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. Which of the following is the
marginal revenue function for the firm?
A. MR = 60 – 2Q
B. MR = 50 – Q
C. MR = 100 – Q
D. MR = 50 – 2Q
A potential problem with piece-rate plans is that:
A. workers will produce a large quantity.
B. workers have no incentive to work hard.
C. it is difficult for managers to control.
D. workers may stress quantity instead of quality.
Cinemas sometimes give senior citizens discounts. What is the possible privately
motivated purpose for them to do so?
A. Purely because entrepreneurs are benevolent.
B. Senior citizens have a more elastic demand for movies than ordinary citizens.
C. Senior citizens lack recreational activities.
D. None of the statements is correct.
Suppose each of the 50 states had only one gasoline station, and all stations were the
same size. The four-firm concentration ratio a consumer would experience is:
A. 1.0.
B. 0.08.
C. 0.32.
D. 0.16.
Suppose a firm manager has a base salary of $175,000 and earns 0.5 percent of all
profits. Determine the manager’s income if revenues are $10,000,000 and profits are
$5,000,000.
A. $150,000
B. $200,000
C. $225,000
D. $300,000
Which of the following industry structures would you expect to have the lowest Lerner
index score?
A. Perfect competition
B. Monopoly
C. Monopolistic competition
D. Oligopoly
Suppose the market for good X has a four-firm concentration ratio of 0.50.
Furthermore, assume that total sales in the industry are $1.2 million. Based on this
information, we know that sales for the largest four firms in the industry equal (in
aggregate):
A. $600,000.
B. $60,000.
C. $2,400,000.
D. $240,000.
A risk-neutral, price-taking firm must set output before it knows the market price. There
is a 50 percent chance the market demand curve will be Qd = 10 – 2P and a 50 percent
chance it will be Qd = 20 – 2P. The market supply curve is estimated to be QS = 2 + P.a.
Calculate the expected (mean) market price.b. Calculate the variance of the market
price.c. If the firm’s marginal cost is given by MC = 0.01 + 5Q, what level of output
maximizes expected profits?
Consider a monopoly facing a demand structure where the price elasticity of demand is
-1.25. The optimal markup factor is:
A. 5 times marginal revenue.
B. 0.2 times marginal revenue.
C. 5 times marginal cost.
D. 0.2 times marginal cost.
Property owners move scarce resources toward the production of goods most valued by
society because:
A. government controls the allocation of resources.
B. consumers demand inexpensive goods and services.
C. managers are solely pursuing the interests of society.
D. firms attempt to maximize profits.
Given a linear supply function of the form QX
S = 3,000 + 3PX – 2P – Pw, find the
inverse linear supply function assuming P = $1,000 and Pw = $100.
A. QX
S = 900 + 3PX.
B. PX = 300 + 0.3333QX.
C. PX = -300 + 0.3333QX.
D. PX = 2,900 + 3PX.
Which of the following market structures would you expect to yield the greatest product
variety?
A. Monopoly
B. Monopolistic competition
C. Bertrand oligopoly
D. Perfect competition
Suppose the interest rate is 6 percent, the expected growth rate of the firm is 3 percent,
and the firm is expected to continue forever. If current profits are $1,200, what is the
value of the firm?
A. $41,200
B. $40,000
C. $36,500
D. $42,400
Suppose that the inverse demand for a downstream firm is P = 150 – Q. Its upstream
division produces a critical input with costs of CU(Qd) = 5(Qd)2. The downstream firm’s
cost is Cd(Q) = 10Q. When there is no external market for the downstream firm’s
critical input, the marginal revenue for the downstream firm is:
A. MRd(Q) = 150 – 2Q.
B. MRd(Q) = 150 – Q.
C. MRd(Q) = 140 – 2Q.
D. MRd(Q) = 140 – Q.
A Herfindahl index of 10,000 suggests:
A. perfect competition.
B. monopolistic competition.
C. monopoly.
D. oligopoly.