In Gelate, Pennsylvania, the market for compact discs has evolved as follows: There are
two firms that each use a marquee to post the price they charge for compact discs. Each
firm buys CDs from the same supplier at a cost of $5.00 per disc. The inverse market
demand in their area is given by P = 10 – 2Q, where Q is the total output produced by
the two firms.a. Solve for the Bertrand equilibrium price and market output.b. Would
your answer differ if the products were not perfect substitutes? Explain.
You are the manager of a monopoly that faces a demand curve described by P = 63 –
5Q. Your costs are C = 10 + 3Q. The revenue-maximizing output is:
A. 10/63
B. 5
C. 6.3
D. None of the answers is correct.
The optimal amount of studying is determined by comparing:
A. marginal benefit and the total cost of studying.
B. marginal benefit and the total benefit of studying.
C. marginal benefit and the marginal cost of studying.
D. total benefit and the total cost of studying.
Suppose the utility function for a firm manager is U = + bQ, where Q is
output, is profit, and b is a positive constant. How would the firms output
compare with what it would be if the managers objective was to maximize profit?
A. It would be greater than the profit-maximizing output.
B. It would be less than the profit-maximizing output.
C. It would be the same as the profit-maximizing output.
D. None of the statements is correct.
The domestic demand and supply for sugar are Qd = 40,000 – 200P and QSD = 10,000 +
300P. The foreign supply is QSF = 20,000 + 100P. What is the domestic market price of
sugar?
A. 12.3
B. 15.0
C. 16.7
D. 18.3
After a person buys insurance for his car, he will generally not care for his car as much
as he otherwise would. This is an example of:
A. adverse selection.
B. moral hazard.
C. risk aversion.
D. None of the statements is correct.
There are five firms in an industry. You know sales of the four largest firms are
$800,000, $700,000, $440,000, and $230,000. If the C4 ratio is 80 percent, then the HHI
is:
A. 1,810.
B. 2,271.
C. 4,338.
D. 5,191.
You are the manager of a monopoly that faces an inverse demand curve described by P
= 200 – 15Q. Your costs are C = 15 + 20Q. The profit-maximizing price is:
A. $20.
B. $110.
C. $135.
D. $290.
Under the Lanham Act, in concert with the Clayton Act:
A. government will sue a firm for false advertising.
B. rival firms are not eligible to sue another firm for false advertising.
C. people harmed by deceptive advertising can sue the firm and receive compensation.
D. rival firms are not eligible to sue another firm for false advertising and people
harmed by deceptive advertising can sue the firm and receive compensation.
The slope of the budget line represents:
A. the marginal rate of substitution.
B. the market rate of substitution.
C. the budget rate of substitution.
D. the opportunity rate of substitution.
Which of the following strategies will most likely NOT enhance profits in a Bertrand
oligopoly?
A. Two-part pricing
B. Price matching
C. Randomized pricing
D. Brand loyalty
Let the demand function for a product be Q = 50 – 5P. The inverse demand function of
this demand function is:
A. Q = 25 + P
B. P = 10 – 0.2Q
C. P = 10 + 0.2Q
D. P = 50 – 0.2Q