Final

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

$1,010.

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.

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.

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 monopoly that faces an inverse demand curve described by P = 200 - 15Q. Your costs are C = 15 + 20Q. The profit-maximizing price is

$110

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.

A firm with market power has an individual consumer demand of Q = 20 - 4P and costs of C = 4Q. What is the optimal price to charge for the optimal package size?

$18.

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

$19

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

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

$20.

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

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.

During spring break, students have an elasticity of demand for a trip to Florida of -3. How much should an airline charge students for a ticket if the price it charges the general public is $360? Assume the general public have an elasticity of -2.

$270.

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

$280.

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 maximum total earnings the worker can earn in a day?

$292.

Two identical firms compete as a Cournot duopoly. The inverse market demand they face is P = 80 - 4Q. The cost function for each firm is C(Q) = 8Q. The price charged in this market will be

$32

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.

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.

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

$32.

You are 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 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.The expected value of project A is

$5.

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 the cost function is C(Q) = 50 + Q - 10Q2 + 2Q3. What are the fixed costs?

$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 maximum this worker can earn in three (3) days?

$684.

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.

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 market rate of substitution between leisure and income?

$8.

What price should a firm charge for a package of two shirts given a marginal cost of $2 and an inverse demand function P = 6 - 2Q by the representative consumer?

$8.

A local video store estimates their average customer's demand per year is Q = 7 - 2P, and knows the marginal cost of each rental is $0.5. What is the annual profit that the video store expects to make on an average customer if it engages in optimal two-part pricing?

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.

Consider the following entry game. Here, firm B is an existing firm in the market, and firm A is a potential entrant. Firm A must decide whether to enter the market (play "enter") or stay out of the market (play "not enter"). If firm A decides to enter the market, firm B must decide whether to engage in a price war (play "hard"), or not (play "soft"). By playing "hard", firm B ensures that firm A makes a loss of $1 million, but firm B only makes $1 million in profits. On the other hand, if firm B plays "soft", the new entrant takes half of the market, and each firm earns profits of $5 million. If firm A stays out, it earns zero while firm B earns $10 million. Which of the following are perfect equilibrium strategies?

(enter, soft)

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.

Suppose Q xd = 10,000 - 2 Px + 3 Py - 4.5M , where Px = $100, Py = $50, and M = $2,000. What is the own-price elasticity of demand?

-.21.

The management of Local Cinema has estimated the monthly demand for tickets to belnQ = 22,328 - .41 lnP + 0.5 lnM - .33 lnA + 100 lnPvcr, where Q = quantity of tickets demanded, P = price per ticket, M = income, A = advertising outlay, and Pvcr = price of a VCR tape rental. It is known that P = $5.50, M = $9,000, A = $900, and Pvcr = $3.00. Determine the own-price elasticity of demand for movie tickets.

-.41.

The demand for good X is estimated to be Q xd = 10,000 - 4PX + 5PY + 2M + AX, where PXis 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.

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.

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.

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

-4.

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?

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 6% when price increases 20% we know that the absolute value of the own-price elasticity of sneakers is

0.3

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.

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.

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:

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:

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:

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

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.

If the production function is Q = K.5L.5 and capital is fixed at 1 unit, then the average product of labor when L = 25 is

1/5.

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 i

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

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.

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 = 50 + 3Q2. The profit-maximizing output for your firm is

10.

Given the linear production function Q = 10K + 5L, if Q = 10,000 and K = 500, how much labor is utilized?

1000 units.

Given a cost function C(Q) = 200 + 14Q + 8Q2, what is the marginal cost function?

14 + 16Q

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?

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.

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

What is the maximum amount of good Y that can be purchased if X and Y are the only two goods available for purchase and Px = $10, Py = $15, X = 30, and M = 600?

20.

225

For the cost function C(Q) = 75 + 4Q + 2Q2, the marginal cost of producing 5 units of output is

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?

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?

