity demanded equals quantity supplied.
e. none of the above

11. A monopolist differs from a purely competitive firm because


a. competitive firms equate marginal revenue with marginal cost to maximize profits.
b. long-run average cost is above the price for the competitive firms.
c. price is above the marginal revenue under a monopoly.
d. all of the above
e. none of the above

12. To determine how a discriminating monopolist will allocate output between two classes of consumers
(or markets), one must
a. compare the marginal revenues in the classes.
b. compare the prices in the classes.
c. compare the slopes of the demand curves in the classes.
d. compare the heights of the demand curves in the classes.
e. none of the above

13. A necessary condition for a (third-degree) price discrimination is:


a. identical tastes among buyers
b. differences in price elasticities among buyers
c. a single, homogeneous market
d. two or more markets with no economic restrictions between them
e. all of these

14. A perfectly price discriminating monopolist will equate marginal cost with the
a. price of the good.
b. marginal revenue.
c. average costs.
d. both a and b
e. none of the above

15. A central assumption in the theory of monopolistic competition is that


a. demand curves will be the same for the others in the group.
b. each firm's product is a fairly close, though not a perfect, substitute for the others in the group.
c. there are just a few firms in the group.
d. each firm expects its actions to influence those of its rivals.
e. none of the above

16. In the short-run, a perfectly competitive firm earning negative profit


a. is on the downward-sloping portion of its Average Variable Cost curve (AVC)
b. is at the minimum of its AVC
c. is on the upward-sloping portion of its AVC
d. is not operating on its AVC
e. can be any point of its AVC

17.Electric utilities often practice second-degreeprice discrimination. Why might this improve consumer
welfare? Second-degree price discrimination might improve consumer welfare because,compared with
single-monopoly pricing,
a. Producer surplus is lower.
b. Variety s greater.
c. Prices are lower.
d. Output is higher.
e. Profit is higher.

18. What are the characteristics of oligopolistic markets?


a. many firms, unrestricted entry, and differentiated products
b. many firms, restricted entry and differentiated or undifferentiated products
c. few firms, unrestricted entry, undifferentiated products
d. few firms, unrestricted entry and differentiated or undifferentiated products

19. For any given level of output


a. marginal cost must be greater than average costs
b. average variable cost must be greater than average fixed cost
c. average fixed cost must be greater than average variable cost
d. fixed cost must be greater variable cost
e. none of the above

20. A Nash equilibrium occurs when


a. each player (firm) is doing the best it can given the opponent’s actions
b. each firm chooses the strategy that maximizes his minimum gain
c. a player can choose a strategy that is optimal regardless of the rival’s actions
d. there is no dominant player
e. none of the above

21. A Nash equilibrium is stable because


a. it involves dominant strategies
b. it involves constant-sum games
c. it occurs in non-cooperative games
d. once the strategies are chosen, no player has an incentive to negotiate jointly to change them.
e. once the strategies are chosen, no player has an incentive to deviate unilaterally from them.

22. When is an oligopoly likely to contain a price leader?


a. When one firm controls enough of the market and commands enough buyer loyalty to sell what other
firms cannot sell
b. When firms of similar size and power band together to maximize industry wide behavior
c. When prices are changing rapidly and a leader is needed to stabilize the market
d. When budgets can no longer be passed along to consumers as higher prices
e. None of the above

23. The perfectly competitive firm’s marginal revenue is


a. exactly the same as the marginal cost curve
b. downward sloping, at twice the (negative) slope of the market demand curve
c. vertical
d. horizontal
e. upward-sloping

24. An oligopolist with the least average cost will be a price leader because
a. it controls a large share of the market.
b. it can charge a lower price compared to the other firms.
c. its rivals have the same demand curve.
d. all of the above
e. none of the above

25. In an oligopolistic market (Bertrand model) where the dominant firm acts as the price leader, smaller
firms
a. are subject to constant returns to scale.
b. operate with excess capacity.
c. face perfectly elastic demand.
d. must equate marginal costs with the prices set by the dominant firm.
e. none of the above

26. In Nash equilibrium,


a. The firm that moves first always has an advantage.
b. Each firm does the best it can given what the other firms are doing.
c. Each firm makes the monopoly level of profit.
d. The firms cooperate with each other and earn higher profits than they would if they did not cooperate.

27. In an oligopolistic industry, firms seek to limit entry in order


a. to maximize short-run profits.
b. to increase its production scale.
c. to stabilize price and avoid price wars.
d. to minimize production costs.
e. none of the above

For numbers 28-30, consider an initial allocation of rice and pork between Pedro and Juan where the
MU R
former's MRS between rice and pork (MRSrp= ) is greater than the latter's MRSrp.
MU P
28. The welfare of both individuals can be increased if allocation can be redistributed so that
a. Pedro receives more rice and less pork.
b. Juan receives more rice and more pork.
c. Pedro receives less rice and more pork.
d. both a and b
e. both a and c

29. Mutually beneficial exchange between the two consumers will be achieved as soon as
a. their MRS continue to differ.
b. they decide not to trade with one another.
c. they are confronted with different prices for their goods.
d. the two consumers eventually place equal relative values on all products.
e. none of the above

30. A new allocation which transfers more rice and more pork to Pedro will be efficient if
a. the new allocation is within the contract curve.
b. theMRSrp of both consumers are equal in this new allocation.
c. Juan does not resist, and Pedro welcomes such an allocation.
d. any of the above
e. none of the above

31. All allocation of goods that are on the contract curve of the two consumers are
a. equally efficient.
b. equally fair.
c. equally fair and efficient.
d. neither fair nor efficient.
e. unfair.

