When the marginal product of a variable input is zero, it implies that the firm is at the
point where the total product is:
a) increasing at an increasing rate.
b) also equal to zero.
c) at its maximum.
d) decreasing at an increasing rate.
e) increasing at a decreasing rate.
Which of the following is true of a firm that faces increasing returns to scale?
a) An increase in the quantity of one input will increase output by a greater proportion.
b) As the quantity of all inputs are increased, the average cost of production will
increase.
c) A given increase in the quantity of all inputs will increase output by a greater
proportion.
d) As the quantity of one input is increased, its marginal product will increase at an
increasing rate.
e) As the quantity of one input is increased, the marginal cost of production will
decline.
Auctions are a viable method of selling an item when:
a) one-on-one negotiation with a buyer is not possible.
b) the seller is not practicing monopoly.
c) a competitive market fails to exist.
d) the item is non-differentiated.
e) posted pricing under uncertain environment cannot take place.
A mixed strategy:
a) involves two or more pure strategies, each with fixed probabilities.
b) is a course of action chosen by a player with certainty.
c) is a player’s best response to any strategy that the other player might pick.
d) refers to the series of moves made by players in a repeated game.
e) is another term for a player’s contingent actions.
In a ‘lemons’ market:
a) both the buyer and the seller have perfect information.
b) regulators intercede to control quality.
c) different quality goods sell at different prices.
d) asymmetric information leads to the sale of low-quality goods.
e) only the buyer has access to complete information.
Which of the following is a feature of the expected-value standard?
a) It helps the decision taker to choose the course of action that involves the maximum
risk and return.
b) It cannot be employed in situations involving multiple and related risks.
c) It is employed for short-term, one-time decisions involving high risks.
d) The expected value of a risky prospect represents the average monetary outcome if it
were repeated indefinitely.
e) The expected-value standard is appropriate for playing short-run averages.
The following table shows the total revenue and total cost (in dollars) from different
sales volumes of the good.
Table 2-1
Refer to Table 2-1. What is the firm’s profit from selling 3 units of the good?
a) $13
b) $11
c) $12
d) $39
e) $27
Which of the following is a method of signaling used by firms in the presence of
asymmetric information?
a) Bundling products together for sale
b) Outsourcing the production of goods and services
c) Offering discounts on the price of goods
d) Offering fixed-wage contracts to employees
e) Building a reputation
Rent-seeking is:
a) the loss in consumer surplus due to monopoly power in a market.
b) the collusive practices undertaken by dominant firms in an oligopoly.
c) comprises the excess profits that are associated with a monopoly.
d) comprises the activities that are directed towards securing a monopoly position.
e) is the economic rent secured by monopoly firms.
The following table shows the total revenue (in dollars) and total cost (in dollars) from
the production and sale of different units of a product.
Table 2-1
Refer to Table 2-1. What is the marginal revenue associated with the sale of the 5th unit
of the good?
a) $55
b) $8
c) $7
d) $48
e) $4
Which of the following is true of an information good or service?
a) In order to maximize profits, firms should set a high price because information goods
are expensive to produce.
b) The profit-maximizing price should be equal to the average fixed cost of producing
the information good.
c) Information goods are provided for free because the production cost of an
information good is zero.
d) The smaller the number of consumers using an information good, the higher the
value obtained by other consumers.
e) Information goods or services are characterized by high fixed costs but low or
negligible marginal costs.
The supply curve of a perfectly competitive firm is:
a) the portion of the marginal cost curve above the marginal revenue curve.
b) the portion of the marginal cost curve above the average cost curve.
c) the portion of the marginal cost curve above the average variable cost curve.
d) the portion of the average cost curve above the average variable cost curve.
e) the same as the average variable cost curve.
Which of the following is the best definition of a controlled market study?
a) A carefully designed study of a market situation.
b) A study of demand and supply in a single market.
c) A study that varies key economic variables in one or more markets to determine the
effects of the changes.
d) A study that assumes differences in sales can be accounted for by unmeasured
variables.
e) A study that uses a trial and error method to determine probable market outcomes.
Given, MB = Marginal benefit and MC = Marginal cost. Then, for a positive decision
variable in the optimal solution, which of the following relations holds?
a) MB = MC = 0
b) MB ‘“ MC > 0
c) MB ‘“ MC = 0
d) MB ‘“ MC < 0
e) The relationship between MB and MC is indeterminate.
Game theory offers insight into:
a) pricing behavior in competitive markets.
b) the optimal output and pricing strategy of a monopolist.
c) the degree of monopoly power enjoyed by a firm.
d) strategic behavior of firms in an oligopoly.
e) adjustment to equilibrium in a monopolistically competitive market.
The goods produced by firms in a perfectly competitive market are:
a) perfect complements of each other.
b) highly differentiated from each other.
c) imperfect substitutes.
d) perfectly identical to each other.
e) sold at different prices in different market segments.
If a production function is expressed in a linear form, the inputs used in the production
process:
a) are perfect complements.
b) are perfect substitutes.
c) have to be increased in the same proportion.
d) have fixed marginal costs.
e) have equal marginal productivity.
Which of the following is true of a firm facing a downward sloping demand curve?
a) In order to sell more units, the firm needs to lower its price.
b) A price cut will reduce total revenue.
c) The firm’s total revenue and price are directly correlated.
d) The marginal revenue from each unit sold is constant.
e) The firm faces a constant marginal cost curve.
The expected profit determined from a decision tree is the weighted average of all
possible outcomes. The weights represent the:
a) probabilities of the outcomes.
b) utilities of the outcomes.
c) number of times the decision is likely to be repeated.
d) one divided by the total number of outcomes.
e) the total number of outcomes.
Consider a situation where an insurance contract has a negative expected value for the
purchaser. Under this insurance policy, the premium paid exceeds the expected payout.
Is it rational to buy this insurance? Give explanation with reason.
A large health insurance plan pays for 90% of the cost of emergency room and other
hospital visits but only 20% of the cost of an individual’s purchases of prescription
drugs. How might this affect the individual’s health-care decisions? Why might the
result lead to high health-care spending?
How will an increase in price affect the quantity of output sold by a firm? What are the
reasons for this change?
At her current per-day consulting fee, a freelance marketing consultant finds herself
with as many jobs as she can handle. In fact, over the past six months, she has been
hired by nine of the ten clients who have made queries about her services. At her
current consulting fee, she finds herself indifferent between ‘taking or leaving’ the extra
work. Evaluate the consultant’s pricing strategy.
How would a forecaster determine which functional form of an equation to use to
predict a variable?