Exercise 4 Questions and Answers PDF

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EXERCISE #4 – E201 (Fall 2018) Morrison Choose the BEST answer for each question. 1. If drivers decide to make phone calls without considering the costs imposed on others, the: A) number of phone calls made while driving will be more than the socially optimal quantity. B) number of phone calls made ...

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EXERCISE #4 – E201 (Fall 2018) Morrison

Choose the BEST answer for each question. 1. If drivers decide to make phone calls without considering the costs imposed on others, the: A) number of phone calls made while driving will be more than the socially optimal quantity. B) number of phone calls made while driving will be fewer than the socially optimal quantity. C) marginal social cost curve will lie below the marginal cost of production curve. D) marginal social benefit curve will lie below the marginal social cost curve.

Figure: Short-Run Monopoly

2. (Figure: Short-Run Monopoly) Look at the figure Short-Run Monopoly. The profitmaximizing quantity of output is quantity: A) S. B) T. C) R. D) Q. 3. Given the general agreement that pollution is undesirable and social welfare is increased by reducing pollution, the optimal level of pollution in a society is: A) zero. B) the level that reduces the marginal social costs of pollution to zero. C) the level at which the marginal social cost is equal to the marginal social benefit. D) the level that minimizes the average total cost of producing the product that generates the pollution.

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Figure: The Profit-Maximizing Output and Price

4. (Figure: The Profit-Maximizing Output and Price) Look at the figure The ProfitMaximizing Output and Price. Assume that there are no fixed costs and AC = MC = $200. At the profit-maximizing output and price for a monopolist, producer surplus is: A) $1,600. B) $3,200. C) $6,400. D) $1,000. 5. The efficient rate of emissions occurs when: A) there is absolutely no damage done to a pristine environment. B) government forbids all pollution no matter what the cost. C) the marginal social benefits of pollution exceed the marginal social costs of pollution. D) Net social benefit cannot be increased by producing one more, or one less, unit of emissions. 6. Marginal revenue for a monopolist is: A) less than price. B) equal to average revenue. C) greater than price. D) equal to price. 7. When farmers raise hogs, there are a number of external costs. In particular, hogs generate methane gas. Without government regulation, the equilibrium price and quantity of pigs raised means that: A) too few hogs will be raised. B) the price will be less than the marginal social cost. C) the price will be less than the marginal benefit. D) the price will be less than the marginal cost to hog farmers.

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8. If at the current amount of pollution, its marginal social benefit is greater than its marginal social cost: A) there is too little pollution. B) there is too much pollution. C) society is achieving the optimal amount of pollution. D) the externality is minimized.

Figure: Pollution and Efficiency

9. (Figure: Pollution and Efficiency) Look at the figure Pollution and Efficiency. In this market, whose sulfur emissions are a result of production, an efficient solution takes place at a price of _____ and a quantity of _____. A) $5; 40 B) $15; 30 C) $25; 30 D) $15; 15 10. The demand curve for a monopoly is: A) perfectly elastic. B) the sum of the supply curves of all of the firms in the monopoly's industry. C) the industry demand curve. D) horizontal because no one can enter. 11. When individuals take external costs and benefits into account: A) there are no external costs. B) they internalize the externality. C) the government should intervene in the market. D) the market will not reach an efficient solution.

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12. (Table: Coal Mine Pollution) The table Coal Mine Pollution shows the marginal social benefit and cost of various amounts of pollution from a coal mine. If 5 tons of pollution is produced: A) too much pollution is produced. B) the efficient amount of pollution is produced. C) not enough pollution is produced. D) the socially optimum amount of pollution is produced. 13. If a monopolist is producing a quantity that generates MC > MR, then profit: A) is maximized only if MC = P. B) can be increased by increasing price. C) can be increased by decreasing price. D) is maximized. 14. Which of the following is an example of a nonexcludable good? A) health care B) national defense C) education D) ice cream 15. If a monopoly has a linear demand curve and is producing at the profit-maximizing level of output, at that level of output, demand is: A) perfectly price-inelastic. B) price unit-elastic. C) price-inelastic. D) price-elastic.

