Question

1) A tax on gasoline can be used to correct a market? True or false

2) A firm in a oligopolic industry may set its price:

A: above its average costs of production

B: by colluding with its competitors

C: by anticipating its competitors reactions

D: all of the above

3) How does a monopoly sets its price?

A: equal to its competitors price

B: by producing the quantity where marginal cost equal its marginal revenue

C: below its average cost of production

D: all of the above

4) How does a firm in a perfectly competitive industry sets its price?

A: just above its competitors prices

B: just below its competitors prices

C: just below its marginal cost

D: none of the above

Answer 1

(1) True, a tax on gasoline can be used to correct a market. As tax increases, the demand for the gasoline declines which lead to more reservation of gasoline.

(2) (c) by anticipating its competitor's reactions. In an oligopolistic market, price depends on the competitor's price-setting also as the demand curve is kinked.

(3) (B) by producing the quantity where marginal cost equals its marginal revenue. But the price charged is at the demand curve for quantity produced which gives supernormal profit.

(4) (D) none of the above.