MBA 651 Final Exam

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

$1,060.

Suppose market demand and supply are given by Q d = 100 - 2P and Q S = 5 + 3P. If the government sets a price floor of $30 and agrees to purchase all surplus at $30 per unit, the total cost to the government will be:

$1,650.

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?

$100.

You are the manager of a firm that produces output in two plants. The demand for your firm's product is P = 20-Q, where Q = Q1 + Q2. The marginal cost associated with producing in the two plants are MC1 = 2 and MC2 = 2Q2. What is the profit-maximizing price that the firm should charge?

$11.

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.

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.

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?

$150,000.

Suppose earnings are given by E = $50 + $20(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?

$20

The total earnings of a worker are represented by E = 100 + $10(24 - L), where E is earnings and L is the number of hours of leisure. How much will the worker earn if he takes 14 hours of leisure per day?

$200.

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

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.

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

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

$230.

The total earnings of a worker are represented by E = 150 + $12(24 - L), where E is earnings and L is the number of hours of leisure. How much will the worker earn if he takes 16 hours of leisure per day?

$246

What is the value marginal product of labor if: P = $10, MPL = $25, and APL = 40?

$250.

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

$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?

$40

Suppose the cost function is C(Q) = 50 + Q - 10Q2 + 2Q3. What is the marginal cost of producing 10 units?

$401

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?

$684.

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?

$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 all the consumer surplus via an optimal two-part pricing strategy?

$9.

If both firms have a low price, both Firm A and Firm B gain 2. If both firms have a high price, both gain 15. If firm A has a high price and Firm B has a low price, Firm A loses 8 and Firm B gains 10. If Firm A has a low price and Firm B a high price, Firm A gains 10 and Firm B loses 8. What are the Nash equilibrium strategies for this game?

- (low price, low price). - (high price, high price).

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

- a long term relationship. - writing a contract to guarantee the quality.

There is no market supply curve in

- a perfectly competitive market - a monopolistic market. - both b and c.

Price matching strategies may fail to enhance profits when:

- firms cannot prevent customer's from deceptive claims. - firms have different marginal costs.

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. - results in the firm extracting all surplus from consumers.

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.

The demand for video recorders has been estimated to linear and given by the demand relation Qv = 145 - 3.2Pv + 7M - .95Pf - 39Pm, where Qv is the quantity of video recorders, Pfdenotes the price of video recorder film, Pm is the price of attending a movie, Pv is the price of video recorders, and M is income. Based on the estimated demand equation we can conclude:

- video recorders are normal goods. - video recorder film is a complement for video recorders.

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.

-0.6

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.

-0.6.

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.

-0.6.

Suppose a consumer with an income of $100 who is faced with Px = 1 and Py = 1/2. What is the market rate of substitution between good X (horizontal axis) and good Y (vertical axis)?

-2.

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.

Given that income is $750 and PX = $32 and PY = $8, what is the market rate of substitution between goods X and Y?

-4

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

-4.

Which of the following cost functions exhibits cost complementarity?

-5Q1Q2 + 7Q1.

The demand for good X has been estimated to be lnQ xd= 100 - 2.5 lnPX + 4 lnPY + lnM. The advertising elasticity of good X is

0.

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 cross price elasticity between goods X and Y is

0.008.

Suppose each of the 50 states had only one gasoline station -- each of the same size. The four-firm concentration ratio, based on national data, would be:

0.08

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:

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?

0.52.

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:

0.9

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.

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.

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.

If the production function is Q = K.5L.5 and capital is fixed at 1 unit, then the average product of labor when L = 36 is

1/6.

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

A risk neutral monopoly must set output before it knows for sure the market price. There is a 50% chance the firm's demand curve will be P = 20 - Q and a 50% chance it will be P = 40 - Q. The marginal cost of the firm is MC = Q. The expected profit-maximizing quantity is:

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. What is the socially efficient level of output?

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?

10.

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 price is

130.

For the cost function C(Q) = 100 + 2Q + 3Q2, the marginal cost of producing 2 units of output is

14

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?

15

If the income elasticity for lobster is .6, a 25% increase in income will lead to a

15% increase in demand for lobster.

