Question 1

Suppose your municipality charges your household a flat fee of $100 per year plus $2 per cubic metre of water used.This pricing policy is an example of

Accepted Answer

A) marginal-cost pricing. 
B) average cost pricing. 
C) a two-part tariff. 
D) utility pricing. 
E) linear pricing. 
A) marginal-cost pricing. 
B) average cost pricing. 
C) a two-part tariff. 
D) utility pricing. 
E) linear pricing. C

Question 2

The diagram below shows cost and revenue curves for a natural monopoly producing electricity.Price is dollars per kilowatt hour and quantity is kilowatt hours per day.   FIGURE 12-7
-Refer to Figure 12-7.If this firm were unregulated and profit maximizing,its price and output would be ________ per kwh and ________ kwh per day.

Accepted Answer

A) $0.08; 1.5 million 
B) $0.09; 1.4 million 
C) $0.12; 1 million 
D) $0.11; 1 million 
E) $0.07; 1.5 million 
A) $0.08; 1.5 million 
B) $0.09; 1.4 million 
C) $0.12; 1 million 
D) $0.11; 1 million 
E) $0.07; 1.5 million C

Question 3

An important defence of oligopoly as a market structure is that

Accepted Answer

A) it involves less allocative inefficiency than monopoly. 
B) it results in lower prices than perfect competition. 
C) it is the most efficient available alternative when the minimum efficient scale is large. 
D) it generates less unused capacity than monopolistic competition. 
E) it is more productively efficient than monopoly. 
A) it involves less allocative inefficiency than monopoly. 
B) it results in lower prices than perfect competition. 
C) it is the most efficient available alternative when the minimum efficient scale is large. 
D) it generates less unused capacity than monopolistic competition. 
E) it is more productively efficient than monopoly. C

Question 4

A major aim of Canadian competition policy is to

Accepted Answer

A) eliminate oligopolies and the allocative inefficiency that they entail. 
B) prevent further concentration of industries where such concentration would lessen competition. 
C) monitor the pricing practices of crown corporations. 
D) protect Canadian companies from unfair foreign competition. 
E) achieve a perfectly competitive market structure in all markets in the Canadian economy. 
A) eliminate oligopolies and the allocative inefficiency that they entail. 
B) prevent further concentration of industries where such concentration would lessen competition. 
C) monitor the pricing practices of crown corporations. 
D) protect Canadian companies from unfair foreign competition. 
E) achieve a perfectly competitive market structure in all markets in the Canadian economy.

Question 5

Allocative efficiency occurs when

Accepted Answer

A) producer surplus is maximized. 
B) consumer surplus is maximized. 
C) the sum of consumer and producer surplus is maximized. 
D) the economy achieves the frontier of the production possibilities boundary. 
E) deadweight loss is achieved. 
A) producer surplus is maximized. 
B) consumer surplus is maximized. 
C) the sum of consumer and producer surplus is maximized. 
D) the economy achieves the frontier of the production possibilities boundary. 
E) deadweight loss is achieved.

Question 6

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.   FIGURE 12-1
-Refer to Figure 12-1.Suppose each of Firms A,B,and C are producing 500 kilos of potatoes.Is this industry productively efficient?

Accepted Answer

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. 
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.

Question 7

Allocative efficiency concerns

Accepted Answer

A) producing outputs at lowest possible cost. 
B) the allocation of resources such that total economic surplus is maximized. 
C) encouraging monopoly if it generates innovation. 
D) discouraging all monopoly firms. 
E) the equitable distribution of resources. 
A) producing outputs at lowest possible cost. 
B) the allocation of resources such that total economic surplus is maximized. 
C) encouraging monopoly if it generates innovation. 
D) discouraging all monopoly firms. 
E) the equitable distribution of resources.

Question 8

FIGURE 12-3
-Refer to Figure 12-3.The area representing consumer surplus in a perfectly competitive equilibrium is outlined by

Accepted Answer

A) ACE. 
B) ABE. 
C) 0P4Eq2. 
D) P3P4C. 
E) P2P4E. 
A) ACE. 
B) ABE. 
C) 0P4Eq2. 
D) P3P4C. 
E) P2P4E.

