Regardless of the economic environment, every firm will maximize profits by operating
at the minimum point of its average total cost curves. Is this statement true or false?
Explain.
If you put $1,000 in a savings account at an interest rate of 10 percent, how much
money will you have in one year?
A. $1,200
B. $909
C. $950
D. $1,100
Eric provides cheese (H) and milk (M) to the market with the following total cost
function: C(H, M) = 10 + 0.4H2 + 0.2M2. The prices of cheese and milk in the market
are $2 and $5 respectively. Assume that the cheese and milk markets are perfectly
competitive. What output of cheese maximizes profits?
A. 2
B. 2.5
C. 5
D. 10
Refer to the following payoff matrix:
If the payoff matrix is a simultaneous-move production game, the Nash equilibrium is
for:
A. both players to produce low output.
B. both players to produce high output.
C. player 1 to produce low output and player 2 to produce high output.
D. player 1 to produce high output and player 2 to produce low output.
Consider the monopoly in the figure below with price regulated at $2 per unit.
Consumer surplus at the regulated price is:
A. $9.
B. $8.
C. $4.50.
D. There is insufficient information to determine consumer surplus.
What is the main role of economic profits?
A. To signal where resources are most highly valued
B. To help firms cover their production costs
C. To help consumers cover their opportunity cost
D. None of the statements associated with this question are correct.
A peach farmer must decide how many peaches to harvest for the world peach fair. He
knows that there is a 25 percent chance that the world price will be $3, a 50 percent
chance that it will be $3.50, and a 25 percent chance that it will be $4. His cost function
is C(Q) = 0.05Q2. The farmers maximum expected profit is:
A. $61.25.
B. 0
C. $122.50.
D. None of the answers are correct.
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.
Which project has the greatest expected value?
A. A
B. B
C. C
D. D
An ad valorem tax shifts the supply curve
A. down by the amount of the tax.
B. up by the amount of the tax.
C. by rotating it counter-clockwise.
D. by rotating it clockwise.
Suppose the supply of wine by domestic firms is QSD = 5 + P and the supply of wine by
foreign firms is QSF = 5 + P. The domestic demand for wine is given by Qd = 40 – P.a.
In the absence of a quota, what is the total supply of wine?b. What are the equilibrium
price and quantity of wine?c. Suppose a quota of 5 units is imposed. What is the total
supply of wine?d. Determine the equilibrium price and quantity of wine in the domestic
market under the quota of 5 units.e. What is the loss in consumer surplus caused by the
quota?
When the government imposes an effective price ceiling on a monopolist, what will be
sure to happen in the short run?
A. The dollar price will increase.
B. The dollar price will fall.
C. There will be a shortage of the product.
D. There will be a surplus of the product.
College Retirement Equities Fund (CREF) is a pension fund that has billions of dollars
invested in the stock market. Fund participants recently voted on a proposal that would
have placed strict limits on the amount of compensation paid to CREF executives. Why
do you think 75 percent of the participants voted against the proposal?
You are the manager of a monopoly that faces an inverse demand curve and
has constant average and marginal costs of $20 per unit. The government is considering
legislation that would regulate your firms price at $20 per unit. What is the maximum
amount your firm should be willing to spend to lobby against the regulation?
You are the manager of Telecall Inc., a small telemarketing company. Your company
pays $10,000 per month for office space. A real estate agent has noticed that you are
only using 75 percent of your available space and tells you that Telecall could add $800
per month to its bottom line by renting out the space it does not use. Telecall has been
asked to do a new telemarketing campaign for a large credit card company, but this
would require it to use the remaining office space. What is the opportunity cost of using
the extra office space to handle the credit card companys promotion?
You are a potential entrant into a market that previously has had entry blocked by the
government. Your market research has estimated that the inverse market demand curve
for this industry is P = 22,500 – 75Q, where . You estimate that if you enter
the market, your own cost function will be Cy(Qy) = 15,300Qy. The government has
invited your firm to enter the industry, but it will require you to pay a one-time license
fee of $100,000. You do not know the cost functions of the firms currently in the
market; however, the price is now $16,000. Last year 87 units were sold by existing
firms. Would you choose to enter this market? Explain.
The Beta Corporation operates in an industry that has a Herfindahl-Hirschman index of
2,800. Beta wants to merge with Alpha Enterprises, but Alpha has argued that the
merger will be blocked by the Justice Department. Are there conditions under which the
Justice Department would allow the merger? Explain.
Recently, the Brazilian Association of Citrus Exports (Abecitrus) announced that orange
production would be down 25 percent this year because of poor weather conditions,
disease, and tree stress resulting from three straight bumper crops. What effect will the
decreased production of oranges have on the demand for tomato juice?