A decrease in firm 1’s marginal cost will cause:
A. a downward shift in firm 1’s reaction function, resulting in a new Cournot
equilibrium where firm 1 is producing a lower quantity and firm 2 is producing a higher
quantity.
B. an upward shift in firm 1’s reaction function, resulting in a new Cournot equilibrium
where firm 1 is producing a higher quantity and firm 2 is producing a lower quantity.
C. a downward shift in firm 2’s reaction function, resulting in a new Cournot
equilibrium where firm 1 is producing a higher quantity and firm 2 is producing a lower
quantity.
D. an upward shift in firm 2’s reaction function, resulting in a new Cournot equilibrium
where firm 1 is producing a lower quantity and firm 2 is producing a higher quantity.
According to the “feedback critique”:
A. the conduct of firms in an industry may affect the firm’s performance.
B. the conduct of firms in an industry may affect the market structure.
C. market structure may affect the firm’s conduct.
D. All of the statements associated with this question are correct.
In the short run, the marginal cost curve crosses the average total cost curve at:
A. a point just below the average fixed cost curve.
B. the minimum point of the average total cost curve.
C. the maximum point of the average total cost curve.
D. the point where the average total cost curve and average variable cost curve
intersect.
Which of the following is the main goal of a continuing company?
A. To maximize the value of the firm
B. To minimize costs
C. To improve product quality
D. To enhance service to its customers
Refer to the normal-form game of price competition shown below.
For what values of x is strategy B strictly dominant for firm A?
A. All x > 450
B. All x < 450
C. x = 450
D. x < 50
Given a linear supply function of the form QX
S = -10 + 5PX, find the inverse linear
supply function.
A. PX = 2 + 0.2QX.
B. PX = -10 + 0.2QX.
C. PX = -10 + 5QX.
D. PX = 2 + 5QX.
The average product of capital of producing 2,991 units of output (find point B) in the
table below is:
A. 11.1
B. 21.9
C. 37
D. 73
Ed just finished an empirical study of oligopoly. He found the following result: “In the
examined industry, a firm’s demand curve is such that other firms match price increases
but do not match price reductions.” What kind of oligopoly is the examined industry?
A. Sweezy model
B. Cournot model
C. Stackelberg model
D. None of the answers is correct.
Which of the following is an outside incentive that forces managers to put forth
maximal effort?
A. Incentive contracts
B. Performance bonuses
C. Flat fees
D. Reputation
In a Sweezy Oligopoly, a decrease in a firm’s marginal cost generally leads to:
A. reduced output and a higher price.
B. increased output and a lower price.
C. higher output and a higher price.
D. None of the answers is correct.
Which of the following statements is true?
A. The more elastic the demand, the higher the profit-maximizing markup.
B. The more elastic the demand, the lower the profit-maximizing markup.
C. The higher the marginal cost, the lower the profit-maximizing price.
D. The higher the average cost, the lower the profit-maximizing price.
Refer to the normal-form game of advertising shown below.
Suppose there is a 20 percent chance that the advertising game depicted in Figure 10-17
will end next period. The collusive agreement {(not advertise, not advertise)} is:
A. sustainable since $175 < $625.
B. unsustainable since $175 < $625.
C. sustainable since $10 > $50.
D. unsustainable since $10 > $50.
A risk-neutral monopoly must set output before it knows the market price. There is a 50
percent chance the firm’s demand curve will be P = 20 – Q and a 50 percent chance it
will be P = 40 – Q. The marginal cost of the firm is MC = Q. The expected
profit-maximizing quantity is:
A. 5
B. 10
C. 15
D. 20
If the annual interest rate is 0 percent, the present value of receiving $1.10 in the next
year is:
A. $1.00.
B. $1.01.
C. $1.11.
D. $1.10.
A monopoly produces widgets at a marginal cost of $8 per unit and zero fixed costs. It
faces an inverse demand function given by P = 38 – Q. Suppose fixed costs rise to $200.
What will happen in the market?
A. The firm will decrease its output and lower its price.
B. The firm will increase the price.
C. The firm will shut down immediately.
D. The firm continues to produce the same output and charge the same price.
Suppose the production function is given by Q = 3K + 4L. What is the marginal product
of capital when 5 units of capital and 10 units of labor are employed?
A. 3
B. 4
C. 11
D. 45
“An oligopoly is an oligopoly. Firms behave the same no matter what type of oligopoly
it is.” This statement is true of:
A. Bertrand and Cournot oligopolies.
B. Cournot and Stackelberg oligopolies.
C. Bertrand and Stackelberg oligopolies.
D. None of the answers is correct.