Question 9

Canadian governments (federal,provincial and municipal)employ public ownership or regulation of industries in an effort to

Accepted Answer

A) ensure that the goal of profit maximization is being pursued because this ensures allocative efficiency. 
B) produce a more equitable distribution of income between consumers and producers with monopoly power. 
C) protect consumers from the high prices and restricted output associated with monopoly power. 
D) promote productive efficiency in all industries. 
E) transfer monopoly profits from private firm owners to the government. 
A) ensure that the goal of profit maximization is being pursued because this ensures allocative efficiency. 
B) produce a more equitable distribution of income between consumers and producers with monopoly power. 
C) protect consumers from the high prices and restricted output associated with monopoly power. 
D) promote productive efficiency in all industries. 
E) transfer monopoly profits from private firm owners to the government.

Question 10

In many cases throughout Canadian history,governments have sought to control the behaviour of oligopolistic firms through either ownership or regulation.Policymakers are now skeptical of such practices because
1)many innovations in products and production methods that have led to increases in living standards are attributable to firms in oligopolistic industries;
2)it became clear that oligopolistic industries can achieve both productive and allocative efficiency without government intervention;
3)the regulatory body often ends up protecting the firms from competition.

Accepted Answer

A) 1 only 
B) 2 only 
C) 3 only 
D) 1 and 2 
E) 1 and 3 
A) 1 only 
B) 2 only 
C) 3 only 
D) 1 and 2 
E) 1 and 3

Question 11

FIGURE 12-3
-Refer to Figure 12-3.Comparing the monopoly equilibrium to the perfectly competitive equilibrium,the area representing the gain in producer surplus due to monopoly is outlined by

Accepted Answer

A) P1P3CA less ACE. 
B) P2P3CB less ABE. 
C) P0P3CA less ACE 
D) P3P4 less ABE. 
E) P2P4E. 
A) P1P3CA less ACE. 
B) P2P3CB less ABE. 
C) P0P3CA less ACE 
D) P3P4 less ABE. 
E) P2P4E.

Question 12

The production possibilities boundary shows possible combinations of guns and butter that can be produced by a country.The lower diagram shows demand and supply for butter.   FIGURE 12-2
-Refer to Figure 12-2.Suppose demand and supply for butter are shown by D and S,respectively.And suppose the economy is at point (a)on the production possibilities boundary.How can this economy move toward allocative efficiency?

Accepted Answer

A) expand the production possibilities boundary outward 
B) increase the supply of guns 
C) increase the demand for butter 
D) produce less butter,more guns 
E) produce more butter,fewer guns 
A) expand the production possibilities boundary outward 
B) increase the supply of guns 
C) increase the demand for butter 
D) produce less butter,more guns 
E) produce more butter,fewer guns

Question 13

The diagram below shows supply,demand,and quantity exchanged of Monday matinee movie tickets.Assume it is a perfectly competitive market.   FIGURE 12-4
-Refer to Figure 12-4.What is the total revenue received by the sellers of this product at the allocatively efficient level of output?

Accepted Answer

A) $5 
B) $125 
C) $250 
D) $375 
E) $500 
A) $5 
B) $125 
C) $250 
D) $375 
E) $500

Question 14

The diagram below shows the market demand curve and the cost curves for a single firm.   FIGURE 12-6
-Refer to Figure 12-6.Suppose this firm is being regulated using a policy of average-cost pricing.In this case,economic profits to the firm are represented by the area

Accepted Answer

A) P2P3ad. 
B) P2P3ab. 
C) 0P3aQ1. 
D) P1P2bc. 
E) There are no economic profits. 
A) P2P3ad. 
B) P2P3ab. 
C) 0P3aQ1. 
D) P1P2bc. 
E) There are no economic profits.

Question 15

The diagram below shows supply,demand,and quantity exchanged of Monday matinee movie tickets.Assume it is a perfectly competitive market.   FIGURE 12-4
-Refer to Figure 12-4.If a disequilibrium price of $7.50 per movie ticket were imposed on this market,this market would not be allocatively efficient because 1)the sum of consumer and producer surplus would not be maximized;
2)the marginal benefit to consumers of the last movie consumed would be greater than the marginal cost to the seller;
3)the marginal cost to the seller of the last movie consumed would be more than the marginal benefit to consumers.

Accepted Answer

A) 1 only 
B) 2 only 
C) 3 only 
D) 1 and 2 
E) 2 and 3 
A) 1 only 
B) 2 only 
C) 3 only 
D) 1 and 2 
E) 2 and 3

Question 16

In Canada,the Competition Act specifies that in antitrust cases the "watchdog" is the

Accepted Answer

A) Senate. 
B) Commissioner of the Competition Bureau. 
C) Supreme Court of Canada. 
D) minister responsible for Industry Canada. 
E) prime minister. 
A) Senate. 
B) Commissioner of the Competition Bureau. 
C) Supreme Court of Canada. 
D) minister responsible for Industry Canada. 
E) prime minister.

