651 Final
A local video store estimates their average customer's demand per year is Q = 7 - 2P, and knows the marginal cost of each rental is $0.5. How much should the store charge for each rental if it engages in optimal two-part pricing?
$0.5.
Suppose the cost function is C(Q) = 50 + Q - 10Q2 + 2Q3. What is the variable cost of producing 10 units?
$1,010.
Suppose the cost function is C(Q) = 50 + Q - 10Q2 + 2Q3. What is the total cost of producing 10 units
$1,060.
Suppose market demand and supply are given by Q d = 100 - 2P and Q S = 5 + 3P. If the government sets a price floor of $30 and agrees to purchase all surplus at $30 per unit, the total cost to the government will be:
$1,650
A monopoly producing a chip at a marginal cost of $6 per unit faces a demand elasticity of -2.5. Which price should it charge to optimize it profits
$10 per unit.
Suppose a worker is offered a wage of $8 per hour, plus a fixed payment of $100 per day, and he can use 24 hours per day. What is the minimum the worker can earn in a day?
$100.
You are the manager of a firm that produces output in two plants. The demand for your firm's product is P = 20-Q, where Q = Q1 + Q2. The marginal cost associated with producing in the two plants are MC1 = 2 and MC2 = 2Q2. What is the profit-maximizing price that the firm should charge?
$11.
You are the manager of a monopoly that faces an inverse demand curve described by P = 200 - 15Q. Your costs are C = 15 + 20Q. The profit-maximizing price is
$110.
What price should a firm charge for a package of two shirts given a marginal cost of $4 and an inverse demand function P = 8 - 2Q by the representative consumer?
$12.
You are a manager in a perfectly competitive market. The price in your market is $14. Your total cost curve is C(Q) = 10 + 4Q + 0.5 Q2. What price should you charge in the short-run?
$14.
If a firm manager has a base salary of $75,000 and also gets 1.5% of all profits, how much will his/her income be if revenues are $10,000,000 and profits are $5,000,000
$150,000.
Suppose earnings are given by E = $50 + $20(24 - L), where E is earnings and L is the hours of leisure. What is the price to the worker of consuming an additional hour of leisure
$20
A monopoly produces widgets at a marginal cost of $8 per unit and zero fixed costs. It faces an inverse demand function given by P = 38 - Q. What are the profits of the monopoly in equilibrium
$225
You are the manager of a firm that sells its product in a competitive market at a price of $48. Your firm's cost function is C = 60 + 2Q2. Your firm's maximum profits are
$228.
For the cost function C(Q) = 1000 + 14Q + 9Q2 + 3Q3, what is the marginal cost of producing the fourth unit of output?
$230.
The total earnings of a worker are represented by E = 150 + $12(24 - L), where E is earnings and L is the number of hours of leisure. How much will the worker earn if he takes 16 hours of leisure per day?
$246
Suppose market demand and supply are given by Q d = 100 - 2P and Q S = 5 + 3P. If a price ceiling of $15 is imposed, what will be the resulting full economic price?
$25
What is the value marginal product of labor if: P = $10, MPL = $25, and APL = 40?
$250.
During spring break, students have an elasticity of demand for a trip to Cancun, Mexico of -4. How much should an airline charge students for a ticket if the price it charges the general public is $420? Assume the general public has an elasticity of -2.
$280.
Suppose a worker is offered a wage of $8 per hour, plus a fixed payment of $100 per day, and he can use 24 hours per day. What is the maximum total earnings the worker can earn in a day?
$292.
A local video store estimates their average customer's demand per year is Q = 20 - 4P, and knows the marginal cost of each rental is $1.00. How much should the store charge for an annual membership in order to extract the entire consumer surplus via an optimal two-part pricing strategy?
$32.
The average consumer at a firm with market power has an inverse demand function of P = 10 - Q. The firm's cost function is C = 2Q. If the firm engages in optimal two-part pricing, it will earn profits of
$32.
You are a manager in a perfectly competitive market. The price in your market is $14. Your total cost curve is C(Q) = 10 + 4Q + 0.5 Q2. What level of profits will you make in the short-run?
$40.
Suppose that initially the price is $50 in a perfectly competitive market. Firms are making zero economic profits. Then the market demand shrinks permanently and some firms leave the industry and the industry returns back to a long run equilibrium. What will be the new equilibrium price, assuming a constant cost industry (horizontal long run supply curve)?
$50.
Suppose the cost function is C(Q) = 50 + Q - 10Q2 + 2Q3. What are the fixed costs
$50.
Suppose earnings are given by E = $60 + $7(24 - L), where E is earnings and L is the hours of leisure. What is the maximum this worker can earn in three (3) days?
$684.
Suppose earnings are given by E = $60 + $7(24 - L), where E is earnings and L is the hours of leisure. What is the price to the worker of consuming an additional hour of leisure?
$7.
A worker's total earnings for one day is $100. He received a $20 fixed payment and consumes 14 hours of leisure. What is the hourly wage rate
$8.
Suppose a worker is offered a wage of $8 per hour, plus a fixed payment of $100 per day, and he can use 24 hours per day. What is the market rate of substitution between leisure and income?
$8.
A local video store estimates their average customer's demand per year is Q = 7 - 2P, and knows the marginal cost of each rental is $0.5. What is the annual profit that the video store expects to make on an average customer if it engages in optimal two-part pricing?
$9
Consider the following entry game. Here, firm B is an existing firm in the market, and firm A is a potential entrant. Firm A must decide whether to enter the market (play "enter") or stay out of the market (play "not enter"). If firm A decides to enter the market, firm B must decide whether to engage in a price war (play "hard"), or not (play "soft"). By playing "hard", firm B ensures that firm A makes a loss of $1 million, but firm B only makes $1 million in profits. On the other hand, if firm B plays "soft", the new entrant takes half of the market, and each firm earns profits of $5 million. If firm A stays out, it earns zero while firm B earns $10 million. Which of the following are perfect equilibrium strategies?
(enter, soft)
If the price of pork chops falls from $8 to $6, and this leads to an increase in demand for apple sauce from 100 to 140 jars, what is the cross price-elasticity of apple sauce and pork chops at a pork chop price of $6?
-.1.17
Suppose Q xd = 10,000 - 2 Px + 3 Py - 4.5M , where Px = $100, Py = $50, and M = $2,000. What is the own-price elasticity of demand?
-.21.
The management of Local Cinema has estimated the monthly demand for tickets to belnQ = 22,328 - .41 lnP + 0.5 lnM - .33 lnA + 100 lnPvcr, where Q = quantity of tickets demanded, P = price per ticket, M = income, A = advertising outlay, and Pvcr = price of a VCR tape rental. It is known that P = $5.50, M = $9,000, A = $900, and Pvcr = $3.00. Determine the own-price elasticity of demand for movie tickets.
-.41.
The demand for good X is estimated to be Q xd = 10,000 - 4PX + 5PY + 2M + AX, where PX is the price of X, PY is the price of good Y, M is income and AX is the amount of advertising on X. Suppose the present price of good X is $50, PY = $100, M = $25,000, and AX = 1,000 units. What is the own-price elasticity of demand for good X?
-0.003
The demand for good X has been estimated by Q xd = 6 - 2Px + 5Py. Suppose that good X sells at $3 per unit and good Y sells for $2 per unit. Calculate the own price elasticity.
-0.6
The demand for good X has been estimated by Q xd =12 - 3Px + 4Py. Suppose that good X sells at $2 per unit and good Y sells for $1 per unit. Calculate the own price elasticity.
-0.6.
If a monopolist claims his profit-maximizing markup factor is 3, what is the corresponding price elasticity of demand
-1.5.
Suppose a consumer with an income of $100 who is faced with Px = 1 and Py = 1/2. What is the market rate of substitution between good X (horizontal axis) and good Y (vertical axis)?
-2.
The demand for good X has been estimated to be lnQ xd = 100 - 2.5 lnPX + 4 lnPY + lnM. The own price elasticity of good X is
-2.5.
Given that income is $750 and PX = $32 and PY = $8, what is the market rate of substitution between goods X and Y?
-4
Given that income is $500 and PX = $20 and PY = $5, what is the market rate of substitution between goods X and Y
-4.
Which of the following cost functions exhibits cost complementarity?
-5Q1Q2 + 7Q1.
