A monopoly produces widgets at a marginal cost of $10 per unit and zero fixed costs. It
faces an inverse demand function given by P = 50 – Q. Suppose fixed costs rise to $400.
What happens in the market?
A. The firm will raise the price.
B. The firm will shut down immediately.
C. The firm continues to produce the same output and charge the same price.
D. The firm will reduce its output and raise price.
The causal view of an industry is that:
A. market structure causes firms to behave in a certain way.
B. market performance causes firms to have a certain structure.
C. market performance causes firms to behave in a certain way.
D. behavior causes firms to have a certain structure.
Which of the following pieces of legislation is aimed at curbing the negative effects of
externalities?
A. Robison-Patman Act
B. Clean Air Act
C. Lanham Act
D. Truth in Lending Simplification Act
A local video store estimates its average customer’s demand per year is Q = 7 – 2P, and
it knows the marginal cost of each rental is $0.5. How much should the store charge for
an annual membership in order to extract the entire consumer surplus via an optimal
two-part pricing strategy?
A. $9
B. $10
C. $11
D. $12
The supply function for good X is given by Qx = 1,000 + PX – 5PY – 2PW, where PX is
the price of X, PY is the price of good Y and PW is the price of input W. If the price of
input W increases by $10, then the supply of good X
A. will increase by 10 units.
B. will increase by 20 units.
C. will decrease by 10 units.
D. none of the statements associated with this question are correct.
Consider the monopoly in the figure below with price regulated at $20 per unit. The
regulated price will result in a:
A. surplus of 3 units.
B. shortage of 3 units.
C. surplus of 18 units.
D. shortage of 18 units.
Suppose a firm manager has a base salary of $50,000 and earns 2.5 percent of all sales.
Determine the manager’s income if revenues are $20,000,000 and profits are
$5,000,000.
A. $50,000
B. $175,000
C. $550,000
D. $700,000
Consider a two-good world, with commodities X and Y. If Y is an inferior good, then an
increase in consumer income CAN
A. decrease the demand for Y.
B. decrease the demand for X.
C. increase the demand for X.
D. make the consumer better off.
For the production function Q = 5.2K + 3.8L, if K = 16 and L = 12, we know that MPK
is:
A. 16
B. 5.2
C. 3.8
D. 12
If the interest rate is 12.5 percent, what is the present value of $200 received in one
year?
A. $25
B. $177.78
C. $197
D. $225
An apple farmer must decide how many apples to harvest for the world apple market.
He knows that there is a one-third probability that the world price will be $1, a
one-third probability that it will be $1.50, and a one-third probability that it will be $2.
His cost function is C(Q) = 0.01Q2. The farmer’s maximum expected profit is:
A. -$7.75.
B. $0.
C. $7.75.
D. None of the answers are correct.
Suppose the production function is given by Q = 4K + 3L. What is the average product
of labor when 10 units of capital and 5 units of labor are employed?
A. 3
B. 4
C. 11
D. 45
Suppose the market supply for good X is given by QX
S = -100 + 5PX. If the equilibrium
price of X is $100 per unit then producers’ revenue from X is
A. $100.
B. $20,000.
C. $40,000.
D. cannot be determined from the information contained in the question.
Principal-agent problems do NOT arise between:
A. stockholders and managers.
B. managers and workers.
C. stockholders and workers.
D. workers and consumers.
Suppose a new contracting environment that requires clearing fewer legal hurdles is
considered. This new contract will result in:
A. an increase in the marginal cost and a longer optimal contract.
B. an increase in the marginal cost and a shorter optimal contract.
C. a decrease in the marginal cost and a longer optimal contract.
D. a decrease in the marginal cost and a shorter optimal contract.
The industry elasticity of demand for telephone service is -2, while the elasticity of
demand for a specific phone company is -5. What is the Rothchild index?
A. 0.2
B. 0.4
C. 0.5
D. 0.7
Suppose a consumer has M = $200 to spend on two goods, X and Y. If the per-unit
prices of X and Y are respectively given by PX = $2 and PY = $4, then utility
maximization subject to a budget constraint can be found from which of the following
Lagrangians?
A.
B.
C.
D.
A negative side of a revenue-sharing plan is that it:
A. does not induce hard or better work.
B. can be costly if revenues are low.
C. gives no incentive for workers to minimize costs.
D. can be difficult to manage from an accounting standpoint.
Consider a monopoly where the inverse demand for its product is given by P = 50 – 2Q.
Total costs for this monopolist are estimated to be C(Q) = 100 + 2Q + Q2. At the
profit-maximizing combination of output and price, monopoly profit is:
A. $32.
B. $64.
C. $92.
D. $128.
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
sells coats and pants for $25 each, but offers a bundle containing both a coat and pants
for $150, how many bundles will the firm sell?
A. 0
B. 1
C. 2
D. Insufficient information