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?

15.

If the income elasticity for lobster is .4, a 40% increase in income will lead to a:

16% increase in demand for lobster.

For the cost function C(Q) = 100 + 2Q + 3Q2, the total variable cost of producing 2 units of output is

16.

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

170.

The total earnings of a worker are represented by E = 100 + $10(24 - L), where E is earnings and L is the number of hours of leisure. How many hours of leisure are consumed if this worker's total earnings are $160?

18 hours.

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?

180

If the demand function for a particular good is Q = 20 - 8P, then the price elasticity of demand (in absolute value) at a price of $1 is

2/3.

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

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?

20.

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.

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

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.

Suppose the production function is given by Q = K1/2L1/2, and that Q = 30 and K = 25. How much labor is employed by the firm?

36.

Given the production function Q = min {4K, 3L}, What is the average product of capital when 8 units of capital and 16 units of labor are used?

4.

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

4.

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

4.8% drop in quantity demanded of hamburgers.

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

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 $50. Your firm's cost function is C = 40 + 5Q2. The profit-maximizing output for your firm is

5

If the cross-price elasticity between ketchup and hamburgers is -2.5, a 2% increase in the price of ketchup will lead to a

5% drop in demanded of hamburgers.

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 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

5.

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

5.2.

The demand for good X is estimated to be Q xd = 10,000 - 4PX + 5PY + 2M + AXwhere 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?

61,300.

Suppose market demand and supply are given by Q d = 100 - 2P and Q S = 5 + 3P. The equilibrium quantity is:

62.

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%?

66.7%.

An apple farmer must decide how many apples to harvest for the world apple market. He knows that there is a one-third probability that the world price will be $1, a one-third probability that it will be $1.5, and a one-third probability that it will be $2. His cost function is C(Q) = .01Q2. The expected profit maximizing quantity is:

75.

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 output for your firm is

8

In a competitive market, the market demand is Qd = 60 - 6P and the market supply is Qs = 4P. The full economic price under a price ceiling of $3 is

8.

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.

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?

9.

Suppose demand is given by Q xd = 50 - 4Px + 6Py + Ax , where Px = $4, Py = $2, and Ax = $50. What is the quantity demanded of good x?

96.

By the transitivity property if A > B and B > C then

A > C.

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.

Suppose the demand for X is given by Q xd = 100 - 2PX + 4PY + 10M + 2A, where PX represents the price of good X, PY is the price of good Y, M is income and A is the amount of advertising on good X. Good X is

A normal good

In a competitive market, the market demand is Qd = 60 - 6P and the market supply is Qs = 4P. A price ceiling of $3 will result in

A shortage of 30 units.

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 34 units.

Which of the following cases violates the property of transitivity

A>B, B>C, C>A.

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?

Accept the offer in hand.

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

All of the above

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?

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.

In a competitive industry with identical firms, long run equilibrium is characterized by

All of the above.

In a competitive industry with identical firms, long run equilibrium is characterized byP = AC.; P = MC.; MR = MC.

All of the above.

The difference between a price decrease and an increase in income is that

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

Which of the following are price setting oligopoly models?

Bertrand.

Which of the following cost functions exhibits economies of scope when three (3) units of good one and two (2) units of good two are produced?

C = 50 - 5Q1Q2 + .5Q12 + Q22.

Economies of scope exist when

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?

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.

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

D.

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 equation for the worker's opportunity set? (E is total earnings and L is leisure)

E = 292 - 8L.

Large firms can produce a product at lower average cost than small firms when

Economies of scale exist

What is implied when the total cost of producing Q1 and Q2together is less than the total cost of producing Q1 and Q2separately?

Economies of scope

What is implied when the total cost of producing Q1 and Q2 together is less than the total cost of producing Q1and Q2 separately?

Economies of scope.

What is implied when the total cost of producing Q1and Q2 together is less than the total cost of producing Q1 and Q2 separately?

Economies of scope.

What should the manager do to solve the shirking problem?

Engage in "random" spot checks of the work place.

Which of the following provides a measure of the overall fit of a regression?

F-statistic.

