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A firm earns revenue of $200,000 and incurs costs of $50,000. The owner calculates that he could have earned $10,000 by saving his finance elsewhere. What is the profit according to a) accountants and b) economists?
Accounting proft of $150,000 and economiic profit of $150,000
Accounting proft of $150,000 and economic profit of $140,000
Accounting proft of $150,000 and economic profit of $160,000

In which types of market structure do barriers to entry exist?
Monopolistic competition and monopoly only
Monopolistic competition, oligopoly and monopoly only
Monopoly and oligopoly only

In which situations are firms not able to earn abnormal profit?
Firms in monopolistic competitiion in the short-term
Perfectly competitive markets in the short-term
Firms in monopolistic competitiion in the long-term
Oligopolies in the long-term

The short-run total costs (SRTC) of a firm are given by the formula SRTC = $(10 000 + 5X2) where X is the level of output.What are the firm’s average fixed costs?
5X
10,000X
10,000/X
(10000 + 5X)

Price discrimination relies on there being
segmented markets
differential PEDs in each segment
both

Sales revenue maximization occurs where
marginal revenue = 0
profits are maximized
sales are maximized

Imagine that a firm has the following cost structure and revenue curves. What would be the approximate price elsaticity of demand at the profit maximising output level.
zero
1
2
0.6

Currently, the rail market in a country has only two firms competing on a route with a 5 year license from the governemnt. What would make the route more contestable?
If the government made the licence period 6 years
If the costs of entry and exit fell for potemtial entrants compared to incumbent firms
If profitability rose

Comparing two different industry structures, perfect competition and monopoly, identify the deadwight loss arising from the operation of a monopoly.
Area 3
Area 2
Area 3 + 2 + 1
Area 1 + 2

A monopolist initally maximised profits but now has decided that, in order to enter new markets, it will maximise the volume of sales. The change in output can be represented in the diagram above as being:
A to B
A to C
B to C
A to D

In the model of perfect competition, economists assume the following:I Very low barriers to entryII Freedom of entry and existIII Perfect information amongst buyers and sellers IV Homogenous products
I only
II and III only
II and IV only
II, II and IV only

The short-run supply curve of a perfectly competitive firm selling carrots will be:
From A upwards
From B upwards
From B to D only
From C upwards

A profit maximising train company delivers passangers from New York to Boston and charges different prices for the same seat depending on the time fo day. PRices are higher before 9.30 am on weekdays. For this firm to successfully discriminate, three conditions must be satisfed. What are they?I Demand curves differ and have different price elasticties of demand between consumers who travel before and after 9.30 amII The train company can divide the overall market for trips to Birmingham into distinct categories by time or place.III The train company can keep markets separate so that those who buy tickets for trips after 9.30 am cannot transfer those tickets to passengers who want to travel earlier. IV The quality of service must be different before and after 9.30 am to reflect the different prices.
I and II only
I, II and III
I and III only
All are correct

The government should allow a train company to price discriminate since:I It increases productive efficiencyII It allows a loss making firm to make profits and continueIII It reduces prices for some consumers
III only
I and II only
II and III only
I and III only

In short and long-run equilibrium, monopolists earning abnormal profits achieve neither a) allocative efficiency nor b) productive efficiency because:
a) prices > MC b) prices < AC
a) prices < MC b) prices < AC
a) prices > MC b) prices > AC

Two chocolate manufacturing firms, each with significant market share, want to merge but the government refuses, arguing that they will have a dominant market position. What are valid reasons for a government not to intervene to prevent monopolies?I Monopolies convert consumer surplus to producer surplusII Monopolies may lead to increased dynamic efficiencyIII Monopolies may cause X-inefficiencyIV Monopolies may lead to increased ability to compete with large foreign rivals
I and III only
II and IV only
II, III and IV
I, II and IV

The kinked demand curve model of oligopoly was designed to illustrate specifically:I Conversion of consumer surplus to producer surplusII Lack of allocative efficiency in oligopolyIII Interdependence between firms in oligopolyIV Price rigidity in oliopolistic markets
I and II only
II and II only
III and IV only
I and IV only

An oligopolist selling refined coffee beans initially charges P1, given market conditions and the demand curve facing it as shown below. Costs are initially given as MC1. Marginal costs the fall to MC2. What will the new price charged by the coffee bean seller be?
P3
P1
P2

Which type of market most closely relates to monopsonistic competition and why?
Car workshops since a few control the industry in any country
Hair dressers since barriers to entry are either very low or non-existent
Grocery shops since they sell homogeneous (identical) products.
All of the above are correct

An industry is monopolistically competitive and the long-run equilibrium for a firm is show below.Is there allocative effeciency and why?
Yes, since prices = average cost and no abnormal profits are made
No, since prices are greater than marginal cost

In game theory, a dominant strategy is one where:
The pay-off matrix to a player shows higher returns to one strategy, regardless of the strategy of the other player
The pay-off matrix to a player shows higher returns to a player, taking into account the stratregy of the other player
One player's gain can only occuir at the loss to another

A Nash equilibrium is one where
The pay-off matrix to a player shows higher returns to one strategy, regardless of the strategy of the other player
The pay-off matrix to a player shows higher returns to one strategy, depending on the strategy of the other player
The gain to one player is not at the expense of another player

Which are examples of strategies by firms that can be analysed by game theory?I The option of destroyer pricing adopted by firm A in case firm B does not exitII The entry of a firm into a new market if its rival does not pull outIII The optoin to acquire a third firm if the main rival launches bid itselfIV A decision to reduce prices that takes into account potential reaction of rivalV A decision by a firm to consider offering low quality service, if consumers are unlikely to pull out of existing contract
I, II and III only
I, II and IV only
All of the above
II, III and IV only

A firm faces the following pay-off matrix in a game that is non-cooperative, one time and each one seeks the highest return. Which firm(s) has/have a dominant strategy?
Firm A only
Firm B only
Both firms
Neither firm

Two firms face a pay-off matrix as shown below.There are two available strategies for both firms: raise or lower prices. The game is one-off and non-cooperative. Based on the pay-off matrix, identify the Nash equilibrium.
(Lower price, lower price)
(Higher price, lower price)
(Lower price, Higher price)
(Higher price, Higher price)

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Experienced teacher of micro- and macro-economics

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