The demand for good X has been estimated to be lnQ xd = 100 - 2.5 lnPX + 4 lnPY + lnM. The advertising elasticity of good X is
0
The demand for good X is estimated to be Q xd = 10,000 - 4PX + 5PY + 2M + AX, where PX is the price of X, PY is the price of good Y, M is income and AX is the amount of advertising on X. Suppose the present price of good X is $50, PY = $100, M = $25,000, and AX = 1,000 units. Based on this information, the cross price elasticity between goods X and Y is
0.008
Suppose each of the 50 states had only one gasoline station -- each of the same size. The four-firm concentration ratio, based on national data, would be:
0.08.
Suppose the demand function is Q xd = 100 - 8Px + 6Py + M. If Px = $4, Py = $2, and M = $10, what is the cross-price elasticity of good x with respect to the price of good y?
0.13
If quantity demanded for sneakers falls by 6% when price increases 20% we know that the absolute value of the own-price elasticity of sneakers is
0.3
If quantity demanded for sneakers falls by 10% when price increases 25% we know that the absolute value of the own-price elasticity of sneakers is:
0.4
Suppose demand is given by Q xd = 50 - 4Px + 6Py + Ax , where Px = $4, Py = $2, and Ax = $50.What is the advertising elasticity of demand for good x?
0.52
The demand for good X is estimated to be Q xd = 10,000 - 4PX + 5PY + 2M + AX, where PX is the price of X, PY is the price of good Y, M is income and AX is the amount of advertising on X. Suppose the present price of good X is $50, PY = $100, M = $25,000, and AX = 1,000 units. Based on this information, the income elasticity of good X is
0.82.
There are five firms in an industry with sales at $7 million, $6 million, $3 million, $2 million, and $2 million, respectively. The four-firm concentration ratio is:
0.9
A fair coin is flipped. You will be paid $1 when it is heads and penalized $1 otherwise. What is the variance of the payoffs
1
The demand for good X has been estimated to be lnQ xd = 100 - 2.5 lnPX + 4 lnPY + lnM. The income elasticity of good X is
1
Suppose each of the 50 states had only one gasoline station -- each of the same size. The four-firm concentration ratio a consumer experiences is
1.
Suppose each of the 50 states had only one gasoline station -- each of the same size. The four-firm concentration ratio for the state of New York, based on the state data, is:
1.
If a price increase from $5 to $7 causes quantity demanded to fall from 150 to 100, what is the absolute value of the own-price elasticity at a price of $7?
1.75
If the production function is Q = K.5L.5 and capital is fixed at 1 unit, then the average product of labor when L = 25 is
1/5.
For a cost function C = 100 + 10Q + Q2, the average fixed cost of producing 10 units of output is
10
The external marginal cost of producing coal is MCexternal = 6Q while the internal marginal cost is MCinternal = 4Q. The inverse demand for coal is given by P = 120 - 2Q. What is the socially efficient level of output?
10
You are the manager of a firm that sells its product in a competitive market at a price of $60. Your firm's cost function is C = 33 + 3Q2. The profit-maximizing output for your firm is
10
You are a manager in a perfectly competitive market. The price is $14. Your total cost curve is C(Q) = 10 + 4Q + 0.5 Q2. What level of output should you produce in the short-run?
10.
You are the manager of a firm that sells its product in a competitive market at a price of $60. Your firm's cost function is C = 50 + 3Q2. The profit-maximizing output for your firm is
10.
Suppose the production function is given by Q = 3K + 4L. What is the average product of capital when 5 units of capital and 10 units of labor are employed?
11
Suppose the demand for good X is given by Qdx= 10 -2 Px + Py + M. The price of good X is $1, the price of good Y is $10, and income is $100. Given these prices and income, how much of good X will be purchased?
115. 515. 1,000. Correct Answer None of the above.
Suppose compensation is given by W = 450,000 + 220 P + 15S, where W = total compensation of the CEO, P = company profits (in millions) = $300, and S = Sales (in millions) = $500. What percentage of the CEO's total earnings is tied to profits of the firm?
12.6%
What is the average product of labor, given that the level of labor equals 10, total output equals 1200 and the marginal product of labor equals 200?
120
For the cost function C(Q) = 50 + 4Q + 2Q2, the total variable cost of producing 7 units of output is
126
Given a cost function C(Q) = 200 + 14Q + 8Q2, what is the marginal cost function
14 + 16Q.
If the income elasticity for lobster is .6, a 25% increase in income will lead to a
15% increase in demand for lobster.
The external marginal cost of producing coal is MCexternal = 6Q while the internal marginal cost is MCinternal = 4Q. The inverse demand for coal is given by P = 120 - 2Q. How much output would a monopoly produce?
15.
The external marginal cost of producing coal is MCexternal = 6Q while the internal marginal cost is MCinternal = 4Q. The inverse demand for coal is given by P = 120 - 2Q. If the government taxed output at $2 per unit, what would a competitive industry produce?
15.
If the income elasticity for lobster is .4, a 40% increase in income will lead to a:
16% increase in demand for lobster.
For the cost function C(Q) = 100 + 2Q + 3Q2, the total variable cost of producing 2 units of output is
16.
You are the manager of a monopoly that faces a demand curve described by P = 63 - 5Q. Your costs are C = 10 + 3Q. Your firm's maximum profits are
170
An industry consists of six firms with an annual sales of $300, $500, $400, $700, $600, and $600, respectively. What is the industry's HHI?
1779.
The total earnings of a worker are represented by E = 100 + $10(24 - L), where E is earnings and L is the number of hours of leisure. How many hours of leisure are consumed if this worker's total earnings are $160?
18 hours.
Suppose the demand for good X is given by Qdx= 20 - 4Px + 2Py + M. The price of good X is $5, the price of good Y is $15, and income is $150. Given these prices and income, how much of good X will be purchased?
180
If the demand function for a particular good is Q = 25 - 10P, then the price elasticity of demand (in absolute value) at a price of $1 is
2/3.
The external marginal cost of producing coal is MCexternal = 6Q while the internal marginal cost is MCinternal = 4Q. The inverse demand for coal is given by P = 120 - 2Q. How much output would a competitive industry produce?
20
What is the maximum amount of good Y that can be purchased if X and Y are the only two goods available for purchase and Px = $10, Py = $15, X = 30, and M = 600?
20
You are a hotel manager, and are considering four projects that yield different payoffs, depending upon whether there is an economic boom or recession. There is a $50% probability of a boom and a 50% probability of a recession. The potential payoffs and corresponding payoffs are Project A makes $20 in a boom and -$10 in a recession, Project B makes -$10 in a boom and $20 in a recession, Project C make $30 in a boom and -$30 in a recession, and Project D makes $50 in both a boom and a recession.The variance in the returns of project B is
225.
For the cost function C(Q) = 75 + 4Q + 2Q2, the marginal cost of producing 5 units of output is
24
You are the manager of a firm that sells its product in a competitive market at a price of $60. Your firm's cost function is C = 50 + 3Q2. Your firm's maximum profits are
250
Suppose the production function is given by Q = 3K + 4L. What is the marginal product of capital when 10 units of capital and 10 units of labor are employed
3.
Suppose the production function is given by Q = 3K + 4L. What is the marginal product of capital when 5 units of capital and 10 units of labor are employed?
3.
For a cost function C = 100 + 10Q + Q2, the average variable cost of producing 20 units of output is
30.
You are the manager of a monopoly that faces a demand curve described by P = 63 - 5Q. Your costs are C = 10 + 3Q. The profit-maximizing price is
33
For the cost function C(Q) = 200 + 3Q + 8Q2 + 4Q3, what is the average fixed cost of producing six units of output
33.33.
Suppose the production function is given by Q = K1/2L1/2, and that Q = 30 and K = 25. How much labor is employed by the firm?
36.
The demand for good X has been estimated to be lnQ xd = 100 - 2.5 lnPX + 4 lnPY + lnM. The cross price elasticity of demand between goods X and Y is
4.
You are the manager of a Mom and Pop store that can buy milk from a supplier at $3.00 per gallon. If you believe the elasticity of demand for milk by customers at your store is -4, then your profit-maximizing price is
4.00.
You are the manager of a firm that sells its product in a competitive market at a price of $40. Your firm's cost function is C = 60 + 4Q2. Your firm's maximum profits are
40
What is the maximum amount of good Y that can be purchased if X and Y are the only two goods available for purchase and Px = $5, Py = $10, X = 20, and M = 500?