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 10 years, then the Nash equilibrium is

For each firm to not advertise in any year

Which of the following is not a feature of Sweezy oligopoly?

Free entry and exit occurs in the market

Risk averse persons sometimes prefer to play some gambles even if they know that those gambles are not fair, i.e., on average people lose by playing them. One plausible explanation of this seemingly paradoxical phenomenon is that:

Gambling has entertaining effects which are not treated explicitly as part of the payoffs.

Which of the following is a correct statement about a Nash equilibrium in a two-player game?

Given another player's strategy, no player can improve her welfare by unilaterally changing her strategy.

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

Home-owners insurance.

Consider a two good world, with commodities X and Y. Which of the following statements is correct?

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

Which of the following is true?

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.

As we move down along a linear demand curve, the price elasticity of demand becomes more

Inelastic

Isoquants are normally drawn with a convex shape because:

Inputs are not perfectly substitutable.

The combinations of inputs that produce a given level of output are depicted by:

Isoquants.

If the price of good X decreases, what will happen to the budget line?

It will become flatter.

The own-price elasticity of demand for apples is -1.2. If the price of apples falls by 5%, what will happen to the quantity of apples demanded?

It will increase 6%.

In order to minimize the cost of producing a given level of output, a firm manager should use more inputs when:

Its price falls.

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.

Which of the following features is common to both perfectly competitive markets and monopolistically competitive markets?

Long run profits are zero.

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).

MCI announced a price discount plan for small firms. Their stock immediately fell in price. This shows that:

MCI is probably competing in a Bertrand oligopolistic industry.

Total product begins to fall when:

Marginal product is zero.

The absolute value of the slope of the isoquant is the:

Marginal rate of technical substitution.

_______ occurs when people smoke more after buying life insurance.

Moral hazard

Joe prefers a three pack of soda to a six-pack. What properties does this preference violate?

More is better

Suppose the supply of good X is given by Q Sx = 10 + 2 Px . How many units of good X are produced if the price of good X is 20? 10. 20. 30.

None of the above

Which of the following is true? Indifference curves may intersect. At a point of consumer equilibrium, the MRS equals 1. If income increases, a consumer will always consume more of a good.

None of the above are true

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.Which of the following is true?

None of the above are true.

For a cost function C = 100 + 10Q + Q2, the marginal cost of producing 10 units of output is

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:

None of the above.

The market demand in a Bertrand duopoly is P = 15 - 4Q, and the marginal costs are $3. Fixed costs are zero for both firms. Which of the following statement(s) is/are true?

P = $3

Let the demand function for a product be Q = 50 - 5P. The inverse demand function of this demand function is:

P = 10 - 0.2Q

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 of a perfectly contestable market?

P = MC

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.

When a worker announces that he plans to quit, say next month, the "threat" of being fired has no bite. The worker may find it in his interest to shirk. What can the manager do to overcome this problem?

Provide the worker some rewards for good work that extend beyond the termination of employment with your firm.

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 = 150 + Px.

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

Changes in the price of an input cause:

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 enter the market eventually.

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

Technology

A potential problem with piece rate plans is:

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.

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.

Which of the following factors reduces need for government involvement in the market place?

The incentive to rent-seek.

Which of the following statements is not a condition for a Stackelberg oligopoly?

The market is contestable

The value of marginal product of an input is the value of

The value produced by the last unit of an input

A finitely repeated game differs from an infinitely repeated game in that:

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

The possibility of the endless cyclical preference is eliminated by the property of

Transivity

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.

If both firms have a low price, both Firm A and Firm B gain 2. If both firms have a high price, both gain 15. If firm A has a high price and Firm B has a low price, Firm A loses 8 and Firm B gains 10. If Firm A has a low price and Firm B a high price, Firm A gains 10 and Firm B loses 8. What are the Nash equilibrium strategies for this game? - (low price, low price). - (high price, high price).

a and b.

Which of the following conditions is true when a producer minimizes the cost of producing a given level of output?

a and b. (The marginal product per dollar spent on all inputs are equal. AND The MRTS is equal to the ratio of input prices.)

