MBA 651 - Quiz #10

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

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

an increase in the consumption of sugar.

If you are in the business of selling chicken and the price of selling chicken and the price of beef both were to drop dramatically, what should you do with your inventory level of chicken?

increase the inventory

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

increased.

Suppose P = 20 - 2Q is the market demand function for a local monopoly. The marginal cost is 2Q. The local monopoly tries to maximize its profits by equating MC = MR and charging a uniform price. What will be the equilibrium price and output?

$13.33, 3.33.

You are 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

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

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

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 5 units of capital and 10 units of labor are employed?

3

You are the manager of a firm that sells its product in a competitive market at a price of $40. Your firm's cost function is C = 60 + 4Q2. Your firm's maximum profits are

40

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

45

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. 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

A monopoly has produced a product with a patent for the last few years. The patent is going to expire. What will likely happen to the demand for the patent-holder's product when the patent runs out?

Demand will decline.

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

Risk averse persons sometimes prefer to play some gambles even if they know that those gambles are not fair, i.e., on average people lose by playing them. One plausible explanation of this seemingly paradoxical phenomenon is that:

Gambling has entertaining effects which are not treated explicitly as part of the payoffs.

Isoquants are normally drawn with a convex shape because:

Inputs are not perfectly substitutable.

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

The MRTS is equal to the ratio of input prices and the marginal product per dollar spent on all inputs are equal.

The demand curve for a good is horizontal when it is:

a perfectly elastic good.

People having a bad driving record find it difficult to buy automobile insurance because insurance companies fear that ___________ may happen if they raise the premiums.

adverse selection

People having a bad driving record find it difficult to buy automobile insurance because insurance companies fear that ___________ may happen if they raise the premiums.

adverse selection.

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

auto insurance

If you advertise and your rival advertises, you each will earn $5 million in profits. If neither of you advertise, you will each earn $10 million in profits. However, if one of you advertises and the other does not, the firm that advertises will earn $15 million and the non advertising firm will earn $1 million. Suppose this game is repeated for a finite number of times, but the players do not know the exact date at which the game will end. The players can earn collusive profits as a Nash equilibrium to the repeated play of the game if the probability the game terminates in any period is

close to zero

Price matching strategies may fail to enhance profits when:

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

The manager can be 95% confident that the true value of the underlying parameters in a regression is not zero if the absolute value of t-statistic is

greater than 2.

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

low price guarantee.

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

marginal cost pricing

Holding the mean constant, the larger the standard deviation, the ____________ the gamble will be.

more risky.

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

p* = MC

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

price discrimination and peak-load pricing

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

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

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

reduced.

The Cournot theory of oligopoly assumes

rivals will keep their output constant.

If consumers expect future prices to be higher

stockpiling will happen when products are durable in nature.

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

the interest rate is lower.

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

the present value of cheating is lower than collusion.

If the price of computers decreases, then

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