Which of the following statements is true regarding a simple pricing rule for monopoly
and monopolistic competition?
A. P[EF/(1 + EF)] = MC
B. P = [(1 + EF)/EF]MC
C. P[(1 + EF)/EF] = MC
D. All of the statements associated with this question are correct.
Consider an incumbent that is a monopoly currently earning $1 million annually. Given
the declining costs of raw materials, the incumbent believes a new firm may enter the
market. If successful, a new entrant would reduce the incumbents profits to $750,000
annually. To keep potential entrants out of the market, the incumbent lowers its price to
the point where it is earning $850,000 annually for the indefinite future. If the interest
rate is 5 percent, does it make sense for the incumbent to limit price to prevent entry?
A. No, since $2 million > $250,000.
B. Yes, since $2 million > $250,000.
C. No, since $5 million > $100,000.
D. Yes, since $250,000 > $5 million.
Which of the following pairs of goods is probably NOT an example of substitutes?
A. Raincoats and umbrellas
B. Chicken and steak
C. Potatoes and stuffing
D. Hamburgers and ketchup
Suppose total benefits and total costs are given by B(Y) = 220Y – 15Y2 and C(Y) =
10Y. What level of Y will yield the maximum net benefits?
A. 7
B. 10/9
C. 5
D. 150/20
Which of the following statements is true regarding the expected revenues of auctions
with risk-neutral bidders where value estimates are affiliated?
A. English = First price = Dutch = Second price.
B. Second price > English > Dutch > First price.
C. First price = Dutch > Second price > English.
D. English > Second price > Dutch = First price.
Two firms compete as a Stackelberg duopoly. The demand they face is P = 100 – 3Q.
The cost function for each firm is C(Q) = 4Q. The outputs of the two firms are:
A. QL = 16; QF = 8
B. QL = 24; QF = 12
C. QL = 12; QF = 8
D. QL = 20; QF = 15
A monopolist earns $50 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 $50 million the first period, but fall
to $25 million annually thereafter. The opportunity cost of funds is 10 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. $300 million
B. $250 million
C. $400 million
D. $500 million
For the multiproduct cost function C(Q1, Q2) = 100 + 2Q1Q2 + 4Q1
2, what is the
marginal cost function for good one?
A. MC1 = 2Q2 + 4Q1 – Q2
2.
B. MC1 = 2Q2 + 8Q1.
C. MC1 = 100 + 2Q1Q2 + 4Q1
2.
D. MC1 = 4Q1
2 – 2Q2
2.
A coordination problem usually occurs in situations where there is:
A. no Nash equilibrium in a game.
B. a unique, but undesirable Nash equilibrium.
C. a unique, secure strategy for both players.
D. more than one Nash equilibrium.
Which of the following forms of payment is NOT an incentive plan?
A. Commission plans for salespeople
B. Paying waitresses low wages, but allowing them to collect tips
C. Bonuses for managers that increase with profits
D. Straight hourly wages for construction workers
Consider a consumer who is searching for the lowest price for good X. The consumer
knows that 75 percent of the time she will find a store charging $10 and 25 percent of
the times she will find a store charging $7. The consumer will search again if her
marginal cost of searching is constant and is:
A. strictly higher than $3.
B. lower than or equal to $0.75.
C. between $1.00 and $2.25.
D. exactly $0.
Which of the following is NOT a measure of productivity?
A. Total product
B. Marginal product
C. Average advertising
D. Input-output ratio
Consider a market characterized by the following inverse demand and supply functions:
PX = 10 – 2QX and PX = 2 + 2QX. An $8 per unit price floor will result in a
A. shortage of 1 unit.
B. surplus of 2 units.
C. shortage of 3 units.
D. surplus of 3 units.
The dominant strategy of player 1 in the following game is:
A. S1.
B. S2.
C. S1 and S2.
D. A dominant strategy does not exist.
The higher the interest rate, the greater the:
A. present value.
B. net present value.
C. Both present value and net present value are correct.
D. Neither present value nor net present value is correct.
Specialized investments:
A. result in relationship-specific exchange.
B. make spot exchange efficient.
C. cause managers to shirk.
D. are equally valuable in any productive use.
If sugar and Nutrasweet are substitutes, then we can be certain that a decrease in the
price of sugar will lead to an increase in the consumption of:
A. Nutrasweet only.
B. sugar only.
C. sugar and Nutrasweet.
D. None of the statements is correct.