Game theory is best applied to the analysis of:
A. perfect competition.
B. oligopoly.
C. monopoly.
D. All of the statements associated with this question are correct.
If the price of good X increases, what will happen to the budget line?
A. It will have a parallel shift inward.
B. It will have a parallel shift outward.
C. It will become steeper.
D. It will become flatter.
A market is NOT contestable if:
A. all producers have access to the same technology.
B. consumers respond quickly to a price change.
C. existing firms cannot respond quickly to entry by lowering their price.
D. there are sunk costs.
The law of demand indicates that as the price of a good increases, the quantity that
A. producers are willing to produce of an item increases.
B. producers are willing to produce of an item decreases.
C. buyers are able to purchase increases.
D. buyers are able to purchase decreases.
Suppose P = 20 – 2Q is the market demand function for a local monopoly. The marginal
cost is 2Q. The local monopoly tries to maximize its profits by equating MC = MR and
charging a uniform price. What will be the equilibrium price and output?
A. $6.33, 3.33 units
B. $6.33, 5 units
C. $13.33, 3.33 units
D. $10, 5 units
Suppose you are a risk-neutral manager attempting to hire a new sales manager. All of
the workers in the market have the same ability to manage and sell, but they differ with
respect to the wage at which they are willing to work for your company. The market for
sales managers is composed of three types of individuals: 85 percent are willing to
work for $75,000 and 15 percent are willing to work for $85,000. The first interviewee
is only willing to work for $85,000. If the human resource director spends five hours
interviewing each candidate and the opportunity cost of this director’s time is $500, then
the director should:
A. search again since the expected benefit of an additional search exceeds the cost.
B. stop searching since the expected benefit of an additional search is less than the cost.
C. search again since the expected benefit of an additional search is less than the cost.
D. stop searching since the expected benefit of an additional search exceeds the cost.
The rate at which a consumer is willing to substitute one good for another, while still
maintaining a given level of satisfaction, is called the
A. market rate of substitution.
B. average rate of substitution.
C. marginal rate of substitution.
D. budget constraint.
The market demand in a Bertrand duopoly is P = 10 – 3Q, and the marginal costs are $1.
Fixed costs are zero for both firms. Based on this information we can conclude that:
A. P = $7 and firm 1 will sell 7 units of output.
B. P = $1 and firms 1 and 2 will each sell 7 units of output.
C. P = $1 and firms 1 and 2 will each sell 1.5 units of output.
D. P = $1.5 and firms 1 and 2 will each sell 10 units of output.
A monopoly has produced a product with a patent for the last few years. The patent is
going to expire. What will happen after the patent expires?
A. The incumbent will leave the market.
B. The incumbent will retain its status as a monopoly but produce at a lower price.
C. Some firms will enter the industry.
D. None of the answers is correct.
You are the manager of a Mom and Pop store that can buy milk from a supplier at $2.00
per gallon. If you believe the elasticity of demand for milk by customers at your store is
-3, then your profit-maximizing price is:
A. $1.33.
B. $2.75.
C. $3.00.
D. $4.50.
Monopolistic competition is characterized by:
A. employing labor from a perfectly competitive labor market.
B. Rothschild indices that are close to zero.
C. concentration ratios that are well above zero.
D. differentiated products.
Suppose a manager views both quantity and profit as “goods.” Such a manager will then
have an indifference curve that:
A. is tangent to the profit curve somewhere between quantities of 0 and 2.5.
B. is tangent to the profit curve somewhere between quantities of 2.5 and 5.
C. intersects the profit curve at a quantity exactly equal to 2.5.
D. intersects the profit curve at a quantity exactly equal to 5.
One problem with revenue-based incentive schemes is they do NOT provide an
incentive to:
A. maximize profit.
B. maximize sales.
C. minimize costs.
D. maximize productivity.
Solving the principal-agent problem ensures that the firm is operating:
A. on the production function.
B. above the production function.
C. below the production function.
D. above the isoquant curve.