Economics HL quiz on Theory of the firm

Which of the following markets is LEAST likely to suffer from asymmetric information?

• Health insurance

• Used car sales

• Stock market trading

• Online job recruitment

An insurance company implements a deductible policy requiring customers to pay part of the costs before insurance covers the rest. This is intended to reduce which type of asymmetric information problem?

• Adverse selection

• Moral hazard

• Principal-agent problem

• Market power

Which private sector response to asymmetric information relies on revealing true product quality over time?

• Screening

• Signaling

• Price discrimination

• Government intervention

Why might government-imposed disclosure policies fail to completely solve asymmetric information problems in the financial sector?

• Information may still be too complex for consumers to interpret

• It leads to a perfectly competitive market

• It eliminates all moral hazard issues

• It increases monopolistic competition

A firm in a monopolistically competitive industry is experiencing losses in the short run. What will happen in the long run if the industry is in equilibrium?

• Firms will leave the industry, shifting the demand curve for remaining firms to the right

• Firms will form a cartel to maintain higher prices

• The government will impose price controls to stabilize the industry

• Firms will continue making losses indefinitely

Which of the following industries is MOST likely to be a natural monopoly?

• Supermarkets

• Rail infrastructure

• Airlines

• Pharmaceuticals

Which of the following conditions must hold for a monopolist to maximize profit?

• Marginal Revenue = Marginal Cost

• Average Revenue = Average Total Cost

• Price = Marginal Cost

• Average Revenue = Average Variable Cost

A market with a four-firm concentration ratio of 80% is best described as:

• A perfectly competitive market

• A monopolistically competitive market

• An oligopoly

• A monopoly

Which of the following statements about an oligopoly is always true?

• Firms in an oligopoly engage in price wars

• Firms in an oligopoly have high barriers to entry

• Oligopolistic firms produce identical products

• Oligopolistic firms always maximize revenue instead of profit

Which of the following factors is NOT a major cause of monopolistic power?

• Economies of scale

• Government licensing

• Homogeneous products

• Control over essential resources