A monopoly produces widgets at a marginal cost of $10 per unit and zero fixed costs. It
faces an inverse demand function given by P = 50 – Q. What are the profits of the
monopoly in equilibrium?
A. $300
B. $400
C. $500
D. $600
Which firm would you expect to make the lowest profits, other things equal?
A. Bertrand oligopolist
B. Cournot oligopolist
C. Sweezy oligopolist
D. Stackelberg leader
Which of the following enhances the ability of waste companies to collude?
A. Decals on waste receptacles
B. High interest rates
C. Differentiated nature of products
D. Large number of firms
Four firms control the market for a particular good, resulting in an HHI of 2,800. Total
industry sales are $750, and it is known that one firm has sales of $300. If each of the
remaining three firms has the same sales, then we can conclude that the remaining three
firms each have a market share of:
A. $205.
B. $100.
C. 0.20.
D. 0.40.
With a linear inverse demand function and the same constant marginal costs for both
firms in a homogeneous product Stackelberg duopoly, which of the following will
result?
A. Profits of leader > Profits of follower.
B. QL = 2QF.
C. PL > PF.
D. Profits of leader > Profits of follower and QL = 2QF.
Refer to the following payoff matrix:
If the payoff matrix is a simultaneous-move production game, the Nash equilibrium is
for:
A. both players to produce low output.
B. both players to produce high output.
C. player 1 to produce low output and player 2 to produce high output.
D. player 1 to produce high output and player 2 to produce low output.
Consider a market consisting of two firms where the inverse demand curve is given by
P = 500 – 2Q1 – 2Q2. Each firm has a marginal cost of $50. Based on this information,
we can conclude that equilibrium price in the different oligopoly models will follow
which of the following orderings?
A. PBertrand < PStackelberg < PCournot < PCollusion
B. PStackelberg < PCollusion < PCournot < PBertrand
C. PCollusion < PCournot < PStackelberg < PBertrand
D. PBertrand < PCournot < PStackelberg < PCollusion
Consider a market characterized by the following inverse demand and supply functions:
PX = 10 – 2QX and PX = 2 + 2QX. Compute the surplus received by consumers and
producers.
A. $24 and $24, respectively.
B. $4 and $4, respectively.
C. $2 and $6, respectively.
D. $6 and $2, respectively.
If a price ceiling on a monopolist results in NO shortage:
A. the full economic price is lower than the one set by the ceiling.
B. rent seeking must be effective.
C. the firm is on the verge of leaving the market.
D. the firm must be making zero economic profits.
The presence of government in the market leads to:
A. benefits at no cost to society.
B. rent seeking.
C. externalities.
D. adverse selection.
Total benefits in the table are:
A. increasing at a decreasing rate.
B. increasing at a constant rate.
C. decreasing at a constant rate.
D. decreasing at an increasing rate.
A linear demand function exhibits:
A. constant demand elasticity.
B. more elastic demand as output increases.
C. less elastic demand as output increases.
D. insufficient information to determine.
Suppose market demand and supply are given by Qd = 100 – 2P and QS = 5 + 3P. If a
price ceiling of $15 is imposed,
A. there will be a surplus of 40 units.
B. there will be neither a surplus or shortage.
C. there will be a shortage of 40 units.
D. there will be a shortage of 20 units.
You are an efficiency expert hired by a manufacturing firm that uses K and L as inputs.
The firm produces and sells a given output. If w = $40, r = $100, MPL = 4, and MPK =
40 the firm:
A. is cost minimizing.
B. should use less L and more K to cost minimize.
C. should use more K and less L to cost minimize.
D. is profit maximizing but not cost minimizing.
The second-order condition for a monopoly maximizing its profit is:
A. (d2R(Q)/dQ2) – (d2C(Q)/dQ2) < 0.
B. (d2R(Q)/dQ2) – (d2C(Q)/dQ2) = 0.
C. (dMR/dQ) < (dMC/dQ).
D. (d2R(Q)/dQ2) – (d2C(Q)/dQ2) < 0 or (dMR/dQ) < (dMC/dQ).
If the interest rate is 10 percent and cash flows are $1,000 at the end of year one and
$2,000 at the end of year two, then the present value of these cash flows is:
A. $2,562.
B. $3,200.
C. $439.
D. $3,000.