Which of the following auctions are strategically equivalent for bidders holding private
values?
a) The English and Dutch auctions.
b) The sealed-bid and second-price auctions.
c) The English and Vickrey auctions.
d) The Vickrey and Dutch auctions.
e) The Vickrey and sealed-bid auctions.
The following table lists the payoffs for Firm 1 and Firm 2 from three possible pricing
strategies:
Table 10-3
Refer to Table 10-3. Identify Firm 2’s dominant strategy.
a) Its dominant strategy is medium prices.
b) Firm 2 does not have a dominant strategy.
c) Its dominant strategy is high prices.
d) Its dominant strategy could be high or medium prices depending on Firm 1’s
response.
e) Its dominant strategy is low prices.
If Pr(a) = .4, Pr(b) = .3, and Pr(ba) = .5, then Pr(a&b) is:
a) .35.
b) .5.
c) .2.
d) .6.
e) .14.
Suppose four identical, risk-averse individuals form a partnership to share equally the
profit or loss from an investment.
(a) What is the effect on each individual’s expected profit and certainty equivalent
(CE)?
(b) What happens to the total value of the syndicate as the risk is split among more and
more individuals?
If the sample variance of a set of observations is 225, its sample standard deviation is
equal to _____.
a) 0.225
b) 15
c) 22.5
d) 0.15
e) 2.25
The demand for a product is given by P = 1,750 ‘“ 25Q. If the firm wishes to sell 50
units, each unit should be priced at:
a) $100.
b) $200,
c) $300.
d) $400.
e) $500.
The cross-price elasticity between two products is estimated to be 2. If the price of the
first product is increased by 8%, demand for the second product will _____.
a) increase by 8%
b) decrease by 4%
c) increase by 4%
d) increase by 16%
e) decrease by 8%
When a firm practices price discrimination in two market segments, the firm:
a) must be able to identify market segments that have different price elasticities.
b) will typically charge higher prices in the larger market segment.
c) must be selling a heterogeneous product.
d) must choose market segments that have inelastic demand.
e) sets price according to the different costs of serving different market segments.
In the long run, the economic profit earned by a firm under monopolistic competition:
a) is positive because firms produce with excess capacity.
b) is zero because of price wars among a small number of firms.
c) is zero because of free entry and exit possibilities in the market.
d) is positive because of advertising and product differentiation by the firms.
e) is positive because of collusive behavior between firms.
In order to maximize profits, a perfectly competitive firm will continue producing until:
a) it utilizes its full production capacity.
b) the marginal cost equals the market price.
c) the average cost is minimized.
d) its total sales revenue is maximized.
e) the profit per-unit is at its highest possible point.
The demand curve for a monopolistically competitive firm slopes downward because:
a) the demand for the product drops to zero after a slight price increase.
b) competing firms produce differentiated products.
c) there is a very little brand loyalty towards a single firm’s product.
d) customers are not influenced by advertising.
e) buyers are not sensitive to changes in the price of the product.
Assume that demand for a service depends upon price and income, where the price
elasticity of demand is EP= ‘“0.6 and income elasticity is EY= 1.2. If price falls by 4%
and income rises by 2%, the quantity demanded of the service will _____.
a) not be affected as the change in price will cancel the change in income
b) increase by 6%
c) increase by 4.8%
d) decrease by 9.6%
e) decrease by 2.4%
If Pr(a) = .5 and Pr(b) = .3, then the value of Pr(a&b):
a) equals .8.
b) equals .375.
c) equals .15.
d) equals .2.
e) cannot be determined without more information.
The basic objective of a cartel is to:
a) maximize profit for the largest, most influential members.
b) increase the total consumer surplus in the market.
c) produce the highest output level possible.
d) secure monopoly profits for its members.
e) successfully practice price discrimination in the market.
A firm’s total cost function is: C = 50 + 6Q + 2Q2.
(a) Compute the level of output that minimizes average total cost AC.
(b) At what level of output does marginal cost equal average variable cost AVC?
Which of the following is the best example of a pure public good?
a) Government-sponsored medical care
b) Textbooks
c) Used clothing
d) Municipal mosquito abatement programs
e) Social security benefits
The laundry machine industry has a four-firm concentration ratio of 98%. Based on this
information, we can conclude that:
a) each firm in the laundry machine industry has an equal share of the market.
b) the laundry machine industry is a tight oligopoly.
c) the laundry machine industry is monopolistically competitive.
d) the top four firms in the laundry machine industry have a high market capitalization.
e) the laundry machine industry is perfectly competitive.
Two firms are poised to enter a retail market. Entering the market will be profitable for
one firm only if the other firm does not enter the market. This is an example of:
a) prisoner’s dilemma.
b) a repeated game with contingent strategies.
c) bargaining game with multiple equilibria
d) a game with a first-mover advantage.
e) a zero-sum game.
Adverse selection occurs in a market when:
a) one party has better information about pertinent risks.
b) both parties have an incentive to cheat on a contract.
c) the agent acts against the interests of the principal.
d) one party is unable to perform the contract as specified.
e) the cost of signaling is prohibitive.
A firm negotiates a new labor contract with a higher average hourly wage. What is the
most likely effect of the higher wage on the firm’s price and output?
a) Neither price nor output will be affected.
b) Price will increase but output will not change.
c) Both price and output will increase.
d) Price will not change but output will decrease.
e) Price will increase and output will decrease.
Which of the following is an example of a principal-agent problem?
a) A buyer who makes a large raise in bid at an auction to discourage other bidders.
b) A doctor who performs a large number of in-office tests and is paid per test.
c) An elderly couple who elect a generous medical insurance policy.
d) A board of directors that is trying to refine the compensation system for its CEO.
e) A pitcher (about to sign with a new team) who is aware of a nagging elbow pain.
A profit-maximizing firm should shut down in the short run if:
a) price is greater than marginal cost.
b) total revenue is less than total variable cost.
c) the firm is earning less than a normal rate of return.
d) the firm is not able to cover its overhead expenses.
e) marginal cost is higher than average cost.
A large firm’s automotive division receives parts from the firm’s parts division at a price
of $450 each. Each part is produced at a marginal cost of $400 and the final product is
sold for $5,000 each. Which of the following statements is true?
a) The firm is maximizing profits at the current price of the parts and the final product.
b) The parts unit should sell the parts to the automotive division at a price of zero.
c) The firm should outsource the production of the parts to another firm to maximize
profit.
d) Since the final product is sold at a price of $5,000, the parts unit can increase the
price of the parts sold to the automotive division.
e) The automotive division should pay $400 for each part to maximize profits.
According to the law of demand, if a firm reduces the price of its good:
a) consumers in the market will demand more units of the good.
b) some consumers will exit the market.
c) consumers will demand fewer units than before the price cut.
d) the quantity of goods produced and sold by the firm will decline.
e) competing firms will reduce prices.
A manager reveals that she has a utility function U = 100M – 2M2, for 0 ≤ M ≤
25, where ‘˜U’ stands for Utility, ‘˜M’ stands for Money. Is this person risk averse, risk
neutral, or risk loving?
You are a newly hired marketing trainee for a local corporation. Senior management has
wondered how other local firms view your company’s reputation. One suggestion is to
call a variety of managers from a master contact list of firms that your firm has done
business with over the last 12 months and ask them what they think of the company.
How reliable is this kind of survey method?
What are the major advantages and drawbacks of using controlled customer
experiments to determine demand?
Determine each player’s equilibrium mixed strategy in the following non-zero-sum
game.
How useful is the Lerner index as a measure of monopoly power?