MBA 651 Final
Suppose that initially the price is $50 in a perfectly competitive market. Firms are making zero economic profits. Then the market demand shrinks permanently and some firms leave the industry and the industry returns back to a long run equilibrium. What will be the new equilibrium price, assuming a constant cost industry (horizontal long run supply curve)?
$50.
Suppose earnings are given by E = $60 + $7(24 - L), where E is earnings and L is the hours of leisure. What is the 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.
A worker's total earnings for one day is $100. He received a $20 fixed payment and consumes 14 hours of leisure. What is the hourly wage rate?
$8.
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.
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.
The demand for good X has been estimated by Q xd =12 - 3Px + 4Py. Suppose that good X sells at $2 per unit and good Y sells for $1 per unit. Calculate the own price elasticity.
-0.6.
If a monopolist claims his profit-maximizing markup factor is 3, what is the corresponding price elasticity of demand?
-1.5.
Given that income is $750 and PX = $32 and PY = $8, what is the market rate of substitution between goods X and Y?
-4
Given that income is $500 and PX = $20 and PY = $5, what is the market rate of substitution between goods X and Y?
-4.
Which of the following cost functions exhibits cost complementarity?
-5Q1Q2 + 7Q1.
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.
If the income elasticity for lobster is .4, a 40% increase in income will lead to a:
16% increase in demand for lobster.
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 a manager in a perfectly competitive market. The price in your market is $14. Your total cost curve is C(Q) = 10 + 4Q + 0.5 Q2. What level of profits will you make in the short-run?
$40.
You are the manager of a monopoly that faces a demand curve described by P = 63 - 5Q. Your costs are C = 10 + 3Q. The profit-maximizing output for your firm is:
6.
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.
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).
Which of the following is a profit-maximizing condition for a Cournot oligopolist?
MR = MC.
_______ occurs when people smoke more after buying life insurance.
Moral hazard.
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.
Which curve(s) does the marginal cost curve intersect at the (their) minimum point?
a and c only.
What is/are the important things that must be developed when characterizing consumer behavior?
a and c.
Changes in the price of good A leads to:
a change in the quantity demanded of good A.
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.
The substitution effect reflects how a consumer will react to
a different market rate of substitution.
A decrease in income will not lead to:
a movement along the demand curve.
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.
The possible goods and services a consumer can afford to consume represents the:
consumer opportunities.
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:
consumer surplus.
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.
The demand for good X is estimated to be Q xd = 10,000 - 4PX + 5PY + 2M + AX, where PX is the price of X, PY is the price of good Y, M is income and AX is the amount of advertising on X. Suppose the present price of good X is $50, PY = $100, M = $25,000, and AX = 1,000 units. Based on this information, we know that the demand for good X is:
inelastic.
Advertising provides consumers with information about the underlying existence or quality of a product. These types of advertising messages are called:
informative advertising.
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.
Hold-up:
is a hazard associated with relationship-specific exchange.
The minimum wage:
is an example of floor price.
The marginal rate of technical substitution:
is the absolute value of the slope of the isoquant.
Producer surplus:
is the area above the supply curve but below the market price of the good.
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.
A Herfindahl index of 10,000 suggests:
monopoly.
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.
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.
Which of the following is always true under monopoly?
none of the above are true.
Collusion is:
none of the above.
Suppose that supply increases and demand decreases. What effect will this have on price and quantity?
none of the above.
The primary difference between Monopolistic Competition and Perfect Competition is:
none of the above.
Graphically, an increase in the number of vegetarians will cause the demand curve for Tofu (a meat substitute) to
shift rightward.
For a wood furniture manufacturer, an increase in the cost of lumber will cause the supply curve to:
shift to the left.
Firms advertise in order to cause the demand for their products to
shift to the right.
Technological advances will cause the supply curve to:
shift 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.
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.
To avoid the problem of double marginalization:
transfer prices must be set that maximize the overall value of the firm rather than the profits of the upstream division.
