Suppose the growth rate of the firms profit is 7 percent, the interest rate is 10 percent,
and the current profits of the firm are $120 million. What is the value of the firm?
A. $44 million
B. $4,280 million
C. $4,400 million
D. $6,800 million
You are the manager of a firm that produces output in two plants. The demand for your
firms product is P = 96 – 15Q, where Q = Q1 + Q2. The marginal costs associated with
producing in the two plants are MC1 = 6Q1 and MC2 = 3Q2. How much output should
be produced in plant 2 in order to maximize profits?
A. 1
B. 2
C. 3
D. 4
Refer to the normal-form game of price competition shown below.
Firm A must decide whether or not to introduce a new product. If firm A introduces a
new product, firm B must decide whether or not to clone the product. The payoff
structure of the game is depicted in Figure 10-12. The subgame perfect Nash
equilibrium to this game is:
A. Firm A plays “Introduce”; firm B plays “Clone” if firm A plays “Introduce.”
B. Firm A plays “Do Not Introduce”; firm B plays “Clone” if firm A plays “Introduce.”
C. Firm A plays “Introduce”; firm B plays “Do Not Clone” if firm A plays “Introduce.”
D. Firm A plays “Do Not Introduce”; firm B plays “Do Not Clone” if firm A plays
“Introduce.”
Use Figure 13-3 to answer the following questions.
a. Would firm 1s profit increase or decrease if the equilibrium moved from point A to
point B?
b. Would firm 2s profit increase or decrease if the equilibrium moved from point A to
point B?
c. As the manager of firm 1, propose a strategy that would increase both the market
share and the profits of firm 1-that is, a strategy that moves the market equilibrium from
point A to point B.
When analyzing the behavior of oligopolists, which of the following is crucial for the
success of game theoretic analysis?
A. Payoffs do not need to reflect the true payoffs of the oligopolists, they just need to be
greater than or equal to zero.
B. Assume that oligopolists always move simultaneously.
C. Do not construct the payoffs of the oligopolists to be interdependent, as the payoff of
one player usually does not affect the payoff of the other players.
D. Make sure the problem you are considering is of a one-shot or repeated nature, and
you model it accordingly because the order in which players make decisions is
important.
Given the benefit function B(Y) = 200Y – 3Y2, the marginal benefit is:
A. 600Y.
B. 200 – 3Y.
C. 200 – 6Y2.
D. 200 – 6Y.
If the slope of the budget line is steeper than the slope of the indifference curve, and X
is on the horizontal axis:
A. the consumer is willing to give up more of good X to get an additional unit of good
Y than is necessary under the current market prices.
B. MRS > PX/PY.
C. MRS = -PX/PY.
D. the consumer is willing to give up more of good Y to get an additional unit of good
X than is necessary under the current market prices.
Basic principles that comprise good management include:
A. identifying goals and constraints.
B. recognizing the nature and importance of profits.
C. understanding incentives.
D. All of the statements associated with this question are correct.
Refer to the normal-form game of advertising shown below.
Suppose there is a 90 percent chance that the advertising game depicted in Figure 10-17
will end next period. The collusive agreement {(not advertise, not advertise)} is:
A. sustainable since $175 < $138.89.
B. unsustainable since $175 < $138.89.
C. sustainable since $11.11 > $50.
D. unsustainable since $11.11 > $50.
After a price decrease for good X, the new consumer equilibrium level of good X will
be:
A. higher than before the price change.
B. lower than before the price change.
C. indeterminate without more information.
D. the same as before the price change.
A firm has a constant marginal social cost of producing that equals $2Q. What is the
socially efficient level of production for a firm facing an inverse demand P = 60 – 2Q?
A. 10
B. 15
C. 20
D. 25
Which of the following auction examples has a common value information structure?
A. Three firms bid for an oil lease.
B. An auction of a famous painting.
C. A college in need of money decides to name a building on campus after the person
willing to pay the most for the privilege.
D. An auction of a famous painting and a college in need of money decides to name a
building on campus after the person willing to pay the most for the privilege.
You are considering opening your own hamburger restaurant. List the information that
will influence your decision about whether to start your own restaurant or go with a
franchise.
You are an economic advisor to the Treasurer of the United States. Congress is
considering increasing the sales tax on gasoline by $.03 per gallon. Last year motorists
purchased 10 million gallons of gas per month. The demand curve is such that every
$.01 increase in price decreases sales by 100,000 gallons per month. You also know that
for every $.01 increase in price, producers are willing to provide 50,000 more gallons of
gasoline to the market. The legislature has stated that the $.03 tax will increase
government revenues by $300,000 per month and raise the price of gasoline by $.03 per
gallon. Is this correct?
When Olympia and York was in the process of restructuring its loans to avoid
bankruptcy, its lenders asked the firm to disclose full information about its revenues and
costs. Olympia and York, on the other hand, was reluctant to share all of its information
with the lenders. Why?
Would you expect the demand for a monopolistically competitive firms product to be
more or less elastic than that for a monopolists product? Explain.
U.S. Airways experienced huge losses for several years in the 1990s, yet it continued to
operate its fleets. Why didnt U.S. Airways shut down its operations to avoid the losses?