If total cost is given by TC = a + bQ ” cQ2 + dQ3, then average variable cost is
minimized at units of output.
a. Q* = a/2d
b. Q* = b/2d
c. Q* = c/3d
d. Q* = c/2d
e. Q* = d/2c
If Y = 3 / X, then d2Y/dX 2 is:
a. “6 / X 3.
b. “3 / X 2.
c. 6 / X 2.
d. 6 / X 3.
e. 6X 3.
If there are two equal-sized firms in an industry, the Herfindahl-Hirschman index would
be:
a. 50
b. 100
c. 2,500
d. 5,000
e. 250
If a representative firm with total cost given by TC = 20 + 20q + 5q2 operates in a
competitive industry where the short-run market demand and supply curves are given
by QD = 1,400 ” 40P and QS = “400 + 20P, its short-run profit-maximizing level of
output is:
a. 0 units.
b. 1 unit.
c. 2 units.
d. 4 units.
e. 6 units.
The demand for health club services is Q = 350 ” 2P and the marginal cost of providing
these services is MC = 110 + 2Q. If a two-part tariff pricing system is used, what is the
optimal price and quantity combination?
a. P = 52 and Q = 240.
b. P = 199 and Q = 52.
c. P = 26 and Q = 162.
d. P = 162 and Q = 26.
e. None of the above.
If the market described in the accompanying diagram is dominated by a cartel, the loss
in total surplus relative to perfectly competitive market conditions will be:
a. $500.
b. $1,000.
c. $2,000.
d. $3,000.
e. $4,000.
In simple regression analysis (Y = a + bX), the estimate of the intercept coefficient a is
equal to
a. Ymean ” bXmean.
b. Xmean ” bYmean.
c. Ymean + bXmean.
d. Xmean + bYmean.
e. Ymean ” Xmean/ b.
The reservation prices, in dollars, for three classes of demanders (A, B, and C) for three
restaurants (1, 2, and 3) are given in the following table. What is the maximum revenue
that can be generated by setting a bundled price for the three restaurants?
a. $59.
b. $75.
c. $81.
d. $89.
e. None of the above.
If Chip and Cathy have different valuations on dancing and dinner as in the following
table, what is the maximum profit Sammy can extract from Chip and Cathy for an
evening’s entertainment at Sammy’s dinner theater if Sammy’s marginal cost is $25 for
dinner and $5 for dancing per person?
a. $60.
b. $70.
c. $80.
d. $90.
e. $100.
Gerry works 40 hours a week managing Gerry’s Market, without drawing a salary. He
could earn $600 a week doing the same work for Jean. Gerry’s Market owes its bank
$100,000, and Gerry has invested $100,000 of his own money. If Gerry’s accounting
profits are $1,000 per week while the interest on his bank debt is $200 per week, his
economic profits are:
a. $0 per week.
b. $200 per week.
c. $400 per week.
d. $800 per week.
e. $1,000 per week.
Economies of scope exist when it is cheaper to produce:
a. with a large fixed plant and equipment.
b. at increasing rates of output.
c. given quantities of two different products together than to produce the same
quantities separately.
d. given quantities of two different products separately than to produce the same
quantities together.
e. using more than one technique.
You pay $3.75 to roll a normal die one time. You get $1 for each dot that turns up. Your
expected profit from this venture is:
a. “$0.75.
b. “$0.25.
c. $0.25.
d. $3.00.
e. $3.50.
The statistic used to test whether the independent variables taken as a group explain a
statistically significant portion of the variation in the dependent variable is the:
a. R-squared statistic.
b. t-statistic.
c. Durbin-Watson statistic.
d. F-test statistic.
e. standard error of the estimate.
The law of diminishing marginal returns states that:
a. the marginal product of labor declines as all inputs are increased.
b. production functions exhibit decreasing returns to scale.
c. the marginal product of labor returns as more capital is used.
d. the marginal product of a factor eventually diminishes as more of the input is used,
holding other inputs fixed.
e. the marginal product of a factor always diminishes as more of the input is used,
holding other inputs fixed.
Optimal employment contracts for managers, given revenue risk and unobservable
output, consist of:
a. a flat salary alone.
b. a flat salary plus some return to estimates of effort.
c. only a profit share.
d. a flat salary plus a profit share related only indirectly to individual effort.
e. a flat salary plus a profit share that is equal to the share accruing to owners.