To circumvent the problem of double marginalization:
transfer prices must be set that maximize the overall value of the firm rather than the profits of the upstream division.
An excise tax of $1.00 per gallon of gasoline placed on the suppliers of gasoline, would shift the supply curve:
up by $1.00.
An excise tax shifts the supply curve:
up by the amount of the tax.
Which of the following integration types aims at reducing transaction costs?
vertical integration.
If A and B are complements, an increase in the price of good A would:
lead to a decrease in demand for B.
An industry consists of six firms with an annual sales of $300, $500, $400, $700, $600, and $600, respectively. What is the industry's HHI?
1779.
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. The optimal commodity bundling strategy is:
Charge $150 for a suit.
Persuasive advertising influences demand by:
altering the underlying tastes of consumers.
If an increase in income causes a decrease in the consumption of good Y we know that good Y 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 x 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.
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.
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 $75 for pants and $75 for a coat, the firm will sell a coat to:
both a and b.
There is no market supply curve in:
both b and c.
For a cost function C = 100 + 10Q + Q2, the average variable cost of producing 20 units of output is:
30.
For the cost function C(Q) = 200 + 3Q + 8Q2 + 4Q3, what is the average fixed cost of producing six units of output?
33.33.
The demand for good X has been estimated to be lnQ xd = 100 - 2.5 lnPX + 4 lnPY + lnM. The cross price elasticity of demand between goods X and Y is
4.
You are the manager of a monopoly that faces a demand curve described by P = 85 - 5Q. Your costs are C = 20 + 5Q. The profit-maximizing price is:
45.
Which of the following features is common to both perfectly competitive markets and monopolistically competitive markets?
both b and c.
An ad valorem tax shifts the supply curve:
by rotating it counter-clockwise.
The marginal product of an input is defined as:
change in total output attributable to the last unit of an input.
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.
Suppose that good X is a substitute for good Y. Then an increase in the price of good Y leads to:
an increase in the demand of good X.
An income elasticity less than zero tells us that the good is:
an inferior good.
Which of the following involves the least risk from the point of view of the employee?
annual salary.
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.
Which of the following phenomena shows that risk aversion is the characteristic of many people?
auto insurance.
How does a decrease in the price of good X affect the market rate of substitution between goods X and Y?
it decreases.
Suppose both supply and demand decrease. What effect will this have on price?
it may rise or fall.
A downward sloping, linear demand function exhibits:
less elastic demand as output increases.
We would expect the own price elasticity of demand for food to be:
less elastic than the demand for cereal.
If the price of an input rises, producers are willing to produce:
less output at each given price.
The special cost structure that is necessary for a firm to adopt a peak-load pricing policy is?
limited capacity.
In the short run, the marginal cost curve crosses the average total cost curve at:
the minimum point of the average total cost curve.
Firms that use a price matching strategy attempt to keep price at:
the monopoly price.
The lower the standard error:
the more confident the manager can be that the parameter estimates reflect the true values.
Economies of scale exist whenever:
average total costs decline as output increases.
An ad valorem tax causes supply curve to:
become steeper.
In the long-run, perfectly competitive firms produce a level of output such that:
both a and b.
Firms have market power in:
both b and c.
Suppose the demand for a product is Q xd = 12 - 3lnPx then product x is
elastic.
If you advertise and your rival advertises, you each will earn $4 million in profits. If neither of you advertise, you will each earn $10 million in profits. However, if one of you advertises and the other does not, the firm that advertises will earn $1 million and the non advertising firm will earn $5 million. If you and your rival plan to hand your business down to your children (and this "bequest" goes on forever) then a Nash equilibrium is:
for each firm to never advertise.
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.
The winner's curse occurs:
in a common-values auction.
A floor price is:
the minimum legal price that can be charged in a market.
A local video store estimates their average customer's demand per year is Q = 7 - 2P, and knows the marginal cost of each rental is $0.5. How much should the store charge for each rental if it engages in optimal two-part pricing?
$0.5.
