Carefully explain how short-run equilibrium and long-run equilibrium in monopolistic
competition differ. Use graphs to illustrate your answer.
Industry demand is given by P = 200 ‘“ .4Q. The long-run industry costs are such that:
LAC = LMC = $80. Based on this information, which of the following is true?
a) If the market is a pure monopoly, the price of the good will be $140.
b) If the market is perfectly competitive, 300 units of the good will be supplied.
c) If the market is perfectly competitive, the price of the good will be $100.
d) If the market is a pure monopoly, 200 units of the good will be produced.
e) Answers if the market is a pure monopoly, the price of the good will be $140 and if
the market is perfectly competitive, 300 units of the good will be supplied are both
correct.
When buyers hold private values, which of the following conditions leads to identical
expected revenues under the English, sealed-bid, Dutch, and Vickrey auctions?
a) The true value of the good being auctioned is uncertain.
b) Some buyers adopt dominant strategies.
c) All risk-neutral buyers adopt equilibrium bidding strategies.
d) The probability that all competitors will choose the same bidding strategy is zero.
e) There are a large number of bidders with different reservation prices.
Which of the following statements is true?
a) The higher the market concentration, the lower the price in the market.
b) An increase in market concentration will lead to an increase in prices and profits.
c) A decrease in market concentration will lead to a decrease in efficiency.
d) Market concentration and profits are independent of each other.
e) ÂThe larger the concentration ratio, the higher the number of firms in the market.
A firm that produces and sells toys has a factory located in New Town built on a 50,000
square feet plot of land. The following table gives information about the costs of
production and output of the firm.
Table 6-1
Refer to Table 6-1. What is the average variable cost of producing a toy?
a) $4.00
b) $7.40
c) $9.80
d) $8.00
e) $8.60
When a profit-maximizing firm undertakes production in more than one plant, it will
allocate a fixed level of inputs such that _____ is equal across plants.
a) the total product
b) the marginal cost of production
c) the marginal product
d) the average product
e) Answers the marginal product and the average product are both correct.
Figure 8-1
Refer to Figure 8-1. If the regulator institutes marginal-cost pricing in the market, then:
a) MC = AC.
b) P = AC.
c) MR = MC.
d) P = MC > AC.
e) P = MC < AC.
A firm faces the demand curve, P = 80 ‘“ 3Q, and has the cost equation: C = 200 + 20Q,
where P = price, C = total cost, and Q = quantity.
(a) Find the optimal quantity and price for the firm.
(b) Now suppose that the demand for the firm’s product changes to: P = 110 ‘“ 3Q. Find
the new optimal quantity and price. Has there been an increase or a decrease in
demand? Explain.
(a) If a forecaster is analyzing sales of gasoline in a large city during the next two years,
which time-series component is likely to be most important?
(b)What if the forecast is for the next ten years?
A decision-maker should acquire new information:
a) only if it can be acquired at a low cost.
b) only if its expected value is greater than its cost.
c) whenever the information will have an impact on the manager’s decision.
d) only if the information is backed by extensive data.
e) only if the expected value without the information is negative.
Which of the following is the best example of product differentiation?
a) A cookie manufacturer introduces a new variant of cookies for Halloween.
b) A firm that sells printers starts a new manufacturing unit to manufacture printer
cartridges.
c) A firm that produces laptops introduces a new line of tablet personal computers.
d) A leading women’s fashion house introduces a line of men’s clothing.
e) A supermarket introduces a range of pre-packaged salads.
Which of the following is true of an English auction with private values?
a) The bid value can exceed the reservation price of the buyer who wins.
b) A typical buyer shades his/her bid below the true private value.
c) A buyer’s optimal bid strategy depends on the bidding behavior of other buyers.
d) The final price is approximately equal to the second highest buyer value.
e) Answers c and d are both correct.
A regression coefficient measures:
a) the change in the dependent variable due to a unit change in a particular independent
variable.
b) the correlation between the dependent and independent variables.
c) the correlation between the explanatory variables.
d) the intercept of the regression line.
e) the value of the predicted variable when the explanatory variables remain unchanged.
The following figure shows the domestic demand and supply curves for a good. With
free trade, the price of the good in the domestic market is P3. The government
introduces a 5% tariff in the market which raises the domestic price to P2.
