Which of the following is true under monopolistic competition in the short run?
A. Profits are always zero.
B. P > MC.
C. P = MR.
D. All of the choices are true in monopolistic competition.
You are the manager of a 24-hour copy shop that is closed on Sundays. You lease a
building for $2,000 per month and hire three employees who each work eight-hour
shifts at a wage of $10.00 per hour. The markets for labor and office space are tight in
your area. To acquire the lease and hire workers, you signed contracts requiring you to
give 12 months advance notice before abandoning your lease or laying off workers (if
you fail to comply, the contracts force you to fully compensate your landlord and
workers for the income they otherwise would have earned over the 12-month period).
Paper costs you $.02 per sheet. You currently sell 500,000 color copies per year at a
price of $.10 per copy and 1,000,000 black-and-white copies per year at a price of $.05
per copy. Because of your high volume, each of your two copiers has a useful life of
only one year. You just received a call from an employee who informs you that your
color copier just broke down. The good news is that your black-and-white copier is
brand-new; the bad news is that a new color copier will cost $30,000. Should you
purchase a new color copier? Assume that customers who want color copies are
unwilling to substitute black-and-white copies.
According to the Department of Justice’s Horizontal Merger Guidelines, a post-merger
HHI _______ is considered _____________________.
A. below 1,000; low resulting in a high likelihood that a merger will be permitted
B. above 1,800; low resulting in a high likelihood that a merger will be permitted
C. below 1,000; high resulting in high likelihood that a merger will be blocked
D. below 1,800; high resulting in high likelihood that a merger will be blocked
Good X is a normal good if an increase in income leads to
A. an increase in the supply for good X.
B. an increase in the demand for good X.
C. a decrease in the demand for good X.
D. a decrease in the supply for good X.
Which of the following are important determinants of collusion in pricing games?
A. The number of firms
B. Firm size
C. History
D. All of the statements associated with this question are correct.
According to the U.S. Department of Justice Merger Guidelines, a
Herfindahl-Hirschman index (HHI) above _________ is associated with a highly
concentrated industry. Therefore, if the automobile industry had an HHI of 2,200, then a
vertical merger between GM and one of its suppliers likely would be:
A. 1,300 and rejected since the HHI is above the acceptable threshold
B. 2,400 and approved since the HHI is below the acceptable threshold
C. 1,800 and rejected since the HHI is above the acceptable threshold
D. None of the answers are correct
Suppose the production function is given by Q = 3K + 4L. What is the marginal product
of capital when 10 units of capital and 10 units of labor are employed?
A. 3
B. 4
C. 11
D. 45
Suppose a new contracting environment that requires greater specialized investments is
considered. This new contract will result in:
A. an increase in the marginal benefit and a longer optimal contract.
B. an increase in the marginal benefit and a shorter optimal contract.
C. a decrease in the marginal benefit and a longer optimal contract.
D. a decrease in the marginal benefit and a shorter optimal contract.
You have just been hired as manager of a new health spa in Retirement Village, Florida.
The owner has commissioned a market study that estimates the average customer’s
monthly demand curve for visiting the health spa to be Qd = 50 – 0.25P. The cost of
operating is C(Q) = 3Q, where Q is the number of visits. The owner has been charging a
$20 per month membership fee and a $5 per visit fee. Part of your salary is 10 percent
of the monthly profits. Suggest a pricing strategy that will increase your salary.
The short run is defined as the time frame:
A. in which there are no fixed factors of production.
B. in which there are fixed factors of production.
C. less than one year.
D. less than three years.
Because of producer-producer rivalry, the price will tend to:
A. be driven to a lower price.
B. rise up to the maximum price the consumers are willing and able to pay.
C. be the same as the competitive price.
D. be the same as the monopoly price.
There is a market supply curve in a:
A. perfectly competitive market.
B. monopolistically competitive market.
C. monopolistic market.
D. perfectly competitive market and monopolistically competitive market.
To prevent air pollution and breach of contract, which tools does the government use?
A. Penalties for both
B. Permits for both
C. Permits for pollution and penalties for breach
D. Penalties for pollution and permits for breach
Suppose that you are a manager. You are considering whether or not to monitor
employees with the payoffs in the normal-form game shown below.
Management and a labor union are bargaining over how much of a $50 surplus to give
to the union. The $50 is divisible up to one cent. The players have one shot to reach an
agreement. Management has the ability to announce what it wants first, and then the
labor union can accept or reject the offer. Both players get zero if the total amounts
asked for exceed $50. Which of the following is true?
A. There are multiple Nash equilibria.
B. ($25, $25) is a Nash equilibrium.
C. A Nash equilibrium is also a perfect equilibrium.
D. There are multiple Nash equilibria, and ($25, $25) is a Nash equilibrium.
Second-degree price discrimination:
A. is the practice of posting a discrete schedule of declining prices for different ranges
of quantities.
B. eliminates the problem of double marginalization.
C. results in transfer pricing.
D. None of the answers are correct.
Consumers adjust their purchasing behavior so that:
A. they purchase as many scarce resources as possible.
B. marginal rate of substitution is maximized.
C. marginal rate of substitution is minimized.
D. the ratio of prices they pay equals their marginal rate of substitution.