Suppose the cost function is C(Q) = 50 + Q - 10Q2 + 2Q3. What is the variable cost of producing 10 units?
$1,010.
Suppose the cost function is C(Q) = 50 + Q - 10Q2 + 2Q3. What is the total cost of producing 10 units?
$1,060.
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 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.
If a firm manager has a base salary of $75,000 and also gets 1.5% of all profits, how much will his/her income be if revenues are $10,000,000 and profits are $5,000,000?
$150,000.
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.
The demand for good X is estimated to be Q xd = 10,000 - 4PX + 5PY + 2M + AX, where PX is the price of X, PY is the price of good Y, M is income and AX is the amount of advertising on X. Suppose the present price of good X is $50, PY = $100, M = $25,000, and AX = 1,000 units. Based on this information, the income elasticity of good X is:
0.82.
There are five firms in an industry with sales at $7 million, $6 million, $3 million, $2 million, and $2 million, respectively. The four-firm concentration ratio is:
0.9
Suppose each of the 50 states had only one gasoline station -- each of the same size. The four-firm concentration ratio a consumer experiences is:
1.
Suppose each of the 50 states had only one gasoline station -- each of the same size. The four-firm concentration ratio for the state of New York, based on the state data, is:
1.
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.
The external marginal cost of producing coal is MCexternal = 6Q while the internal marginal cost is MCinternal = 4Q. The inverse demand for coal is given by P = 120 - 2Q. What is the socially efficient level of output?
10
You are the manager of a firm that sells its product in a competitive market at a price of $60. Your firm's cost function is C = 33 + 3Q2. The profit-maximizing output for your firm is:
10
For a cost function C = 100 + 10Q + Q2, the average fixed cost of producing 10 units of output is:
10.
You are a manager in a perfectly competitive market. The price is $14. Your total cost curve is C(Q) = 10 + 4Q + 0.5 Q2. What level of output should you produce in the short-run?
10.
Given a cost function C(Q) = 200 + 14Q + 8Q2, what is the marginal cost function?
14 + 16Q.
If the demand function for a particular good is Q = 25 - 10P, then the price elasticity of demand (in absolute value) at a price of $1 is:
2/3.
The external marginal cost of producing coal is MCexternal = 6Q while the internal marginal cost is MCinternal = 4Q. The inverse demand for coal is given by P = 120 - 2Q. How much output would a competitive industry produce?
20
You are 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 variance in the returns of project B is:
225.
For the cost function C(Q) = 75 + 4Q + 2Q2, the marginal cost of producing 5 units of output is:
24
The demand for good X is estimated to be Q xd = 10,000 - 4PX + 5PY + 2M + AX where PX is the price of X, PY is the price of good Y, M is income and AX is the amount of advertising on X. Suppose the present price of good X is $50, PY = $100, M = $25,000, and AX = 1,000 units. What is the quantity demanded of good X?
61,300.
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%.
Suppose the production function is given by Q = 4K + 6L. What is the average product of capital when 10 units of capital and 5 units of labor are employed?
7
Jane wants to buy a beautiful doll as a gift for her sister's birthday. She knows that the same product is offered in different shops with prices of $120, $100 and $80 with odds of 1/3 of each price. She just stopped at a shop and knows that the price is $100. If the search cost is $8 per time, what should she do?
Accept the offer in hand.
Which of the following is true?
All of the above are true.
In a Cournot oligopoly with N-firms and identical marginal costs, the relationship between the price elasticity of market demand and that of the firm is:
EM = EF/N.
Which of the following is true?
Every perfect equilibrium is a Nash equilibrium.
Which of the following phenomena shows that risk aversion is the characteristic of many people?
Home-owners insurance.
Consider a two good world, with commodities X and Y. Which of the following statements is correct?
If good X is an inferior good, good Y must be a normal good.
Which of the following is true?
In the short run a monopoly will shutdown if P < AVC.
