The minimum wage
A. is an example of a price floor.
B. leads to an increase in the number of people employed in unskilled jobs.
C. leads to a decrease in the number of people employed in skilled jobs.
D. causes an increase in social welfare.
The buyer side of the market is known as the:
A. income side.
B. demand side.
C. supply side.
D. seller side.
Which of the following phenomena shows that risk aversion is the characteristic of
many people?
A. The popularity of high-stakes poker tournaments
B. Horse-race betting
C. Investing in one stock rather than a portfolio
D. Homeowners insurance
Which of the following is a strategy(ies) used by firms in monopolistically competitive
industries to convince consumers that their product is better than their rivals products?
A. Comparative advertising
B. Niche marketing
C. Equity marketing
D. Comparative advertising or niche marketing
Refer to the following payoff matrix:
Suppose the production game depicted in the payoff matrix is a sequential-move game.
Identify the strategy leading to a first-mover advantage for player 1
A. Player 1 moves first and plays High Q. Observing player 1s move, player 2s best
response is to play Low Q.
B. Player 1 moves first and plays Low Q. Observing player 1s move, player 2s best
response is to play Low Q.
C. Player 1 moves first and plays High Q. Observing player 1s move, player 2s best
response is to play High Q.
D. Player 1 moves first and plays Low Q. Observing player 1s move, player 2s best
response is to play High Q.
A local video store estimates its average customers 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
each rental if it engages in optimal two-part pricing?
A. $0.35
B. $0.5
C. $0.7
D. $1.00
Suppose the demand for good X is given by Qd
x = 10 + axPx + ayPy + aMM. From the
law of demand we know that ax will be:
A. less than zero.
B. greater than zero.
C. zero.
D. none of the statements associated with this question are correct.
A consumers reservation price is the price at which a:
A. consumer prefers to search rather than purchasing at the lowest observed price.
B. consumer prefers to purchase at the lowest observed price rather than to engage in
another search.
C. consumer is indifferent between searching again and purchasing at the lowest
observed price.
D. producer is indifferent between selling the product and not selling the product.
Which of the following is true about a differentiated-product Bertrand duopoly?
A. Firm 1 and firm 2s prices will exceed marginal cost.
B. Firm 1 and firm 2s prices will equal marginal cost.
C. Firm 1s price will always be above marginal cost, while firm 2s price will be equal
to marginal cost.
D. Firms in a differentiated-product Bertrand duopoly cannot earn positive economic
profits in the long run.
Suppose that Verizon Wireless has hired you as a consultant to determine what price it
should set for calling services. Suppose that an individuals inverse demand for wireless
services in the greater Boston area is estimated to be P = 100 – 33Q and the marginal
cost of providing wireless services to the area is $1 per minute. Compute consumer
surplus when Verizon Wireless charges an optimal two-part price.
A. $0
B. $74.25
C. $148.50
D. There is insufficient information to compute consumer surplus.
Indifference curves further from the origin imply:
A. a higher level of satisfaction.
B. a lower level of satisfaction.
C. the same level of satisfaction as any other curve.
D. None of the statements is correct.
A monopoly has two production plants with cost functions C1 = 40 + 0.2 Q1
2 and C2 =
50 + 0.1 Q2
2. The demand it faces is Q = 480 – 5P. What is the profit-maximizing level
of output?
A. Q1 = 50; Q2 = 100
B. Q1 = 60; Q2 = 120
C. Q1 = Q2 = 75
D. Q1 = Q2 = 100
The concentration and Herfindahl indices computed by the U.S. Bureau of Census must
be interpreted with caution because:
A. they may overstate the actual level of concentration in markets served by foreign
firms.
B. they may understate the degree of concentration in local markets.
C. the definition of product classes used to define an industry affects the results.
D. All of the statements associated with this question are correct.
Suppose perfectly competitive market conditions are characterized by the following
inverse demand and inverse supply functions: P = 100 – 5Q and P = 10 + 5Q. The
demand curve facing an individual firm operating in this market is:
A. P = 100 – 5Q.
B. a horizontal line at $9.
C. a horizontal line at $55.
D. P/N = (100 – 5Q)/N, where N is the total number of firms in the competitive market.
Suppose the market demand for good X is given by QX
d = 20 – 2PX. If the equilibrium
price of X is $5 per unit then consumer surplus is
A. $100.
B. $75.
C. $50.
D. $25.
You are the general manager of TU Modems Inc., and your accounting department has
provided you with the following information about the total cost of producing three
potential quantities of a commercial-grade modem:
The market is saturated with modems, and your sales department has been able to
identify only one potential buyer of your modems. This customer has numerous options
and as a result is only willing to pay $300 per modem for an order of 100,000 modems.
You must decide whether to sign a contract under these terms or simply shut down your
operations. What is your optimal decision?
Three consumers who want to buy a new car have the following valuations for dealer
options:
Assuming costs are zero, how much would the dealer make if it priced power brakes at
$800, priced air conditioners at $200, and sold the bundle for $1,300?
You have been hired to replace the manager of a firm that used only two inputs, capital
and labor, to produce output. The firm can hire as much labor as it wants at a wage of
$5 per hour and can rent as much capital as it wants at a price of $50 per hour. After you
look at the company books, you learn that the company has been using capital and labor
in amounts that imply a marginal product of labor of 50 and a marginal product of
capital of 100. Do you know why the firm hired you? Explain.
American Tennishoe, Inc., is concerned because Congress has proposed an excise tax of
$1 on each pair of tennis shoes sold in the United States. They are lobbying against the
tax through an advertising campaign that says the tax will raise the price of tennis shoes
by $1. Use supply and demand graphs to show how much of the tax will actually be
passed on to consumers.
Art-R-Us makes hand-painted art reproductions. The owner-manager wishes to hire
another artist, and is considering paying a fixed wage plus either (1) a share of the
profits from each painting sold or (2) a fixed payment for each piece produced. Which
plan would you choose if you were the owner? Explain.
Many restaurants have found that it is advantageous to offer free appetizers with a
two-drink minimum during a limited number of hours. Is this profit-maximizing
behavior? Why or why not?
Most wholesalers post a suggested retail price” on packages, which in turn are sold by
retailers. Is there an economic basis for the suggested retail price? As the manager of a
retailing outlet, what factors will determine whether you should charge the suggested
retail price or some higher or lower price?
What market can you think of, besides that for VCRs, that has shown short-run profits
but, over time, has seen profits disappear due to entry?
As a manager of the WeDoWell Corporation, you have negotiated with several vendors
and are on the verge of signing an eight-year contract with Bolts Enterprises. Under the
contract, they would ship to you 2,000 titanium bolts per month at a price of $1,000 per
bolt. Your assistant has just brought you an article from a trade publication that
indicates another company has developed a new technology that reduces the cost of
producing the titanium bolts. How would this information affect the optimal length of
your contract with Bolts Enterprises? Explain.