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Which of the following is NOT a measure of market structure? A. Entry conditions B. Four-firm concentration ratio C. Herfindahl-Hirschman index D. Pricing behavior Scarce resources are ultimately allocated toward the production of goods most wanted by society because: A. […]

Given the Leontief production function Q = min{5.5K, 6.7L}, how much output is produced when K = 40 and L = 35? A. 220 B. 234.5 C. 192.5 D. 268 Firms 1 and 2 compete in a Cournot duopoly. If […]

You are the manager of a firm that sells its product in a competitive market at a price of $40. Your firms cost function is C = 60 + 4Q2. The profit-maximizing output for your firm is: A. 4 B. […]

Suppose the long-run average cost curve is U-shaped. When LRAC is in the increasing stage, there exist: A. economies of scope. B. diseconomies of scope. C. economies of scale. D. diseconomies of scale. Two firms compete in a Stackelberg fashion. […]

A two-way network that links users and in which the per-unit value of the service increases as the size of the network increases is a: A. positive externality known as an indirect network externality. B. negative externality known as an […]

Suppose a monopoly faces an inverse demand curve of P = 100 – 2Q and has constant marginal cost of 6Q. If the government is considering legislation that would regulate price to the competitive level, what is the maximum amount […]

Under a profit-sharing compensation scheme, the manager will: A. shirk all day. B. not shirk all day. C. optimize his choice between income and leisure. D. do the same thing as under a fixed salary scheme. When the owner runs […]

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 […]

As firms increase in size, they tend to experience a: A. decrease in the need for managers. B. decrease in transaction costs. C. loss of opportunity cost. D. None of the answers are correct. Piece rates are typically a solution […]

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. The manager institutes an incentive structure to ensure: A. workers are […]

Which of the following statements is true regarding a simple pricing rule for monopoly and monopolistic competition? A. P[EF/(1 + EF)] = MC B. P = [(1 + EF)/EF]MC C. P[(1 + EF)/EF] = MC D. All of the statements […]

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 […]

Which of the following is true? A. Indifference curves may intersect. B. At a point of consumer equilibrium, the MRS always equals 1. C. If income increases, a consumer will always consume more of a good. D. None of the […]

Which of the following is true about where a profit-maximizing monopoly will produce on a linear demand curve when it has positive marginal costs? A. It will produce output on the inelastic portion of the demand curve. B. It will […]

Consider a market characterized by the following inverse demand and supply functions: PX = 10 – 2QX and PX = 2 + 2QX. Compute the surplus consumers receive when an $8 per unit price floor is imposed on the market. […]

Which of the following cases violates the property of transitivity? A. A B, B C, A C. B. A B, B C, A C. C. A B, B C, C A. D. None of the statements violates the transitivity property. […]

Which of the following is an example of monopoly? A. Shoe industry in the United States B. Local utility industry in a small town C. Newspaper industry in New York City D. Bread industry in New York City The inverse […]

The production function in the table below exhibits negative marginal returns to capital over what output range? A. Between 0 and 1,524 B. Between 0 and 2,991 C. Between 2,391 and 3,048 D. Between 3,016 and 2,945 Consider a monopoly […]

Refer to the normal-form game of price competition shown below. Which of the following represents firm A’s full strategy space? A. {A, C} B. {A, B} C. {(A, C), (A, D), (B, C), (B, D)} D. {C, D} Smyth Industries […]

Consider an auctioneer who is selling an item through an auction. It is known that the 25 risk-neutral bidders have affiliated values that are distributed between $0 and $500 million. Based on this information, the auction type that will maximize […]

MCI announced a price discount plan for small firms. Their stock immediately fell in price. This shows that: A. MCI is probably competing in a Bertrand oligopolistic industry. B. stockholders are sometimes not rational. C. there is increased demand for […]

The long-run average cost curve defines the minimum average cost of producing alternative levels of output, allowing for optimal selection of: A. fixed factors of production. B. variable factors of production. C. all factors of production. D. sunk cost factors […]

In a competitive market, the market demand is Qd = 60 – 6P and the market supply is Q = 4P. A price ceiling of $3 will result in a A. shortage of 30 units. B. shortage of 15 units. […]

In the long run, monopolistically competitive firms produce a level of output such that: A. P > MC. B. P = ATC. C. ATC > minimum of average costs. D. All of the statements associated with this question are correct. […]

Suppose that supply increases and demand decreases. What effect will this have on price and quantity? A. Price will increase and quantity may rise or fall. B. Price will decrease and quantity will increase. C. Price will decrease and quantity […]

