ECON E 78401 | Course Paper

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Suppose a firm’s inverse demand curve is given by P = 160 ” 4Q. Which of the

following statements is TRUE?

I. The firm’s marginal revenue curve is given by MR = 160 ” 8Q.

II. The firm’s marginal revenue cannot be negative.

III. The firm’s marginal revenue curve is given by MR = 40 ” 0.50Q.

IV. When Q = 10, MR = $80.

A) I and II

B) I and IV

C) II and III

D) III only

In the supply and demand model, we assume that there are ______ buyers and ______

sellers in the market.

A) many; many

B) several; several

C) many; several

D) several; many

In an identical-product Bertrand oligopoly, the market inverse demand curve is P = 100

” 0.5Q. Firm A’s average cost and marginal cost are constant at $20; Firm B’s average

cost and marginal cost are constant at $10. What is the equilibrium price in this market?

A) $10

B) $15

C) $20

D) $19.99

Table 12.21

(Table 12.21) In the table, payoffs represent profits in millions of dollars. Which of the

following statements is TRUE?

I. In a simultaneous game that is played only once, the Nash equilibria are (80, 100) and

(70, 40).

II. In a sequential game in which Player A moves first, the Nash equilibrium is (100,

90).

III. In a simultaneous game that is played only once, the dominated strategy for Player 1

is Middle.

A) I, II, and III

B) II and III

C) I and III

D) I only

Which of the following are shortcomings of lab experiments?

I. People in lab experiments know that they are being studied, so they may behave

differently than usual.

II. The amount of money involved in lab experiments is small, which means the

participants do not stand to gain or lose much from their choices.

III. Many people in experiments are asked to do things that they have never done

before.

A) II only

B) I and II

C) III only

D) I, II, and III

Alumni donations to universities and colleges may at first appear ______, but further

examination reveals that they are motivated by ______.

A) self-interested; altruism

B) self-interested; greed

C) altruistic; self-interest

D) altruistic; the sunk cost fallacy

Figure 6.1

(Figure 6.1) The average product at L = 2 and L = 8 are and respectively.

A) 2; 1.13

B) 0.5; 0.89.

C) 8; 72

D) 1.5; 0.5

Table 12.10

(Table 12.10) The table shows the payoffs from the game rock-paper-scissors. Which of

the following statements is TRUE?

I. There is no pure-strategy Nash equilibrium.

II. The Nash equilibria are (Rock, Rock), (Paper, Paper), and (Scissors, Scissors).

III. The mixed-strategy Nash equilibrium is for each player to randomly select each

strategy one-third of the time.

A) II and III

B) I and III

C) III only

D) I and II

Figure 7.5

(Figure 7.5) Which of the following statements is TRUE?

I. At point A, ATC > MC.

II. At point B, ATC = MC.

III. At point C, ATC < MC.

A) I and II

B) I, II, and III

C) III only

D) I only

The Affordable Care Act (aka Obamacare) mandates that everyone buy health insurance

or face a penalty. The rationale for this policy is to:

A) solve the adverse selection problem.

B) solve the moral hazard problem.

C) make sure that high-risk people pay higher premiums than low-risk people.

D) ensure that Medicare enrollees pay actuarially fair insurance premiums.

Figure 9.10

(Figure 9.10) If the government regulates the price of this natural monopolist to achieve

a perfectly competitive output level, consumer surplus will change from ______ to

______.

A) $3,000; $2,500

B) $15,000; $75,350

C) $5,000; $11,000

D) $17,000; $54,600

Table 6.4

A) Q = 100KL

B) Q = 100K0.5L0.5

C) Q = 100K0.25L0.75

D) Q = 100K2L

Farmers can use their land to grow corn or cotton. Because of the increased demand for

moisture- wicking sportswear, the demand for cotton has decreased. What are the

general equilibrium effects in the market for corn and the market for cotton?

A) The price of cotton will fall from the decrease in demand, causing farmers to plant

less cotton. The decrease in the supply of cotton will raise cotton prices and cause the

demand for corn to rise.

B) The price of cotton will fall from the decrease in demand, causing farmers to plant

less cotton and more corn. The increase in the supply of corn will push down corn

prices.

C) The price of cotton will fall from the decrease in demand, causing farmers to plant

less corn. The decrease in the supply of corn will raise corn prices and cause the

demand for cotton to fall.

D) The price of cotton will rise from the decrease in demand, causing farmers to plant

more cotton and less corn. The decrease in the supply of corn will push up corn prices.

Figure 8.19

(Figure 8.19) The graph represents three perfectly competitive firms. Which of the

following statements is TRUE?

I. In the long run, each firm will produce the same quantity of output.

II. Firm 1 is the highest-cost producer and Firm 3 is the lowest-cost producer.

III. Firm 3 will produce the most output in the long run.

A) II only

B) III only

C) II and III

D) I only

Behavioral economists find that people are ______; for example, ______ than 50% of

survey respondents report they are above-average drivers.

A) overconfident; less

B) underconfident; less

C) overconfident; more

D) underconfident; more

Figure 3.24

(Figure 3.24) In Figure 3.24,Sprivrepresents the supply of health care visits at private

clinics and Stot represents the total supply of health care visits at private and

government-operated clinics.

a. How many health care visits are provided by government-operated clinics?

b. Without government-operated clinics, how many health care visits are provided by

the private sector?

c. With government-operated clinics, how many health care visits are provided by the

private sector?

d. Does the presence of government-operated clinics cause crowding out? Explain.

