ECON

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

Which of the following would not shift the demand for good A?

Drop in price of good A

Which of the following would not shift the demand for good A?

Drop in the price of good A

Firm managers should use inputs at levels where: a. Marginal benefit equals marginal cost b. Price equals marginal product c. Value marginal product of labor equals wage d. All of the above e. A and C only

E. A and C only

Which of the following is true?

Every perfect equilibrium is a Nash equilibrium

The Bertrand theory of oligopoly assumes

Firms set prices

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

Free entry and exit occurs in the market

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

Frequent buyer rebate programs

Which of the following is true for a Nash equilibrium of a two-player game?

Given another player's strategy stipulated in that Nash equilibrium, a player cannot improve his welfare by changing his strategy.

For given input prices, isocosts farther from the origin are associated with

Higher costs

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

Home-owners insurance

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

Inferior Good

Which of the following statements is not correct about information?

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

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 -1.5. If the price of apples falls by 6%, what will happen to the quantity of apples demanded?

It will increase by 9%

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 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

If the price of labor increases, in order to minimize the costs of producing a given level of output, the firm manager should use

Less of labor and more of capital

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).

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

MR = MC

Total product begins to fall when:

Marginal product is zero.

Collusion is: A. legal in the USA B. Not possible when firms interact repeatedly forever C. More likely in industries with a large number of firms D. None of the above

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

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?

PriceA < PriceB

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.

The presence of government in the market leads to:

Rent-seeking

Changes in the price of an input cause:

Slope changes in the isocost line.

Which would you expect to make the highest profits, other things equal?

Stackelberg Leader

The budget set defines the combinations of good X and Y

That are affordable to the consumer

A potential problem with piece rate plans is:

That workers may stress quantity instead of quality

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

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

The lower the consumer surplus

Sue and Jane own two local gas stations. They have identical constant marginal costs, but earn zero economic profits. Sue and Jane constitute

a Bertrand oligopoly

Suppose the demand for good X is given by Qdx= 10 -2 Px + Py + M. The price of good X is $1, the price of good Y is $10, and income is $100. Given these prices and income, how much of good X will be purchased?

a. 115 b. 515 c. 1,000 d. None of the above. D

If supply increases, then

a. the supply curve shifts to the left. b. the equilibrium price goes down. c. the equilibrium quantity goes down. d. the demand curve shifts to the right. B

The manager can be 95% confident that the true value of the underlying parameters in a regression is not zero if the absolute value of t-statistic is

greater than 2

As long as marginal product is increasing, marginal product is

greater than average product

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

have no time to find available substitutes.

If the price of good X becomes lower, then the level of consumer surplus becomes

higher

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

higher than

A firm manager is an agent

hired by the owner to control the production process.

The marginal rate of technical substitution

is the absolute value of the slope of the isoquant

A downward sloping, linear demand function exhibits:

less elastic demand as output increases.

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

less elastic than the demand for cereal

A Herfindahl index of 10,000 suggests

monopoly

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

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

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

peak load pricing

Firms have market power in:

perfectly competitive markets. monopolistically competitive markets. monopolistic markets. ***Correct! both b and c.

If steak is a normal good, what do you suppose would happen to price and quantity during an economic recession?

price and quantity would both decrease

Spot exchange typically involves

some transaction costs.

Long-term contracts are not efficient if

specialized investments are unimportant.

If consumers expect future prices to be higher

stockpiling will happen when products are durable in nature.

An isoquant defines the combination of inputs

that yield the producer the same level of output.

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

the consumer is worse off due to inflation

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.

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.

A local video store estimates their average customer's demand per year is Q = 7 - 2P, and knows the marginal cost of each rental is $0.5. How much should the store charge for each rental if it engages in optimal two-part pricing?

$0.5

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

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

Suppose market demand and supply are given by Q d = 100 - 2P and Q S = 5 + 3P. If a price ceiling of $15 is imposed, what will be the resulting full economic price?

$25

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. The monopoly price is:

$30

A local video store estimates their average customer's demand per year is Q = 20 - 4P, and knows the marginal cost of each rental is $1.00. How much should the store charge for an annual membership in order to extract the entire consumer surplus via an optimal two-part pricing strategy?

