ECON 3023 Midterm Exam 3 - Kazianga

A new firm enters a market which is initially serviced by a Bertrand duopoly charging a price of $20. What will the new price be should the three firms coexist after entry?

$20

A monopoly produces widgets at a marginal cost of $8 per unit and zero fixed costs. It faces an inverse demand function given by P=38-Q. What are the profits of the monopoly at equilibrium?

$225

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. The monopoly price is:

$23

You are the manager of a mom and pop store that can buy milk from a supplier at $2.00 per gallon. If you believe the elasticity of demand for milk by customers at your store is -3, then your profit-maximizing price is:

$3.00

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

Suppose the cost function is C(Q)=50 +Q- 10Q^2+ 2Q^3. What are the fixed costs?

$50

Consider a cournot oligopoly consisting of five identical firms producing good X. If the firms produce good X at a marginal cost of $7 per unit and the market elasticity of demand is -3, determine the profit-maximizing price.

$7.50 per unit

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 of 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+5Q^2. Your firm's maximum profits are:

85

Suppose the cost function is C(Q)=50 +Q- 10Q^2+ 2Q^3. what is the total cost of producing 10 units?

$1060

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 you compete in a Cornet oligopoly market consisting of six firms. The equilibrium market price and quantity are $5 and 10 units, respectively. The marginal cost for each firm is $3. Based on this information, we know the price elasticity of the market demand is:

-.417

A firm has a marginal cost of $20 and charges a price of $40. The Lerner index for this firm is:

.5

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 costs 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

For a cost function C=100+10Q+Q^2 the average fixed cost of producing 10 units of output is:

10

What is the maximum amount of good Y that can be purchased if X and Y are the only two goods available for purchase and Px=$10, Py=$20, X=20, and M=400.

10

You are the manager of a firm that sells its product in a competitive market at a price of $60. Your firm's cost function is C=50+3Q^2. The profit-maximizing output for your firm is:

10

Given the table below, how many workers should be hired to maximize profits? Labor MPL VMP Wage 1 8 32 100 2 32 128 100 3 16 64 100 4 -1 -4 100 5 -12 -48 100

2.

During spring break, students have an elasticity of demand for a trip to Cancun, Mexico, of -4. How much should an airline charge students for a ticket if the price it charges the general public is $420? assume the general public has an elasticity of -2.

280

A local video store estimates its average customer's demand per year is Q=20-4P, and it 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 to part pricing strategy? 20 32 64 40

32

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+5Q^2. The profit-maximizing output for your firm is:

5

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

Accounting Costs and opportunity costs

The market demand in a Bertrand duopoly is P=10-3Q, and the marginal costs are $1. Fixed costs are zero for both firms. Which of the following statements is are true? A) Producers surplus for firm1=producers for firm 2 B) Profits of firm=profits of firm 2 C) P=$1 D) All of the above

All of the above

To engage in first-degree price discrimination, a firm must: A) prevent low-value consumers from reselling to high-value consumers. B) be able to set P>MC C) Know each consumers maximum willingness to pay. D) all of the answers are correct

All of the answers are correct

In a competitive industry with identical firms, long run equilibrium is characterized by: P=MC MR=MC P=AC All of the statements are correct

All of the statements are correct.

The difference between average total costs and average variable costs is: fixed cost average fixed cost marginal cost none of the statements are correct

Average fixed cost

Oligopoly differs from monopoly as follows: A) Oligopoly involves a few firms; monopoly involves a single firm and oligopoly involves free entry; monopoly involves no free entry B) Oligopoly involves a few firms; monopoly involves a single firm C) Oligopoly involves free entry; monopoly involves free entry D) Oligopoly does use advertisement; monopoly does not use advertisement

B) Oligopoly involves a few firms; monopoly involves a single firm

From a consumers point of view, which type of oligolpoly is most desirable? Betrand Cournot Sweezy Stackelberg

Bertrand

The producer's surplus of all firms in a oligopoly is usually the least in the case of a: Bertrand Sweezy Stackelberg Cournot

Bertrand

Which firm would you expect to make the lowest profits, other things equal? Betrand Sweezy Cournot Stackelberg

Betrand Oligopolist

Firms have market power in: A) perfectly competitive markets B) monopolistic markets C) monopolistically competitive and monopolistic markets D) monopolistically competitive markets

C) monopolistically competitive and monopolistic markets

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 $100 for a suit Charge $125 for a suit Charge $75 for a suit Charge $150 for a suit

Charge $150 for a suit

What contributes to the existence of multi product firms? Economies of scope and cost complementarity Cost complementarity Economies of Scope Economies of Scale

Economies of scope and cost complementarity

In perfect competition, which is NOT true? Firms produce homogenous goods Firms are price-takers There are a large number of firms Every firm has a small but perceivable market power

Every firm has a small but perceivable market power

Two firms compete in a Stackelberg fashion. If firm 2 is the leader, then: firm 2 views the output of firm 1 as given. Firm 1 views the output of firm 2 as given. Both of the above are correct. None of the answers are correct.

Firm 1 views the output of firm 2 as given.

