micro test 3
micro test Please not that all graphs are lost when the test is saved. The Learning Web does not support certain formatting ..
MICRO TEST 200 POINTS
Instructions: 1. Answer all questions. The points or value assigned to each is given with the question.
2. Put your name on each page (protection in the event pages should become separated.)
3. If you need additional space to work, use any paper you deem appropriate, but put the question number and your name on each page. 4. You may use your cheat sheet and nothing else, especially not your neighbor, an email client or a cell phone. Turn off and put away all cell phones.
5 I expect you to provide clear, complete answers. For example, in each essay question, I expect you to not only draw the Supply and Demand or other relevant graph, but also to provide reasoned explanations for the impact which you describe. As always, I am just as interested in WHY, as I am in the specific answer. And, as always, the emphasis is on what happens to the equilibrium price and output--unless otherwise specified.
6. Points will be lost for failure to label axes, tables and graphs, for failure to write in complete sentences where applicable, and for failure to define all symbols used. These points are in addition to any other points you might lose. Graphs without an explanation are meaningless and will earn no points, so give a complete description of each graph, what changed within the graph, and why. Graphs without labels on the axes are also meaningless, and will earn no points. Remember that the reader of this test is not a mind reader. You will be graded only on what you write, not what you meant to say.
7. You get to miss one multiple choice free, and remember, partial credit is possible. There is no penalty for guessing, so do not leave any of the multiple choice unanswered.
8. If you need to use the facilities, go now. No one should leave the room once they begin taking the test.
9. Good Luck! And remember to start with what you DO know and then work into what you don’t know.
NAME__________________________________________________________
CLASS TIME ____(eg 3:30 TTH) _________________________________
QUESTION NO. 1 50 points. Monopoly Power (aka Market Power) prevents us from reaching the allocatively efficient combination of goods and services . (what to produce) . Remember all of your instructions about labeling, defining symbols, explaining by referring to your graph. They continue to apply.
20 points Draw and explain (explain means refer to your graph, and tell me what is in your graph) what happens to resource allocation when there is market power. That means think about what happens when resources are allocated efficiently, and show in the same graph what happens to output and consumer surplus.
20 points Briefly discuss the conditions that lead to (or guarantee ) allocative efficiency .i. e. what conditions are necessary for allocative efficiency?
10 points If a monopoly is minimizing cost such that it has the lowest possible Average Total Cost given its limited supply of resources, do we say it be allocatively efficient? Yes or No. Explain.
{ADDITIONAL SPACE FOR QUESTION NO 1}
Multiple Choice. 150 points.. Answer all questions. For a statement to be true, the entire statement must be true, not just part of it. There are twenty questions. Everyone gets to miss one free. Put your name or initials on each page, in case pages are separated. Circle the correct answer AND put the letter (A, B, C, D, or E) in the space before each number. If not, it will cost you 5 points.
___________ 1. When compared with the purely competitive industry with identical costs of production, a monopolist will charge a
a. lower price, but will produce more output
b. lower price, but will produce less output
c. higher price and produce less output
d. higher price and produce less output
_________ 2. The hallmark of ‘’Monopolistic Competition is:
a. Ease of entry and exit ie no entry or exit barriers
b. Higher average cost when compared to comparable competitive firms who have no advertising or marketing costs.
c. Lower variables costs than any other market structure.
d. Vertical Demand curves
e. Kinked Demand curves
___________ 3. . Fred’s monthly demand for DVD’s is as follows. If the price is $30, he buys none. If the price is $20, he buys two . If the price is $10, he buys 3. If the price is $5, he buys a maximum of 4. If the price of DVD’s is $20, the consumer surplus Fred receives from his purchase is:
A $5
B $10
C $20
D $25
___________ 4. If a Monopolist is operating on the lowest possible Average Total Cost curve (productively efficient), then we know consumers are getting the combination of goods and services which they prefer.
A True
B False
__________ 5. When is price fixing against the law in the U.S.?
A When the four firm market share (concentration ratio) is greater than 90%.
B When there are more than two firms involved
C When one of the firms is a price leader
D Whenever it occurs
___________ 6. An industry with five firms in it will be Competitive, as opposed to Oligopolistic, if the interdependence among those firms is
A Not collusive.
B Explicit, rather than Implicit.
C Is related to price, rather than some non-price variable.
D An industry with only five firms will not be Competitive because Competition implies price taking behavior and interdependence precludes price taking behavior.
____________7. In the short run, an oligopolistic firm will earn
a. Only a normal profit (includes opportunity cost)
b. Only an accounting profit.
c. either an economic profit or a loss, depending on the cost structure of the firm relative to the price.
d. all the above.
