ECC1000 Practise Multiple Choice QuestionsMultiple Choice Identify the choice that best completes the statement or answers the question. Table 3-2 Labour hours needed to produce one unit of: Amount produced in 60 hours: Butter (kg) Butter (kg Rice (kg) Rice (kg) Lee 6 10 15 4 John 3 20 15 4 ____ 1. According to Table 3-2: A. Lee has an absolute advantage in neither goods, and John has a comparative advantage in butter B. Lee has an absolute advantage in rice, and John has a comparative advantage in butter C. Lee has an absolute advantage in rice, and John has a comparative advantage in neither goods D. Lee has an absolute advantage in neither goods, and John has a comparative advantage in rice ____ 2. According to Table 3-2: A. Lee and John both could benefit by Lee specialising in butter, and John specialising in rice B. Lee and John both could benefit by Lee specialising in butter, and John specialising in butter C. Lee and John both could benefit by Lee specialising in rice, and John specialising in butter D. Lee and John both could benefit by Lee specialising in rice, and John specialising in rice 1 Graph 3-2 These figures illustrate the production possibilities available to Amy and Jim with 8 hours of labour. ____ 3. According to Graph 3-2: A. Amy has a comparative advantage in doughnuts, and Jim has an absolute advantage in coffee B. Amy has a comparative advantage in doughnuts, and Jim has an absolute advantage in neither goods C. Amy has a comparative advantage in coffee, and Jim has an absolute advantage in doughnuts D. Amy has a comparative advantage in coffee, and Jim has an absolute advantage in neither goods ____ 4. According to Graph 3-2, if Amy and Jim devote half of their time (four hours) to the production of each good, total production of coffee and total production of doughnuts by both would be ____ respectively. A. 7 and 16 B. 16 and 7 C. 3.5 and 8 D. 8 and 3.5 ____ 5. According to Graph 3-2, if Amy and Jim both specialise completely in the good in which they have a comparative advantage, total production of coffee and total production of doughnuts will be ____ respectively. A. 20 and 4 B. 4 and 20 C. 16 and 7 D. 7 and 16 2 Table 3-3 Hours needed to make one unit of: Amount produced in 2400 hours: Cars Aeroplanes Cars Aeroplanes US 40 160 60 15 Europe 50 150 48 16 ____ 6. Refer to Table 3-3. If the US and Europe trade according to the principle of comparative advantage: A. the US will export cars and Europe will export aeroplanes B. the US will export aeroplanes and Europe will export cars C. the US will export cars and Europe will export cars D. the US will export aeroplanes and Europe will export aeroplanes ____ 7. Refer to Table 3-3. If Europe and the US trade according to the principle of comparative advantage: A. all individuals in both countries will gain B. both countries can have more aeroplanes and cars C. Europe will specialise in cars and the US will specialise in aeroplanes D. both countries will consume on their own production possibilities frontier Table 3-4 Labour hours needed to make one unit of: Amount Produced in 40 hours: Cheese Bread Cheese Bread England 3 2 13.3 20 Spain 1 5 40 8 ____ 8. According to Table 3-4: A. England has a comparative advantage in bread, and Spain has a comparative advantage in cheese B. England has a comparative advantage in cheese, and Spain has a comparative advantage in bread C. England has a comparative advantage in both goods, and Spain has a comparative advantage in neither goods D. England has a comparative advantage in neither goods, and Spain has a comparative advantage in both goods ____ 9. Refer to Table 3-4. If England and Spain trade according to the principle of comparative advantage, Spain will export which product to England? A. bread B. both bread and cheese C. cheese D. Spain cannot benefit from trade with England ____ 10. Refer to Table 3-4. If England imports cheese from Spain, who will benefit and who will lose? A. the producers of bread will lose and the consumers of cheese will benefit B. the producers of cheese will lose and the consumers of bread will benefit C. the producers of bread will lose and the consumers of bread will benefit D. the producers of cheese will lose and the consumers of cheese will benefit 3 the benefits resulting from trade are increased C. elasticity will change with a movement down the curve C. this would: A. the demand for wheat tends to be inelastic D.5 at three months and 0. make bread and cheese more expensive for English consumers C. the supply of wheat tends