Economic profits are:
A. total revenue minus total cost.
B. marginal revenue minus marginal cost.
C. total revenue minus total opportunity cost.
D. total profits of the economy as a whole.
Which of the following is a strategy that can be used only by vertically integrated
firms?
A. Vertical foreclosure
B. Predatory pricing
C. Limit pricing
D. Penetration pricing
You are the manager of a firm that produces output in two plants. The demand for your
firms product is P = 120 – 6Q, where Q = Q1 + Q2. The marginal costs associated with
producing in the two plants are MC1 = 2Q1 and MC2 = 4Q2. What price should be
charged in order to maximize revenues?
A. 6
B. 2
C. 24
D. 60
If an excise tax is imposed on a good, then the supply curve
A. shifts up by the amount of the demand elasticity.
B. does not change.
C. shifts down by the amount of the tax.
D. shifts up by the amount of the tax.
John is a seller in an affiliated-values auction environment where bidders are risk
neutral. Which auction yields John the greatest expected revenue?
A. English
B. First price
C. Second price
D. All of the choices are revenue equivalent.
At the equilibrium consumption bundle, which of the following holds?
A. MRSX,Y = PX/PY.
B. MRSX,Y = -PX/PY.
C. MRSX,Y = -PY/PX.
D. MRSX,Y = PY/PX.
In order to maximize net benefits, the managerial control variable should be used up to
the point where:
A. total costs equal total benefits.
B. average costs equal marginal benefits.
C. average benefits equal marginal costs.
D. net marginal benefits equal zero.
An electronics company takes over one of its original suppliers in a merger. This is an
example of:
A. vertical integration.
B. horizontal integration.
C. cointegration.
D. conglomerate integration.
A monopoly has two production plants with cost functions C1 = 40 + 0.2Q1
2 and C2 =
50 + 0.1Q2
2. The demand it faces is Q = 480 – 5P. What is the profit-maximizing price?
A. $40 per unit
B. $45 per unit
C. $50 per unit
D. $60 per unit
An industry consists of five firms with annual sales of $130, $50, $40, $10 and $60.
What is the industrys HHI?
A. 2,937
B. 5,654
C. 10,000
D. There is not sufficient information to compute the industry HHI.
During a sales meeting, one of the regional managers of Toga Industries remarked that
structural variables such as advertising and R&D activities by rival firms were likely to
hamper the firms sales over the next year. The manager received numerous stares after
making the remarks. Why?
Pic Industries produces plastic toothpicks that it sells to distributors in the Southwest.
During the early 1990s, the price of the plastic it uses to produce toothpicks fell by 46
percent, due to a local glut of recycled plastic containers. Assuming that the market for
plastic toothpicks most closely resembles that of perfect competition and that other
firms in the industry do not experience similar cost savings in the short run, what
impact would this have on the profit-maximizing output, price, and profits of Pic
Industries?
It is sometimes said that a manager of a monopoly can charge any price and customers
will still have to buy the product. Do you agree or disagree? Why?
Explain why a used car that is only six months old and has been driven only 5,000
miles typically sells for 20 percent less than a new car with the same options.
Suppose a typical consumers inverse demand function for bottled water at a resort area
where one firm owns all the rights to a local spring is given by P = 15 – 3Q. The
marginal cost for gathering and bottling the water is $3 per gallon. Find the optimal
number of bottles to package together for sale and the profit-maximizing price to charge
for the package. Show the solution graphically.
