If the government creates a system of pollution permits, firms with low marginal costs of reducing pollution will
A) buy permits from other firms.
B) sell permits to other firms.
C) hold on to the permits they have been issued and not attempt to buy more.
D) not be issued permits.
Ques. 2Both firm A and firm B emit 300 tons of pollution. Suppose both firm A and firm B have permits that allow each to emit 100 tons of pollution.
If it costs 5,000 for firm A to eliminate 100 tons of pollution and it costs firm B 6,000 to eliminate 100 tons of pollution, then A) firm B will sell its permits to firm A for a price above 6,000.
B) firm A will sell its permits to firm B for a price below 6,000.
C) firm A will sell its permits to firm B for a price above 6,000.
D) firm B will sell its permits to firm A for a price below 6,000.
Ques. 3The local banking industry currently has a Herfindahl-Hirschman index (HHI) value of 2175 and two of the competing banks have considered merging. Because the merger would raise the HHI by 25 points, the Federal Trade Commission would likely
A) challenge the merger.
B) not challenge the merger.
C) allow the merger under the condition that HHI does not rise by more than 25 points as promised.
D) allow the merger under the condition that the HHI remain at the premerger level of 2175.
Ques. 4The local banking industry currently has a Herfindahl-Hirschman index (HHI) value of 1575 and two of the competing banks have considered merging. Because the merger would raise the HHI by 215 points, the Federal Trade Commission would likely
A) challenge the merger.
B) not challenge the merger.
C) allow the merger under the condition that HHI does not rise by more than 215 points as promised.
D) allow the merger under the condition that the HHI remain at the premerger level of 1575.
Ques. 5In the above figure, what price will a single-price monopoly set?
A) P1
B) P2
C) P4
D) P5
Ques. 6The above figure shows the utility of wealth curve for a homeowner whose only possession is a 50,000 house. If there is a 20 percent chance that the home could be completely destroyed, would this homeowner buy insurance?
A) No, because the homeowner is not risk averse.
B) Yes, at any price because the homeowner is risk averse.
C) Yes, but only if it costs less than 10,000.
D) Yes, but only if it costs less than 20,000.
Ques. 7In the figure above, when 20 units are produced the marginal cost is
A) less than 8.
B) 8.
C) more than 8 and less than 16.
D) None of the above answers is correct.
Ques. 8The above figure shows the utility of wealth curve for a homeowner whose only possession is a 50,000 house.
If there is a 20 percent chance that the home could be entirely destroyed, would this person buy a 20,000 insurance policy to replace the house if destroyed? A) No, it is too expensive.
B) No, he is not risk averse.
C) Yes, the homeowner would pay even more.
D) Yes, this is the most the homeowner would pay.
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