Figure 8.8

(Figure 8.8) Which of the following statements is TRUE?

I. The firm earns $120 of profit at 24 units of output.

II. At prices above $5, the firm earns positive profit.

III. At a price of $4, the firm would produce more than 24 units of output to offset the

lower price.

A) I only

B) II and III

C) II only

D) I and III

Goods X and Y are substitute goods. If the demand for good X increases, we expect that:

A) the price of good X will increase and cause the demand for good Y to increase. The

higher price for good Y will further cause the demand for good X to increase, while the

higher price for good X will further cause the demand for good Y to increase.

B) the price of good X will increase and cause the demand for good Y to decrease. The

lower price for good Y will now cause the demand for good X to decrease, while the

lower price for good X will further cause the demand for good Y to decrease.

C) the price of good X will decrease and cause the demand for good Y to decrease. The

lower price for good Y will now cause the demand for good X to decrease, while the

lower price for good X will further cause the demand for good Y to decrease.

D) the price of good X will decrease and cause the demand for good Y to increase. The

lower price for good Y will now cause the demand for good X to increase, while the

higher price for good X will further cause the demand for good Y to increase.

Figure 7.12

(Figure 7.12) The short-run average total cost curve is given by ______, and the

long-run average total cost curve is given by______.

A) CZW; AZY

B) CZY; AZW

C) AZY; CZW

D) AZW; CZY

Suppose that the cross-price elasticity of demand for movie popcorn with respect to

movie tickets is “0.75. If the price of movie tickets rises by 4%, the quantity demanded

of movie popcorn will:

A) fall by 18.75%.

B) fall by 30%.

C) rise by 3%.

D) fall by 3%.

Vehicle leasing ______ the number of high-quality used cars and ______ adverse

selection.

A) increases; reduces

B) increases; increases

C) decreases; reduces

D) decreases; increases

A monopolist with a marginal cost of MC = 5 + 10Q experiences a change in market

conditions. The inverse demand curves rotate from P = 40 ” 5Q to P = 47 ” 2Q. What

happens to the profit-maximizing price following the rotation of the demand curve?

A) The price falls from $18 to $15.

B) The price rises from $31.25 to $41.

C) The price rises from $26 to $34.

D) The price falls from $18.60 to $11.20.

Suppose that there are 1,000 firms in a perfectly competitive industry, each with a

short-run total cost curve given by TC = 800 + 8Q + 0.1Q2 and marginal cost curve

given by MC = 8 + 0.2Q.

a. What is the profit-maximizing output level for each firm at a market price of $20?

b. How much profit does each firm make at a market price of $20?

c. Explain whether the industry will expand or contract in the long run.

Figure 3.16

(Figure 3.16) Which of the following statements is TRUE?

I. A $3-per-unit tax placed on buyers raises the price buyers pay to $6.

II. A $3-per-unit tax placed on sellers raises the price buyers pay to $6.

III. With a $3-per-unit tax placed on sellers, the share of the tax paid by buyers is 67%.

A) I, II, and III

B) I and III

C) II and III

D) I only

Figure 2.3

(Figure 2.3) An increase in quantity supplied could be indicated by:

A) the supply curve shifting from S1 to S2.

B) the supply curve shifting from S1 to S3.

C) movement up and along supply curve S1.

D) the supply curve shifting from S3 to S2.

A rock climbing school faces two demand curves. The demand by local residents is Q =

400 ” 0.5P, and the demand by nonlocal residents is Q = 500 ” 0.5P. The marginal cost

of serving either local or nonlocal residents is constant at $100. If the rock-climbing

school practices third-degree price discrimination, it will charge local and nonlocal

residents a price of ______ and ______, respectively.

A) $400; $800

B) $450; $550

C) $600; $650

D) $275: $325

Figure 4.4

(Figure 4.4) This figure violates the assumption of:

A) convex indifference curves.

B) indifference curves can never cross.

C) rankability.

D) the more you have of a good, the less you are willing to give up to get even more of

it.

Figure 5.2

(Figure 5.2) In the figure, hamburger meat is a(n) ______ good and canned tuna is a(n)

______ good.

A) normal; normal

B) inferior; normal

C) inferior; inferior

D) normal; inferior

For price discrimination to be successful using coupons, it must be TRUE that:

A) shoppers who take advantage of coupons have more elastic demands than shoppers

who do not use coupons.

B) shoppers who take advantage of coupons have more inelastic demands than shoppers

who do not use coupons.

C) there is a negative correlation between coupon use and the consumer’s willingness to

shop around for the least expensive items.

D) firms can directly identify which consumers are the most price sensitive before the

shoppers purchase the good.

A firm can produce any quantity of good X with the following cost structure: TC =

450,000 + 20Q, where Q measures units of output.

a. What happens to the firm’s average total cost of production as it expands output?

b. What type of firm is this an example of?

c. The industry demand for good X is Q = 100,000 ” 500P. At the profit-maximizing

output level, calculate the firm’s ATC of production.

d. Suppose the profit-maximizing output level you calculated to answer part c is split

evenly between two firms, each with the cost structure given by TC = 450,000 + 20Q.

What is the ATC of production in this two-firm industry?

A firm’s long-run total cost curve is given by , where long-run marginal cost

is given by LMC = 2,000 ” 20Q + Q2. What is the quantity of output that minimizes

long-run average total cost?

A) 15

B) 165

C) 500

D) 210