Managerial Econ Final (chapters 6-11)
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 profit maximizing price?
$31.25 per unit.
An industry is comprised of 25 firms, each with an equal market share. What is the 4-firm concentration ratio of this industry?
0.16
An industry is comprised of 20 firms, each with an equal market share. What is the 4-firm concentration ratio of this industry?
0.2
A local telephone company charges $.10/min. based on a $.08/min. marginal cost of operation. What is the Lerner Index?
0.2.
The industry elasticity of demand for telephone service is -2 while the elasticity of demand for a specific phone company is -5. What is the Rothchild index?
0.4
A firm has a marginal cost of $20 and charges a price of $40. The Lerner index for this firm is:
0.5
An industry consists of six firms with annual sales of $300, $500, $400, $700, $600, and $600, respectively. What is the industry's C4?
0.77
Suppose that there are two industries, A and B. There are five firms in industry A with sales at $5 million, $2 million, $1 million, $1 million, and $1 million, respectively. There are 4-firms in industry B with equal sales of $2.5 million for each firm. The four-firm concentration ratio for industry A is:
0.9
Suppose that there are two industries, A & B. There are five firms in industry A with sales at $5 million, $2 million, $1 million, $1 million, and $1 million, respectively. There are 4-firms in industry B with equal sales of $2.5 million for each firm. The four-firm concentration ratio for industry B is:
1
You are the manager of a firm that produces output in two plants. The demand for your firm's product is P = 78 - 15Q, where Q = Q1 + Q2. The marginal cost associated with producing in the two plants are MC1 = 3Q1 and MC2 = 2Q2. How much output should be produced in plant 1 in order to maximize profits?
1
As a general rule of thumb, industries with a Herfindahl-Hirshmann index below ______ are considered to be competitive, while those above ______ are considered non-competitive
1,000, 1,800
The industry elasticity of demand for good X is -1.5, while the elasticity of demand for an individual manufacturer of good X product is -9. Based on this information, the Rothschild index of market power is:
1/6, indicating there is little monopoly power in this industry
You are a manager in a perfectly competitive market. The price is $14. Your total cost curve is C(Q) = 10 + 4Q + 0.5 Q2. What level of output should you produce in the short-run?
10
You are the manager of a firm that sells its product in a competitive market at a price of $60. Your firm's cost function is C = 33 + 3Q2. The profit-maximizing output for your firm is
10
You are the manager of a monopoly that faces an inverse demand curve described by P = 200 - 15Q. Your costs are C = 15 + 20Q. The profit-maximizing price is
110
You are a manager in a perfectly competitive market. The price in your market is $14. Your total cost curve is C(Q) = 10 + 4Q + 0.5 Q2. What price should you charge in the short-run?
14
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
17
An industry consists of six firms with annual sales of $300, $500, $400, $700, $600, and $600, respectively. What is the industry's HHI?
1779
You are the manager of a firm that sells its product in a competitive market at a price of $48. Your firm's cost function is C = 60 + 2Q2. Your firm's maximum profits are
228
Suppose that there are two industries, A & B. There are five firms in industry A with sales at $5 million, $2 million, $1 million, $1 million, and $1 million, respectively. There are 4-firms in industry B with equal sales of $2.5 million for each firm. The HHI for industry B is:
2500
You are the manager of a firm that produces output in two plants. The demand for your firm's product is P = 78 - 15Q, where Q = Q1 + Q2. The marginal cost associated with producing in the two plants are MC1 = 3Q1 and MC2 = 2Q2. What price should be charged in order to maximize revenues?
39
The tobacco industry has a Lerner index of 0.76. Based on this information, compute the optimal markup factor.
4.17 times marginal cost
You are a manager in a perfectly competitive market. The price in your market is $14. Your total cost curve is C(Q) = 10 + 4Q + 0.5 Q2. What level of profits will you make in the short-run?
40
You are the manager of a firm that sells its product in a competitive market at a price of $40. Your firm's cost function is C = 60 + 4Q2. Your firm's maximum profits are
40
If a firm manager has a base salary of $100,000 and also receive 5% of all profits, what percentage of his/her final income will be from the profit sharing plan given profit equals $1,500,000?
43%.