Management and a labor union are bargaining over how much of a $50 surplus to give to the union. The $50 is divisible up to one cent. The players have one-shot to reach an agreement. Management has the ability to announce what it wants first, and then the labor union can accept or reject the offer. Both players get zero if the total amounts asked for exceed $50. If you were the labor union, which type of "rules of play" would you prefer to divide the $50 surplus?
One-shot sequential-move game with labor union as the first mover
Let the demand function for a product be Q = 100 - 2P. The inverse demand function of this demand function is:
P = 50 - 0.5Q.
Cinemas sometimes give senior citizens discounts. What is the possible privately motivated purpose for them to do so?
Senior citizens have a more elastic demand for movies than ordinary citizens.
Changes in the price of an input cause:
Slope changes in the isocost line.
The feasible means of converting raw inputs such as steel, labor, and machinery into an output are summarized by:
Technology.
A potential problem with piece rate plans is:
That workers may stress quantity instead of quality.
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.
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 factors reduces need for government involvement in the market place?
The incentive to rent-seek.
A finitely repeated game differs from an infinitely repeated game in that:
There is an "end-of-period" problem for the former.
The demand for good X is estimated to be Q xd = 10,000 - 4PX + 5PY + 2M + AX, where PX is the price of X, PY is the price of good Y, M is income and AX is the amount of advertising on X. Suppose the present price of good X is $50, PY = $100, M = $25,000, and AX = 1,000 units. Based on this information, good X is:
a normal good.
A perfectly competitive firm faces:
a perfectly elastic demand function.
Spot checks work because of:
a potential penalty for shirking.
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.
Which of the following enhances the ability of waste companies to collude?
decals on waste receptacles
When marginal cost curve is below an average cost curve, average cost is:
declining with output.
Assume that the price elasticity of demand is -0.75 for a certain firm's product. If the firm lowers price, the firm's managers can expect total revenue to:
decrease
Economies of scale exist whenever long-run average costs:
decrease as output is increased.
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.
When the own price elasticity of good X is -3.5 then total revenue can be increased by:
decreasing the price.
When a demand curve is linear:
demand is inelastic at low prices.
If the own price elasticity of demand is infinite in absolute value, then
demand is perfectly elastic.
A firm manager with vertical indifference curves (output on the horizontal axis, profit on the vertical axis) views:
only output to be "goods".
Demand shifters do not include the:
price of the good
Long-term contracts are less likely when:
the exchange environment is complex.
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 = 4, and MPK = 40:
the firm should use more K and less L to cost minimize.
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.
Suppose the production function is given by Q = 3K + 4L. What is the average product of capital when 10 units of capital and 10 units of labor are employed?
7.
Suppose earnings are given by E = $60 + $7(24 - L), where E is earnings and L is the hours of leisure. How much is this person working if their daily earnings are $116?
8 hours.
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?
9.
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 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 is a factor(s) affecting collusion in an infinitely repeated pricing game?
all of the above.
From a consumer's point of view, which type of oligopoly is most desirable?
Bertrand.
What contributes to the existence of multi-product firms?
Both economies of scope and cost complementarity.
Economies of scope exist when:
C(Q1) + C(Q2) > C(Q1,Q2).
At the point of consumer equilibrium, the slope of the indifference curve is equal to:
the market rate of substitution.
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 can identify each consumer type and can price discriminate, what is the optimal price for a pair of pants?
Charge type A consumers $50, and type B consumers $75.
As we move down along a linear demand curve, the price elasticity of demand becomes more:
Inelastic
For the cost function C(Q) = 1000 + 14Q + 9Q2 + 3Q3, what is the marginal cost of producing the fourth unit of output?
$230.
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.
A local video store estimates their average customer's demand per year is Q = 20 - 4P, and knows the marginal cost of each rental is $1.00. How much should the store charge for an annual membership in order to extract the entire consumer surplus via an optimal two-part pricing strategy?
$32.
Suppose the cost function is C(Q) = 50 + Q - 10Q2 + 2Q3. What are the fixed costs?
$50.