to be elastic C. make bread more expensive for English consumers D. According to Table 3-4. which of the following would NOT be correct? A. if the English government decided to impose a tariff on cheese imports. If two countries have identical opportunity costs. one country must be more productive in producing all goods than the other B. If the demand curve is linear and downward-sloping. it is possible that: A. Suppose that after a five per cent increase in the price of timber. the demand for wheat tends to be elastic B. the price of drugs will fall and drug-related crime will increase C. elasticity and slope will both remain constant along the curve ____ 14. the lower part of the demand curve will be less elastic than the upper part D. This means that the elasticity of supply is ____. and 15 per cent by 12 months. the price of drugs will fall and drug-related crime will fall B. 3 at three months and 2 at 12 months B. the upper part of the demand curve is more elastic than the lower part B. 2 at three months and 3 at 12 months D.3 at 12 months C. cocaine and crack and the demand for drugs is inelastic. each country should specialise in the production of a particular commodity ____ 13. The development of a new. the price of drugs will rise and drug-related crime will increase D. A. more productive hybrid wheat would tend to decrease the total revenue of wheat farmers because: A. then: A. there are no gains from specialisation and trade D. 0. make cheese more expensive for English consumers ____ 12. a forestry company increases its supply of timber by 10 per cent in the next three months. the price of drugs will rise and drug-related crime will fall 4 . 0.____ 11.3 at three months and 0. make bread and cheese cheaper for English consumers B. the supply of wheat tends to be inelastic ____ 16.5 at 12 months ____ 15. If law enforcement agencies prohibit the use of drugs such as heroin. $8. S1 B. $6. all of the above are equally likely to be the long-run supply curve Graph 6-7 ____ 18. S3 D.00 B.00 D. which supply curve is most likely the long-run supply curve? A. S2 C. Graph 5-5 ____ 17. In Graph 5-5. the price sellers receive after the tax is imposed is: A.50 5 .00 C. According to Graph 6-7. $5. $3. 00 B.00 6 . According to Graph 6-7. $1. the amount of the tax that sellers would pay would be: A. $3.____ 19.50 C. According to Graph 6-8.50 C. $1.00 Graph 6-8 ____ 20.00 B. $2. $1.50 D.00 D. the amount of the tax that buyers would pay would be: A. $2. $3. $1. If the cost of producing automobiles increases. decreases and decreases D. consumer surplus will: A. market c D. decrease C. market b C. increases and increases B. If Australia puts an export subsidy on cattle and the Australian supply of cattle is elastic while the demand for cattle in Indonesia is inelastic then: A. In which market will the majority of a tax be paid by the buyer? A. coffee buyers will bear most of the burden of the tax B. it is impossible to determine how the burden of the tax will be shared ____ 24. Australian sellers of cattle will enjoy most of the subsidy’s benefit B. the benefit of the subsidy will be shared equally D. then decrease ____ 25. all of the above ____ 22. Indonesian buyers of cattle will enjoy most of the subsidy’s benefit C. As a result. Refer to Graph 6-9. increase. Graph 6-9 ____ 21. decreases and increases 7 . If the demand for coffee and the supply of coffee are both elastic then: A. increase B. it is impossible to determine how the burden of the tax will be shared ____ 23. The Health Ministry announces that eating chocolate increases tooth decay. the equilibrium market price ____ and producer surplus of chocolate ____. market a B. Australia exports cattle to Indonesia. A. coffee sellers will bear most of the burden of the tax C. remain constant D. the burden of the tax will be shared equally between buyers and sellers D. increases and decreases C. According to Graph 8-1. $50 per week D. A + B + D + F ____ 29. a probable increase in the total economic welfare of society D. $45 per week 8 . A + B + C B. A B. the tax caused a reduction in consumer surplus. D + E D. a decrease in producer surplus to producers of the taxed good C. it is represented by area: A. D + E D. C + E C. According to Graph 8-1. F ____ 27. all of the above would occur ____ 30. According to the information provided. F ____ 28. the loss in total welfare resulting from the levying of the tax is represented by area: A. Assume that a tax is levied on a good and the government uses the revenue to clean up lethal toxic waste