You are the manager of a firm that sells its product in a competitive market at a price of $40. Your firm's cost function is C = 60 + 4Q2. The profit-maximizing output for your firm is
5
You are the manager of a firm that sells its product in a competitive market at a price of $50. Your firm's cost function is C = 40 + 5Q2. The profit-maximizing output for your firm is
5
Suppose compensation is given by W = 512,000 + 217P + 10.08S, where W = total compensation of the CEO, P = company profits (in millions) = $200, and S = Sales (in millions) = $400. How much will this CEO be compensated?
559432
You are the manager of a firm that produces output in two plants. The demand for your firm's product is P = 120 - 6Q, where Q = Q1 + Q2. The marginal cost associated with producing in the two plants are MC1 = 2Q1 and MC2 = 4Q2. What price should be charged in order to maximize revenues?
60
You are the manager of a firm that sells its product in a competitive market at a price of $50. Your firm's cost function is C = 40 + 5Q2. Your firm's maximum profits are
85
Which of the following are measures of industry concentration?
A and B above (Four-firm concentration ratio and HHI index.)
A negative side of long-term contracts is:
A loss of flexibility.
Which of the following statements concerning monopoly is NOT true?
A monopoly is always undesirable.
Which of the following is used to measure market structure and performance?
All of the statements associated with this question are correct (Four-firm concentration ratio, HHI (Herfindahl-Hirschman Index), Dansby-Willig Performance Index)
According to the "feedback critique"
All of the statements associated with this question are correct. (the conduct of firms in an industry may affect the firm's performance - the conduct of firms in an industry may affect the market structure - market structure may affect the firm's conduct.)
Which of the following is not a type of specialized investment?
All of the statements associated with this questions are types of specialized investments. (Site specificity, Physical-asset specificity, Human capital)
In perfect competition, which is not true?
At least one firm has a perceptible impact on the market price.
Competition on price yielding a P=MC result even in situations of only a few competitors.
Bertrand Oligopoly
Spot markets are an inefficient way for the firm to purchase inputs if
Both a and b. ( opportunism is a problem. - suppliers engage in hold-up.)
Agreements to restrain output among formerly competing firms to maximize profits.
Collusion
Incumbent firms have no market power over consumers in the absence of sunk costs.
Contestable Markets
Profit maximizing output adjustments are made among competitors assuming that the other firms will keep their outputs constant.
Cournot Oligopoly
The most commonly used negative incentive used by firms is:
Dismissal.
A strategy that results in the highest payoff no matter what the other party chooses as a strategy.
Dominant Strategy
With N identical firms, a formula that states how price elasticity of demand for the firm is related to price elasticity of demand for the industry.
EF=NEM
Exemplified by declines in long-run average costs as output expands.
Economies of Scale
Cost advantages that accrue from joint production of goods.
Economies of Scope
In perfect competition, which is not true?
Every firm has a small but perceivable market power.
A firm can be a monopolist only if it competes in national markets.
FALSE - A firm can have a monopoly hold in a regional market.
In the short-run, a firm will shut-down is it cannot meet its average fixed costs.
FALSE - A firm must meet its average variable costs to produce in the shortrun. The workers must be paid.
For a firm in a perfectly competitive industry, the short-run supply curve is that portion of the marginal cost curve above minimum average total cost.
FALSE - MC function above minimum average variable costs is the short run supply curve. Price below minimum AVC, the firm will shut down.
In the following game theory model, Player 2 has a dominant strategy.
FALSE - Player 2 does not have a dominant strategy, but Player 1 has adominant strategy in "a," which yields the highest return no matterwhat Player 2 chooses
Under conditions of monopolistic competition, Price exceeds marginal revenue significantly in comparison to monopoly.
FALSE - Price and marginal revenue tend to be fairly close together owing to high elasticity of demand, as shown by the formula MR = P [1 + Ed]/Ed. With an Ed= -10, MR = 0.9*P.
The kinked demand curve, wherein firms follow price decreases but don't follow price increases is a result of the Bertrand model of oligopoly.
FALSE - Sweezy
In the long run, perfectly competitive firms do not earn profit of any type, economic, normal or accounting profits.
FALSE - The earn a normal rate of profit, that which is just sufficient to keep them on that line of business and covers implicit costs.
A formula for estimating Dead Weight Loss is to take the difference between Price and MC at the profit maximizing level times the difference between Q where P=MC and Q where MR=MC.
