What is the problem with marginal cost pricing in the natural

What is the problem with marginal cost pricing in the natural

What is the problem with marginal cost pricing in the natural

Part 1 short answers: just a
few lines for each

1. What is the
problem with marginal cost pricing in the natural monopoly situation? How do
regulatory agencies in the United States usually handle the problem?

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2. What is
oligopoly? How does oligopoly differ from the other kinds of market structure?

3. Why do firms
form a cartel? How do cartels achieve their goals?

4. How does a
monopoly maximize profits? What price does it charge?

5.
Explain the three types of goods:
search goods, experience goods and credence goods. What type of advertising would firms likely
use for each type of good and why?

Part 2:

Multiple choice questions

Question 1(2 points)

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Refer to the above figure. Profits for this firm are negative
Question 1
options:

A)

only for all points less than B.

B)

only at points B and C.

C)

for points between B and C.

D)

for all points less than B and greater than C.

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Question 2(2 points)
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In the above figure, if the firm is facing demand curve d2, then to
maximize profits it will produce at output level
Question 2
options:

A)

A.

B)

B.

C)

C.

D)

D.

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Question 3(2 points)
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A firm earning
economic losses should operate in the short run as long as
Question 3
options:

A)

the price per unit sold is greater than the average
fixed cost per unit produced.

B)

the price per unit sold is greater than the average
variable cost per unit produced.

C)

marginal revenue is at least the price per unit sold.

D)

the price per unit sold is equal to or greater than
the marginal cost of production.

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Question 4(2 points)
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In the above figure, assume d3 is the demand curve faced by
this firm. Which is true?
Question 4
options:

A)

This firm is earning an economic profit.

B)

This firm is experiencing an economic loss.

C)

This firm is breaking even.

D)

This firm’s total revenues equal HRD0.

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Question 5(2 points)
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The
profit-maximizing level of output for a firm occurs at the point at which
Question 5
options:

A)

P = ATC.

B)

P = AVC.

C)

MR = MC.

D)

MR = ATC.

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Question 6(2 points)
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In a long-run
equilibrium, a perfectly competitive firm’s average total cost is
Question 6
options:

A)

minimized.

B)

maximized.

C)

zero.

D)

equal to average fixed cost.

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Question 7(2 points)
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Signals are
Question 7
options:

A)

used by economic decision-makers to inform others
about their plans.

B)

the method by which government planners inform
economic decision-makers about the types of decisions they should make.

C)

the method by which firms determine their profit
maximizing quantity.

D)

compact ways of conveying to economic decision makers
information needed to identify industries where more resources are needed.

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Question 8(2 points)
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For a firm in a perfectly
competitive industry, the demand curve for its own product is
Question 8
options:

A)

horizontal.

B)

vertical.

C)

upward sloping.

D)

downward sloping.

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Question 9(2 points)
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Refer to the above figure. Profits for this firm are positive
Question 9
options:

A)

only for all points less than B.

B)

only at points B and C.

C)

for points between B and C.

D)

for all points less than B and greater than C.

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Question
10(2 points)
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A firm is currently
producing at the point where MC = MR. The situation for the firm at this point
is P = $5, Q = 100, ATC = $6, AVC = $4.50. What do you recommend this firm do?
Question 10
options:

A)

Increase production above the current output rate,
because MC = MR at this rate of output.

B)

Continue to produce the current output rate, because
P > AVC.

C)

Shut down, because AVC > P.

D)

Shut down, because ATC > P.

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Question
11(2 points)
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A perfectly
elastic long-run supply curve indicates
Question 11
options:

A)

a decreasing-cost industry.

B)

a constant-cost industry.

C)

an increasing-cost industry.

D)

that some input prices change as firms enter and exit
the industry.

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Question
12(2 points)
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One problem
associated with a monopoly firm is that it
Question 12
options:

A)

produces too little output but also charges a low
price.

B)

produces too much output and charges too low a price.

C)

restricts output and charges a relatively higher
price than a purely competitive firm.

D)

is just as good as a purely competitive firm in terms
of output and price.

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Question
13(2 points)
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Refer to the above figure. The profit-maximizing price and output for this
monopolist are
Question 13
options:

A)

a price of P1 and output of Q1.

B)

a price of P4 and output of O1.

C)

a price of P2 and output of Q2.