40.
You are the manager of a monopoly that faces a demand curve described by P = 85 - 5Q. Your costs are C = 20 + 5Q. The profit-maximizing price is
45.
Given that income is $200 and the price of good Y is $40. What is the vertical intercept of the budget line?
5.
You are the manager of a firm that sells its product in a competitive market at a price of $40. Your firm's cost function is C = 60 + 4Q2. The profit-maximizing output for your firm is
5.
You are the manager of a firm that sells its product in a competitive market at a price of $50. Your firm's cost function is C = 40 + 5Q2. The profit-maximizing output for your firm is
5.
You are the manager of a monopoly that faces a demand curve described by P = 230 - 20Q. Your costs are C = 5 + 30Q. The profit-maximizing output for your firm is
5.
For the production function Q = 5.2K + 3.8L, if K = 16 and L = 12, we know that MPK is:
5.2.
For the cost function C(Q) = 100 + 2Q + 3Q2, the average fixed cost of producing 2 units of output is
50.
Suppose market demand and supply are given by Q d = 100 - 2P and Q S = 5 + 3P. If a price floor of $30 is set, what will be size of the resulting surplus
55.
You are the manager of a monopoly that faces a demand curve described by P = 63 - 5Q. Your costs are C = 10 + 3Q. The profit-maximizing output for your firm is
6.
You are the manager of a monopoly that faces a demand curve described by P = 63 - 5Q. Your costs are C = 10 + 3Q. The revenue maximizing output is
6.3.
The demand for good X is estimated to be Q xd = 10,000 - 4PX + 5PY + 2M + AX where PX is the price of X, PY is the price of good Y, M is income and AX is the amount of advertising on X. Suppose the present price of good X is $50, PY = $100, M = $25,000, and AX = 1,000 units. What is the quantity demanded of good X?
61,300.
The demand for good X is estimated to be Q xd = 10,000 - 4PX + 5PY + 2M + AXwhere PX is the price of X, PY is the price of good Y, M is income and AX is the amount of advertising on X. Suppose the present price of good X is $50, PY = $100, M = $25,000, and AX = 1,000 units. What is the demand curve for good X?
61500 - 4PX.
Suppose market demand and supply are given by Q d = 100 - 2P and Q S = 5 + 3P. The equilibrium quantity is:
62.
You are the manager of a popular shoe company. You know that the advertising elasticity of demand for your product is .15. How much will you have to increase advertising in order to increase demand by 10%?
66.7%.
Suppose the production function is given by Q = 4K + 6L. What is the average product of capital when 10 units of capital and 5 units of labor are employed?
7
Suppose the production function is given by Q = 3K + 4L. What is the average product of capital when 10 units of capital and 10 units of labor are employed?
7.
Suppose earnings are given by E = $60 + $7(24 - L), where E is earnings and L is the hours of leisure. How much is this person working if their daily earnings are $116?
8 hours.
You are the manager of a monopoly that faces a demand curve described by P = 85 - 5Q. Your costs are C = 20 + 5Q. The profit-maximizing output for your firm is
8.
You are the manager of a firm that sells its product in a competitive market at a price of $50. Your firm's cost function is C = 40 + 5Q2. Your firm's maximum profits are
85.
Suppose the production function is given by Q = min{K, L}. How much output is produced when 10 units of labor and 9 units of capital are employed?
9.
The difference between a price increase and a decrease in income is that
A decrease in income does not affect the slope of the budget line while an increase in price does change the slope.
A finitely repeated game differs from an infinitely repeated game in that:
A finitely repeated game differs from an infinitely repeated game in that:
A negative side of long-term contracts is:
A loss of flexibility.
Which of the following statements concerning monopoly is NOT true?
A monopoly is always undesirable.
Which of the following is true?
A secure strategy is the optimal strategy for a player no matter what the opponent does. Correct! none of the above
In a competitive market, the market demand is Qd = 60 - 6P and the market supply is Qs = 4P. A price ceiling of $3 will result in
A shortage of 30 units
In a competitive market, the market demand is Qd = 70 - 3P and the market supply is Qs = 6P. A price ceiling of $4 will result in
A shortage of 34 units.
Which of the following cases violates the property of transitivity
A>B, B>C, C>A.
Jane wants to buy a beautiful doll as a gift for her sister's birthday. She knows that the same product is offered in different shops with prices of $120, $100 and $80 with odds of 1/3 of each price. She just stopped at a shop and knows that the price is $100. If the search cost is $8 per time, what should she do?
Accept the offer in hand.
If you advertise and your rival advertises, you each will earn $5 million in profits. If neither of you advertise, you will each earn $10 million in profits. However, if one of you advertises and the other does not, the firm that advertises will earn $15 million and the non advertising firm will earn $1 million. Which of the following is true?
All of the above are true.
In a competitive industry with identical firms, long run equilibrium is characterized by
All of the above.
The difference between a price decrease and an increase in income is that
An increase in income does not affect the slope of the budget line while a decrease in price does change the slope.
Which of the following is a correct statement?
An incumbent firm may experience a learning curve that allows it to produce at a lower cost than a potential entrant.
Which of the following are price setting oligopoly models?
Bertrand
From a consumer's point of view, which type of oligopoly is most desirable?
Bertrand.
The demand for which of the following commodities is likely to be more inelastic?
Beverages
What contributes to the existence of multi-product firms?
Both economies of scope and cost complementarity.
You are a hotel manager, and are considering four projects that yield different payoffs, depending upon whether there is an economic boom or recession. There is a $50% probability of a boom and a 50% probability of a recession. The potential payoffs and corresponding payoffs are Project A makes $20 in a boom and -$10 in a recession, Project B makes -$10 in a boom and $20 in a recession, Project C make $30 in a boom and -$30 in a recession, and Project D makes $50 in both a boom and a recession. Which project has the greatest variance
C
Economies of scope exist when
C(Q1) + C(Q2) > C(Q1,Q2).
You are a hotel manager, and are considering four projects that yield different payoffs, depending upon whether there is an economic boom or recession. There is a $50% probability of a boom and a 50% probability of a recession. The potential payoffs and corresponding payoffs are Project A makes $20 in a boom and -$10 in a recession, Project B makes -$10 in a boom and $20 in a recession, Project C make $30 in a boom and -$30 in a recession, and Project D makes $50 in both a boom and a recession. Which project has the lowest expected value
C.
Suppose two types of consumers buy suits. Consumers of type A will pay $100 for a coat, and $50 for pants. Consumers of type B will pay $75 for a coat, and $75 for pants. The firm selling suits faces no competition and has a marginal cost of zero. The optimal commodity bundling strategy is:
Charge $150 for a suit.
Suppose two types of consumers buy suits. Consumers of type A will pay $100 for a coat, and $50 for pants. Consumers of type B will pay $75 for a coat, and $75 for pants. The firm selling suits faces no competition and has a marginal cost of zero. If the firm can identify each consumer type and can price discriminate, what is the optimal price for a pair of pants?
Charge type A consumers $50, and type B consumers $75.
An incumbent usually charges a higher price than a new entrant does. Which of the following is a plausible reason for this observation?
Consumers are risk averse, hence new firms charge lower prices to attract customers.
Which of the following is true?
Correct Answer In the short run a monopoly will shutdown if P < AVC.
You are the manager of a monopoly that faces a demand curve described by P = 85 - 5Q. Your costs are C = 20 + 5Q. The revenue maximizing output is
Correct Answer none of the above.
If you advertise and your rival advertises, you each will earn $4 million in profits. If neither of you advertise, you will each earn $10 million in profits. However, if one of you advertises and the other does not, the firm that advertises will earn $1 million and the non advertising firm will earn $5 million.Which of the following is true?
Correct! None of the above are true.
When the price of sugar was "low", consumers in the U.S. spent a total of $3 billion annually on sugar consumption. When the price doubled, consumer expenditures remained at $3 billion annually. This data indicates that:
Correct! None of the above.
Collusion is:
Correct! none of the above.
The spirit of equating marginal cost with marginal revenue is not held by
Correct! none of the above.
