MBA 651 Final

A firm has a total cost function of C(Q) = 75 + 25Q1/2. The firm experiences economies of scale. diseconomies of scale. constant returns to scale.

economies of scale.

Chris raises cows and produces cheese and milk because he enjoys: economies of scale. economies of scope. Constant returns to scale. none of the above.

economies of scope.

Suppose the demand for a product is Q xd = 12 - 3lnPx then product x is inelastic. unitary elastic. elastic. Cannot be determined without more information.

elastic.

If the price of good X becomes lower, then the level of consumer surplus becomes lower. higher. unchanged. lower in the short-run but higher in the long run.

higher.

The average product of labor depends on how many units of labor are used. how many units of capital are used. how many units of labor and capital are used. none of the above.

how many units of labor and capital are used.

Hold-up is a hazard associated with relationship-specific exchange. mitigates worker shirking. makes spot exchange efficient. solves the principal-agent problem.

is a hazard associated with relationship-specific exchange.

If the last unit of input increases total product we know that the marginal product is: positive. negative. zero. indeterminate.

positive.

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. 4. 11. 45.

3.

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 -2.5. 4. -2.5%. 4%.

4.

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 36. 60. 40. 80.

40.

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? 0. 45. 30. 55.

55.

Changes in the price of an input cause isoquants to become steeper. slope changes in the isocost line. parallel shifts of the isocost lines. changes in both the isoquants and isocosts of equal magnitude.

slope changes in the isocost line.

Technological advances will cause the supply curve to: shift to the left. shift to the right. become flatter. become steeper.

shift to the right.

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. This data indicates that: The demand for sugar is inelastic. The demand curve for sugar is upward sloping. The quantity demanded of sugar increased. b and c.

The demand for sugar is inelastic.

Which of the following factors reduces need for government involvement in the market place? The presence of externalities. The incentive to rent-seek. The need for public goods. Incomplete information.

The incentive to rent-seek.

Which of the following enhances the ability of waste companies to collude? decals on waste receptacles high interest rates differentiated nature of products large number of firms

decals on waste receptacles

The minimum wage is an example of floor price. leads to an increase in the number of people employed in unskilled jobs. leads to a decrease in the number of people employed in skilled jobs. causes an increase in social welfare.

is an example of floor price.

What is the immediate result of applying the Clean Air Act to a previously non-regulated industry? price decreases and production is reduced. price increases and production is reduced. price decreases and production is enlarged. price increases and production is enlarged.

price increases and production is reduced.

If consumers expect future prices to be higher they substitute current purchases for future purchases of perishable products. stockpiling will happen when products are durable in nature. the position of the demand will not change. the demand for automobiles today will not change.

stockpiling will happen when products are durable in nature.

Which of the following is not the important factor that affects the magnitude of the own price elasticity of a good? available substitutes. supply of the good. time. expenditure share.

supply of the good.

The absolute value of the slope of the indifference curve is called the: marginal revenue. average rate of substitution. marginal rate of substitution. marginal cost.

marginal rate of substitution.

The idea of charging two different groups of consumers two different prices is practiced in: price discrimination. two-part pricing. price matching. none of the above

price discrimination.

Non-fed ground beef is an inferior good. In economic booms, grocery managers should increase their orders of non-fed ground beef. should reduce their orders of non-fed ground beef. should not change their orders of non-fed ground beef. none of the above.

should reduce their orders of non-fed ground beef.

Cost complementary exits in a multiproduct cost function when the average cost of producing one output is reduced when the output of another product is increased. the average cost of producing one output is increased when the output of another product is increased. the marginal cost of producing one output is increased when the output of another product is decreased. the marginal cost of producing one output is reduced when the output of another product is increased.

the marginal cost of producing one output is reduced when the output of another product is increased.

If a firm offers to pay a worker $10 for each hour of leisure the worker gives up the $10 implies the marginal rate of substitution between leisure and income. the market rate of substitution between leisure and income. the market rate of transformation between leisure and income. the marginal rate of transformation between leisure and income.

the market rate of substitution between leisure and income.

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? $0.35. $0.5. $0.7. $1.0.

$0.5.

Suppose the cost function is C(Q) = 50 + Q - 10Q2 + 2Q3. What is the variable cost of producing 10 units? $401. $1,060. $560. $1,010.

$1,010.

Suppose the cost function is C(Q) = 50 + Q - 10Q2 + 2Q3. What is the total cost of producing 10 units? $2,060. $1,060. $560. $1,010.

$1,060.

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? $50. $100. $192. $200.

$100.

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? $12. $14. $16. $18.

$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? $75,000. $150,000. $225,000. $300,000.

$150,000.

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 $192. $228. $348. $576.

$228.

For the cost function C(Q) = 1000 + 14Q + 9Q2 + 3Q3, what is the marginal cost of producing the fourth unit of output? $42. $295. $230. $116.

$230.

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 0.7 2.3 3.3

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: 2.5. 0.4. 2. 0.27.

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? 1.12. 0.38. 1.92. 0.52.

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 0.008. 0.082. 0.82. 8.2.

0.82.

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. 20. 30. 40.

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? 3. 4. 11. 45.

11.

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? 6.0% 7.9% 12.6% 43.4%

12.6%

Given a cost function C(Q) = 200 + 14Q + 8Q2, what is the marginal cost function? 14 + 16Q. 14Q + 8Q2. 200 + 8Q2. 14 + 16Q2.

14 + 16Q.

If the income elasticity for lobster is .6, a 25% increase in income will lead to a 6% drop in demand for lobster. 2.4% increase in demand for lobster. 15% increase in demand for lobster. 42% increase in demand for lobster.

15% increase in demand for lobster.

For a cost function C = 100 + 10Q + Q2, the average variable cost of producing 20 units of output is 10. 20. 30. none of the above.

30.

Given that income is $200 and the price of good Y is $40. What is the vertical intercept of the budget line? 8,000. 20. 1/5. 5.

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 4. 5. 10. 15.

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 4/5. 10. 5. 45.