that would cause irreparable harm to a large number of people. D + E + F D. it is represented by area: A. the total gain in welfare due to the transaction described here is: A. According to Graph 8-1. $65 per week C. the tax caused a reduction in producer surplus. B + C C. a decrease in consumer surplus to consumers of the taxed good B. $15 per week B. A B. In this case there would be: A. Graph 8-1 ____ 26. B + C C. deadweight loss would be: A. luring the underground economy to the surface C. increasing incentives to produce D. C + G C. In Graph 9-9. A + C + G D. B + D + E + F 9 . In Graph 9-9. producer surplus after the tariff would be: A. A + C + G D. G B. except: A. as a result of the tariff. Tax cuts and deregulation may cause output in an economy to increase by each of the following. producer surplus with free trade would be: A. increasing the value of output by reducing deadweight tax burdens B. A + B + C + G ____ 33. A + B + C + G ____ 34. E B. In Graph 9-9. D + F D. reducing competition Graph 9-9 ____ 32. B C. C + G C.____ 31. G B. charge your housemate at least $100 but no more than $200 to have you clean up after her 10 . pay your housemate at least $100 but no more than $200 to clean up after herself B.) Suppose she gets a $100 benefit from being messy but imposes a $200 cost on you. encourage your messy housemate to stop her messy habits or force her to move out C. The Coase theorem would suggest that an efficient solution would be for you to: A. charge your housemate at least $100 to have you clean up after her D. where pesticide used by kiwifruit orchardists also unintentionally kills honey bees. continue to live with your messy housemate until you are able to make other living arrangements elsewhere B. Suppose she gets a $100 benefit from being messy but imposes a $200 cost on you. pay your housemate at least $100 but no more than $200 to clean up after himself B. The producer surplus derived from the most efficient kiwifruit production levels is represented by the area: A. Assume that your housemate is very messy. g B. Suppose he gets a $200 benefit from being messy but imposes a $100 cost on you. The Coase theorem would suggest that an efficient solution would be for you to: A. Assume that your housemate is very messy. e + g C. charge your housemate at least $200 but no more than $300 to keep you from complaining about the mess ____ 37. a + b + c ____ 36. (There is no law against being messy. The Coase theorem would suggest that an efficient solution would be for you to: A. Assume that your housemate is very messy. pay your housemate at least $100 but no more than $200 to clean up after herself D. pay your housemate at least $201 to clean up after himself C. Refer to Graph 10-3. charge your housemate at least $100 to have you clean up after him ____ 38. Graph 10-3 This graph reflects the market for kiwifruit. ____ 35. pay your housemate at least $201 to clean up after herself C. continue to live with your messy housemate until you are able to make other living arrangements elsewhere D. a + b D. 0005. (i) and (iv) only C. (i) and (ii) B. (i) and (iii) C. 600 D. (i). The free-rider problem is a problem of: A. 3600 B. (ii) and (iii) C. Cost–benefit analysis for a private good is facilitated by which of the following facts? (i) buyers of a private good reveal the value they place on a good by the prices they are willing to pay (ii) a private good cannot be rival (iii) sellers of a private good are likely to purchase inputs in regulated markets (iv) sellers of private goods reveal their costs by the prices they are willing to accept A. (i). (ii) and (iii) D. common resource goods not being subject to property rights C. (ii) and (iii) only D. If each person saved has a value equal to $10 million. The Occupational Safety and Health Administration (OSHA) has determined that the probability of a worker dying from exposure to a hazardous chemical used in the production of diet soft drinks is 0. too many people needing the same good B. (ii) and (iii) ____ 42. (iii) and (iv) B. how many people must the policy affect in order for benefits to exceed costs? A. (i) and (iii) D. (i). When an infinite value is placed on human life which of the following represents policymakers who rely on cost–benefit analysis? (i) they are forced to pursue any project in which a single human life is saved (ii) they are likely to make decisions that optimally allocate society’s scarce resources (iii) they are left with nonsensical results A. 100 11 . people not revealing their true preferences ____ 41. which of the following statements are true of private anti-poverty programs? (i) people who don’t contribute still receive benefits from the general reduction in poverty (ii) the socially optimal level of charitable donations is greater than those actually received. incentives D. (i) and (ii) B. Assuming that everyone prefers to live in a society without poverty. because of the free-rider problem (iii) there is no individual incentive to contribute to private anti-poverty programs since the government is the sole supplier A. The cost of imposing a regulation that would ban this chemical is $18 million. (ii) and (iv) only ____ 43.