Practice_4 - Economics 2010 Microeconomics Practice Exam 4...

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Economics 2010 – Microeconomics Practice Exam – 4  Dr. Goodman – Sections 007 – 012 1 . One characteristic of an oligopoly market structure is: a. firms in the industry are typically characterized by very diverse product lines. b. firms in the industry have some degree of market power. c. products typically sell at a price that reflects their marginal cost of production. d. the actions of one seller have no impact on the profitability of other sellers. Imagine a small town in which only two residents, Tony and Jill, own wells that produce water for safe drinking. Each  Saturday, Tony and Jill work together to decide how many gallons of water to pump, bring the water to town, and sell  it at whatever price the market will bear. To keep things simple, suppose that Tony and Jill can pump as much water as  they want without cost; therefore, the marginal cost of water equals zero. The weekly town demand schedule and total revenue schedule for water is reflected in the table below. Weekly Weekly Quantity Total Revenue (in gallons) Price (and Total Profit) 0 $12 $0 10 11 110 20 10 200 30 9 270 40 8 320 50 7 350 60 6 360 70 5 350 80 4 320 90 3 270 100 2 200 110 1 110 120 0 0 2 . As long as Tony and Jill operate as a profit-maximizing monopoly, what will their weekly revenue equal? a. $200 b. $270 c. $350 d. $360 3 . When an oligopoly market is in Nash equilibrium, a. market price will be different for each firm. b. firms will not behave as profit maximizers. c. a firm will choose its best pricing strategy, given the strategies that it observes other firms taking. d. a firm will not take into account the strategies of competing firms.
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4 . Equilibrium quantity in markets characterized by oligopoly are a. higher than in monopoly markets and higher than in perfectly competitive markets. b. higher than in monopoly markets and lower than in perfectly competitive markets. c. lower than in monopoly markets and higher than in perfectly competitive markets. c. lower than in monopoly markets and lower than in perfectly competitive markets. 5 . The prisoners’ dilemma provides insights into the a. difficulty of maintaining cooperation. b. benefits of avoiding cooperation. c. benefits of government ownership of monopoly. d. ease with which oligopoly firms maintain high prices. 6 . In a game, a dominant strategy is, by definition, a. the best strategy for a player to follow only if other players are cooperative. b. the best strategy for a player to follow, regardless of the strategies followed by other players.
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