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 4. 5. 6. 7.

5.

For the production function Q = 5.2K + 3.8L, if K = 16 and L = 12, we know that MPK is: 16. 5.2. 3.8. 12.

5.2.

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? 3. 4. 7. 45.

7.

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 4%. It will increase 9%. It will fall 4%. It will fall 6%.

It will increase 9%.

In the presence of large sunk costs, which of the following market structures generally leads to the highest price? Stackelberg. Cournot. Bertrand. Monopoly.

Monopoly.

_______ occurs when people smoke more after buying life insurance. Adverse selection. Moral hazard. Asymmetric information. Cournot and Bertrand competition.

Moral hazard.

For a cost function C = 100 + 10Q + Q2, the marginal cost of producing 10 units of output is 10. 200. 210. None of the above.

None of the above.

In order for isoquants to have a diminishing marginal rate of substitution they must be: L-shaped. Straight lines. Vertical. Concave to the origin. None of the above.

None of the above.

A long-term contract occurs when a firm produces its own inputs. is most likely in complex exchange environments. is when a firm is legally bound to purchase inputs from a particular supplier. is shorter when specialized investments are important.

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 increases. it decreases. remains unchanged. indeterminable without more information.

it decreases.

Suppose both supply and demand decrease. What effect will this have on price? it will fall. it will rise. it may rise or fall. it will remain the same.

it may rise or fall.

If A and B are complements, an increase in the price of good A would: have no effect on the quantity demanded of B. lead to an increase in demand for B. lead to a decrease in demand for B. none of the above.

lead to a decrease in demand for B.

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?A. 10.B. 20.C. 15.D. It cannot be determined because of incomplete information.

15.

The combinations of inputs that produce a given level of output are depicted by: Indifference curves. Budget lines. Isocost curves. Isoquants.

Isoquants.

Which of the following statements is not correct about information? It is always desirable for some people to have more information than others. Adverse selection will not occur if there is full information given to all market participants. Information plays an important role in how the economy functions. Asymmetric information may lead to the disappearance of a market.

It is always desirable for some people to have more information than others.

If a consumer's income decreases, what will happen to the budget line? It will shift outward. It will become steeper. It will become flatter. It will shift inward.

It will shift inward.

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) = P(Q1 + Q2). MC1(Q1) = MC2(Q2) = MR(Q1 + Q2). MC1(Q1 + Q2) = MC2(Q1 + Q2) = P (Q1 + Q2). MC1(Q1 + Q2) = MC2(Q1 + Q2) = MR (Q1 + Q2).

MC1(Q1) = MC2(Q2) = MR(Q1 + Q2).

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 ProfitA < ProfitB Revenue of firm A < Revenue of firm B PriceA = PriceB

QA > QB

Cinemas sometimes give senior citizens discounts. What is the possible privately motivated purpose for them to do so? Purely because entrepreneurs are benevolent. Senior citizens have a more elastic demand for movies than ordinary citizens. Senior citizens lack recreational activities. None of the above.

Senior citizens have a more elastic demand for movies than ordinary citizens.

Which of the following is a factor(s) affecting collusion in an infinitely repeated pricing game? number of firms. firm size. history. all of the above.

all of the above.

Persuasive advertising influences demand by: providing information about the availability of a product. offering reduced prices for the product. altering the underlying tastes of consumers. none of the above.

altering the underlying tastes of consumers.

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: a normal good. an inferior good. a complement. a substitute.

an inferior good.

Suppose good X is a normal good. Then a decrease in income would lead to an outward shift of the demand curve. an inward shift of the demand curve. no shift of the demand curve. a movement along the demand curve.

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. and your rival not to advertise. to advertise and your rival not to advertise. not to advertise and your rival to advertise.

and your rival to advertise.

Which of the following involves the least risk from the point of view of the employee? piece rate. profit sharing. revenue sharing. annual salary.

annual salary.

The profits of the leader in a Stackelberg duopoly are greater than those of the follower. equal those of the follower. are less than those of the follower. are greater than those of a Sweezy oligopolist.

are greater than those of the follower.

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. $210. $280. $160. $105.

$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? $492. $392. $192. $292.

$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? $ 20. $32. $40. $64.

$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? $20. $40. $60. $80.

$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. $45. Lower than $50 but exact value cannot be known without more information. Larger than $45 but exact value cannot be known without more information.

$50.

Suppose the cost function is C(Q) = 50 + Q - 10Q2 + 2Q3. What are the fixed costs? $50. $10. $1. $2.

$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? $519. $417. $228. $684.

$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? $24. $7. $12. $10.

$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? $10. $6. $4. $8.

$8.

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. 2.71. 0.42. -.86.

-.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? -2.34. -.78. -.21. -1.21.

-.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. -.29. -.32. -.39. -.41. none of the above.

-.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. -0.03. -0.3. -3.

-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. -0.3. -0.4. -0.5. -0.6.

-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. -0.2. -0.3. -0.4. -0.5. -0.6.

-0.6.

If a monopolist claims his profit-maximizing markup factor is 3, what is the corresponding price elasticity of demand? -1.5. -2.0. -2.5. -3.0.

-1.5.

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. 4. -2.5%. 4%.

-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? -0.75 -3 -4 -25

-4

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: 0.8 0.9 1.0 1.1

0.9

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. 0.08. 0.32. 0.16.

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. 0.08. 0.32. 0.16.

1.

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 2/5. 1/5. 10. none of the above.

1/5.

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? A. 10.B. 20.C. 15.D. 8.

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. If the government taxed output at $2 per unit, what would a competitive industry produce?A. 10.B. 20.C. 15.D. 8.

15.

If the income elasticity for lobster is .4, a 40% increase in income will lead to a: 10% drop in demand for lobster. 16% increase in demand for lobster. 20% increase in demand for lobster. 4% increase in demand for lobster.

16% increase in demand for lobster.

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 0. 66. 120. 170.

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? 1659. 1779. 1839. 1909.

1779.

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? 160 180 220 None of the above.

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 8. 2. 2/3. 1/8. none of the above.

