G202 EXAM 2 questions and answers A+ Grade 2026\2027
Market Power
- correct answer exists when firms are able to restrict competition to sustain prices above marginal costs
Market power can exist with multiple rival firms if products are
- correct answer differentiated and markets are segmented (NIKE VS ADIDAS/PEPSI VS COKE)
4 Strategies to restrict competition: Market strategies (companies)
- correct answer - Guarding trade secrets
- control of an essential resource
- exclusive contracts and customer lock-in (Coke pays IU to keep pepsi away, Adidas pays IU for
athletics/2 year cell phone contracts)
- collusion (form cartel and act as monopoly) (ILLEGAL) (separate businesses coming together to act as
one)
4 Strategies to restrict competition: NON-Market strategies (government)
- correct answer - Patent or copyright protection (give market power)
- Trade regulations (give domestic firms power)
- Government licensing
- Government or NGO certification
Profit Maximization: Optimal sales Target
- correct answer Occurs where marginal revenue equals marginal cost MC=MR
If MR > MC . . .
- correct answer then the firm could make a profit by selling one more unit
, If MC > MR . . .
- correct answer then the firm would lose money on selling one more unit
Profit Maximization: Optimal Price
- correct answer Price is found as markup over costs, where the markup factor depends on the demand
for the product
Perfect Price Discrimination
- correct answer Each consumer is charged a price equal to her willingness top pay
Imperfect Price Discrimination
- correct answer Groups of consumer are charged different prices
T or F: A firm with market power will have a higher markup of price over cost when its demand is
inelastic?
- correct answer TRUE
When compared to the efficient industry, a firm w/ significant market power will....
- correct answer produce less output & charge a higher price
If a country does not have a comparative advantage in producing a good & opens up to free trade of the
good, the welfare in the domestic market increases b/c....
- correct answer CONSUMER SURPLUS increases more than PS decreases
Relative to charging a single market price, when movie theaters charge different prices to different
groups....
- correct answer increase PRODUCER SURPLUS, as some consumer surplus is changed into PS
The import tariffs that Pres. Bush placed on imported steel likely had what effect?
- correct answer Domestic steel consumers were hurt, while domestic steel producers were helped
Suppose the US reduced the tariff on tv sets, allowing foreign - produced tvs to more freely enter the US
market. Which of the following would occur?
Market Power
- correct answer exists when firms are able to restrict competition to sustain prices above marginal costs
Market power can exist with multiple rival firms if products are
- correct answer differentiated and markets are segmented (NIKE VS ADIDAS/PEPSI VS COKE)
4 Strategies to restrict competition: Market strategies (companies)
- correct answer - Guarding trade secrets
- control of an essential resource
- exclusive contracts and customer lock-in (Coke pays IU to keep pepsi away, Adidas pays IU for
athletics/2 year cell phone contracts)
- collusion (form cartel and act as monopoly) (ILLEGAL) (separate businesses coming together to act as
one)
4 Strategies to restrict competition: NON-Market strategies (government)
- correct answer - Patent or copyright protection (give market power)
- Trade regulations (give domestic firms power)
- Government licensing
- Government or NGO certification
Profit Maximization: Optimal sales Target
- correct answer Occurs where marginal revenue equals marginal cost MC=MR
If MR > MC . . .
- correct answer then the firm could make a profit by selling one more unit
, If MC > MR . . .
- correct answer then the firm would lose money on selling one more unit
Profit Maximization: Optimal Price
- correct answer Price is found as markup over costs, where the markup factor depends on the demand
for the product
Perfect Price Discrimination
- correct answer Each consumer is charged a price equal to her willingness top pay
Imperfect Price Discrimination
- correct answer Groups of consumer are charged different prices
T or F: A firm with market power will have a higher markup of price over cost when its demand is
inelastic?
- correct answer TRUE
When compared to the efficient industry, a firm w/ significant market power will....
- correct answer produce less output & charge a higher price
If a country does not have a comparative advantage in producing a good & opens up to free trade of the
good, the welfare in the domestic market increases b/c....
- correct answer CONSUMER SURPLUS increases more than PS decreases
Relative to charging a single market price, when movie theaters charge different prices to different
groups....
- correct answer increase PRODUCER SURPLUS, as some consumer surplus is changed into PS
The import tariffs that Pres. Bush placed on imported steel likely had what effect?
- correct answer Domestic steel consumers were hurt, while domestic steel producers were helped
Suppose the US reduced the tariff on tv sets, allowing foreign - produced tvs to more freely enter the US
market. Which of the following would occur?
