1. Statement 1: Cartels occur when firms in a market cooperate with one another
ID: 1099568 • Letter: 1
Question
1. Statement 1: Cartels occur when firms in a market cooperate with one another to set prices and quantity as if the firms were a monopoly. Statement 2: A cartel will choose to produce that quantity where MR = MC for the group.
A) Both statements (1) and (2) are false.
B) Statement (1) is true; statement (2) if false.
C) Statement (1) is false; statement (2) is true.
D) Both statements (1) and (2) are true.
2.
An oligopolist firm that competes with other firms in an oligopoly market faces a kinked demand curve because its competitors:
A) Are
Explanation / Answer
1. Statement 1: Cartels occur when firms in a market cooperate with one another to set prices and quantity as if the firms were a monopoly. Statement 2: A cartel will choose to produce that quantity where MR = MC for the group.
D) Both statements (1) and (2) are true.
2.
An oligopolist firm that competes with other firms in an oligopoly market faces a kinked demand curve because its competitors:
B) React differently if the oligopolist firm raises it prices or lower its prices.
If the firm lowers prices the competing firms will also lower fearing a loss of market share; however, if the firm raises prices the competitors may not follow the suit.
3.
Statement 1: In oligopoly markets, the firms will be producing at the lowest point on the average total cost (ATC) curve. Statement 2: Social surplus is always maximized in oligopoly markets.
D) Both statements (1) and (2) are false.
4.
When insurance companies charge lower monthly premiums for low-risk customers, the companies are attempting to deal with the problem of:
A) Adverse selection.
5.
Statement 1: If price is below the shutdown point, a perfectly competitive firm will choose to operate and produce in the short run. Statement 2: If price is below the shutdown point, then in the long run, the perfectly competitive firm will choose to stay in the industry (i.e.,stay in business).
If the price is below shut down point; i.e lower thanthe AVC, then the firm will not operate both in the long and short run.
C) Both statements (1) and (2) are false.
6.
Which of the following is in the correct order from the most competitive market to the least competitive market? Most competitive ------> Least competitive
B) Perfect competition, monopolistic competition, oligopoly, monopoly.
7.
Statement 1: The goal of anti-trust laws are to prevent monopolies from being formed and/or prevent firms from exercising monopoly or market power. Statement 2: The Sherman Act, the Clayton Act and the Federal Trade Commission Act reflect U.S. anti-trust policy.
A) Both statements (1) and (2) are true.
8.
If Industry A has a Herfindahl-Hirschmann Index (HHI) of 1,250 while Industry B has a HHI of 2,500, then the concentration of market power is:
D) Higher in Industry B as compared to Industry A.
9.
Two firms, Alpha Co. and Beta Inc., produce similar goods and compete with one another. Each firm is considering what price to charge for their products, $100 or $125. Alpha Co. realizes that, regardless of what Beta Inc. does to the price, it (Alpha Co.) is better off to keep its price at $100. Beta Inc. also realizes that, regardless of what Alpha Co. does to the price, it (Beta Inc.) is better off to keep its price at $100 as well. If both companies had cooperated with one another and charged the higher price of $125, they could have earned higher profits.Statement 1: This scenario illustrates the Prisoner's Dilemma. Statement 2: Both firms have a dominant strategy.
B) Both statements (1) and (2) are true.
10.
Consider the following scenario for a perfectly competitive firm. If at Q*, the profit-maximizing level of output, P=$10 and ATC=$12, then we can determine that:
Price is lower than the ATC, therefore, the firm is incurring losses.
C) The firm is making negative economic profits (i.e., it is making losses).
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