____ 39. 1800 C. (i). (ii) and (iii) ____ 40. (ii). (ii) and (iii) C. Four friends decide to meet at a Chinese restaurant for dinner. In this particular case. (i) and (ii) B. When the final bill for the meal comes. he may not take into account how his choice affects his friends D. (i) and (iii) D. (ii) and (iii) only D. all of the above are true ____ 45. each person has an incentive to eat as fast as possible. (ii) and (iii) Graph 13-4 ____ 46. They decide that each person will order an item from the menu and they will share all dishes. (i). Which of the following can be inferred from the figure shown? (i) marginal costs vary for different levels of output (ii) diminishing marginal product does not occur directly after the first worker (iii) marginal product of the second worker exceeds that of the first A.____ 44. since their individual rate of consumption will not affect their individual cost B. Which of the following factors are most important to the success of resource allocation policy? (i) the policy must be well planned and well run (ii) policymakers must have access to good information about the value of resources and how they affect economic wellbeing (iii) policymakers must have altruistic motives for helping society A. (i). they decide that they will split the cost evenly among each of the people at the table. (i) and (iii) only C. a Tragedy of the Commons problem is likely because: A. there is a consumption externality associated with eating the food on the table C. (ii) and (iii) 12 . Refer to Graph 13-4. (i) and (ii) only B. when one person eats. it can operate at any level of output as long as it stays on ATC B ____ 48. B. as the firm can always choose the same input combinations as the short-run C. never steeper than short-run average total cost curves. Graph 13-6 This graph depicts average total cost functions for a firm that produces automobiles. The firm has no options. It cannot change output level in the short run. but it depends on the long-run marginal cost curve D. If the firm is currently operating on ATC B. Use the graph to answer the following question(s). as long as it stays on ATC D D. what options does it have if it wants to change its level of automobile production over the next couple of weeks? A. Refer to Graph 13-6. it can operate at any level of output. The long-run average total cost curve is: A. we cannot say without more detailed information on the firm’s costs 13 . steeper or flatter than the short-run average cost curve. it can operate at any level of output between points M and N C. steeper than the short-run average total cost curve as the firm incurs more fixed costs in the long run B. ____ 47. 260 D. What is the marginal product of the fourth worker? A. Adrienne rents a small room for $150 a week in the downtown business district that serves as her factory. not commit to meeting the order until she can move to a larger room and hire more workers to box the chocolates D. hire about 12 new workers and hope she can satisfy the order B. 40 B. 275 ____ 50. Adrienne has received an order for 3000 boxes of chocolates for next week. ____ 49. Table 13-2 Adrienne’s Premium Boxing Service subcontracts with a chocolate manufacturer to box premium chocolates for their mail order catalogue business. close her business until she is able to hire more productive workers 14 . Costs are in dollars per week. If she expects that the trend in the marginal product of labour will continue in the same direction. it is most likely that her best decision will be to: A. Refer to Table 13-2. commit to meeting the order and then take three weeks to complete the job C. She can hire workers for $275 a week. 110 C. Refer to Table 13-2. $265 C. $3500 D. $340 ____ 52. $300 B. $321 D. $200 B. $1590 ____ 53. ____ 51. What is the average variable cost for the month if six bicycles are produced? A. Output is shown on a monthly