You are the manager of a monopoly that faces a demand curve described by P = 63 - 5Q. Your costs are C = 10 + 3Q. The profit-maximizing price is

33.

For the cost function C(Q) = 200 + 3Q + 8Q2 + 4Q3, what is the average fixed cost of producing six units of output?

33.33.

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?

Suppose the production function is given by Q = min {K, L}. How much output is produced when 4 units of labor and 9 units of capital are employed?

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 = 85 - 5Q. Your costs are C = 20 + 5Q. The profit-maximizing price is

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

495

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

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

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

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

5.2.

Suppose market demand and supply are given by Q d = 100 - 2P and Q S = 5 + 3P. If a price floor of $30 is set, what will be size of the resulting surplus?

55.

You are the manager of a monopoly that faces a demand curve described by P = 63 - 5Q. Your costs are C = 10 + 3Q. The profit-maximizing output for your firm is

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.

61500 - 4PX.

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%.

75.

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. How much output should be produced in plant 1 in order to maximize profits?

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

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?

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?

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.

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.

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? A dominant strategy for Firm A is to advertise. A dominant strategy for Firm B is to advertise. A Nash equilibrium is for both firms to advertise. All of the above are true.

All of the above are true.

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

All of the above.

In a competitive industry with identical firms, long run equilibrium is characterized by P = AC. P = MC. MR = MC. Answer All of the above.

All of the above.

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. All of the above.

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 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.

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

Bertrand oligopolist.

Which of the following are price setting oligopoly models?

Bertrand.

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

Beverages.

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).

If the price of good X is $10 and the price of good Y is $5, how much of good X would the consumer purchase if her income is $15?0. 1. 2. 3. Cannot tell based on the above information.

Cannot tell based on the above information.

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.

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.

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.

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

Each firm owns a patent on its product.

Two firms producing identical products may merge due to the existence of:

Economies of scale.

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?

Every perfect equilibrium is a Nash equilibrium.

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

F-statistic.

Which of the following is true concerning negative externalities?

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

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.

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 an infinitely repeated game, collusion is always a Nash equilibrium. In a finitely repeated game with a certain end period, collusion is unlikely because effective punishments cannot be used during any time period. all of the above none of the above

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

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.

Which of the following statements is not correct? Information plays an important role in the economy. You Answered Asymmetric information may lead to the disappearance of a market. It is always desirable for a person to have more information than the person he is trading with. Adverse selection will not occur if there is no asymmetric information.

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

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%

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 9%.

If a consumer's income decreases, what will happen to the budget line?

It will shift inward.

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 short run response of quantity demanded to a change in price is usually:

Less than the long run response.

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

Long run profits are zero

The horizontal intercept of the budget line is:

M/PX.

MC = E(MR).

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).

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.

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

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.

Total product begins to fall when:

Marginal product is zero.

Which of the following is not a means of acquiring product and process innovations?

Mass production of the existing product.

Which of the following statements is not correct about monopoly?

Monopolists always make positive profits in the long-run.

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

Monopoly.

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

More is better.

For a cost function C = 100 + 10Q + Q2, the marginal cost of producing 10 units of output is 10. 200. 210. None of the above.

None of the above.

In order for isoquants to have a diminishing marginal rate of substitution they must be: L-shaped. Straight lines. Vertical. Concave to the origin. None of the above.

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:The demand for sugar is inelastic. The demand curve for sugar is upward sloping. The quantity demanded of sugar increased. 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

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.

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

P = MC and P = minimum of AC.

Which of the following is true under monopoly?

P > MC.

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

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.

The creation of a new product is referred to as:

Product innovation

A profitable monopoly has produced a product with a patent for the last few years. The patent is going to expire. What will happen after the patent expires?

Some firms will enter the industry.

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.

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

Stackelberg leader.

A potential problem with piece rate plans is:

That workers may stress quantity instead of quality.

Which of the following is a feature of a Dutch auction?

The auctioneer begins with a very high asking price.

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.

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.

