Suppose that supply increases and demand decreases. What effect will this have on
price and quantity?
A. Price will increase and quantity may rise or fall.
B. Price will decrease and quantity will increase.
C. Price will decrease and quantity will decrease.
D. None of the statements associated with this question are correct.
Which of the following cost functions exhibits cost complementarity?
A. -3Q2 + 4Q1
B. 5Q1Q2 – Q1
C. Q2Q1 + 2Q1
D. -5Q1Q2 + 7Q1
In general, adding one more user to a two-way network tends to:
A. benefit the new user more than the existing users.
B. benefit existing users more than the new user.
C. provide equal benefits to existing users and the new user.
D. not provide any benefit to either new or existing users.
Which of the following is true?
A. In Bertrand oligopoly each firm believes that its rivals will hold their output constant
if it changes its output.
B. In Cournot oligopoly firms produce an identical product at a constant marginal cost
and engage in price competition.
C. In oligopoly a change in marginal cost never has an effect on output or price.
D. None of the answers is correct.
SeaSide Industries currently spends 5 percent of its sales on advertising. Suppose that
the elasticity of advertising for Seaside is 0.2. Determine the optimal profit margin over
price (P – MC)/P.
A. 4 percent
B. 10 percent
C. 25 percent
D. None of the answers is correct.
Suppose the demand for good X is given by Qd
x = 20 – 4Px + 2Py + M. The price of
good X is $5, the price of good Y is $15, and income is $150. Given these prices and
income, how much of good X will be purchased?
A. 160
B. 180
C. 220
D. None of the statements associated with this question are correct.
By making managerial compensation depend on the performance of the firm’s profits,
the firm owner’s profits:
A. rise.
B. fall.
C. remain constant.
D. initially fall, then rise.
The combinations of goods X and Y that are affordable to the consumer are defined by
the:
A. consumption set.
B. income line.
C. budget constraint.
D. budget set.
Let the demand function for a product be Q = 100 – 2P. The inverse demand function of
this demand function is:
A. Q = 100 + 2P.
B. P = 50 – 0.5Q.
C. P = 50 + 0.5Q.
D. None of the answers is correct.
Vertical foreclosure is an example of a firm:
A. engaging in a price-cost squeeze.
B. that merges with a rival firm with the intention of eliminating the rival firm’s product
from the market.
C. engaging in penetration pricing.
D. that controls an essential upstream input and raises rivals’ costs by refusing to sell to
other downstream firms that need the input.
As a general rule of thumb, industries with a Herfindahl index below ______ are
considered to be competitive, while those above ______ are considered noncompetitive.
A. 1,000, 1,800
B. 1,800, 1,000
C. 1,000, 3,000
D. 1,800, 3,000
Refer to the normal-form game of price competition in the payoff matrix below.
Suppose the game is infinitely repeated, and the interest rate is 10 percent. Both firms
agree to charge a high price, provided no player has charged a low price in the past. If
both firms stick to this agreement, then the present value of firm A’s payoffs are:
A. 220
B. 110
C. 330
D. 550