Study Guide

Which of the following is not a type of integration? a. Vertical mergers b. Horizontal mergers c. Mega mergers d. Conglomerate merger

C

Accounting profits are: a. Total revenue minus total cost b. Total cost minus total revenue c. Marginal revenue minus total cost d. Total revenue minus marginal cost

A

Assume that the price elasticity of demand is -2 for a certain firm's product. If the firm raises price, the firm's managers can expect total revenue to: a. Decrease b. Increase c. Remain constant d. Either increase or remain constant depending upon the size of the price increase

A

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 A. For each firm to advertise B. For neither firm to advertise C. For your firm to advertise and the other not to advertise D. None of the statements associated with this question are correct

A

For the cost function C(Q) = 100 + 2Q + 3Q2, the total variable cost of producing 2 units of output is a. 16 b. 12 c. 4 d. None of the statements associated with this question are correct

A

Suppose the demand for good X is given by QdX= 10 + αXPX + αYPY + αM M. From the law of demand we know that αX will be: a. Less than zero b. Greater than zero c. Zero d. None of the statements associated with this question are correct

A

The idea of charging two different groups of consumers two different prices is practiced in: A. price discrimination. B. two-part pricing. C. price matching. D. none of the statements associated with this question are correct.

A

Whenever an isoquant exhibits a diminishing marginal rate of technical substitution, the corresponding isoquants are a. Convex to the origin b. Concave to the origin c. L-shaped d. Linear

A

Which of the following statements is not a condition for a Stackelberg oligopoly? a. The market is contestable b. Barriers to entry exist c. A single firm (the leader) selects an output before all other firms choose their outputs d. The firms produce either differentiated or homogeneous products

A

Advertising provides consumers with information about the underlying existence or quality of a product. These types of advertising messages are called a. Persuasive advertising b. Informative advertising c. Green advertising d. Influential advertising

B

As we move down along a linear demand curve, the price elasticity of demand becomes more a. Elastic b. Inelastic c. Log-linear d. Variable

B

Bertrand model of oligopoly reveals that a. Capacity constraints are not important in determining market performance b. Perfectly competitive prices can arise in markets with only a few firms c. Changes in marginal cost do not affect prices d. All of the statements associated with this question are true

B

Changes in the price of an input cause: a. Isoquants to become steeper b. Slope changes in the isocost line c. Parallel shifts of the isocost lines d. Changes in both the isoquants and isocosts of equal magnitude

B

Cinemas sometimes give senior citizens discounts. What is the possible privately motivated purpose for them to do so? A. Purely because entrepreneurs are benevolent. B. Senior citizens have a more elastic demand for movies than ordinary citizens. C. Senior citizens lack recreational activities. D. None of the statements associated with this question are correct.

B

For the cost function C(Q) = 100 + 2Q + 3Q2, the average fixed cost of producing 2 units of output is a. 100 b. 50 c. 3 d. 2

B

If the interest rate is five percent, the present value of $200 received at the end of five years is: a. $121.34 b. $156.71 c. $176.41 d. $132.62

B

In a Cournot oligopoly with N-firms and identical marginal costs, the relationship between the price elasticity of demand for the form and that of the market is A. EF = EM. B. EF = NEM. C. EF = EM/N. D. EF = N/EM.

B

Negotiations between the buyer and seller of a new house is an example of: a. Consumer-consumer rivalry b. Consumer-producer rivalry c. Producer-producer rivalry d. Monopoly

B

Producer surplus is the a. Area above the supply curve but below the demand curve b. Area above the supply curve but below the market price of the good c. Minimum amount required by a producer for producing the good d. Maximum amount a producer can collect from consumers

B

Suppose the marginal product of labor is 8 and the marginal product of capital is 2. If the wage rate is $4 and the price of capital is $2, then in order to minimize costs the firm should use a. More capital and less labor b. More labor and less capital c. Three times more capital than labor d. None of the statements associated with this question are correct

B

The demand for good X is estimated to be QXd = 10, 000 - 4PX + 5PY + 2M + AX, where PX is the price of X, PY is the price of good Y, M is income and AX is the amount of advertising on X. Suppose the present price of good X is $50, PY = $100, M = $25,000, and AX = 1,000 units. Based on this information, good X is a. An inferior good b. A normal good c. A Giffen good d. A regular good

B

The marginal rate of technical substitution a. Determines the rate at which a producer can substitute between two inputs in order to increase one additional unit of output b. Is the absolute value of the slope of the isoquant c. Is the absolute value of marginal revenue d. Is constant along the isoquant curve

B

When marginal revenue is zero, total revenue a. Will increase when price increases b. Is maximized c. Will decrease when price decreases d. Will decrease as quantity decreases

B

A Broadway theater sells weekday show tickets at a lower price than for a weekend show. This is an example of: A. price discrimination. B. peak-load pricing. C. price discrimination or peak-load pricing. D. none of the statements associated with this question are correct.