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

The firms produce either differentiated or homogeneous products.

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

The incentive to rent-seek.

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.

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

The marginal product per dollar spent on all inputs are equal.

Which of the following statements is true?

The more elastic the demand, the lower is the profit-maximizing markup.

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

The statement is incorrect.

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

There is free entry. Long run economic profits are zero.

A price elasticity of zero corresponds to a demand curve that is:

Vertical

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.

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.

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.

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

a and c only

Which curve(s) does the marginal cost curve intersect at the (their) minimum point? Average total cost curve. Average fixed cost curve. Average variable cost curve. All of the above. a and c only.

a and c only.

Changes in the price of good A leads to:

a change in the quantity demanded of good A.

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.

Good Y is a complement to good X if an increase in the price of good Y leads to

a decrease in the demand for good X.

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

a decrease in the price of gidgets.

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.

There is no market supply curve in

a monopolistically competitive market and a monopolistic market.

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.

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.

Spot checks work because of

a potential penalty for shirking.

Suppose the demand for X is given by Q xd = 100 - 2PX + 4PY + 10M + 2A, where PXrepresents 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.

a substitute for good Y and a normal good.

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

aM > 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.

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

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.

all of the above.

Persuasive advertising influences demand by:

altering the underlying tastes of consumers.

An increase in the price of steak will probably lead to:

an increase in demand for chicken.

If sugar and Nutrasweet are substitutes, then we can be certain that a decrease in the price of sugar will lead to

an increase in the consumption of sugar.

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

an increase in the demand for good X.

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

an increase in the likelihood of being replaced.

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

an inferior good.

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

The profits of the leader in a Stackelberg duopoly

are greater than those of the follower.

Sam Voter prefers Ronald to Joe, Joe to Gary, and Gary to Ronald. Sam's preferences

are not transitive.

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

are transitive.

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

auto insurance

An ad valorem tax causes supply curve to:

become steeper.

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

below $20.

First-degree price discrimination You Answered 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. both a and b. none of the above.

both a and b.

In the long-run, perfectly competitive firms produce a level of output such that: P = MC. P = minimum of AC. both a and b. none of the above.

both a and b.

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. both a and b. none of the above.

both a and b.

Firms have market power in: perfectly competitive markets. monopolistically competitive markets. monopolistic markets. both b and c.

both b and c.

There is no market supply curve in a perfectly competitive market. a monopolistically competitive market. a monopolistic market. both b and c.

both b and c.

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.

An ad valorem tax shifts the supply curve

by rotating it counter-clockwise.

When there are economies of scope between two products which are separately produced by two firms, merging into a single firm

can accomplish a reduction in costs.

Long-term contracts

can reduce opportunistic behavior.

The principal-agent problem happens because the owner

cannot monitor the efforts of the manager.

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.

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.

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.

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.

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

complements.

Suppose the demand for good x is lnQ xd = 21 - .8 lnPx - 1.6 lnPy + 6.2 lnM + .4 lnAx . Then we know goods x and y are:

complements.

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

conglomerate integration.

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

convex to the origin.

When marginal cost curve is below an average cost curve, average cost is

declining with output.

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%.

Consider a two good world, with commodities X and Y. If Y is an inferior good, then an increase in consumer income cannot

decrease the demand for X.

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.

Along the same indifference curve, MRS is

decreasing as more of one good is obtained.

If your demand for renting videos is Q = 5 - 2P, should you purchase the annual membership from a video store that charges $0.5 per rental, plus an annual membership fee of $12?

definitely no.

When a demand curve is linear,

demand is elastic at high prices.

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

demand is perfectly elastic

The property that implies that indifference curves are convex to the origin is:

diminishing marginal rate of substitution.

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

do not intersect one another.

A study has estimated the effect of changes in interest rates and consumer confidence on the demand for money to be: lnM = 14.666 + .021 lnC - .036 lnr, where M denotes real money balances, C is an index of consumer confidence, and r is the interest rate paid on bank deposits. Based on this study, a 5% increase in interest rates will cause the demand for money to:

drop by .18%.

