ADVANCED MICROECONOMICS

SET A

I. DIRECTION: CHOOSE THE LETTER OF CORRECT ANSWER

1. Game theory is concerned with

a. predicting the results of bets placed on games
b. the choice of an optimal strategy in conflict situations.
c. utility maximization by firms in perfectly competitive markets.
d. all of the above

2. In game theory, the outcome or consequence of a strategy is referred to as the

a. payoff
b. penalty
c. reward
d. end-game strategy

3. What is a dominant strategy?

a. ls a strategy that determine who was the "winner”
b. is a strategy that indicates the highest payoff or best result for a player
c. Is a strategy that indicates which player takes control over the market
d. Is a strategy that indicates the highest payoffs or best results for both players

4. What is an Oligopoly?
a. Market structure where two or more firms control most of the market and produce similar
products or service
b. Market structure where only two firms control all or most of the market for a product or
service.
c. Market structure where a large number of firms are in charge of selling or consuming
similar products or services
d. A special type of market where a single producer controls the supply for a product or
service

5. Factors that make it difficult for new firms to enter a market are called
a. barriers to entry
b. limited supply
c. factors for production
d. monopolistic outlook

6. Businesses can "Collude" or work together to set prices

a. Oligopoly
b. Monopoly
c. Perfect competition
d. Monopolistic Competition
7. An industry that is dominated by a few large firms is
a. Oligopoly
b. Monopoly
c. Perfect competition
d. Monopolistic competition

8. The jeans industry would fall into what type of market structure? (jeans are similar but there
are some differences in the product)
a. Oligopoly
b. Monopoly
c. Perfect competition
d. Monopolistic competition

9. Which is NOT a characteristic of perfect competition?

a. difficult entry into the market
b. many sellers
c. identical product
d. no control over price

10. Differentiation is
a. having identical products.
b. copying another business.
c. small differences that make your product unique.
d. having control of the market value.

11. Monopolies can control the price of a product because.

a. They are evil.
b. They are illegal.
c. The have a unique product.
d. The government supports them.

12. For a price taker, the firm's

a. MR = MC
b. P < AVC
c. MR = P
d. P = ATC

13. Which of the following is correct if the firm is not a price taker
a. MR < P
b. P < AVC
c. P > ATC
d. MR > P

14. IF MC > ATC, then ATC is

a. falling
b. rising
c. constant
15. A competitive firm takes a market price as.
a. Constant
b. increasing
c. decreasing

16. To maximize profit, the optimum level of production in short run, MC is equal to its
a. Price
b. Cost
c. Revenue
d. all of the above

17. A profit maximizing firm will shut down in the short run any time the firm's total revenue is
less than
a. Total Cost
b. Fixed Cost
c. Variable Cost
d. Marginal Cost

18. In Economies of Scale, a firm has high fixed costs, increasing output will lead to
a. lower average costs.
b. higher average costs

19. In a Nash equilibrium:

a. each player chooses a strategy which gives him the highest payoff, given the strategies
chosen by the other players.
b. each player has a strictly dominant strategy.
c. all players earn the same payoff
d. there is no other equilibrium which gives the same payoffs to the players.

20. Choosing the strategy where the lowest payoff is the highest.
a. Dominant Strategy
b. Nash Equilibrium
c. Maximin Strategy
d. None of the above

21. The outcome is the collusive solution

a. Cooperative Game
b. Non Cooperative Game
c. Zero sum Game
d. Maximim Strategy

22. Lower price means lower revenues for the producer, while higher quality products usually
raise production costs. This refers to
a. threats of new entrants
c. bargaining power of buyers
b. threats of substitutes
 d. bargaining power of suppliers

23. Cost of switching raw materials is especially high. This refers to

a. threats of new entrants
b. threats of substitutes
c. bargaining power of buyers
d. bargaining power of suppliers

24. Rivalry among competition is high when

a. Products are differentiated and easily be substituted
b. Customers loyalty is high
c. Exit barriers are high
d. All of the above

25. Threats of new entrants is high when

a. Products are nearly identical
b. There is no government regulation
c. High customer loyalty
d. All of the above

