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 to the:
A. manager-worker, principal-agent problem.
B. manager-owner, principal-agent problem.
C. owner-worker, principal-agent problem.
D. None of the statements is correct.
For a cost function C = 100 + 10Q + Q2, the marginal cost of producing 10 units of
output is:
A. 10
B. 200
C. 210
D. None of the answers are correct.
Firms have market power in:
A. perfectly competitive markets.
B. monopolistically competitive markets.
C. monopolistic markets.
D. monopolistically competitive markets and monopolistic markets.
Suppose market demand and supply are given by Qd = 100 – 2P and QS = 5 + 3P. If a
price floor of $30 is set, what will be size of the resulting surplus?
A. 0
B. 45
C. 30
D. 55
AMS recently instituted an in-house recycling program. The benefits of this program
include not only the benefits to the environment of recycling but also the goodwill
generated by AMSs leadership in this area. The costs of recycling include all of the
energy, labor, and space required to do the recycling. Suppose these benefits and costs
are given by B(Q) = 100Q – 2Q2 and C(Q) = 2Q. (Note that MB = 100 – 4Q, and MC =
2.)
a. What level of Q maximizes the total benefits of recycling?
b. What level of Q minimizes the total costs of recycling?
c. What level of Q maximizes the net benefits of recycling?
d. What level of recycling is optimal? Why?
Which of the following is a feature of a Dutch auction?
A. The auctioneer begins with a very high asking price.
B. The winner pays the second-highest bidders valuation.
C. Bidders write their valuation in a paper simultaneously and separately.
D. More than one bidder will announce their valuation.
Which of the following are measures of industry concentration?
A. Four-firm concentration ratio
B. HHI index
C. Consumer surplus
D. Four-firm concentration ratio and HHI index
When managers of firms are given fixed salaries, which are not tied to the firms profits,
they generally put forth less effort than they otherwise would. This is an example of:
A. adverse selection.
B. moral hazard.
C. risk aversion.
D. None of the answers are correct.
Holding the mean value of a gamble constant, the larger the standard deviation, the:
A. higher the utility will be from the gamble.
B. less risky the gamble will be.
C. more risky the gamble will be.
D. None of the answers are correct.
Suppose total benefits and total costs are given by B(Y) = 100Y – 8Y2 and C(Y) =
10Y2. Then marginal costs are:
A. 20Y2.
B. 40.
C. 5Y.
D. 20Y.
A bottleneck is a:
A. positive externality resulting from network complementarities.
B. negative externality resulting from indirect network externalities.
C. positive externality resulting from congestion beyond the infrastructure capacity.
D. negative externality resulting from congestion beyond the infrastructure capacity.
Given the linear production function Q = 10K + 5L, if Q = 10,000 and K = 500, how
much labor is utilized?
A. 600 units
B. 800 units
C. 500 units
D. 1,000 units
If widgets and gidgets are complements and both are normal goods, then an increase in
the demand for widgets will result from:
A. an increase in the price of widgets.
B. a decrease in income.
C. a decrease in the price of gidgets.
D. an increase in the price of widgets and a decrease in income.
A Nash equilibrium with a noncredible threat as a component is:
A. a perfect equilibrium.
B. not a perfect equilibrium.
C. a sequential equilibrium.
D. a somewhat perfect equilibrium.
Sally Consumers indifference curve between cigarettes and hamburgers is upward
sloping. Based on this information, can we conclude that Sally views cigarettes as
“bads” and hamburgers as “goods”? Explain.
The gadget industry is comprised of 10 firms, each with a 10 percent market share.
What is the Herfindahl-Hirschman index for the industry? Based on the U.S.
Department of Justice Merger Guidelines described in the text, do you think the Justice
Department would be likely to block a merger between two of the firms?
Is it necessarily in the best interests of shareholders for management to ensure that there
is absolutely no shirking in the workplace? Explain.
Suppose an individuals marginal rate of substitution is three slices of pizza for one beer
at the present bundle of beer and pizza she is consuming. If the price of beer is $1.00
and the price of a slice of pizza is $1.50, is the consumer maximizing her welfare? If
not, how should she change her consumption?
Omega Travel competes in the highly competitive market for travel. Consumers know
that Omega has the best agents in the industry and offers superior service. Nonetheless,
Omega earns zero economic profits because numerous competitors have entered the
market over the last few years. Based on this information, does Omega operate in a
perfectly competitive market? Why or why not?
Suppose you are the manager of a medium-sized firm that operates in an industry that
has a four-firm concentration ratio of 100 percent. All firms in the industry are of equal
size. In order to determine your firms optimal output and price, you must obtain
information about how rivals would respond to changes in your decisions. If you were
the manager, how would you obtain this information?
You are the manager of a firm in a new industry. You have gotten the jump on the only
other producer in the market. You know what your competitors cost function is, and it
knows yours. Your products, although different to experts, are indistinguishable to the
average consumer. Your marketing research team has provided you with the following
market demand curve: Q = 1,250 – .5P. Your cost function is CA(QA) = 8QA. Your
competitors cost function is CB(QB) = 6QB. Your diligent effort will allow you to
decide how much of your product to provide and will allow you to place it on the
market shortly before your competitor will be able to make its product available for
sale. What output level will you choose, and what price will you charge? Explain.
As a personnel director of a major consulting firm, you have been asked to decide
whether to hire new employees. At present the economy is in a recession, and you have
more people than you need to operate the business. Next year there is a 65 percent
chance you will need more people and a 35 percent chance you will need fewer people.
What additional information would you need when making this decision? Explain.