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?A. 10.B. 20.C. 15.D. 8.

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 15. 225. 40. 1600. none of the above.

225.

For the cost function C(Q) = 75 + 4Q + 2Q2, the marginal cost of producing 5 units of output is 4 54 20 24

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. 400. 450. 500.

250.

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. 4. 11. 45.

3.

For the cost function C(Q) = 200 + 3Q + 8Q2 + 4Q3, what is the average fixed cost of producing six units of output? 18.31. 212.61. 42.12. 33.33.

33.33.

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. 55. 60. 50.

45.

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 3. 4. 5. 6.

6.

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? 61,500. 61,300. 61,300 - 4PX. 61,500 - 4PX.

61,300.

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%? .02%. 38.6%. 66.7%. 4.3%.

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? 14 10 7 5

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? 18 hours. 16 hours. 12 hours. 6 hours. 8 hours.

8 hours.

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 125. 250. 100. 85.

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? 0. 4. 9. 13.

9.

Which of the following statements concerning monopoly is NOT true? A market may be monopolistic because there are some legal barriers. A monopoly has market power. A monopoly is always undesirable. There is some deadweight loss in a monopolistic market.

A monopoly is always undesirable.

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 24 units. A shortage of 34 units. A surplus of 58 units. A surplus of 34 units.

A shortage of 34 units.

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? Search once more and decide again upon knowing the price. Accept the offer in hand. She should toss a coin. Insufficient information to determine.

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? A dominant strategy for Firm A is to advertise. A dominant strategy for Firm B is to advertise. A Nash equilibrium is for both firms to advertise. All of the above are true.

All of the above are true.

Which of the following is true? In Bertrand oligopoly each firm reacts optimally to price changes. In Cournot oligopoly firms engage in quantity competition. In Sweezy oligopoly a change in marginal cost may not have an effect on output or price. All of the above are true.

All of the above are true.

In a competitive industry with identical firms, long run equilibrium is characterized by P = AC. P = MC. MR = MC. All of the above.

All of the above.

The difference between a price decrease and an increase in income is that A price decrease does not affect the consumption of other goods while an increase in income does. An increase in income does not affect the slope of the budget line while a decrease in price does change the slope. A price decrease decreases real income while an increase in income increases real income. A price decrease leaves real income unchanged while an increase in income increases real income. None of the above.

An increase in income does not affect the slope of the budget line while a decrease in price does change the slope.

From a consumer's point of view, which type of oligopoly is most desirable? Sweezy. Cournot. Stackelberg. Bertrand.

Bertrand.

What contributes to the existence of multiproduct firms? economies of scale. economies of scope. cost complementarity. both b and c.

Both economies of scope and cost complementarity.

Economies of scope exist when C(Q1) + C(Q2) < C(Q1,Q2). C(Q1) - C(Q2) < C(Q1,Q2). C(Q1) + C(Q2) > C(Q1,Q2). C(Q1) - C(Q2) > C(Q1,Q2).

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? A. B. C. D.

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. Charge $75 for a suit. Charge $100 for a suit. Charge $125 for a suit.

Charge $150 for a suit.

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. EM = NEF. EM = EF/N. No deterministic relationship.

EM = EF/N.

Which of the following is not a basic feature of a monopolistically competitive industry? There are many buyers and sellers in the industry. Each firm in the industry produces a differentiated product. There is free entry and exit into the industry. Each firm owns a patent on its product.

Each firm owns a patent on its product.

What should the manager do to solve the shirking problem? Always monitor. Never monitor. Sincerely tell workers not to shirk. Engage in "random" spot checks of the work place.

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? Above $30. Below $30. Equal to $30. Unable to tell given the information provided.

Equal to $30.

Which of the following is true? In a one-shot game, a collusive strategy always represents a Nash equilibrium. A perfect equilibrium occurs when each player is doing the best he can regardless of what the other player is doing. Each Nash equilibrium is a perfect equilibrium. Every perfect equilibrium is a Nash equilibrium. none of the above

Every perfect equilibrium is a Nash equilibrium.

Suppose the income elasticity for transportation is 1.8. Which of the following is an incorrect statement? Transportation is a normal good. Expenditures on transportation grow more rapidly than income grows. Expenditures on transportation will fall less rapidly than income falls. Whenever the income increases by 1%, the expenditure on transportation increases by 1.8%.

Expenditures on transportation will fall less rapidly than income falls.

If firms are in Cournot equilibrium: Each firm could increase profits by unilaterally increasing output. Each firm could increase profits by unilaterally decreasing output. Firms could increase profits by jointly increasing output. Firms could increase profits by jointly reducing output.

Firms could increase profits by jointly reducing output.

Which of the following phenomena shows that risk aversion is the characteristic of many people? The popularity of high-stakes poker tournaments. Horse-race betting. Investing in one stock rather than a portfolio. Home-owners insurance.

Home-owners insurance.

Consider a two good world, with commodities X and Y. Which of the following statements is correct? Both X and Y must be normal goods. If good X is a normal good, good Y must be an inferior good. If good X is an inferior good, good Y must be a normal good. Both good X and good Y can be inferior goods.

If good X is an inferior good, good Y must be a normal good.

As we move down along a linear demand curve, the price elasticity of demand becomes more Elastic Inelastic Log-linear Variable

Inelastic

The short run response of quantity demanded to a change in price is usually: The same as the long run response. Less than the long run response. Greater than the long run response. None of the above.

Less than the long run response.

Which of the following features is common to both perfectly competitive markets and monopolistically competitive markets? Firms produce homogeneous goods. Prices are equal to marginal costs in the long-run. Long run profits are zero. Prices are above marginal costs in the long-run.

Long run profits are zero.

The horizontal intercept of the budget line is: -PX/PY. M/PX. M/PY. PYY.

M/PX.

Which of the following is a profit-maximizing condition for a Cournot oligopolist? MR = MC. Q1 = Q2 = ... = Qn. P = MR. all of the above.

MR = MC.

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. None of the above.

None of the above.

