MicroEconomics

QUIZ NO. 3

Multiple Choice— Select the option that best completes the sentence or provides the answer to the question.

Which of the following is a necessary condition for a monopoly to arise?

Production-specific patents
Superior technology or scale economies
Potential ability of a single firm to satisfy the whole industry demand at any price
None of the above

A typical shop in Bavaria would offer about a hundred brands of local beer. The local beer industry in Bavaria would likely constitute:

A perfect competition
A monopolistic competition
An oligopoly
A natural monopoly

Creation of a trade union will typically lead to:

A rise in economic rent of insiders
A rise in wages of outsiders
An increase in labour market efficiency
A loss of jobs by insiders

Consider a small town build around a coal mine which is perfectly competitive in its product market and is the sole employer in the town. Suppose that employment is controlled by a trade union seeking to maximize the total wage bill of its members. Then wages will be determined by:

MRPL = w
MRPL = MCL
MVPL = MCL
None of the above

Cournot oligopoly is characterized by:

Easy adjustment of prices, thus strategic choice of output
Easy adjustment of output, thus strategic choice of prices
Equilibrium price at the level of marginal costs
Sequential decision-making

The net result of the Prisoner's Dilemma, when applied to a situation involving two oligopolists, is that

One of the firms makes a profit and the other firm incurs a loss
Neither firm makes a profit and both leave the industry
Prices will be above the level implied by joint profit maximization
Prices will be below the level implied by joint profit maximization

A profit-maximizing monopolist practicing price discrimination will charge the lowest price in the market where demand

Is most price-elastic
Is least price-elastic
has unit price-elasticity
Is highest

A monopolist's marginal revenue curve lies below average revenue, because:

A monopolist typically has to pay high taxes
A monopolist has to decrease price of all goods sold if it wants to expand output
Marginal magnitudes consider smaller increments than average ones
Price elasticity of demand decreases as quantity rises

Which of the following could constitute a case of strategic entry deterrence?

The incumbent accounts for the expected moves of the entrant and uses that information to maximize own profits
The incumbent invests into production to make more profit before its market share is contested by an entrant
The incumbent forgoes some of the current profit in favour of better opportunities in case of possible a price war
The entrant cannot observe any actions of the incumbent, which makes it reluctant to enter the market as to avoid possible losses

Monopolistic competition differs from perfect competition in that:

Some attribute of the product or the firm itself is differentiated across firms
Firms exercise some market power
Firms have to account for their rivals' response to their decisions
More than one of the above is correct

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