Suppose a firm has 10 employees, all of whom desire a more pleasant work
environment. Accordingly, they are considering removing litter from the grounds of the
plant. Each employee has an inverse demand for “clean grounds” of P = 100 – 2Q,
where Q is the number of empty beer cans removed from the premises. The marginal
cost of removing beer cans is $1 per can.a. What is the socially efficient quantity of
cans to remove?b. How much would each person have to pay per can to remove the
socially efficient quantity?
Often owners of firms who hire managers must install incentive or bonus plans to
ensure that the:
A. company is financially secure.
B. manager will work hard.
C. manager will maintain employee morale.
D. company will have positive economic profits.
Suppose the market for good X has a four-firm concentration ratio of 0. Having worked
for the four largest firms in the industry, you know the sales for these four firms are
given by $100,000, $125,000, $150,000, and $175,000. Based on this information, we
know that sales for the remaining firms in the industry are:
A. $687,500.
B. $550,000.
C. $250,500.
D. $137,500.
The Cournot theory of oligopoly assumes rivals will:
A. keep their output constant.
B. increase their output whenever a firm increases its output.
C. decrease output whenever a firm increases its output.
D. follow the learning curve.
If the interest rate is 3 percent, the present value of $900 received at the end of four
years is:
A. $792.00.
B. $799.64.
C. $873.79.
D. $927.40.
Sam Voter prefers Ronald to Joe, Joe to Gary, and Gary to Ronald. Sams preferences:
A. are consistent with our assumptions about consumer behavior.
B. indicate that he is a liberal.
C. are not complete.
D. are not transitive.
A decrease in firm 2s marginal cost will cause:
A. an upward shift in firm 1s reaction function, resulting in a new Cournot equilibrium
where firm 1 is producing a higher quantity and firm 2 is producing a lower quantity.
B. a downward shift in firm 1s reaction function, resulting in a new Cournot
equilibrium where firm 1 is producing a lower quantity and firm 2 is producing a higher
quantity.
C. an upward shift in firm 2s reaction function, resulting in a new Cournot equilibrium
where firm 1 is producing a lower quantity and firm 2 is producing a higher quantity.
D. a downward shift in firm 2s reaction function, resulting in a new Cournot
equilibrium where firm 1 is producing a higher quantity and firm 2 is producing a lower
quantity.
The price elasticity of demand for senior citizens purchasing coffee from McDonalds is
-5, while non-senior citizens have a price elasticity of demand equal to -1.25. If it costs
McDonalds $0.02 to produce a coffee, the optimal price for a cup of coffee for senior
citizens and the resultant marginal cost under third-degree price discrimination are,
respectively:
A. $0.016 and $0.20.
B. $0.02 and $0.80.
C. $0.025 and $0.02.
D. $0.10 and $0.02.
You are a manager in a perfectly competitive market. The price in your market is $14.
Your total cost curve is C(Q) = 10 + 4Q + 0.5Q2. What will happen in the long run if
there is no change in the demand curve?
A. Some firms will leave the market eventually.
B. Some firms will enter the market eventually.
C. There will be neither entry nor exit from the market.
D. None of the answers is correct.
Which of the following “costs” could a firm that wants to remain in business avoid if it
halted current production?
A. Fixed costs
B. Variable costs
C. Sunk costs
D. Opportunity costs
The supply function for good X is given by Qx = 1,000 + PX – 5PY – 2PW, where PX is
the price of X, PY is the price of good Y and PW is the price of input W. If PX = 100, PY
= 150, PW = 50, then the supply curve is
A. Qx = 550.
B. Qx = 150 + Px.
C. Qx = 550 + Px.
D. Qx = 350 + Px.
Consider an antique auction where bidders have independent private values. There are
two bidders, each of whom perceives that valuations are uniformly distributed between
$100 and $1,000. One of the bidders is Sue, who knows her own valuation is $200.
What is Sues optimal bidding strategy in a Dutch auction?
A. Submit a bid of $150.
B. Submit a bid of $200.
C. Submit a bid that is less than $150.
D. Yell “mine” when the bid reaches $150.
_______ occurs when people smoke more after buying life insurance.
A. Adverse selection
B. Moral hazard
C. Asymmetric information
D. Cournot and Bertrand competition
It is profitable to hire labor so long as the:
A. MPL is greater than wage.
B. MPL is less than wage.
C. VMPL is less than wage.
D. VMPL is greater than wage.
A risk-neutral monopoly must set output before it knows the market price. There is a 50
percent chance the firms 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 profits are maximized
in the expected sense when:
A. Expected value of price = E(MR).
B. MC = Expected value of price.
C. MC < E(MR).
D. MC = E(MR).
The minimum average cost of producing alternate levels of output, allowing for optimal
selection of all variables of production is defined by the:
A. long-run average total cost curve.
B. short-run average fixed cost curve.
C. short-run marginal cost curve.
D. long-run marginal cost curve.
Spot markets are an efficient way for the firm to purchase inputs if:
A. opportunism is not a problem.
B. suppliers engage in hold-up.
C. profit sharing is used to compensate managers.
D. the supplier needs specialized investment to produce the input.
If the price of good X increases, what will happen to the budget line?
A. It will shift outward.
B. It will become steeper.
C. It will become flatter.
D. It will shift inward.
Suppose that production for good X is characterized by the following production
function, Q = 4K0.5L0.5, where K is the fixed input in the short run. If the per-unit rental
rate of capital, r, is $86.80 and the per-unit wage, w, is $20, then the average total cost
of using 25 units of capital and 49 units of labor is:
A. $5.25.
B. $22.50.
C. $31.00.
D. There is insufficient information to determine the average total costs.
For a cost function C = 100 + 10Q + Q2, the average fixed cost of producing 10 units of
output is:
A. 10
B. 5
C. 1
D. None of the answers are correct.