$32

Suppose that initially the price is $50 in a perfectly competitive market. Firms are making zero economic profits. Then the market demand shrinks permanently and some firms leave the industry and the industry returns back to a long run equilibrium. What will be the new equilibrium price, assuming a constant cost industry (horizontal long run supply curve)?

$50

Suppose earnings are given by E = $60 + $7(24 - L), where E is earnings and L is the hours of leisure. What is the price to the worker of consuming an additional hour of leisure?

$7

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

-1.5

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

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:

.9

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 the manager of a firm that sells its product in a competitive market at a price of $60. Your firm's cost function is C = 50 + 3Q2. The profit-maximizing output for your firm is

10

Suppose compensation is given by W = 450,000 + 220 P + 15S, where W = total compensation of the CEO, P = company profits (in millions) = $300, and S = Sales (in millions) = $500. What percentage of the CEO's total earnings is tied to profits of the firm?

12.6%

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

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

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

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

1779

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

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 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

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

You are the manager of a monopoly that faces a demand curve described by P = 85 - 5Q. Your costs are C = 20 + 5Q. The profit-maximizing price is

45

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

Suppose the production function is given by Q = 2K + 5L. What is the marginal product of labor when 15 units of capital and 10 units of labor are employed?

5

You are the manager of a firm that sells its product in a competitive market at a price of $40. Your firm's cost function is C = 60 + 4Q2. The profit-maximizing output for your firm is

5

Which of the following statements concerning monopoly is NOT true?

A monopoly is always undesirable

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

A>C

A Broadway theater sells weekday show tickets at a lower price than for a weekend show. This is an example of:

All of the above

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

All of the above

The producer's surplus of all firms in an oligopoly is usually the least in the case of a:

Bertrand oligopoly.

If an increase in the price of good X leads to a decrease in the consumption of good Y, then goods X and Y are called

Complements

A situation where a consumer says he does not know his preference ordering for bundles X and Y would violate the property of:

Completeness

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

Consumer opportunities

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

Consumers Opportunities

Whenever an isoquant exhibits a diminishing marginal rate of technical substitution, the corresponding isoquants are

Convex to the origin

Hold-up

is a hazard associated with relationship-specific exchange.

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

$1,010

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

$1,060

A decrease in the price of good Y will have what effect on the budget line on a normal X-Y graph?

increase the vertical intercept.

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

increased

A monopoly produces widgets at a marginal cost of $8 per unit and zero fixed costs. It faces an inverse demand function given by P = 38 - Q. Suppose fixed costs rise to $200. What will happen in the market?

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

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 firms should use less capital and more labor

In the short run, the marginal cost curve crosses the average total cost curve at

The minimum point of the average total cost curve

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

The present value of cheating is lower than collusion

"Monopolistic competition is literally a kind of competition. Hence, there is no deadweight loss in a monopolistically competitive market."

The statement is incorrect

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

Changes in the price of good A lead to:

a change in the quantity demanded of good A

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 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 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 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 sells coats and pants for $25 each, but offers a bundle containing both a coat and pants for $150, how many bundles will the firm sell?

0

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

A fair coin is flipped. You will be paid $1 when it is heads and penalized $1 otherwise. What is the variance of the payoffs?

1

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

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

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

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 is true?

A. In Bertrand oligopoly each firm reacts optimally to price changes. B. In Cournot oligopoly firms engage in quantity competition. C. In Sweezy oligopoly a change in marginal cost may not have an effect on output or price. *****DCorrect! All of the above are true.

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

All of the above

When two or more divisions mark up prices in excess of marginal cost,

double marginalization occurs

You are a hotel manager, and are considering four projects that yield different payoffs, depending upon whether there is an economic boom or recession. There is a $50% probability of a boom and a 50% probability of a recession. The potential payoffs and corresponding payoffs are Project A makes $20 in a boom and -$10 in a recession, Project B makes -$10 in a boom and $20 in a recession, Project C make $30 in a boom and -$30 in a recession, and Project D makes $50 in both a boom and a recession. Which project has the greatest variance?

C.

An incumbent usually charges a higher price than a new entrant does. Which of the following is a plausible reason for this observation?

Consumers are risk averse, hence new firms charge lower prices to attract customers.