You are a hotel manager, and are considering four projects that yield different payoffs, depending upon whether there is an economic boom or recession. There is a $50% probability of a boom and a 50% probability of a recession. The potential payoffs and corresponding payoffs are Project A makes $20 in a boom and -$10 in a recession, Project B makes -$10 in a boom and $20 in a recession, Project C make $30 in a boom and -$30 in a recession, and Project D makes $50 in both a boom and a recession.A risk-neutral manager will prefer project
D
You are a hotel manager, and are considering four projects that yield different payoffs, depending upon whether there is an economic boom or recession. There is a $50% probability of a boom and a 50% probability of a recession. The potential payoffs and corresponding payoffs are Project A makes $20 in a boom and -$10 in a recession, Project B makes -$10 in a boom and $20 in a recession, Project C make $30 in a boom and -$30 in a recession, and Project D makes $50 in both a boom and a recession. Which project has the greatest expected value?
D.
You are a hotel manager, and are considering four projects that yield different payoffs, depending upon whether there is an economic boom or recession. There is a $50% probability of a boom and a 50% probability of a recession. The potential payoffs and corresponding payoffs are Project A makes $20 in a boom and -$10 in a recession, Project B makes -$10 in a boom and $20 in a recession, Project C make $30 in a boom and -$30 in a recession, and Project D makes $50 in both a boom and a recession. Which project has the lowest variance?
D.
You are a hotel manager, and are considering four projects that yield different payoffs, depending upon whether there is an economic boom or recession. There is a $50% probability of a boom and a 50% probability of a recession. The potential payoffs and corresponding payoffs are Project A makes $20 in a boom and -$10 in a recession, Project B makes -$10 in a boom and $20 in a recession, Project C make $30 in a boom and -$30 in a recession, and Project D makes $50 in both a boom and a recession.A risk-averse manager will prefer project
D.
A monopoly has produced a product with a patent for the last few years. The patent is going to expire. What will likely happen to the demand for the patent-holder's product when the patent runs out?
Demand will decline.
In a Cournot oligopoly with N-firms and identical marginal costs, the relationship between the price elasticity of market demand and that of the firm is
EM = EF/N.
Which of the following is not a basic feature of a monopolistically competitive industry?
Each firm owns a patent on its product.
Two firms producing identical products may merge due to the existence of:
Economies of scale.
What is implied when the total cost of producing Q1 and Q2 together is less than the total cost of producing Q1 and Q2 separately?
Economies of scope.
What should the manager do to solve the shirking problem?
Engage in "random" spot checks of the work place.
A new firm enters a market which is initially serviced by a Bertrand duopoly charging a price of $30. Assuming that the new firm is equally as efficient as the incumbent firms, what will the new price be should the three firms co-exist after the entry?
Equal to $30.
Suppose the income elasticity for transportation is 1.8. Which of the following is an incorrect statement?
Expenditures on transportation will fall less rapidly than income falls.
Which of the following provides a measure of the overall fit of a regression?
F-statistic.
If firms are in Cournot equilibrium
Firms could increase profits by jointly reducing output.
Which of the following is true concerning negative externalities
Firms tend to produce more than the efficient level of output
Consider the following information for a simultaneous move game: If you advertise and your rival advertises, you each will earn $5 million in profits. If neither of you advertise, you will each earn $10 million in profits. However, if one of you advertises and the other does not, the firm that advertises will earn $15 million and the non advertising firm will earn $1 million. If you and your rival plan to be in business for 10 years, then the Nash equilibrium is
For each firm to advertise every year.
Consider the following information for a simultaneous move game: If you advertise and your rival advertises, you each will earn $5 million in profits. If neither of you advertise, you will each earn $10 million in profits. However, if one of you advertises and the other does not, the firm that advertises will earn $15 million and the non advertising firm will earn $1 million. If you and your rival plan to be in business for only one year, the Nash equilibrium is
For each firm to advertise.
If you advertise and your rival advertises, you each will earn $4 million in profits. If neither of you advertise, you will each earn $10 million in profits. However, if one of you advertises and the other does not, the firm that advertises will earn $1 million and the non advertising firm will earn $5 million. If you and your rival plan to be in business for 10 years, then the Nash equilibrium is
For each firm to not advertise in any year.
If you advertise and your rival advertises, you each will earn $4 million in profits. If neither of you advertise, you will each earn $10 million in profits. However, if one of you advertises and the other does not, the firm that advertises will earn $1 million and the non advertising firm will earn $5 million. If you and your rival plan to be in business for only one year, the Nash equilibrium is
For neither firm to advertise.
Risk averse persons sometimes prefer to play some gambles even if they know that those gambles are not fair, i.e., on average people lose by playing them. One plausible explanation of this seemingly paradoxical phenomenon is that:
Gambling has entertaining effects which are not treated explicitly as part of the payoffs.
Consider a two good world, with commodities X and Y. Which of the following statements is correct?
If good X is an inferior good, good Y must be a normal good.
The number of efficient plants compatible with domestic consumption of the refrigerator industry in Sweden is 0.7. Which of the following implications is (are) correct?
In the absence of imports, the refrigerator industry in Sweden is monopolistic.
As we move down along a linear demand curve, the price elasticity of demand becomes more
Inelastic
The combinations of inputs that produce a given level of output are depicted by:
Isoquants
A negative side of a revenue sharing plan is that it:
It gives no incentive for workers to minimize costs.
Which of the following statements is not correct?
It is always desirable for a person to have more information than the person he is trading with.
Which of the following statements is not correct about information?
It is always desirable for some people to have more information than others.
If the price of good X increases, what will happen to the budget line?
It will become steeper.
The own-price elasticity of demand for apples is -1.2. If the price of apples falls by 5%, what will happen to the quantity of apples demanded?
It will increase 6%.
The own-price elasticity of demand for apples is -1.5. If the price of apples falls by 6%, what will happen to the quantity of apples demanded?
It will increase 9%.
If a consumer's income decreases, what will happen to the budget line?
It will shift inward.
In order to minimize the cost of producing a given level of output, a firm manager should use more inputs when:
Its price falls.
The short run response of quantity demanded to a change in price is usually:
Less than the long run response.
The minimum average cost of producing alternate levels of output, allowing for optimal selection of all variables of production is defined by the:
Long run average total cost curve.
Which of the following features is common to both perfectly competitive markets and monopolistically competitive markets?
Long run profits are zero.
The horizontal intercept of the budget line is
M/PX.
A risk neutral monopoly must set output before it knows for sure the market price. There is a 50% chance the firm's demand curve will be P = 20 - Q and a 50% chance it will be P = 40 - Q. The marginal cost of the firm is MC = Q. The profits are maximized in the expected sense when
MC = E(MR).
Which of the following is a correct representation of the profit maximization condition for a monopoly?
MC = MR.
For the multiproduct cost function C(Q1,Q2) = 100 + 2Q1Q2 + 4Q12,what is the marginal cost function for good one?
MC1 = 2Q2 + 8Q1.
A monopoly has two production plants with cost functions C1 = 50 + 0.1 Q12 and C2 = 30 + 0.05 Q22. The demand it faces is Q = 500 - 10 P. What is the condition for profit maximization?
MC1(Q1) = MC2(Q2) = MR(Q1 + Q2).
Which of the following is a profit-maximizing condition for a Cournot oligopolist?
MR = MC.
When analyzing the behavior of oligopolists, which of the following is crucial for the success of game theoretic analysis
Make sure the problem you are considering is of a one-shot or repeated nature, and you model it accordingly because the order in which players make decisions is important.
Management and a labor union are bargaining over how much of a $50 surplus to give to the union. The $50 is divisible up to one cent. The players have one-shot to reach an agreement. Management has the ability to announce what it wants first, and then the labor union can accept or reject the offer. Both players get zero if the total amounts asked for exceed $50. Which of the following is not a Nash equilibrium?
Management requests $30 and the labor union accepts $10
Management and a labor union are bargaining over how much of a $50 surplus to give to the union. The $50 is divisible up to one cent. The players have one-shot to reach an agreement. Management has the ability to announce what it wants first, and then the labor union can accept or reject the offer. Both players get zero if the total amounts asked for exceed $50. Which of the following is a perfect equilibrium?
Management requests $49.99, and the labor union accepts $0.01
Management and a labor union are bargaining over how much of a $50 surplus to give to the union. The $50 is divisible up to one cent. The players have one-shot to reach an agreement. Management has the ability to announce what it wants first, and then the labor union can accept or reject the offer. Both players get zero if the total amounts asked for exceed $50. Which of the following is a Nash equilibrium?
