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 firm 2 adopts a strategy that raises firm
1’s marginal cost:
A. firm 1 will reduce its output.
B. firm 2 will lose market share.
C. firm 2 will enjoy lower profits.
D. None of the statements is correct.
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.
People with a bad driving record find it difficult to buy automobile insurance because
insurance companies fear that ___________ may happen if they raise the premiums.
A. adverse selection
B. moral hazard
C. risk aversion
D. none of the statements associated with this question are correct
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 one-third of finding each price. She just stopped at a shop and knows that the price is
$100. Suppose that there is a search cost of $5 for each search. Should she search one
more time?
A. Yes
B. No
C. She should toss a coin.
D. Insufficient information to determine.
The 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.
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 many hours of leisure are
consumed if this worker’s total earnings are $160?
A. 18 hours
B. 16 hours
C. 12 hours
D. 10 hours
You are the manager of a firm that produces output in two plants. The demand for your
firm’s product is P = 20 – Q, where Q = Q1 + Q2. The marginal costs associated with
producing in the two plants are MC1 = 2 and MC2 = 2Q2. What is the
profit-maximizing price that the firm should charge?
A. $8
B. $9
C. $11
D. $12
An unregulated industry has a Lerner index of zero. These numbers:
A. reveal that social welfare would be improved by regulating the firms.
B. are consistent with the industry being monopolistically competitive.
C. are consistent with the industry being perfectly competitive.
D. reveal that social welfare would be improved by regulating the firms and are
consistent with the industry being monopolistically competitive.
An industry consists of four firms with annual sales of $300, $500, $400, and $600,
respectively. What is the industry’s HHI?
A. 1,659
B. 2,654
C. 10,000
D. There is not sufficient information to compute the industry HHI.
An excise tax of $1.00 per gallon of gasoline placed on the suppliers of gasoline in a
market with downward sloping demand and upward sloping supply would raise the
equilibrium price
A. exactly $1.00 per gallon.
B. by less than $1.00 per gallon.
C. by more than $1.00 per gallon.
D. too little information to determine the impact on the equilibrium price.
A production function exhibits decreasing returns to scale if a twofold (threefold, etc.)
increase in all inputs increases output by less than twofold (less than threefold, etc.).
For example, by doubling the use of capital and labor, the firm would less than double
its output.
a. What would the average and marginal cost curves look like under decreasing returns
to scale? Explain.
b. Give an example of a production function that exhibits decreasing returns to scale.
An excise tax of $1.00 per gallon of gasoline placed on the suppliers of gasoline would
shift the supply curve
A. down by $1.00.
B. down by more than $1.00.
C. up by $1.00.
D. up by less than $1.00.
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:
A. 10
B. 20
C. 30
D. 40
Refer to the following game.
If this one-shot game is repeated three times, the Nash equilibrium payoffs for firms A
and B will be ______ each period.
A. (10, 9)
B. (11, 11)
C. (-10, 7)
D. (15, 8)
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