Microeconomics II
Quiz #1
Spring, 2008
4/8, 2008
I. Multiple choices(40%)
1) For a given set of prices, two consumers choose bundles that are off the contract curve. In a competitive market,
A) prices will adjust until the consumers choose bundles that are on the contract curve.
B) the indifference curves will shift back to the contract curve.
C) the contract curve will shift to connect these bundles.
D) no adjustments need to be made.
2) Competition results in the efficient product mix because
A) the slope of the production possibility frontier will equal the slope of the contract curve.
B) consumers are on the contract curve.
C) producers are setting MRT equal to minus the price ratio while consumers are setting MRS equal to minus the price ratio ensuring that MRT will equal MRS.
D) the distribution of the final output is Pareto efficient.
3) For a monopoly, marginal revenue is less than price because
A) the firm has no supply curve.
B) the demand for the firm's output is downward sloping.
C) the firm can sell all of its output at any price.
D) the demand for the firm's output is perfectly elastic.
4) The relationship between price and quantity is
A) unique for a competitive market, but not a monopoly market.
B) unique for a monopoly market, but not a competitive market.
C) unique for both a competitive or monopoly market.
D) not unique for any market.
5) The government prefers an ad valorem tax to a specific tax that reduces the monopoly output by the same amount because
A) consumers are not harmed by the ad valorem tax.
B) the monopoly prefers the ad valorem tax.
C) consumers prefer the ad valorem tax.
D) the ad valorem tax transfers more revenue from the monopoly to the government.
6) The ability of a monopoly to charge a price that exceeds marginal cost depends on
A) the price elasticity of supply.
B) price elasticity of demand.
C) slope of the demand curve
D) shape of the marginal cost curve.
7) If the government wants to regulate a natural monopoly it will force the firm to set price equal to
A) average cost.
B) marginal cost.
C) marginal revenue.
D) None of the above.
8) Bob is the only carpet installer in a small isolated town. The above figure shows the demand curves of two distinct groups of customers-residential and business. If the marginal cost of installing carpet is a constant $1 per sq yard, what price does Bob charge each segment?
A) $1 in each market
B) $5.50 in the residential market and $8 in the business market
C) $1 in the residential market and $5 in the business market
D) $10 in the residential market and $15 in the business market
9) Two-part tariffs offer a mechanism whereby the firm can
A) charge two different prices to distinct groups of customers.
B) collect two times as much from consumers as a single-price monopoly can.
C) capture some or all of the consumer surplus.
D) reduce some of its fixed costs.
10) If a monopoly charges higher prices to consumers who buy smaller quantities than to consumers who buy larger quantities, then
A) consumers that buy larger quantities have a higher price elasticity of demand.
B) consumers that buy larger quantities have a lower price elasticity of demand.
C) consumers that buy smaller quantities have a lower price elasticity of demand.
D) Both A and C.
1 / 2 / 3 / 4 / 5 / 6 / 7 / 8 / 9 / 10II. True or False (30%)
For the following, please answer "True" or "False" and explain why.
1) A competitive equilibrium is not Pareto efficient if some members of society are unable to afford a necessary good.
2) A monopoly always operates in the inelastic portion of its demand curve.
III. Problems(30%)
1) The average cost for a typical electric-power-production firm is AC = 100 - 10Q + Q2 where Q is measured in billion kilowatt hours per day. At the current regulated price, consumers demand 4 billion kilowatt hours per day. Is this market a natural monopoly? If demand increases to 10 billion kilowatt hours, is this market a natural monopoly? Explain.
2) Each identical consumer has the following demand for golf, q = 100 - p, where q is the number of rounds of golf played per year and p is the price per round. The only golf course in an isolated town incurs a marginal cost of $10 per round of golf. It wishes to charge a membership fee and a fee per round of golf. What price will it set for each fee?