Refer to the following game.
Which of the following is true?
A. A dominant strategy for firm A is “high price.”
B. There does not exist a dominant strategy for firm A.
C. A dominant strategy for firm B is “low price.”
D. None of the answers is correct.
What is the immediate result of applying the Clean Air Act to a previously nonregulated
industry?
A. Price decreases and production is reduced.
B. Price increases and production is reduced.
C. Price decreases and production is enlarged.
D. Price increases and production is enlarged.
Refer to the normal-form game of price competition in the payoff matrix below.
Suppose that firm A deviates from a trigger strategy to support a high price. What is the
present value of As payoff from cheating?
A. 70
B. 50
C. 30
D. 20
Demand shifters do not include
A. the price of the good.
B. the consumers income.
C. the level of advertising.
D. the price of the other goods.
Economies of scope exist when:
A. C(Q1) + C(Q2) < C(Q1, Q2).
B. C(Q1) – C(Q2) < C(Q1, Q2).
C. C(Q1) + C(Q2) > C(Q1, Q2).
D. C(Q1) – C(Q2) > C(Q1, Q2).
When Iraq invaded Kuwait, the market price of crude petroleum jumped from $21.54
per barrel to $30.50 per barrel – an increase of almost 42 percent. Your boss is puzzled,
because the price increase actually occurred before there was a physical reduction in the
current amount of oil available for sale.
a. Explain why the price of oil increased so rapidly.
b. One year after the invasion, the price of oil fell to $21.32 per barrel, its prewar level.
Explain why.
The combinations of inputs that produce a given level of output are depicted by:
A. indifference curves.
B. budget lines.
C. isocost curves.
D. isoquants.
A monopoly produces X at a marginal cost of $20 per unit and charges a price of $50
per unit. Determine the elasticity of demand at the profit-maximizing price of $50.
A. -0.5
B. -.6
C. .67
D. There is insufficient information to determine the monopolys price elasticity of
demand.
Which of the following is true under monopoly?
A. Profits are always positive.
B. P > MC.
C. P = MR.
D. All of the choices are true for monopoly.
To maximize profit in the face of uncertainty, firms should produce the output where:
A. expected price equals expected marginal cost.
B. expected marginal revenue equals marginal cost.
C. expected marginal revenue equals expected marginal cost.
D. expected price equals marginal cost.
Suppose the production function is Q = min{3K, L}. How much output is produced
when 6 units of labor and 3 units of capital are employed?
A. 3
B. 6
C. 9
D. None of the statements is correct.
The marginal product of capital of producing 2,991 units of output (find point A) in the
table below is:
A. 26.7
B. 19.5
C. 5.7
D. 2.4
You are the only pharmacist in a small town; the next closest drugstore is 50 miles
away. The population in your town consists of young farmers and older retired families.
You have noticed that the young farmers are less sensitive to price changes than the
retired population. Specifically, you have found that the working population has an own
price elasticity of demand of -2 and the retired farmers have an own price elasticity of
-4. How can you use this information to your advantage?
A monopolist is profit maximizing where the elasticity of demand is -2 and price is $4.
What is the monopolists marginal cost?
Suppose you are the manager of a firm that produces Ultrasweet, a sugar substitute.
Show graphically the effect of a reduction in the price of Sweet and Healthy, a
competitors product, on a typical consumers consumption of Ultrasweet.
You are the owner of a Mom and Pop store that buys milk from a supplier at a cost of
$1 per gallon. If you estimate the elasticity of demand for milk sold at your store to be
-3.5, what are your profit-maximizing markup and price?
The manager of a paper mill is preparing for her most important test yet. On Tuesday
morning, she must testify before a Senate committee to “justify” the firms high price.
One senator is particularly angry with the firm because its price is twice the firms
marginal cost. On Tuesday afternoon, the manager is scheduled to appear before the
House Subcommittee on the Environment to explain why the firm should not be
slapped with a per-unit tax on the firms output to compensate for the pollution it
discharges into a major river. What do you think will be the managers game plan?