basis. What is the marginal cost of producing the tenth bicycle in a given month? A. Table 13-3 Consider the following firm which makes high-performance racing bicycles. $2500 C. $3500 D. $2500 C. The firm’s fixed costs include a rent of $800 and a lease cost of $400 per month. $1250 B. $304 C. According to the information provided. Amy’s accountant would most likely figure the total cost of her photograph developing to be: A. $3750 15 . $1250 B. According to the information provided. All costs are given in dollars. Refer to Table 13-3. $465 D. what is the total opportunity cost that Amy incurred to spend her time developing photographs? A. Refer to Table 13-3. $3750 ____ 54. When price rises from P 3 to P4. Refer to Graph 14-2. fixed costs are lower at a production level of Q 4 C. average revenue exceeds marginal revenue at a production level of Q 4 B. profits are maximised at a production level of Q3 ____ 57. all of the above are true ____ 56. the firm finds that: A. When price falls from P 3 to P1. so it decreases production B. it is unwilling to produce any output C. Graph 14-2 This graph depicts the cost structure for a firm in a competitive market. Refer to Graph 14-2. the firm will earn profit equal to (P4 – P2) Q2 16 . so it increases production C. it can earn profits by increasing production to Q 4 D. marginal revenue is lower than marginal cost at the previous level of output. the firm finds that: A. Refer to Graph 14-2. ____ 55. it should produce Q1 units of output D. Which of the following statements best reflects the situation faced by the firm when price falls from P4 to P2? A. marginal revenue is higher than marginal cost at the previous level of output. fixed cost is higher at a production level of Q 1 than it is at Q3 B. Use the graph to answer the following question(s). average total cost is lower than at the previous level of output so it increases production D. Refer to table 14-3. 500 C. CDE D. Graph 14-3 This graph depicts the cost structure of a profit-maximising firm in a competitive market. Suppose the long-run market competitive equilibrium quantity is 1500 Whizzly Jigs. ABC B. How many firms are operating in the marketplace? A. DE ____ 59. 1500 17 . Refer to Graph 14-3. BCD C. ____ 58. 300 B. Use the graph to answer the following question(s). 750 D. Which line segment best reflects the short-run supply curve for this firm? A. Graph 14-4 This graph depicts the cost structure of a profit-maximising firm in a competitive market. DE D. (P2 – P1) Q1. Which line segment best reflects the long-run supply curve for this firm? A. a profit-maximising firm’s total profit or loss can be represented by which area? A. Refer to Graph 14-4. the long-run supply curve requires knowledge of the average variable cost structure Graph 14-6 This graph depicts the cost structure of a firm in a competitive market. loss B. none of the above. When market price is P 1. ____ 60. Use the graph to answer the following question(s). loss D. CD C. Refer to Graph 14-6. we can’t determine it because we don’t know the fixed costs 18 . Use the graph to answer the following question(s). P1 Q3. AB B. profit C. ____ 61. (P3 – P1) Q2. more than $120 B. $1. the assumption of rational behaviour does not easily apply to the purchase of football game tickets B. price equals the minimum of ‘average total cost’ in the short-run B. ____ 64.and long-run supply curves always differ Graph 14-7 In this graph. $2. When 200 identical firms participate in this market.00 D. Refer to Graph 14-7. $1. rational consumers do not always respond to incentives. Suppose a competitive market consists of identical firms. A ticket scalper outside the stadium is selling tickets for $76 dollars.25 C. they will never be identical. the firms’ marginal cost curves are constant (horizontal) C. none of the above is necessarily correct 19 . sunk costs are irrelevant to many personal decisions D. If Sarah purchases a ticket from one of the scalpers for $95. How much profit is earned by the firm at its current level of output? A.