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 PX is the price of X, PY is the price of good Y, M is income and AX is the amount of advertising on X. Suppose the present price of good X is $50, PY = $100, M = $25,000, and AX = 1,000 units. What is the own-price elasticity of demand for good X?
-0.003.
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.
You are the manager of a firm that sells its product in a competitive market at a price of $60. Your firm's cost function is C = 50 + 3Q2. The profit-maximizing output for your firm is:
10.
Suppose the production function is given by Q = 3K + 4L. What is the average product of capital when 5 units of capital and 10 units of labor are employed?
11.
Suppose compensation is given by W = 450,000 + 220 P + 15S, where W = total compensation of the CEO, P = company profits (in millions) = $300, and S = Sales (in millions) = $500. What percentage of the CEO's total earnings is tied to profits of the firm?
12.6%
If the income elasticity for lobster is .6, a 25% increase in income will lead to a:
15% increase in demand for lobster.
The external marginal cost of producing coal is MCexternal = 6Q while the internal marginal cost is MCinternal = 4Q. The inverse demand for coal is given by P = 120 - 2Q. How much output would a monopoly produce?
15.
The external marginal cost of producing coal is MCexternal = 6Q while the internal marginal cost is MCinternal = 4Q. The inverse demand for coal is given by P = 120 - 2Q. If the government taxed output at $2 per unit, what would a competitive industry produce?
15.
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.
Suppose the demand for good X is given by Qdx= 20 - 4Px + 2Py + M. The price of good X is $5, the price of good Y is $15, and income is $150. Given these prices and income, how much of good X will be purchased?
180
You are the manager of a firm that sells its product in a competitive market at a price of $60. Your firm's cost function is C = 50 + 3Q2. Your firm's maximum profits are:
250.
Suppose the production function is given by Q = 3K + 4L. What is the marginal product of capital when 10 units of capital and 10 units of labor are employed?
3.
Suppose the production function is given by Q = 3K + 4L. What is the marginal product of capital when 5 units of capital and 10 units of labor are employed?
3.
Given that income is $200 and the price of good Y is $40. What is the vertical intercept of the budget line?
5.
You are the manager of a firm that sells its product in a competitive market at a price of $40. Your firm's cost function is C = 60 + 4Q2. The profit-maximizing output for your firm is:
5.
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.
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:
5.
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.
If you advertise and your rival advertises, you each will earn $5 million in profits. If neither of you advertise, you will each earn $10 million in profits. However, if one of you advertises and the other does not, the firm that advertises will earn $15 million and the non advertising firm will earn $1 million. Which of the following is true?
All of the above are true.
In a competitive industry with identical firms, long run equilibrium is characterized by:
All of the above.
You are a hotel manager, and are considering four projects that yield different payoffs, depending upon whether there is an economic boom or recession. There is a $50% probability of a boom and a 50% probability of a recession. The potential payoffs and corresponding payoffs are Project A makes $20 in a boom and -$10 in a recession, Project B makes -$10 in a boom and $20 in a recession, Project C make $30 in a boom and -$30 in a recession, and Project D makes $50 in both a boom and a recession. Which project has the lowest expected value?
C.
You are a hotel manager, and are considering four projects that yield different payoffs, depending upon whether there is an economic boom or recession. There is a $50% probability of a boom and a 50% probability of a recession. The potential payoffs and corresponding payoffs are Project A makes $20 in a boom and -$10 in a recession, Project B makes -$10 in a boom and $20 in a recession, Project C make $30 in a boom and -$30 in a recession, and Project D makes $50 in both a boom and a recession. Which project has the greatest expected value?
D.
You are a hotel manager, and are considering four projects that yield different payoffs, depending upon whether there is an economic boom or recession. There is a $50% probability of a boom and a 50% probability of a recession. The potential payoffs and corresponding payoffs are Project A makes $20 in a boom and -$10 in a recession, Project B makes -$10 in a boom and $20 in a recession, Project C make $30 in a boom and -$30 in a recession, and Project D makes $50 in both a boom and a recession. Which project has the lowest variance?