A monopoly produces widgets at a marginal cost of $10 per unit and zero fixed costs. It faces an inverse demand function given by P = 50 – Q. Suppose fixed costs rise to $400. What happens in the market? […]

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 aggregate quantity […]

A dominant strategy is a strategy that: A. results in the highest payoff to a player regardless of the opponents action. B. guarantees the highest payoff given the worst possible scenario. C. describes a set of circumstances in which no […]

In the presence of large sunk costs, which of the following market structures generally leads to the highest price? A. Stackelberg B. Cournot C. Bertrand D. Monopoly Nonrivalry, as it relates to public goods, means that: A. consumer rivalry does […]

Firm 1 and firm 2 compete as a Cournot oligopoly. There is an increase in marginal cost for firm 1. Which of the following is NOT true? A. Firm 1 will produce less. B. Firm 2 will produce more. C. […]

If the marginal product per dollar spent on capital is less than the marginal product per dollar spent on labor, then in order to minimize costs the firm should use: A. less capital and more labor. B. less labor and […]

The minimum wage A. is an example of a price floor. B. leads to an increase in the number of people employed in unskilled jobs. C. leads to a decrease in the number of people employed in skilled jobs. D. […]

Under limit pricing, the incumbent will produce: A. more than the monopoly output and charge a price that is greater than the monopoly price. B. less than the monopoly output and charge a price that is greater than the monopoly […]

The demand function A. describes how much of good X will be purchased at the alternative price of good X, given all the other variables being constant. B. recognizes that the quantity of a good consumed depends on its price […]

Suppose the market for good X has a four-firm concentration ratio of 0.70. Having worked for the four largest firms in the industry, you know the sales for these four firms are given by $2,000,000, $2,250,000, $2,500,000, and $2,750,000. Based […]

Suppose the growth rate of the firms profit is 7 percent, the interest rate is 10 percent, and the current profits of the firm are $120 million. What is the value of the firm? A. $44 million B. $4,280 million […]

“An oligopoly is an oligopoly. Firms behave the same no matter what type of oligopoly it is.” This statement is: A. true. B. false. C. true of homogeneous product industries. D. None of the answers is correct. If a firm’s […]

Which of the following is an implicit cost to a firm that produces a good or service? A. Labor costs B. Costs of operating production machinery C. Foregone profits of producing a different good or service D. Costs of renting […]

The domestic demand and supply for sugar are Qd = 60,000 – 400P and QSD = 20,000 + 500P. The foreign supply is QSF = 20,000 + 100P. What is the domestic market price of sugar? A. $15 B. $20 […]

Other things held constant, the lower the price of a good A. the lower the demand. B. the higher the demand. C. the greater the consumer surplus. D. the lower the consumer surplus. If the interest rate is 4 percent, […]

Which of the following statements is NOT correct? A. Information plays an important role in the economy. B. Asymmetric information may lead to the disappearance of a market. C. It is always desirable to have more information than the person […]

You are a monopolist with the following cost and demand conditions: P = 100 – 2Q and C(Q) = 50 + Q2.a. Determine the profit-maximizing output and price.b. Graph this solution.c. Show your profits and the deadweight loss to society […]

Which cost measures the pollution cost to society? A. Internal cost B. External cost C. Social cost D. External cost and social cost Pricing is an aspect of a firms: A. performance. B. structure. C. conduct. D. environment. Answer: C. […]

The figure below presents information for a one-shot game. What are the Nash equilibrium strategies for firm A and B respectively? A. (low price, high price) B. (high price, low price) C. (high price, high price) D. (low price, low […]

You are the owner of a new network that is superior to an existing two-way network. The network you aim to replace currently has 50 users, each of whom is willing to pay an average of $75,000 for each connection […]

Which of the following is true under monopolistic competition in the short run? A. Profits are always zero. B. P > MC. C. P = MR. D. All of the choices are true in monopolistic competition. You are the manager […]

The profits of the leader in a Stackelberg duopoly: A. are greater than those of the follower. B. equal those of the follower. C. are less than those of the follower. D. are greater than those of a Sweezy oligopolist. […]

If a manager is not the owner, the manager: A. receives the full benefit of good decisions. B. bears the full cost of bad decisions. C. does not receive the full benefit nor the full cost of his or her […]