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: The demand for sugar is inelastic. The demand curve for sugar is upward sloping. The quantity demanded of sugar increased. None of the above.

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?A. One-shot simultaneous-move gameB. One-shot sequential-move game with management as the first moverC. One-shot sequential-move game with labor union as the first moverD. One-shot simultaneous-move game and one-shot sequential-move game with management as the first mover

One-shot sequential-move game with labor union as the first mover

Let the demand function for a product be Q = 100 - 2P. The inverse demand function of this demand function is: Q = 100 + 2P. P = 50 - 0.5Q. P = 50 + 0.5Q. none of the above.

P = 50 - 0.5Q.

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? QA < QB ProfitA < ProfitB Revenue of firm A < Revenue of firm B PriceA < PriceB

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 more than 100 units. Produce less than 100 units. Produce 100 units. Insufficient information to decide.

Produce less than 100 units.

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 = 550. Q x s = 250 + Px. Q x s = 550 + Px. Q x s = 150 + Px.

Q x s = 150 + Px.

The feasible means of converting raw inputs such as steel, labor, and machinery into an output are summarized by: Land. Production. Capital. Technology.

Technology.

A potential problem with piece rate plans is: That workers will out produce a large quantity. That workers have no incentive to work hard. That it is difficult for managers to control. That workers may stress quantity instead of quality.

That workers may stress quantity instead of quality.

By the completeness property, if neither A > B nor A < B hold, then The consumer is indifferent between A and B. The consumer prefers bundle A. The consumer prefers bundle B. none of the above.

The consumer is indifferent between A and B.

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 will decrease its output and lower its price. The firm will increase the price. The firm will shut down immediately. The firm continues to produce the same output and charge the same price.

The firm continues to produce the same output and charge the same price.

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?A. There are multiple Nash equilibriaB. ($25, $25) is a Nash equilibriumC. A Nash equilibrium is also a perfect equilibriumD. There are multiple Nash equilibria and ($25, $25) is a Nash equilibrium

There are multiple Nash equilibria and ($25, $25) is a Nash equilibrium

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 before the customer is given a gift certificate. a greater quantity sold than if the customer resorts to giving a cash gift. the same quantity sold than before the customer is given a gift certificate. the same quantity sold as if the customer resorts to giving a cash gift.

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: only normal goods. a mix of normal and inferior goods. all inferior goods. none of the above.

a mix of normal and inferior goods.

A decrease in income will not lead to: a movement along the demand curve. a leftward shift of the demand curve. a rightward shift of the demand curve. all of the above.

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 an inferior good. a normal good. a Giffen good. a regular good.

a normal good.

A perfectly competitive firm faces: a perfectly elastic demand function. a perfectly inelastic demand function. a demand function with unitary elasticity. none of the above.

a perfectly elastic demand function.

Spot checks work because of the promise of a reward. a promise of performance-based pay. a potential penalty for shirking. monitoring on a regular basis.

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 aH > 0. aX > 0. aY > 0. aM > 0.

aM > 0.

Suppose X and Y are complements and demand for X is Q xd = a0 + aXPX + aYPY + aMM + aHH. Then we know aH > 0. aX > 0. aY < 0. aM < 0.

aY < 0.

Good X is a normal good if an increase in income leads to an increase in the supply for good X. an increase in the demand for good X. a decrease in the demand for good X. a decrease in the supply for good X.

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. a decrease in the demand of good X. a decrease in the supply of good X. an increase in the supply of good X.

an increase in the demand of good X.

An income elasticity less than zero tells us that the good is: a normal good. a Giffen good. an inferior good. an inelastic good.

an inferior good.

If an increase in income causes a decrease in the consumption of good Y we know that good Y is: a normal good. a substitute. a complement. an inferior good.

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: a normal good. an inferior good. a complement. a substitute.

an inferior good.

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: type A consumers. type B consumers. both a and b. none of the above.

both a and b.

Firms have market power in: perfectly competitive markets. monopolistically competitive markets. monopolistic markets. both b and c.

both b and c.

There is no market supply curve in a perfectly competitive market. a monopolistically competitive market. a monopolistic market. both b and c.

both b and c.

Which of the following features is common to both perfectly competitive markets and monopolistically competitive markets? Firms produce homogeneous goods. There is free entry. Long run economic profits are zero. both b and c.

both b and c.

An ad valorem tax shifts the supply curve down by the amount of the tax. up by the amount of the tax. by rotating it counter-clockwise. by rotating it clockwise.

by rotating it counter-clockwise.

The marginal product of an input is defined as change in average output attributable to the last unit of an input. change in total output attributable to the last unit of an input. change in total input attributable to the last unit of an output. change in average output attributable to the last unit of an output.

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. cheat by producing a lower level of output. cheat by raising prices. none of the above.

cheat by producing a higher level of output.

If the cross-price elasticity between good A & B is negative, we know the goods are: inferior goods. complements. inelastic. substitutes.

complements.

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 producer surplus. price ceilings. full economic prices. consumer surplus.

consumer surplus.

When marginal cost curve is below an average cost curve, average cost is increasing with output. declining with output. not varying with output. none of the above.

declining with output.

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 increase remain constant either increase or remain constant depending upon the size of the price decrease.

decrease

An increase in the price of good X will have what effect on the budget line on a normal X-Y graph? parallel outward shift of the line. increase the vertical intercept. decrease the horizontal intercept. parallel inward shift of the line.

decrease the horizontal intercept.

When the own price elasticity of good X is -3.5 then total revenue can be increased by increasing the price. decreasing the quantity supplied. decreasing the price. none of the above.

decreasing the price.

When a demand curve is linear, demand is elastic at low prices. demand is inelastic at low prices. demand is unitary elastic at low prices. the elasticity is constant at all prices.

demand is inelastic at low prices.

If the own price elasticity of demand is infinite in absolute value, then demand is perfectly elastic. the demand curve is vertical. consumers do not respond at all to changes in price. Both b and c.

demand is perfectly elastic.