D.
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.A risk-averse manager will prefer project:
D.
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.A risk-neutral manager will prefer project:
D.
Which of the following is not a basic feature of a monopolistically competitive industry?
Each firm owns a patent on its product.
What should the manager do to solve the shirking problem?
Engage in "random" spot checks of the work place.
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.
Suppose the income elasticity for transportation is 1.8. Which of the following is an incorrect statement?
Expenditures on transportation will fall less rapidly than income falls.
If firms are in Cournot equilibrium:
Firms could increase profits by jointly reducing output.
Which of the following is true concerning negative externalities?
Firms tend to produce more than the efficient level of output
Consider the following information for a simultaneous move game: If you advertise and your rival advertises, you each will earn $5 million in profits. If neither of you advertise, you will each earn $10 million in profits. However, if one of you advertises and the other does not, the firm that advertises will earn $15 million and the non advertising firm will earn $1 million. If you and your rival plan to be in business for 10 years, then the Nash equilibrium is:
For each firm to advertise every year.
Consider the following information for a simultaneous move game: If you advertise and your rival advertises, you each will earn $5 million in profits. If neither of you advertise, you will each earn $10 million in profits. However, if one of you advertises and the other does not, the firm that advertises will earn $15 million and the non advertising firm will earn $1 million. If you and your rival plan to be in business for only one year, the Nash equilibrium is:
For each firm to advertise.
Good X is a normal good if an increase in income leads to:
an increase in the demand for good X.
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 only one year, the Nash equilibrium is:
For neither firm to advertise.
Which of the following is true?
In Sweezy oligopoly markets each firm believes rivals will cut their prices in response to a price reduction, but will not raise prices in response to price increases.
The number of efficient plants compatible with domestic consumption of the refrigerator industry in Sweden is 0.7. Which of the following implications is (are) correct?
In the absence of imports, the refrigerator industry in Sweden is monopolistic.
The combinations of inputs that produce a given level of output are depicted by:
Isoquants.
Which of the following statements is not correct about information?
It is always desirable for some people to have more information than others.
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.
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 not a Nash equilibrium?
Management requests $30 and the labor union accepts $10
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
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?
Management requests $50 and the labor union accepts $0
In the presence of large sunk costs, which of the following market structures generally leads to the highest price?
Monopoly.
For a cost function C = 100 + 10Q + Q2, the marginal cost of producing 10 units of output is:
None of the above.
In order for isoquants to have a diminishing marginal rate of substitution they must be:
None of the above.
Suppose the demand for good X is given by Qdx= 10 -2 Px + Py + M. The price of good X is $1, the price of good Y is $10, and income is $100. Given these prices and income, how much of good X will be purchased?
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:
None of the above.
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 supply function for good X is given by Q x s = 1,000 + PX - 5 PY - 2PW , where PX is the price of X, PY is the price of good Y and PW is the price of input W. If PX = 100, PY = 150 PW = 50, then the supply curve is:
Q x s = 150 + Px.
Firm A has a higher marginal cost than firm B. They compete in a homogeneous product Cournot duopoly. Which of the following results will not occur?
QA > QB
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.
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 true?
There are multiple Nash equilibria and ($25, $25) is a Nash equilibrium
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 sell an inferior good, offering to sell gift certificates to those looking for a gift may result in:
a greater quantity sold than if the customer resorts to giving a cash gift.
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.
Suppose X and Y are complements and demand for X is Q xd = a0 + aXPX + aYPY + aMM + aHH. Then we know:
aY < 0.
In the long-run, monopolistically competitive firms charge prices:
above the minimum of average total cost.
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.
A Broadway theater sells weekday show tickets at a lower price than for a weekend show. This is an example of:
all of the above.
One of the conditions under which price discrimination is profitable is:
all of the above.
The source(s) of monopoly power for a monopoly may be:
all of the above.