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16. Suppose that you build a new jumbo jet that can carry five times more passengers than any other competitor. You have high fixed costs due to the quantity of capital used to build the jets, and average cost is decreasing for all levels of demand. In this case, your monopoly would result from: A) location. B) government restrictions. C) sunk costs. D) economies of scale. 17. Which of the following is a solution to externalities? A) The city government imposes rent control. The externality is that housing's quantity demanded exceeds the quantity supplied at the current price. B) The federal government imposes a minimum wage. The externality is that firms pay too little to their workers. C) The government offers free childhood immunizations. The externality is that an immunized child is less likely to transmit disease to others. D) The federal government provides national defense. The externality is that people can't be excluded from national defense even if they don't pay for it.

Figure: Computing Monopoly Profit

18. (Figure: Computing Monopoly Profit) Look at the figure Computing Monopoly Profit. The profit-maximizing price is _____ and will generate total economic profit of _____. A) P3; EF B) P3; the rectangle P2P3EF C) P2; the rectangle P2P3EF D) P2; the rectangle P1P2FG

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19. A private good is _____ in consumption. A) excludable and rival B) nonexcludable and nonrival C) excludable and nonrival D) nonexcludable and rival

Figure: A Profit-Maximizing Monopoly Firm

20. (Figure: A Profit-Maximizing Monopoly Firm) A) $18. B) $8. C) $20. D) $15.

21. Most neighborhood streets are illuminated at night by streetlights. The streetlights are _____ and _____. Therefore, they are likely to be _____ by the competitive market. A) nonrival; nonexcludable; underprovided B) nonrival; nonexcludable; overprovided C) rival; excludable; efficiently provided D) nonrival; excludable; underprovided

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22. A monopolist responds to an increase in demand by _____ price and _____ output. A) increasing; increasing B) decreasing; decreasing C) increasing; decreasing D) decreasing; increasing 23. Which of the following goods is most likely a common resource? A) the Super Bowl B) a public park C) a pair of pants D) Disneyland 24. One of the major differences between a monopolist and a purely competitive firm is that the monopolist has a _____ demand curve, while the purely competitive firm has a _____ demand curve. A) downward-sloping; perfectly inelastic B) downward-sloping; perfectly elastic C) perfectly elastic; downward-sloping D) perfectly inelastic; perfectly elastic 25. If the government allowed only one airline to serve the entire U.S. market, there would be a _____ loss associated with _____ efficiency in the airline industry. A) deadweight; increased B) marginal; reduced C) deadweight; reduced D) total; increased 26. Which of the following is NOT a barrier to entry? A) a ban on certain kinds of advertising B) control of an input essential for production C) the existence of significant economies of scale D) government-set barriers such as patents 27. If a monopolist is producing a quantity that generates MC = P, then profit: A) can be increased by decreasing production. B) can be increased by increasing production. C) is maximized. D) is maximized only if MR = P.

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28. In the short run, if a monopoly is forced to charge a price equal to marginal cost: A) consumer surplus will decrease. B) output will fall. C) other firms will enter the industry. D) the deadweight loss will decrease.

29. In 1999, a judge declared that Microsoft was a monopolist. Assuming that Microsoft has a linear demand curve and that it is maximizing its profits at its current level of output, we may conclude that if Microsoft were to increase its price, its total revenue would: A) fall. B) remain unchanged. C) rise. D) There is insufficient information to make a determination.

30. (Table: Demand and Total Cost) Look at the table Demand and Total Cost. Lenoia runs a natural monopoly producing electricity for a small mountain village. The accompanying table shows Lenoia's demand and total cost of producing electricity. The maximum profit Lenoia can make is: A) $400. B) $1,800. C) $425. D) $225.

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