FALSE - The formula is correct if it is multiplied by 0.5 or, of course, divided by 2. This is the "triangle" estimate of Dead Weight Loss.
In the following one-shot, independent action game, both firms will choose the "high price" option. This game is reminiscent of the Bertrand model of duopoly.
FALSE - The one-shot Nash equilibrium low,low. Notice that both have adominant strategy and that is Low Price.
Maximum profitability is obtained by running the plant at that output level that yields minimum average total cost, that is, at the engineering efficient output.
FALSE - The profit maximizing rule is always MR=MC. This can occur before, at, or after the point of optimal engineering efficiency.
In a game theoretic approach, collusion will always fail in the long run because of the incentive to cheat.
FALSE - With use of a trigger strategy, collusion can exist in the long run.
Which of the following is not a solution to the manager-worker principal agent problem
Fixed hourly wages
Which of the following payment plans does not give an incentive to a manager to stop shirking?
Flat salary regardless of firm profits.
An index of industry concentration generally regarded as superior to the 4 firm concentration ratio.
Herfindahl-Hirschmann Index
The merging of firms that produce similar product types.
Horizontal Integration
Which of the following integration types exploits economies of scope?
Horizontal integration
Which of the following mergers is an example of vertical integration
IBM purchasing a California computer chip company
Which of the following is true?
In the short run a monopoly will shutdown if P < AVC.
A characteristic feature of oligopolistic industries wherein the price output decisions of one firm impact other firms in the industry.
Interdependence
In duopoly, all combinations of output levels of two firms that yield a constant level of profit for one of those firms.
Isoprot Curve
A negative side of a revenue sharing plan is that it:
It gives no incentive for workers to minimize costs.
A measure of market power indicated by the excess of price to marginal cost in ratio to price which is related to the "mark-up" rule.
Lerner Index
Which of the following is an example of monopoly?
Local utility industry in a small town.
Which of the following features is common to both perfectly competitive markets and monopolistically competitive markets?
Long run profits are zero.
Which of the following is a correct representation of the profit maximization condition for a monopoly?
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).
One firm, producing an unique product, dominates the industry.
Monopolist
Numerous firms producing similar products with product differentiation as a chief characteristic.
Monopolistic Competition
Which of the following market structures would you expect to yield the greatest product variety?
Monopolistic Competition.
Which of the following statements is not correct about monopoly?
Monopolists always make positive profits in the long-run.
A combination of strategic choices among players from which there is no incentive to change by either party.
Nash Equilibrium
Representation of a game involving players, strategies, and outcomes.
Normal Form Game
A few firms dominating an industry with interdependence of action as a chief characteristic.
Oligopoly
Oligopoly differs from monopoly as follows:
Oligopoly involves a few firms; monopoly involves a single firm
Players choose strategies simultaneously with no repetition of the game.
One-Shot Game
The advertising to total revenue ratio equates with the ratio of output elasticities of advertising to price.
Optimal Advertising
Let the demand function for a product be Q = 100 - 2P. The inverse demand function of this demand function is:
P = 50 - 0.5Q.
Which of the following is true under monopoly?
P > MC.
Which of the following is not an example of a piece rate compensation method?
Paying a carpenter to install a new back porch.
Problems associated with getting the agent manager to act in the interests of the owner, often solved through incentive arrangements.
Principal-Agent Problem
You are a manager for a monopolistically competitive firm. From experience, the profit-maximizing level of output of your firm is 100 units. However, it is expected that prices of other close substitutes will fall in the near future. How should you adjust your level of production in response to this change?
Produce less than 100 units.
MR=MC, a rule that works for all industry forms
Profit Maximizing Rule
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 profit maximizing level of output?
Q1 = 62.5; Q2 = 125.
To ensure quality, piece rate plans must usually be accompanied by:
Quality control mechanisms.
In order for spot checks to be effective, they must be:
Random in nature.
In Cournot duopoly, a schedule of optimal output levels given the output decision of a competing firm.
Reaction Function
The ratio of industry price elasticity of demand to firm elasticity, a low value indicating competitiveness.
Rothschild Index
A choice of strategy is made after observing the strategy of the other party to a game.
Sequential Move
An expenditure that must be made to allow two parties to exchange, but has little or no value in any alternative use.
Specialized Investment
An informal relationship between buyer and seller with no obligations for the future.
Spot Exchange
When a manager enters the work-place from time to time to monitor workers, he is using:
Spot checks.
