Externalities between two firms can be “internalized” if:
I. The two firms merge.
II. Bargaining costs are zero.
III. The externalities affect each firm equally.
IV. Marginal costs for both firms are constant.
Which statement(s) correctly complete the sentence?
a. Only II.
b. All except III.
c. I and II, but not III and IV.
d. I and IV, but not II and III.
The “deadweight loss” from a monopoly refers to
a. the portion of a monopolist’s profits that are above the competitive profit level.
b. the increase in price due to the monopolization of a market.
c. the inefficient use of factors of production by a monopoly.
d. the loss of consumer surplus due to the monopolization of a market that is not
transferred to another economic actor.
If a firm’s marginal revenue is below its marginal cost, an increase in production will
usually
a. increase profits.
b. leave profits unchanged.
c. decrease profits.
d. increase marginal revenue.
The production function
a. exhibits constant returns to scale and constant marginal productivities for k and l.
b. exhibits diminishing returns to scale and diminishing marginal productivities for k
and l.
c. exhibits constant returns to scale and diminishing marginal productivities for k and l.
d. exhibits diminishing returns to scale and constant marginal productivities for k and l.
A production function may exhibit
a. constant returns to scale and diminishing marginal productivities to all inputs.
b. constant returns to scale and diminishing marginal productivities to all but one input,
but at least one input must have a constant marginal productivity.
c. constant returns to scale and diminishing marginal productivity to at most one input.
d. constant returns to scale and diminishing marginal productivities for no inputs.
Rate of return refers to
a. the increase in future output made possible by investing one unit of current output in
capital accumulation.
b. the dividend payments made on corporate issued stock.
c. the increase in current output made possible by investing in units of future output in
capital accumulation.
d. the rate at which capital depreciates.
For a constant returns to scale production function
a. marginal costs are constant but the average cost curve has a Ushape.
b. both average and marginal costs are constant.
c. marginal cost has a Ushape; average costs are constant.
d. both average and marginal cost curves are Ushaped.
All monopolies exist because of
a. firms’ desire to maximize profits.
b. failure of antitrust laws.
c. barriers to entry.
d. natural selection.
Per-unit transaction costs
a. may cause the demand and supply curves to shift either inward or outward depending
on the value obtained from transaction agents.
b. refer only to the commission paid to a third-party for each transaction made.
c. are absorbed by the party seeking the transaction.
d. have the same effect on behavior as do lump-sum transaction costs; the difference in
terminology is purely definitional.
The expansion path for a homothetic production function
a. is a straight line through the origin with a slope greater than one if w > v.
b. is a straight line through the origin with a slope less than one if w < v .
c. is a straight line through the origin though its slope cannot be determined by w and v
alone.
d. has a positive slope but is not necessarily a straight line.
If the interest rate rises, the present discounted value of a stream of payments owed in
the future
a. rises.
b. stays constant.
c. falls.
d. may rise or fall depending on the shape of the stream.
Expected value is defined as
a. the profit on a fair bet.
b. the most likely outcome of a given experiment.
c. the outcome that will occur on average for a given experiment.
d. the relative frequency with which an event will occur.
A profit-maximizing firm’s demand function for labor can be found by differentiating
a. the profit function with respect to w.
b. the cost function with respect to w.
c. the supply function with respect to w.
d. the production function with respect to w.
In the opening of free trade, if world prices of a good are less than domestic prices of
that same good,
a. domestic consumers will experience a loss of surplus.
b. domestic prices will drop to the world price level.
c. all domestic producers of that good will try to find another market because they can’t
compete with foreign producers.
d. domestic producers will increase the quantity supplied in order to crowd out the
foreign-produced good.
An option may add value to a transaction because:
a. interest charges are reduced.
b. the price of the good is reduced.
c. additional information may become available.
d. options provide buyers with monopsony power.
