Question 1

Uncertainty includes all of the following except ____.

Accepted Answer

Uncertainty refers to situations where outcomes are unknown or unpredictable. Choices A, B, C, and E are all examples of uncertainty because they involve unknown or unpredictable factors that may affect outcomes. However, unverifiable claims (choice D) are not necessarily a form of uncertainty. While they may introduce doubt or skepticism, the fact that a claim cannot be proven does not necessarily mean that outcomes are unknown or unpredictable.

Question 2

The problems of asymmetric information exchange arise ultimately because

Accepted Answer

D

Question 3

Which of the following statements is (are)true concerning a pure competition situation?

Accepted Answer

In pure competition, there are many small firms and homogeneous products, so firms cannot charge a higher price than the market price. This means that firms must sell at or below the market price to remain competitive. As a result, the demand curve is perfectly elastic, which means that any increase in price will lead to zero sales. Therefore, the marginal revenue earned by the firm is equal to the price. Hence, both statement B and C are true. On the other hand, statement A is false because the demand curve is horizontal or perfectly elastic, not vertical.

Question 4

To escape adverse selection and elicit high quality experience goods buyers can

Accepted Answer

The answer of To escape adverse selection and elicit high...

Question 5

In pure competition:

Accepted Answer

Option A is true because in pure competition, since the firm is a price-taker, they cannot influence the price, and thus the optimal point of production is where the marginal cost equals the price which is equal to marginal revenue. Option B is also true because in pure competition, the market consists of numerous buyers and sellers, and since every producer sells an identical product, the firm's demand curve is horizontal because any increase in the price will lead to the loss of all customers. Finally, option C is correct as well because in pure competition, the firm is a price-taker and has no control over the market price.

Question 6

All of the following are mechanisms which reduce the adverse selection problem except ____.

Accepted Answer

High interest rates do not reduce adverse selection; instead, they can exacerbate it by attracting riskier borrowers who are willing to pay higher rates, potentially leading to a more adverse selection of applicants.

Question 7

What is the profit maximization point for a firm in a purely competitive environment?

Accepted Answer

The answer of What is the profit maximization point for...

Question 8

If price exceeds average costs under pure competition,____ firms will enter the industry,supply will ____,and price will be driven ____.

Accepted Answer

When price exceeds average costs in a purely competitive market, more firms are attracted to enter the industry, which increases the supply. As supply increases, the price is driven down due to the higher competition and availability of products.

Question 9

In the long-run,firms in a monopolistically competitive industry will

Accepted Answer

In a monopolistically competitive industry, there are many firms competing with each other by offering slightly different products. Each firm has some market power, but it is not significant enough to allow for substantial economic profits in the long run. As new firms enter the industry, each firm's demand curve will shift leftward, reducing its market share and limiting its ability to charge a higher price. Therefore, firms in a monopolistically competitive industry tend to just cover costs, including normal profits, in the long run. They cannot earn substantial economic profits consistently. Additionally, they will not seek to increase or reduce the scale of operations based solely on market conditions but can apply other strategies like innovation or branding to remain in the market.

Question 10

A firm in pure competition would shut down when:

Accepted Answer

A firm in pure competition would shut down in the short run when the price is less than average variable cost because it would not be able to cover its variable costs of production, leading to losses greater than its fixed costs if it continues operating.

Question 11

Buyers anticipate that the temporary warehouse seller of unbranded computer equipment will

Accepted Answer

The answer of Buyers anticipate that the temporary warehouse seller...

Question 12

Asset specificity is largest when

Accepted Answer

Asset specificity is the degree to which an asset has greater value in its current use than in its next-best use. When a particular asset is highly valuable but cannot be easily redeployed or used in other ways, it is considered non-redeployable, which constitutes the largest asset specificity. Therefore, option D is the correct answer.

Question 13

Experience goods are products or services

Accepted Answer

Experience goods are products or services whose quality is not easily detectable when purchased. This means that consumers must consume or experience the product or service to determine its quality. Examples include restaurants, hotels, and hair salons. Choices A, B, and D do not accurately describe experience goods. Choice E includes all the options, but only choice C accurately describes experience goods.

Question 14

The main difference between perfect competition and monopolistic competition is:

Accepted Answer

The main difference between perfect competition and monopolistic competition is the degree of product differentiation. Perfect competition involves homogeneous products which means that all products are identical whereas monopolistic competition involves differentiated products which means that there are different products in the market that are not identical. The other options may also differentiate between the two types of competition, however, product differentiation is the most important and distinguishing factor.

Question 15

Under asymmetric information,

Accepted Answer

The answer of Under asymmetric information,
...

Question 16

Long distance telephone service has become a competitive market.The average cost per call is $0.05 a minute,and it's declining.The likely reason for the declining price for long distance service is:

Accepted Answer

Entry into the long distance telephone service industry increases competition, which leads to lower prices for consumers. As more companies enter the industry, they will try to offer lower prices and better services to attract customers, causing a decline in the average cost per call. Therefore, the likely reason for declining prices for long distance service is the entry of new players in the market.

Question 17

All of the following are true for both competition and monopolistic competition in the long run,except one of them.Which is it?

Accepted Answer

The answer of All of the following are true for...

Question 18

In long-run equilibrium,all firms in a pure competition market situation operating under a condition of certainty will have identical costs even though they may use different production and operation techniques.

Accepted Answer

In the long-run, firms in a perfectly competitive market will have to produce at their minimum average cost to survive. This forces all firms to use the most efficient production methods available, leading to identical costs across all firms. Therefore, option A is correct.

Question 19

In the short-run for a purely competitive market,a manufacturer will stop production when:

Accepted Answer

In the short-run, a manufacturer in a purely competitive market will stop production when the contribution to fixed costs is zero or less. This means that the price they are receiving for their product is not even covering the variable costs of production. If they continue producing, they will incur losses on their fixed costs as well, leading to even greater losses. Therefore, it is best to shut down production temporarily until the price of the product improves.

Question 20

In the purely competitive case,marginal revenue (MR)is equal to:

Accepted Answer

In a purely competitive market, there are so many buyers and sellers that no individual firm can influence the market price. Therefore, a firm's marginal revenue is equal to the market price. Thus, the correct answer is C, price.

Quiz 10: Prices,output,and Strategy: Pure and Monopolistic Competition