Microeconomics Ⅱ

Midterm

5/3, 2007

I. 選擇題(60 points)

 答案請寫在 p.5 的表格中，否則不計分。

  1. Production efficiency refers to a situation in which：
  2. an economy maximizes the amount of all goods and services that are produced.
  3. it is not possible to produce more of some goods without producing less of other goods.
  4. the existing distribution of goods cannot be altered without making some individual worse off.
  5. the mix of goods being produced matches individual preferences.
  6. producers are minimizing the amount of resources that they are employing.
  1. Which of the following characteristics would not exist in perfect competition?
  2. All firms face the same price and demand curve.
  3. All firms earn the same profits.
  4. Each firm adjusts quantity so as to maximize profits.
  5. There are no barriers to entry or exit.
  6. Each firm is a price taker.
  1. Because marginal revenue is constant for a perfect competition firm, the firm faces a：
  2. vertical demand curve where price equals marginal revenue.
  3. vertical demand curve where price exceeds marginal revenue.
  4. horizontal demand curve where price equals marginal revenue.
  5. horizontal demand curve where price exceeds marginal revenue.
  6. horizontal demand curve where price is less than marginal revenue.
  1. The primary reason that a monopolist does not achieve economic efficiency is because:
  2. it is too big to produce at point of minimum average cost.
  3. the marginal benefit from producing an extra unit will exceed the marginal revenue.
  4. marginal revenue will exceed marginal cost.
  5. the marginal benefit from producing an extra unit will exceed the marginal cost.
  6. price will equal marginal revenue rather than marginal cost.

  1. When compared with a perfectly competitive firm, the monopolist will produce:
  2. more and charge a higher price.
  3. more and charge a lower price.
  4. less and charge a lower price.
  5. the same amount but charge a higher price.
  6. less and charge a higher price.
  1. A profit-maximizing monopolist that can employ price discrimination will set price by equating:
  2. marginal revenue and marginal cost for all markets.
  3. aggregate marginal revenue and aggregate marginal cost.
  4. marginal revenue and marginal cost in each individual market.
  5. total revenue and total cost in each market.
  6. total revenue and total cost in all markets.
  1. Which of the following is not a characteristic of monopolist competition?
  2. a small number of firms
  3. a large number of firms
  4. a downward-sloping demand curve.
  5. firm's ignoring the reactions of rivals
  6. product differentiation
  1. The instability of a cartel stems from the fact that each member of the cartel:
  2. place the interests of the cartel above its own interests and hence cannot make price and output decision.
  3. has an incentive to cheat on the agreement because it can increase its profits by lowering its price slightly below the cartel price.
  4. has an incentive to cheat on the agreement because it can raise its price with no fear of retaliation or lost sales.
  5. has an incentive to cheat on the agreement because it knows that the others will continue to follow the agreement.
  6. has an incentive to cheat on the agreement because each member knows that the other members will follow the agreement.

  1. Which of the following is the distinguishing characteristic of oligopoly?
  2. Firms in oligopoly take rival reactions into consideration.
  3. There is relatively easy entry into and exit from oligopolistic industries.
  4. There will be no attempt at product differentiation in oligopolies.
  5. There are a large number of firms in an oligopolistic industry.
  6. Oligopolies produce a completely homogeneous product.
  1. In a Cournot competition:
  2. each firm charges that price which leads to joint profit maximization.
  3. each firm decides to produce that quantity which maximizes its profits.
  4. each firm assumes that its rivals will change their prices when it changes in prices.
  5. individual firms find it profitable to employ cost-plus pricing methods.
  6. the industry demand curve contains a kink.
  1. Markets can fail to achieve efficiency when

a.there are prices consumers do not think are fair.

b.there are wages workers do not think are fair.

c.trade puts people out of work.

d.there are buyers or sellers without adequate information about the quality of goods.

  1. An efficient allocation of productive inputs requires that

a.each output has the same rate of technical substitution among inputs used.

b.each output has the same marginal rate of substitution for consumers.

c.each pair of outputs has the same rate of product transformation.

d.each individual has the same marginal rate of substitution between outputs.

  1. Suppose a monopolist has a cost structure such that TC = 0.1Q2 - 2Q + 100 and MC = 0.2Q - 2 and face demand such that QD = 86 - P. The perfectly competitive dead weight loss would be

a. c.

b. d.

  1. The “deadweight loss” from a monopoly refers to

a.the portion of a monopolist’s profits that are above the competitive profit level.

b.the increase in price due to the monopolization of a market.

c.the inefficient use of factors of production by a monopoly.

d.the loss of consumer surplus due to the monopolization of a market that is not transferred to another economic actor.