Suppose the long-run average cost curve is U-shaped. When LRAC is in the increasing stage, there exist economies of scope. diseconomies of scope. economies of scale. diseconomies of scale.

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 1.8%. increase by 1.8%. drop by .18%. increase by .18%.

drop by .18%.

If you include in your offerings some inferior goods, the demand for these products will increase during bad economic times. during economic booms. when incomes are high. all of the above.

during bad economic times.

As a rule-of-thumb, a parameter estimate is statistically different from zero when the absolute value of the t-statistic is: zero. less than one. greater than or equal to one. greater than or equal to two.

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 zero. greater than or equal to one. greater than two. None of the above

greater than two.

In the long-run, monopolistically competitive firms: charge prices equal to marginal cost. have excess capacity. produce at the minimum of average total cost. b. and c.

have excess capacity.

If you were running an advertising campaign for designer men's suits, you should target families with: lower incomes. higher incomes. poor taste in clothing. similar tastes and preferences.

higher incomes.

The market supply curve indicates the total quantity all producers in a competitive market would produce at each price, holding only input price fixed. allowing input price to vary. holding all supply shifters fixed. allowing all supply shifters to vary.

holding all supply shifters fixed.

The winner's curse occurs: only in English auctions. only in second-price sealed bid auctions. in a common-values auction. in a private-values auction.

in a common-values auction.

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: decrease by 24.5%. decrease by 2.45%. increase by 24.5%. increase by 2.45%. remain unchanged.

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? keep it the same. decrease the inventory. increase the inventory. get into the beef business.

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. decrease the horizontal intercept. parallel outward shift of the line. parallel inward shift of the line.

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. decrease. unchanged. none of the above.

increase.

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 elastic. inelastic. unitary elastic. none of the above.

inelastic.

Advertising provides consumers with information about the underlying existence or quality of a product. These types of advertising messages are called persuasive advertising. informative advertising. green advertising. influential advertising.

informative advertising.

The isoquants are normally drawn with a convex shape because inputs are not perfectly substitutable. inputs are perfectly substitutable. inputs are perfect complements. inputs are normal goods.

inputs are not perfectly substitutable.

Which of the following is probably not a normal good? designer jeans. diamond rings. intercity passenger bus travel. new automobiles.

intercity passenger bus travel.

The marginal rate of technical substitution determines the rate at which a producer can substitute between two inputs in order to increase one additional unit of output. is the absolute value of the slope of the isoquant. is the absolute value of marginal revenue. is constant along the isoquant curve.

is the absolute value of the slope of the isoquant.

Producer surplus is the area above the supply curve but below the demand curve. is the area above the supply curve but below the market price of the good. is the minimum amount required by a producer for producing the good. is the maximum amount a producer can collect from consumers.

is the area above the supply curve but below the market price of the good.

Consumer surplus is the value consumers get from a supplier. is the value consumers do not pay because of a discount by supplier. is the value consumers get from a good but do not pay for. is equal to the amount consumers pay for a good.

is the value consumers get from a good but do not pay for.

The demand for women's clothing is more elastic than the demand for clothing in general. less elastic than the demand for clothing in general. equally elastic to the demand for clothing in general. none of the above.

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. less goods in store X. the same amount of goods in store X. none of the above.

more goods in store X.

Demand tends to be more elastic in the short-term than in the long-term. more inelastic in the short-term than in the long-term. equally elastic in the short-term and in the long-term. none of the above.

more inelastic in the short-term than in the long-term.

Which of the following is always true under monopoly? profits are always positive. P > minimum of ATC. P = MR. none of the above are true.

none of the above are true.

Collusion is: legal in the United States. not possible when firms interact repeatedly forever. more likely in industries with a large number of firms. none of the above.

none of the above.

Suppose that supply increases and demand decreases. What effect will this have on price and quantity? price will increase and quantity may rise or fall. price will decrease and quantity will increase. price will decrease and quantity will decrease. none of the above.

none of the above.

The demand function describes how much of good X will be purchased at the alternative price of good X, given all the other variables being constant. recognizes that the quantity of a good consumed depends on its price and demand shifters. shows the relationship between the quantity demanded of X and variables other than its price. does not include expectations.

recognizes that the quantity of a good consumed depends on its price and demand shifters.

The supply function describes how much of good X will be produced at an alternative price of good X, given all the other variables being constant. recognizes that the quantity of a good produced depends on its price and supply shifters. shows the relationship between the quantity supplied of X and variables other than its price. does not include technology.

recognizes that the quantity of a good produced depends on its price and supply shifters.

A consumer spends more time searching for a good when her reservation price is: increased. reduced. fixed. none of the above.

reduced.

Lemonade, a good with many close substitutes, should have an own-price elasticity that is: unitary. relatively elastic. relatively inelastic. perfectly inelastic.

relatively elastic.

The presence of government in the market leads to: benefits at no cost to society. rent-seeking. externalities. adverse selection.

rent-seeking.

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 fall by 2.0 percent. rise by 2.0 percent. fall by 20 percent. rise by 20 percent.

rise by 20 percent.

When an effective price ceiling is in place every consumer is better off. every consumer is worse off. some consumers are better off and others are worse off. on average the net change in consumer surplus is zero.

some consumers are better off and others are worse off.

As additional consumers obtain the benefits of a pure public good, such as national defense, the benefits to the existing consumers will decline. increase. stay the same. increase in the short run, but decrease in the long run.

stay the same.

The budget set defines the combinations of good X and Y that are desirable to the consumer. that are affordable to the consumer. that maximizes consumer's utility. that maximizes supplier's profit.

that are affordable to the consumer.

An isoquant defines the combination of inputs that yield the producer higher levels of output than the desired level of output. that yield the producer lower levels of output than the desired level of output. that yield the producer the same level of output. none of the above.

that yield the producer the same level of output.

The demand for an input is sloping upward. the VMP of the input. determined by MPL = W. derived from input owner's profit maximizing condition.

the VMP of the input.

The revenues earned by the firm from the consumer may be maximized under the regular price offer. the buy one get one free offer. 50% discount offer. 40% discount offer.

the buy one get one free offer.

