Midterm+2+Fall+2006+with+key

Midterm+2+Fall+2006+with+key - Economics 1, Fall 2006,...

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Economics 1, Fall 2006, Midterm 2 Student Name __________________________________________Student ID#_____________________________________________ Please select the best answer from the choices provided and mark on your Scantron form. 1. A government grant of exclusive ownership of an innovation is: A. A monopoly. B. A contestable market. C. A patent. D. An externality. 2. Suppose a monopoly firm produces software and can sell 20 items per month at a price of $70 each. In order to increase sales by one item per month, the monopolist must lower the price of its software by $5 to $65. The marginal revenue of the 21st item is: A. $35. B. -$5. C. -$35. D. $5. 3. Compared to a competitive market with the same cost and market-demand circumstances, monopoly results in: A. Higher prices and higher output. B. Higher prices and lower output. C. Lower prices and lower output. D. Lower prices and higher output. 4. Which of the following is consistent with a monopoly industry? A. All of the above. B. Barriers to entry keep potential competitors out of the market. C. No pressure to reduce costs or improve product quality. D. Production and supplies are constrained. 5. Natural monopolies are: A. Monopolies in agricultural markets. B. Markets with upward sloping ATC curves over the entire range of output. C. Markets that exhibit economies of scale over the entire range of output. D. Markets with low output because of diseconomies of scale. 6. A contestable market is: A. An imperfectly competitive situation with high barriers to entry. B. A market with only one producer. C. A perfectly competitive market. D. An imperfectly competitive situation that is subject to entry. Economics 1 – Fall 2006 Midterm 2 Page (1 of 12)
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7. Predatory pricing occurs when: A. A firm sets its price at minimum average total cost. B. Two firms agree to work together to keep a rival firm out of the industry. C. A firm lowers price temporarily to drive out competitors. D. Firms agree to fix prices. 8. If American Airlines engages in predatory pricing, it might: A. Lower fares when a new carrier enters the market and then raise fares as soon as the new carrier gains sufficient business. B. Lower fares permanently once a new carrier enters the market in order to keep up in the expanding airline industry. C. Raise fares when a new carrier enters the market and then lower fares once the new carrier leaves the market. D. Lower fares when a new carrier enters the market and then raise fares once the new carrier is driven out of business. The following table shows some costs and prices faced by a machine shop thta produces internal combustion engines. Table 7.1 - Monopoly costs and revenue 9. In Table 7.1, profit maximization is achieved at a production rate of: A. 1 plane per month. B. 4 planes per month.
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Midterm+2+Fall+2006+with+key - Economics 1, Fall 2006,...

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