The industry elasticity of demand for gadgets is -2, while the elasticity of demand for an individual gadget manufacturers product is -2. Based on the Rothschild approach to measuring market power, we conclude that: A. there is little monopoly power […]

Regardless of the economic environment, every firm will maximize profits by operating at the minimum point of its average total cost curves. Is this statement true or false? Explain. If you put $1,000 in a savings account at an interest […]

Economic profits are: A. total revenue minus total cost. B. marginal revenue minus marginal cost. C. total revenue minus total opportunity cost. D. total profits of the economy as a whole. Which of the following is a strategy that can […]

Rent seeking: A. results in less market share for the rent seekers. B. involves lobbyists influencing government policies to benefit their interests. C. results in more negative externalities. D. None of the statements are correct. For a wood furniture manufacturer, […]

The inverse demand curve for a Stackelberg duopoly is P = 10,000 – 6Q. The leaders cost structure is CL(QL) = 15QL. The followers cost structure is CF(QF) = 25QF.a. Determine the reaction function for the follower.b. Determine the equilibrium […]

The manager of a meat-packing plant can use either butchers (labor) or meat saws (capital) to prepare packages of sirloin steak. Based on estimates provided by an efficiency expert, the firms production function for sirloin steak is given by Q […]

Generally, revenue-based incentive schemes: A. reduce incentives to produce low-quality products. B. increase incentives to minimize costs. C. reduce worker productivity. D. reduce incentives to produce low-quality products and increase incentives to minimize costs. In a competitive industry with identical […]

Two identical firms compete as a Cournot duopoly. The demand they face is P = 100 – 2Q. The cost function for each firm is C(Q) = 4Q. The equilibrium output of each firm is: A. 8 B. 16 C. […]

An apple farmer must decide how many apples to harvest for the world apple market. He knows that there is a one-third probability that the world price will be $1, a one-third probability that it will be $1.50, and a […]

Which combination of the following properties rules out indifference curves that intersect one another? A. Completeness and diminishing marginal rate of substitution B. Transitivity and more-is-better C. More-is-better and diminishing marginal rate of substitution D. Completeness and more-is-better Which of […]

The total earnings of a worker are represented by E = 100 + $10(24 – L), where E is earnings and L is the number of hours of leisure. How much will the worker earn if he takes 14 hours […]

If a producer offers a price that is in excess of a consumers valuation of the good, the consumer: A. must buy the good at that price. B. will refuse to purchase the good. C. must revalue the good. Which […]

The primary inducement for new firms to enter an industry is: A. increased technology. B. availability of labor. C. low capital costs. D. presence of economic profits. Transaction costs refer to: A. fixed costs of capital. B. variable costs of […]

Suppose the inverse market demand is given by P = 20 – Q. If the incumbent continues to produce eight units of output, which of the following equations best summarizes the potential entrants residual demand curve? A. P = 12 […]

As additional consumers obtain the benefits of a pure public good, such as national defense, the benefits to the existing consumers will: A. decrease. B. increase. C. stay the same. D. increase in the short run, but decrease in the […]

Suppose market demand and supply are given by Qd = 100 – 2P and QS = 5 + 3P. If the government sets a price floor of $30 and agrees to purchase all surplus at $30 per unit, the total […]

Consumer-consumer rivalry: A. increases the negotiating power of consumers in the marketplace. B. reduces the negotiating power of producers in the marketplace. C. reduces the negotiating power of consumers in the marketplace. D. increases the likelihood of government intervention in […]

In Gelate, Pennsylvania, the market for compact discs has evolved as follows: There are two firms that each use a marquee to post the price they charge for compact discs. Each firm buys CDs from the same supplier at a […]

Suppose the growth rate of the firms profit is 4 percent, the interest rate is 5 percent, and the current profits of the firm are $75 million. What is the value of the firm? A. $2,111.5 million B. $7,766.6 million […]

A monopoly produces widgets at a marginal cost of $10 per unit and zero fixed costs. It faces an inverse demand function given by P = 50 – Q. What are the profits of the monopoly in equilibrium? A. $300 […]

Refer to the following payoff matrix: Suppose the production game depicted in the payoff matrix is a sequential-move game. Identify the strategy leading to a first-mover advantage for player 2. A. Player 2 moves first and plays Low Q. Observing […]

A monopoly produces widgets at a marginal cost of $10 per unit and zero fixed costs. It faces an inverse demand function given by P = 50 – Q. Which of the following is the marginal revenue function for the […]