32. The rate of product transformation of X and Y (RPTyx) refers to


a. the absolute value of the slope of the production possibilities frontier.
b. the marginal cost of producing X in terms of a sacrificed Y, or MCx/MCy.
c. the opportunity cost of X in terms of Y.
d. any of the above
e. none of the above

33. The following are three conditions that must be met simultaneously if the economy is to operate
efficiently except
a. MRS XY A
= MRS XY
B
where A and B are consumers, and X and Y are goods
b. X
MRTS LK = MRTS LK
Y
where L and K are labor and capital, respectively.
c. MRSxy=RPTxy
d. Px/Py=PL/PK
e. none of the above

34. The point inside the production possibility frontier is inefficient because
a. production of one good can increase without any corresponding decrease in the other good.
b. the economy might not be fully utilizing its available resources and hence not maximizing its welfare.
c. the combination lies below what is the maximum possible level of production.
d. the economy can still reach a higher level of production through specialization.
e. all of the above
35. If a point is off the contract curve, we can find
a. a point on the contract curve that is better.
b. no point on the contract curve is better.
c. a point on the contract curve that is better if and only if the contract curve is a straight line.
d. a point on the contract curve that is better if and only if the contract curve goes through the point of
origin.
e. none of the above

36. A Pareto-optimal allocation of resources is one where


a. nobody can benefit from a redistribution of resources.
b. resources cannot be transferred from one use top another without causing a reduction in somebody's
welfare.
c. resources cannot be transferred from one use top another without causing a reduction in society's welfare.
d. all of the above
e. none of the above

37. A Pareto-optimal allocation of resources


a. cannot be achieved under a planned system.
b. is automatically achieved in a market system.
c. is never achieved in reality.
d. could be achieved if prices conveyed information about relative scarcities.
e. none of the above

38. Market failure occurs because


a. not everyone has heard of the concept of Pareto optimality.
b. the distribution of incomes is not equal.
c. the market prices do not always reflect the true resource costs.
d. all of the above
e. none of the above

39. Externalities in consumption suggest


a. decreasing marginal utility of consumption.
b. increasing marginal utility of consumption.
c. that the level of consumption of a consumer depends upon the consumption levels of others.
d. that the level of utility of a consumer depends upon the consumption levels of others.
e. none of the above

40. The Pareto optimal conditions for optimum welfare


a. depend on the interpersonal comparisons of utility.
b. help to determine optimal distribution of income.
c. are silent concerning the optimal distribution of goods.
d. all of the above
e. none of the above

41. Why should welfare economics be concerned with only efficiency (meaning costs and benefits)?
a. Because welfare economist have proved that an efficient person is happier than an inefficient person.
b. Because equity and growth are controversial topics that cannot be studied scientifically.
c. Becauseto an efficient person, an unequal allocation of resources reduces the amount of economic
welfare available in an economy.
d. all of the above
e. none of the above
42. Which of the following conditions is necessary for an economy to be Pareto efficient?
a. All consumers agree about the same amount of goods they prefer to consume
b. The cost of producing goods must be relative to the prices consumers are willing to pay for goods
c. It must be impossible to increase production with decreasing production of some other good.
d. All of the above

43. Under which of the following conditions is an economy to Pareto efficient?


a. When resources and income are distributed in a way that maximizes the economic welfare of the
economy.
b. When any change in the allocation of resources that makes anyone better off will make someone else
worse off.
c. When individuals agree on fundametal ethical judgments that they are entitled to the pursuit of happiness.
d. When no economist can detect inefficiency in the economy.

44. Under which of the following conditions does the market economy achieve Pareto efficient?
a. When the market's rewards are distributed equally.
b. When many firms produce undifferentiated goods in markets that are easy to enter.
c. When land and labor are used to produce two goods for two households.
d. When imperfect competition allows firms to acquire limited amount of market power.

45. Why is price discrimination incompatible with Pareto efficiency?


a. Because consumers can become better off if those who can buy the good at the lower price buy it and
resell it to the others.
b. Because price discrimination creates an inequitable distribution of goods by favoring some consumers
over others.
c. Because under price discrimination it is impossible to reshuffle goods to make any consumer better off
without making the producer worse off
d. All of the above

46. Under which conditions might an inefficient allocation of resources in an economy provide greater
economic welfare than a Pareto-efficient allocation of resources?
a. When an inefficient allocation results in less costly production of more of the goods consumers want.
b. When perfect competition is the exception rather than the rule
c. When the market cannot solve the problems arising from a system-wide misallocation of resources.
d. When an inefficient allocation is more equitable than the efficient allocation.

47. When a perfectly competitive firm is in short-run equilibrium,


a. Marginal cost equals average revenue
b. Marginal revenue equals long run average cost.
c. Average total cost equals long-ruin average cost.
d. Marginal revenue equals average total cost.
e. All of the above

48. When the price of the firm's good increases and wage remains the same, profit maximization will lead to
a. lower output.
b. higher output.
c. indeterminate output.
d. no change in output.
e. None of the above
49. Compared to the equilibrium price and quantity sold in a competitive market, a monopolist will charge a
________ price and sell a ________ quantity.
A) higher; larger
B) lower; larger
C) higher; smaller
D) lower; smaller
E) none of these

50. Assume that a profit maximizing monopolist is producing a quantity such that marginal revenue exceeds
marginal cost. We can conclude that the
A) firm is maximizing profit.
B) firm's output is smaller than the profit maximizing quantity.
C) firm's output is larger than the profit maximizing quantity.
D) firm's output does not maximize profit, but we cannot conclude whether the output is too large or too
small.