An increase in each of the following factors would normally provide a subsequent
increase in quantity demanded, except:
a. price of substitute goods
b. level of competitor advertising
c. consumer income level
d. consumer desires for goods and services
e. a and b
The Future Flight Corporation manufactures a variety of Frisbees selling for $98 each.
Sales have averaged 10,000 units per month during the last year. Recently Future
Flight’s closest competitor, Soaring Free Company, cut its prices on similar Frisbees
from $3.49 to $59. Future Flight noticed that its sales declined to 8,000 units per month
after the price cut. (a) What is the arc cross elasticity of demand between Future Flight’s
and Soaring Free’s Frisbees?
(b) If Future Flight knows the arc price elasticity of demand for its Frisbees is -2.2,
what price would they have to charge in order to obtain the same level of sales as before
Soaring Free’s price cut?
Trading partners should specialize in producing goods in accordance with comparative
advantage, then trade and diversify in consumption because
a. out-of-pocket costs of production decline
b. free trade areas protect infant industries
c. economies of scale are present
d. manufacturers face diminishing returns
e. more goods are available for consumption
When manufacturers and distributors establish credible commitments to one another,
they often employ
a. vertical requirements contracts
b. third-party monitoring
c. credible threat mechanisms
d. non-price tactics
Asset specificity is largest when
a. value in first best use is large
b. value in second best use is large
c. customers choose their supplier at random
d. very valuable assets are non-redeployable
e. customers are loyal to a particular seller
Auto dealers slash prices at the end of the model year in response to deficient
demand/excess inventory but restaurants facing the same problem slash production
because
a. auto customers are less price sensitive than restaurant customers
b. price elasticity of demand (in absolute values) is higher for auto than restaurant
customers
c. price elasticity of supply is lower in auto than in restaurants
d. restaurant food spoils quickly and is much more perishable
e. price elasticity of supply in autos is smaller than the absolute value of price elasticity
of demand but the reverse is true for restaurants
When demand is ____ a percentage change in ____ is exactly offset by the same
percentage change in ____ demanded, the net result being a constant total consumer
expenditure.
a. elastic; price; quantity
b. unit elastic; price; quantity
c. inelastic; quantity; price
d. inelastic; price; quantity
e. none of the above
In long-run equilibrium, all firms in a pure competition market situation operating
under a condition of certainty will have identical costs even though they may use
different production and operation techniques.
a. true
b. false
The Sherman Act prohibits:
a. contracts in restraint of commerce
b. monopolization of an industry
c. price discrimination
d. a and b
e. a, b, and c
Industry A has market shares of 50, 30, and 20. Industry B has market shares of 45, 40,
and 15. Hint: HHI = S i
2), where siis the market shares of the i-th firm in the industry.
a. The Herfindahl index for A is 100.
b. The Herfindahl index for A is 3,800.
c. The Herfindahl index for B is 3,600
d. The Herfindahl index for A is greater than for B.
e. The Herfindahl index is for B is 4,000.
Auctions are used in place of markets when the items traded are unique (e.g., a Ming
vase or a right to drill for oil). Which of the following examples are typically sold using
Vickrey auction methods?a. For-sale-by-owner houses
b. Household furnishings
c. Items sold in Filene’s Basement, with the price discounted after a certain date
d. Vintage postage stamps
When two or more “independent” variables are highly correlated, then we have:
a. the identification problem
b. multicollinearity
c. autocorrelation
d. heteroscedasticity
e. complementary products
Emma uses a linear model to forecast quarterly same-store sales at the local Garden
Center. The results of her multiple regression is: Sales = 2,800 + 200’¢T – 350’¢D where
T goes from 1 to 16 for each quarter of the year from the first quarter of 2006 (’06I)
through the fourth quarter of 2009 (’09 IV). D is a dummy variable which is 1 if sales
are in the cold and dreary first quarter, and zero otherwise, because the months of
January, February, and March generate few sales at the Garden Center. Use this model
to estimate sales in a store for the first quarter of 2010 in the 17th month; that is: {2010
I}. Emma’s forecast should be:a. 5,950
b. 6,200
c. 6,350
d. 6,000
e. 5,850
Winning an auction can be exhilarating, but it can also lead to doubt as to whether you
did the right thing or not. This is called:a. The regret effect.
b. Moral hazard.
c. Second wind.
d. The winner’s curse.
•
Suppose that a private firm wants to go public to give the owners a chance to retire. It
follows the lead of the Google IPO by using a modified Vickrey (or uniform price)
auction. The owners of the firm plans to sell 1 million shares and hope to raise at least
$10 million from the auction. The following bids were submitted.Bob 250,000 shares at
$12
Sam 350,000 shares at $13
Mary 300,000 shares at $9
Sue 100,000 shares at $10
Ravi 450,000 shares at $11a. The market clearing price is $13, and the sellers of the
firm get $13 million.
b. The market clearing price is $12, and the sellers of the firm get $13 million.
c. The market clearing price is $11, and the sellers of the firm get $11 million.
d. The market clearing price is $10, and the sellers of the firm get $10 million.
e. The market clearing price is $9, and the sellers of the firm get $9 million
During the last few days the Superior Company has been running into problems with its
computer system. The last run of the production cost schedule resulted in the
incomplete listing shown below. From your knowledge of cost theory, fill in the blanks.
