econ104 exam Questions with Complete Solutions
Perfect Competition Characteristics - -Many sellers & Many buyers
No barriers to entry of other firs
Homogenous (identical) product
Perfect information/knowledge in the market
-Externalities - -The spillover costs or benefits onto a third party that were not apart of the
original transaction
-Marginal cost - -the cost of producing one more unit of a good
-marginal benefit - -the additional benefit to a consumer from consuming one more unit of
a good or service
-marginal firm - -the last firm to enter the market when positive economic profits are
occurring and they would be the next firm to exit if the price fell
-monopolistic competition - -a market structure in which many firms sell products that
are similar but not identical, weak barriers to entry
-oligopoly - -A market structure in which a few large firms dominate a market, reasonably
strong barriers to entry
-duopoly(special case of oligopoly) - -an oligopoly consisting of only two firms, strong
barriers to entry and substantial non-price competition
-monopoly - -A market in which there are many buyers but only one seller and no close
substitutes
-Coase Theorem - -the proposition that if private parties can bargain without cost over the
allocation of resources, the markets will solve the problem of externalities.
-SMC - -social marginal cost
-SMC= - -PMC + negative externality
-PMC - -private (to the firm) marginal cost of production
-demand for labour - -how much a firm will pay for labour depends on how valuable that
labour is
-A perfect competitor's level of profit is determined by - -TR - TC where MR = MC.
, -At a quantity when a firm's average revenue (demand) curve is tangent to its average total
cost curve - -economic profits are zero
-A competitive firm's short run supply curve is shown by - -the part of the marginal cost
curve that is above minimum average variable cost.
-When demand in a perfectly competitive market falls, then it is likely that - -some firms
will exit the market
-In the short run, a perfect competitor can make
Select one
:a. positive economic profit.
b. negative economic profit.
c. zero economic profit.
d. all of the above. - -all of the above
-When firms are neither entering or exiting a perfectly competitive market then - -
economic profits must be zero.
-Which of the following is NOT associated with a perfectly competitive market?Select one:
a. Firms are price takers.
b. Firms have difficulty entering the market.
c. There are many sellers in the market.
d. The goods on offer are largely the same. - -b. Firms have difficulty entering the market.
-In the long run, for a competitive firm - -all costs are variable
-If a perfectly competitive firm is operating at a profit maximising quantity where AR is
less than AC but above AVC, they will - -shut down in the long run
-The supply curve for a firm in a perfectly competitive market - -is reflected in its marginal
cost curve (above average variable cost)
-A perverse incentive is best described as when - -an incentive creates an unintended
consequence.
-A positive coefficient when calculating income elasticity of demand suggests - -a normal
good.
-An insurance company charging the same premium for car insurance to a careful driver as
to a reckless driver is probably an example of - -adverse selection due to asymmetric
information.
-When firms have agreements among themselves on the quantity to produce and the price
to sell output they are organised - -as a cartel
Perfect Competition Characteristics - -Many sellers & Many buyers
No barriers to entry of other firs
Homogenous (identical) product
Perfect information/knowledge in the market
-Externalities - -The spillover costs or benefits onto a third party that were not apart of the
original transaction
-Marginal cost - -the cost of producing one more unit of a good
-marginal benefit - -the additional benefit to a consumer from consuming one more unit of
a good or service
-marginal firm - -the last firm to enter the market when positive economic profits are
occurring and they would be the next firm to exit if the price fell
-monopolistic competition - -a market structure in which many firms sell products that
are similar but not identical, weak barriers to entry
-oligopoly - -A market structure in which a few large firms dominate a market, reasonably
strong barriers to entry
-duopoly(special case of oligopoly) - -an oligopoly consisting of only two firms, strong
barriers to entry and substantial non-price competition
-monopoly - -A market in which there are many buyers but only one seller and no close
substitutes
-Coase Theorem - -the proposition that if private parties can bargain without cost over the
allocation of resources, the markets will solve the problem of externalities.
-SMC - -social marginal cost
-SMC= - -PMC + negative externality
-PMC - -private (to the firm) marginal cost of production
-demand for labour - -how much a firm will pay for labour depends on how valuable that
labour is
-A perfect competitor's level of profit is determined by - -TR - TC where MR = MC.
, -At a quantity when a firm's average revenue (demand) curve is tangent to its average total
cost curve - -economic profits are zero
-A competitive firm's short run supply curve is shown by - -the part of the marginal cost
curve that is above minimum average variable cost.
-When demand in a perfectly competitive market falls, then it is likely that - -some firms
will exit the market
-In the short run, a perfect competitor can make
Select one
:a. positive economic profit.
b. negative economic profit.
c. zero economic profit.
d. all of the above. - -all of the above
-When firms are neither entering or exiting a perfectly competitive market then - -
economic profits must be zero.
-Which of the following is NOT associated with a perfectly competitive market?Select one:
a. Firms are price takers.
b. Firms have difficulty entering the market.
c. There are many sellers in the market.
d. The goods on offer are largely the same. - -b. Firms have difficulty entering the market.
-In the long run, for a competitive firm - -all costs are variable
-If a perfectly competitive firm is operating at a profit maximising quantity where AR is
less than AC but above AVC, they will - -shut down in the long run
-The supply curve for a firm in a perfectly competitive market - -is reflected in its marginal
cost curve (above average variable cost)
-A perverse incentive is best described as when - -an incentive creates an unintended
consequence.
-A positive coefficient when calculating income elasticity of demand suggests - -a normal
good.
-An insurance company charging the same premium for car insurance to a careful driver as
to a reckless driver is probably an example of - -adverse selection due to asymmetric
information.
-When firms have agreements among themselves on the quantity to produce and the price
to sell output they are organised - -as a cartel