D)

a price of P3 and output of Q3.

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Question
14(2 points)
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To sell more
units, a monopolist
Question 14
options:

A)

simply moves across its horizontal demand curve to a
larger quantity.

B)

moves down its demand curve to a lower price that
will increase quantity demand.

C)

can continue to receive the same price it always has
as long as it has its customers’ goodwill.

D)

must be willing to lower the barriers to entry that
have protected it.

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Question
15(2 points)
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If a monopolist
wants to increase the amount it sells, it
Question 15
options:

A)

will keep the price the same.

B)

must lower the price on all units.

C)

must accept lower profits.

D)

must lower the cost of production.

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Question
16(2 points)
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Which of the
following is NOT a barrier to entry?
Question 16
options:

A)

Patents

B)

Licenses

C)

Economies of scale

D)

U.S. antitrust legislation

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Question
17(2 points)
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The monopolist
determines the price and quantity combination that maximizes short-run profits
by
Question 17
options:

A)

finding the quantity at which marginal cost and
marginal revenue are equal and then using the demand curve to find price.

B)

determining the price by finding the highest price at
which sales can be made and then using the demand curve to find the
appropriate quantity.

C)

finding the point at which marginal revenue and
demand intersect. This gives the price and quantity that maximizes profits.

D)

finding the quantity at which average revenue and
average total cost are furthest apart.

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Question
18(2 points)
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Establishing
different prices for similar products to reflect differences in marginal cost
in providing those goods to different groups of buyers is
Question 18
options:

A)

price discrimination.

B)

cost-plus pricing.

C)

price differentiation.

D)

product differentiation.

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Question
19(2 points)
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Price
discrimination is the
Question 19 options:

A)

refusal by a firm to sell to all customers.

B)

selling of a given product at more than one price
when the price differences reflect cost differences.

C)

pricing of a product so that not everyone can afford
it.

D)

selling of a given product at more than one price
when the price difference is unrelated to cost differences.

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Question
20(2 points)
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The portion of
consumer surplus that no one in society is able to obtain in a situation of
monopoly is known as
Question 20
options:

A)

a market failure.

B)

a deadweight loss.

C)

an unrealized loss.

D)

a market externality.

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Question
21(2 points)
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In the above figure, the area of rectangle ABHG represents the monopolist’s
Question 21
options:

A)

maximized economic profits.

B)

maximized total revenue.

C)

average total profits.

D)

total costs.

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Question
22(2 points)
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If Japanese
producers sell computer chips at a higher price in the United States than in
Japan, and if there is no cost difference in producing or transporting the
chips, the Japanese producers would be practicing
Question 22
options:

A)

cartel pricing.

B)

price discrimination.

C)

simple monopoly behavior.

D)

price sampling.

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Question
23(2 points)
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When a firm
relies on radio and TV ads to reach potential customers, the firm is engaging
in
Question 23
options:

A)

direct marketing.

B)

mass marketing.

C)

interactive marketing.

D)

None of these.

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Question
24(2 points)
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Refer to the above figure. The profit maximizing price for a monopolistic
competitor is
Question 24
options:

A)

P1.

B)

P2.

C)

P3.

D)

P4.

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Question
25(2 points)
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The type of advertising
that emphasizes the features of its product is
Question 25
options:

A)

informational advertising.

B)

persuasive advertising.

C)

search advertising.

D)

experience advertising.

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Question
26(2 points)
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A good that people
must actually consume before they can determine qualities is called
Question 26
options:

A)

a credence good.

B)

a search good.

C)

an experience good.

D)

a persuasive good.

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Question
27(2 points)
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In the above figure, the profit-maximizing monopolistically competitive firm
will
Question 27
options:

A)

make a profit of $24,000.

B)

make a profit of $30,000.

C)

make a profit of $0.

D)

incur a loss of $20,000.

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Question
28(2 points)
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Interactive
marketing is
Question 28
options:

A)

advertising that permits a consumer to follow up
directly by searching for more information and placing direct product
orders.

B)

advertising that targets a specific audience and
allows the consumer to follow up directly by placing direct product orders
usually through television or radio.

C)

advertising targeted at specific consumers.

D)

advertising intended to reach as many consumers as
possible.

