Suppose the cost function for your firm is: C = 50 + 4Q + 2Q2.a. What is the average
fixed cost of producing 5 units of output?b. What is the average variable cost of
producing 5 units of output?c. What are the average total cost and marginal cost of
producing 5 units of output?
If your demand for renting videos is Q = 5 – 2P, should you purchase the annual
membership from a video store that charges $0.5 per rental, plus an annual membership
fee of $12?
A. Definitely yes
B. Definitely no
C. Probably yes
D. Cannot be decided
Suppose total benefits and total costs are given by B(Y) = 600Y – 12Y2 and C(Y) =
20Y2. What is the maximum level of net benefits?
A. 2,500.75
B. 2,812.5
C. 1916.4
D. None of the statements associated with this question are correct.
The optimal strategy for a risk-neutral bidder in a second-price, sealed-bid auction with
independent private values is to bid:
A. slightly less than his or her valuation.
B. slightly higher than his or her valuation.
C. his or her true valuation.
D. None of the statements is correct.
One of the characteristics of a contestable market is that:
A. all firms have different productive technology.
B. consumers react quickly to a price change.
C. existing firms respond quickly to entry by lowering their price.
D. there are sunk costs.
When the government imposes an excise tax on foreign imports:
A. domestic consumers are harmed.
B. domestic firms benefit.
C. domestic firms are harmed.
D. domestic consumers are harmed and domestic firms benefit.
Suppose the demand for X is given by Qx
d = 100 – 2PX + 4PY + 10M + 2A, where PX
represents the price of good X, PY is the price of good Y, M is income and A is the
amount of advertising on good X. Based on this information, we know that good X is a
A. substitute for good Y and a normal good.
B. complement for good Y and an inferior good.
C. complement for good Y and a normal good.
D. substitute for good Y and an inferior good.
Which of the following is an INCORRECT statement about predatory pricing?
A. It benefits the firm engaging in predatory pricing to have deeper pockets than its
prey.
B. Reputation for taking tough actions to drive a competitor out of the market can
enhance the benefits received from the firm engaging in the predatory pricing.
C. Having its prey stockpile its product produces more benefits to the firm engaging in
the predatory pricing.
D. None of the statements are correct.
The demand for an input is:
A. sloping upward.
B. the VMP of the input.
C. determined by MPL = W.
D. derived from input owners profit-maximizing condition.
If a worker receives a fixed payment of $100 plus $10 for every hour she works, what is
the maximum total earnings the worker can receive if she is restricted to a maximum of
12 hours of work per day?
A. $220
B. $120
C. $340
D. $125
Time clocks are typically a solution to the:
A. manager-consumer, principal-agent problem.
B. manager-owner, principal-agent problem.
C. consumer-worker, principal-agent problem.
D. None of the statements is correct.
For the cost function C(Q) = 100 + 2Q + 3Q2, the average fixed cost of producing 2
units of output is:
A. 100
B. 50
C. 3
D. 2
Which of the following is the major means to signal good quality of goods by firms?
A. Sales
B. Advertisements
C. Warranties/guarantees
D. Both sales and advertisements
Which of the following is NOT a feature of Sweezy oligopoly?
A. There are a few firms in the market serving many consumers.
B. The firms produce differentiated products.
C. Each firm believes that rivals will cut their prices in response to a price reduction,
but will not raise their prices in response to a price increase.
D. Free entry and exit occurs in the market.
Which of the following is NOT an implication of specialized investments that lead to
increased transaction costs?
A. Costly bargaining
B. Opportunism and the hold-up problem
C. Underinvestment in specialized investments
D. Incentive contracts
The manager of Roys Video noticed a newspaper advertisement by a rival store that
erroneously claimed, “We are the only firm in town that does not sell pornographic
videos.” He initially dismissed the deceptive advertisement but decided to reconsider
his course of action when the rival refused to stop running the advertisement. In the
interim, numerous churches and other organizations boycotted Roys Video, resulting in
an estimated loss of $25,000. Do you think it would be advisable for Roy to seek legal
counsel? Explain.
In Tuna, Texas, the retail gasoline market consists of six firms. Firm 1 has 35 percent of
the market, Firm 2 has 25 percent, and the remaining firms have 10 percent each. What
is the four-firm concentration ratio for this industry?
In 1994 Pentium users around the world learned that their $4.00 pocket calculators
could perform some operations more accurately than their $5,000 desktop computers. It
took several months before Intel-the maker of the chip-agreed to offer its customers
replacement chips. In contrast, Walmart guarantees satisfaction to all customers, with a
“no questions asked” return policy on nearly all of the products it sells. Why do you
think these firms employ such different consumer relations policies?
Zelda Industries is the only firm of its kind in the world. Due largely to historical
accident, it began producing streganomas in 1985 in a vacant warehouse. Virtually
anyone with a degree in college chemistry could easily replicate the firms formula,
which is not patent protected. Nonetheless, since 1985 Zelda has averaged accounting
profits of 6 percent on investment. This rate is comparable to the average interest rate
that large banks paid on deposits over the period. Do you think Zelda is earning
monopoly profits? Why?
In a 1998 press release, Boeing Commercial Airplane Group (BCAG) announced that it
was signing a 10-year contract with distributor Thyssen Inc., a distributor of raw
aluminum, valued at approximately $300 million. The contract reflected Boeings effort
to reduce costs and production bottlenecks resulting from supply shortages. The
contract specified prices and guaranteed quantities of raw aluminum to be delivered to
BCAGs suppliers. If you were the production manager at BCAG, how would you
justify the long-term nature of the contact with Thyssen Inc.?
The total costs for Morris Industries are summarized in the following table. Based on
this information, fill in the missing entries in the table for fixed cost, variable cost,
average fixed cost, average variable cost, average total cost, and marginal cost.
Why does the government grant patents to investors? Why does the government give
monopoly power to utility companies?