Quiz 4 with answers and hints

Quiz 4 with answers and hints - 1 Calculate the dead weight...

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1. Calculate the dead weight loss from monopoly in the figure below (note: MR intersects the quantity axis at 45). a. $80 b. $130 c. $40 d. $30 e. $65 [Hint: DWL=base x height x1/2 = (25-12)(45-35)(1/2) = 65] 2. In the figure from Question 1, calculate the amount of consumer surplus transferred to the monopoly as compared to the efficient output and price. a. $225 b. $175 c. $875 d. $87.50 e. $105 [Hint: =(25-20)*35] 3. In the figure from Question 1, calculate the total consumer surplus lost (not converted to producer surplus) as a result of monopoly activity in the figure above. a. $87.50 b. $20 c. $25 d. $50 e. $175 [Hint: Area of the small triangle = ½(25-20)(45-35)=25]
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4. In the long run monopolistically competitive firms make zero profits because: a. Marginal costs increases due to entry and exit of firms b. Demand for an individual firm falls due to the entry of firms c. Average total costs increase due to the entry and exit of firms d. Price equals marginal costs in the long run e. Quantity produced is below the minimum ATC curve [Hint: as more firms enter, the demand for the firms products shifts inwards and price falls accordingly.] 5. Quantity discounts have the potential of _______ deadweight loss compared to charging a constant price for all output in a monopoly. a. decreasing b. increasing c. maximising d. eliminating e. not changing [Hint: Quantity discounts lower price as Q increases, reducing the difference between the perfectly competitive price and the monopoly price.] 6. Which of the following is not a characteristic of the Prisoner’s Dilemma? a. Total surplus is not maximised at equilibrium b. A player does not know the other player’s decision when they take their action. c. Each player has a dominant strategy d. There is only one Nash Equilibrium e. All of the above are characteristics of a Prisoner’s Dilemma [Hint: T&F pp. 242] 7. Monopolists offer quantity discounts primarily a. because it costs less to supply bulk buyers. b. to convert deadweight loss into producer surplus. c. to reward buyer loyalty.
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Quiz 4 with answers and hints - 1 Calculate the dead weight...

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