The demand for video recorders has been estimated to linear and given by the demand relation Qv = 145 - 3.2Pv + 7M - .95Pf - 39Pm, 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 M is income. Based on the estimated demand equation we can conclude:

a and b. (video recorders are normal goods. AND video recorder film is a complement for video recorders.)

Which curve(s) does the marginal cost curve intersect at the (their) minimum point?

a and c only.

What is/are the important things that must be developed when characterizing consumer behavior?

a and c.

If widgets and gidgets are complements and both are normal goods, then a decrease in the demand for widgets will result from

a decrease in income.

Good A is an inferior good, an increase in income leads to:

a decrease in the demand for good A.

A decrease in income will not lead to:

a movement along the demand curve.

Suppose the demand for X is given by Q xd = 100 - 2PX + 4PY+ 10M + 2A, where PX represents the price of good X, PY is the price of good Y, M is income and A is the amount of advertising on good X. Good X is

a normal good.

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

a normal good.

A perfectly competitive firm faces:

a perfectly elastic demand function.

The demand curve for a good is horizontal when it is:

a perfectly elastic good.

Suppose the demand for X is given by Q xd = 100 - 2PX + 4PY + 10M + 2A, where PX represents the price of good X, PY is the price of good Y, M is income and A is the amount of advertising on good X. Based on this information, we know that good Y is

a substitute for good X.

Suppose the demand for X is given by Q xd = 100 - 2PX + 4PY + 10M + 2A, where PX represents the price of good X, PY is the price of good Y, M is income and A is the amount of advertising on good X. Based on this information, we know that good X is

a substitute for good Y and a normal good.

Suppose X and Y are complements and demand for X is Q xd = a0 + aXPX + aYPY + aMM + aHH. Then we know

aY < 0.

In the long-run, monopolistically competitive firms charge prices

above the minimum of average total cost.

Producer surplus is measured as the area

above the supply curve and below the market price.

The costs of production include

accounting costs and opportunity costs.

Which of the following measures of fit penalizes a researcher for estimating many coefficients with relatively little data?

adjusted R-square.

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 long-run average cost curve defines the minimum average cost of producing alternative levels of output, allowing for optimal selection of

all factors of production.

In the long-run, monopolistically competitive firms produce a level of output such that - P > MC. - P = ATC. - ATC > minimum of average costs.

all of the above

Which of the following are important determinants of collusion in pricing games? -the number of firms -firm size -history

all of the above

In the long-run, monopolistically competitive firms produce a level of output such that

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.

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

all of the above.

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 statement(s) is/are true?

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.

Persuasive advertising influences demand by:

altering the underlying tastes of consumers.

Good X is a normal good if an increase in income leads to

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

The cost to a manager of doing a poor job running the firm is

an increase in the likelihood of being replaced.

Which of the following can explain an increase in the demand for housing in retirement communities?

an increase in the population of the elderly.

An income elasticity less than zero tells us that the good is:

an inferior good.

Suppose good X is a normal good. Then a decrease in income would lead to

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.

Which of the following involves the least risk from the point of view of the employee?

annual salary.

The profits of the follower in a Stackelberg duopoly

are less than those of the leader.

Sam Voter prefers Jack to Rob, Rob to Mark, and Jack to Mark. Sam's preferences

are transitive.

The difference between average total costs and average variable costs is

average fixed cost.

Economies of scale exist whenever:

average total costs decline as output increases.

An ad valorem tax causes supply curve to:

become steeper.

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

both a and b. (P = MC. AND P = minimum of AC.)

Firms have market power in:

both b and c.

The firm manager with indifference curves which are convex from the origin (output on the horizontal axis and profit on the vertical axis) views

both profits and outputs to be "goods".

An ad valorem tax shifts the supply curve

by rotating it counter-clockwise.

Long-term contracts

can reduce opportunistic behavior

The marginal product of an input is defined as

change in total output attributable to the last unit of an input.

The Sweezy model of oligopoly reveals that

changes in marginal cost may not affect prices

If the cross-price elasticity between good A & B is negative, we know the goods are:

complements.

The possible goods and services a consumer can afford to consume represents the:

consumer opportunities.

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

consumer surplus.

When there are economies of scope between products, selling off an unprofitable subsidiary

could lead to only a minor reduction in costs.

