Econ Analysis Final

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.

What is the horizontal intercept of the budget line, given that M = $1,000, PX = $50, and PY = $40

20.

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

F-statistic.

Every Nash equilibrium is a perfect equilibrium

False

In an infinitely repeated game, collusion is always a Nash equilibrium

False

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

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 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.

The absolute value of the slope of the isoquant is the

Marginal rate of technical substitution

In the presence of large sunk costs, which of the following market structures generally leads to the highest price?

Monopoly

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

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

True

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.

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

frequent buyer rebate programs

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.

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

Which of the following pricing policies compensate customers if the firm fails to provide the best price in the market?

low price guarantee

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

marginal rate of substitution

Firms have market power in

monopolistically competitive markets. monopolistic markets

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

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.

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.

Price matching strategies may fail to enhance profits when:

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

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

Graphically, an increase in the number of vegetarians will cause the demand curve for Tofu (a meat substitute) to

shift rightward

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

shift to the right.

Long-term contracts are not efficient if

specialized investments are unimportant.

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

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

the market rate of substitution

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.

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 a manager in a perfectly competitive market. The price in your market is $14. Your total cost curve is C(Q) = 10 + 4Q + 0.5 Q2. What level of profits will you make in the short-run?

40

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

45

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

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

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

F-statistic

The marginal product of an input is defined as

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

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

In the long-run, monopolistically competitive firms:

have excess capacity

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

higher.

The average product of labor depends on

how many units of labor and capital are used

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

increase

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

Diminishing marginal rate of substitution implies that

indifference curves are convex from the origin

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

induce Joe to eat more than 10 units of food

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.

Which of the following is probably not a normal good?

intercity passenger bus travel

The marginal cost curve

intersects the ATC and AVC at their minimum points

Producer surplus

is the area above the supply curve but below the market price of the good

How does a decrease in the price of good X affect the market rate of substitution between goods X and Y?

it decreases

If the price of an input rises, producers are willing to produce

less output at each given price.

When an effective price ceiling is in place

some consumers are better off and others are worse off

Spot exchange typically involves

some transaction costs.

A market is not contestable if

there are sunk costs

A market is not contestable if

there are sunk costs.

A cash gift causes the budget line

to shift to the right in a parallel fashion

The property that rules out indifference curves that cross is

transitivity

An excise tax shifts the supply curve

up by the amount of the tax

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

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 income elasticity of good X is

0.82.

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

If a price increase from $5 to $7 causes quantity demanded to fall from 150 to 100, what is the absolute value of the own-price elasticity at a price of $7

1.75

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 = 33 + 3Q2. The profit-maximizing output for your firm is

10

What is the average product of labor, given that the level of labor equals 10, total output equals 1200 and the marginal product of labor equals 200?

120

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

14

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

16% increase in demand for lobster.

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.

The average consumer at a firm with market power has an inverse demand function of P = 10 - Q. The firm's cost function is C = 2Q. If the firm engages in two part pricing, what is the optimal fixed fee to charge each consumer?

$32

If the price of pork chops falls from $8 to $6, and this leads to an increase in demand for apple sauce from 100 to 140 jars, what is the cross price-elasticity of apple sauce and pork chops at a pork chop price of $6?

-.1.17.

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 demand elasticity of a widget at the monopoly price and quantity is:

-1.5

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

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.

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

You are the manager of a firm that sells its product in a competitive market at a price of $50. Your firm's cost function is C = 40 + 5Q2. The profit-maximizing output for your firm is

5.

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

62.

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

the number of firms firm size history

Suppose the production function is given by Q = 4K + 6L. What is the average product of capital when 10 units of capital and 5 units of labor are employed?

7

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

Which of the following statements concerning monopoly is NOT true

A monopoly is always undesirable.

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.

Which firm would you expect to make the lowest profits, other things equal

Bertrand oligopolist

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

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

Its price falls

The minimum average cost of producing alternate levels of output, allowing for optimal selection of all variables of production is defined by the:

Long run average total cost curve

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

Long run profits are zero

Which of the following is a correct representation of the profit maximization condition for a monopoly

MC = MR

Which of the following is a profit-maximizing condition for a Cournot oligopolist?

MR = MC.

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.

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?

P = $1 profits of Firm One = profits of Firm Two producer's surplus of Firm One = producer's surplus of Firm Two

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

P = AC P = MC MR = MC

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

P = MC P = minimum of AC

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

P = MC P = minimum of AC

Which of the following is true under monopoly

P > MC

A potential problem with piece rate plans is:

That workers may stress quantity instead of quality.

In the 1960s, each firm in the computer industry was able to make extremely large profit margins, some as high as 50-60%. The margin decreased to 20-40% in the 1970s and to 10-20% in the 1980s. We conclude that

The industry has evolved from oligopolistic to a more competitive industry in the two decades

The concentration and HHI reported in the U.S. Bureau of Census must be interpreted with caution since

They are calculated by excluding foreign imports hence bias upward the degree of concentration They are based on figures for the entire national market. The definition of product classes used to define an industry affects the results

Every perfect equilibrium is a Nash equilibrium

True

If you wish to open a store and you do not like risk, it would be wise to sell

a mix of normal and inferior goods

Differentiated goods are a feature of

a monopolistically competitive market

There is no market supply curve in

a monopolistically competitive market. a monopolistic market.

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 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

The costs of production include

accounting costs and opportunity costs

The costs of production include

accounting costs and opportunity costs.

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

an inward shift of the demand curve

The profits of the follower in a Stackelberg duopoly

are less than those of the leader.

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.

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

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. Suppose this game is repeated for a finite number of times, but the players do not know the exact date at which the game will end. The players can earn collusive profits as a Nash equilibrium to the repeated play of the game if the probability the game terminates in any period is

close to zero.

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

could lead to only a minor reduction in costs

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

could lead to only a minor reduction in costs.

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

decrease the horizontal intercept

When a demand curve is linear

demand is inelastic at low prices

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.

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.

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 hand your business down to your children (and this "bequest" goes on forever) then a Nash equilibrium when the interest rate is zero is

for each firm to not advertise until the rival does, and then to advertise forever

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.

Bertrand model of oligopoly reveals that

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

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

price discrimination. peak-load pricing.

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.

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.

Which of the following is not the important factor that affects the magnitude of the own price elasticity of a good

supply of the good

It is profitable to hire labor so long as

the VMPL is greater than wage

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 market rate of substitution

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

the change in the market rate of substitution

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