____ 62. the price of tickets cannot be explained by economic principles C. a profit-maximising firm in a competitive market earns average revenue of $30 and has an average total cost of $26. At the current level of output. panel (a) depicts the linear marginal cost of a firm in a competitive market. She purchases a ticket to the game for $60 but when she arrives at the game she discovers that her ticket is missing. the short. Use the graph to answer the following question(s). Suppose that the firm’s marginal cost curve is equal to its average total cost curve at an output level of 30 units. there is free entry and exit in the marketplace D. this cannot be determined from the information provided ____ 65.00 B. she is best demonstrating the principle that: A. ____ 63. and panel (b) depicts the linear market supply curve for a market with a fixed number of identical firms. at what price will 25 000 units be supplied to this market? A. The long-run and short-run supply curves will be identical when: A. less than $120 D. exactly $120 C. Sarah places a $110 value on seeing the Richmond Tigers play in the Grand Final. $1 600 000 ____ 70. the firm’s average total cost is $8.____ 66. $150 000 C. more than $40 B. exactly $40 C. An increase in demand from Demand0 to Demand1 will result in: A. Refer to Graph 14-9. A profit-maximising firm in a competitive market is able to sell its product for $6. According to the information provided. if Black Box Pay TV is able to price discriminate. but lower levels of production for each firm B. none of the above ____ 69. $1 350 000 D. $1 525 000 B. $1 275 000 C. Assume that the market starts in equilibrium at point A in panel (b). a new market equilibrium at point D B. $525 000 D. If the market starts in equilibrium at point C in panel (b). a new long-run equilibrium at point D in panel (b) C. Refer to Graph 14-9. Its marginal cost curve crosses the marginal revenue curve at an output level of 20 units. not enough information is given to answer this question B. What is the total loss of this firm? A. what will be the maximum amount of profit it can generate? A. a decrease in demand will ultimately lead to: A. none of the above is necessarily correct Graph 14-9 ____ 67. At its current level of output. less than $40 D. falling prices and falling profits for existing firms in the market D. According to the information provided. $400 000 20 . an eventual increase in the number of firms in the market and a new long-run equilibrium at point C ____ 68. rising prices and falling profits for existing firms in the market C. fewer firms in the market D. what is the deadweight loss associated with the non-discriminating pricing policy compared to the price-discriminating policy? A. more firms in the industry. (ii) and (iii) C. Along with the monopoly firms’ cost curves. Refer to Table 15-1.____ 71. ten ____ 73. (i) and (ii) B. (i) only Table 15-1 Quantity Price Total Average Marginal revenue revenue revenue 1 47 47 2 88 44 41 3 41 4 29 5 35 23 6 192 7 29 11 8 5 9 207 23 -1 10 20 200 ____ 72. (i) and (ii) B. (i). which of the following is true? (i) allowing for competition among different firms in the water distribution industry is efficient (ii) a single firm can serve the market at a lower average total cost (iii) multiple firms will each have to pay large fixed costs to develop their own network of pipes A. six C. (i) and (iii) D. If the monopolist wants to maximise its revenue. one B. eight D. (ii) and (iii) 21 . the shape and position of the demand curve determine which of the following? (i) the price the monopoly will charge for its good (ii) the shape and position of the marginal-revenue curve (iii) the profit-maximising quantity A. (ii) and (iii) C. If the distribution of water is a natural monopoly. how many units of its product should it sell? A. (i) and (iii) D. P2 C. P3 B. P0 22 . A profit-maximising monopoly would have profit equal to: A. (P3 – P0) Q2 B. Refer to Graph 15-3. ____ 74. (P3 – P0) Q4 C. A profit-maximising monopoly would have a total cost equal to: A. Refer to Graph 15-3. P0 Q2 C. Refer to Graph 15-3. Use the graph to answer the following question(s). (P1 – P0) Q2 ____ 75. P2 Q4 ____ 76. At the profit-maximising level of output. average revenue is equal to: A. P0 Q1 B. P1 D. P3 Q2 D. P0 Q3 D. Graph 15-3 This graph reflects the cost and revenue structure for a monopoly firm. rectangle ACDB B. rectangle CFGD C. Refer to Graph 15-5. Graph 15-5 This graph depicts the demand. Use the graph to answer the following question(s). ____ 77. triangle BDE D. triangle BGE 23 . Which of the following areas represents the deadweight loss due to monopoly pricing? A. marginal-revenue and marginal-cost curves of a profit-maximising monopolist. consumer surplus will equal zero ____ 79. ADF C. deadweight loss will equal zero 24 . Refer to Graph 15-6. ABC B. what will the consumer surplus be? A. Graph 15-6 This graph depicts the demand. What is the deadweight loss equal to when the monopolist does NOT price discriminate? A. CEF D. Refer to Graph 