In evaluating public programs, benefit-cost analysis:
a) takes into account only the benefits that society gains from public programs.
b) states that a program should be undertaken only if it generates revenue.
c) states that a program should be undertaken only if total benefits exceed total costs.
d) takes into account only the direct costs of the program.
e) states that a program should be undertaken only if there are no indirect costs.
Coal is an input in the production of oil. Suppose that over the last 3 months, the price
of oil has increased and the quantity sold of oil has fallen. Other things remaining the
same, which of the following is most likely to be true?
a) There was a decrease in the demand for oil.
b) Coal miners received large wage increases.
c) Coal producers installed more efficient coal mining equipment.
d) New mine operators entered the coal industry.
e) New firms entered the market for oil.
In the Cournot model of quantity competition, as the number of firms increases:
a) the total industry output declines asymptotically.
b) the difference between price and marginal cost increases.
c) price approaches average cost.
d) the equilibrium price steadily increases.
e) the price elasticity of demand for the product falls.
Unlike a one-shot game, in a repeated game:
a) players have the opportunity to use mixed strategies.
b) each player’s objective is to claim a greater payoff with the first move.
c) players have the opportunity to build trust and cooperation.
d) a player’s prior reputation carries relatively little importance.
e) players are obliged to take independent actions.
Which of the following is not a major impediment to shareholder control of large
corporations?
a) The top management of the firm usually controls the voting and proxy process.
b) Shareholders seeking to change management recover their costs only if they are
successful.
c) No one shareholder owns a substantial percentage of the corporation’s stock.
d) Most shareholders in large firms engage in rational apathy.
e) Shareholders of large corporations are protected by limited liability.
The following table shows the total output per hour produced in a factory at various
levels of employment of labor. The firm sells each unit of output at $2 and each worker
is paid a wage of $12.
Table 5-1
Refer to Table 5-1. What is the marginal profit of the 2nd worker?
a) $24
b) $20
c) $12
d) $8
e) $0
Amalgamated Popcorn, Inc. sells bags of flavored gourmet popcorn in a popular mall.
As shop owner and operator, Rhea estimates the demand for flavored popcorn to be: Q
= 1,200 ‘“ 800P + 2A, where A denotes advertising weekly spending (in dollars), Q is
the bags of popcorn demanded and P is the price of a bag of popcorn. She is currently
charging $1.50 per bag of popcorn (for which the marginal cost is $0.75) and spending
$500 per week on advertising.
(a) Compute the store’s price elasticity and advertising elasticity.
(b) Check whether the current $1.50 price is profit maximizing. If not, determine the
store’s optimal quantity and output.
(c) Examine if the store should consider increasing its spending on advertising.
Which of the following is true of uncontrolled market data?
a) Uncontrolled market data is more reliable than controlled market data.
b) Uncontrolled market data shows how changes in various economic variables affect
the outcomes in a single market.
c) Uncontrolled market data has little information value.
d) Uncontrolled market data reflects changes in multiple factors at the same time.
e) Valid causal predictions must not be based on uncontrolled data.
A producer of two types of fine chocolate bars utilizes four basic ingredients: milk,
sugar, cocoa, and almonds. The milk bar (M) requires 8 ounces of milk, 2 ounces of
sugar, and 3 ounces of cocoa. The almond bar (A) requires 5 ounces of milk, 1.5 ounces
of sugar, 2.5 ounces of cocoa, and 2 ounces of almonds. The profit contribution of each
bar is $.50. The daily availability of the ingredients is limited up to 5,000 ounces of
milk, 1,200 ounces of sugar, 2,000 ounces of cocoa, and 1,000 ounces of almonds.
(a) Formulate and solve the producer’s linear programming problem.
(b) What can be concluded about the shadow prices of milk and sugar?
An oligopoly firm’s effective demand curve will be kinked at the current market price
if:
a) the firm acts as a price leader in the industry.
b) demand is elastic for price increases by the firm.
c) the firm expects other firms to match all price changes.
d) there is free entry and exit in the market.
e) the firm produces a differentiated product.