Figure 7-1
Refer to Figure 7-1. When trade is not restricted, the level of imports to the domestic
market is _____.
a) CD
b) AE
c) 0
d) BD
e) AC
Everything else remaining unchanged, an increase in the supply of a good will lead to:
a) a fall in price and an increase in consumption of the good.
b) an increase in the cost of production of the good.
c) an increase in the price of the good.
d) a leftward shift of the supply curve.
e) an upward movement along the supply curve.
Rail Tours, Inc. sells packaged tours on rail lines, including gourmet meals and a
reserved bed. The most popular tours are in the autumn, when foliage colors are at their
peak. The overnight package for Saturday and Sunday morning are especially heavily
booked. A market survey firm has just completed a study in which they conclude that if
the package cost is $200 per couple, then Rail Tours can expect to sell 400 spaces on a
typical Saturday. If the price is raised to $225, then unit sales will drop to 390. If the
price is raised further to $250, unit sales drop to 380.
(a) From the data given, write down the demand equation and determine its intercepts.
Are there any precautions needed when operating at the extreme ends of the demand
curve?
(b) The survey firm also reports that if per capita income changes, Rail Tours can
expect a large change in bookings. In particular, if per capita income falls by 1%, then
bookings will tend to fall by about 2%. Are tour packages a normal good? Explain.
(c) If you were responsible for making a forecast for bookings, would you accept this
forecast as is? Or would you want additional information about demand? Explain.
The following table gives the estimated costs and benefits of a proposed public
convention center.
Table 11-1
Refer to Table 11-1. What is the annual net benefit from building the convention center?
a) $140,000
b) $220,000
c) $240,000
d) $290,000
e) $350,000
When each party makes a single offer to divide profits, an equilibrium is reached only
if:
a) the individual profits add up to less than 100% of the total profit.
b) each party gets an equal share.
c) the individual profits add up to more than 100% of the total profit.
d) the sum of the individual profits is equal to the total profit.
e) an increase in share of a party does not reduce the share of the other party.
How would national security be valued in benefit-cost analysis?
a) Public goods like national security are excluded from benefit-cost analysis because
valuation of benefits from such goods is not possible.
b) Goods like national security are valued at $0 since national security is not provided
through private markets so there is no market price as a reference.
c) Goods like national security are valued using surveys and indirect proxies based on
market prices.
d) The value of a public good like national security is the difference between the taxes
paid to the government and the salaries paid to army personnel.
e) The value of national security is equal to the difference between revenues and
expenses in the government’s defense budget.
Suppose that Rick is fortunate enough to receive a gift from a family member of
$5,000, which he may use as he does see fit. Rick is then offered a chance to receive an
additional $2,000 with certainty, or a 50-50 chance of either $5,000 or $0.
(a) Which would Rick accept?
Suppose that the ‘goodness of fit’ of an equation is nearly perfect. What is the value of
the R2statistic in this case?
a) Very close to 0
b) Very close to −1
c) Very close to .5
d) Very close to +1
e) Very close to positive infinity
Ecotopia is a developing country that is facing a growing need for energy to power its
industries and fuel its development. The Ecotopian government’s proposal to set up a
nuclear energy plant has drawn widespread protests from environmental activists across
the country. Since this is an issue that affects a large number of people, how would one
weight the benefits and costs to make a decision that is best for the society as a whole?
How does strategy formulation differ for zero-sum and non-zero-sum games?
Define uncertainty with an example.
Consider the following game: Two players must choose one of three options: rock,
paper, or scissors. The winner is determined as follows: Paper slaps rock (and wins);
rock crushes scissors (and wins); scissors cuts paper (and wins). If both players choose
the same option, it results in a draw. Does the game have a dominant strategy? Does it
have an optimal pure strategy?
In some western states in the U.S., federal water projects sell water to farmers at a
fraction of the total cost to dam and transport the water, and at a fraction of the cost
charged to city dwellers who draw from the same water source. Is this likely to result in
economic efficiency? Explain why or why not.
The following is the distribution of outcomes from two alternative advertising
strategies:
Which strategy is the riskier strategy? Explain.