Suppose the own-price elasticity of demand for good X is -0.5, and that the price of good X increases by 10%. What would you expect to happen to the total expenditures on good X?

Increase

A monopoly has produced a product with a patent for the last few years. The patent is going to expire. What will likely happen to the demand for the patent-holder's product when the patent runs out?

Demand will decline

In a Cournot oligopoly with N-firms and identical marginal costs, the relationship between the price elasticity of market demand and that of the firm is:

EM = EF/N.

Which of the following is not a basic feature of a monopolistically competitive industry?

Each firm owns a patent on its product

If firms compete in a Cournot fashion, then

Each firm views the output of the rival as given.

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

Economies of scope

A new firm enters a market which is initially serviced by a Bertrand duopoly charging a price of $30. Assuming that the new firm is equally as efficient as the incumbent firms, what will the new price be should the three firms co-exist after the entry?

Equal to $30

Which of the following is true concerning negative externalities?

Firms tend to produce more than the efficient level of output?

Consider the following information for a simultaneous move game: If you advertise and your rival advertises, you each will earn $5 million in profits. If neither of you advertise, you will each earn $10 million in profits. However, if one of you advertises and the other does not, the firm that advertises will earn $15 million and the non advertising firm will earn $1 million. If you and your rival plan to be in business for only one year, the Nash equilibrium is

For each firm to advertise.

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 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 is true?

In a finitely repeated game with a certain end period, collusion is unlikely because effective punishments cannot be used during any time period.

When analyzing the behavior of oligopolists, which of the following is crucial for the success of game theoretic analysis?

Make sure the problem you are considering is of a one-shot or repeated nature, and you model it accordingly because the order in which players make decisions is important.

Which of the following statements is not correct about monopoly?

Monopolists always make positive profits in the long-run.

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

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

More risky the gamble will be

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 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

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

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

Stockholders are sometimes not rational

If an increase in the price of good X leads to an increase in the consumption of good Y, then goods X and Y are called

Substitutes

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

The incentive to rent-seek

The substitution effect reflects how a consumer will react to

a different market rate of substitution.

If you sell an inferior good, offering to sell gift certificates to those looking for a gift may result in

a greater quantity sold than if the customer resorts to giving a cash gift.

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

Spot checks work because of

a potential penalty for shirking

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

a. a drop in real estate prices b. an increase in the population of the elderly c. a drop in the average age of retirees d. mandatory government legislation B

Good X is a normal good and its demand is given by Q xd = a0 + aXPX + aYPY + aMM + aHH.Then we know that

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

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

The combinations of goods X and Y that are affordable to the consumer are defined by the:

budget set

You are the manager of a supermarket, and know that the income elasticity of peanut butter is exactly -0.7. Due to the recession, you expect incomes to drop by 15% next year. How should you adjust your purchase of peanut butter?

buy 10.5% more peanut butter

The principal-agent problem happens because the owner

cannot monitor the efforts of the manager

Suppose that the duopolists competing in Cournot fashion agree to produce the collusive output. Given that firm two commits to this collusive output, it pays firm one to

cheat by producing a higher level of output.

The idea of improving cash flow by exploiting the cyclical nature of different product lines is represented in:

conglomerate integration.

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

consumer preferences. individual goals of the firm. consumer opportunities. b and c. ***Correct! a and c.

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

decrease

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

A firm has a total cost function of C(Q) = 75 + 25Q1/2. The firm experiences

economies of scale

What contributes to the existence of multiproduct firms?

economies of scale. economies of scope. cost complementarity. ***Correct Answer both b and c.

Suppose the demand for a product is Q xd = 12 - 3lnPx then product x is

elastic

An important condition for a contestable market is:

existing firms cannot respond quickly to entry by lowering their price

The Bertrand theory of oligopoly assumes

firms set prices

If you advertise and your rival advertises, you each will earn $4 million in profits. If neither of you advertise, you will each earn $10 million in profits. However, if one of you advertises and the other does not, the firm that advertises will earn $1 million and the non advertising firm will earn $5 million. If you and your rival plan to hand your business down to your children (and this "bequest" goes on forever) then a Nash equilibrium is

for each firm to never advertise

Suppose the demand for good X is given by Qdx= 10 + ax Px + ay Py + aM M. If ay is positive, then:

goods y and x are substitutes

The law of demand states that

if the price of a good falls and all other things remain the same, the quantity demanded of the good rises.