The winners curse occurs: A. only in English auctions. B. only in second-price, sealed-bid auctions. C. in a common-values auction. D. in a private-values auction. Negotiations between the buyer and seller of a new house are an example of: A. […]

Which of the following is true for a monopoly? A. A monopoly always makes a positive profit. B. A price ceiling on a monopoly is always desirable. C. Price does not equal marginal cost. D. A price ceiling on a […]

A decrease in firm 1’s marginal cost will cause: A. a downward shift in firm 1’s reaction function, resulting in a new Cournot equilibrium where firm 1 is producing a lower quantity and firm 2 is producing a higher quantity. […]

If a firm’s production function is Leontief and the wage rate goes up, the: A. firm must use more labor in order to minimize the cost of producing a given level of output. B. firm must use more capital in […]

Many tout that the Internet has lowered consumers’ search costs. If this is true, ceteris parabis, the consumer reservation price should: A. be higher. B. be lower. C. remain the same. D. There is insufficient information to determine the impact […]

An isoquant defines the combination of inputs that yield the producer: A. higher levels of output than the desired level of output. B. lower levels of output than the desired level of output. C. the same level of output. D. […]

Consider a market characterized by two firms that set the same price in the market, P = $10. Total market demand is QT = 100 – 2P, of which the two firms share equally. Based on this information, we can […]

Suppose the cost function for your firm is: C = 50 + 4Q + 2Q2.a. What is the average fixed cost of producing 5 units of output?b. What is the average variable cost of producing 5 units of output?c. What […]

Suppose that production for good X is characterized by the following production function, Q = 4K0.5L0.5, where K is the fixed input in the short run. If the per-unit rental rate of capital, r, is $12 and the per-unit wage, […]

Game theory is best applied to the analysis of: A. perfect competition. B. oligopoly. C. monopoly. D. All of the statements associated with this question are correct. If the price of good X increases, what will happen to the budget […]

Suppose a firm has 10 employees, all of whom desire a more pleasant work environment. Accordingly, they are considering removing litter from the grounds of the plant. Each employee has an inverse demand for “clean grounds” of P = 100 […]

The opportunity cost of an action is the: A. monetary payment the action required. B. value of the most highly valued alternative action given up. C. cost of all alternative actions that could have been taken. D. None of the […]

Refer to the following game. Which of the following is true? A. A dominant strategy for firm A is “high price.” B. There does not exist a dominant strategy for firm A. C. A dominant strategy for firm B is […]

Consider the following innovation game: Firm A must decide whether or not to introduce a new product. Firm B must decide whether or not to clone firm As product. If firm A introduces and B clones, then firm A earns […]

Joes search costs are $5 per search. He wants to buy a video player for his wife for Christmas, and the lowest price hes found so far is $300. Joe thinks 80 percent of the stores charge $300 for video […]

The domestic demand and supply for sugar are Qd = 60,000 – 400P and QSD = 20,000 + 500P. The foreign supply is QSF = 20,000 + 100P. Suppose an import quota of 13,000 is imposed in the domestic market. […]

Which of the following raises domestic prices only when demand is relatively low? A. Domestic subsidies B. Lump sum tariff C. Excise tariff D. Lump sum tariff and excise tariff There are two existing firms in the market for computer […]

The domestic demand and supply for sugar are Qd = 700 – 2P and QSD = 100 + 4P. The foreign supply is QSF = 150 + 3P. Suppose an import quota of 100 is imposed in the domestic market. […]

In order for isoquants to have a diminishing marginal rate of substitution, they must be: A. L-shaped. B. straight lines. C. vertical. D. None of the statements is correct. You are the manager of a monopoly that faces a demand […]

A firm will have constant profits of $100,000 per year for the next four years, and the interest rate is 6 percent. Assuming these profits are realized at the end of each year, what is the present value of these […]

Which of the following is true about an excise tariff? A. Domestic firms’ marginal cost curves are shifted up by the amount of the excise tariff. B. Foreign firms’ average cost curves are shifted down by the amount of the […]

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 = 2. Based on this information, the Stackelberg leader’s marginal revenue function […]

A negative side of long-term contracts is: A. high transaction costs. B. a loss of flexibility. C. the continual need to renegotiate the contract. D. None of the statements is correct. Demand shifters do not include the A. price of […]

Suppose each of the 50 states had only one gasoline station, and all stations were the same size. The four-firm concentration ratio for the state of New York, based on the state data, is: A. 1.0 B. 0.08 C. 0.32 […]

