Question

1. Oligopolists, in general, display what type of reaction to a competitive price changes?

A. they will match all price increases.

B. they will not match price decreases.

C. they will match all price decreases, but not price increases.

D. they ignore all price changes.

2. Which of the following statements is not correct?

	A.	Spillover associated with the production or consumption of a good may be positive or negative.
	B.	The market price of a good may not include external costs or benefits.
	C.	If external benefits are associated with the production of a good, there is an overallocation of resources in the production of that good.
	D.	When there are external costs associated with a good, too much of the good is being produced.

3. When MC is less than MR, then

	A.	the producer will have an incentive to expand output.
	B.	the producer will have an incentive to decrease output.
	C.	the producer will have no incentive to change output.
	D.	economic profit must be positive.

4. The U-shaped short-run average variable cost curve corresponds to

	A.	increasing, constant, and diminishing returns as output increases.
	B.	diminishing, constant, and increasing returns as output increases.
	C.	diminishing, constant, and diminishing returns as output increases.
	D.	increasing, constant, and increasing returns as output increases.

5. Under a system of target prices the government

	A.	pays farmers the difference between the target price and the market price.
	B.	buys the food surplus from the farmers at the target price.
	C.	taxes producers who sell output below the target price.
	D.	restricts land use to sustain the target price.

Answer 1

Q1) option c)

In oligopoly , firms pricing strategy bis inter-dependent,

So when one firm cuts the price, the other firm will also try to match the price cut, otherwise it will lose the market share

But it doesn't match the price rise,

Hence Kinked demand curve exists

2) option c)

If External benefits then case of Positive externality, so underprovision of the good occurs

3) option A)

As MR > MC, so produce more, till MR = MC

4) option A)

As AVC fall, IRS

AVC stays same, CRS

AVC rises, DRS

5) option A)

If the market price falls below that target price, the government pays the farmer the difference, the deficiency payment