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. MRS < PX /PY. MRS < - PX /PY. the consumer is willing to give up more of good X to get an additional unit of good Y than is necessary under the current market prices.

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 budget line remains unchanged. the consumer is worse off due to inflation. the consumer will buy more of normal goods. the budget line will shift out.

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. the current supply curve shifts to the right. producers produce more output to hold back for the future. none of the above.

the current supply curve shifts to the left.

If demand is perfectly inelastic, then the own price elasticity of demand is infinite in absolute value. a small increase in price will lead to a situation where none of the good is purchased. the demand curve is vertical. none of the above.

the demand curve is vertical.

Long-term contracts are less likely when specialized investments are important. hold up is likely. the exchange environment is complex. workers are paid based on piece-rates.

the exchange environment is complex.

At the point of consumer equilibrium, the slope of the indifference curve is equal to: the market rate of substitution. the indifference curve. the marginal rate of technical substitution. the consumer preference.

the market rate of substitution.

A price ceiling is the minimum legal price that can be charged in a market. the maximum legal price that can be charged in a market. above the initial equilibrium price. equal to the initial equilibrium price.

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. the maximum legal price that can be charged in a market. below the initial market equilibrium price. equal to the initial market equilibrium price.

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 a point just below the average fixed cost curve. the minimum point of the average total cost curve. the maximum point of the average total cost curve. the point where the average total cost curve and average variable cost curve intersect.

the minimum point of the average total cost curve.

Firms that use a price matching strategy attempt to keep price at: marginal cost. the oligopoly price. the monopoly price. b or c.

the monopoly price.

If income decreases, then the budget line remains the same. the vertical intercept of the budget line shifts downward. the horizontal intercept of the budget line shifts upward. the slope of the budget line becomes steeper.

the vertical intercept of the budget line shifts downward.

With a linear production function there is a perfect complementary relationship between all inputs. there is a perfect substitutable relationship between all inputs. there is a fixed-proportions relationship between all inputs. there is a variable-proportions relationship between all inputs.

there is a perfect substitutable relationship between all inputs.

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. firms should put more emphasis on vertical integration. firms should engage in two-part pricing. firms should engage in commodity bundling, unless it is possible to engage in either first or second degree price discrimination.

transfer prices must be set that maximize the overall value of the firm rather than the profits of the upstream division.

An excise tax of $1.00 per gallon of gasoline placed on the suppliers of gasoline, would shift the supply curve down by $1.00. down by more than $1.00. up by $1.00. up by less than $1.00.

up by $1.00.

Which of the following integration types aims at reducing transaction costs? vertical integration. horizontal integration. cointegration. conglomerate integration.

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. video recorder film is a substitute for video recorders. the demand for video recorders is inelastic. none of the above.

video recorders are inferior goods.

Since most consumers spend very little on salt, a small increase in the price of salt will reduce quantity demanded by a large amount. will not reduce quantity demanded by very much. will not change quantity demanded. will increase quantity demanded by a small amount.

will not reduce quantity demanded by very much.

Managers can get workers to work longer hours by increasing wages on all hours worked. by lowering wages on all hours worked. with higher overtime pay in excess of regular hourly pay. with lower overtime pay in excess of regular hourly pay.

with higher overtime pay in excess of regular hourly pay.

A potential problem with piece rate plans is that workers will have a tendency to under-produce the good. workers have no incentive to work hard. workers may put little emphasis on the quality of the good. it is difficult for managers to enforce.

workers may put little emphasis on the quality of the good.

A potential problem with paying workers based on a piece-rate is that effort cannot be expended engaging in quality control. effort should not be expended engaging in quality control. workers will attempt to produce quality at the expense of quantity. workers will attempt to produce quantity at the expense of quality.

workers will attempt to produce quantity at the expense of quality.

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? $5. $8. $10. none of the above.

$8.

Given that income is $500 and PX = $20 and PY = $5, what is the market rate of substitution between goods X and Y? 100. -4. -20. 25.

-4.

Which of the following cost functions exhibits cost complementarity? -3Q2 + 4Q1. 5Q1Q2 - Q1. Q2Q1 + 2Q1. -5Q1Q2 + 7Q1.

-5Q1Q2 + 7Q1.

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 3 5 6 10

10

For a cost function C = 100 + 10Q + Q2, the average fixed cost of producing 10 units of output is 10. 5. 1. none of the above.

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? 5. 8. 10. 15.

10.

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 both types $150. Charge both types $75. Charge type A consumers $50, and type B consumers $75. Charge type A consumers $50, and type B consumers $50.

Charge type A consumers $50, and type B consumers $75.

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? A. B. C. D.

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? A. B. C. D.

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 A. B. C. D.

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-neutral manager will prefer project A. B. C. D.

D.

Which of the following is true concerning negative externalities? Firms tend to produce more than the efficient level of output? Society gains because firms do not pay the external costs of production. Perfect competition is better than monopoly from the viewpoint of society even in the presence of negative externalities. With negative externalities, a monopoly will always produce an output level less than is socially efficient.

Firms tend to produce more than the efficient level of output

Which of the following is true? A monopolist produces on the inelastic portion of its demand. A monopolist always earns an economic profit. The more inelastic the demand, the closer marginal revenue is to price. In the short run a monopoly will shutdown if P < AVC.

In the short run a monopoly will shutdown if P < AVC.

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. For neither firm to advertise in early years, but to advertise in later years. For each firm to not advertise in any year. For each firm to advertise in early years, but not advertise in later years.

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. For neither firm to advertise. For your firm to advertise and the other not to advertise. None of the above.

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 only one year, the Nash equilibrium is For each firm to advertise. For neither firm to advertise. For your firm to advertise and the other not to advertise. None of the above.

For neither firm to advertise.

Which of the following is true? In Bertrand oligopoly markets each firm believes that their rivals will hold their output constant if it changes its output. In Cournot oligopoly market firms produce an identical product at a constant marginal cost and engage in price competition. In Sweezy oligopoly markets each firm believes rivals will cut their prices in response to a price reduction, but will not raise prices in response to price increases. In oligopoly market a change in marginal cost never has an affect on output or price.

