Managerial Economics

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 + 4Q 2. Your firm's maximum profits are

40

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

495

You are the manager of a firm that sells its product in a competitive market at a price of $40. Your firm's cost function is C = 60 + 4Q 2. The profit-maximizing output for your firm is

5

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

5M

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

One of the sources of monopoly power for a monopoly may be

Patents

Which of the following kinds of market structure are not associated with market power?

Perfect Competition

When each bidder in an auction knows for sure what the item is worth to that bidder, but doesn't know the valuations of other bidders, the auction exhibits:

Private values

If a monopolistically competitive firm's marginal cost increases, then in order to maximize profits the firm will:

Reduce output and increase price

To avoid the winner's curse, a bidder should:

Revise downward his private estimate of the value of the item

Cinemas sometimes give senior citizens discounts. What is the possible privately motivated purpose for them to do so?

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

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 + 0.5Q 2. What will happen in the long-run if there is no change in the demand curve?

Some firms will enter the market eventually

Which of the following is not a condition for a firm to engage in price discrimination?

The consumers are assured to be sincere in telling their true natures

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

A student figured out that the HHI for an industry was 15,000. What is the proper conclusion?

The student made some computational errors

Which of the following phenomena shows that risk aversion is the characteristic of many people?

Auto Insurance

Monopolistic competition is characterized by:

Heterogenous products

Which of the following is true under monopoly?

P>MC

A monopoly producing a chip at a marginal cost of $6 per unit faces a demand elasticity of -2.5. Which price should it charge to optimize it profits?

$10

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?

$13.33, 3.33 units

Suppose the market for good X has a four-firm concentration ratio of 0.80. Having worked for the four largest firms in the industry, you know the sales for these four firms are given by $100,000, $125,000, $150,000, $175,000. Based on this information we know that sales for the remaining firms in the industry are:

$137,500

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+0.5Q^2. What price should you charge in the short run?

$14

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?

$18.00

Suppose P = 20 - 2Q is the market demand function for a local monopoly. The marginal cost is 2Q. If fixed costs are zero and the firm engages in two-part pricing, the most profits the firm will earn is:

$25

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 two part pricing, what is the optimal fixed fee to charge each consumer?

$32

You are the manager of a Mom and Pop store that can buy milk from a supplier at $3.00 per gallon. If you believe the elasticity of demand for milk by customers at your store is -4, then your profit-maximizing price is

$4.00

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?

$8

A local video store estimates their average customer's demand per year is Q = 7 - 2P, and knows the marginal cost of each rental is $0.5. How much should the store charge for an annual membership in order to extract the entire consumer surplus via an optimal two-part pricing strategy?

$9

Which of the following statements is not correct?

It is always desirable for a person to have more information than the person he is trading with

The industry elasticity of demand for telephone services is -2 while the elasticity of demand for a specific phone company is -5. What is the Rothchild index?

0.4

An industry consists of six firms with annual sales of $300, $500, $400, $700, $600, and $600. What is the industry's C4?

0.77

As a general rule of thumb, industries with a Herfindahl index below ______ are considered to be competitive, while those above ______ are considered non-competitive.

1,000; 1,800

You are the manager of a monopoly that faces a demand curve described by P= 85-5Q. Your total costsare C = 20+5Q. The profit maximizing output for your firm is:

8

People having a bad driving record find it difficult to buy automobile insurance because insurance companies fear that ___________ may happen if they raise the premiums.

Adverse selection

The source(s) of monopoly power for a monopoly may be

All of the statements associated with this question are correct.

Brand loyalty can be enhanced through:

An advertising campaign

Which of the following statements is not true?

An auctioneer is always indifferent between different kinds of auctions

Economies of scale exist whenever:

Average total costs decline as output increases

When the relevant markets are local, the concentration and HHI based on figures for the entire United States tend to:

Be biased downward

Which of the following are a means of eliminating the undesirable effects of adverse selection

Both a long term relationship and writing a contract to guarantee the quality

Second-degree price discrimination

Is the practice of posting a discrete schedule of declining prices for different ranges of quantities

John is a seller in an affiliated values auction environment where bidders are risk-neutral. Which auction yields John the greatest expected revenue?

English

In perfect competition, which is not true?

Every firm has a small but perceivable market power

To maximization profit in the face of certainty, firms should produce the output where

Expected marginal revenue equals marginal cost

Which of the following are measures of industry concentration?

Four-firm concentration ratio and HHI index

If a product is perceived by consumers as homogeneous, which of the following strategies will work to induce brand loyalty?

Frequent buyer rebate programs

The optimal strategy for a risk neutral bidder in a second-price, sealed-bid auction with independent private values is to bid

His or her true valuation

If insurance companies are required to offer coverage to all interested people, it is said that premiums for each person will be increased. Assume that the insurance market is perfectly competitive. What is the major reason for raising the premium?

Less healthy people join the pool of insured and hence increase the risk and the premium

The causal view of the industry believes that:

Market structure causes firms to behave in a certain way

A Herfindahl index of 10,000 suggests

Monopoly

Differentiated goods are not a feature of a

Monopoly

______ occurs when people smoke more after buying life insurance

Moral hazard

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

None of the statements associated with this question are correct

First-degree price discrimination

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

Let the demand function for a product be Q = 100 - 2P. The inverse demand function of this demand function is:

P = 50 - 0.5Q

In the long run, perfectly competitive firms produce a level of output such that:

P = MC and P = minimum of AC

The concentration and Herfindahl indices computed by the U.S. Bureau of Census must be interpreted with caution because

They overstate the actual level of concentration in markets served by foreign firms AND They understate the degree of concentration in local markets, such as the gasoline market

Which of the following auction examples have a common value information structure

Three firms bid for an oil lease

Which of the following industries is best characterized as monopolistically competitive?

Toothpaste

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 and type B consumers

Jane wants to buy a beautiful doll as a gift for her sister's birthday. She knows that the same product is offered in different shops with prices of $120, $100 and $80 with odds of 1/3 of each price. She just stopped at a shop and knows that the price is $100. Suppose that there is a search cost of $5 for each search. Should she search for one more time?

Yes