MCQ 3

Question 1

Given the MC=MR profit maximisation principle holds,the monopoly price mark up and profit margin are large when:

Accepted Answer

people will purchase the same quantity of the good irrespective of the price

Answer

the marginal costs are large and non-decreasing in output

Answer

the cross price elasticity of demand is small

Answer

the minimum efficient scale of production lies far to the right of the demand curve

Question 2

The NE outcome of the Bertrand model is considered paradoxical because :

Accepted Answer

It is contrary to the expectation that adding more firms to an oligopoly should always lead to prices going down

Answer

All firms set prices not smaller than the Marginal cost

Answer

it is based on the assumption of zero conjectural variation

Answer

some firms may set prices greater than marginal cost

Question 3

A common effect of capacity constraints and increasing marginal costs is that

Accepted Answer

they makeit impossible/unprofitable for the lower priced firm to capture the entire demand thereby decreasing incentives to reduce prices

Answer

they relax competition in prices, by making consumers less willing to switch to a different supplier,even when offered a lower price

Answer

they make it beneficial to undercut competitors prices only when they are close to the marginal cost level

Answer

all of the above

Question 4

the strategic effect of supermarket price wars is that

Accepted Answer

supermarkets are less willing to reduce prices seeing the rivals commited to retalitation

Answer

supermarkets differentiate themselves from competitors and reduce the consumers costs of switching to a different store

Answer

price competition between competitors is intensified as they all want to fulfil the promise and become the cheapest

Answer

stores can use non zero conjectural variation to benefit from changing strategy when others stick to their nash equilibrium startegies

Question 5

The mc=Mr profit maximisation principle could fail when

Accepted Answer

The demand is more elastic at low prices than high prices

Answer

Marginal revenue is non increasing and the marginal cost non decreasing

Answer

The monopolist can price discriminate offering lower prices to those consumers who can resell the product to other consumers

Answer

The total cost and demand function become steeper as output increases

Question 6

The long run equilibrium in a perfectly competitive market features

Accepted Answer

The firms marginal and average revenue being smaller than the long run average cost of producing any quantity other than the equilibrium quantity

Answer

Individual firms producing at the minimum of short run average variable cost

Answer

Long run industry supply being equal to the sum of long run average cost of all firms

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