ECON 2020 Final Peng

Kevin owns 50 acres of land. Kevin sells the land to a real estate developer who builds a subdivision with 20 houses. The land is an example of a good that is

both rival in consumption and excludable.

The Pennsylvania Tumpike is a tolled freeway running through the state of Pennsylvania.

Motorists must pay tolls at various points along the Turnpike based on the distance they traveled on the freeway. Suppose that despite the tolls, many motorists in the urban areas use the Turnpike causing traffic to slow during peak times. What type of good would the Tumpike be classified as in this case?

Private good

Under which of the following scenarios would a park be considered a common resource?

Visitors can enter the park free of charge, but frequently all of the picnic tables are in use.

Who among the following is a free rider?

Michael listens to National Public Radio, but does not contribute to any fundraising efforts.

Six friends decide to meet at a Chinese restaurant for dinner. They decide that each person will order an item off the menu, and they will share all dishes. They will split the cost of the final bill evenly among each of the people at the table. A Tragedy of the Commons problem is likely for each of the following reasons except

each dish would be both excludable and rival in consumption.

Ratings and reviews of mechanics on the Internet:

make it easier to avoid shady mechanics, thus reducing moral hazard

Some health insurance providers pay a single, set amount for the diagnosis and treatment of a specific illness. This payment scheme is meant to reduce:

moral hazard.

A doctor who provides a second opinion knows they will not be performing any other service.

This solves moral hazard by:

aligning the incentives of the buyer and sellers.

An insurance company can prevent the adverse-selection death spiral by selling to groups of people such as groups of employees in a workplace. This will allow the insurance company to:

increase the chances that both healthy and unhealthy people will sign up for coverage.

Taren ears a certificate in a software program that is used by professionals in the field in which Taren wants to start a career. Obtaining the certificate:

signals that Taren is a good candidate for the job.

After Napster was introduced in 1999 as a peer-to-peer file-sharing Internet service, people could cheaply distribute music. Thanks to this and other innovations (e.g., YouTube), music is becoming increasingly:

nonexcludable.

Which of these is a list of rival, excludable goods ONLY?

watermelon, a chair, a pencil

Which of these is a list of excludable and nonrival goods ONLY?

online video games, a private beach, toll highways, cable Internet service

Which of these is a list of nonexcludable and rival goods ONLY?

public beach, soup kitchen meals, public roads

Which of these is a list of nonexcludable, nonrival goods ONLY?

national defense, a lighthouse, smog reduction

Which of these is an example of a forced rider?

someone without children who recently had to start paying a community fee for the maintenance of a new playground

An NFL game played on a satellite provider is a network is a

private good; club good

During the Middle Ages, many villages had areas reserved for families to take their cows or sheep to graze. All families were welcome to use this land without charge. This land for grazing can be characterized as a:

common resource.

During the Holy Roman Empire, Germany's Rhine River was a major trade artery (and provided tax revenue). The numerous castles along the Rhine were toll stations, and most merchants had to travel sizable lengths of the river to arrive at their destination. Although the emperors closely guarded the right to charge a toll, local nobility would occasionally break the law and build a castle along the Rhine to charge a toll (hence the origin of the phrase "robber baron").

When possible, such "robber castles" were destroyed to prevent the tragedy of the commons. What is the commons resource here?

toll revenue

When new professors are hired, their job performance is monitored closely. If they meet their institution's standards, they will eventually receive tenure. After receiving tenure, professors' job performance is less closely monitored, and they become difficult to fire. Tenure thus creates

moral hazard problem.

You own an ice cream store and are concerned that an employee may be giving generous scoops to friends and relatives and smaller scoops to some other customers. This may be reducing sales.

In this example, you are the

principal and your employee is the agent.

Which of the following is an example of an adverse selection problem?

A young job applicant fails to reveal that they were fired from their last job because they were incompetent.

Which of the following events best exemplifies the concept of signaling?