C

A price elasticity of zero corresponds to a demand curve that is: a. Horizontal b. Downward sloping with a slope always equal to 1 c. Vertical d. Either vertical or horizontal

C

Constant returns to scale exist when long-run average costs a. Increase as output is increased b. Decrease as output is increased c. Remain constant as output is increased d. None of the statements associated with this question are correct

C

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 a. 8 b. 2 c. 2/3 d. 1/8

C

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? a. 3 b. 4 c. 7 d. 45

C

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? A. Charge both types $150. B. Charge both types $75. C. Charge type A consumers $50, and type B consumers $75. D. Charge type A consumers $50, and type B consumers $50.

C

When marginal revenue is zero, demand will be a. Elastic b. Inelastic c. Unit elastic d. There is not sufficient information to classify the elasticity of demand

C

You are the manager of a Mom and Pop store that can buy milk from a supplier at $3.00 per gallon. If you believe the elasticity of demand for milk by customers at your store is -4, then your profit-maximizing price is A. $2.00. B. $2.50. C. $4.00. D. $5.00.

C

You are the manager of a monopoly that faces a demand curve described by P = 63 - 5Q. Your costs are C = 10 + 3Q. The profit-maximizing price is a. 20 b. 27 c. 33 d. 55

C

A student figured out that the HHI for an industry was 13,000. What is the proper conclusion? a. The market is monopolistically competitive b. The market is close to perfectly competitive c. The market is served by a monopoly d. The student made some computational errors

D

For the cost function C(Q) = 100 + 2Q + 3Q2, the marginal cost of producing 2 units of output is a. 2 b. 3 c. 12 d. 14

D

From a consumer's point of view, which type of oligopoly is most desirable? a. Sweezy b. Cournot c. Stackelberg d. Bertrand

D

If an excise tax is imposed on a good, then the supply curve a. Shifts up by the amount of the demand elasticity b. Does not change c. Shifts down by the amount of the tax d. Shifts up by the amount of the tax

D

In a Sweezy Oligopoly, a decrease in a firm's marginal cost generally leads to: a. Reduced output and a higher price b. Increased output and a lower price c. Higher output and a higher price d. None of the statements associated with this question are true

D

In order to maximize net benefits, the managerial control variable should be used up to the point where: a. Total costs equal total benefits b. Average costs equal marginal benefits c. Average benefits equal marginal costs D. Net marginal benefits equal zero

D

Suppose market demand and supply are given by Qd = 100 - 2P and QS = 5 + 3P. If a price ceiling of $15 is imposed, what will be the resulting full economic price? a. $19 b. $21 c. $6 d. $25

D

Suppose the demand for good X is given by QdX= 10 + αXPX + αYPY + αMM. If αY is positive, then: a. Goods y and x are complements b. Goods y and x are inferior goods c. Goods y and x are normal goods d. Goods y and x are substitutes

D

The Dansby-Willig Index measures the potential for a change in a. Production cost b. Firm's revenue c. Firm's profit d. Social welfare

D

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 a. Fall by 2.0 percent b. Rise by 2.0 percent c. Fall by 20 percent d. Rise by 20 percent

D

The maximum legal price that can be charged in a market is: a. A price floor b. An ad valorem tax c. The market equilibrium price d. A price ceiling

D

The primary difference between Monopolistic Competition and Perfect Competition is a. The ease of entry and exit into the industry b. The number of firms in the market c. All of the statements associated with this question are correct d. None of the statements associated with this question are correct

D

The supply function for good X is given by QXs = 1,000 + PX - 5PY - 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 a. QXS = 550 b. QXS = 150 + PX c. QXS = 550 + PX d. QXs = 150 + PX

D

Which of the following are least likely to be complements? a. Peanut butter and jelly b. Bread and butter c. Sports coats and dress slacks d. Cars and trucks

D

Which of the following are least likely to be substitutes? a. Chicken and beef b. Cars and trucks c. Automobile and housing d. Automobile and gasoline

D

Which of the following are measures of industry concentration? a. four-firm concentration ratio b. HHI index c. Consumer surplus d. Four-firm concentration ratio and HHI index

D

Which of the following is true? a. In Bertrand oligopoly each firm believes that their rivals will hold their output constant if it changes its output b. In Cournot oligopoly firms produce an identical product at a constant marginal cost and engage in price competition c. In oligopoly a change in marginal cost never has an affect on output or price d. None of the statements associated with this question are true

D

With a linear inverse demand function and the same constant marginal costs for both firms in a homogeneous product Stackelberg duopoly, which of the following will result? a. Profits of leader > Profits of follower b. QL = 2QF c. PL > PF d. Profits of leader > Profits of follower and QL = 2QF

D

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 a. 125 b. 250 c. 100 d. 85

D