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10 Jul 2018

34) Suppose all of the firms in a perfectly competitive industry form a cartel and agree to restrict output, thereby raising the price of the product. Individual Firm A will gain the most from the existence of the cartel if A) all firms, including A, cooperate and restrict output. B) Firm A restricts output, while the other firms do not. C) all firms, except Firm A, cooperate and restrict output. D) no firms restrict output. E) all firms revert back to their competitive outputs.

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12 Jul 2018
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Related questions

1. suppose you work as a research economist at the EPA. Two firms operate in a perfectly competitive market. This implies that each has the same marginal benefit curve, which in this case is horizontal at MB= $100. Each of the firms, however, has a different marginal private cost schedule

MPC1=20+Q and MPC2=30+2Q

Each firm's production process creates externalities that are valued by society at $10 per unit output

a) show that without government intervention, the firms' profit-maximizing outputs are Q=80 for firm 1 and Q=35 for firm 2, and the market is $100

b) Now calculate that socially optimal level of output for each firm

c) your boss knows that the firms are currently producing too much output a simply decides that all firms should cut their output by 15%. Show that this is an inefficient solution to this externality problem

2. Suppose a new submarine for the Navy costs $10 billion. Half the population (130 million people) are willing to pay $100 each to have it, and the other half are willing to pay $30 each not to have it. Should it be built?

Consider three firms, A, B and C all producing kilos of potatoes (per year) in a perfectly competitive market. The diagrams below show marginal cost curves for each of the three firms. Firm A Firm B Finn C Cost (S) Quantity Cost (S) Cost (5) MCB o o - N - N 200 200 500 700 Quantity of potatoes 500 800 900 Quantity of potatoes 500 800 Quantity of potatoes FIGURE 12-1 30) Refer to Figure 12-1. Suppose each of Firms A, B, and Care producing 500 kilos of potatoes. Is this industry productively efficient? A) No, because the marginal cost curve for each firm has a different slope. B) Yes, because output is equated for all firms. C) No, because each firm could easily produce more than 500 kilos. D) No, because marginal costs are not equated for all firms. E) It is not possible to say whether this industry is productively efficient because we do not know the market price of the product.

1) A natural monopoly exists when:

a. A few firms collude to make one large firm

b. Firms enter the industry as a result of profit incentives

c. Economies of scale provide large cost advantages to having one firm produce the industry's output

d. Firms naturally maximize regardless of market structure

Ā 

2) A(n) ____ is a single firm with ___, whereas a(n) ___ implies an industry with ____ firm(s) and ____ .

a. Monopoly; barriers to entry; oligopoly; few; no barriers to entry

b. Oligopoly; no barriers to entry; monopoly; many; easy entry and exit

c. Monopoly; barriers to entry; monopolistic competition; many; easy entry and exit

d. Monopolistic competitor; barriers to entry; monopoly; one; barriers to entry

Ā 

3) In monopolistic competition:

a. Each firm produces a product identical to that of every other firm in the industry

b. Firms are aware of their strategic interdependence

c. Firms earn large economic profits in the long run

d. Firms earn zero economic profits in the long run

Ā 

4) A monopolistically competitive industry, such as corn snack chips, and a perfectly competitive industry, like wheat farming, are alike in that:

a. There are many firms in each industry

b. Firms in both types of industries produce similar but not identical products

c. Barriers to entry in both industries are large

d. Firms in both types of industries produce identical products

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