Managerial Economics
Which of the following is not a pure public good?
telephones
If a firm has been proven liable for a false ad, it has to
terminate the false ad, provide compensation for more than the damage it has caused, and recall any product with the false claim on it.
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? Multiple Choice04Correct913
4
At the point of tangency between the isoquant curve and the isocost line, Multiple ChoiceMPL/MPK = r/w.MPL/MPK = VMPL/VMPK.MC = ATC.MPL/MPK = w/r.
MPL/MPK = w/r.
Which of the following is a profit-maximizing condition for a Cournot oligopolist? Multiple ChoiceMR = MC.CorrectQ1 = Q2 = ... = Qn.P = MR.All of the statements associated with this question are correct.
MR = MC.
Which of the following is true for a monopoly?
Price does not equal marginal cost.
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? Multiple ChoiceProduce more than 100 units.Produce less than 100 units.CorrectProduce 100 units.There is insufficient information to decide.
Produce less than 100 units.
How can a firm in a merger avoid antitrust action by the government?
Prove that efficiency will improve from the resulting merger.
The Cobb-Douglas production function is Multiple ChoiceQ = aK + bL.Q = min{bK, cL}.Q = max{bK, cL}.Q = KaLb.
Q = KaLb.
The Sweezy model of oligopoly reveals that Multiple Choicecapacity constraints are not important in determining market performance.perfectly competitive prices can arise in markets with only a few firms.changes in marginal cost may not affect prices.Correctall of the provided answers are correct.
changes in marginal cost may not affect prices.
An unregulated monopolist will likely
charge a price above MC.
Nonrivalry, as it relates to public goods, means that
consumer rivalry does not exist in this market.
Jane pays the market price of $69 for a new pair of running shoes, even though she would be happy to pay a maximum of $100 for the same pair of shoes. This is an example of the concept of Multiple Choiceproducer surplus.price ceilings.full economic prices.consumer surplus.
consumer surplus.
If a firm's production function is Leontief and the price of capital goes down, the Multiple Choicefirm must use less labor in order to minimize the cost of producing a given level of output.firm must use more capital in order to minimize the cost of producing a given level of output.firm must use less capital in order to minimize the cost of producing a given level of output.cost-minimizing combination of capital and labor does not change.
cost-minimizing combination of capital and labor does not change.Correct
A negative side of a revenue-sharing plan is that it Multiple Choicedoes not induce hard or better work.can be costly if revenues are low.gives no incentive for workers to minimize costs.Correctcan be difficult to manage from an accounting standpoint.
gives no incentive for workers to minimize costs.
The agent is an individual Multiple Choicewho acts independently of the principal.who can direct the principal to achieve goals.hired by the principal to achieve goals.Correcthired by the principal to consult with him.
hired by the principal to achieve goals.
Which of the following phenomena shows that risk aversion is characteristic of many people?
homeowners insurance
A firm will maximize the present value of future profits by maximizing current profits when the
interest rate is larger than the growth rate in profits and both are constant.
A new firm enters a market that is initially serviced by a Bertrand duopoly charging a price of $20. What will the new price be should the three firms coexist after the entry? Multiple Choice$25$20Correct$15$8
$20
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, consumer surplus is Multiple Choice$32.$64.Correct$128.$150.
$64.
Suppose each of the 50 states had only one gasoline station, and all the stations were the same size. The four-firm concentration ratio a consumer, who only drives within the state, would experience is Multiple Choice1.0.Correct0.08.0.32.0.16.
1.0.
Economists use game theory to predict the behavior of oligopolists. Which of the following is crucial for the success of the analysis? Multiple ChoiceMake sure the payoffs reflect the true payoffs of the oligopolists.Determine whether the oligopolists move simultaneously or sequentially.Determine whether the problem considered is of a one-shot or a repeated nature.All of the statements associated with this question are correct.
All of the statements associated with this question are correct.