In Sweezy oligopoly markets each firm believes rivals will cut their prices in response to a price reduction, but will not raise prices in response to price increases.

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. The refrigerator industry in Sweden is perfectly competitive. The refrigerator industry in Sweden is monopolistically competitive. None of the above.

In the absence of imports, the refrigerator industry in Sweden is monopolistic.

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?A. Management requests $50 and the labor union accepts $0B. Management requests $30 and the labor union accepts $10C. Management requests $25 and the labor union accepts $25D. Neither management requesting $50 and the labor union accepting $0 nor management requesting $30 and the labor union accepting $10 are Nash equilibria

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?A. Management requests $49.99, and the labor union accepts $0.01B. Management requests $25, and the labor union accepts $25C. Management requests $0, and the labor union accepts $50D. None of the statements associated with this question are correct

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?A. Management requests $50 and the labor union accepts $0B. Management requests $35 and the labor union accepts $10C. Management requests $20 and the labor union accepts $20D. Management requests $25 and the labor union accepts $10

Management requests $50 and the labor union accepts $0

Changes in the price of an input cause: Isoquants to become steeper. Slope changes in the isocost line. Parallel shifts of the isocost lines. Changes in both the isoquants and isocosts of equal magnitude.

Slope changes in the isocost line.

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 leave the market eventually. Some firms will enter the market eventually. There will be neither entry nor leave. None of the above.

Some firms will enter the market eventually.

Which would you expect to make the highest profits, other things equal? Bertrand oligopolist. Cournot oligopolist. Stackelberg leader. Stackelberg follower.

Stackelberg leader.

A finitely repeated game differs from an infinitely repeated game in that: The former needs a lower interest rate to support collusion than the latter needs. There is an "end-of-period" problem for the former. A collusive outcome can usually be sustained in the former but not the latter. All of the above.

There is an "end-of-period" problem for the former.

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. An increase in income will increase demand for X. A 20% increase in income would increase demand for X by 14%. A 15% increase in income would increase demand for X by 10.5%. a and b are correct.

X has constant income elasticity.

Which curve(s) does the marginal cost curve intersect at the (their) minimum point? Average total cost curve. Average fixed cost curve. Average variable cost curve. All of the above. a and c only.

a and c only.

What is/are the important things that must be developed when characterizing consumer behavior? consumer preferences. individual goals of the firm. consumer opportunities. b and c. a and c.

a and c.

Changes in the price of good A leads to: a change in demand of good A. a change in demand of good B. a change in the quantity demanded of good A. a change in the quantity demanded of good B.

a change in the quantity demanded of good A.

Good A is an inferior good, an increase in income leads to: a decrease in the demand for good B. a decrease in the demand for good A. an increase in the demand for good A. no change in the quantity demanded of good A.

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 an increase in the demand for good X. an increase in the supply for good X. a decrease in the demand for good X. a decrease in the supply for good X.

a decrease in the demand for good X.

If widgets and gidgets are complements and both are normal goods, then an increase in the demand for widgets will result from an increase in the price of widgets. a decrease in income. a decrease in the price of gidgets. a and b. b and c.

a decrease in the price of gidgets.

The substitution effect reflects how a consumer will react to a different marginal rate of substitution. a different market rate of substitution. a different level of real income. a different level of nominal income.

a different market rate of substitution.

In the long-run, monopolistically competitive firms charge prices equal to marginal cost. below marginal cost. equal to the minimum of average total cost. above the minimum of average total cost.

above the minimum of average total cost.

Producer surplus is measured as the area below the demand curve and above the market price. above the demand curve and below the market price. above the supply curve and below the market price. below the supply curve and above the market price.

above the supply curve and below the market price.

The costs of production include the costs that appear on the income statements. the opportunity costs foregone by producing a given product. accounting costs. accounting costs and opportunity costs.

accounting costs and opportunity costs.

A Broadway theater sells weekday show tickets at a lower price than for a weekend show. This is an example of: price discrimination. peak-load pricing. all of the above. none of the above.

all of the above.

One of the conditions under which price discrimination is profitable is: ability to identify consumer types. inability to resell the good. differences in demand elasticities. all of the above.

all of the above.

The source(s) of monopoly power for a monopoly may be: economies of scale. economies of scope. patents. all of the above.

all of the above.

Which of the following is (are) basic feature(s) of a perfectly competitive industry? Buyers and sellers have perfect information. There are no transaction costs. There is free entry and exit in the market. all of the above.

all of the above.

Sam Voter prefers Ronald to Joe, Joe to Gary, and Gary to Ronald. Sam's preferences are consistent with our assumptions about consumer behavior. indicate that he is a liberal. are not complete. are not transitive.

are not transitive.

Which of the following phenomena shows that risk aversion is the characteristic of many people? gambling. looting. investing in one stock rather than a portfolio. auto insurance.

auto insurance.

Economies of scale exist whenever: average total costs decline as output increases. average total costs increase as output increases. average total costs are stationary as output increases. both b and c.

average total costs decline as output increases.

An ad valorem tax causes supply curve to: shift to the right. become flatter. become steeper. shift to the left.

become steeper.

In the long-run, perfectly competitive firms produce a level of output such that: P = MC. P = minimum of AC. both a and b. none of the above.

both a and b.

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: substitutes. complements. normal goods. inferior goods.

complements.

The idea of improving cash flow by exploiting the cyclical nature of different product lines is represented in: vertical integration. horizontal integration. cointegration. conglomerate integration.

conglomerate integration.

The possible goods and services a consumer can afford to consume represents the: consumer behavior. consumer preferences. consumer status. consumer opportunities.

consumer opportunities.

Economies of scale exist whenever long-run average costs increase as output is increased. decrease as output is increased. remain constant as output is increased. none of the above.

decrease as output is increased.

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 Y. decrease the demand for X. increase the demand for X. make the consumer better off.

decrease the demand for X.

