Final Material Quizzes Econ

In perfect competition, which is NOT true?

Every firm has a small but perceivable market power.

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 features is common to both perfectly competitive markets and monopolistically competitive markets?

Long-run profits are zero.

A monopoly has two production plants with cost functions C1 = 50 + 0.1Q12 and C2 = 30 + 0.05Q22. The demand it faces is Q = 500 − 10P. What is the condition for profit maximization?

MC1(Q1) = MC2(Q2) = MR(Q1 + Q2).

The causal view of an industry is that:

Market structure causes firms to behave in a certain way

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.

A 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.

the higher the interest rate

The smaller the present value of a future amount

A potential problem with piece-rate plans is that:

Workers may stress quantity instead of quality.

A negative side of long-term contracts is:

a loss of flexibility

a change in income will NOT lead to

a movement along the demand curve

if supply increases, then

equilibrium price goes down

It is profitable to hire units of labor as long as the value of marginal product:

exceeds wage

which is the correct statement about the relationship between government and the market

government often plays a role in disciplining the market process

trade will take place

if the maximum that a consumer is willing and able to pay is GREATER than the minimum price the producer is willing and able to accept for a good

Which of the following is true?

in the short run, a monopoly will shut down if P<AVC

Holding all else constant, higher prices will:

increase the Lerner index

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

inelastic

an income elasticity less than zero tells us the good is an

inferior good

competitive market equilibrium

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

Suppose the demand for good X is given by Qdx = 10 + axPx + ayPy + aMM. From the law of demand we know that ax will be

less than zero

A firm might choose to produce its own inputs if:

long term contracts are costly to write

which of the following is a main goal of a continuing company

maximize the value of the firm

When economies of scale are large, firms can reduce their average total cost by:

merging into even larger firms

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

output produced by the last unit of input

if a shortage exists in a market, the natural tendency is for

price to increase

The recipe that defines the maximum amount of output that can be produced with K units of capital and L units of labor is the:

production function

changes in the price of good a lead to change in

quantity demanded of good A

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

Which of the following is used to determine the statistical significance of a regression coefficient?

t statistic

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

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

The lower the standard error:

the more confident the manager can be that the parameter estimates reflect true values

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

the present value of cheating is lower than collusion.

consumer surplus is

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

economic profits are

total revenue minus total opportunity costs

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

vertical

An electronics company takes over one of its original suppliers in a merger. This is an example of:

vertical intergration

Which of the following formulas correctly measures the profit of a monopoly?

π = TR − TC and π = (P − ATC)Q

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

$19

If a firm manager has a base salary of $50,000 and also gets 2 percent of all profits, how much will his/her income be if revenues are $8,000,000 and profits are $2,000,000?

$90,000

An industry is comprised of 20 firms, each with an equal market share. What is the four-firm concentration ratio of this industry?

0.2

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

1,779

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

14

Suppose you are a manager of a factory. You purchase five (5) new machines at one million dollars each. If you can resell two of the machines for $500,000 and three of the machines for $200,000, what are the sunk costs of purchasing the machines?

3.4 million

a firm will have constant profits of 100,000 per year for the next four years and the interest rate is 6%. Assuming these profits are realized at the end of each year, what is the present value of these future profits

346,510.56

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

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

50

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

96

The production function Q = L.5K.5 is called:

Cobb Douglas

an increase in the price of steak will probably lead to

an increase in the demand for chicken

Which of the following is an outside incentive that forces managers to put forth maximal effort

threat of takeover

what is the marginal cost of producing the 5th unit

total cost-total revenue

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

warranties/guarantees

Long-term contracts become shorter

when specialized investment becomes less important

The demand for good X is estimated to be Qxd = 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 demand curve for good X?

61,500-4Px

Suppose that the demand in a particular industry is given by Qd = 100 - 2P. When the market price in the industry is $10 per unit, total demand in the industry is ___. Furthermore, assume that each of the four largest firms in the industry sell 15 units. Based on this information, the four-firm concentration ratio is ____.

80 units, 0.75

Consider a monopoly where the inverse demand for its product is given by P = 50 − 2Q. Total costs for this monopolist are estimated to be C(Q) = 100 + 2Q + Q2. At the profit-maximizing combination of output and price, monopoly profit is:

92

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.

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. Which of the following is a perfect equilibrium?

Management requests $49.99, and the labor union accepts $0.01.

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 under monopoly?

P >MC

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

average total cost curve and average variable cost curve

Transaction costs refer to:

costs of exchange unrelated to production costs

the elasticity which shows the responsiveness of the demand for a good due to changes in the price of a related good

cross price elasticity

assume that the price elasticity of demand is -2 for a certain firm's product. If the firm raises price, the firm's managers can expect total revenue to

decrease

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 long-term contract:

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

scarce resources are ultimately allocated toward the production of goods most wanted by society because

firms attempt to maximize profits

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 advertises, 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

which of the following is an implicit cost to a firm that produces a good or services

foregone profits of producing a different good or service

Game theory is especially useful for analysis in the following markets:

oligopoly

Consider a market characterized by a Herfindahl-Hirschman index of 5,000. One of the firms in this market has a Lerner index of 0.89 and is considering a horizontal merger with a competing firm. Based on this information, it is likely that the U.S. Department of Justice will:

reject the merger since the industry is highly concentrated and the firm proposing the merger has significant market power

lemonade, a good with many close substitutes should have an own price elasticity that is

relatively elastic

A dominant strategy is a strategy that:

results in the highest payoff to a player regardless of the opponent's action.

By instituting performance-based rewards to CEOs the profits of firms will:

rise

By making managerial compensation depend on the performance of the firm's profits, the firm owner's profits:

rise

in the wealth of nations, Adam Smith argues that

self-interest leads to the efficient allocation of resources

for a steel factory, a decrease in the cost of electricity to the plant will cause the supply curve to

shift to the right