Consider a market consisting of two firms where the inverse demand curve is given by P = 500 − 2Q1 − 2Q2. Each firm has a marginal cost of $50. Based on this information, we can conclude that consumer surplus in the different equilibrium oligopoly models will follow which of the following orderings? Multiple ChoiceCSCollusion > CSStackelberg > CSCournot > CSBertrandIncorrectCSBertrand > CSStackelberg > CSCournot > CSCollusionCorrectCSBertrand > CSCournot > CSStackelberg > CSCollusionCSStackelberg > CSBertrand > CSCournot > CSCollusion
CSBertrand > CSStackelberg > CSCournot > CSCollusion
Suppose that you are the owner of a dairy mart. You receive revenues from sales of soda and hot dogs. If the cross-price elasticity of demand between the two products is −0.75 and you raise the price of soda, then demand for hot dogs
Decreases.
The import tariffs that President Bush placed on imported steel likely had what effect?
Domestic steel producers were helped, but domestic steel consumers were hurt.
Which of the following is true about a differentiated-product Bertrand duopoly? Multiple ChoiceFirm 1 and firm 2's prices will exceed marginal cost.CorrectFirm 1 and firm 2's prices will equal marginal cost.IncorrectFirm 1's price will always be above marginal cost, while firm 2's price will be equal to marginal cost.Firms in a differentiated-product Bertrand duopoly cannot earn positive economic profits in the long run.
Firm 1 and firm 2's prices will exceed marginal cost.
Which of the following is true concerning negative externalities? Multiple ChoiceFirms tend to produce more than the efficient level of output.CorrectSociety gains because firms do not pay the external costs of production.Perfect competition is better than monopoly from the viewpoint of society even in the presence of negative externalities.With negative externalities, a monopoly will always produce an output level less than is socially efficient.
Firms tend to produce more than the efficient level of output.
What would be an expected pattern of industry concentration and pricing behavior? Multiple ChoiceFirms with a low Herfindahl-Hirschman index would have a high Lerner index.IncorrectFirms with a high Herfindahl-Hirschman index would have a high Lerner index.CorrectFirms with a low Herfindahl-Hirschman index would have a high C4 ratio.Firms with a high Herfindahl-Hirschman index would have a low Dansby-Willig index.
Firms with a high Herfindahl-Hirschman index would have a high Lerner index.
Which of the following statements about a price-matching strategy is incorrect? Multiple ChoiceIt may be applied in situations besides Bertrand oligopoly.It requires that the firms can monitor their rival's prices.CorrectIt reduces the incentive for a rival firm to initiate a price war.It only guarantees to match prices that are advertised publicly.
It requires that the firms can monitor their rival's prices.
Which of the following measures market power? Multiple ChoiceLerner index and the advertising-sales ratioHerfindahl-Hirschman index and the advertising-sales ratioRothchild index and the advertising-sales ratioLerner index and Rothchild index
Lerner index and Rothchild index
When a country opens up trade and becomes a net importer or net exporter of good X, then
Overall surplus is increased
You are the manager of a monopoly firm with (inverse) demand given by P = 50 − 0.5Q. Your firm's cost function is C = 40 + 5Q2. Your firm's marginal revenue is Multiple ChoiceP = 50 − 0.5Q.P = 100 − Q.P = 50 − Q.Correctindeterminable based on the information in the question.
P = 50 − Q.
In the long run, perfectly competitive firms produce a level of output such that Multiple ChoiceP = MC.P = minimum of AC.P = MC and P = minimum of AC.CorrectP > MC.
P = MC and P = minimum of AC.
Which of the following is true under perfect competition? Multiple ChoiceProfits are always positive.P > MC.P = MR.CorrectP = VC.
P = MR.
In a competitive industry with identical firms, long-run equilibrium is not characterized by Multiple ChoiceP = AC.P = MC.MR = MC.P > MC.Correct
P > MC.
Which of the following is true under a monopoly? Multiple ChoiceP > ATC.P > MC.CorrectP = MR.P = ATC.
P > MC.
The demand for good X is estimated to be QXd = 100 − 2PX + 5PY + 4M + 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 = $10,000, and AX = 1,000 units. Based on this information,
Quantity demanded of X = 41,500 units and X is a normal good
The demand for good X has been estimated to be ln Qxd = 100 − 2.5 ln PX + 4 ln PY + ln M. The cross-price elasticity of demand between goods X and Y is
Qxd = 100 ? 2.5 ln PX + 4 ln PY + ln M The cross-price elasticity of demand is simply the coecient of ln Py, which is 4 . Since this number is positive, goods X and Y are substitutes cross-price elasticity of demand between goods X and Y = 4.0
Which of the following are quantity-setting oligopoly models? Multiple ChoiceStackelberg onlyCournot onlyBertrandStackelberg and Cournot
Stackelberg and Cournot
Tanisha is offered two gambles. With gamble A, she either gains $2 or loses $1 with a 50 percent probability. With gamble B, she either gains $3 or loses $2 with a 50 percent probability. Tanisha prefers gamble B to gamble A. What can we conclude? Multiple ChoiceTanisha is risk loving.CorrectTanisha is risk neutral.Tanisha is risk averse.There is insufficient information for a determination.
