Consumer-consumer rivalry:
A. increases the negotiating power of consumers in the marketplace.
B. reduces the negotiating power of producers in the marketplace.
C. reduces the negotiating power of consumers in the marketplace.
D. increases the likelihood of government intervention in the marketplace.
To maximize profits, a firm should continue to increase production of a good until:
A. total revenue equals total cost.
B. profits are zero.
C. marginal revenue equals marginal cost.
D. average cost equals average revenue.
The maximum legal price that can be charged in a market is:
A. a price floor.
B. an ad valorem tax.
C. the market equilibrium price.
D. a price ceiling.
Costs that are forever lost after they have been paid are:
A. production costs.
B. fixed costs.
C. sunk costs.
D. variable costs.
You are the manager of a firm that produces output in two plants. The demand for your
firm’s product is P = 20 – Q, where Q = Q1 + Q2. The marginal costs associated with
producing in the two plants are MC1 = 2 and MC2 = 2Q2. How much output should be
produced in plant 1 in order to maximize profits?
A. 1
B. 4
C. 8
D. 11
There are many different models of oligopoly because:
A. beliefs are not incorporated in oligopolistic competition.
B. firms do not maximize profits in oligopolistic competition.
C. oligopoly is the most complicated type of market structure.
D. beliefs are not incorporated in oligopolistic competition and oligopoly is the most
complicated type of market structure.
The behavior of bidders in an auction is an example of:
A. consumer-consumer rivalry.
B. consumer-producer rivalry.
C. producer-producer rivalry.
D. None of the statements associated with this question are correct.
Which of the following is a means of eliminating the undesirable effects of adverse
selection?
A. A long-term relationship
B. Writing a contract to guarantee the quality
C. Both a long-term relationship and writing a contract to guarantee the quality
D. None of the statements is correct.
Consider a market characterized by the following inverse demand and supply functions:
PX = 10 – 2QX and PX = 2 + 2QX. Compute the equilibrium price and quantity in this
market.
A. $24 and 24 units, respectively.
B. $4 and 4 units, respectively.
C. $2 and 6 units, respectively.
D. $6 and 2 units, respectively.
If steak is a normal good, what do you suppose would happen to price and quantity
during an economic recession?
A. Price would increase and quantity decrease.
B. Price and quantity would both increase.
C. Price and quantity would both decrease.
D. Price would decrease and quantity increase.
A risk-averse individual would:
A. prefer $5 with certainty to a risky prospect with the expected value of $5.
B. prefer a risky prospect with an expected value of $5 to a certain amount of $5.
C. be indifferent between a risky prospect with an expect value of $5 and a certain
amount of $5.
D. prefer $5 with certainty to a risky prospect with the expected value of $50.
The average consumer at a firm with market power has an inverse demand function of P
= 10 – Q. The firm’s cost function is C = 2Q. If the firm engages in optimal two-part
pricing, it will earn profits of:
A. $2.
B. $32.
C. $64.
D. None of the answers are correct.
In order for spot checks to be effective, they must be:
A. random in nature.
B. performed at regular intervals.
C. partaken twice daily.
D. rarely if ever done.
Suppose that the inverse demand for a downstream firm is P = -82 – 2Q. Its upstream
division produces a critical input with costs of CU(Qd) = 3(Qd)2. The downstream firm’s
cost is Cd(Q) = 2Q. When there is no external market for the downstream firm’s critical
input, the downstream firm should produce:
A. 8 units.
B. 10 units.
C. 12 units.
D. 14 units.