# The Lerner index, (PÂ­MC)/P, might be an inappropriate

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## The Lerner index, (PÂ­MC)/P, might be an inappropriate

Question 1The Lerner index, (PÂ­MC)/P, might be an inappropriate measure for market power among firms in IT industrybecausethere are too many firms in the industry.most firms charge a high price for theirproducts.all firmsâ marginal costs are very low.no firm has market power.Question 2In the longÂ­run, a firm in a monopolistically competitive industry willearn a positive economic profittend to just cover its total cost, maintaining a normalprofitcharge a price equal to its marginal costbecome a monopolyQuestion 3The profitÂ­maximizing monopolist facing a negativeÂ­sloping demand curve will always produceat an output greater than the output where average total costs areminimized.at an output short of that output where average total costs are minimized.at an output equal to industry output under perfect competition.at an output short of that output where the profits are maximized.Question 4An average variable cost function is estimated asAVC= 96? 2Q + 0.05Q2Which of the following cost functions is associated with this estimate?MC = ? 2Q+ 0.1Q2TVC = 96Q ? 2Q2 + 0.1Q3TVC = 96Q ? 4Q2 + 0.15Q3MC = 96? 4Q+ 0.15Q2Question 5In the shortÂ­run for a perfectly competitive market, a manufacturer will stop production when:the total revenue is less than total coststhe contribution cannot cover any fixedcoststhe price is greater than AVCoperating at a negative economic profitQuestion 6In the perfectly competitive market, a firmâs marginal revenue (MR) is equal to:its total costits marginal profitthe market priceits total revenueQuestion 7Economies of scale exist whenlongÂ­run average cost decreases as outputincreases.total cost decreases as output increases.marginal cost decreases as output increases.fixed cost decreases as output increases.Question 8An average variable cost function is estimated asAVC= 96? 2Q + 0.05Q2When Q=100, the average variable cost is _________.risingfallingunknown.greater than \$400Question 9Individual cartel producers may find it advantageous to cheat on the agreements by increasing production,if the other producers obey the agreements.if every member cheats.when the punishment on cheating is severe.when the market demand is inelastic.Question 10The demand curve facing the firm in _________ is the same as the whole market demand curve.perfect competitionmonopolisticcompetitionoligopolymonopolyQuestion 11The next 4 (from 11~14) questions refer to the following table showing the total costschedule for a perfectly competitive firm:QTC (\$)020145265310041455195If market price is \$40, how many units of output will the firm produce for profitmaximization?2 units of output3 units of output4 units of output.5 units of output.Question 12QTC (\$)020145265310041455195If market price is \$40, what is the maximum profit the firm can earn?\$15\$20\$25\$30Question 13QTC (\$)020145265310041455195If market price is \$20, how many units of output will the firm produce?0, the firm shuts down.12314 Question 14Q012345TC (\$)204565100145195If the firm shouts down, its short-run loss will be\$65\$45\$20unavailable because of insufficientinformationQuestion 15The following table shows the demand schedule for round-trip flights between Houstonand Tokyo for business travelers:Demand Schedule of Business TravelersPriceQD\$2,000500\$1,5001,000\$1,0001,500\$5002,00015. Suppose an airlineâ marginal cost per seat for the round-trip fight is \$500. For profitmaximization, the airline should charge \$_____ per round-trip (Hint: Apply the âhalf-wayruleâ of MR in graph).5001,0001,5002,000Question 16Which of the flowing is the most complicated market structure because no single model can explain the firmsâbehavior thoroughly?OligopolyMonopolistic competitionPerfect competitionMonopolyQuestion 17A monopolyâs _______ changes with the shift of demand curve, when all the other factors remain.total cost (TC) curvemarginal cost (MC) curveaverage cost (AC) curvemarginal revenue (MR) curveQuestion 18Which of the following is NOT a market characteristic for monopoly?One firm is the only supplier of a product.Entry into the market is blocked.The firm can influence market price though output decisionÂ­making.The firmâs product has few close substitutes.Question 19Which of the following is the best definition of fixed costs?The costs associated with capital input.The longÂ­run total costs paid by an operating firm.The shortÂ­run costs paid for labor input.The shortÂ­run total costs paid by a shuttingÂ­downfirm.Question 20The Prisonerâs Dilemma 2X2 game can be used to explain why oligopoliststend easily to achieve collusion in games.choose the best strategy to benefit the whole industry.are suspicious that other players may double crossthem.can rely on cooperative behavior by all parties.Question 21When we use the Lerner index to define the market power for two firms which are all price searchers, one firmcharging at a price in which the demand is more elastic compared with another firmâs implies that the firm hasno market power.less market power .greater market power.the same market power as theanother.Question 22A firm is using 20 units of capital and 100 units of labor to produce 1,000 units of output. Capital costs \$150 per unitand labor \$20 per unit. The last unit of capital added 50 units of output, while the last unit of labor added 10 units ofoutput. The firmis using the cost?minimizing combination of capital and labor.should use more of both inputs in equal proportions.should use less of labor and more of capital for cost minimization.could produce the same level of output at a lower cost by using more labor and lesscapital.Question 23Which of the following profitÂ­maximizing equilibrium condition is correct for a monopoly with positive profit?P = ATC = MR = MCP > ATC > MR > MCP > ATC > MR = MCP = ATC > MR > MCQuestion 24In the shortÂ­run cost analysis, if a firmâs marginal cost (MC) is unavailable, the best alternative of MC is itsaverage total cost (ATC)average fixed cost (AFC)total variable cost (TVC)average variable cost (AVC)Question 25Use the following figure to answer the next 2 questions (25~26).The figure shows the demand and cost curves facing a monopoly.The maximum profit for the monopoly is\$80.\$100.\$120.\$140.Question 26The total fixed cost for the monopoly should be\$40\$60\$80unavailable from thefigureQuestion 27United States Postal Service (USPS) is a monopoly in the _____ market because it _______.parcel delivery; exhibits economies of scale in productionordinary mail delivery; charges a lower price than competitorsordinary mail delivery; is granted by the public franchise to open every houseâsmailboxparcel delivery; charges a lower price than competitorsQuestion 28A cubic specification for a shortÂ­run total cost (TC) function is appropriate when the scatter diagram indicatesa Ushaped total cost (TC) curve.a SÂ­shaped average variable cost (AVC) curve.a LÂ­shaped marginal cost (MC) curve.a UÂ­shaped marginal cost (MC) curve.Question 29Suppose that Nike and Adidas are the only sellers of athletic footwear in the United States. They are deciding howmuch to charge for similar shoes. The two choices are âLowâ and âHighâ. The payoff (profit as million) 2X2 matrixis as follows:Does Nike have the dominant strategy in the game? _____. Does Adidas have thedominant strategy in the game? _____.Yes; YesNo; YesNo; NoYes; NoQuestion 30A firm will shutdown in the shortÂ­run ifit makes a negative profit.the market price is lower than its average total cost (ATC).the market price is lower than its average variable cost (AVC).the fixed cost can be only coveredpartially.Question 31Under the Lerner Index of marketpower definition, an existing perfectlycompetitive firmhas a positive market power because it makes a poshas the same market power as a monopoly.

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