15-6. marginal-revenue and marginal-cost curves of a profit-maximising monopolist. ADF C. If the monopoly firm perfectly price discriminates. ABC B. Use the graph to answer the following question(s). ____ 78. CEF D. panel b C. panel c D. Graph 17-1 ____ 80. be operating at excess capacity D. Refer to Graph 17-1. panel a B. Refer to Graph 17-4. be losing market share to other firms in the market C. If a firm in a monopolistically competitive market was producing the level of output depicted as Qd in panel d. panel d 25 . it would: A. Which of the panels shown could not characterise a short-run equilibrium for a firm in a monopolistically competitive market? A. be minimising its losses B. not be maximising its profit Graph 17-4 ____ 81. According to the information provided. encourage the Premier to ban billboard advertising of computer hardware ____ 85. (ii) and (iii) only D.____ 82. advertising of computer hardware on billboards will most likely: A. Under what circumstances will both firms choose to advertise? A. if advertising lead to 2. do nothing D.50 C. if marginal costs lowered to $0. if there was more competition in the industry D. (ii) only B. reduce the collective profitability of firms that manufacture computer hardware ____ 86. economists would be likely to predict that the Computer Hardware Manufacturers Association will: A. but each firm produces several different varieties of the product (ii) there are many firms in the market. For which of the following reasons is the existence of business-stealing externalities and product-variety externalities unique to profit-maximising firms in a monopolistically competitive market? (i) there are few firms in the market. evidence suggests that which of the following statements are true? (i) markets are less efficient (ii) consumers make better choices (iii) in general. (ii) only ____ 83. In differentiated product markets that are characterised by advertising. seek to dismantle the ‘gentleman’s agreement’ through aggressive price competition C. (i) and (iii) only C. firms are less profitable A. (i) only D. vow to fight any restrictions on the right to advertise B. reduce market efficiency D. if advertising costs lowered to $15 million 26 . (ii) and (iii) only C. increase the incidence of computer-related addictions in middle-aged professionals C. According to the information provided.5 million customers trying product A once B. (i). Refer to the information provided. increase the profitability of existing firms and increase barriers to entry B. (ii) and (iii) ____ 84. (i) and (iii) only B. each with a different variety of the product (iii) profit-maximising price exceeds marginal cost A. as a result of this new advertising strategy. If they are able to collude on the price of tickets to sell. Tickets are sold to tourists to use the viewing hides. and how many tickets will they collectively sell? A. $4 and 4000 tickets C. $4 C. Assume that there are two profit-maximising ecotourist companies operating in this market. Each ecotour company has to pay a fixed fee of $5000 for the right to build on the reserve. Refer to Table 16-1. $8 and 2000 tickets ____ 89. Quantity (Visits) Price ($ ticket) 0 48 2000 36 4000 24 6000 12 8000 8 10 000 4 12 000 0 Quantity (Visits) Price ($ ticket) Revenue 0 12 0 1000 10 10k 2000 8 16k 3000 6 18k 4000 4 16k 5000 2 10k 6000 0 0 Any firm can change tickets by steps of 500 only. Table 16-1 The table below shows the total demand for viewing a rare penguin species at a local reserve. $2 B. $6 D. Assume that hides can be supplied to tourists at zero marginal cost. $6 and 3000 tickets D. 3500 tickets would be sold for $5) ____ 87. 4000 27 . $8 ____ 88. Refer to Table 16-1. Assume that there are two ecotourist companies operating in this market. 2000 C. 3000 D. Further assume that they are not able to collude on price and quantity of the tickets they sell. Any 500 step of quantity is assumed to be sold at the midpoint of the two prices (eg. How many tickets will be sold by each firm when this market reaches a Nash equilibrium? A. what price will they charge. If there is only one ecotourist company in this market. $2 and 5000 tickets B. 1000 B. Ecotour companies have to build discreet viewing hides for tourists to view the penguins. Refer to Table 16-1. what ticket price would it charge for its hides to maximise its profit? A. What price will the tickets be sold at when this market reaches a Nash equilibrium? A. the marginal cost of water equals zero. Robert and John work together to decide how many litres of water to pump. Assume that there are two profit-maximising ecotourist companies operating in this market. 