Tanisha is risk loving.
When the government imposes an effective price ceiling on a monopolist, what will be sure to happen in the short run?
The dollar price will fall.
When a country opens up trade and becomes a net exporter of good X, then
The domestic consumers of good X lose surplus and the domestic producers of good X gain surplus, but consumers lose less than producers gain
Which of the following is a feature of a contestable market? Multiple ChoiceThere are several firms in the market serving many consumers.There is a single firm in the market serving many consumers.The market price is equal to marginal cost.There is a single firm in the market serving many consumers, and the market price is equal to marginal cost.Correct
There is a single firm in the market serving many consumers, and the market price is equal to marginal cost.
Suppose the demand for X is given by Qxd = 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 Multiple Choicean inferior good.a normal good.Correcta Giffen good.a complement.
a normal good.
If the absolute value of the own price elasticity of steak is 0.4, a decrease in price will lead to Multiple Choicea reduction in total revenue.Correctan increase in total revenue.no change in total revenue.an increase or decrease in total revenue.
a reduction in total revenue
Which of the following does not measure market structure? Multiple Choicefour-firm concentration ratioLerner indexHerfindahl-Hirschman indexadvertising-sales ratio
advertising-sales ratio
The long-run average cost curve defines the minimum average cost of producing alternative levels of output, allowing for optimal selection of Multiple Choicefixed factors of production.only one factor of production.all factors of production.Correctsunk cost factors of production.
all factors of production.
If you advertise and your rival advertises, you each will earn $3 million in profits. If neither of you advertises, you will each earn $7 million in profits. However, if one of you advertises and the other does not, the firm that advertises will earn $10 million and the non-advertising firm will earn $1 million. If you and your rival plan to be in business for only one year, the Nash equilibrium is for your firm Multiple Choiceand your rival to advertise.Correctand your rival not to advertise.to advertise and your rival not to advertise.not to advertise and your rival to advertise.
and your rival to advertise.
An unregulated industry has a Lerner index of zero. These numbers Multiple Choicereveal that social welfare would be improved by regulating the firms.are consistent with the industry being monopolistically competitive.are consistent with the industry being perfectly competitive.Correctreveal that social welfare would be improved by regulating the firms and are consistent with the industry being monopolistically competitive.
are consistent with the industry being perfectly competitive.
If the mean is held constant, the larger the standard deviation, the gamble will Multiple Choicebe more risky.Correctbe less risky.have higher utility.be none of the provided choices.
be more risky.
new firm enters a market that is initially serviced by a Cournot duopoly charging a price of $20. What will the new market price be should the three firms coexist after the entry? Multiple Choice$20Incorrectbelow $20Correctabove $20none of the provided answers
below $20
The demand for which of the following commodities is likely to be most inelastic? Multiple Choicesoft drinksbeveragesCorrectcola drinksPepsi Cola
beverages
The price elasticity of demand is −2.0 for a certain firm's product. If the firm raises price, the firm manager can expect total revenue to Multiple Choicedecrease.Correctincrease.remain constant.either increase or remain constant, depending upon the size of the price increase.
decrease.
Suppose the demand for Good X is ln Qxd = 21 − 1.5 ln Px − 0.5 ln Py + 5 ln M + 0.35 ln 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. If Py rises by 10 percent, what is the resulting change in quantity demanded of X? Multiple Choicedecreases by 50 percentincreases by 50 percentdecreases by 5 percentCorrectincreases by 5 percent
decreases by 5 percent
A Nash equilibrium is a condition that Multiple Choiceresults in the highest payoff to a player regardless of the opponent's action.guarantees the highest payoff given the worst possible scenario.describes a set of circumstances in which no player can improve her payoff by unilaterally changing her own strategy, given the other players' strategies.Correctrandomizes over two or more available actions in order to keep rivals from being able to predict a player's action.
describes a set of circumstances in which no player can improve her payoff by unilaterally changing her own strategy, given the other players' strategies.