The size of the reduction in quantity of labor hired by a firm due to an increase in the
wage rate depends upon all of the following except
a. what percentage of total costs are made up of labor costs.
b. how much quantity demanded in the output market will be reduced by a higher price.
c. the capital to labor ratio before the wage increase.
d. how easily other inputs can be substituted for labor.
An individual whose utility function is given by
U(x, y) = 4x + 2y
With this utility function, the bundle (3,2) provides the same utility as the bundle
a. (2, 3).
b. (2, 4).
c. (2, 5).
d. (3, 3).
Unlike an owner, a manager may be more concerned with than with . Which pair of
words best completes this sentence?
a. profits; personal benefits.
b. personal benefits; profits.
c. profits; working conditions.
d. cost; revenue.
If utility is given by and x = 2, y = 3, I = 50, this person will choose
a. (10, 10).
b. (15, 6.67).
c. (25, 0).
d. (0, 50/3).
Nash equilibria
a. always exist in pure strategies.
b. generally come in even numbers.
c. always exist in finite games.
d. All of these answers are correct.
If an individual’s supply of labor curve is positively sloped throughout, then
a. the substitution effect always dominates the income effect.
b. the income effect always dominates the substitution effect.
c. the substitution effect dominates at low real wage levels and the income effect
dominates at high real wage levels.
d. the income effect dominates at low real wage levels and the substitution effect
dominates at high real wage levels.
If a rise in the price x causes less y to be demanded,
a. x and y are gross complements.
b. x and y are gross substitutes.
c. x and y are net complements.
d. x and y are net substitutes.
The opportunity cost of producing a bicycle refers to the
a. outofpocket payments made to produce the bicycle.
b. value of the goods that were given up to produce the bicycle.
c. bicycle’s retail price.
d. marginal cost of the last bicycle produced.
Consider the production function
.
For this function to have diminishing marginal productivities and increasing returns to
scale, it must be the case that
a. α > 1 αβ < 1.
b. α > 1 αβ > 1.
c. α < 1 αβ < 1.
d. α < 1 αβ > 1.
If bundles of goods Aand Blie on the same indifference curve, one can assume the
individual
a. prefers bundle Ato bundle B.
b. prefers bundle Bto bundle A.
c. enjoys bundle Aand Bequally.
d. bundle Acontains the same goods as bundle B.
In a perfectly competitive market a firm’s rental rate for a machine (v) will be given by:
v = p(r + d) where is the prevailing rate of interest and d is the depreciation rate. In this
formula represents
a. the present market price of the machine.
b. the initial purchase price of the machine (assuming this differs from its present
market price.
c. the price of the firm’s product.
d. the depreciated value of the machine.
In the case of a negative externality, the social marginal cost will
a. exceed the private marginal cost.
b. be equal to private marginal cost.
c. fall short of private marginal cost.
d. bear no significant relation to private marginal cost.
A rise in interest rates leads to
a. an increase in the PDV of profits from owning a machine.
b. a decrease in the PDV of profits from owning a machine.
c. offsetting the effects on the costs and benefits of owning a machine.
d. no effect on either the costs or benefits of owning a machine.
When an individual’s wage rises, the substitution effect tends to
a. increase hours worked.
b. decrease hours worked.
c. leave hours worked unchanged.
d. it is impossible to predict what will happen to hours worked.
Under a perfectly competitive price system
a. an equitable allocation of the available resources will always result.
b. there is no opportunity for individuals to trade amongst themselves.
c. there is no reason to expect that voluntary trading will result in an equitable
allocation of the available resources.
d. none of these is correct.
The marginal physical productivity of labor is
a. the slope of the total output curve at the relevant point.
b. the negative of the slope of the total output curve at the relevant point.
c. the slope of the line connecting the origin with the relevant point on the total output
curve.
d. the negative of the slope of the line connecting the origin with the relevant point on
the total output curve.
Risk-averse individuals will diversify their investments because this will
a. increase their expected returns.
b. provide them with some much-needed variety.
c. reduce the variability of their returns.
d. reduce their transactions costs.