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 not advertise until the rival does, and then to advertise for ever. for each firm to never advertise. for each firm to always advertise. for each firm to advertise until the rival does not advertise, and then not advertise forever.

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. for your firm to never advertise. for your firm to always advertise when your rival does. for each firm to advertise until the rival does not advertise, and then not advertise forever.

for each firm to not advertise until the rival does, and then to advertise forever.

If a product is perceived by consumers as homogeneous, which of the following strategies will work to induce brand loyalty? intensive advertising campaign. price wars with competitors. frequent buyer rebate programs. none of the above.

frequent buyer rebate programs.

A downward sloping, linear demand function exhibits: constant demand elasticity. more elastic demand as output increases. less elastic demand as output increases. insufficient information to determine.

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. more elastic than the demand for cereal. have the same elasticity as soap. perfectly inelastic.

less elastic than the demand for cereal.

If the price of an input rises, producers are willing to produce more output at each given price. less output at each given price. the same output at each given price. none of the above.

less output at each given price.

The special cost structure that is necessary for a firm to adopt a peak-load pricing policy is? economies of scale. economies of scope. constant marginal cost. limited capacity.

limited capacity.

A Herfindahl index of 10,000 suggests perfect competition. monopolistic competition. monopoly. oligopoly.

monopoly.

The demand for Cinnamon Toast Crunch brand cereal is equally elastic to the demand for cereal in general. less elastic than the demand for cereal in general. more elastic than the demand for cereal in general. none of the above.

more elastic than the demand for cereal in general.

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. none of the above.

none 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 will increase by 10 units. will increase by 20 units. will decrease by 10 units. none of the above.

none of the above.

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 .85. 9. 10. none of the above.

none of the above.

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. refuse to buy a VCR. always buy from the store that charges $300 for VCR's. none of the above.

search less.

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 simultaneous-move game. one-shot sequential-move game with management as the first mover. one-shot sequential-move game with labor union as the first mover. a and b.

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 profits to be "goods". only output to be "goods". both profits and outputs to be goods. none of the above.

only output to be "goods".

Which of the following pricing policies does not extract the entire consumer surplus from the market? first-degree price discrimination. peak load pricing. two-part pricing. commodity bundling.

peak load pricing.

Demand shifters do not include the price of the good. consumer's tastes and preferences. the price of the other related goods. consumer's expectations about future prices of the good.

price of the good

If a shortage exists in a market, the natural tendency is for: demand to increase. price to increase. quantity supplied to decrease. no change in the market.

price to increase.

An isocost line represents the combinations of w and K that cost the firm the same amount of money. represents the combinations of K and L that cost the firm the same amount of money. represents the combinations of r and w that cost the firm the same amount of money. has a convex shape.

represents the combinations of K and L that cost the firm the same amount of money.

Graphically, a decrease in advertising will cause the demand curve to: become steeper. shift rightward. become flatter. shift leftward.

shift leftward.

Graphically, an increase in the number of vegetarians will cause the demand curve for Tofu (a meat substitute) to shift rightward. shift leftward. become flatter. become steeper.

shift rightward.

For a wood furniture manufacturer, an increase in the cost of lumber will cause the supply curve to: become flatter. become steeper. shift to the left. shift to the right.

shift to the left.

Firms advertise in order to cause the demand for their products to shift to the right. shift to the left. remain unchanged. all of the above

shift to the right.

If an excise tax is imposed on a good, then the supply curve shifts up by the amount of the demand elasticity. does not change. shifts down by the amount of the tax. shifts up by the amount of the tax.

shifts up by the amount of the tax.

The substitution affect isolates the change in the consumption of a good caused by: the lower "real" income. the change in the relative prices of two goods. the change in consumer preferences. none of the above.

the change in the relative prices of two goods.

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 is cost minimizing. the firm should use less K and more L to cost minimize. the firm should use more K and less L to cost minimize. the firm is profit maximizing but not cost minimizing.

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 is cost minimizing. the firm should use less L and more K to cost minimize. the firm should use more L and less K to cost minimize. the firm is profit maximizing but not cost minimizing.

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 the t-value. the lower the t-value. the greater adjusted R-square. the greater the F-statistic.

the greater adjusted R-square.

Other things held constant, the greater the price of a good the lower the demand. the higher the demand. the greater the consumer surplus. the lower the consumer surplus.

the lower the consumer surplus.

The lower the standard error, the less confident the manager can be that the parameter estimates reflect the true values. the more confident the manager can be that the parameter estimates reflect the true values. the more precisely the parameter estimates the true values. the less precisely the parameter estimates the true values.

the more confident the manager can be that the parameter estimates reflect the true values.

It is easier to sustain tacit collusion in an infinitely repeated game if the present value of cheating is lower than collusion. there are many players. the interest rate is higher. both a and c.

the present value of cheating is lower than collusion.

When quantity demanded exceeds quantity supplied there exists a surplus of a good. the price tends to fall. the price is below the equilibrium price. there is no excess demand.

the price is below the equilibrium price.

Consumers adjust their purchasing behavior so that: they purchase as many scarce resources as possible. marginal rate of substitution is maximized. marginal rate of substitution is minimized. the ratio of prices they pay equals their marginal rate of substitution.

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 sales of a substitute, such as a telephone, increases. the inventory of computers increases. the inventory of computer software increases.

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 a higher level of satisfaction. a lower level of satisfaction. the same level of satisfaction. none of the above.

the same level of satisfaction.

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. firms should engage in two-part pricing, unless it is possible to engage in either first or second degree price discrimination. firms should vertically integrate. none of the above.

transfer prices must be set that maximize the overall value of the firm rather than the profits of the upstream division.

An excise tax shifts the supply curve down by the amount of the tax. up by the amount of the tax. by rotating it counter-clockwise. by rotating it clockwise.

up by the amount of the tax.

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 not advertise in any year. you and your rival to advertise every year. neither firm to advertise in early years, but to advertise in later years. each firm to advertise in early years, but not advertise in later years.

you and your rival to advertise every year.