Management requests $50 and the labor union accepts $0
Firm managers should use inputs at levels where:
Marginal benefit equals marginal cost. Price equals marginal product. Value marginal product of labor equals wage. All of the above. Correct! a and c only
Which of the following statements is not correct about monopoly?
Monopolists always make positive profits in the long-run.
In the presence of large sunk costs, which of the following market structures generally leads to the highest price
Monopoly.
_______ occurs when people smoke more after buying life insurance
Moral hazard.
Joe prefers a three pack of soda to a six-pack. What properties does this preference violate?
More is better.
Suppose the supply of good X is given by Q Sx = 10 + 2 Px . How many units of good X are produced if the price of good X is 20?
None of the above
For a cost function C = 100 + 10Q + Q2, the marginal cost of producing 10 units of output is
None of the above.
In order for isoquants to have a diminishing marginal rate of substitution they must be
None of the above.
Let the demand function for a product be Q = 50 - 5P. The inverse demand function of this demand function is:
P = 10 - 0.2Q
Let the demand function for a product be Q = 100 - 2P. The inverse demand function of this demand function is:
P = 50 - 0.5Q.
Which of the following is true of a perfectly contestable market?
P = MC.
In the long-run, perfectly competitive firms produce a level of output such that:
P = MC. P = minimum of AC. Correct! both a and b.
Which of the following is true under monopoly?
P > MC.
Which of the following is a possible critique of the decision theory under uncertainty presented in the text?
People do not always know the "true" probability of complicated events.
Firm A has a higher marginal cost than firm B's. They compete in a homogeneous product Cournot duopoly. Which of the following results will not occur?
PriceA < PriceB
You are a manager for a monopolistically competitive firm. From experience, the profit-maximizing level of output of your firm is 100 units. However, it is expected that prices of other close substitutes will fall in the near future. How should you adjust your level of production in response to this change?
Produce less than 100 units.
The creation of a new product is referred to as:
Product innovation.
The recipe that defines the maximum amount of output that can be produced with K units of capital and L units of labor is the:
Production function.
The supply function for good X is given by Q x s = 1,000 + PX - 5 PY - 2PW , where PX is the price of X, PY is the price of good Y and PW is the price of input W. If PX = 100, PY = 150 PW = 50, then the supply curve is
Q x s = 150 + Px.
Firm A has a higher marginal cost than firm B. They compete in a homogeneous product Cournot duopoly. Which of the following results will not occur?
QA > QB
Cinemas sometimes give senior citizens discounts. What is the possible privately motivated purpose for them to do so?
Senior citizens have a more elastic demand for movies than ordinary citizens.
Changes in the price of an input cause:
Slope changes in the isocost line.
A profitable monopoly has produced a product with a patent for the last few years. The patent is going to expire. What will happen after the patent expires?
Some firms will enter the industry.
You are a manager in a perfectly competitive market. The price in your market is $14. Your total cost curve is C(Q) = 10 + 4Q + 0.5 Q2. What will happen in the long-run if there is no change in the demand curve?
Some firms will enter the market eventually.
Which would you expect to make the highest profits, other things equal?
Stackelberg leader.
The feasible means of converting raw inputs such as steel, labor, and machinery into an output are summarized by
Technology.
A potential problem with piece rate plans is:
That workers may stress quantity instead of quality
Which of the following statements is incorrect?
The changes in the composition of the population affect the demand for a product. Correct! none of the above.
By the completeness property, if neither A > B nor A < B hold, then
The consumer is indifferent between A and B.
When the price of sugar was "low", consumers in the U.S. spent a total of $3 billion annually on sugar consumption. When the price doubled, consumer expenditures increased to $5 billion annually
The demand for sugar is inelastic.
A monopoly produces widgets at a marginal cost of $8 per unit and zero fixed costs. It faces an inverse demand function given by P = 38 - Q. Suppose fixed costs rise to $200. What will happen in the market?
The firm continues to produce the same output and charge the same price.
Which of the following factors reduces need for government involvement in the market place
The incentive to rent-seek.
Which of the following factors reduces need for government involvement in the market place?
The incentive to rent-seek.
In the 1960s, each firm in the computer industry was able to make extremely large profit margins, some as high as 50-60%. The margin decreased to 20-40% in the 1970s and to 10-20% in the 1980s. We conclude that:
The industry has evolved from oligopolistic to a more competitive industry in the two decades.
Which of the following statements is true?
The more elastic the demand, the lower is the profit-maximizing markup
Management and a labor union are bargaining over how much of a $50 surplus to give to the union. The $50 is divisible up to one cent. The players have one-shot to reach an agreement. Management has the ability to announce what it wants first, and then the labor union can accept or reject the offer. Both players get zero if the total amounts asked for exceed $50. Which of the following is true?
There are multiple Nash equilibria and ($25, $25) is a Nash equilibrium
The demand for good X is given by lnQ xd = 120 - 0.9 lnPx + 1.5 lnPy - 0.7 lnM. Which of the following statements is correct?
X has constant income elasticity.
the demand for good X is given by lnQ xd = 120 - 0.9 lnPx + 1.5 lnPy - 0.7 lnM. Which of the following statements is correct?
X has constant income elasticity.
Jane wants to buy a beautiful doll as a gift for her sister's birthday. She knows that the same product is offered in different shops with prices of $120, $100 and $80 with odds of 1/3 of each price. She just stopped at a shop and knows that the price is $100. Suppose that there is a search cost of $5 for each search. Should she search for one more time?
Yes.
Sue and Jane own two local gas stations. They have identical constant marginal costs, but earn zero economic profits. Sue and Jane constitute
a Bertrand oligopoly.
Which curve(s) does the marginal cost curve intersect at the (their) minimum point?
a and c only.
What is/are the important things that must be developed when characterizing consumer behavior?
a and c.
Which is more preferred between a cash gift and an in-kind gift?
a cash gift.
Changes in the price of good A leads to
a change in the quantity demanded of good A.
If widgets and gidgets are complements and both are normal goods, then a decrease in the demand for widgets will result from
a decrease in income.
Good A is an inferior good, an increase in income leads to:
a decrease in the demand for good A
Good Y is a complement to good X if an increase in the price of good Y leads to
a decrease in the demand for good X.
The substitution effect reflects how a consumer will react to
a different market rate of substitution.
If you sell an inferior good, offering to sell gift certificates to those looking for a gift may result in
a greater quantity sold than if the customer resorts to giving a cash gift.
If you wish to open a store and you do not like risk, it would be wise to sell:
a mix of normal and inferior goods.
A decrease in income will not lead to:
a movement along the demand curve.
The demand for good X is estimated to be Q xd = 10,000 - 4PX + 5PY + 2M + AX, where PX is the price of X, PY is the price of good Y, M is income and AX is the amount of advertising on X. Suppose the present price of good X is $50, PY = $100, M = $25,000, and AX = 1,000 units. Based on this information, good X is
a normal good.
There is no market supply curve in
a perfectly competitive market. a monopolistically competitive market. a monopolistic market. Correct Answer both b and c.
A perfectly competitive firm faces:
a perfectly elastic demand function.
Spot checks work because of
a potential penalty for shirking.
Good X is a normal good and its demand is given by Q xd = a0 + aXPX + aYPY + aMM + aHH.Then we know that
aM > 0
Suppose X and Y are complements and demand for X is Q xd = a0 + aXPX + aYPY + aMM + aHH. Then we know
aY < 0
In the long-run, monopolistically competitive firms charge prices
above the minimum of average total cost.
Producer surplus is measured as the area
above the supply curve and below the market price.
The costs of production include
accounting costs and opportunity costs.
People having a bad driving record find it difficult to buy automobile insurance because insurance companies fear that ___________ may happen if they raise the premiums.
adverse selection.
A Broadway theater sells weekday show tickets at a lower price than for a weekend show. This is an example of
all of the above.
One of the conditions under which price discrimination is profitable is
all of the above.
The concentration and Herfindahl indices computed by the U.S. Bureau of Census must be interpreted with caution because
all of the above.
The source(s) of monopoly power for a monopoly may be
all of the above.
Which of the following is (are) basic feature(s) of a perfectly competitive industry?
all of the above.
Persuasive advertising influences demand by:
altering the underlying tastes of consumers.
If sugar and Nutrasweet are substitutes, then we can be certain that a decrease in the price of sugar will lead to
an increase in the consumption of sugar.
Good X is a normal good if an increase in income leads to
an increase in the demand for good X.