In a competitive market, the market demand is Qd = 150 – 2P and the market supply is Q = 30 + 4P. A price ceiling of $16 will result in a A. shortage of 24 units. B. shortage of […]

What is the level of net benefits when four units are produced? A. 0 B. 70 C. -70 D. 20 Your firm produces two products, Q1 and Q2. An economic consulting firm has estimated your cost function to be a. […]

Refer to the figure below. Suppose that the marginal benefit of writing a contract is $100 and the marginal cost of that contract is $150. Based on this information, the optimal contract length should be: A. increased by half. B. […]

In a competitive market, the market demand is Qd = 400 – 5P and the market supply is Q = 10P – 80. The full economic price under a price ceiling of $25 is A. 46 B. 37 C. 32 […]

If the price of a good rises, then the equilibrium consumption of that good: A. increases if it is an inferior good. B. decreases if it is a normal good. C. remains the same. D. None of the statements is […]

Producer and consumer surpluses are measures of: A. industry performance. B. market structure. C. firm conduct. D. None of the answers are correct. Kate’s money income is $350, the price of X is $4, and the price of Y is […]

Suppose a consumer derives satisfaction from consuming two types of hamburgers, X and Y.a. Graph the budget line of the consumer under the assumption that he is offered a “buy two, get one free” deal for burger X (limit one […]

You are a hotel manager and you are considering four projects that yield different payoffs, depending upon whether there is an economic boom or a recession. The potential payoffs and corresponding payoffs are summarized in the following table. If a […]

Given the cost function C(Y) = 6Y2, what is the marginal cost? A. 6Y B. Y2 C. 3Y D. 12Y Graphically, an increase in the number of vegetarians will cause the demand curve for Tofu (a meat substitute) to A. […]

Based on the following game, what are the secure strategies for player 1 and player 2? A. S1 and t2 B. S1 and t1 C. S2 and t2 D. S2 and t1 A firm chooses the institution to purchase inputs: […]

Consider the monopoly in the figure below with price regulated at $2 per unit. In this market, ___________ units will be exchanged. A. 3 B. 4 C. 5 D. 8 Suppose that initially the price is $50 in a perfectly […]

Relationship-specific investments include: A. site specificity. B. dedicated assets. C. human capital. D. All of the statements associated with this question are correct. Which of the following is NOT a type of specialized investment? A. Site specificity B. Physical-asset specificity […]

Which of the following are signals to the owners of scarce resources about the best uses of those resources? A. Profits of businesses B. Government regulations C. Economic indicators D. The accounting cost of those resources Which of the following […]

If a firm manager has a base salary of $100,000 and also receives 5 percent of all profits, what percentage of his/her final income will be from a profit-sharing plan when profit equals $1,500,000? A. 51 percent B. 27 percent […]

Limit pricing is: A. a strategy whereby a firm temporarily prices below its marginal costs to drive competitors out of the market. B. a strategy used by a vertically integrated firm to raise rivals costs of inputs, while holding constant […]

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: A. 45 B. 55 C. 60 D. 50 Suppose […]

Firms that can effectively price discriminate can increase profitability when they engage in: A. predatory pricing. B. limit pricing. C. strategies that raises rivals’ costs. D. Any of the statements associated with this question are correct. A student in a […]

Suppose that there are two types of cars, good and bad. The qualities of cars are not observable but are known to the sellers. Risk-neutral buyers and sellers have their own valuation of these two types of cars as follows: […]

The Leontief production function: A. implies inputs are used in variable proportions. B. implies inputs are used in fixed proportions. C. is Q = max{bK, cL}. D. is Q = aK + bL. Suppose two types of consumers buy suits. […]

Suppose market demand and supply are given by Qd = 300 – 4P and QS = -50 + 3P. The equilibrium quantity is: A. 100 B. 80 C. 115 D. 120 You are the manager of a firm that produces […]

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 […]

A stockholder named Sue must cast a vote for chair of the board. Sue prefers Mr. Lee to Ms. Doe, Ms. Doe to Mr. James, and Mr. James to Mr. Lee.a. Are Sues preferences consistent with our assumptions about consumer […]

When an effective price ceiling is in place A. every consumer is better off. B. every consumer is worse off. C. some consumers are better off and others are worse off. D. on average the net change in consumer surplus […]

A two-way network linking 15 users creates how many potential network connections? A. 225 B. 100 C. 210 D. 300 Nonexclusionary, as it relates to public goods, means that: A. no producer can be excluded from providing the good. B. […]