____________ 8 . Under the Federal Trade Commission Act it is against the law to monopolize, attempt to monopolize or conspire or contract to monopolize, and that includes any combinations that monopolize or attempt to monopolize in restraint of trade among the states, or with foreign nations.
a. true
b. false
____________- 9. The Clayton Act fixes several loop holes that were in the Federal Trade Commission Act.
a. true
b. false
____________ 10. . Game Theory refers to the rules and regulations of Kenya’s hunting practices. We study these as an example of the incorrect way to portray monopolistic competition.
a. true
b. false
____________ 11. IN the examples we did of the Prisoner’s Dilemma; the point was:
a. To illustrate the difference between subjective and objective behavior in the market.
b. to illustrate how the consumer chooses between any two goods in the market.
c. to illustrate the concept of interdependence among firms.
d. to illustrate the concept of diminishing marginal utility.
e. to illustrate the how firms maximize profit in the choice of output.
___________ 12. IF United Airlines announces a new discount fare for summer travel, which of the following are true statements about that action.
a. It is possible the other airlines will follow suit by announcing their own discount fares, We call this ‘Follow the Leader’.
b. It is certain that United must take into consideration the reaction of the other airlines to the discount fares.
c. It is possible that some of the other airlines will follow the actions of United and lower their prices out of fear that they would otherwise lose part of their current market share.
d. It is possible that all of the actions and reactions cited above are valid, making a, b, and c true statements.
IN the diagram below, MR=marginal revenue, MC=marginal cost, ATC=average total cost, Qm=monopoly equilibrium output, Qp=competitive equilibrium output, D=demand,
__________ 13. IN the diagram above, there is one curve which is incorrectly depicted. That is, there is one curve that does not take on the shape it should.
a. Demand
b. Marginal Revenue
c. Marginal Cost
d. Average Total Cost
__________ 14. IN the diagram above, If A is at $30 , and Pm is at $20, and Ppc is at $10, Qm is at 100 and Qpc is at 200, calculate the dead weight loss.
a. $800
b. $500
c. $250
d. $2,000
____________ 15. Which of the following represents a transfer of consumer surplus from consumers to producers?
a. The triangle CBD
b. The trapezoid CBPpc Pm
c. The rectangle CDPpcPm
d. The rectangle BDQmQpc
___________- 16. Which of the following statements is not true?
a. A monopolist that is producing a Quantity of Output = 50 units, will find that the maximum price it can charge is found by reading straight up from 50 units to the Demand Curve, and reading the price from there.
b. A competitive firm will first look at the MR and MC curves to determine its profit maximizing level of output, then will look at its demand curve, which will be the market determined price.
c. An Oligopolist wishing to maximize its profit or minimize its loss will operate at the output level where marginal cost and marginal revenue are equal.
d. Interdependent behavior prevents the typical Oligopolist from achieving profit maximization, that is why we are concentrating on Game Theory.
_____________ 17. A four firm concentration ratio is one, but only one, of the tools we use to measure market share.
a. true
b. false
____________ 18. The Department of Justice developed a method of judging whether a merger was likely to have a negative effect on competition. The method involves:
a. Three firm concentration ratios.
b. Four firm concentration ratios.
c. The elasticity of demand market share method .
d. The Herfindahl ( HHI) index of market shares that uses the sum of the squares of the market shares.
_________ 19. Natural Monopoly ::
a. Occurs when there are economies of scale, and because of the scale of the market, one firm can serve that market at a lower average cost than if the market were divided among several firms.
b. Historically, we regulated natural monopoly, both in terms of price and safety.
c. Today we continue to regulate the safety side, but not price.
d. ‘a’ and ‘b’ are true , but not ‘c’
e. ‘a’ , ‘b’, and ‘c’ are all true
___________20. In the long run, all firms will find themselves earning an accounting profit; because if they were earning economic profits, that would attract the attention of other firms who would enter the market to capitalize on the high profits.
a. true
b. false
For an extra 5 points,
_____________ . The following is a quote from your book: “In 1978, under CAB Chairman Alfred Kahn, an economist, the airline industry was deregulated. With deregulation, airlines can compete on fares, initiate service along a new route, or discontinue a route. Empirical research after deregulation showed that passenger miles increased and fares decreased. For example, fares fell 20 percent in 1978 and approximately 14 percent between 1979 and 1984.”
a. The above never occurred in our Arnold textbook. It must be a quote from somewhere else.
b. It is a quote from our book, and we concluded that there was no problem with this statement..
c. It is a quote from our book, and we would find a big problem with something like this. Foremost, there are no references for any of the numbers in this statement. Therefore, we cannot verify these results.
d. It is a quote from our Aplia homework, not the book. And, all results have references which we can verify.