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Question
29(2 points)
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Refer to the above figure. Which panels represent long run equilibrium for the
perfectly competitive firm and monopolistic competitive firm, respectively?
Question 29 options:

A)

Panel C & Panel A.

B)

Panel C & Panel B.

C)

Panel B & Panel C.

D)

Panel C & Panel D.

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Question
30(2 points)
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A good with
qualities that consumers lack the experience to assess without assistance is
called
Question 30
options:

A)

a credence good.

B)

a search good.

C)

an experience good.

D)

a persuasive good.

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Question
31(2 points)
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A market with
few sellers, some influence over price, high barriers to entry, a
differentiated product, and non-price competition is known as
Question 31
options:

A)

perfect competition.

B)

monopolistic competition.

C)

oligopoly.

D)

monopoly.

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Question
32(2 points)
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A reaction
function is
Question 32
options:

A)

companies colluding in order to make higher than
competitive rates of return.

B)

the manner in which one oligopolist reacts to a
change in price made by another oligopolist in the industry.

C)

a game in which firms will not negotiate in any way.

D)

when plans made by firms are known as game
strategies.

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Question
33(2 points)
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Which of the
following best describes the Battle of the Sexes?
Question 33
options:

A)

Two firms choose incompatible product formats.

B)

Two firms choose one compatible product format.

C)

Two firms wish to coordinate on one compatible
product format but cannot agree on which one.

D)

Two firms choose to engage in a noncooperative game.

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Question
34(2 points)
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A cartel is a
form of
Question 34
options:

A)

collusion.

B)

vertical merger.

C)

noncooperative competition.

D)

negative sum game.

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Question
35(2 points)
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Which of the
following is NOT a common characteristic of oligopoly?
Question 35
options:

A)

strategic dependence among firms in the industry

B)

product differentiation

C)

barriers to entry

D)

marginal cost pricing.

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Question
36(2 points)
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If three firms
of similar sizes join to form a cartel, then it is most likely that
Question 36
options:

A)

they will charge a common, higher market price.

B)

they will collectively produce more than before.

C)

all three firms will stop producing.

D)

all three firms will earn zero profits.

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Question
37(2 points)
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The prisoner’s
dilemma shows that
Question 37
options:

A)

players are better off if they act independently.

B)

monopolies are beneficial to society.

C)

people will always cheat.

D)

players would be better off if they cooperated.

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Question
38(2 points)
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In which market
structures is the firm able to earn long-run economic profits?
Question 38
options:

A)

Perfect competition and monopolistic competition.

B)

Monopolistic competition and oligopoly.

C)

Oligopoly and monopoly.

D)

Monopolistic competition, oligopoly and monopoly.

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Question
39(2 points)
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One problem that
might occur as a result of economic regulation is
Question 39
options:

A)

the firm may be earning more than a normal rate of
return on investment.

B)

the quality of service might be lowered.

C)

that social regulation may follow.

D)

the demand for the good may be greater than the
supply.

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Question
40(2 points)
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Which of the
following statements about natural monopoly is correct?
Question 40
options:

A)

Governments regulate natural monopolies in order to
ensure that costs of production are minimized.

B)

Governments regulate natural monopolies in order to
ensure that the firm earns a normal profit.

C)

Governments regulate natural monopolies in order to
prevent them from making profits.

D)

Governments regulate natural monopolies in order to
keep their workers from earning wages that are too high.

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Question
41(2 points)
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When consumers
have less information about a product than do sellers, then this is the
situation of
Question 41
options:

A)

asymmetric information.

B)

symmetric information.

C)

caveat emptor.

D)

a market failure.

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Question
42(2 points)
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For a firm to be
economically efficient from society’s point of view, it should produce to the
point at which
Question 42
options:

A)

marginal cost equals marginal revenue.

B)

marginal cost equals average total cost.

C)

marginal cost equals price.

D)

average total cost equals price.

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Question
43(2 points)
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U.S. government
regulation of social and economic activity
Question 43
options:

A)

only began after World War II.

B)

costs less now than it did in the 1980s.

C)

has increased steadily since 1970.

D)

is confined to antitrust law.

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Question
44(2 points)
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While economic
regulation applies to ________ industries, social regulation applies to
________ firms.
Question 44
options:

A)

particular; individual

B)

particular; all

C)

all; individual

D)

utility; healthcare

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