Industry leader sets price and output decision independent of weaker competitors, leaving the remainder to be divided among these weaker competitors.
Stackleberg Oligopoly
Competitors ignore price increases but match price decreases, yielding a kinked demand curve and price stickiness.
Sweezy Oligopoly
A monopolist could conceivably experience an economic loss, exemplified by the price below average total cost at the quantity where MR=MC.
TRUE
A monopolist faces the entire market demand curve and must produce a unique product for which there are no close substitutes.
TRUE
As shown in the Stackelberg model, cost advantages can quickly result in a leader-follower situation wherein the leader optimally chooses her output decision knowing full well the response function of her competitor.
TRUE
Collusion to lower output can yield greater profits for firms in a duopoly situation, but the urge to cheat is substantial.
TRUE
Competition on price can lead to a P=MC result even in the presence of a duopolistic industry. This model is known as the Bertrand model.
TRUE
Dead weight loss is comparatively small in monopolistic market structures
TRUE
Demand functions for monopolistically competitive firms tend to be quite flat, owing to the presence of substitutes.
TRUE
In the Cournot model of duopoly, firms respond to the output decisions of their competitor thinking that their counterpart will keep their output constant.
TRUE
In the above model, the Nash equilibrium is (a,C).
TRUE
In the long run, a firm must meet have accounting profits equal to implicit opportunity costs to stay in business.
TRUE
In the long run, monopolistic competitors earn only a normal profit, exemplified by tangency of the demand function and the average total cost curve.
TRUE
Interdependence of action among firms is a key characteristic feature of oligopolistic industries.
TRUE
Losses in the long run experienced by the typical firm in a competitive market will result in firms leaving the industry and the industry supply function shifting to the left. Given demand function constant, profitability can be restored to remaining firms.
TRUE
Monopolisitically competitive firms in the long run earn a normal profit, signified by demand curve tangency with the average total cost curve.
TRUE
P = MC, P = ATC (zero economic profits), and output at the engineering efficient level are characteristic of perfect competition.
TRUE
P > MC but not by much, P = ATC, and output less than the engineering efficient level are characteristic of monopolistic competition in the long run.
TRUE
P > MC, P > min ATC, and economic profits in the long run are typical of monopoly.
TRUE
Prices tend to be "sticky" in the kinked-demand curve model in that MC can vary in a range without impacting product price.
TRUE
Product differentiation and advertising are key characteristics of monopolistically competitive industries
TRUE
That quantity of output wherein price equals marginal cost is characterized by economists are the "economically efficient" level of output.
TRUE
In the 1960s, each firm in the computer industry was able to make extremely large profit margins, some as high as 50-60%. The margin decreased to 20-40% in the 1970s and to 10-20% in the 1980s. We conclude that:
The industry has evolved from oligopolistic to a more competitive industry in the two decades.
Which of the following statements is true?
The market structure of an industry frequently changes over time.
Costs associated with acquiring an input at that are in excess of the amount paid to the input supplier.
Transaction costs
A strategy played over time contingent on the other party continuing with their strategic choice.
Trigger Strategy
A situation where a firm produces the inputs required to make its final product.
Vertical Integration
Which of the following integration types aims at reducing transaction costs?
Vertical integration
There is no market supply curve in
a monopolistic market.
Differentiated goods are a feature of:
a monopolistically competitive market.
A perfectly competitive firm faces:
a perfectly elastic demand function.
If a monopolist claims his profit-maximizing markup factor is 3, what is the corresponding price elasticity of demand?
a) -1.5.
Suppose P = 20 - 2Q is the market demand function for a local monopoly. The marginal cost is 2Q. The firm currently uses a standard pricing strategy. Which of the following will allow the firm to enhance the profits?
a) Engage in two-part pricing.
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?
a) QA > QB
Two firms compete as a Stackelberg duopoly. The demand they face is P = 100 - 3Q. The cost function for each firm is C(Q) = 4Q. The profits of the two firms are:
a) QL = $384; QF = $192.
Two firms compete as a Stackelberg duopoly. The demand they face is P = 100 - 3Q. The cost function for each firm is C(Q) = 4Q. The outputs of the two firms are:
a) QL = 16; QF = 8.
When two or more divisions to a firm (upstream and downstream), mark up prices in excess of marginal cost,
a) double marginalization occurs.