Which of the following statements concerning sensitivity analysis is incorrect?
a) It tracks changes in the objective function with respect to per unit change in one or
more coefficients.
b) It tracks changes in the constraint function when the amount of a resource is altered.
c) It’s used to calculate the shadow prices of resources.
d) It’s used to derive the new optimal point of operation, when the objective function, or
the constraint functions, or both change.
e) It’s used to solve the appropriate set of simultaneous equations.
A financial analyst considers three funds. The funds’ estimated returns depend on future
economic conditions ‘“ summarized by outcomes A, B, C, or D. The table lists the
probabilities of these outcomes and each fund’s expected return for each outcome.
(a) Which fund has the greatest expected monetary return?
Which of the following correctly describes a production isoquant?
a) An isoquant is a curve that shows all possible combinations of inputs that can
produce a given level of output.
b) An isoquant is a curve that shows the least-cost combinations of inputs that can
produce a given level of output.
c) An isoquant is a curve that shows all possible combinations of inputs that are used to
produce various levels of output.
d) An isoquant is a curve that shows all possible levels of output that can be produced in
the short-run using one variable input.
e) An isoquant is a curve that shows all possible levels of output that can be produced at
various input price levels.
When the four-firm concentration ratio is less than 40 percent, we can conclude that:
a) the four dominant firms in the industry enjoy a high degree of market power.
b) the industry is a tight oligopoly.
c) the market shares of each firm in the industry are highly unequal.
d) the industry is monopolistically competitive.
e) the industry is competitive.
In a linear programming problem involving two decision variables, a change in one of
their coefficients in the objective function will:
a) always change the optimal solution.
b) change the feasible region.
c) never change the optimal solution because the other coefficient is still fixed.
d) change the optimal solution only if the slope of the objective function’s contour
changes significantly.
e) necessarily change all shadow prices.
The winner’s curse occurs when:
a) buyers are realistic in their value estimates.
b) the winning bid exceeds the true value of a good.
c) the contract bidder experiences frequent cost overruns.
d) the winning bid is drawn from the left tail of the bid distribution.
e) the firm’s bid discount exceeds its (upward) estimation error.
A Nash equilibrium is defined as the outcome that:
a) results in equal payoffs to both players.
b) is unique and invariant to the strategy chosen by the other.
c) maximizes the sum of the players’ payoffs.
d) results when both players lose by deviating from the equilibrium play.
e) maximizes each player’s payoff against the strategy chosen by the other.
The following table shows the predicted and the actual sales of a firm in
the quarters of a year.
Table 4-1
Calculate the sum of squared errors of the observations from Table 4-1.
a) 20
b) 34
c) 18
d) 22
e) 15
For a downward-sloping demand curve, the associated marginal revenue curve:
a) coincides with the demand curve.
b) lies below and is parallel to the demand curve.
c) has twice the slope as the demand curve.
d) is positive for all levels of sales.
e) is parallel to the quantity axis.
Bill gives up his present job in Delaware to pursue a graduate school program in New
York. What is the opportunity cost of his decision?
a) The difference between the cost of living in New York and in Delaware
b) The total tuition cost of the program
c) The increase in wages that he can expect as a result of higher educational
qualifications
d) The wages that he forgoes when he quits his job
e) The cost of relocating to New York from Delaware
The marginal product of labor initially rises as more labor is employed because of:
a) division and specialization of labor.
b) constant returns to scale.
c) total factor productivity.
d) an increase in profits from the additional output produced.
e) a fall in the cost of hiring additional labor.
In striving to make the best possible decisions, a firm’s CEO always relies on a highly
analytical approach. However, the firm’s Chairman of the Board argues that in his
experience, the analytical approach can only go so far. He advocates analysis as only
one of several decision approaches. What is your view? Discuss and explain.
How does a tariff differ from a quota? Are the welfare effects of a tariff and a quota the
same?
What is the economic reasoning behind granting a patent to a pharmaceutical firm?
Carefully explain the economic importance of the Lagrange multiplier. How might a
manager use it in decision making?
A firm operates in a competitive industry, in which the price is $8 per unit. Its fixed cost
is $10 and its variable costs are given in the table. Compute the firm’s revenues and
costs for output over the range 0 to 8 units. Determine the profit-maximizing level of
output for the firm. If this firm is typical of the industry, will entry occur? Explain why
or why not.