Suppose the long-run average cost curve is U-shaped. When LRAC is in the increasing stage, there exist Multiple Choiceeconomies of scope.diseconomies of scope.economies of scale.diseconomies of scale.
diseconomies of scale.
When the government imposes an excise tax on foreign imports,
domestic consumers are harmed and domestic firms benefit.
When the government imposes an excise tax on foreign imports:
domestic consumers are harmed and domestic firms benefit.
A price ceiling imposed on a monopoly may
drive the monopolist out of business or lead to either a shortage or no shortage.
Chris raises cows and produces cheese and milk because he enjoys Multiple Choiceeconomies of scale.economies of scope.Correctcost complementarity.working.
economies of scope.
Second-degree price discrimination Multiple Choiceis the practice of posting a discrete schedule of declining prices for different ranges of quantities.Correcteliminates the problem of double marginalization.results in transfer pricing.occurs when a firm charges all customers the same price.
is the practice of posting a discrete schedule of declining prices for different ranges of quantities.
If A and B are complements, an increase in the price of good A would have no effect on the quantity demanded of B. lead to an increase in demand for B. lead to a decrease in demand for B.Correct not lead to an effect on the quantity demanded of B nor an increase or decrease in the demand for B.
lead to a decrease in demand for B.
Which of the following pricing strategies does not usually enhance the profits of firms with market power? Multiple Choicemarginal cost pricingCorrectprice discriminationblock pricingcommodity bundling
marginal cost pricing
The difference between marginal benefits and marginal costs is the
marginal net benefits.
To an economist, maximizing profit is
maximizing the value of the firm.
The market demand for cheese is Qd = 30 − 2P and the market supply is Qs = 4P. The government imposes a price floor of $4 in the market for cheese. This will Multiple Choicenot change the equilibrium price of cheese.Correctcreate an excess demand of 4 units.create an excess supply of 4 units.possibly not change the equilibrium price as well as create excess demand and excess supply of 4 units.
not change the equilibrium price of cheese.
A Broadway theater sells weekday show tickets at a lower price than for a weekend show. This is an example of Multiple Choiceprice discrimination.peak-load pricing.price discrimination or peak-load pricing.Correctcommodity bundling.
price discrimination or peak-load pricing.
The idea of charging two different groups of consumers two different prices is practiced in Multiple Choiceprice discrimination.Correcttwo-part pricing.price matching.commodity bundling.
price discrimination.
in the Wealth of Nations, Adam Smith argues that
self-interest leads to the efficient allocation of resources.
If an excise tax is imposed on a good, then the supply curve Multiple Choiceshifts up by the amount of the demand elasticity.does not change.shifts down by the amount of the tax.shifts up by the amount of the tax.
shifts up by the amount of the tax
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 the cross-price elasticity between goods X and Y is positive, we know the goods are Multiple Choiceinferior goods.complements.inelastic.substitutes.
substitutes.
Which of the following is not an important determinant of collusion in pricing games? Multiple Choicethe number of firms in the industrythe punishment mechanisms that are in placeIncorrectthe history of the particular marketthe average fixed cost to produce the productCorrect
the average fixed cost to produce the product
If a price ceiling on a monopolist results in no shortage,
the full economic price is lower than the one set by the ceiling.
Suppose a monopolist has positive fixed costs and constant marginal costs. If the government regulates a monopoly's price to marginal cost, in the long run Multiple Choice
the monopolist will exit the industry.
Changes in the price of good A lead to a change in Multiple Choicedemand of good A.supply of good B.the quantity demanded of good A.Correctthe quantity demanded of good B.
the quantity demanded of good A.
The idea of charging two different groups of consumers two different prices is practiced in Multiple Choicetwo-part pricing.price matching.commodity bundling.third-degree price discrimination.
third-degree price discrimination.
Which of the following is not a valuable role of government in a free market society?
to enhance rent-seeking activities
Consider two goods X and Y and two countries Drinland and Gingle. If Drinland has a comparative advantage at X, then Gingle has a comparative advantage at Y.
true
The presence of substantial specialized investment relative to contracting costs suggests that the optimal input procurement method is Multiple Choicespot exchange.vertical integration.contract.vertical integration or contract.Correct
vertical integration or contract.
