1. There are two major Internet service providers in Eduland. One company has a
ID: 1157463 • Letter: 1
Question
1. There are two major Internet service providers in Eduland. One company has a market share of 60%and the other firm has a market share of 40%.
The Herfindahl-HirschmanIndex for this industry is ________.
A. 100,000
B.5,200
C.100
D. 1,200
2. Which of the following is true?
A. A monopolistic competitor cannot earn economic profits in the short run.
B. A monopolistic competitor can incur losses in the short run.
C. A monopolistic competitor cannot incur losses in the short run.
D. A monopolistic competitor earns huge economic profits in the long run.
3. Gary has won a laptop in an online auction.
This implies that ________.
A. Gary's willingness to pay for the laptop was lower than its market price
B. Gary's willingness to pay for the laptop was higher than that of the other bidders
C. Gary's willingness to pay for the laptop was higher than its market price
D. Gary's willingness to pay for the laptop was lower than that of at least one bidder
4. Collusion occurs when firms ________.
A. charge a price equal to their marginal cost of production
B. compete with each other by differentiating their products
C. compete with each other by setting a price slightly lower than its rival's price
D.conspire to set the quantity they produce or the prices they charge
5. Bidders
Value (in dollars)
Rachel
500
James
450
David
400
Joe
350
Emily
300
Bob
250
An ancient painting is being auctioned in an open-outcryEnglish auction. The table on the right shows the maximum willingness to pay of each bidder.
Refer to the scenario above. The winner of this auction will earn a consumer surplus of ________.
A.
$100
B.
$450
C.
$150
D.
$50
6. The winner in a first-price sealed-bid auction pays an amount equal to ________.
A.half of his bid
B. his bid
C. the lowest bid
D.the second-highest bid
7. A wholesale flower market is an example of ________.
A.perfect competition
B.monopolistic competition
C.monopoly
D.oligopoly
8. Collusion breaks down if ________.
A. the price set by the colluding firms exceeds the marginal cost of production
B. a firm charges a price higher than the price set by the other colluding firms
C. a firm charges a price lower than the price set by the other colluding firms
D. the price set by the colluding firms equals the marginal cost of production
5. Bidders
Value (in dollars)
Rachel
500
James
450
David
400
Joe
350
Emily
300
Bob
250
Explanation / Answer
1. The HHI is calculated by squaring the market share of each firm competing in the market and then summing the resulting numbers.
The index for the given industry is: (60)^2 + (40)^2 = 3600 + 1600 = 5200.
Ans. (b)
2. (d) Monopolistically competitive firms can earn huge economic profits in the short run.
3. (b) Gary has won a laptop in an online auction. This implies that Gary's willingness to pay for the laptop was higher than that of the other bidders.
4. (d) Collusion occurs when the firms conspire to set the quantity they produce or the prices they charge.
5. (d) Given the bids and the bidding values, the winner of this auction will win a consumer surplus of $50.
6. (b) The winner in a first-price sealed-bid auction pays an amount equal to hsi bid.
7. (a) A whlesale flower market is an example of perfect competition.
8. (c) Collusion breaks down if a firm charges a price lower than the price set by the other colluding firms
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