II. TRUE OR FALSE. Write TRUE if the statement is correct and FALSE otherwise.

1. In Perfect Competition, the price is determined by demand and supply in the market. TRUE?
2. A Nash Equilibrium is always an Equilibrium in Dominant Strategies. FALSE
3. A Maximin Equilibrium is NOT always an Equilibrium in Nash Equilibrium. FALSE
4. An Equilibrium in Dominant Strategies is always a Maximin Equilibrium. TRUE
5. Firms must reduce their selling price in order to sell more goods or services. TRUE
6. Firms that do survive in competitive industries make short-run profit maximization one of
their highest priorities. FALSE
7. In Collusion there is a dominant player and products are differentiated. TRUE
8. Diseconomies of scale occurs where decreased output leads to higher average costs. FALSE
9. Long-run is a time period wherein all fixed factors can be variable. TRUE
10. Continue producing when total revenue is greater than total cost. FALSE
11. In the short run, the firm is earning profits if Price is greater than the cost (ATC). TRUE
12. Price discrimination exists when a producer sells the exact same product to different
customers at different prices. TRUE
13. In highly competitive market, the presence of only a few firms in a market does not rule out
competitive behavior. TRUE?
14. The Demand curve facing by an individual competitive firm is given by a vertical line. ???
15. When marginal cost is less than average cost, average cost must be falling. TRUE
16. Marginal cost curves always intersect average cost curves at the minimum of the average
cost curve. TRUE
17. If P < AVC, the decision is to shut down because the Total Revenue is insuficient to pay
variable cost. TRUE
18. When total revenue (TR) is greater than the variable cost (VC) the firm need to operate. TRUE
19. Short run is a time period wherein all fixed factors can be variable. FALSE
 20. If a firm has high fixed costs, increasing output will lead to lower average costs. TRUE
21. in Collusion, there is a dominant player and products are differentiated. TRUE
22. Consumer's loyalty is experienced by the buyers when certain consumers prefer their brand
over others. TRUE
23. There are no brand differences in a perfectly competitive market. TRUE
24. A person has a comparative advantage at producing something if he can produce it at lower
cost than anyone else. TRUE
25. Diseconomies of scale, occurs where increased output leads to higher average costs. TRUE

_________________________________________________________________________________________________________________

SET B

I. DIRECTION: CHOOSE THE LETTER OF CORRECT ANSWER

1. What is an Oligopoly?
a. Market structure where two or more firms control most of the market and produce similar
products or service
b. Market structure where only two firms control all or most of the market for a product or
service.
c. Market structure where a large number of firms are in charge of selling or consuming
similar products or services
d.A special type of market where a single producer controls the supply for a product or
service

2. Lower price means lower revenues for the producer, while higher quality products usually
raise production costs. This refers to
a. threats of new entrants
c. bargaining power of buyers
b. threats of substitutes
d. bargaining power of suppliers

3. Cost of switching raw materials is especially high. This refers to

a. threats of new entrants
b. threats of substitutes
c. bargaining power of buyers
d. bargaining power of suppliers

4. Factors that make it difficult for new firms to enter a market are called
a. barriers to entry
b. limited supply
c. factors for production
d. monopolistic outlook
5. Game theory is concerned with
a. predicting the results of bets placed on games
b. the choice of an optimal strategy in conflict situations.
c. utility maximization by firms in perfectly competitive markets.
d. all of the above

6. In game theory, the outcome or consequence of a strategy is referred to as the

a. payoff
b. penalty
c. reward
d. end-game strategy

7. What is a dominant strategy?

a. ls a strategy that determine who was the "winner”
b. is a strategy that indicates the highest payoff or best result for a player
c. Is a strategy that indicates which player takes control over the market
d. Is a strategy that indicates the highest payoffs or best results for both players

8. Businesses can "Collude" or work together to set prices

a. Oligopoly
b. Monoplogy
c. Perfect competition
d. Monopolistic Competition

9. An industry that is dominated by a few large firms is

a. Oligopoly
b. Monopoly
c. Perfect competition
d. Monopolistic competition

10. The jeans industry would fall into what type of market structure? (jeans are similar but there
are some differences in the product)
a. Oligopoly
b. Monopoly
c. Perfect competition
d. Monopolistic competition

11. To maximize profit, the optimum level of production in short run, MC is equal to its
a. Price
b. Cost
c. Revenue
d. all of the above

12. A profit maximizing firm will shut down in the short run any time the firm's total revenue is
less than is
 a. Total Cost
b. Fixed Cost
c. Variable Cost
d. Marginal Cost

13. In Economies of Scale, a firm has high fixed costs, increasing output will lead to
a. lower average costs.
b. higher average costs

14. In a Nash equilibrium:

a. each player chooses a strategy which gives him the highest payoff, given the strategies
chosen by the other players.
b. each player has a strictly dominant strategy.
c. all players earn the same payoff
d. there is no other equilibrium which gives the same payoffs to the players.

