The figure below presents information for a one-shot game.
What are the Nash equilibrium strategies for firm A and B respectively?
A. (low price, high price)
B. (high price, low price)
C. (high price, high price)
D. (low price, low price)
Suppose a risk-neutral competitive firm must produce output before the market price is
known. If the uncertain price is given by p = p* + e, where e is a random term with an
expected value of zero, a competitive firm should shut down in the short run if:
A. p* < AVC.
B. p* + e < AFC.
C. p* < AFC.
D. p* < MC.
The marginal product of capital for the Cobb-Douglas production function is given by:
A. bKa Lb-1.
B. aKa-1 L.
C. aKa-1 Lb-1.
D. bKa L.
For the cost function C(Q) = 100 + 2Q + 3Q2, the total variable cost of producing 2
units of output is:
A. 16
B. 12
C. 4
D. None of the answers are correct.
Firms will often implement randomized pricing in an attempt to reduce:
A. only competitor price information.
B. only consumer price information.
C. both customer and competitor information about price.
D. Randomized pricing does not affect information available to consumers or
competitors.
Spot exchange can be inefficient in the presence of:
A. opportunism.
B. a complex contracting environment.
C. spot checks.
D. None of the statements is correct.
Mitchells money income is $150, the price of X is $2, and the price of Y is $2. Given
these prices and income, Mitchell buys 50 units of X and 25 units of Y. Call this
combination of X and Y bundle J. At bundle J, Mitchells MRS is 2. At bundle J, if
Mitchell increases consumption of Y by 1 unit, how many units of X can he give up and
still reach the same level of utility?
A.
B. 1
C. 2
D. 4
Firms 1 and 2 compete in a Cournot duopoly. If firm 2 adopts a strategy that,
inadvertently, lowers firm 1s marginal cost:
A. firm 1s reaction function will shift up.
B. firm 2s reaction function will shift up.
C. firm 2s reaction function will shift down.
D. firm 1s reaction function will shift down.
If the government imposes a price ceiling below the monopolists average cost curve,
then in the long run the regulation makes:
A. consumers better off.
B. consumers worse off.
C. the monopolist better off.
D. None of the statements is correct.
A manager is attempting to assess the probability of a recession ending in the next six
months and its impact on expected profitability. The manager believes there is a 33
percent chance the recession will end in six months and profits will return to $100
million. However, there is a 67 percent chance the recession will not end in six months,
resulting in a $7 million loss. The expected profits over the next six months are:
A. $28.31 million.
B. $33 million.
C. $64.69 million.
D. -$2.31 million.
When the price of one good increases, the associated income effect is represented by a
move from one indifference curve to a:
A. lower indifference curve since real income is now higher.
B. lower indifference curve since real income is now lower.
C. higher indifference curve since real income is now higher.
D. higher indifference curve since real income is now lower.
You are the bargaining coordinator for Sun Car Manufacturers. At present you are
renegotiating the labor contract with the union representative. You are bargaining over
an expected 20 percent increase in earnings over the next three-year contract period.
You are trying to decide whether to offer one-third, one-half, or all of the increase in
earnings to the union. The union rules are such that all contracts must be voted on. The
additional earnings are contingent on getting started on the new contract next week. If
an agreement isnt reached on the first round of negotiations, the firm will go out of
business. The union representative tells you that if you do not give the union all of the
additional profits, the union members will not vote for the agreement.
a. Show the extensive form of this game.
b. What will you offer the union? Why?
Point A in the figure below is:
A. efficient since it produces 20 units of output at the lowest possible cost.
B. efficient since it produces 10 units of output at the lowest possible cost.
C. inefficient since it produces 20 units of output at a cost greater than the minimum
cost.
D. inefficient since it produces 10 units of output at a cost greater than the minimum
cost.
The market demand in a Bertrand duopoly is P = 10 – 3Q, and the marginal costs are $1.
Fixed costs are zero for both firms. Which of the following statement(s) is/are true?
A. P = $1.
B. Profits of firm 1 = profits of firm 2
C. Producers surplus of firm 1 = producers surplus of firm 2
D. All of the statements associated with this question are correct.
Suppose the production function is given by Q = min{K, L}. How much output is
produced when 10 units of labor and 9 units of capital are employed?
A. 0
B. 4
C. 9
D. 13
You are a hotel manager and you are considering four projects that yield different
payoffs, depending upon whether there is an economic boom or a recession. The
potential payoffs and corresponding payoffs are summarized in the following table.
The expected value of project B is:
A. $5.
B. $10.
C. $20.
D. None of the answers are correct.
Suppose that three consumers are in the market for good X. Consumer 1s (inverse)
demand is PX = 40 – 5QX; Consumer 2s (inverse) demand is PX = 10 – QX; and
Consumer 3s (inverse) demand is PX = 30 – 2QX. When PX = $5, the market will
demand:
A. 15.5 units.
B. -12 units.
C. 24.5 units.
D. None of the statements is correct.
Consumer-producer rivalry occurs because of:
A. consumers high valuation and producers low production cost of a good.
B. producers high production cost and consumers low valuation of a good.
C. the competing interests of consumers and producers.
D. None of the statements associated with this question are correct.
In the game shown below, firms 1 and 2 must independently decide whether to charge
high or low prices.
Which of the following are Nash equilibrium payoffs in the one-shot game?
A. (0, 0)
B. (5, -5)
C. (-5, 5)
D. (10, 10)
You are a hotel manager and you are considering four projects that yield different
payoffs, depending upon whether there is an economic boom or a recession. The
potential payoffs and corresponding payoffs are summarized in the following table.
The variance in the returns of project D is:
A. 900
B. 225
C. 0
D. 1,600