final

Question 1

True or false: The final exam is a 120-minute closed-book exam.

Answer 1

TRUE

It includes a double-sided & letter sized formula sheet.

Question 2

What types of questions are included in the final exam?

Answer 2

• Multiple choice
• Numerical
• Multiple blanks
• Free-response

The exam consists of 62-72 questions.

Question 3

What is the textbook used for the course?

Answer 3

Modern Principles: Microeconomics 6th edition by Cowen & Tabarrok

Published by Worth Publishers, Macmillan Learning, New York, 2023.

Question 4

List the modules covered in the final exam.

Answer 4

• Module 1: Introduction
• Module 2: Supply and Demand
• Module 3: Use of Supply and Demand
• Module 4: Supply Decisions under Market Structures
• Module 5: Producer Decisions in Imperfect Competition

Module 5 materials have a slightly larger weight in the exam.

Question 5

What are the basic principles of individual choices in economics?

Answer 5

• Scarcity
• Opportunity cost
• Equilibrium
• Pareto Efficiency

Understanding these principles is essential for the exam.

Question 6

The Production Possibilities Frontier (PPF) illustrates what concept?

Answer 6

Opportunity cost

It shows the trade-offs between two goods.

Question 7

Define consumer surplus.

Answer 7

The difference between willingness to pay and the actual price paid

It measures the benefit to consumers in a market.

Question 8

What is the law of demand?

Answer 8

As price decreases, quantity demanded increases

This relationship is fundamental in economics.

Question 9

What are the shifters of demand?

Answer 9

• Income
• Preferences
• Prices of related goods
• Expectations
• Number of buyers

These factors can cause the demand curve to shift.

Question 10

What is the difference between change in quantity demanded and change in demand?

Answer 10

Change in quantity demanded: movement along the curve; Change in demand: shift of the curve

Understanding this distinction is crucial for analyzing market behavior.

Question 11

What is the formula for calculating opportunity cost?

Answer 11

Opportunity cost of good X = |Slope of the PPF| = (Y1−Y2)/(X1−X2)

This formula helps in understanding trade-offs.

Question 12

What is the profit maximization rule for producers?

Answer 12

Produce at Q* where MC = MR

This rule guides firms in determining output levels.

Question 13

What is a monopoly?

Answer 13

A market structure where a single seller controls the entire market

Monopolies can lead to inefficiencies in the market.

Question 14

What are price ceilings?

Answer 14

Maximum legal prices set below equilibrium

They can lead to shortages in the market.

Question 15

What is the Coase theorem?

Answer 15

Private bargaining can lead to efficient outcomes when transaction costs are low

It addresses externalities in economics.

Question 16

What is the free-rider problem?

Answer 16

Individuals benefit from resources without paying for them

This issue is common with public goods.

Question 17

What is elasticity in economics?

Answer 17

A measure of how much quantity demanded or supplied responds to changes in price

It is crucial for understanding market dynamics.

Question 18

What is the shut-down condition in the short run?

Answer 18

P < min AVC

This condition determines whether a firm should continue operating.

Question 19

What is total surplus?

Answer 19

The sum of consumer surplus and producer surplus

It measures overall economic efficiency.

Question 20

What is the difference between economic profit and accounting profit?

Answer 20

Economic profit accounts for opportunity costs; accounting profit does not

Understanding this distinction is essential for analyzing firm performance.

Question 21

What are the types of market structure mentioned?

Answer 21

• Monopoly
• Monopolistic Competition
• Oligopoly
• Imperfect competition

These types define how firms operate and compete in different market environments.

Question 22

Define monopoly.

Answer 22

A market structure where a single seller controls the entire market

Monopolies can set prices and have significant market power.

Question 23

What is market power?

Answer 23

The ability of a firm to influence the price of a good or service

Market power is often associated with monopolies and oligopolies.

Question 24

What is a natural monopoly?