The marginal cost of producing a good to society is the Multiple Choice
vertical sum of the supply curve and the marginal cost of polluting.
Suppose that the duopolists competing in Cournot fashion agree to produce the collusive output. Given that firm 2 commits to this collusive output, it pays firm 1 to Multiple Choicecheat by producing a higher level of output.Correctcheat by producing a lower level of output.cheat by raising prices.neither cheat by producing a higher or lower level of output nor cheat by raising prices.
cheat by producing a higher level of output.
Negotiations between the buyer and seller of a new house are an example of
consumer-producer rivalry.
Juan's search costs are $75 per search. He wants to buy a large computer monitor, and the lowest price he has found so far is $900. Juan thinks 20 percent of the stores charge $900 for the monitor, 50 percent charge $800, and the other 30 percent charge $750. Juan's optimal decision is to
continue to search for a lower price since the expected benefit of an additional search is $95, which exceeds his per-unit search costs.
The elasticity that shows the responsiveness of the demand for a good due to changes in the price of a related good is the Multiple Choiceown price elasticity.income elasticity.log-linear elasticity.cross-price elasticity.Correct
cross-price elasticity.
A duopoly in which both firms have a Lerner index of monopoly power equal to 0 is probably a Multiple ChoiceSweezy oligopoly.Cournot oligopoly.Stackelberg oligopoly.Bertrand oligopoly.Correct
Bertrand oligopoly.
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 Nash equilibrium strategies? Multiple Choice(enter, hard) and (not enter, hard)(enter, soft) and (not enter, soft)(not enter, hard) and (enter, soft)Correct(enter, hard) and (not enter, soft)
(not enter, hard) and (enter, soft)
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? Multiple ChoiceP = $1.Profits of firm 1 = profits of firm 2.Producer's surplus of firm 1 = producer's surplus of firm 2.All of the statements associated with this question are correct.
All of the statements associated with this question are correct.Correct
A risk-neutral monopoly must set output before it knows the market price. There is a 50 percent chance the firm's demand curve will be P = 20 − Q and a 50 percent chance it will be P = 40 − Q. The marginal cost of the firm is MC = Q. The profits are maximized in the expected sense when
MC = E(MR).
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? Multiple ChoiceMC1(Q1) = MC2(Q2) = P(Q1 + Q2).MC1(Q1) = MC2(Q2) = MR(Q1 + Q2).CorrectMC1(Q1 + Q2) = MC2(Q1 + Q2) = P (Q1 + Q2).MC1(Q1 + Q2) = MC2(Q1 + Q2) = MR (Q1 + Q2).
MC1(Q1) = MC2(Q2) = MR(Q1 + Q2).
Which of the following is true about an excise tariff?
Foreign firms' marginal cost curves are shifted up by the amount of the excise tariff.
In the video "Free Trade vs Protectionsim," (section Readings) what are the two examples given by Professor Boudreaux of free trade in action?
Hong Kong and inter-state trade among the United States of America
Consider two goods X and Y and two countries Drinland and Gingle. If Drinland has a comparative advantage at X, explain how that can lead to benefits for both countries.
If Drinland has a comparative advantage at X it means that Gingle must have a comparative advantage at Y. Each country can specialize in producing the good for which is has the lower opportunity costs and buy the higher opportunity cost good from the other country.
If insurance companies are required to offer coverage to all interested people, it is said that premiums for each person will be increased. Assume that the insurance market is perfectly competitive. What is the major reason for raising the premium?
Less healthy people join the pool of insured and hence increase the risk and the premium.
Which of the following features is common to both perfectly competitive markets and monopolistically competitive markets? Multiple ChoiceFirms produce homogeneous goods.Prices are equal to marginal costs in the long run.Long-run profits are zero.CorrectPrices are above marginal costs in the long run.
Long-run profits are zero.
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 Nash equilibrium? Multiple ChoiceManagement requests $50, and the labor union accepts $0.CorrectManagement requests $35, and the labor union accepts $10.Management requests $20, and the labor union accepts $20.Management requests $25, and the labor union accepts $10.
Management requests $50, and the labor union accepts $0.
