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 the monopoly would spend
on (legal) lobbying activities designed to thwart the regulation?
A. $62.50
B. $500
C. $562.50
D. None of the answers is correct.
The concentration and Herfindahl indices computed by the U.S. Bureau of Census must
be interpreted with caution because:
A. they overstate the actual level of concentration in markets served by foreign firms.
B. they understate the degree of concentration in local markets, such the gasoline
market.
C. Both they overstate the actual level of concentration in markets served by foreign
firms and they understate the degree of concentration in local markets, such the
gasoline market are correct.
D. None of the statements are correct.
Consider the monopoly in the figure below with price regulated at $20 per unit.
Monopoly profits at the regulated price are:
A. $100.
B. $200.
C. $1,350.
D. There is insufficient information to determine the monopoly profits.
An incentive for managers to maximize profits is:
A. reputation.
B. performance bonuses.
C. takeovers.
D. All of the statements associated with this question are correct.
Suppose the market for computer chips is dominated by two firms: Intel and AMD.
Intel has discovered how to make superior chips and is considering whether or not to
adopt the new technology. Adoption would entail a fixed setup cost of C but would
increase revenues. However, if Intel adopts the new technology, AMD can easily copy it
at a lower setup cost of C/2. If Intel adopts and AMD does not, Intel would earn $20 in
revenues while AMD would earn $0. If Intel adopts and AMD does likewise, each firm
will earn $15 in revenues. If Intel does not adopt the new technology, it will earn $5 and
AMD will earn $2.
a. Write this game in extensive form.
b. Under what conditions (i.e., for what values of C) does AMD have an incentive to
adopt the new technology if Intel introduces it?c. If C = 12, should Intel adopt the new
technology? Explain.
Which of the following may transform an industry from oligopoly to monopolistic
competition?
A. Entry of new firms
B. Significant vertical integration
C. Exit of firms
D. A series of horizontal mergers
If the price of computers decreases, then the:
A. sales of a substitute, such as a telephone, decrease.
B. sales of a substitute, such as a telephone, increase.
C. inventory of computers increases.
D. inventory of computer software increases.
The domestic demand and supply for sugar are Qd = 40,000 – 200P and QSD = 10,000 +
300P. The foreign supply is QSF = 20,000 + 100P. What is the total supply of sugar in
the domestic market?
A. Q = 50,000 + 100P
B. Q = 30,000 + 400P
C. Q = 15,000 + 200P
D. Q = 10,000 + 300P
Which of the following makes it more difficult for an incumbent to successfully engage
in limit pricing?
A. Complete information
B. Commitment mechanisms
C. Learning curve effects
D. A firms past reputation for being tough on entrants
Refer to the payoff matrix below.
Which of the following pairs of strategies constitutes a Nash equilibrium of the game?
A. S1, t1
B. S1, t2
C. S2, t1
D. S1, t2 and S2, t1
If A and B are substitute goods, an increase in the price of good A would:
A. have no effect on the quantity demanded of B.
B. lead to an increase in demand for B.
C. lead to a decrease in demand for B.
D. none of the statements associated with this question are correct.
Suppose compensation is given by W = 450,000 + 220 + 15S, where W =
total compensation of the CEO, = company profits (in millions) = $300,
and S = sales (in millions) = $500. What percentage of the CEOs total earnings is tied
to profits of the firm?
A. 6.0 percent
B. 7.9 percent
C. 12.6 percent
D. 43.4 percent
Suppose that production for good X is characterized by the following production
function, Q = K0.5L0.5, where K is the fixed input in the short run. If the per-unit rental
rate of capital, r, is $25 and the per-unit wage, w, is $15, then the average variable cost
of using 81 units of capital and 9 units of labor is:
A. $5.
B. $75.
C. $80.
D. There is insufficient information to determine the average variable costs.
According to the table below, at what level of output is marginal cost minimized?
A. 90
B. 50
C. 125
D. 160
Suppose that you are a manager. You are considering whether or not to monitor
employees with the payoffs in the normal-form game shown below.
Management and a labor union are bargaining over how much of a $50 surplus to give
to the union. The $50 is divisible up to one cent. The players have one shot to reach an
agreement. Management has the ability to announce what it wants first, and then the
labor union can accept or reject the offer. Both players get zero if the total amounts
asked for exceed $50. Which of the following is a perfect equilibrium?
A. Management requests $49.99, and the labor union accepts $0.01.
B. Management requests $25, and the labor union accepts $25.
C. Management requests $0, and the labor union accepts $50.
D. None of the answers is correct.
When marginal cost curve is below an average cost curve, average cost is:
A. increasing with output.
B. declining with output.
C. not varying with output.
D. None of the statements is correct.
In order for spot checks to work:
A. employees must be monitored continually.
B. the time of the checks must not be predictable.
C. Both employees must be monitored continually and the time of the checks must not
be predictable are correct.
D. None of the answers are correct.
An increase in the price of steak will probably lead to:
A. an increase in demand for chicken.
B. an increase in demand for steak.
C. no change in the demand for steak or chicken.
D. an increase in the supply for chicken.
Consider a Cournot duopoly with the following inverse demand function: P = 100 – 2Q1
– 2Q2. The firms marginal costs are identical and are given by MCi(Qi) = 2Qi. Based on
this information, firm 1 and 2s marginal revenue functions are:
A. MR1(Q1,Q2) = 100 – 2Q1 – Q2 and MR2(Q1,Q2) = 100 – Q1 – 2Q2.
B. MR1(Q1,Q2) = 100 – 4Q1 – 2Q2 and MR2(Q1,Q2) = 100 – 2Q1 – 4Q2.
C. MR1(Q1,Q2) = 100 – 2Q1 – 4Q2 and MR2(Q1,Q2) = 100 – 4Q1 – 2Q2.
D. MR1(Q1,Q2) = 24.5 – 0.5Q2 and MR2(Q1,Q2) = 24.5 – 0.5Q1.