50 D. from the information given in the table. and sell it at whatever price the market will bear. If the market for water was perfectly competitive instead of monopolistic. Refer to Table 16-1. $8000 C. $0 B. bring the water to town. therefore. we can’t determine price in a Nash equilibrium Table 16-3 Imagine a small town in which only two residents. Further assume that they are not able to collude on the price and quantity of tickets they sell. $3000 D. how many litres of water would be produced and sold? A. Weekly quantity (in litres) Price ($) per litre Weekly total revenue (and total profit) ($) 0 12 $0 5 11 55 10 10 100 15 9 135 20 8 160 25 7 175 30 6 180 35 5 175 40 4 160 45 3 135 50 2 100 55 1 55 60 0 0 ____ 92. The weekly town demand schedule and total revenue schedule for water are shown in the table. $4 C. Refer to Table 16-3. $6 D. each firm will incur economic losses in a Nash equilibrium ____ 91. $0 B. Assume that there are two profit-maximising ecotourist companies operating in this market. To keep things simple. Each Saturday. suppose that Robert and John can pump as much water as they want without cost. Robert and John. Refer to Table 16-1. How much profit will each firm earn when this market reaches a Nash equilibrium? A. Further assume that they are not able to collude on the price and quantity of tickets they sell. 30 B. 35 C.____ 90. own wells that produce water for safe drinking. 60 28 . ____ 93. that is worse for both parties to the ‘game’ B. Refer to Table 16-3. As long as Robert and John operate as a profit-maximising monopoly. $135 C. that is better for both parties to the ‘game’ C. 60 litres Table 16-6 Two pita-bread stores (Pita Pan and Pita Wrapbit) have both recently opened up in a new suburb and are interested in expanding their market share. 30 litres C. $175 D. self-interest is likely to be collectively irrational ____ 97. self-interest is likely to be individually irrational C. Pita Wrapbit Advertise Do Not Advertise Advertise Pita Pan = $750 Pita Pan = $2950 Pita Wrapbit = $400 Pita Wrapbit = $350 Pita Pan Do Not Advertise Pita Pan = $250 Pita Pan = $1450 Pita Wrapbit = $2600 Pita Wrapbit = $950 ____ 95. in which society is always better off ____ 96. 45 litres D. The theory of oligopoly provides another reason that free-trade can benefit all countries for which of the following reasons? (i) as the number of firms within a given market increases. Non-cooperative outcomes typically imply an outcome: A. what will their weekly revenue be? A. The Nash equilibrium for a game can be a sub-optimal outcome for players when: A. (i) and (ii) B. $180 ____ 94. 15 litres B. (ii) and (iii) C. Refer to Table 16-6. Both are considering advertising in the surrounding area to entice more customers to come to their stores. defection is likely to be individually rational B. The socially efficient level of water supplied to the market would be: A. The following table depicts the strategic outcome that results from the game. in which society is always worse off D. defection is likely to be collectively rational D. Refer to Table 16-3. the price of the good falls (ii) increased competition leads to lower deadweight losses (iii) profit increases directly with competition for oligopoly firms A. (ii) only 29 . $100 B. The profits of the two pita-bread stores under two advertising scenarios are shown. (i) and (iii) D. if Irun fails to live up to the production agreement and overproduces. worse off producing more than the agreed-upon quantity D. better off producing less than the agreed-upon quantity C. if Irun fails to live up to the production agreement and overproduces. to advertise B. Urun will be hurt more if it follows suit and increases production C.____ 98. what is PM Inc. According to the information provided. to advertise only if Brown Inc. to not advertise 30 . Urun will invariably be worse off than before the agreement was broken D. According to the information provided. better off producing the agreed-upon quantity ____ 99. which of the following statements will be true of Urun’s condition? A.’s dominant strategy? A. does not advertise D. advertises C. to advertise only if Brown Inc. Urun will be: A. Urun’s profit will be maximised by holding its production constant B. According to the information provided. better off producing more than the agreed-upon quantity B. Urun will counter by decreasing its production in order to maintain price stability ____ 100.