A new company that makes high-quality bicycles at a reasonable price sends free bikes to reviewers working for bicycle magazines,

Bubba is a shrimp fisherman who could ear $5,000 as a fishing tour guide. Instead, he is a full-time shrimp fisherman. In calculating the economic profit of his shrimp business, the $5,000 that Bubba gave up is counted as part of the shrimp business's

implicit costs.

Pete owns a shoe-shine business. His accountant most likely includes which of the following costs on his financial statements?

Shoe polish and rent on the shoe stand

Andy gives piano lessons for S15 per hour. He also grows flowers, which he arranges and sells at the local farmer's market. One day he spends 4 hours planting $50 worth of seeds in his garden.

Once the seeds have grown into flowers, he can sell them for $150 at the farmer's market. Andy's accounting profits are

$100, and his economic profits are $40.

Suppose that a "doggie day care" fir uses only two inputs: hourly workers (labor) and a building (capital). In the short run, the firm most likely considers

labor to be variable and capital to be fixed.

Tyana is a florist. Iyana can arrange 26 bouquets per day. She is considering hiring her husband James to work for her. Together Iyana and James can arrange 39 bouquets per day. What is James's marginal product?

13 bouquets

As Bubba's Bubble Gum Company adds workers while using the same amount of machinery, some workers may be underutilized because they have little work to do while waiting in line to use the machinery. When this occurs, Bubba's Bubble Gum Company encounters

diminishing marginal product.

For a large firm that produces and sells automobiles, which of the following costs would be a variable cost?

Cost of the steel that is used in producing automobiles

If a firm experiences constant returns to scale at all output levels, then its long-run average total cost curve would

be horizontal.

When a firm experiences economies of scale

long-run average total cost decreases as output increases.

Which of the following statements best reflects a price-taking firm?

If the firm were to charge more than the going price, it would sell none of its goods.

Suppose a firm in a competitive market increases its output by 30 percent. As a result, the price of its output is likely to

remain unchanged.

If Stella's Fashion Jewelry sells its product in a competitive market, then

Stella's Fashion Jewelry total revenue must be proportional to its quantity of output.

Which of the following statements regarding a competitive firm is correct?

For all firms, average revenue equals the price of the good.

Suppose that in a competitive market the equilibrium price is $2.50. What is the marginal revenue for the last unit sold by the typical firm in this market?

Exactly $2.50

Tom produces commemorative t-shirts in a competitive market. If Tom decides to decrease his output, this will

decrease his revenue, since his output has decreased and the price remains the same.

If a competitive firm is currently producing a level of output at which marginal cost exceeds marginal revenue, then

one-unit decrease in output will increase the firm's profit.

For a certain firm, the 100th unit of output that the firm produces has a marginal revenue of $11 and a marginal cost of S10. It follows that the

production of the 100th unit of output increases the firm's profit by S1.

Farmer McDonald sells wheat to a broker in Kansas City, Missouri. Because the market for wheat is generally considered to be competitive, Mr. McDonald maximizes his profit by choosing

quantity at which market price is equal to Mr. McDonald's marginal cost of production.

Ms. Joplin sells colored pencils. The colored-pencil industry is competitive. Ms. Joplin hires a business consultant to analyze her company's financial records. The consultant recommends that Ms. Joplin increase her production. The consultant must have concluded that, at her current level of production, Ms. Joplin's

marginal revenue exceeds her marginal cost.

Robin owns a horse stable and riding academy and gives riding lessons for children at "pony camp." His business operates in a competitive industry. Robin gives riding lessons to 20 children per month. His monthly total revenue is $4,000. The marginal cost of pony camp is $250 per child.

In order to maximize profits, Robin should

give riding lessons to fewer than 20 children per month.

The accountants hired by Forever Fitness have determined total fixed cost to be $75,000, total variable cost to be $130,000, and total revenue to be $125,000. Because of this information, in the short run, Forever Fitness should

shut down because staying open would be more expensive.

Which of the following is not an example of a barrier to entry?

Entrepreneur opens a popular new hair salon

Bob's Butcher Shop is the only place within 250 miles that sells bison burgers. Assuming that Bob is a monopolist and maximizing his profit, which of the following statements is true?