Cinemas sometimes give senior citizens discounts. What is the possible privately motivated purpose for them to do so? Multiple ChoicePurely because entrepreneurs are benevolent.Senior citizens have a more elastic demand for movies than ordinary citizens.CorrectSenior citizens lack recreational activities.
Senior citizens have a more elastic demand for movies than ordinary citizens.
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 + 0.5Q2. What will happen in the long run if there is no change in the demand curve? Multiple ChoiceSome firms will leave the market eventually.Some firms will enter the market eventually.CorrectThere will be neither entry nor exit from the market.All firms leave the market to join another industry.
Some firms will enter the market eventually.
Rindistan currently runs a current account deficit with Ackland. to make up the difference, Rindistan prints up more of its curreny, the Rael. Both countries have flexible exchange rates. The increased supply of Raels will cause
The Rael to depreciate relative to Ackland's currency
Which of the following is not a feature of a Sweezy oligopoly? Multiple ChoiceThere are few firms in the market serving many consumers.The firms produce homogeneous products.CorrectEach firm believes that rivals will cut their prices in response to a price reduction but will not raise their prices in response to a price increase.Barriers to entry exist.
The firms produce homogeneous products.
Which of the following is a correct statement? Multiple ChoiceThe lower the marginal cost, the higher the profit-maximizing price.The lower the average cost, the higher the profit-maximizing price.The less elastic the demand, the higher the profit-maximizing markup.CorrectThe more elastic the demand, the higher the profit-maximizing markup.
The less elastic the demand, the higher the profit-maximizing markup.
Which of the following conditions is true when a producer minimizes the cost of producing a given level of output? Multiple ChoiceThe marginal product per dollar spent on all inputs is equal.CorrectThe MRTS is equal to the ratio of the quantity of inputs.The marginal products of all inputs are equal.The marginal product per dollar spent on all inputs is equal and the MRTS is equal to the ratio of the quantity of inputs.Incorrect
The marginal product per dollar spent on all inputs is equal.
If the cross-price elasticity between ketchup and hamburgers is −1.2, a 4 percent increase in the price of ketchup will lead to a 4.8 percent Multiple Choicedrop in quantity demanded of ketchup.drop in quantity demanded of hamburgers.Correctincrease in quantity demanded of ketchup.increase in quantity demanded of hamburgers.
drop in quantity demanded of hamburgers.
When marginal revenue is positive, demand is:
elastic.
Which of the following may transform an industry from oligopoly to monopolistic competition? Multiple ChoiceentryCorrecttakeoverexitacquisition
entry
"An oligopoly is an oligopoly. Firms behave the same no matter what type of oligopoly it is." This statement is Multiple Choicetrue.false.Correcttrue of homogeneous product industries.true of heterogeneous product industries.
false.
If firms are in Cournot equilibrium, Multiple Choiceeach firm could increase profits by unilaterally increasing output.each firm could increase profits by unilaterally decreasing output.firms could increase profits by jointly increasing output.firms could increase profits by jointly reducing output.Correct
firms could increase profits by jointly reducing output.
Consider the following information for a simultaneous move game: If you advertise and your rival advertises, you each will earn $5 million in profits. If neither of you 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 hand your business down to your children (and this "bequest" goes on forever), then a Nash equilibrium when the interest rate is zero is Multiple Choicefor each firm to not advertise until the rival does and then to advertise forever.Correctfor your firm to never advertise.for your firm to always advertise when your rival does.for each firm to advertise until the rival does not advertise and then not to advertise forever.
for each firm to not advertise until the rival does and then to advertise forever.
Suppose the demand for X is given by Qxd = 80 − PX + 3PY + 5M + 3A, 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 Multiple Choicegood X is a substitute for good Y.good X is a complement for good Y.Correctgood Y is a normal good.Incorrectgood X is an inferior good.
good X is a complement for good Y.
Basic principles that comprise effective management include
identifying goals and constraints.
The short run is defined as the time frame Multiple Choicein which there are no fixed factors of production.in which there are fixed factors of production.Correctless than one year.less than three years.
in which there are fixed factors of production.
An excise tariff imposed on foreign competitors will:
increase domestic firms' profits at all levels of demand.
