Sample Questions
Question 1
Easy
A tariff imposed on imported goods most directly benefits:
Solution
B is correct.
A tariff raises the price of imported goods, making domestic producers more competitive by shielding them from lower-priced foreign competition. This allows domestic firms to sell more units at a higher price.
A tariff raises the price of imported goods, making domestic producers more competitive by shielding them from lower-priced foreign competition. This allows domestic firms to sell more units at a higher price.
Question 2
Medium
A natural monopoly arises when:
Solution
B is correct.
A natural monopoly exists when the minimum efficient scale of production is so large relative to market demand that one firm can serve the entire market at a lower average total cost than multiple firms. This typically occurs in industries with very high fixed costs and low marginal costs, such as utilities.
A natural monopoly exists when the minimum efficient scale of production is so large relative to market demand that one firm can serve the entire market at a lower average total cost than multiple firms. This typically occurs in industries with very high fixed costs and low marginal costs, such as utilities.
Question 3
Hard
In a Cournot duopoly, each firm:
Solution
C is correct.
In the Cournot model, duopolists choose their output quantities simultaneously and independently, each taking the rival's quantity as given (the Cournot-Nash assumption). The equilibrium output lies between the competitive output and the monopoly output.
In the Cournot model, duopolists choose their output quantities simultaneously and independently, each taking the rival's quantity as given (the Cournot-Nash assumption). The equilibrium output lies between the competitive output and the monopoly output.