Suppose that good X is a substitute for good Y. Then an increase in the price of good Y leads to
an increase in the demand of good X.
An income elasticity less than zero tells us that the good is
an inferior good.
If an increase in income causes a decrease in the consumption of good Y we know that good Y is:
an inferior good.
Suppose the demand for good X is given by Qdx= 10 + ax Px + ay Py + aM M. If aM is negative, then good x is:
an inferior good.
Suppose the demand for good X is given by Qdx= 10 + ax Px + ay Py + aM M. If aM is negative, then good y is
an inferior good.
Suppose good X is a normal good. Then a decrease in income would lead to
an inward shift of the demand curve.
Consider the following information for a simultaneous move game: If you advertise and your rival advertises, you each will earn $3 million in profits. If neither of you advertise, you will each earn $7 million in profits. However, if one of you advertises and the other does not, the firm that advertises will earn $10 million and the non advertising firm will earn $1 million. If you and your rival plan to be in business for only one year, the Nash equilibrium is for your firm
and your rival to advertise.
Which of the following involves the least risk from the point of view of the employee
annual salary.
The profits of the leader in a Stackelberg duopoly
are greater than those of the follower.
Sam Voter prefers Ronald to Joe, Joe to Gary, and Gary to Ronald. Sam's preferences
are not transitive.
Sam Voter prefers Jack to Rob, Rob to Mark, and Jack to Mark. Sam's preferences
are transitive.
Economies of scale exist whenever
average total costs decline as output increases.
An ad valorem tax causes supply curve to:
become steeper.
A new firm enters a market which is initially serviced by a Cournot duopoly charging a price of $20. What will the new market price be should the three firms co-exist after the entry?
below $20.
In the long-run, perfectly competitive firms produce a level of output such that
both a and b.
Suppose two types of consumers buy suits. Consumers of type A will pay $100 for a coat, and $50 for pants. Consumers of type B will pay $75 for a coat, and $75 for pants. The firm selling suits faces no competition and has a marginal cost of zero. If the firm charges $75 for pants and $75 for a coat, the firm will sell a coat to
both a and b.
The firm manager with indifference curves which are convex from the origin (output on the horizontal axis and profit on the vertical axis) views
both profits and outputs to be "goods".
You are the manager of a supermarket, and know that the income elasticity of peanut butter is exactly -0.7. Due to the recession, you expect incomes to drop by 15% next year. How should you adjust your purchase of peanut butter?
buy 10.5% more peanut butter.
An ad valorem tax shifts the supply curve
by rotating it counter-clockwise.
When there are economies of scope between two products which are separately produced by two firms, merging into a single firm
can accomplish a reduction in costs.
Long term contracts
can reduce opportunistic behavior.
The principal-agent problem happens because the owner
cannot monitor the efforts of the manager.
The marginal product of an input is defined as
change in total output attributable to the last unit of an input.
Suppose that the duopolists competing in Cournot fashion agree to produce the collusive output. Given that firm two commits to this collusive output, it pays firm one to
cheat by producing a higher level of output.
If the cross-price elasticity between good A & B is negative, we know the goods are:
complements
If an increase in the price of good X leads to a decrease in the consumption of good Y, then goods X and Y are called
complements.
Suppose the demand for good x is lnQ xd = 21 - .8 lnPx - 1.6 lnPy + 6.2 lnM + .4 lnAx . Then we know goods x and y are
complements.
The idea of improving cash flow by exploiting the cyclical nature of different product lines is represented in
conglomerate integration.
The possible goods and services a consumer can afford to consume represents the
consumer opportunities.
Jane pays the market price of $69 for a new pair of running shoes, even though she would be happy to pay a maximum of $100 for the same pair of shoes. This is an example of the concept of
consumer surplus
One of the characteristics of a contestable market is that
consumers react quickly to a price change.
Snowpeak Ski Resort offers a price for a lift ticket that is barely over its marginal cost, but the high equipment rental fee keeps generating big profits. Which pricing strategy is the management using?
cross subsidization.
Which of the following enhances the ability of waste companies to collude?
decals on waste receptacles
When marginal cost curve is below an average cost curve, average cost is
declining with output.
A price increase causes a consumer's "real" income to:
decrease
Assume that the price elasticity of demand is -0.75 for a certain firm's product. If the firm lowers price, the firm's managers can expect total revenue to
decrease
The price elasticity of demand is -2.0 for a certain firm's product. If the firm raises price, the firm manager can expect total revenue to
decrease
Economies of scale exist whenever long-run average costs
decrease as output is increased.
Suppose the own-price elasticity of demand for good X is -0.5, and that the price of good X increases by 10%. We would expect the quantity demanded of good X to
decrease by 5%.
Consider a two good world, with commodities X and Y. If Y is an inferior good, then an increase in consumer income cannot
decrease the demand for X.
An increase in the price of good X will have what effect on the budget line on a normal X-Y graph?
decrease the horizontal intercept.
When the price of a good increases with other things unchanged, the real income of the consumer
decreases.
Along the same indifference curve, MRS is
decreasing as more of one good is obtained.
When the own-price elasticity of good X is -3.5 then total revenue can be increased by
decreasing the price.
When a demand curve is linear
demand is inelastic at low prices.
When a demand curve is linear,
demand is inelastic at low prices.
If the own price elasticity of demand is infinite in absolute value, then
demand is perfectly elastic.
The property that implies that indifference curves are convex to the origin is:
diminishing marginal rate of substitution.
Suppose the long-run average cost curve is U-shaped. When LRAC is in the increasing stage, there exist
diseconomies of scale.
A study has estimated the effect of changes in interest rates and consumer confidence on the demand for money to be: lnM = 14.666 + .021 lnC - .036 lnr, where M denotes real money balances, C is an index of consumer confidence, and r is the interest rate paid on bank deposits. Based on this study, a 5% increase in interest rates will cause the demand for money to:
drop by .18%.
Which of the following would not shift the demand for good A?
drop in price of good A.
If you include in your offerings some inferior goods, the demand for these products will increase
during bad economic times.
If firms compete in a Cournot fashion, then
each firm views the output of the rival as given.
A firm has a total cost function of C(Q) = 75 + 25Q1/2. The firm experiences
economies of scale.
What contributes to the existence of multiproduct firms?
economies of scale. economies of scope. cost complementarity. Correct Answer both b and c.
Chris raises cows and produces cheese and milk because he enjoys
economies of scope.
Suppose the demand for a product is Q xd = 12 - 3lnPx then product x is
elastic.
Price matching strategies may fail to enhance profits when:
firms cannot prevent customer's from deceptive claims. firms have different marginal costs. Correct! either a or b.
The Bertrand theory of oligopoly assumes
firms set prices.
The demand for which of the following commodities is likely to be more price inelastic?
food
If you advertise and your rival advertises, you each will earn $4 million in profits. If neither of you advertise, you will each earn $10 million in profits. However, if one of you advertises and the other does not, the firm that advertises will earn $1 million and the non advertising firm will earn $5 million. If you and your rival plan to hand your business down to your children (and this "bequest" goes on forever) then a Nash equilibrium is
for each firm to never advertise.
Consider the following information for a simultaneous move game: If you advertise and your rival advertises, you each will earn $5 million in profits. If neither of you advertise, you will each earn $10 million in profits. However, if one of you advertises and the other does not, the firm that advertises will earn $15 million and the non advertising firm will earn $1 million. If you and your rival plan to hand your business down to your children (and this "bequest" goes on forever) then a Nash equilibrium when the interest rate is zero is
for each firm to not advertise until the rival does, and then to advertise forever.
Consider the following information for a simultaneous move game: If you advertise and your rival advertises, you each will earn $3 million in profits. If neither of you advertise, you will each earn $7 million in profits. However, if one of you advertises and the other does not, the firm that advertises will earn $10 million and the non advertising firm will earn $1 million. If you and your rival plan to be in business for only one year, the Nash equilibrium is
for your firm and your rival to advertise.
If a product is perceived by consumers as homogeneous, which of the following strategies will work to induce brand loyalty?
frequent buyer rebate programs.
Suppose the demand for good X is given by Qdx= 10 + ax Px + ay Py + aM M. If ay is positive, then:
goods y and x are substitutes.
The manager can be 95% confident that the true value of the underlying parameters in a regression is not zero if the absolute value of t-statistic is
greater than 2.
