Econ 510 exam 3

During spring break, students have an elasticity of demand for a trip to Florida of -3. How much should an airline charge students for a ticket if the price it charges the general public is $360? Assume the general public has a price-elasticity of demand of -2.

$270

Suppose that initially the price is $50 in a perfectly competitive market. Firms aremaking zero economic profits. Then the market demand shrinks permanently andsome firms leave the industry and the industry returns back to a long-run equilibrium.What will be the new equilibrium price, assuming cost conditions in the industryremain constant?

$50

A local video store estimates its average customer's demand per year is Q = 7 − 2P, and it knows the marginal cost of each rental is $0.5. 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?

$9

Economies of scale exist whenever

average total costs decline as output increases.

A study has estimated the effect in interest rates and consumer confidence on the demand for money to be: ln M = 14.666 + .021 ln C - 0.036 ln r, 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, 5% increase in interest rates will cause the demand for money to:

drop by .18%

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

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

Suppose Qxd = 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?

-.021

You are the manager of a monopoly faces a demand curve described by P = 230-20Q. Your costs are C=5+30Q. The profit maximizing price is

130

You are the manager of a monopoly that faces a demand curve described by P = 230 - 20Q. Your costs are C = 5 + 30Q. Your firm's maximum profits are

495

You are the manager of a monopoly that faces a demand curve described by P = 230 - 20 Q. Your costs are C = 5 + 30 Q. The profit-maximizing output of your firm is:

5

When two or more divisions mark up prices in excess of marginal cost:

double marginalization occurs

If the cross-price elasticity between ketchup and hamburgers is -1.2, a 4% increase in the price of ketchup will lead to a 4.8% ____?

Drop in quantity demanded of hamburgers

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%

A linear demand function exhibits:

Less elastic demand as output increases.

Which of the following is a correct representation of the profit-maximization condition for a monopoly? Multiple Choice

MC = MR

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)

Consider a monopoly where the inverse demand for its product is given by P = 200 -5Q. Based on this information, the marginal revenue function is:

MR(Q) = 200 - 10Q

Which of the following market structures would you expect to yield the greatest product variety?

Monopolistic competition

Firms have market power in:

Monopolistically competitive markets and monopolistic markets

Which of the following statements is NOT correct about monopoly?

Monopolists always make positive profits in the long run.

Which of the following is true for perfect competition but not true for monopolistic competition and monopoly?

P = MC

Which of the following is true under monopoly?

P > MC

Which of the following is true under monopolistic competition in the long run?

Profits are always zero

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

Differentiated goods are a feature of a:

monopolistically competitive market.

First-degree price discrimination

occurs when a firm charges each consumer the maximum price he or she would be willing to pay for each unit of the good purchased and results in the firm extracting all surplus from consumers.

The idea of charging two different groups of consumers two different prices is practiced in:

price discrimination

A Broadway theater sells weekday show tickets at a lower price than for a weekend show. This is an example of:

price discrimination or peak-load pricing.