The special cost structure that is necessary for a firm to adopt a peak-load pricing policy is?

limited capacity.

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

A coordination problem usually occurs in situations where there is

more than one Nash equilibrium.

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 dominant strategies for Firm A and Firm B respectively?

neither firm has a dominant strategy.

Management and a labor union are bargaining over how much of a $50 surplus to give to the union. The $50 is divisible up to one cent. The players have one-shot to reach an agreement. Management has the ability to announce what it wants first, and then the labor union can accept or reject the offer. Both players get zero if the total amounts asked for exceed $50. If you were the labor union, which type of "rules of play" would you prefer to divide the $50 surplus?

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

Spot exchange can be inefficient in the presence of

opportunism

Demand shifters do not include the

price of the good

The demand function

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

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

reduce output and increase price

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

reduced

Lemonade, a good with many close substitutes, should have an own-price elasticity that is:

relatively elastic

Constant returns to scale exist when long-run average costs

remain constant as output is increased.

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

revise downward his private estimate of the value of the item.

Joe's search costs are $5 per search. He wants to buy a VCR for his wife for Christmas, and the lowest price he's found so far is $200. Joe thinks 1/3 of the stores charge $300 for VCR's, 1/3 of the stores charge $200 for VCR's, and 1/3 of the stores charge $175 for VCR's. If Joe's search costs increased to $100 per search he would

search less

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.

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

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

the lower the consumer surplus

Which of the following are important determinants of collusion in pricing games?

the number of firms firm size history ***Correct! all of the above

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

the output produced by the last unit of an input.

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

If income decreases, then

the vertical intercept of the budget line shifts downward.

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.

With a linear production function

there is a perfect substitutable relationship between all inputs.

When the owner runs the business

there is not a principal-agent problem.

A cash gift causes the budget line

to shift to the right in a parallel fashion

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.

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. What is the expected price in the world apple market?

$1.5

What price should a firm charge for a package of two shirts given a marginal cost of $4 and an inverse demand function P = 8 - 2Q by the representative consumer?

$12

The demand for good X is estimated to be Q xd = 10,000 - 4PX + 5PY + 2M + AX, where PX is the price of X, PY is the price of good Y, M is income and AX is the amount of advertising on X. Suppose the present price of good X is $50, PY = $100, M = $25,000, and AX = 1,000 units. What is the own-price elasticity of demand for good X?

-.0.003

Suppose the demand function is Q xd = 100 - 8Px + 6Py + M. If Px = $4, Py = $2, and M = $10, what is the cross-price elasticity of good x with respect to the price of good y?

0.13

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

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

1

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

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

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

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 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 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%?

66.67%

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

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

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

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

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 a correct statement?

An incumbent firm may experience a learning curve that allows it to produce at a lower cost than a potential entrant.

In the short run, the marginal cost curve crosses the average total cost curve at

the minimum point of the average total cost curve

The demand for which of the following commodities is likely to be more inelastic?

Beverages

Consider the following information for a simultaneous move game: If you advertise and your rival advertises, you each will earn $5 million in profits. If neither of you advertise, you will each earn $10 million in profits. However, if one of you advertises and the other does not, the firm that advertises will earn $15 million and the non advertising firm will earn $1 million. If you and your rival plan to be in business for 10 years, then the Nash equilibrium is

For each firm to advertise every year.

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

P = 10 - 0.2Q

Which of the following is true under monopoly?

P > MC

Long-term contracts

can reduce opportunistic behavior.

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

demand is perfectly elastic

By the property of "more is better" and transitivity, indifference curves

do not intersect one another

If there are few close substitutes for a good, demand tends to be relatively

inelastic

Suppose the demand for good x is lnQ xd = 21 - .8 lnPx - 1.6 lnPy + 6.2 lnM + .4 lnAx . Then we know that the own-price elasticity for good x is:

inelastic

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

As the usage of an input increases, marginal product

initially increases then begins to decline

The isoquants are normally drawn with a convex shape because

inputs are not perfectly substitutable.

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 (Average Total Cost Curve) and AVC (Average Variable Cost Curve) at their minimum points.