As a rule-of-thumb, a parameter estimate is statistically different from zero when the absolute value of the t-statistic is
greater than or equal to two
As a general rule-of-thumb, a manager can be 95 percent confident that the true value of the underlying parameter in the regression is not zero, when the absolute value of the t-statistic is
greater than two.
With linear demand and constant marginal cost, a Stackelberg leader's profits are ___________ the follower.
greater than.
In the long-run, monopolistically competitive firms
have excess capacity.
If the price of good X becomes lower, then the level of consumer surplus becomes
higher
If you were running an advertising campaign for designer men's suits, you should target families with:
higher incomes.
Under a price ceiling, the full economic price is
higher than the free-market price.
The HHI of a local market is usually _____________ that of national markets.
higher than.
A firm manager is an agent
hired by the owner to control the production process.
The market supply curve indicates the total quantity all producers in a competitive market would produce at each price
holding all supply shifters fixed.
The market supply curve indicates the total quantity all producers in a competitive market would produce at each price,
holding all supply shifters fixed.
The average product of labor depends on
how many units of labor and capital are used.
The winner's curse occurs
in a common-values auction.
Consumers spend a lot more time searching for good bargains during recessions because:
in recessions, many individuals are out of work, which lowers their opportunity cost of time.
The cross-price elasticity of demand between goods X and Y is -3.5. If the price of X decreases by 7%, the quantity demanded of Y will
increase by 24.5%.
If you are in the business of selling chicken and the price of selling chicken and the price of beef both were to drop dramatically, what should you do with your inventory level of chicken?
increase the inventory.
A decrease in the price of good Y will have what effect on the budget line on a normal X-Y graph?
increase the vertical intercept.
Suppose the own-price elasticity of demand for good X is -0.5, and that the price of good X increases by 10%. What would you expect to happen to the total expenditures on good X?
increase.
After a price decrease for good X, the new consumer equilibrium level of good X will be:
indeterminate without more information.
Joe consumes 10 units of food and 12 units of clothing. Since food is an inferior good, a gift to Joe of a $12 gift certificate at a food store will
induce Joe to eat more than 10 units of food.
If there are few close substitutes for a good, demand tends to be relatively
inelastic.
Suppose Q xd = 10,000 - 2 Px + 3 Py - 4.5M , where Px = $100, Py = $50, and M = $2,000. Then good X has a demand which is:
inelastic.
Suppose the demand for good x is lnQ xd = 21 - .8 lnPx - 1.6 lnPy + 6.2 lnM + .4 lnAx . Then we know that the own-price elasticity for good x is:
inelastic.
The demand for good X is estimated to be Q xd = 10,000 - 4PX + 5PY + 2M + AX, where PX is the price of X, PY is the price of good Y, M is income and AX is the amount of advertising on X. Suppose the present price of good X is $50, PY = $100, M = $25,000, and AX = 1,000 units. Based on this information, we know that the demand for good X is
inelastic.
Demand is perfectly elastic when the absolute value of the own price elasticity of demand is:
infinite
Advertising provides consumers with information about the underlying existence or quality of a product. These types of advertising messages are called
informative advertising.
The isoquants are normally drawn with a convex shape because
inputs are not perfectly substitutable.
Which of the following is probably not a normal good?
intercity passenger bus travel.
The marginal cost curve
intersects the ATC and AVC at their minimum points.
Hold-up
is a hazard associated with relationship-specific exchange.
The minimum wage
is an example of floor price.
The marginal rate of technical substitution
is the absolute value of the slope of the isoquant.
Producer surplus
is the area above the supply curve but below the market price of the good.
Consumer surplus
is the value consumers get from a good but do not pay for.
A long-term contract
is when a firm is legally bound to purchase inputs from a particular supplier.
How does a decrease in the price of good X affect the market rate of substitution between goods X and Y
it decreases.
Suppose both supply and demand decrease. What effect will this have on price?
it may rise or fall.
If firms are in Cournot equilibrium, they could increase profits by
jointly reducing output.
If A and B are complements, an increase in the price of good A would
lead to a decrease in demand for B.
A downward sloping, linear demand function exhibits:
less elastic demand as output increases.
We would expect the own price elasticity of demand for food to be:
less elastic than the demand for cereal.
If the price of labor increases, in order to minimize the costs of producing a given level of output, the firm manager should use
less of labor and more of capital.
If the price of an input rises, producers are willing to produce
less output at each given price.
The special cost structure that is necessary for a firm to adopt a peak-load pricing policy is?
limited capacity.
Which of the following pricing policies compensate customers if the firm fails to provide the best price in the market?
low price guarantee.
Which of the following pricing strategies does not usually enhance the profits of firms with market power?
marginal cost pricing.
The absolute value of the slope of the indifference curve is called the:
marginal rate of substitution.
Some individuals choose to undertake risky prospects while others choose safer ones, because they have different
marginal rates of substitution between risk and reward.
A Herfindahl index of 10,000 suggests
monopoly.
After a person buys insurance for his car, he will generally not care for his car as much as he otherwise would. This is an example of:
moral hazard.
The demand for Cinnamon Toast Crunch brand cereal is
more elastic than the demand for cereal in general.
The demand for women's clothing is
more elastic than the demand for clothing in general.
If a consumer is given a $10 gift certificate, good only for items in store X and all items in store X are normal goods, then the consumer desires to consume
more goods in store X.
Demand tends to be
more inelastic in the short-term than in the long-term.
If the price of a good purchased by a utility maximizing consumer goes down, all other things remain the same, and the consumer's income is adjusted so that he can just barely attain his previous level of satisfaction, and if the consumer had indifference curves of the usual shape it will be found that
more of the good will be purchased than before.
Holding the mean value of a gamble constant, the larger the standard deviation, the
more risky the gamble will be.
Which of the following is a factor(s) affecting collusion in an infinitely repeated pricing game?
n Correct! all of the above.
The supply function for good X is given by Q x s = 1,000 + PX - 5 PY - 2PW , where PX is the price of X, PY is the price of good Y and PW is the price of input W. If the price of input W increases by $10, then the supply of good X
none of the above
Which of the following is always true under monopoly?
none of the above are true.
Suppose that supply increases and demand decreases. What effect will this have on price and quantity?
none of the above.
Management and a labor union are bargaining over how much of a $50 surplus to give to the union. The $50 is divisible up to one cent. The players have one-shot to reach an agreement. Management has the ability to announce what it wants first, and then the labor union can accept or reject the offer. Both players get zero if the total amounts asked for exceed $50. If you were the labor union, which type of "rules of play" would you prefer to divide the $50 surplus?
one-shot sequential-move game with labor union as the first mover.
A firm manager with vertical indifference curves (output on the horizontal axis, profit on the vertical axis) views
only output to be "goods".
The firm manager with horizontal indifference curves (output on the horizontal axis, profit on the vertical axis) views
only profits to be "goods".
Spot markets are an efficient way for the firm to purchase inputs if
opportunism is not a problem.
Suppose a risk-neutral perfectly competitive firm must set output before it knows for sure the market price. Suppose the market price is given by p = p* + e, where p* is the mean price and e is a random term with an expected value of zero. Then in order to maximize expected profits the firm should produce where
p* = MC.
Which of the following pricing policies does not extract the entire consumer surplus from the market?
peak load pricing.
A Herfindahl index of 0 suggests
perfect competition.
Firms have market power in:
perfectly competitive markets. monopolistically competitive markets. monopolistic markets. Correct Answer both b and c.
Bertrand model of oligopoly reveals that
perfectly competitive prices can arise in markets with only a few firms.
Advertising can influence demand by altering tastes of consumers. This type of advertising is known as
persuasive advertising.
If the last unit of input increases total product we know that the marginal product is:
positive.
A spot exchange involves a market where goods are bought and sold at
prevailing market price.
If steak is a normal good, what do you suppose would happen to price and quantity during an economic recession
price and quantity would both decrease.
The idea of charging two different groups of consumers two different prices is practiced in:
price discrimination.
What is the immediate result of applying the Clean Air Act to a previously non-regulated industry?
price increases and production is reduced.
Demand shifters do not include the
price of the good.
If a shortage exists in a market, the natural tendency is for
price to increase.
The demand function
recognizes that the quantity of a good consumed depends on its price and demand shifters.
The supply function
recognizes that the quantity of a good produced depends on its price and supply shifters.
If a monopolistically competitive firm's marginal cost increases, then in order to maximize profits the firm will
reduce output and increase price.
