The expected value of a project is always the
A) median value of the project.
B) modal value of the project.
C) standard deviation of the project.
D) weighted average of the outcomes, with probabilities of the outcomes used as
weights.
Suppose that three oligopolistic firms are currently charging $12 for their product. The
three firms are about the same size. Firm A decides to raise its price to $18, and
announces to the press that it is doing so because higher prices are needed to restore
economic vitality to the industry. Firms B and C go along with Firm A and raise their
prices as well. This is an example of
A) price leadership.
B) collusion.
C) the dominant firm model.
D) the Stackelberg model.
E) none of the above
The marginal expenditure curve for labor is based on the assumption that
A) the most productive workers are hired first.
B) the wage rate is independent of the quantity of labor employed.
C) the market supply curve for labor is infinitely elastic.
D) all workers are paid the same wage rate.
E) none of the above
Job market signals like dressing well for interviews are not especially effective because:
A) the cost of dressing well is about the same for high-quality and low-quality workers.
B) many businesses have adopted casual office attire, so dressing well is not important
to the firm.
C) federal labor laws prohibit firms from using dress or appearance as an employment
criterion.
D) none of the above
Given that MEC(q) = 2q2, what can be inferred about the total cost of pollution as
output increases?
A) The total cost of pollution is increasing.
B) The total cost of pollution is positive.
C) The total cost of pollution is growing at a positive rate.
D) The total cost of pollution is growing at an increasing rate.
E) The total cost of pollution is changing.
Which of the following statements is NOT a reason that the cost of a college education
is greater for the low-productivity group than for the high-productivity group?
A) The wages they give up by going to college instead of working will tend to be higher
for them.
B) They may have to pay for tutoring services or other extra help to accomplish the
same educational goal.
C) They may have to take remedial classes, which would increase the length of time it
takes to accomplish the same goal.
D) Even if they take no remedial classes, they may have to spend more time studying
for each class, and the value of their leisure time needs to be considered in the
calculation.
E) Based on previous signaling, such as from their high school grades or SATs, they
may receive less merit-based financial assistance, and thus be under a greater financial
strain during their college years.
The demand curves for gold in New York and Zurich can both be represented by a line
with negative slope, -b. When the price is zero the demand for gold is x ounces higher
in New York than in Zurich. At the current price of gold the price elasticity of demand
for gold in New York and Zurich is -3 and -4 respectively. The value of x equals
A) a quarter of the current demand for gold in New York
B) a third of the current demand for gold in New York
C) a half of the current demand for gold in New York
D) three-quarters of the current demand for gold in New York
E) none of the above
Use the following statements to answer this question:
I. Markets may be highly (but not perfectly) competitive even if there are a few sellers.
II. There is no simple indicator that tells us when markets are highly competitive.
A) I and II are true
B) I is true and II is false
C) I is false and II is true
D) I and II are false
Figure 9.1
Refer to Figure 9.1. If the government establishes a price ceiling of $20, how many
widgets will be sold?
A) 20
B) 30
C) 40
D) 50
E) 60
In the United States, major league baseball is exempt from antitrust laws. Before 1975,
the baseball team owners agreed to hold an annual draft of amateur baseball players.
Once the players were drafted and signed by a team, they were effectively tied to that
team for life. This allowed baseball owners to operate like ________ in the market for
player services.
A) perfect competitors
B) monopolistic competitors
C) a monopsonistic cartel
D) a monopoly
Producer surplus for the whole market can be thought of as
A) total profit.
B) variable operating profit plus factor rents.
C) total profit minus factor rents earned by lower cost firms.
D) total profit plus factor rents earned by lower cost firms.
Gasoline and bicycles are substitutes in consumption. Suppose we increase the federal
gasoline tax to $1 per gallon. What are the initial changes that result from the tax as
these markets adjust to a new general equilibrium?
A) Gasoline price rises, demand for bicycles shift s leftward.
B) Gasoline price rises, demand for bicycles shifts rightward.
C) Gasoline price rises, move downward along bicycle demand curve.
D) Gasoline price rises, move upward along bicycle demand curve.
Which of the following is true of the output level produced by a firm in long-run
equilibrium in a monopolistically competitive industry?
A) It produces at minimum average cost.
B) It does not produce at minimum average cost, and average cost is increasing.
C) It does not produce at minimum average cost, and average cost is decreasing.
D) Either B or C could be true.
Which of the following will cause the price of beer to rise?
A) A shift to the right in the demand curve for beer
B) A shift to the left in the supply curve of beer
C) both A and B
D) none of the above
As more and more firms have acquired fax machines, the fax machine has become a
standard means of business communication. The increase in demand for fax machines
for business communication:
A) is an example of the snob effect.
B) proves that the fax machine is an inferior good.
C) proves that the fax machine is a luxury good.
D) is an example of a positive network externality.
E) is an example of a negative network externality.
A ________ shows how much a firm will produce as a function of how much it thinks
its competitors will produce.