In a two-player game in which each player has four options, how many outcomes can
there be?
a. 1
b. 4
c. 8
d. 16
e. 64
The vacancy rates for commercial office space in 2001 for selected cities are given in
the following table. What is the slope coefficient estimate b of the regression of the
vacancy rate downtown as a function of the vacancy rate in the suburbs?
a. 1.0.
b. 0.5.
c. 2.5.
d. 1.5.
e. 0.0.
Cast-Steel Chairs produces office chairs using steel and labor with Q = 1/2L0.4S0.6. If
labor costs $10 per hour and steel costs $60 per unit, what is the optimal combination of
labor and steel if Cast-Steel’s budget is $10,000?
a. S = 75 units, L = 550 hours.
b. S = 0 units, L = 1,000 hours.
c. S = 25 units, L = 850 hours.
d. S = 50 units, L = 700 hours.
e. S = 100 units, L = 400 hours.
The price elasticity of demand can be interpreted as the:
a. percentage change in the quantity demanded divided by the percentage change in the
good’s price.
b. percentage change in the quantity demanded divided by the percentage change in a
substitute good’s price.
c. percentage change in the good’s price divided by the percentage change in quantity
demanded.
d. change in the quantity demanded of a good divided by the change in its price.
e. change in the quantity demanded of a good divided by the change in a related good’s
price.
The demand for a product is more elastic the:
a. more broadly the product is defined.
b. longer the time period covered.
c. higher the average income of consumers.
d. smaller the share of a consumer’s income the item represents.
e. larger the number of firms in the market.
The demand for cough medicine is Q = 10 ” 2P. At a price of $2.50, the price elasticity
of demand is:
a. “2.0.
b. “1.0.
c. “2.5.
d. “0.4.
e. “1.5.
Donald has a beach house on the Outer Banks of North Carolina that was severely
damaged in the most recent hurricane to strike the coast. Due to beach erosion, he has
rebuilt twice in the past 20 years. He is intent on rebuilding, confident that
government-provided flood insurance will cover his expenses. This is an example of:
a. how market-based solutions to problems are superior to government solutions.
b. moral hazard.
c. adverse selection.
d. asset substitution.
e. none of the above.
The optimal combination of two inputs, K and L, can be characterized by:
a. PKMPK = PLMPL.
b. MPK = MPL.
c. PLMPK = PKMPL.
d. MPK /MPL = PL /PK.
e. none of the above.
The reservation prices, in dollars, for three classes of demanders (A, B, and C) for two
restaurants (1 and 2) are given in the following table. What is the maximum revenue
that can be generated by setting a bundled price for the two restaurants?
a. $49.
b. $45.
c. $36.
d. $84.
e. $60.
A company chooses one of four options; then nature decides whether the choice works.
If it does not work, the company has two updating options, each with three possible
payoffs. How many decision forks are on the tree depicting this?
a. 5
b. 12
c. 17
d. 28
e. 36
The reservation prices, in dollars, for three classes of demanders (A, B, and C) for three
restaurants (1, 2, and 3) are given in the following table. What is the maximum revenue
that can be generated by setting a separate price for each of the three restaurants?
a. $59.
b. $75.
c. $81.
d. $89.
e. None of the above.
The annual mean daily high and low temperatures by selected cities are given in the
following table. If the mean low temperature is 1 degree higher in Tupelo than in
Tucumcari, what do you estimate the difference in mean high temperatures will be?
a. 1.0 degree.
b. 1.25 degrees.
c. 0.75 degree.
d. 1.50 degrees.
e. 2.50 degrees.
In the model of monopolistic competition, there can be short-run:
a. losses or profits, but there must be profits in long-run equilibrium.
b. profits, but there must be losses in long-run equilibrium.
c. losses or profits, but there must be losses in long-run equilibrium.
d. losses or profits, but there must be neither profits nor losses in long-run equilibrium.
e. losses, but there must be profits in long-run equilibrium.
The first step in multiple regression analysis is to:
a. procure a powerful computer.
b. identify the important variables.
c. specify a functional form to be estimated.
d. gather all available data.
e. select an estimation procedure.
•The optimal level of output and price for the profit-maximizing monopolist in the
following figure would be:
•
a. Q = 30 and P = $35.
b. Q = 60 and P = $20.
c. Q = 30 and P = $20.
d. Q = 100 and P = $35.
e. none of the above.
When a movie theater charges a higher price during the evening than during the day, it
is practicing:
a. peak load pricing.
b. first-degree price discrimination.
c. second-degree price discrimination.
d. third-degree price discrimination
e. fourth-degree price discrimination.