Answer 24

A type of monopoly that arises due to high fixed or startup costs

Natural monopolies often occur in industries like utilities.

Question 25

Why does **monopoly arise**?

Answer 25

* High barriers to entry * Control of a key resource * Government regulation ## Footnote These factors prevent other firms from entering the market.

Question 26

What is the **monopoly profit maximization rule**?

Answer 26

Set output where marginal cost equals marginal revenue ## Footnote This rule helps monopolists determine the optimal level of production.

Question 27

What is the **inefficiency of monopoly**?

Answer 27

Monopolies can lead to higher prices and reduced output compared to competitive markets ## Footnote This inefficiency results in a loss of consumer surplus.

Question 28

What are the **policy implications on monopoly**?

Answer 28

* Regulation * Antitrust laws * Price controls ## Footnote These policies aim to mitigate the negative effects of monopolies on consumers.

Question 29

Explain the difference between **economic profit** and **accounting profit**.

Answer 29

Economic profit considers opportunity costs, while accounting profit does not ## Footnote Understanding this difference is crucial for evaluating business performance.

Question 30

What does **diminishing returns to inputs** mean?

Answer 30

As more of a variable input is added to a fixed input, the additional output produced will eventually decrease ## Footnote This concept is important in production theory.

Question 31

What is the **optimal production rule for perfectly competitive firms**?

Answer 31

Produce where price equals marginal cost ## Footnote This condition ensures firms maximize their profits in a competitive market.

Question 32

What is the difference between **shut-down** in the short run and **exit** in the long run?

Answer 32

* Shut-down: Temporary cessation of production * Exit: Permanent removal from the market ## Footnote Firms may shut down if they cannot cover variable costs but may exit if they cannot cover total costs.

Question 33

What is the **optimal production/pricing rule for monopoly**?

Answer 33

Set price above marginal cost to maximize profit ## Footnote Monopolists can charge higher prices due to lack of competition.

Question 34

What is **product differentiation**?

Answer 34

The process of distinguishing a product from others to make it more attractive to a target market ## Footnote This is a key feature of monopolistic competition.

Question 35

Define **oligopoly**.

Answer 35

A market structure characterized by a small number of firms that have significant market power ## Footnote Oligopolies can lead to collusion and price-setting behaviors.

Question 36

What is **collusion** in the context of oligopoly?

Answer 36

An agreement among firms to limit competition, often by fixing prices or output ## Footnote Collusion can lead to higher prices and reduced consumer welfare.

Question 37

What is the **Prisoner’s dilemma**?

Answer 37

A situation in game theory where two players can either cooperate or defect, with the outcome depending on the choice of both ## Footnote This concept illustrates the challenges of cooperation in oligopolistic markets.

Question 38

What is a **dominant strategy**?

Answer 38

A strategy that is optimal for a player regardless of what the other player does ## Footnote Identifying dominant strategies is crucial in strategic decision-making.

Question 39

What is **Nash equilibrium**?

Answer 39

A situation where no player can benefit by changing their strategy while the other players keep theirs unchanged ## Footnote This concept is fundamental in understanding strategic interactions in oligopoly.

Question 40

What are **simultaneous-move games**?

Answer 40

Games where players make decisions at the same time without knowledge of the other players' choices ## Footnote These games are common in competitive market scenarios.

Question 41

What are **sequential games**?

Answer 41

Games where players make decisions one after another, allowing later players to consider earlier actions ## Footnote This structure can lead to different strategic outcomes compared to simultaneous-move games.

Question 42

What is **backward induction**?

Answer 42

A method of solving sequential games by analyzing the game from the end to the beginning ## Footnote This technique helps predict optimal strategies in multi-stage games.

Question 43

What is **(Subgame) Nash Equilibrium in a sequential game**?

Answer 43

A Nash equilibrium that applies to a specific subgame within a larger game ## Footnote This concept helps analyze strategies in complex games.