  1. Perfect price discrimination

a.is a common occurrence in situations with many buyers.

b.occurs fairly often in situations with only a few buyers.

c.is only observed in competitive markets.

d.rarely occurs because firms do not have sufficient power to differentiate among specific buyers.

  1. Under the price leadership model,

a.most firms act independently of the leader.

b.the leader’s price is always lower than the other firms’ prices.

c.the leader’s price is always higher than the other firms’ prices.

d.all firms adjust their prices to that chosen by the leader.

  1. In the Cournot model, each firm assumes that its rival will ____ its output when the firm adjusts its own output. Which word best completes the sentence?

a.increase c.decrease

b.not change

  1. One possible benefit of a monopoly is

a.a more efficient allocation of resources; only one firm is needed to supply quantity demanded.

b.greater opportunities for research due to long-run positive economic profits.

c.the government is better able to ensure that it follows laws and guidelines because there is only one firm to monitor.

d.goods and services are provided at a lower price than under perfect competition because of a monopoly’s decreasing average cost curve.

  1. The rate of product transformation refers to

a.how a consumer can trade one good for another while still maximizing his or her utility.

b.how a firm can substitute one input for another and still maintain the same production level.

c.how production of one good can be substituted for another while still using a fixed supply of inputs efficiently.

d.how quickly a firm can produce a final good while starting with only natural resources.

  1. Consider a two-good production economy in which both goods are produced with fixed proportions production functions. Then, some efficient allocations will exhibit unemployment of some factor providing

a.the firms use the inputs in different proportions.

b.the firms exhibit diminishing returns to scale.

c.the firms exhibit increasing returns to scale.

d.production can never be efficient if there are unemployed inputs.

1 / 2 / 3 / 4 / 5 / 6 / 7 / 8 / 9 / 10 / 11 / 12 / 13 / 14 / 15 / 16 / 17 / 18 / 19 / 20
B / B / C / D / E / C / A / B / A / B / D / A / A / D / D / D / B / B / C / A

Ⅱ. 是非題 (20 points)

Response to each statement true or false and then justify your response. The justification of your response is the most important part of your answer.

  1. 獨佔廠商的利潤大小依賴需求和平均成本的關係。

True, see lecture.

  1. The demand curve in a perfectly competitive industry will be horizontal, and the demand curve facing the individual firm in a perfectly competitive industry will also be horizontal.

The demand curve in a perfectly competitive industry will be downward-sloping.

  1. Because a monopolist must lower its price on all units to increase sales, marginal revenue will be less than price.

True

  1. 一家利潤極大化的獨佔廠商總是將價格設定在需求彈性超過1的位置。

False, 差別取價的獨佔廠商即是例外

Ⅲ、計算問答題 (40 points)

  1. The Edgeworth box diagram can be used to show how a production possibility frontier is constructed for an economy as a whole. Suppose there are only two goods that might be produced (X and Y), each using two inputs, capital (K) and labor (L). In order to construct the X-Y production possibility frontier, we must look for efficient allocations of the total capital and labor available.
  1. Draw an Edgeworth box with dimensions given by the total quantities of capital and labor available . (5 points)
  2. What are the efficient points in the box you have drawn? What condition must hold for a given allocation of K and L to be efficient? (5points)
  3. Use the connection between your box diagram and the production possibility frontier to discuss what the frontier would look like if both X and Y are produced using K and L in the same fixed proportions as the inputs are available in the economy and both exhibit constant returns to scale. (5 points)

  1. Suppose a textbook monopoly can produce any level of output it wishes at a constant marginal (and average) cost of $5 per book. Assume that the monopoly sells its books in two different markets that are separated by some distance. The demand curve in the first market is given by

Q1 = 55 － P1

and the curve in the second market is given by

Q2 = 70 － 2P2

  1. If the monopolist can maintain the separation between the two markets, what level of output should be produced in each market and what price will prevail in each market? What are total profits in this situation? (5 points)
  2. How would your answer change if it only cost demanders $5 to mail books between the two markets? What would be the monopolist’s new profit level in this situation? How would your answer change if mailing costs were 0? (5 points)

  1. Two firms produce products that are perfect substitutes for each other, but the cost of production are different for the two firms. The demand and cost conditions are described by

P=100-0.5(y1+y2) and MC1=19 , MC2=y2 ,

where P is the market price,

y1 is the quantity produced by firm 1,

y2 is the quantity produced by firm 2,

MC1 is the marginal cost of production by firm1,

MC2 is the marginal cost of production by firm2.

  1. Derive the quantity reaction function for each firm on the assumption of Cournot behavior. Determine the equilibrium quantities for each firm and the market price. (8 points)
  2. What will happen to the equilibrium quantities for each firm and the market price if the two firms decide to collude and maximize profit rather than compete as Cournot duopolists? (7 points)

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