Suppose that you are the owner of a dairy mart. You receive revenues from sales of soda and potato chips. If the cross-price elasticity of demand between the two products is −0.87 and you lower the price of soda, then demand for potato chips Multiple Choiceincreases.Correctdecreases.Incorrectdoes not change.is indeterminable.
increases.
Consider a Stackelberg duopoly with the following inverse demand function: P = 100 − 2Q1 − 2Q2. The firms' marginal costs are identical and are given by MCi(Qi) = 2. Based on this information, the leader's reaction function is Multiple Choicer1(Q2) = 24.5 − 0.5Q1 and r2(Q1) = 24.5 − 0.5Q2.r1(Q2) = 24.5 − 0.5Q2 and r1(Q2) = 24.5 − 0.5Q1.Q1 = 49 − 0.5Q2 and Q2 = 49 − 0.5Q1.indeterminable as the Stackelberg leader does not react to the output decision of its rival.Correct
indeterminable as the Stackelberg leader does not react to the output decision of its rival.
A firm might choose to produce its own inputs if Multiple Choicespecialized investment is not important.long-term contracts are costly to write.Correctthe exchange environment is not complex.spot markets for the input exist.
long-term contracts are costly to write.
A positive side of long-term contracts is Multiple Choicelow transaction costs.Correcta loss of flexibility.the continual need to renegotiate the contract.high transaction costs.
low transaction costs.
Variable factors of production are the inputs that a manager Multiple Choicemay adjust in order to alter sales.may adjust in order to alter production.Correctcannot adjust in the short run.cannot adjust in the long run.
may adjust in order to alter production.
When economies of scale are large, firms can reduce their average total cost by Multiple Choiceselling off their subsidiaries.merging into even larger firms.Correcteliminating the bureaucratic costs.hiring professional managers.
merging into even larger firms.
There is no market supply curve in Multiple Choicea perfectly competitive market.a monopolistically competitive market.a monopolistic market.monopolistically competitive and monopolistic markets.
monopolistically competitive and monopolistic markets.
The demand for Cinnamon Toast Crunch brand cereal is Multiple Choiceequally elastic to the demand for cereal in general.less elastic than the demand for cereal in general.more elastic than the demand for cereal in general.Correctperfectly inelastic.
more elastic than the demand for cereal in general.
Since most consumers spend very little on salt, a small increase in the price of salt will
not reduce quantity demanded by very much.
Game theory is best applied to the analysis of Multiple Choiceperfect competition.oligopoly.Correctmonopoly.perfect competition, oligopoly, or monopoly.
oligopoly.
When there are economies of scope between products, selling off an unprofitable subsidiary could lead to Multiple Choicea major reduction in costs.only a minor reduction in costs.Correctonly a minor reduction in sales.a major reduction in sales.
only a minor reduction in costs.
Suppose a risk-neutral 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 expected 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.
The law of supply states that, holding all else constant, as the price of a good falls, Multiple Choicequantity demanded rises.quantity supplied falls.Correctquantity supplied rises.quantity demanded falls.
quantity supplied falls.
Generally, revenue-based incentive schemes Multiple Choicereduce incentives to produce low-quality products.Correctincrease incentives to minimize costs.reduce worker productivity.reduce incentives to produce low-quality products and increase incentives to minimize costs.
reduce incentives to produce low-quality products.
Specialized investments Multiple Choiceresult in relationship-specific exchange.Correctmake spot exchange efficient.cause managers to shirk.are equally valuable in any productive use.
result in relationship-specific exchange.
Graphically, a decrease in advertising will cause the demand curve to become steeper. shift rightward. become flatter. shift leftward.
shift leftward.
In purchasing inputs, a firm chooses the method Multiple Choicethat minimizes the transactions costs of obtaining inputs.Correctthat creates more divisions.that minimizes worker shirking.that implements profit sharing.
that minimizes the transactions costs of obtaining inputs.
The demand for an input is Multiple Choicesloping upward.the VMP of the input.Correctdetermined by MPL = W.Incorrectderived from input owner's profit-maximizing condition.
the VMP of the input.
Which of the following factors reduces the need for government involvement in the marketplace?
the incentive to rent-seek
The elasticity that measures the responsiveness of consumer demand to changes in income is Multiple Choicethe income elasticity.Correctthe own price elasticity.the cross-price elasticity.neither the income elasticity, the own price elasticity, nor the cross-price elasticity.
the income elasticity.