Which of the following is (are) basic feature(s) of a perfectly competitive industry?
all of the above.
Suppose the long-run average cost curve is U-shaped. When LRAC is in the increasing stage, there exist:
diseconomies of scale.
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) = 75 + 25Q1/2. The firm experiences:
economies of scale.
Chris raises cows and produces cheese and milk because he enjoys:
economies of scope.
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 only one year, the Nash equilibrium is:
for your firm and your rival to advertise.
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
As a general rule-of-thumb, a manager can be 95 percent confident that the true value of the underlying parameter in the regression is not zero, when the absolute value of the t-statistic is:
greater than 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.
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 average product of labor depends on:
how many units of labor and capital are used.
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%.
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.
Suppose the own-price elasticity of demand for good X is -0.5, and that the price of good X increases by 10%. What would you expect to happen to the total expenditures on good X?
increase.
The absolute value of the slope of the indifference curve is called the:
marginal rate of substitution.
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:
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:
none of the above.
Management and a labor union are bargaining over how much of a $50 surplus to give to the union. The $50 is divisible up to one cent. The players have one-shot to reach an agreement. Management has the ability to announce what it wants first, and then the labor union can accept or reject the offer. Both players get zero if the total amounts asked for exceed $50. If you were the labor union, which type of "rules of play" would you prefer to divide the $50 surplus?
one-shot sequential-move game with labor union as the first mover.
Which of the following pricing policies does not extract the entire consumer surplus from the market?
peak load pricing.
If the last unit of input increases total product we know that the marginal product is:
positive.
The idea of charging two different groups of consumers two different prices is practiced in:
price discrimination.
What is the immediate result of applying the Clean Air Act to a previously non-regulated industry?
price increases and production is reduced.
If a shortage exists in a market, the natural tendency is for:
price to increase.
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:
reduced.
Lemonade, a good with many close substitutes, should have an own-price elasticity that is:
relatively elastic.
The presence of government in the market leads to:
rent-seeking.
An isocost line:
represents the combinations of K and L that cost the firm the same amount of money.
The cross-price advertising of demand for books and magazines is -2.0. If the price of magazines decreases by 10 percent, the quantity demanded of books will
rise by 20 percent.
Joe's search costs are $5 per search. He wants to buy a VCR for his wife for Christmas, and the lowest price he's found so far is $200. Joe thinks 1/3 of the stores charge $300 for VCR's, 1/3 of the stores charge $200 for VCR's, and 1/3 of the stores charge $175 for VCR's. If Joe's search costs increased to $100 per search he would:
search less.
Graphically, a decrease in advertising will cause the demand curve to:
shift leftward.
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.
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.
The demand for an input is:
the VMP of the input.
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 relative prices of two goods.
If the slope of the indifference curve is steeper than the slope of the budget line, and X is on the horizontal axis:
the consumer is willing to give up more of good Y to get an additional unit of good X than is necessary under the current market prices.
If money income doubles and the prices of all goods triples, then
the consumer is worse off due to inflation.
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 is perfectly inelastic, then:
the demand curve is vertical.
For a given set of data and regression equation, the greater the R-square:
the greater adjusted R-square.
Other things held constant, the greater the price of a good
the lower the consumer surplus.
Cost complementary exits in a multiproduct cost function when:
the marginal cost of producing one output is reduced when the output of another product is increased.
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.
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.
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.
The marginal rate of substitution (MRS) determines the rate at which a consumer is willing to substitute between two goods in order to achieve:
the same level of satisfaction.
If income decreases, then
the vertical intercept of the budget line shifts downward.
With a linear production function:
there is a perfect substitutable relationship between all inputs.
The demand for video recorders has been estimated to be Qv = 134 - 1.07Pf + 46Pm - 2.1Pv - 5I,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 I is income. Based on the estimated demand equation we can conclude:
video recorders are inferior goods.
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.
A potential problem with paying workers based on a piece-rate is that:
workers will attempt to produce quantity at the expense of quality.
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.