Price of Bob's bison burgers will exceed Bob's marginal cost.

A movie theater can increase its profits through price discrimination by charging a higher price to adults and a lower price to children if it

can prevent children from buying the lower-priced tickets and selling them to adults.

Which of the following statements is not correct?

Both monopolistic competition and perfect competition are characterized by product differentiation.

Which of the following is unique to a monopolistically competitive firm when compared to an oligopoly?

Monopolistic competition features many sellers.

A monopolistically competitive firm chooses

quantity of output to produce, but the price of its output is determined by demand

A monopolistically competitive firm is currently producing 23 units of output. At this level of output, the firm is charging the highest price it can at $25, has marginal revenue equal to $19, has marginal cost equal to $19, and has average total cost equal to $22. From this information we can infer that

firm is currently maximizing its profit.

In monopolistically competitive markets, free entry and exit suggests that

all firms eam zero economic profits in the long run.

Hotels in New York City frequently experience an average vacancy rate of about 20 percent (i.e., on an average night, 80 percent of the hotel rooms are full). This kind of excess capacity is indicative of what kind of market?

Monopolistic competition only

If we observe a great deal more advertising for Mucinex, an over-the-counter drug, than for a Grainger drill press, we can infer that

market for Mucinex is more highly differentiated than the market for Grainger drill presses.

A law that restricts the ability of hotels/motels to advertise on billboards outside of a resort community would likely lead to

reduced efficiency of local lodging markets.

Adibok knows that it produces and sells high-quality athletic shoes. Wurkout knows that it produces and sells low-quality athletic shoes. According to the signaling theory of advertising

Adibok has an incentive to spend a large amount of money on advertising for its athletic shoes, but Wurkout does not.

Suppose that Zion and Haidy are duopolists in the music industry. In May, they agree to work together as a monopolist, charging the monopoly price for their music and producing the monopoly quantity of songs. By June, each singer is considering breaking the agreement. What would you expect to happen next?

Zion and Haidy will each break the agreement. Both singers' profits will decrease.

As the number of firms in an oligopoly increases

price approaches marginal cost.

Two suspected drug dealers are stopped by the highway patrol for speeding. The officer searches the car and finds a small bag of marijuana and arrests the two. During the interrogation, each is separately offered the following: "If you confess to dealing drugs and testify against your partner, you will be given immunity and released while your partner will get 10 years in prison. If you both confess, you will each get 5 years." If neither confesses, there is no evidence of drug dealing, and the most they could get is one year each for possession of marijuana. If each suspected drug dealer follows a dominant strategy, what should they do?

Confess regardless of the partner's decision

In a prisoners' dilemma game

if the players play the game repeatedly, the players can achieve a higher payoff, on average, than when they play the game only once.

Suppose each of 20 neighbors on a street values a streetlight at $3,000. The cost of the streetlight is $40,000. Which of the following statements is true?

It is efficient for the government to tax the residents $2,000 each and install a streetlight.

A positive externality affects market efficiency in a manner similar to a _______.

public good

A negative externality affects market efficiency in a manner similar to a(n) _______.

common resource

Which of the following is an example of a common resource?

A national park

Which of the following are potential solutions to the problem of noise pollution near an airport?

All of the answer choices are correct.

When markets fail to allocate resources efficiently, the ultimate source of the problem is usually _______.

Property rights have not been well established

Because Elaine has a family history of significant medical problems, they buy health insurance, while their friend Jerry, who has a healthier family, goes without. This is an example of ______________.

adverse selection

George has a life insurance policy that pays their family $1 million if they die. As a result, they do not hesitate to enjoy their favorite hobby of bungee jumping. This is an example of _______________.

moral hazard

Before selling anyone a health insurance policy, the Kramer Insurance Company requires that applicants undergo a medical examination. Those with significant preexisting medical problems are charged more. This is an example of ____________.

screening

Dr. Wexler displays her medical degree in her office waiting room, hoping patients will be impressed that she attended a prestigious medical school. This is an example of__________.

signaling

If there are implicit costs of production, _______.

accounting profit will exceed economic profit

If a production function exhibits diminishing marginal product, its slope _______.

becomes flatter as the quantity of the input increases

Use the following information to answer the question.