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

Economies of scale exist whenever long-run average costs

decrease as output is increased.

Suppose the own-price elasticity of demand for good X is -0.5, and that the price of good X increases by 10%. We would expect the quantity demanded of good X to

decrease by 5%.

A price increase causes a consumer's "real" income to:

decrease.

When the own price elasticity of good X is -3.5 then total revenue can be increased by

decreasing the price.

When a demand curve is linear,

demand is inelastic at low prices.

If the own price elasticity of demand is infinite in absolute value, then

demand is perfectly elastic.

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

diseconomies of scale.

If you include in your offerings some inferior goods, the demand for these products will increase

during bad economic times.

Chris raises cows and produces cheese and milk because he enjoys:

economies of scope.

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

frequent buyer rebate programs

With linear demand and constant marginal cost, a Stackelberg leader's profits are ___________ the follower.

greater than

As a rule-of-thumb, a parameter estimate is statistically different from zero when the absolute value of the t-statistic is:

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 two

In the long-run, monopolistically competitive firms:

have excess capacity.

Demand is more inelastic in the short-term because consumers:

have no time to find available substitutes.

The HHI of a local market is usually _____________ that of national markets.

higher than.

The average product of labor depends on

how many units of labor and capital are used.

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?

increase the inventory.

A price decrease causes a consumer's "real" income to:

increase.

After a price decrease for good X, the new consumer equilibrium level of good X will be:

indeterminate without more information.

The demand for food (a broad group) is more

inelastic than the demand for beef (specific commodity).

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

inelastic.

Demand is perfectly elastic when the absolute value of the own price elasticity of demand is:

infinite.

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

informative advertising.

As the usage of an input increases, marginal product

initially increases then begins to decline.

The special demand structure that induces a firm to use a cross subsidization strategy is:

interdependent demand for products.

The marginal cost curve

intersects the ATC and AVC at their minimum points.

The minimum wage

is an example of floor price.

Competitive market equilibrium

is determined by the intersection of the market demand and supply curves.

The marginal rate of technical substitution

is the absolute value of the slope of the isoquant.

Consumer surplus

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

Firms will try to signal superior quality of their goods and guard against bad production runs by

issuing warranties or guarantees

If firms are in Cournot equilibrium, they could increase profits by

jointly reducing output.

We would expect the own price elasticity of demand for food to be:

less elastic than the demand for cereal.

If a consumer is given a $10 gift certificate, good for items in store X and all items in store X are inferior goods, then consumer desires to consume

less goods in store X.

Which of the following pricing strategies does not usually enhance the profits of firms with market power?

marginal cost pricing.

The absolute value of the slope of the indifference curve is called the:

marginal rate of substitution.

Some individuals choose to undertake risky prospects while others choose safer ones, because they have different

marginal rates of substitution between risk and reward.

A Herfindahl index of 10,000 suggests

monopoly.

When managers of firms are given fixed salaries, which are not tied to the firm's profits, they generally put forth less effort than they otherwise would. This is an example of

moral hazard

After a person buys insurance for his car, he will generally not care for his car as much as he otherwise would. This is an example of:

moral hazard.

The demand for Cinnamon Toast Crunch brand cereal is

more elastic than the demand for cereal in general.

We would expect the demand for jeans to be:

more elastic than the demand for clothing.

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.

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.

If the price of a good purchased by a utility maximizing consumer goes down, all other things remain the same, and the consumer's income is adjusted so that he can just barely attain his previous level of satisfaction, and if the consumer had indifference curves of the usual shape it will be found that

more of the good will be purchased than before

All else held constant, as additional firms enter an industry

more output is available at each given price.

Holding the mean value of a gamble constant, the larger the standard deviation, the

more risky the gamble will be.

Holding the mean constant, the larger the standard deviation, the ____________ the gamble will be.

more risky.

A coordination problem usually occurs in situations where there is

more than one Nash equilibrium.

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.

Joe consumes 10 units of food and 12 units of clothing. Since food is an inferior good, a gift to Joe of a $12 gift certificate at a food store will

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

none of the above.

Which of the following statements is incorrect?

