In the long run, monopolistically competitive firms produce a level of output such that:
A. P > MC.
B. P = ATC.
C. ATC > minimum of average costs.
D. All of the statements associated with this question are correct.
The presence of minimal specialized investments relative to contracting costs suggests
that the optimal input procurement method is:
A. spot exchange.
B. vertical integration.
C. contract.
D. vertical integration or contract.
Suppose earnings are given by E = $60 + $7(24 – L), where E is earnings and L is the
hours of leisure. What is the maximum this worker can earn in three (3) days?
A. $519
B. $417
C. $228
D. $684
Suppose P = 20 – 2Q is the market demand function for a local monopoly. The marginal
cost is 2Q. If fixed costs are zero and the firm engages in two-part pricing, the most
profits the firm will earn is:
A. $5.
B. $10.
C. $25.
D. $50.
Suppose two types of consumers buy suits. Consumers of type A will pay $100 for a
coat and $50 for pants. Consumers of type B will pay $75 for a coat and $75 for pants.
The firm selling suits faces no competition and has a marginal cost of zero. If the firm
can identify each consumer type and can price discriminate, what is the optimal price
for a pair of pants?
A. Charge both types $150.
B. Charge both types $75.
C. Charge type A consumers $50, and type B consumers $75.
D. Charge type A consumers $50, and type B consumers $50.
The value of marginal product of an input is the value of the:
A. total output produced by total inputs.
B. average output produced by inputs.
C. output produced by the last unit of an input.
D. output produced by the first unit of an input.
Suppose the production function is Q = min{K, 2L}. How much output is produced
when 4 units of labor and 9 units of capital are employed?
A. 2
B. 4
C. 8
D. 9
Which group of policies aims at discouraging rivals from starting a price war?
A. Price matching and randomized pricing
B. Price matching, brand loyalty, and commodity bundling
C. Randomized pricing, price discrimination, and cross-subsidization
D. Peak-peak pricing, two-part pricing, and price matching
Suppose you are a risk-neutral manager attempting to hire a new sales manager. All of
the workers in the market have the same ability to manage and sell, but they differ with
respect to the wage at which they are willing to work for your company. The market for
sales managers is composed of two types of individuals: 35 percent are willing to work
for $50,000 and 65 percent are willing to work for $75,000. The first interviewee is
only willing to work for $75,000. The expected benefit from an additional search is:
A. $32,500.
B. $26,250.
C. $16,250.
D. $8,750.
In the United States, government is the sole property owner of:
A. labor.
B. air.
C. land.
D. knowledge.
Susans search costs are $7 per search. She wants to buy a coat, and the lowest price she
has found so far is $180. Susan thinks 25 percent of the stores charge $180 for this coat,
50 percent charge $160, and the other 25 percent charge $150. Susans optimal decision
is to:
A. continue to search for a lower price since the expected benefit of an additional
search is $7.50, which exceeds her per-unit search costs.
B. stop searching and purchase a coat for $180.
C. continue to search for a lower price since the expected benefit of an additional search
is $10, which exceeds her per-unit search costs.
D. continue to search for a lower price since the expected benefit of an additional
search is $17.50, which exceeds her per-unit search costs.
Which of the following is a feature of a contestable market?
A. There are several firms in the market serving many consumers.
B. There is a single firm in the market serving many consumers.
C. The market price is equal to marginal cost.
D. There is a single firm in the market serving many consumers and the market price is
equal to marginal cost.
The costs of production include:
A. the costs that appear on the income statements.
B. the opportunity costs foregone by producing a given product.
C. accounting costs.
D. accounting costs and opportunity costs.
You are the manager of a firm that has an exclusive license to produce your product.
The inverse market demand curve is P = 900 – 1.5Q. Your cost function is C(Q) = 2Q +
Q2. Determine the output you should produce, the price you should charge, and your
profits.
There are over 5,000 banks in the United States€more than 10 times more per person
than in other industrialized countries. A recent study suggests that the long-run average
cost curve for an individual bank is relatively flat. If Congress took steps to consolidate
banks, thereby reducing the total number to 2,500, what would you expect to happen to
costs within the banking industry? Explain.
Would collusion be more likely in the shoe industry or in the airline industry? Why?
Why do life insurance policies have clauses stipulating that the company will not pay
benefits for suicide within one year from the policy date?
“The law of comparative advantage suggests that managers should specialize in
learning the tools needed to manage either a monopoly, oligopoly, monopolistically
competitive, or perfectly competitive firm.” Do you agree with this statement? Explain.
You are the manager of a firm that is “bargaining” with another firm over how much to
pay for a key input your firm uses in production. Which type of bargaining would be
“better” from your firms point of view, simultaneous-move bargaining or take-it or
leave-it bargaining? Explain carefully.
The management of Morris Industries is considering a plan to terminate a new
employee. The action stemmed from documented evidence supplied by the firms
accounting department that this new employee did not add as much to the firms overall
output as did a worker hired two weeks earlier. Based on this evidence, do you agree
that the latest worker hired should be fired? Explain.
Would you expect an industry to be monopolistically competitive if consumers did not
value variety in the market? Explain.
Standard Enterprises produces an output that it sells in a highly competitive market at a
price of $100 per unit. Its inputs include two machines (which cost the firm $50 each)
and workers, who can be hired on an as-needed basis in a labor market at a cost of
$2,800 per worker. Based on the following production data, how many workers should
the firm employ to maximize its profits?