A) contract curve
B) demand curve
C) reaction curve
D) Nash equilibrium curve
E) none of the above
Daring Dora holds 90% of her assets in high-technology stocks, earning 12%, and 10%
in long-term government bonds, earning 6%. The expected return on her portfolio
A) is 6%.
B) is 9%.
C) is 11.4%
D) is 12%.
E) cannot be determined without knowing what the dollar value of her assets is.
Some economists conduct empirical research on the theory of the firm by measuring the
degree of technical efficiency achieved by actual firms. What type of research
contributions are provided by these studies?
A) Normative
B) Positive
C) Administrative
D) Executive
To arbitrage a price difference between two markets, you should:
A) sell in the low-price market and buy in the high-price market.
B) buy in the low-price market and sell in the high-price market.
C) sell in both markets to capture a lower average “market price.”
D) none of the above
You are playing a game in which a dollar bill is auctioned. The highest bidder receives
the dollar in return for the amount bid. However, the second-highest bidder must pay
the amount that he or she bids, and gets nothing in return. The optimal strategy is:
A) to bid the smallest allowable increment below $1.
B) to bid nothing.
C) to bid $0.99.
D) to bid more than a dollar.
The market for production workers in a Midwestern metropolitan area is highly
competitive. The market supply and demand curves for production workers are given
as:
LS = -2500 + 1000W LD = 10500 – 625W,
where LD = labor demand is full time workers per hour,
LS = labor supply is full time workers per hour,
and W = hourly wage. White Manufacturing Co. employs production workers in the
manufacture of bearings for skate boards. The firm’s production function is given by the
expression:
Q = 88.8L – 0.5L2,
where Q = output, measured as boxes of bearings per hour, and L = number of workers
employed per hour. From this production function, the marginal product and average
product of labor are:
MP = 88.8 – L AP = 88.8 – 0.5L
White currently sells bearings for $10 per box.
a. Determine the equilibrium wage and level of employment in the market. Calculate
the total rent that is being earned by workers.
b. Determine the number of workers that White Manufacturing would employ at the
wage determined in part (a). What total output will White produce?
In the spring of 1994, Northwest Airlines took the independent action of reducing fares
on its flights. Other competing airlines quickly matched the fare cuts. These actions
might be interpreted as:
A) a noncooperative game.
B) a cooperative game.
C) a constant sum game.
D) a competitive game.
The marginal social cost and private cost curves for a particular common property
resource are upward sloping. What happens to the gap between teh actual quantity and
the socially optimal quantity as the demand for the resource becomes more inelastic?
A) Gap widens
B) Gap declines
C) Gap does not change
D) We do not have enough information to answer this question
For most consumer goods, the price elasticity of demand is
A) negative only when price decreases.
B) negative regardless of the direction of the price change.
C) positive only when price decreases.
D) positive regardless of the direction of the price change.
The demand for hamburgers is estimated from this theoretical model:
Q = kPaIbAce,
where Q = units per day, P = price per unit, A = advertising budget per month by sellers,
I = per capita income of consumers, and e = a random error. In a recent study, one
researcher estimated the log-linear form of this equation with regression analysis as:
log Q = 2.5 – 0.33 log P + 0.15 log I + 0.2 log A.
Explain what the coefficients of log P, log I, and log A reveal about this product.
The market demand curve for denim jeans is Q = 231 – 45 P + 23 I where P is the
product price and I is per-capita consumer income. Which of the following statements
about this demand function is NOT true?
A) Denim jeans are normal goods.
B) The price elasticity of demand is -45.
C) The demand curve is downward sloping.
D) The Engel curve for this denim jeans is upward sloping.
The tendency for individuals to assign higher values to goods when they own the goods
than when they do not possess the goods is known as the:
A) substitution effect.
B) endowment effect.
C) income effect.
D) anchoring effect.
Explain the nature and consequences of asymmetric information for each of the
following cases. What options are available in each instance to reduce the problem?
a. medical insurance
b. issuance of credit cards
c. professional athletes
d. market for used appliances
Figure 9.2
Refer to Figure 9.2. At price 0H and quantity Q1, producer surplus is the area
A) 0ABQ1.
B) 0EDQ1.
C) AHB.
D) 0FGQ1.
E) none of the above
Revenue is equal to
A) price times quantity.
B) price times quantity minus total cost.
C) price times quantity minus average cost.
D) price times quantity minus marginal cost.
E) expenditure on production of output.
What is an informational cascade?
A) An excess flow of market information that makes it difficult for an investor to form a
rational decision.
B) A continual decline in the quality of market information from public sources due to
sequential budget cuts.
C) A continual increase in the quality of market information from public sources due to
broader use of the internet by market participants.
D) A sequence of decisions based on the actions of others rather than fundamental
information.
Assume that one of two possible outcomes will follow a decision. One outcome yields a
$75 payoff and has a probability of 0.3; the other outcome has a $125 payoff and has a
probability of 0.7. In this case the expected value is
A) $85.
B) $60.
C) $110.
D) $35.