The opportunity cost of an action is the:
A. monetary payment the action required.
B. value of the most highly valued alternative action given up.
C. cost of all alternative actions that could have been taken.
D. None of the statements associated with this question are correct.
Which of the following is the best example of a one-way network?
A. The electricity that flows into residential areas
B. The network of towers that connect cellular telephone users
C. The network that connects instant message users
D. Network using optical fibers carrying signals to and from a subscribers location
A production function:
A. defines the minimum amount of output that can be produced with inputs such as
capital and labor.
B. defines the average amount of output that can be produced with inputs such as
capital and labor.
C. represents the technology available for turning inputs into output.
D. is determined only by the expenditures on R&D.
Which of the following features is common to both perfectly competitive markets and
monopolistically competitive markets?
A. Firms produce homogeneous goods.
B. There is free entry.
C. Long-run profits are zero.
D. There is free entry and long-run profits are zero.
The Taxpayer Relief Act of 1997 created the Roth IRA, which permits qualifying
individuals to make after-tax retirement contributions of up to $2,000 annually.
Contributions to a Roth IRA are not tax-deductible, but no taxes are paid on earnings
generated from a Roth IRA. In contrast, contributions made to traditional IRAs are
tax-deductible, but individuals will pay taxes on all future distributions. In short,
investors using the Roth IRA make contributions that have already been taxed and have
earnings that grow tax-free, while those using the traditional IRAs defer taxes until
funds are withdrawn. Consider an individual who is five years away from retirement
and will need to withdraw all her retirement funds at that time. She has $2,000 in pretax
income to allocate each year to a retirement plan, faces a fixed tax rate of 15 percent
now as well as at retirement, and anticipates a stable 8 percent return on her
investments. She can set up a Roth IRA for a one-time, up-front fee of $10, or she can
set up a traditional IRA for free. Which option should she choose?
Suppose that a consumers preferences are well behaved in that properties 4-1 to 4-4 are
satisfied and the initial equilibrium consumption bundle consists of 100 units of X and
50 units of Y. If PX decreases such that the new equilibrium consumption bundle is 150
units of X and 75 units of Y, then goods X and Y are:
A. complements.
B. substitutes.
C. inferior goods.
D. unrelated.
A firms average cost is $20, and it charges a price of $20. The Lerner index for this firm
is:
A. 0.20.
B. 0.50.
C. 0.33.
D. insufficient information.
A monopoly produces widgets at a marginal cost of $20 per unit and zero fixed costs. It
faces an inverse demand function given by P = 100 – 4Q. What are the profits of the
monopoly in equilibrium?
A. $800
B. $600
C. $400
D. $200
Suppose market demand and supply are given by Qd = 100 – 2P and QS = 5 + 3P. The
equilibrium price is:
A. $15
B. $19
C. $17
D. $20
A firm has a Lerner index of 0.75 and charges a price of $150. The firms marginal cost
is:
A. $0
B. $37.50
C. $112.50
D. There is not sufficient information to determine the firms marginal cost.
A price decrease causes a consumers “real” income to:
A. increase.
B. decrease.
C. remain unchanged.
D. decrease or increase depending on the size of the price change.
The second-order condition for a firm maximizing its profit operating in a
monopolistically competitive market is:
A. -(d2C(Q)/dQ2) < 0.
B. (d2R (Q)/dQ2) – (d2C(Q)/dQ2) < 0.
C. (d2R (Q)/dQ2) = (d2C(Q)/dQ2).
D. (dMR/dQ) > (dMC/dQ).
If a firm has been proven liable for a false ad, it has to:
A. terminate the false ad.
B. recall any product with the false claim on it.
C. compensate more than the damage it has caused.
D. All of the statements associated with this question are correct.
Suppose that consumers preferences are well behaved in that properties 4-1 to 4-4 are
satisfied. Furthermore, assume that both X and Y are inferior goods and the price of
good Y increases. Then the substitution effect will lead consumers to consume:
A. more of good X and more of good Y.
B. less of good X and more of good Y.
C. less of good X and less of good Y.
D. more of good X and less of good Y.
Consider the following information for a simultaneous move game: If you advertise and
your rival advertises, you each will earn $5 million in profits. If neither of you
advertises, you will each earn $10 million in profits. However, if one of you advertises
and the other does not, the firm that advertises will earn $15 million and the
non-advertising firm will earn $1 million. If you and your rival plan to be in business
for only one year, the Nash equilibrium is:
A. for each firm to advertise.
B. for neither firm to advertise.
C. for your firm to advertise and the other not to advertise.
D. None of the answers is correct.
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 expected
profit-maximizing price is:
A. $5
B. $10
C. $15
D. $20
If widgets and gidgets are complements and both are normal goods, then a decrease in
the demand for widgets will result from:
A. an increase in the price of widgets.
B. a decrease in income.
C. a decrease in the price of gidgets.
D. a decrease in the price of gidgets and a decrease in income.
If marginal benefits exceed marginal costs, it is profitable to:
A. increase Q.
B. decrease Q.
C. stay at that level of Q.
D. All of the statements associated with this question are correct.
Spot markets are generally preferable to:
A. long-term contracts.
B. short-term contracts.
C. vertical integration.
D. None of the answers are correct.
Which of the following conditions must hold to ensure that profits are, in fact, at a
maximum?
A. d(MC(Q))/dQ > 0
B. d(MC(Q))/dQ < 0
C. d2€(Q)/dQ2 < 0
D. d(MC(Q))/dQ > 0 and d2€(Q)/dQ2 < 0