1.That the firm is perfectly competitive is evident from its
A) increasing marginal cost.
B) increasing total cost.
C) zero economic profits.
D) constant marginal revenue.
E) absence of marginal values at Q = 0.
2.Use the following statements to answer this question:
I. The firm's decision to produce zero output when the price is less than the average variable cost of production is known as the shutdown rule.
II. The firm's supply decision is to generate zero output for all prices below the minimum AVC.
A) I and II are true.
B) I is true and II is false.
C) II is true and I is false.
D) I and II are false.
3.In a constant-cost industry, price always equals
A) LRMC and minimum LRAC.
B) LRMC and LRAC, but not necessarily minimum LRAC.
C) minimum LRAC, but not LRMC.
D) LRAC and minimum LRMC.
E) minimum LRAC and minimum LRMC.
Q
P
TR
MR
TC
MC
0
$30
$0
---
$15
---
1
$30
$30
$30
$25
$10
2
$30
$60
$30
$40
$15
3
$30
$90
$30
$60
$20
4
$30
$120
$30
$85
$25
5
$30
$150
$30
$115
$30
6
$30
$180
$30
$150
$35
4.That the firm is perfectly competitive is evident from its
A) increasing marginal cost.
B) increasing total cost.
C) zero economic profits.
D) constant marginal revenue.
E) absence of marginal values at Q = 0.
5. Average cost for the firm in the table
A) cannot be determined from the information given.
B) is upward-sloping for all output values shown.
C) is constant for all output values shown.
D) is downward-sloping for all output values shown.
E) is U-shaped.
6.The table shows a short-run situation is evident from
A) the linear marginal revenue function.
B) the constant price.
C) the increasing marginal cost.
D) the presence of positive costs at Q = 0.
E) the absence of marginal values at Q = 0.
7.Ronny's Pizza House operates in the perfectly competitive local pizza market. If the price of pizza cheese increases (ceteris paribus), what is the expected impact on Ronny's profit-maximizing output decision?
A) Output increases to cover the higher input cost
B) Output increases because the marginal cost curve shifts upward
C) Output decreases because the marginal cost curve shifts upward
D) Output decreases because the price of pizza must also increase
8.In a constant-cost industry, an increase in demand will be followed by
A) no increase in supply.
B) an increase in supply that will not change price from the higher level that occurs after the demand shift.
C) an increase in supply that will
ing price down to the level it was before the demand shift.
D) an increase in supply that will
ing price down below the level it was before the demand shift.
E) a decrease in demand to keep price constant.
9.Use the following two statements to answer this question:
I. For a monopolist, at every output level, average revenue is equal to price.
II. For a monopolist, at every output level, marginal revenue is equal to price.
A) Both I and II are true.
B) I is true, and II is false.
C) I is false, and II is true.
D) Both I and II are false.
E) Statements I and II could either be true or false depending upon demand.
10. The monopolist has no supply curve because
A) the quantity supplied at any particular price depends on the monopolist's demand curve.
B) the monopolist's marginal cost curve changes considerably over time.
C) the relationship between price and quantity depends on both marginal cost and average cost.
D) there is a single seller in the market.
E) although there is only a single seller at the cu
ent price, it is impossible to know how many sellers would be in the market at higher prices.
11.With respect to monopolies, deadweight loss refers to the
A) socially unproductive amounts of money spent to obtain or acquire a monopoly.
B) net loss in consumer and producer surplus due to a monopolist's pricing strategy/policy.
C) lost consumer surplus from monopolistic pricing.
D) none of the above
Marginal cost = 60
2. Suppose the U.S. National Marine Fisheries Services (NMFS) is considering to implement one of the two policies on fishers in the Gulf of Mexico with an objective to reduce sea turtle bycatch.
Policy A: Regulation – an allowable bycatch standard (number of turtles) for each fisher. If the fisher violates the bycatch standard (i.e., ends up catching more turtles than the standard allows) at the end of the fishing season, he has to pay a lump sum fine.
Policy B: A bycatch tax on each bycatch (i.e., each turtle caught).
Let us assume NMFS has a perfect monitoring system to see how many turtles are being caught.
If Policy A is implemented, each fisher can either meet the standard by adjusting his fishing behavior. Or, he can pay the fine and harvest as much he wants to maximize his profits without wo
ying about sea turtle bycatch. If the fisher meets the standard, his profit is $3500 and NMFS benefit is 500 units (think of it as benefit to society from reduced sea turtle bycatch). If firm chooses to pay the fine, fisher’s profit is $2500 and NMFS benefit is $400 (no benefit from reduced turtles but NMFS can use $400 for conservation efforts to protect turtles).
If Policy B is implemented, fisher can either (i) adjust his fishing behavior (i.e., abate
educe fishing intensity), stay away from sea turtles and not pay taxes, or (ii) save on the cost of altering his fishing choices but pay taxes. In reality (from what we saw in class), fishers will typically choose to abate till the efficient level and then pay tax for the remaining amount. Abstract from this scenario for now and construct your tree using the options given to you in the problem. If fisher chooses to abate, firm profit is $3000 and NMFS benefit is $400. If firm chooses to pay taxes, firm profit is $3200 and NMFS’s benefit is $300.
(a) Draw the game tree and clearly label each part of the tree.
(b) Show the subgame perfect Nash Equili
ium (SPNE) on your tree. Clearly write out the equili
ium strategies of each player. Note, to write out the equili
ium strategy for player 2, you must write out what will be his/her best option at each node of the game tree. It is not just what s/he will do on the equili
ium path.
3. Jones and Smith own the only tourist shops in a small village. Jones shop is licensed to sell milk or juice, but not both. Smith’s shop is licensed to sell Pretzels or cookies, but not both. If Jones sells milk and Smith sells cookies, Jones wins 4 and Smith wins 3. If Jones sells milk and Smith sells pretzels, each loses 1. If Jones sells juice and Smith sells cookies, each loses 2. If Jones sells juice and Smith sells pretzels, Jones wins 3 and Smith wins 4.
(a) Put the game in a payoff matrix.
(b) What are the pure strategy Nash equili
ia, if any?