Problem 1: The _____ elastic a firm's demand curve, the greater its _____.
a. less; monopoly power
b. less; output
c. more; monopoly power
d. more; costs
Problem 2: Which of the following is not a basic feature of a monopolistically competitive industry?
a. There are many buyers and sellers in the industry
b. Each firm in the industry produces a differentiated product
c. There is free entry and exit into the industry
d. Each firm owns a patent on its product
Problem 3: The variance of a probability distribution is used to measure risk because a higher variance is associated with
a. a wider spread of values around the mean.
b. a more compact distribution.
c. a lower expected value.
d. both a and b
Problem 4: Encouraging firms to invest in research and development and individuals to engage in creative endeavors such as writing novels is one justification for:
a. government-created monopolies.
b. resource monopolies.
c. natural monopolies.
d. monopolistic competition.
Problem 5: The most important factor in determining the long-run profit potential in monopolistic competition is
a. free entry and exit.
b. the elasticity of the market demand curve.
c. the elasticity of the firm's demand curve.
d. that it is in the threatener's self interest to act on the threat.
Problem 6: In making decisions under risk
a. maximizing expected value is always the best rule.
b. mean variance analysis is always the best rule.
c. the coefficient of variation rule is always best.
d. maximizing expected value is most reliable for making repeated decisions with identical probabilities.
Problem 7: When marginal revenue equals marginal cost, total revenue is equal to total cost, therefore, the firm just "breaks even"
a. True
b. False
Problem 8: The following payoff matrix shows the various profit outcomes for 3 projects, A, B, and C, under 2 possible states of nature: the product price is $10 or the product price is $20.
Profit
Project P = $10 P = $20
A 20 80
B 40 60
C -26 140
Using the minimax regret rule the decision maker would choose
a. A
b. B
c. C
d. impossible to tell from the information
Problem 9: An oligopolistic situation involving the possible creation of barriers to entry would probably best be modeled by
a. Cooperative game.
b. Prisoner's Dilemma game.
c. Battle of the Sexes game.
d. Sequential game.
Problem 10: The essential characteristic of a credible threat is
a. that the threatener has a reputation for carrying out threats.
b. that the threatener ignores the costs of carrying out the threat.
c. that the threatener and the threatenee know each other well.
d. that it is in the threatener's self interest to act on the threat.