The marginal product of labor as production moves from employing one worker to employing two workers is _______.

34

Use the following information to answer question

The production process described above shows _______.

diminishing marginal product of labor

If marginal costs equal average total costs, _______.

average total costs are minimized

If, as the quantity produced increases, a production function first exhibits increasing marginal product and later diminishing marginal product, the corresponding marginal-cost curve will _______.

be U-shaped

If a competitive firm is producing a level of output where marginal revenue exceeds marginal cost, the firm could increase profits if it _______.

increased production

When a perfectly competitive firm increases the quantity it produces and sells by 10 percent, its marginal revenue ________ and its total revenue rises by ________.

stays the same; exactly 10 percent

If a profit-maximizing, competitive firm is producing a quantity at which marginal cost is between average variable cost and average total cost, it will ________.

keep producing in the short run but exit the market in the long run

Which of the following is not a barrier to entry in a monopolized market?

single firm is very large.

When a monopolist produces an additional unit, the marginal revenue generated by that unit must be _______.

below the price because the price effect outweighs the output effect

The profit-maximizing monopolist will choose the price and quantity represented by point _______.

A

The monopolist's supply curve _______.

does not exist

If marginal revenue exceeds marginal cost, a monopolist should _______.

increase output

Which of the following is true regarding the similarities and differences in monopolistic competition and monopoly?

The monopolist makes economic profits in the long run while the monopolistic competitor makes zero economic profits in the long run.

Which of the following is true regarding the production and pricing decisions of monopolistically competitive firms? Monopolistically competitive firms choose the quantity at which marginal cost equals _______.

marginal revenue and then use the demand curve to determine the price consistent with this quantity

Which of the following is true with regard to monopolistically competitive firms' scale of production and pricing decisions? Monopolistically competitive firms produce _______.

Excess capacity and charge a price above marginal cost

One source of inefficiency in monopolistic competition is that _______.

price is above marginal cost, some units are not produced that buyers value in excess of the cost of production and this causes a deadweight loss

If oligopolists engage in collusion and successfully form a cartel, the market outcome is _______.

same as if it were served by a monopoly

Suppose an oligopolist individually maximizes its profits. When calculating profits, if the output effect exceeds the price effect on the marginal unit of production, then the oligopolist _______.

should produce more units

As the number of sellers in an oligopoly grows larger, an oligopolistic market looks more like a _______.

competitive market

When an oligopolist individually chooses its level of production to maximize its profits, it produces an output that is _______.

more than the level produced by a monopoly and less than the level produced by a competitive market

When an oligopolist individually chooses its level of production to maximize its profits, it charges a price that is _______.

less than the price charged by a monopoly and more than the price charged by a competitive market

Use the payoff matrix for a prisoners' dilemma game in the exhibit to answer the question. It shows the possible profits for duopolists that are the only two restaurants in town. Each café can choose how many hours to be open for business.

The dominant strategy for Róza and Kyle is for _______.

both to be open for many hours

Use the payoff matrix for a prisoners' dilemma game in the exhibit image to answer the question. It shows the possible profits for duopolists that are the only two restaurants in town. Each café can choose how many hours to be open for business.

Suppose Róza and Kyle agreed to collude and jointly maximize their profits. If Róza and Kyle were to be able to repeatedly play the game shown earlier and they agreed on a penalty for defecting from their agreement, what is the likely outcome of the game?

Both are open for a few hours.

The prisoners' dilemma is a two-person game illustrating that _______.

even if cooperation is better than the Nash equilibrium, each person might have an incentive not to cooperate

Two people facing the prisoners' dilemma may cooperate if they _______.

play the game repeatedly and expect noncooperation to be met with future retaliation

The key feature of an oligopolistic market is that _________.

small number of firms are acting strategically