Second-degree price discrimination
a) is the practice of posting a discrete schedule of declining prices for different ranges of quantities.
Which of the following pricing strategies does not usually enhance the profits of firms with market power?
a) marginal cost pricing.
The idea of charging two different groups of consumers two different prices is practiced in:
a) price discrimination.
The Cournot theory of oligopoly assumes
a) rivals will keep their output constant.
To circumvent the problem of double marginalization:
a) transfer prices must be set that maximize the overall value of the firm rather than the profits of the upstream division.
As a general rule of thumb, The U.S. Department of Justice views industries to be highly concentrated if the Herfindahl index is
above 1,800.
In the long-run, monopolistically competitive firms charge prices
above the minimum of average total cost.
An unregulated industry has a Lerner index of zero. These numbers:
are consistent with the industry being perfectly competitive
The average consumer at a firm with market power has an inverse demand function of P = 10 - Q. The firm's cost function is C = 2Q. If the firm engages in optimal two-part pricing, it will earn profits of
b) $32.
A monopoly produces widgets at a marginal cost of $10 per unit and zero fixed costs. It faces an inverse demand function given by P = 50 - Q. What are the profits of the monopoly in equilibrium?
b) $400.
If the profit-maximizing markup factor in a 3-firm Cournot oligopoly is -2, what is the corresponding market elasticity of demand?
b) -2/3.
Two identical firms compete as a Cournot duopoly. The demand they face is P = 100 - 2Q. The cost function for each firm is C(Q) = 4Q. The equilibrium output of each firm is:
b) 16
In a Cournot oligopoly with N-firms and identical marginal costs, the relationship between the price elasticity of demand for the form and that of the market is
b) EF = NEM.
Cinemas sometimes give senior citizens discounts. What is the possible privately motivated purpose for them to do so?
b) Senior citizens have a more elastic demand for movies than ordinary citizens.
Which of the following statements is true?
b) The more elastic the demand, the lower is the profit-maximizing markup.
Bertrand model of oligopoly reveals that
b) perfectly competitive prices can arise in markets with only a few firms.
A firm's isoprofit curve is defined as:
b) the combinations of outputs produced by all firms that yield the firm the same level of profit.
When the relevant markets are local, the concentration and HHI based on figures for the entire United States tend to:
be biased downward.
A monopoly producing a chip at a marginal cost of $6 per unit faces a demand elasticity of -2.5. Which price should it charge to optimize it profits?
c) $10 per unit.
Suppose P = 20 - 2Q is the market demand function for a local monopoly. The marginal cost is 2Q. The local monopoly tries to maximize its profits by equating MC = MR and charging a uniform price. What will be the equilibrium price and output?
c) $13.33, 3.33.
A firm with market power has an individual consumer demand of Q = 20 - 4P and costs of C = 4Q. What is optimal price to charge for a block of 2 units?
c) $4.
What price should a firm charge for a package of two shirts given a marginal cost of $2 and an inverse demand function P = 6 - 2Q by the representative consumer?
c) $8.
If the profit-maximizing markup factor in a 10-firm Cournot oligopoly is -2, what is the corresponding market elasticity of demand?
c) -2.0.
You are the manager of a gas station and your goal is to maximize profits. Based on your past experience, the elasticity of demand by Texans for a car wash is -4, while the elasticity of demand by non-Texans for a car wash is -6. If you charge Texans $20 for a car wash, how much should you charge a man with Oklahoma license plates for a car wash?
c) 18.00.
A firm with market power has an individual consumer demand of Q = 20 - 4P and costs of C = 4Q. What is the optimal amount of this product to package in a single block?
c) 4.
You are the manager of a Mom and Pop store that can buy milk from a supplier at $3.00 per gallon. If you believe the elasticity of demand for milk by customers at your store is -4, then your profit-maximizing price is
c) 4.00.
Which of the following are price setting oligopoly models?
c) Bertrand.
Firm one and firm two compete as a Cournot oligopoly. There is an increase in marginal cost for firm one. Which of the following is not true?
c) Both firm one's and firm two's reaction functions are shifted.
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:
c) EM = EF/N.
c) Given another player's strategy, no player can improve her welfare by unilaterally changing her strategy.
c) Given another player's strategy, no player can improve her welfare by unilaterally changing her strategy.
Which of the following is true?
c) 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.
