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. 5
C. 10
D. 15
SunCenter is the only firm in its industry. Currently, SunCenter charges $75 per unit, a
price well in excess of its marginal cost of $5 per unit, and earns $70 million per year in
profit. According to a trusted source, the manager of SunCenter learned that a new firm
is contemplating entering the market. This would reduce its profit to $40 million per
year. If SunCenter expanded its output and lowered its price to $50, the entrant would
find it unprofitable to enter the market, and SunCenter would earn profits of $50 million
per year for the indefinite future.
a. What pricing strategy is the manager of SunCenter considering?
b. If SunCenter was able to credibly commit to maintain a price of $50, would it be a
profitable strategy? Explain.
Which of the following relations is the slope along a given isoquant?
A.
B.
C.
D.
Russian state television has imposed a temporary ban on all TV commercials. Your firm
specializes in exports to Russia. 90 percent of its sales consist of consumer goods
shipped to Russia. Your supervisor wants to know the likely impact of the ban on your
firms operations. What do you tell her?
The Sweezy 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 may not affect prices.
D. All of the statements associated with this question are correct.
Which of the following is true under monopoly?
A. Profits are always positive.
B. P > minimum of ATC.
C. P = MR.
D. None of the answers is correct.
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 followers marginal revenue function is:
A. MRF(QL,QF) = 100 – 2QL – 4QF.
B. MRF(QL,QF) = 100 – 4QL – 2QF.
C. MRF(QL,QF) = 100 – 2QL – QF.
D. MRF(QL,QF) = 100 – QL – 2QF.
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:
Now suppose that sellers value a good car at $4,500 and a bad car at $2,500, and quality
is not observed by the buyers. What is the highest price that risk-neutral buyers will
offer for a used car if they recognize adverse selection?
A. $2,500
B. $3,000
C. $4,000
D. $4,500
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 leaders reaction function is:
A. QL = 24.5 – 0.5QF.
B. QL = 50 – 0.5QF.
C. QL = 49 – 0.5QF.
D. None of the answers is correct.
A lump-sum tariff is:
A. a fixed fee that an importing firm must pay the domestic government in order to
have the legal right to sell the product in the domestic market.
B. the fee an importing firm must pay to the domestic government on each unit it brings
into the domestic market.
C. a restriction limiting the quantity of imported goods that can legally enter a domestic
market.
D. None of the statements are correct.
The principal-agent problem happens because the owner cannot:
A. control the production process.
B. spend time at the physical plant site.
C. monitor the efforts of the manager.
D. evaluate the efforts of the manager.
A mixed 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 player can improve her payoff by
unilaterally changing her own strategy, given the other players strategies.
D. randomizes over two or more available actions in order to keep rivals from being
able to predict a players action.
Managers can get workers to work longer hours by:
A. offering overtime pay.
B. offering a higher flat wage rate on all hours worked.
C. decreasing the hourly wage scale.
D. None of the statements is correct.
The inputs that a manager uses to alter production are referred to as:
A. variable factors.
B. long-run factors.
C. fixed factors.
D. All of the statements are correct.
Refer to the normal-form game of price competition shown below.
Which of the following represents the set of possible pure strategy Nash equilibria?
A. {A, C}
B. {A, B}
C. {(A, C), (A, D), (B, C), (B, D)}
D. {C, D}
If the price of a good purchased by a utility-maximizing consumer goes down, all other
things remain the same, and the consumers income is adjusted so that he can just barely
attain his previous level of satisfaction, and if the consumer has indifference curves of
the usual shape, it will be found that:
A. more of the good will be purchased than before.
B. less of the good will be purchased than before.
C. the same amount of the good will be purchased as before.
D. the consumer will stop purchasing the good at all.
A monopolist earns $80 million annually and will maintain that level of profit
indefinitely, provided no other firm enters the market. If another firm successfully
enters the market, the incumbents profits remain at $80 million the first period but fall
to $35 million annually thereafter. The opportunity cost of funds is 20 percent, and
profits in each period are realized at the beginning of each period. What is the present
value of the firms current and future earnings if entry occurs?
A. $350 million
B. $255 million
C. $400 million
D. $280 million
Suppose a firm manager has a base salary of $75,000 and earns 1.5 percent of all
profits. Determine the managers income, if revenues are $10,000,000 and profits are
$5,000,000.
A. $75,000
B. $150,000
C. $225,000
D. $300,000
If a manager adopted both project A and project B simultaneously, the expected value of
this joint project would be:
A. $7.50
B. $0
C. $11.25
D. -$3.75