A consumer spends more time searching for a good when her
reduced.
Normally both countries gain from being able to trade with each other. Economists call this the gains from trade. This means that a quota placed below the existing level of importation generally:
reduces the output of both foreign and domestic firms.
Lemonade, a good with many close substitutes, should have an own-price elasticity that is:
relatively elastic.
The presence of government in the market leads to:
rent-seeking.
An isocost line
represents the combinations of K and L that cost the firm the same amount of money.
To avoid the winner's curse, a bidder should:
revise downward his private estimate of the value of the item.
The cross-price advertising of demand for books and magazines is -2.0. If the price of magazines decreases by 10 percent, the quantity demanded of books will
rise by 20 percent.
Joe's search costs are $5 per search. He wants to buy a VCR for his wife for Christmas, and the lowest price he's found so far is $200. Joe thinks 1/3 of the stores charge $300 for VCR's, 1/3 of the stores charge $200 for VCR's, and 1/3 of the stores charge $175 for VCR's. If Joe's search costs increased to $100 per search he would
search less.
Graphically, a decrease in advertising will cause the demand curve to:
shift leftward.
Graphically, an increase in the number of vegetarians will cause the demand curve for Tofu (a meat substitute) to
shift rightward
For a wood furniture manufacturer, an increase in the cost of lumber will cause the supply curve to:
shift to the left.
Firms advertise in order to cause the demand for their products to
shift to the right
For a steel factory, a decrease in the cost of electricity to the plant will cause the supply curve to:
shift to the right
Technological advances will cause the supply curve to:
shift to the right.
If an excise tax is imposed on a good, then the supply curve
shifts up by the amount of the tax.
Non-fed ground beef is an inferior good. In economic booms, grocery managers
should reduce their orders of non-fed ground beef.
When an effective price ceiling is in place
some consumers are better off and others are worse off.
Spot exchange typically involves
some transaction costs.
As additional consumers obtain the benefits of a pure public good, such as national defense, the benefits to the existing consumers will
stay the same.
If consumers expect future prices to be higher
stockpiling will happen when products are durable in nature.
If an increase in the price of good X leads to an increase in the consumption of good Y, then goods X and Y are called
substitutes.
Which of the following is not the important factor that affects the magnitude of the own price elasticity of a good?
supply of the good.
The budget set defines the combinations of good X and Y
that are affordable to the consumer.
An isoquant defines the combination of inputs
that yield the producer the same level of output.
The demand for an input is
the VMP of the input.
The revenues earned by the firm from the consumer may be maximized under
the buy one get one free offer.
The substitution affect isolates the change in the consumption of a good caused by:
the change in the relative prices of two goods.
If the slope of the indifference curve is steeper than the slope of the budget line, and X is on the horizontal axis
the consumer is willing to give up more of good Y to get an additional unit of good X than is necessary under the current market prices.
If money income doubles and the prices of all goods triples, then
the consumer is worse off due to inflation.
If firms expect prices to be higher in the future and the product is not perishable, then
the current supply curve shifts to the left
If demand is perfectly inelastic, then
the demand curve is vertical.
The primary difference between Monopolistic Competition and Perfect Competition is
the ease of entry and exit into the industry. the number of firms in the market. all of the above. Correct! none of the above.
If supply increases, then
the equilibrium price goes down
Long-term contracts are less likely when
the exchange environment is complex.
You are an efficiency expert hired by a manufacturing firm that uses K and L as inputs. The firm produces and sells a given output. If w = $40, r = $100, MPL = 4, and MPK = 40
the firm should use more K and less L to cost minimize.
You are an efficiency expert hired by a manufacturing firm that uses K and L as inputs. The firm produces and sells a given output. If w = $40, r = $100, MPL = 20, and MPK = 40:
the firm should use more L and less K to cost minimize.
For a given set of data and regression equation, the greater the R-square
the greater adjusted R-square.
It is easier to sustain tacit collusion in an infinitely repeated game if:
the interest rate is lower.
Other things held constant, the greater the price of a good
the lower the consumer surplus
Cost complementary exits in a multiproduct cost function when
the marginal cost of producing one output is reduced when the output of another product is increased.
The point where diminishing marginal returns has begun to affect production, is best characterized by the point where
the marginal product curve begins to be negatively sloped.
If a firm offers to pay a worker $10 for each hour of leisure the worker gives up the $10 implies
the market rate of substitution between leisure and income.
At the point of consumer equilibrium, the slope of the indifference curve is equal to:
the market rate of substitution.
A price ceiling is
the maximum legal price that can be charged in a market.
A floor price is
the minimum legal price that can be charged in a market
In the short run, the marginal cost curve crosses the average total cost curve at
the minimum point of the average total cost curve.
Firms that use a price matching strategy attempt to keep price at
the monopoly price.
The lower the standard error
the more confident the manager can be that the parameter estimates reflect the true values.
The lower the standard error,
the more confident the manager can be that the parameter estimates reflect the true values.
The value of marginal product of an input is the value of
the output produced by the last unit of an input.
The elasticity of variable G with respect to variable S is defined as
the percentage change in variable G that results from a given percentage change in variable S.
It is easier to sustain tacit collusion in an infinitely repeated game if
the present value of cheating is lower than collusion.
When quantity demanded exceeds quantity supplied
the price is below the equilibrium price
Consumers adjust their purchasing behavior so that:
the ratio of prices they pay equals their marginal rate of substitution.
If the price of computers decreases, then
the sales of a substitute, such as a telephone, decreases.
The marginal rate of substitution (MRS) determines the rate at which a consumer is willing to substitute between two goods in order to achieve
the same level of satisfaction.
If income decreases, then
the vertical intercept of the budget line shifts downward.
In the presence of pollution, the marginal cost of producing a good to society is
the vertical sum of the supply curve and the marginal cost of polluting.
A coordination problem arises whenever:
there are multiple Nash equilibria.
With a linear production function
there is a perfect substitutable relationship between all inputs.
A cash gift causes the budget line
to shift to the right in a parallel fashion.
Game theory suggests that, in the absence of patents, the privately motivated innovation decisions of firms might lead to:
too little innovation.
To avoid the problem of double marginalization
transfer prices must be set that maximize the overall value of the firm rather than the profits of the upstream division.
To circumvent the problem of double marginalization
transfer prices must be set that maximize the overall value of the firm rather than the profits of the upstream division.
The possibility of the endless cyclical preference is eliminated by the property of
transitivity
The property that rules out indifference curves that cross is:
transitivity.
An excise tax of $1.00 per gallon of gasoline placed on the suppliers of gasoline, would shift the supply curve
up by $1.00.
An excise tax shifts the supply curve
up by the amount of the tax.
Suppose the marginal product of labor is 8 and the marginal product of capital is 2. If the wage rate is $4 and the price of capital is $2, then in order to minimize costs the firm should
use more labor and less capital.
It is profitable to hire units of labor as long as:
value marginal product exceeds wage.
Which of the following integration types aims at reducing transaction costs?
vertical integration.
The demand for video recorders has been estimated to be Qv = 134 - 1.07Pf + 46Pm - 2.1Pv - 5I,where Qv is the quantity of video recorders, Pf denotes the price of video recorder film, Pm is the price of attending a movie, Pv is the price of video recorders, and I is income. Based on the estimated demand equation we can conclude
video recorders are inferior goods.
Which of the following is the major means to signal good quality of goods by firms?
warranties/guarantees.
A firm chooses the institution to purchase inputs
which minimizes the transactions costs of obtaining inputs.
Since most consumers spend very little on salt, a small increase in the price of salt
will not reduce quantity demanded by very much.
Managers can get workers to work longer hours
with higher overtime pay in excess of regular hourly pay.
A potential problem with piece rate plans is that
workers may put little emphasis on the quality of the good.
A potential problem with paying workers based on a piece-rate is that
workers will attempt to produce quantity at the expense of quality.
Consider the following information for a simultaneous move game: If you advertise and your rival advertises, you each will earn $3 million in profits. If neither of you advertise, you will each earn $7 million in profits. However, if one of you advertises and the other does not, the firm that advertises will earn $10 million and the non advertising firm will earn $1 million. If you and your rival plan to be in business for 15 years, then the Nash equilibrium is for
you and your rival to advertise every year.
Each week Bill buys exactly 7 bottles of cola regardless of its price. Bill's own price elasticity of demand for cola in absolute value is:
zero