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

during bad economic times.

A firm has a total cost function of C(Q) = 50 + 10Q1/2. The firm experiences

economies of scale.

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

economies of scale.

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

economies of scope.

Price matching strategies may fail to enhance profits when: You Answered firms cannot prevent customer's from deceptive claims. firms have different marginal costs. either a or b. none of the above.

either a or b.

An important condition for a contestable market is:

existing firms cannot respond quickly to entry by lowering their price.

The cross-price elasticity of demand for textbooks and copies of old exams is -3.5. If the price of copies of old exams increase by 10 percent, the quantity demanded of textbooks will

fall by 35 percent.

Price matching strategies may fail to enhance profits when:

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

The Bertrand theory of oligopoly assumes

firms set prices.

The demand for which of the following commodities is likely to be more price inelastic? food. hamburgers. Big Mac's. sandwiches.

food.

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

frequent buyer rebate programs.

Most workers view leisure and income as

goods.

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.

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.

In the long-run, monopolistically competitive firms:

have excess capacity.

If you were running an advertising campaign for designer men's suits, you should target families with:

higher incomes.

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

higher.

A firm manager is an agent

hired by the owner to control the production process.

The market supply curve indicates the total quantity all producers in a competitive market would produce at each price,

holding all supply shifters fixed.

The winner's curse occurs:

in a common-values auction.

increase by $20,000.

The cross price elasticity of demand between goods X and Y is -3.5. If the price of X decreases by 7%, the quantity demanded of Y will

increase by 24.5%.

The cross price elasticity of demand between goods X and Y is -3.5. If the price of X decreases by 7%, the quantity demanded of Y will:

increase by 24.5%.

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

increase.

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

increased.

Diminishing marginal rate of substitution implies that

indifference curves are convex from the origin.

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

inelastic

The demand for food (a broad group) is more

inelastic than the demand for beef (specific commodity).

Suppose Q xd = 10,000 - 2 Px + 3 Py - 4.5M , where Px = $100, Py = $50, and M = $2,000. Then good X has a demand which is:

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 isoquants are normally drawn with a convex shape because

inputs are not perfectly substitutable.

Which of the following is probably not a normal good?

intercity passenger bus travel.

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.

Consumer surplus

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

A long-term contract

is when a firm is legally bound to purchase inputs from a particular supplier.

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

issuing warranties or guarantees

Suppose both supply and demand decrease. What effect will this have on price?

it may rise or fall.

If A and B are complements, an increase in the price of good A would:

lead to a decrease in demand for B.

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.

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

less output at each given price.

Which of the following is the primary disadvantage of producing inputs within a firm?

loss of specialization.

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

low price guarantee.

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

marginal cost pricing

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.

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.

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.

The demand for Cinnamon Toast Crunch brand cereal is

more elastic than the demand for cereal in general.

The demand for women's clothing is

more elastic than the demand for clothing 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.

Demand tends to be

more inelastic in the short-term than in the long-term.

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.

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.

Which of the following is true? For a finitely repeated game, the game is played enough times to effectively punish cheaters and therefore collusion is likely. In an infinitely repeated game with a low interest rate, collusion is unlikely because the game unravels so that effective punishment cannot be used during any time period. A secure strategy is the optimal strategy for a player no matter what the opponent does. none of the above

none of the above

Suppose that supply increases and demand decreases. What effect will this have on price and quantity? price will increase and quantity may rise or fall. price will decrease and quantity will increase. price will decrease and quantity will decrease. none of the above.

none of the above.

The spirit of equating marginal cost with marginal revenue is not held by perfectly competitive firms. oligopolistic firms. both (a) and (b). none of the above.

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 will increase by 10 units. will increase by 20 units. will decrease by 10 units. none of the above.

none of the above.