In order for spot checks to work, Multiple Choiceemployees must be monitored continually.the time of the checks must not be predictable.Correctboth employees must be monitored continually and the time of the checks must not be predictable.the time of the checks must be predictable and only a group of the employees are monitored.
the time of the checks must not be predictable.
In producing the efficient amount of a public good, government should take into account
the vertical sum of all individual inverse demand curves.
A market is not contestable if Multiple Choiceall producers have access to the same technology.consumers respond quickly to a price change.existing firms cannot respond quickly to entry by lowering their price.Incorrectthere are sunk costs.Correct
there are sunk costs.
In the absence of worker incentives, Multiple Choiceeveryone always gives maximum effort.there is a natural tendency for workers to not give their maximum effort.Correctmanagers have little or no control.workers have little or no control.
there is a natural tendency for workers to not give their maximum effort.
The industry elasticity of demand for gadgets is −2, while the elasticity of demand for an individual gadget manufacturer's product is −10. Based on the Rothschild approach to measuring market power, we conclude that Multiple Choicethe Herfindahl index for this industry is 5.the Herfindahl index for this industry is 0.2.there is no monopoly power in this industry.Correctthere is significant monopoly power in this industry.
there is no monopoly power in this industry.
Under the merger guidelines written by the DOJ and FTC, a merger may not be challenged if
there is significant foreign competition, the firms involved have monetary problems, or there is an emergence of new technology.
Suppose that your friend owns a coffee shop and seeks your advice on changing the price of coffee to increase revenue. If you know that demand for coffee is relatively elastic, what advice will you give your friend? Multiple Choiceto increase the priceto decrease the priceCorrectto increase the price for a week and then to lower the priceto decrease the price for a week and then to raise the price
to decrease the price
The marginal product of an input is defined as the change in Multiple Choiceaverage output attributable to the last unit of an input.total output attributable to the last unit of an input.Correcttotal input attributable to the last unit of an output.average output attributable to the last unit of an output.
total output attributable to the last unit of an input.
To circumvent the problem of double marginalization, Multiple Choicetransfer prices must be set that maximize the overall value of the firm rather than the profits of the upstream division.Correctfirms should engage in two-part pricing unless it is possible to engage in either first-or second-degree price discrimination.firms should vertically integrate.firms should focus solely on revenue maximization.
transfer prices must be set that maximize the overall value of the firm rather than the profits of the upstream division.
It is possible for a country to have a comparative advantage at everything.
true
Suppose two types of consumers buy suits. Consumers of type A will pay $100 for a coat and $50 for pants. Consumers of type B will pay $75 for a coat and $75 for pants. The firm selling suits faces no competition and has a marginal cost of zero. If the firm charges $100 for a suit (which includes both pants and a coat), the firm will sell a suit to Multiple Choicetype A consumers.type B consumers.type A consumers and type B consumers.Correctneither type A consumers nor type B consumers.
type A consumers and type B consumers.
A childcare corporation operates six branches in a medium-sized city. The corporation's employees include three handymen professionals who go to each branch to repair broken items. The corporation is acquiring facility repair services through Multiple Choicethe spot market.a short-term contract.a long-term contract.vertical integration.
vertical integration.
The demand for video recorders has been estimated to be linear and given by the demand relation Qv = 145 − 3.2Pv + 7M − 0.95Pf − 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 Multiple Choicevideo recorders are normal goods.the demand for video recorders is inelastic.video recorders are normal goods and the demand for video recorders is inelastic.video recorders are normal goods and video recorder film is a complement for video recorders.
video recorders are normal goods and video recorder film is a complement for video recorders.
Which of the following is the major means to signal good quality of goods by firms? Multiple Choicesalesadvertisementswarranties/guaranteesCorrectboth sales and advertisements
warranties/guarantees
If a producer offers a price that is in excess of a consumer's valuation of the good, the consumer
will refuse to purchase the good.
Principal-agent problems do not arise between Multiple Choicestockholders and managers.managers and workers.stockholders and workers.workers and consumers.Correct
workers and consumers.
Each week Bill buys exactly 10 hot dogs regardless of their price. Bill's own price elasticity of demand for hot dogs in absolute value is Multiple Choicegreater than 1.less than 1.1.zero.
zero.