The profits of the leader in a Stackelberg duopoly:
A. are greater than those of the follower.
B. equal those of the follower.
C. are less than those of the follower.
D. are greater than those of a Sweezy oligopolist.
Suppose both supply and demand decrease. What effect will this have on price?
A. It will fall.
B. It will rise.
C. It may rise or fall.
D. It will remain the same.
Maximizing the present value of all future profits is the same as maximizing current
profits if the growth rate in profits is:
A. greater than the interest rate.
B. less than the interest rate.
C. equal to the interest rate.
D. not constant over time.
An electronics company purchases a food company. This is an example of:
A. vertical integration.
B. horizontal integration.
C. cointegration.
D. conglomerate integration.
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 standard deviation of profits over the next six months
is:
A. $50.31 million.
B. $57.40 million.
C. $28.31 million.
D. $0 million.
If the last unit of input increases total product, we know that the marginal product is:
A. positive.
B. negative.
C. zero.
D. indeterminate.
Suppose that consumers preferences are well behaved in that properties 4-1 to 4-4 are
satisfied. Furthermore, assume goods X and Y are normal goods and the price of good
X decreases. Then the substitution effect will lead consumers to consume:
A. more of good X and more of good Y.
B. less of good X and more of good Y.
C. less of good X and less of good Y.
D. more of good X and less of good Y.
The market supply curve indicates the total quantity all producers in a competitive
market would produce at each price,
A. holding only input price fixed.
B. allowing input price to vary.
C. holding all supply shifters fixed.
D. allowing all supply shifters to vary.
Which of the following is NOT a quantity-setting oligopoly model?
A. Stackelberg
B. Cournot
C. Bertrand
D. All of the choices are quantity-setting models.
The Bertrand theory of oligopoly assumes:
A. firms set prices.
B. rivals will increase their output whenever a firm increases its output.
C. rivals will decrease output whenever a firm decreases its output.
D. rivals will follow the learning curve.
Which of the following is NOT an important determinant of collusion in pricing games?
A. The number of firms in the industry.
B. The punishment mechanisms that are in place.
C. The history of the particular market.
D. None of the answers is correct.
Smyth Industries operated as a monopolist for the past several years, earning annual
profits amounting to $50 million, which it could have maintained if Jones Incorporated
did not enter the market. The result of this increased competition is lower prices and
lower profits; Smyth Industries now earns $10 million annually. The managers of
Smyth Industries are trying to devise a plan to drive Jones Incorporated out of the
market so Smyth can regain its monopoly position (and profit). One of Smyths
managers suggests pricing its product 50 percent below marginal cost for exactly one
year. The estimated impact of such a move is a loss of $1 billion. Ignoring antitrust
concerns, answer the following question: If Smyth Industries engages in predatory
pricing by slashing its price 50 percent below marginal cost, the present value of current
and future profits is:
A. -$100 million.
B. $0.
C. $100 million.
D. $200 million.
Suppose the cost function is C(Q) = 50 + Q – 10Q2 + 2Q3. What are the fixed costs?
A. $50
B. $10
C. $1
D. $2
Which of the following pricing strategies does NOT usually enhance the profits of firms
with market power?
A. Marginal cost pricing
B. Price discrimination
C. Block pricing
D. Commodity bundling