Second-degree price discrimination: Is the practice of posting a discrete schedule of declining prices for different ranges of quantities. results in transfer pricing. eliminates the problem of double marginalization. none of the answers are correct.

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

The cimbinations of inputs that produce a given level of output are depicted by: Isoquants budget lines isocost curves indifference curves

Isoquants

Total product begins to fall when: Average product is below zero Marginal product is maximized Marginal product is zero average product is negative

Marginal product is zero

Which of the following market structures would you expect to yield the greatest product variety? perfect competition monopoly bertrand oligopoly monopolistic competition

Monopolistic competition

When firm 1 enjoys a first mover advantage in a stackelberg duopoly, it will produce: A) less output and charge the same price as firm 2 B) Less output and charge a higher price than firm 2 C) more output and charge a lower price than firm 2 D) more output and charge the same price as firm 2

More output and charge the same price as firm 2

In a sweezy oligopoly, a decrease in a firm's marginal cost generally leads to: Increased output and a lower price reduced output and a higher price higher output and a higher price none of the above

None of the Above

Which of the following is true? in oligopoly a change in marginal cost never has an effect on output or price. In Bertrand oligopoly each firm believes that its rivals will hold their output constant if it changes its output. In cournot oligopoly firms produce an identical product at a constant marginal cost and engage in price competition. None of the answers is correct.

None of the answers is correct

Which of the following statements is true regarding profit-maximizing markup for a Cornet oligopoly with N identical firms? P=((1+NEf)/NEf)MC P(NEf/(1+NEf))=MC P=(NEf/(1+NEf))MC P(N(1+Ef)/NEf)=MC

P=(NEf/(1+NEf))MC

Which of the following is true for perfect competition but not true for monopolistic competition and monopoly? P=MC and positive long run profits P=MC Positive long run profits MC=MR

P=MC

Which of the following is true under monopoly? P=MR Profits are always positive P>MC All of the choices are true

P>MC

With a linear inverse demand function and the same constant marginal costs for both firms in a homogenous product stackelberg duopoly, which of the following will result? PL>PF QL=2QF Profits of leader>Profits of follower Profits of leader>Profits of follower and QL=2QF

Profits of leader>Profits of follower and QL=2QF

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: QL=20; QF=15 QL=24; QF= 12 QL=12; QF=8 QL=16; QF=8

QL=16; QF=8

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

Stackelberg leader

Which of the following "costs" could a firm that wants to remain in business avoid if it halted current production? Fixed costs Variable costs Opportunity costs Sunk costs

Variable costs

The marginal product of capital for the Cobb-Douglas production function is given by: bK^a L^b-1 aK^a-1 L^b-1 bK^a L^b aK^a-1 L^b

aK^a-1 L^b

Chris raises cows and produces cheese and milk because he enjoys: economies of scope economies of scale cost complementarity none of the answers are correct

economies of scope

It is profitable to hire units of labor as long as the value of marginal product: exceeds wage exceeds average product equals price is less than wage

exceeds wage

With linear demand and constant marginal cost, a Stackelberg leader's profits are ________ the follower. less than equal to greater than either less than or greater than

greater than

As long as marginal product is increasing, marginal product is: equal to total product less than average product greater than average product equal to average output

greater than average product

Monopolistic competition is characterized by: employing labor from a perfectly competitive labor market no free entry heterogenous products large markets

heterogenous products

the leontief production function: implies inputs are used in fixed proportions is Q=max (bK,cL) is Q=aK+bL implies inputs are used in variable proportions

implies inputs are used in fixed proportions

The Cournot theory of oligopoly assumes rivals will: decrease output whenever a firm increases its output. increase their output whenever a firm increases its output. follow the learning curve. keep their output constant.

keep their output constant

There is no market supply curve in: a monopolistic market monopolistically competitive and monopolistic markets a perfectly competitive market a monopolistically competitive market

monopolistically competitive and monopolistic markets

In order for isoquants to have a diminishing marginal rate of substitution, they must be: straight lines l-shaped vertical None of the above

none of the above

The idea of charging two different groups of consumers two different prices is practiced in: commodity bundling two-part pricing price matching none of the answers are correct

none of the answers are correct

The spirit of equating marginal cost with marginal revenue is not held by: oligopolistic firms perfectly competitive firms and oligopolistic firms perfectly competitive firms none of the answers are correct

none of the answers are correct

First-degree price discrimination: A) results in the firm extracting all surplus from consumers B) 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. C) 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 D) None of the above

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.

If firms compete in a cournot fashion then each firm views the: output of rivals as given profits of rivals as given prices of rivals as given All of the statements are corrrect

output of rivals as given

The bertrand model of the oligopoly reveals that: perfectly competitive prices can arise in markets with only a few firms. capacity constraints are not important in determining market performance. changes in marginal cost do not affect prices. All of the statements associated with this question are true.

perfectly competitive prices can arise in markets with only a few firms.

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

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

The equilibrium consumption bundle is : Any bundle that is the farthest from the origin The bundle where the budget line and the indifference curve meet The affordable bundle that yields the greatest satisfaction to the consumer Any affordable bundle in the budget set

the affordable bundle that yields the greatest satisfaction to the consumer