1A monopoly is a firm
- That is exempt from patent protection
- That sets price higher than or equal to marginal cost
- That sets price above marginal cost without concern that other firms will enter the industry
2Statement that is consistent with moral hazard
- The more coverage a health insurance policy provides, the more often medical care will be sought.
- The more coverage a health insurance policy provides, the less often medical care will be sought.
- The more coverage a health insurance policy provides, the less often the policyholder will get sick.
- The more coverage a health insurance policy provides, the more often the policyholder will get sick.
3The demand curve for a monopoly is
The industry or market demand curve
4A strawberry farmer has 5,000 pounds of strawberries ready to harvest. The cost of picking and transporting the
strawberries to the market is $3,500. If the market pays $0.60 per pound of strawberries, what should the strawberry farmer
do?
- not pick and sell the strawberries, since doing so would reduce profits by $500
- pick and sell the strawberries to recover the fixed costs of planting
- not make a decision until he knows something about average costs
5An industry is perfectly competitive when
Each firm has virtually no influence over the price of its product
6When should a firm exit the industry? Shutdown Point
P < AC or AVC
7What is the distribution of gains and losses when a market becomes monopolized
The losses to consumers are typically greater than the gains to the monopolist
8Monopolist earn ________ profits in the long run.
above normal
9The death spiral in health insurance is caused by
adverse selection
10If a firm is earning positive economic profits what should they expected to happen in the long run
Prices fall due to entry of new firms. Economic profits are always 0 in the long run
11Why are collusive agreements typically difficult for businesses to maintain?
Either firm can produce more than the quantity to boost their own profits instead of maximizing joint profits.
12Solutions to moral hazard include:
- offering salespeople in stores a straight salary rather than a commission on sales.
- setting up franchises that are part of a national chain, with franchise owners undertaking most of the risk.
- allowing property owners to overinsure their buildings.
- asset diversification to reduce risk.
13Which one of the following is NOT an example of a seller offering signals of quality?
- Ian's Auto Body Shop offers a warranty on its work.
- Chau asks customers to write reviews of her manicures on a website for local businesses.
- Mak offers a money-back guarantee on his product.
- Hui Er proofreads her job application and cover letter four times to make sure it shows that she is careful about details.
14What is the expected long term economic profit
ZERO