Which would you expect to make the highest profits, other things equal?
c) Stackelberg leader.
The primary difference between Monopolistic Competition and Perfect Competition is
c) all of the above. ( the ease of entry and exit into the industry. - the number of firms in the market.)
The concentration and Herfindahl indices computed by the U.S. Bureau of Census must be interpreted with caution because
c) all of the above. ( they overstate the actual level of concentration in markets served by foreign firms. - they understate the degree of concentration in local markets, such the gasoline market.)
A Broadway theater sells weekday show tickets at a lower price than for a weekend show. This is an example of:
c) all of the above. price discrimination. peak-load pricing.
A campus auditorium sells tickets at half price to students during the last 30-minutes before a concert starts. This is an example of:
c) all of the above. price discrimination. peak-load pricing.
First-degree price discrimination
c) both a and b. occurs when a firm charges each consumer the maximum price he or she would be willing to pay for each / results in the firm extracting all surplus from consumers
The purpose of randomized pricing is to reduce:
c) both customer and competitor information about price.
Game theory is especially useful for analysis in the following types of markets:
c) oligopoly.
Long-term contracts
can reduce opportunistic behavior
Pricing is an aspect of a firm's:
conduct.
A firm can produce two products with the cost function C(Q1, Q2) = 10 + 5 Q1 + 5 Q2 - .2 Q1Q2. The firm enjoys:
cost complementarity.
Transaction costs refer to
costs of exchange unrelated to production costs
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 have an elasticity of -2.
d) $270.
Two identical firms compete as a Cournot duopoly. The demand they face is P = 100 - 2Q. The cost function for each firm is C(Q) = 4Q. Each firm earns equilibrium profits of:
d) $512.
In a competitive industry with identical firms, long run equilibrium is characterized by
d) All of the above. (P = AC. & P = MC. & MR = MC.)
The concentration and HHI reported in the U.S. Bureau of Census must be interpreted with caution since:
d) All of the above. (They are calculated by excluding foreign imports hence bias upward the degree of concentration. - They are based on figures for the entire national market. - The definition of product classes used to define an industry affects the results.)
Economists use game theory to predict the behavior of oligopolists. Which of the following is crucial for the success of the analysis?
d) All of the above. Make sure the payoffs reflect the true payoffs of the oligopolists. Make sure whether the oligopolists move simultaneously or sequentially. Make sure the problem considered is of a one-shot or repeated nature.
From a consumer's point of view, which type of oligopoly is most desirable?
d) Bertrand.
If firms are in Cournot equilibrium:
d) Firms could increase profits by jointly reducing output.
A monopoly produces widgets at a marginal cost of $10 per unit and zero fixed costs. It faces an inverse demand function given by P = 50 - Q. Which of the following is the marginal revenue function for the firm?
d) MR = 50 - 2Q.
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?
d) PriceA < PriceB
Which of the following is a correct statement?
d) The more elastic the demand, the higher is the profit-maximizing markup.
Which of the following measures market structure?
d) all of the above may be used to make inferences about market structure. ( four-firm concentration ratio. - Lerner Index. - Herfindahl-Hirschman Index.)
Which of the following is (are) basic feature(s) of a perfectly competitive industry?
d) all of the above. (Buyers and sellers have perfect information. - There are no transaction costs. - There is free entry and exit in the market.)
In the long-run, monopolistically competitive firms produce a level of output such that
d) all of the above. (P > MC. - P = ATC. - ATC > minimum of average costs.)
The source(s) of monopoly power for a monopoly may be:
d) all of the above. (economies of scale. - economies of scope. - patents.)
Which of the following is used to measure market structure and performance?
d) all of the above. (four-firm concentration ratio. - HHI (Herfindahl-Hirschman Index). - Dansby-Willig Performance Index.)
Relationship-specific investments include
d) all of the above. (site specificity - dedicated assets - human capital.)
One of the conditions under which price discrimination is profitable is:
d) all of the above. ability to identify consumer types. inability to resell the good. differences in demand elasticities.
Collusion in oligopoly is difficult to achieve because:
d) both a and b. it is prohibited by law. every firm has an incentive to cheat given that others follow the agreement.
A slight increase in the marginal cost of a firm definitely leads to a reduction in its output if the firm competes in:
d) both b and c the Cournot fashion. the Bertrand fashion.