Question 17

In Canada,alleged violations of the Competition Act are referred to the ________ for adjudication.

Accepted Answer

A) Commissioner of the Competition Bureau 
B) Competition Tribunal 
C) minister responsible for Industry Canada 
D) RCMP 
E) provincial Courts of Appeal 
A) Commissioner of the Competition Bureau 
B) Competition Tribunal 
C) minister responsible for Industry Canada 
D) RCMP 
E) provincial Courts of Appeal

Question 18

The diagram below shows the demand and supply curves in a perfectly competitive market.   FIGURE 12-5
-Refer to Figure 12-5.In the free-market equilibrium,producer plus consumer surplus is maximized and is illustrated by the area

Accepted Answer

A) P3P2E. 
B) P1P2E. 
C) P1P3E. 
D) 1 + 2. 
E) 1 + 2 + 3 + 4. 
A) P3P2E. 
B) P1P2E. 
C) P1P3E. 
D) 1 + 2. 
E) 1 + 2 + 3 + 4.

Question 19

In which of the following situations would a natural monopoly exist?

Accepted Answer

A) a firm has a government charter to be the sole producer of some good 
B) a firm is able to operate at the minimum point of its long-run average total cost curve 
C) a firm produces a product essential to national security 
D) only one firm is supplying a natural resource 
E) one firm can most efficiently supply the entire market demand 
A) a firm has a government charter to be the sole producer of some good 
B) a firm is able to operate at the minimum point of its long-run average total cost curve 
C) a firm produces a product essential to national security 
D) only one firm is supplying a natural resource 
E) one firm can most efficiently supply the entire market demand

Question 20

The diagram below shows the market demand curve and the cost curves for a single firm.   FIGURE 12-6
-Refer to Figure 12-6.Suppose this firm is being regulated using a policy of marginal-cost pricing.To maintain the resulting level of output

Accepted Answer

A) the government would have to subsidize the firm or it will eventually shut down. 
B) the regulator would have to allow the firm to keep the monopoly profits at this level of output. 
C) the government would have to accept the allocative inefficiency associated with this level of output. 
D) the average total cost curve would have to shift up. 
E) the demand curve would have to the left. 
A) the government would have to subsidize the firm or it will eventually shut down. 
B) the regulator would have to allow the firm to keep the monopoly profits at this level of output. 
C) the government would have to accept the allocative inefficiency associated with this level of output. 
D) the average total cost curve would have to shift up. 
E) the demand curve would have to the left.

Exam 12: Economic Efficiency and Public Policy

Suppose your municipality charges your household a flat fee of $100 per year plus $2 per cubic metre of water used.This pricing policy is an example of

An important defence of oligopoly as a market structure is that

A major aim of Canadian competition policy is to

Allocative efficiency occurs when

Allocative efficiency concerns

FIGURE 12-3 -Refer to Figure 12-3.The area representing consumer surplus in a perfectly competitive equilibrium is outlined by

Canadian governments (federal,provincial and municipal)employ public ownership or regulation of industries in an effort to

FIGURE 12-3 -Refer to Figure 12-3.Comparing the monopoly equilibrium to the perfectly competitive equilibrium,the area representing the gain in producer surplus due to monopoly is outlined by

The diagram below shows supply,demand,and quantity exchanged of Monday matinee movie tickets.Assume it is a perfectly competitive market. FIGURE 12-4 -Refer to Figure 12-4.What is the total revenue received by the sellers of this product at the allocatively efficient level of output?

The diagram below shows the market demand curve and the cost curves for a single firm. FIGURE 12-6 -Refer to Figure 12-6.Suppose this firm is being regulated using a policy of average-cost pricing.In this case,economic profits to the firm are represented by the area

In Canada,the Competition Act specifies that in antitrust cases the "watchdog" is the

In Canada,alleged violations of the Competition Act are referred to the ________ for adjudication.

The diagram below shows the demand and supply curves in a perfectly competitive market. FIGURE 12-5 -Refer to Figure 12-5.In the free-market equilibrium,producer plus consumer surplus is maximized and is illustrated by the area

In which of the following situations would a natural monopoly exist?

The diagram below shows the market demand curve and the cost curves for a single firm. FIGURE 12-6 -Refer to Figure 12-6.Suppose this firm is being regulated using a policy of marginal-cost pricing.To maintain the resulting level of output

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