15. Which is NOT a characteristic of perfect competition?

a. difficult entry into the market
b. many sellers
c. identical product
d. no control over price

16. Differentiation is
a. having identical products.
b. copying another business.
c. small differences that make your product unique.
d. having control of the market value.

17. Monopolies can control the price of a product because.

a. They are evil.
b. They are illegal.
c. The have a unique product.
d. The government supports them.

18. For a price taker, the firm's

a. MR = MC
b. P < AVC
c. MR = P
d. P = ATC

19. Choosing the strategy where the lowest payoff is the highest.
a. Dominant Strategy
b. Nash Equilibrium
c. Maximin Strategy
d. None of the above

20. The outcome is the collusive solution

 a. Cooperative Game
b. Non Cooperative Game
c. Zero sum Game
d. Maximim Strategy

21. Rivalry among competition is high when

a. Products are differentiated and easily be substituted
b. Customers loyalty is high
c. Exit barriers are high
d. All of the above

22. Threats of new entrants is high when

a. Products are nearly identical
b. There is no government regulation
c. High customer loyalty
d. All of the above

23. Which of the following is correct if the firm is not a price taker
a. MR < P
b. P < AVC
c. P > ATC
d. MR > P

24. IF MC > ATC, then ATC is

a. falling
b. rising
c. constant

25. A competitive firm takes a market price as .

a. Constant
b. increasing
c. decreasing

II. TRUE OR FALSE. Write TRUE if the statement is correct and FALSE otherwise.

1. A Maximin Equilibrium is NOT always an Equilibrium in Nash Equilibrium. FALSE

2. An Equilibrium in Dominant Strategies is always a Maximin Equilibrium. TRUE
3. Firms must reduce their selling price in order to sell more goods or services. TRUE
4. If a firm has high fixed costs, increasing output will lead to lower average costs. TRUE
5. in Collusion, there is a dominant player and products are differentiated. TRUE
6. Consumer's loyalty is experienced by the buyers when certain consumers prefer their brand
over others. TRUE
7. In Perfect Competition, the price is determined by demand and supply in the market. TRUE?
8. A Nash Equilibrium is always an Equilibrium in Dominant Strategies. FALSE
9. Diseconomies of scale occurs where decreased output leads to higher average costs. FALSE
10. Long-run is a time period wherein all fixed factors can be variable. TRUE
11. Continue producing when total revenue is greater than total cost. FALSE
12. In the short run, the firm is earning profits if Price is greater than the cost (ATC). TRUE
13. Firms that do survive in competitive industries make short-run profit maximization one of
their highest priorities. FALSE
14. In Collusion there is a dominant player and products are differentiated. TRUE
15. Price discrimination exists when a producer sells the exact same product to different
customers at different prices. TRUE
16. When marginal cost is less than average cost, average cost must be falling. TRUE
17. Marginal cost curves always intersect average cost curves at the minimum of the average
cost curve. TRUE
18. If P < AVC, the decision is to shut down because the Total Revenue is insuficient to pay
variable cost. TRUE
19. There are no brand differences in a perfectly competitive market. TRUE
20. A person has a comparative advantage at producing something if he can produce it at lower
cost than anyone else. TRUE
21. In highly competitive market, the presence of only a few firms in a market does not rule out
competitive behavior. TRUE?
22. The Demand curve facing by an individual competitive firm is given by a vertical line. ???
23. Diseconomies of scale, occurs where increased output leads to higher average costs. TRUE
24. When total revenue (TR) is greater than the variable cost (VC) the firm need to operate. TRUE
25. Short run is a time period wherein all fixed factors can be variable. FALSE