Assignment – Pricing Strategies Gov’t Regulation of Business

Assignment – Pricing Strategies Gov’t Regulation of Business

Subject: Economics    / General Economics
Question

Assignment 1: Pricing Strategies; Gov’t Regulation of Business Question 1
To say that markets are "efficient" implies that
Select one:
a. firms are able to push costs down below what resource suppliers desire.
b. profitability is sought without concern for costs.
c. firms produce the amount and type of output that society wants with as little waste as possible.
d. firms produce output using no resources.

Question 2
A firm is productively efficient if it produces at the minimum point of its
Select one:
a. average variable cost curve.
b. marginal cost curve.
c. average total cost curve.
d. total cost curve.

Question 3
Allocative efficiency implies that
Select one:
a. the amount (and price) of goods produced by firms is consistent with the amount desired by
consumers.
b. firms are producing using the cheapest production methods possible.
c. firms produce an amount of output associated with the minimum point on their average total cost
curve.
d. regardless willingness or ability to pay, everyone who demands a product is able to get it.

Question 4
One outcome of perfectly competitive markets is that
Select one:
a. they always exhibit productive efficiency, while only occasionally exhibiting allocative efficiency.
b. in the long run, they exhibit productive and allocative efficiency.
c. in the short run they exhibit productive efficiency and in the long run they exhibit allocative efficiency;
but not both simultaneously.
d. they are allocatively efficient in the short run, but not in the long run.

Question 5
For output levels less than equilibrium,
Select one:
a. the marginal benefit always equals the marginal cost since firms set P = SMC.
b. the marginal benefit of that amount of output is less than the marginal cost of that amount of output.
c. marginal benefit is less than zero while marginal cost is greater than zero.
d. the marginal benefit of that amount of output exceeds the marginal cost of that amount of output.

Question 6
"Market failure" refers to situations where
Select one:
a. firms do not set price equal to marginal cost.
b. excess demand occurs so there is not enough supply for all customers.
c. a competitive outcome is not reached.
d. firms produce too much relative to existing demand.

Question 7
"Government failure" can refer to situations where Select one:
a. electoral outcomes do not guarantee economic efficiency.
b. politicians or regulators do not act efficiently or in the public interest.
c. government services are priced higher than they would be if privately provided.
d. legislation that is meant to hinder economic exchange gets passed.

Question 8
Market power is considered a market failure because
Select one:
a. there is no deadweight loss when firms have market power.
b. competitive firms (with no market power) set price below marginal cost, which is most efficient.
c. firms pricing above marginal cost are not allocatively efficient.
d. too much is being produced compared to a competitive outcome.

Question 9
Firms with market power
Select one:
a. earn high monopoly profit without generating deadweight loss.
b. restrict output and push down prices.
c. eliminate some consumer surplus, and also create deadweight loss.
d. completely eliminate all consumer surplus.

Question 10
Government attempts to correct abuses of market power, but has not established a simple definition of
when this occurs and must be remedied.
Select one:
True
False

Question 11
Even with antitrust laws on the books, which other factor is important in determining whether a
company pays damages for potential abuse of market power?
Select one:
a. How strictly the antitrust regulators enforce the law.
b. Whether the President wants the Justice Department to take a more active or more passive role in
antitrust enforcement.
c. All of these answers are correct.
d. How lenient or strict the courts are in hearing antitrust cases.

Question 12
From society’s perspective, it may be better to leave a natural monopoly in place rather than break it up
because
Select one:
a. shareholder wealth may drop if the company is threatened by lawsuit.
b. the economies of scale result in the product being produced at lower costs than would occur with
smaller firms.
c. natural monopolies closely approximate perfect competition.
d. the high output will result in high profit for the company and its workers.

Question 13
One of the problems associated with regulating a monopoly’s selling price is that
Select one:
a. the regulated price is often higher than the monopolist’s profit-maximizing price.
b. there is no single price that both creates an efficient outcome and guarantees survival of the firm.
c. it is impossible for regulators to know what a monopolist’s costs are.
d. left on their own, monopolists would not set output where MR = MC.

Question 14
A regulated monopoly price set to ensure the firm breaks even has the problem that
Select one:
a. the monopoly has no incentive to keep costs low.
b. the break-even price still creates excess monopoly profit.
c. this price creates no deadweight loss.
d. if a monopoly breaks even in the short run, it will earn losses in the long run.

Question 15
In economics, an externality is
Select one:
a. an external burden imposed on a buyer or seller from locating in a certain area.
b. a cost imposed on a buyer who needs external funding, like a company taking out a loan to build a
factory.
c. a portion of variable costs that are external to the firm, like the cost of raw materials.
d. a cost or benefit from a transaction that is imposed on a third party (not the buyer or seller).

Question 16
If a transaction or production creates negative externalities, then accounting for all costs and benefits
would reveal that
Select one:
a. the socially-optimal amount of production would be more than the private level of production.
b. the private price is higher than the socially-optimal price.
c. the socially-optimal amount of production would be less than the private level of production.
d. the socially-optimal price and output are both higher than the private price and output.

Question 17
If a product is non excludable,
Select one:
a. firms extract too much money from consumers and the socially-optimal price should be lower.
b. the firm cannot exclude any buyer from purchasing the product, even if they differ in demand
elasticity.
c. private firms do not have an incentive to produce because free riders will not pay for it.
d. the firm can discriminate against those who do not want to purchase the product.

Question 18
If property rights for a product are poorly defined or enforced, then
Select one:
a. under consumption will occur, and producers will be unsatisfied with the lack of profitability
b. overconsumption will occur, and few firms will find it beneficial to produce the product.

Question 19
A lack of consumer information about products, prices, or quality can result in
Select one:
a. consumers buying too much or too little of the product than if they were fully informed.
b. a negative amount of deadweight loss for firms.
c. consumers demanding the correct amount, but paying too little for it.
d. consumers demanding the correct amount, but paying too much for it.