Which of the following statements is incorrect? As the population rises, the market demand curve shifts to the right. As a greater fraction of the population becomes elderly, the demand for medical services will tend to increase. The changes in the composition of the population affect the demand for a product. none of the above.

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 .85. 9. 10. none of the above.

none of the above.

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

only output to be "goods".

Spot markets are an efficient way for the firm to purchase inputs if

opportunism is not a problem.

Suppose a risk-neutral perfectly competitive firm must set output before it knows for sure the market price. Suppose the market price is given by p = p + e, where p is the mean price and e is a random term with an expected value of zero. Then in order to maximize expected profits the firm should produce where

p* = MC

Bertrand model of oligopoly reveals that capacity constraints are not important in determining market performance. perfectly competitive prices can arise in markets with only a few firms. changes in marginal cost do not affect prices. all of the above.

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

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.

After half-time, spectators are allowed to enter for free. This is an example of:

price discrimination and peak-load pricing

What is the immediate result of applying the Clean Air Act to a previously non-regulated industry?

price increases and production is reduced.

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

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

Demand shifters do not include the

price of the good.

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.

The demand function

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

The supply function

recognizes that the quantity of a good produced depends on its price and supply shifters.

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.

The presence of government in the market leads to:

rent seeking

A production function

represents the technology available for turning inputs into output.

The Cournot theory of oligopoly assumes

rivals will keep their output constant.

Graphically, a decrease in advertising will cause the demand curve to:

shift leftward

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

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.

Changes in the price of an input cause

slope changes in the isocost line.

When an effective price ceiling is in place

some consumers are better off and others are worse off.

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

If consumers expect future prices to be higher

stockpiling will happen when products are durable in nature.

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.

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.

An isoquant defines the combination of inputs

that yield the producer the same level of output.

It is profitable to hire labor so long as

the VMPL is greater than wage.

The revenues earned by the firm from the consumer may be maximized under

the buy one get one free offer.

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

the change in the market rate of substitution.

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 demand increases, then

the demand curve shifts to the right.

If supply increases, then

the equilibrium price goes down.

Long-term contracts are less likely when

the exchange environment is complex.

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.

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.

The greater the standard error of an estimated coefficient:

the lower the t-value of the estimated coefficient.

The point where diminishing marginal returns has begun to affect production, is best characterized by the point where

the marginal product curve begins to be negatively sloped.

If a firm offers to pay a worker $10 for each hour of leisure the worker gives up the $10 implies

the market rate of substitution between leisure and income.

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.

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 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.

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

the present value of cheating is lower than collusion.

When quantity demanded exceeds quantity supplied

the price is below the equilibrium price.

Demand shifters do not include

the price of the good.

The law of demand indicates that as the price of a good increases,

the quantity buyers desire decreases

Consumers adjust their purchasing behavior so that:

the ratio of prices they pay equals their marginal rate of substitution.

If the price of computers decreases, then

the sales of a substitute, such as a telephone, decreases.

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.

A market is not contestable if:

there are sunk costs

With a linear production function

there is a perfect substitutable relationship between all inputs.

Both firms in a Cournot duopoly would experience lower profits if

there was an increase in marginal production costs.

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,

there will be a shortage of 20 units.

The optimal bid in a first-price, sealed-bid auction with independent private values is:

to bid less than the true value of the item.

A cash gift causes the budget line

to shift to the right in a parallel fashion.

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

too little innovation.

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

transitivity.

One way of alleviating opportunism is

vertical integration

A firm chooses the institution to purchase inputs

which minimizes the transactions costs of obtaining inputs.

Since most consumers spend very little on salt, a small increase in the price of salt

will not reduce quantity demanded by very much.

Managers can get workers to work longer hours

with higher overtime pay in excess of regular hourly pay.

A potential problem with piece rate plans is that

workers may put little emphasis on the quality of the good.

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.

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

zero.

Each week Bill buys exactly 7 bottles of cola regardless of its price. Bill's own price elasticity of demand for cola in absolute value is:

zero.

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