If a firm’s production function is Leontief and the wage rate goes up, the:
A. firm must use more labor in order to minimize the cost of producing a given level of
output.
B. firm must use more capital in order to minimize the cost of producing a given level
of output.
C. firm must use less labor in order to minimize the cost of producing a given level of
output.
D. cost minimizing combination of capital and labor does not change.
Which of the following is most likely NOT an example of a normal good?
A. Lobster
B. Sports cars
C. Bus travel
D. Jacuzzis
It is easier to sustain tacit collusion in an infinitely repeated game if:
A. the present value of cheating is higher.
B. there are more players in the game.
C. the interest rate is lower.
D. the present value of cheating is higher and the interest rate is lower.
A frozen food company buys a fresh food company. This takeover is an example of:
A. vertical integration.
B. horizontal integration.
C. cointegration.
D. conglomerate integration.
A consumer spends less time searching for a good when her reservation price is:
A. increased.
B. reduced.
C. fixed.
D. None of the answers are correct.
You are the manager of a firm that sells its product in a competitive market at a price of
$50. Your firm’s cost function is C = 40 + 5Q2. The profit-maximizing output for your
firm is:
A. 4/5
B. 10
C. 5
D. 45
Which of the following involves the most risk from the point of view of the employee?
A. Piece rate
B. Profit sharing
C. Hourly wage
D. Annual salary
The disadvantage of vertical integration is that:
A. relationship-specific exchange may cause hold-up.
B. long-term contracts may be inflexible.
C. the principal-agent problem causes shirking.
D. firms no longer specialize in what they do best.
Suppose that there are two industries, A and B. There are five firms in industry A with
sales at $5 million, $2 million, $1 million, $1 million, and $1 million, respectively.
There are four firms in industry B with equal sales of $2.5 million for each firm. The
HHI for industry A is:
A. 3,200
B. 2,800
C. 1,800
D. 2,500
According to the five forces framework, sustainable industry profits depend upon:
A. industry entry conditions.
B. the power of input suppliers.
C. the degree of industry rivalry.
D. All of the statements associated with this question are correct.
A potential problem with paying workers based on a piece rate is that:
A. effort cannot be expended engaging in quality control.
B. effort should not be expended engaging in quality control.
C. workers will attempt to produce quality at the expense of quantity.
D. workers will attempt to produce quantity at the expense of quality.
A monopolist earns $50 million annually and will maintain that level of profit
indefinitely, provided no other firm enters the market. If another firm successfully
enters the market, the incumbent’s profits remain at $50 million the first period, but fall
to $25 million annually thereafter. The opportunity cost of funds is 10 percent, and
profits in each period are realized at the beginning of each period. If the monopolist can
earn $27 million indefinitely by limit pricing, should it do so?
A. Yes, it will earn $297 million in present value if it does this.
B. Yes, it will earn $270 million in present value if it does this.
C. No, it will earn $297 million in present value if it does this.
D. No, it will earn $270 million in present value if it does this.
The market for widgets consists of two firms that produce identical products.
Competition in the market is such that each of the firms independently produces a
quantity of output, and these quantities are then sold in the market at a price that is
determined by the total amount produced by the two firms. Firm 2 is known to have a
cost advantage over firm 1. A recent study found that the (inverse) market demand
curve faced by the two firms is P = 280 – 2(Q1 + Q2), and costs are C1(Q1) = 3Q1 and
C2(Q2) = 2Q2.a. Determine the marginal revenue for each firm.b. Determine the
reaction function for each firm.c. How much output will each firm produce in
equilibrium?d. What are the equilibrium profits for each firm?
Which of the following is true for perfect competition but not true for monopolistic
competition and monopoly?
A. MC = MR
B. P = MC
C. Positive long run profits
D. P = MC and positive long run profits