The special demand structure that induces a firm to use a cross subsidization strategy is:
d) interdependent demand for products.
A coordination problem usually occurs in situations where there is
d) more than one Nash equilibrium.
Which of the following is true under monopoly?
d) none of the above are true.
A monopolist claims his profit-maximizing markup factor is 10. What is the price elasticity of demand for the firm's product?
d) none of the above.
Which group of policies aims at extracting all consumer surplus?
d) two-part pricing and commodity bundling.
An increase in the marginal cost arising from a more complex specialized investment environment will cause the optimal contract length to
decrease
The principal-agent problem refers to the fact that the agent's goals
do not always coincide with those of the principal
A firm has a total cost function of C(Q) = 50 + 10Q1/2. The firm experiences
economies of scale.
The causal view of the industry believes that
firm behavior is caused by market structure
The disadvantage of vertical integration is that
firms no longer specialize in what they do best.
Which of the following forms of payment is not an incentive plan?
flat salary for a plant manager.
In the long-run, monopolistically competitive firms:
have excess capacity.
The problem with spot exchange in the presence of specific assets is that both parties
have incentives to behave opportunistically
Monopolistic competition is characterized by:
heterogenous products
The HHI of a local market is usually _____________ that of national markets.
higher than.
Producer and consumer surpluses are measures of
industry performance.
Hold-up
is a hazard associated with relationship-specific exchange.
A long-term contract
is when a firm is legally bound to purchase inputs from a particular supplier.
A firm might choose to produce its own inputs if
long term contracts are costly to write
Which of the following is the primary disadvantage of producing inputs within a firm
loss of specialization
The Dansby-Willig Index measures
market performance.
A Herfindahl index of 10,000 suggests
monopoly.
Which market structure has the most market power?
monopoly.
Relationship specific exchange
occurs because of specialized investments.
Vertical integration
occurs when a firm produces its own inputs.
The solutions to the principal-agent problem ensures that the firm is operating
on the production function.
Which of the following kinds of market structure are not associated with market power?
perfect competition
A spot exchange involves a market where goods are bought and sold at
prevailing market price.
If a monopolistically competitive firm's marginal cost increases, then in order to maximize profits the firm will
reduce output and increase price.
Which of the following is an outside incentive that forces managers to put forth maximal effort?
reputation.
Specialized investments
result in relationship-specific exchange.
The Dansby-Willig Index measures the potential for a change in
social welfare
A relationship specific exchange occurs when
socialized investments are important
Spot exchange typically involves
some transaction costs.
Long term contracts are not efficient if
specialized investments are unimportant
Which of the following is not a means of avoiding opportunism
spot exchange
Which of the following methods might be an efficient way of obtaining inputs when specialized investments are not important?
spot exchange.
Which of the following is not an inccentive scheme to ensure workers do a good job
straight hourly wages for dock workers
Often owners of firms who hire managers must install incentive or bonus plans to ensure
that the manager will work hard.
The principal-agent problem refers to the fact that
the agent's goals do not always coincide with those of the principal.
Long-term contracts are less likely when
the exchange environment is complex.
The disadvantage of vertical integration is that
the firm loses focus on what it does best
A drawback of separating ownership from control by creating a firm is
the principal agent problem
Which of the following is a not a transactions costs associated with using inputs?
the wages paid to labor.
In the absence of worker incentives
there is a natural tendency for workers to not give their maximum effort
The industry elasticity of demand for gadgets is -2, while the elasticity of demand for an individual gadget manufacturer's product is -10. Based on the Rothschild approach to measuring market power, we conclude that
there is no monopoly power in this industry.
The industry elasticity of demand for gadgets is -2, while the elasticity of demand for an individual gadget manufacturer's product is -2. Based on the Rothschild approach to measuring market power, we conclude that
there is significant monopoly power in this industry
One problem with revenue-based incentive schemes is they do not provide an incentive
to minimize costs.
Which of the following industries is best characterized as monopolistically competitive?
toothpaste.
An electronic company takes over one of its original suppliers in a merger. This is an example of:
vertical integration
When relationship specific exchange occurs in complex contractual environments, the best way to purchase inputs is through
vertical integration
One way of alleviating opportunism is
vertical integration.
Long term contracts become longer
when specialized investment becomes more important
A potential problem with piece rate plans is that
workers may stress quantity instead of quality