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

none of the above.

The firm manager with horizontal indifference curves (output on the horizontal axis, profit on the vertical axis) views

only profits to be "goods".

Which of the following pricing policies does not extract the entire consumer surplus from the market?

peak load pricing

Bertrand model of oligopoly reveals that

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

A spot exchange involves a market where goods are bought and sold at

prevailing market price.

Which group of policies aims at discouraging rivals to enter a price war?

price matching, beat-or-pay, and randomized pricing.

Which of the following factors would not affect the own-price elasticity of a good?

price of an input

If a shortage exists in a market, the natural tendency is for:

price to increase.

Suppose you produce wooden desks, and government legislation protecting the spotted owl has made it more expensive for you to purchase wood. What do you expect to happen to the equilibrium price and quantity of wooden desks?

price will increase but quantity will decrease.

Which of the following involves the most risk from the point of view of the employee?

profit sharing.

The demand function

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

A consumer spends more time searching for a good when her reservation price is:

reduced.

The presence of government in the market leads to:

rent-seeking

An isocost line

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

The Cournot theory of oligopoly assumes

rivals will keep their output constant.

Firms advertise in order to cause the demand for their products to

shift to the right.

Technological advances will cause the supply curve to:

shift to the right.

As additional firms enter an industry, the market supply curve

shifts to the right.

If an excise tax is imposed on a good, then the supply curve

shifts up by the amount of the tax.

Non-fed ground beef is an inferior good. In economic booms, grocery managers

should reduce their orders of non-fed ground beef.

Long-term contracts are not efficient if

specialized investments are unimportant.

As additional consumers obtain the benefits of a pure public good, such as national defense, the benefits to the existing consumers will

stay the same.

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, goods X and Y are

substitutes.

When government imposes a price floor above the market price, the result will be that

surpluses occur.

The budget set defines the combinations of good X and Y

that are affordable to the consumer.

The equilibrium consumption bundle is

the affordable bundle that yields the greatest satisfaction to the consumer.

The substitution affect isolates the change in the consumption of a good caused by:

the change in the relative prices of two goods

If money income doubles and the prices of all goods triples, then

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.

If the own price elasticity of demand is infinite in absolute value, then

the demand curve is horizontal

If demand is perfectly inelastic, then

the demand curve is vertical.

If the marginal product per dollar spent on capital is less than the marginal product per dollar spent on labor, then in order to minimize costs

the firm should use less capital and more labor.

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 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 adjusted R-square.

It is easier to sustain tacit collusion in an infinitely repeated game if:

the interest rate is lower.

Other things held constant, the greater the price of a good

the lower the consumer surplus.

Cost complementary exits in a multiproduct cost function when

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

At the point of consumer equilibrium, the slope of the indifference curve is equal to

the market rate of substitution.

A price ceiling is

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.

Firms that use a price matching strategy attempt to keep price at

the monopoly price.

The elasticity of variable G with respect to variable S is defined as

the percentage change in variable G that results from a given percentage change in variable S.

Demand shifters do not include

the price of the good.

The marginal rate of substitution (MRS) determines the rate at which a consumer is willing to substitute between two goods in order to achieve

the same level of satisfaction.

If a firm offers to pay a worker $10 for each hour of leisure the worker gives up then the opportunities confronting the worker will be given by

the straight line with a negative slope.

In the presence of pollution, the marginal cost of producing a good to society is:

the vertical sum of the supply curve and the marginal cost of polluting.

A market is not contestable if:

there are sunk costs.

With a linear production function

there is a perfect substitutable relationship between all inputs.

Game theory suggests that, in the absence of patents, the privately motivated innovation decisions of firms might lead to:

too little innovation.

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.

Which group of policies aims at extracting all consumer surplus?

two-part pricing and commodity bundling.

An excise tax of $1.00 per gallon of gasoline placed on the suppliers of gasoline, would shift the supply curve

up by $1.00.

It is profitable to hire units of labor as long as:

value marginal product exceeds wage

Which of the following integration types aims at reducing transaction costs?

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.

Which of the following is the major means to signal good quality of goods by firms?

warranties/guarantees.

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 advertise every year.