The manager of a meat-packing plant can use either butchers (labor) or meat saws
(capital) to prepare packages of sirloin steak. Based on estimates provided by an
efficiency expert, the firms production function for sirloin steak is given by Q = K +
La. Graph the isoquant corresponding to 5 units of output.b. What is the marginal
product of capital and labor? Does the answer depend on how much labor and capital
are used?c. If the price of labor is $2 per hour and the rental price of capital is $3 per
hour, how much capital and labor should be used to minimize the cost of producing 5
units of output?
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 lowest variance?
A. A
B. B
C. C
D. D
The Clean Air Act aids new entrants in a regulated industry when demand increases and
provides an incentive for existing firms to invest in new antipollution technology by:
A. restricting pollution permits from being traded.
B. allowing pollution permits to be traded within the industry.
C. allowing pollution permits to be traded across industries.
D. allowing pollution permits to be traded within the industry and allowing pollution
permits to be traded across industries.
Suppose the production function is given by Q = min{K, L}. How much output is
produced when 4 units of labor and 9 units of capital are employed?
A. 0
B. 4
C. 9
D. 13
Which of the following statements concerning monopoly is NOT true?
A. A market may be monopolistic because there are some legal barriers.
B. A monopoly has market power.
C. A monopoly is always undesirable.
D. There is some deadweight loss in a monopolistic market.
Network externalities:
A. may be positive.
B. may be direct.
C. may be indirect.
D. All of the statements associated with this question are correct.
If sugar and Nutrasweet are substitutes, then we can be certain that an increase in the
price of sugar will lead to an increase in the consumption of:
A. Nutrasweet only.
B. sugar only.
C. sugar and Nutrasweet.
D. None of the statements is correct.
New firms have incentive to enter an industry when there is(are):
A. new production technologies.
B. positive economic profits.
C. an abundance of labor.
D. high capital costs.
Suppose that production for good X is characterized by the following production
function, Q = K0.5L0.5, where K is the fixed input in the short run. If the per-unit rental
rate of capital, r, is $15 and the per-unit wage, w, is $25, then the average fixed cost of
using 9 units of capital and 81 units of labor is:
A. $5.
B. $75.
C. $80.
D. There is insufficient information to determine the average fixed costs.
Suppose that production for good X is characterized by the following production
function, Q = K0.5L0.5, where K is the fixed input in the short run. If the per-unit rental
rate of capital, r, is $25 and the per-unit wage, w, is $15, then the average fixed cost of
using 81 units of capital and 9 units of labor is:
A. $5.
B. $75.
C. $80.
D. There is insufficient information to determine the average fixed costs.
If income decreases, then:
A. the budget line remains the same.
B. the vertical intercept of the budget line shifts downward.
C. the horizontal intercept of the budget line shifts upward.
D. the slope of the budget line becomes steeper.
An agent hired by the owner of productive resources to control the production process
is:
A. a laborer.
B. a self-proprietor.
C. an assembly worker.
D. a firm manager.
Which of the following is NOT a solution to the manager-worker principal-agent
problem?
A. Revenue sharing
B. Profit sharing
C. Time clocks and spot checks
D. The threat of a takeover
Two firms compete as a Stackelberg duopoly. The demand they face is P = 100 – 3Q.
The cost function for each firm is C(Q) = 4Q. The profits of the two firms are:
A. L = $384; F = $192.
B. L = $192; F = $91.
C. L = $56; F = -$28.
D. L = $56; F = $28.
What is the marginal benefit associated with producing six units of the control variable,
Q (identify point D in the table)?
A. 600
B. 400
C. 200
D. 100
Consider a Cournot duopoly with the following inverse demand function: P = 100 – 2Q1
– 2Q2. The firms marginal costs are identical and are given by MCi(Qi) = 2Qi. Based on
this information, firm 1 and 2s reaction functions are:
A. r1(Q2) = 24.5 – 0.5Q1 and r2(Q1) = 24.5 – 0.5Q2.
B. r1(Q2) = 24.5 – 0.5Q2 and r2(Q1) = 24.5 – 0.5Q1.
C. Q1 = 49 – 0.5Q2 and Q2 = 49 – 0.5Q1.
D. Q1 = 49 – 0.25Q2 and Q2 = 49 – 0.25Q1.
One way of alleviating opportunism is:
A. spot exchange.
B. dedicated assets.
C. vertical integration.
D. contracts in complex contracting environments.
The average consumer at a firm with market power has an inverse demand function of P
= 10 – Q. The firms cost function is C = 2Q. If the firm engages in two-part pricing,
what is the optimal price to charge a consumer for each unit purchased?
A. $0
B. $1
C. $4
D. None of the answers are correct.
The external marginal cost of producing coal is MCexternal = 8Q while the internal
marginal cost is MC internal = 6Q. The inverse demand for coal is given by P = 180 – 4Q.
If the government taxed output at $2 per unit, what would a competitive industry
produce?
A. 10
B. 20
C. 15
D. 18