Suppose market demand and supply are given by Qd = 100 – 2P and QS = 5 + 3P. If the
government sets a price floor of $30 and agrees to purchase all surplus at $30 per unit,
the total cost to the government will be:
A. $1,650.
B. $1,375.
C. $900.
D. $1,125.
The production function is Q = K.6 L.4. The marginal rate of technical substitution is:
A. 2/3 K-1 L
B. K-1 L-1
C. 2/3 K L-1
D. K.4 L-.6
The optimal bid in a first-price, sealed-bid auction with independent private values is to
bid:
A. the true value of the item.
B. more than the true value of the item.
C. less than the true value of the item.
D. the true value of the item and more than the true value of the item, depending upon
whether value estimates are affiliated.
An apple farmer must decide how many apples to harvest for the world apple market.
He knows that there is a one-third probability that the world price will be $1, a
one-third probability that it will be $1.50, and a one-third probability that it will be $2.
His cost function is C(Q) = 0.01Q2. The expected profit-maximizing quantity is:
A. 0
B. 90
C. 75
D. 150
You are the manager of a monopoly that faces a demand curve described by P = 85 –
5Q. Your costs are C = 20 + 5Q. The profit-maximizing output for your firm is:
A. 6
B. 5
C. 7
D. 8
Long-term contracts:
A. increase transaction costs and increase opportunism.
B. increase transaction costs.
C. can reduce opportunistic behavior.
D. reduce transaction costs and increase flexibility.
Firms 1 and 2 compete in a Cournot duopoly. If firm 2 adopts a strategy that raises firm
1s marginal cost:
A. firm 1 will reduce its output.
B. firm 2 will gain market share.
C. firm 2 will enjoy higher profits.
D. All of the statements associated with this question are correct.
Penetration pricing is a way to:
A. raise a rivals marginal cost.
B. lower a rivals input costs.
C. increase a rivals fixed costs.
D. gain a critical mass of customers.
What is the total benefit associated with producing four units of the control variable, Q
(identify point A in the table)?
A. 600
B. 2,600
C. 3,000
D. 3,400
Changes in the price of a good lead to:
A. changes in the quantity supplied of the good.
B. changes in supply.
C. changes in demand.
D. no effects in quantity supplied or demanded.
An industry consists of six firms with annual sales of $300, $500, $400, $700, $600,
and $600. According to the general rule of thumb, the HHI of this industry implies that
the market structure is:
A. competitive.
B. noncompetitive.
C. noninclusive.
D. monopoly.