Consider the following innovation game: Firm A must decide whether or not to
introduce a new product. Firm B must decide whether or not to clone firm As product.
If firm A introduces and B clones, then firm A earns $1 and B earns $10. If A introduces
and B does not clone, then A earns $10 and B earns $2. If firm A does not introduce,
both firms earn profits of 0. Which of the following is true?
A. The subgame perfect Nash equilibrium profits are ($10, $2).
B. It is not in As interest to introduce.
C. Firm A does not care if B clones.
D. None of the answers is correct.
The change in net benefits that arises from a one-unit change in quantity is the:
A. marginal net benefits.
B. total net benefits.
C. variable benefits.
D. present value benefits.
The minimum legal price that can be charged in a market is:
A. a price floor.
B. a price ceiling.
C. non-pecuniary price.
D. full economic price.
There is no market supply curve in:
A. a perfectly competitive market.
B. a monopolistically competitive market.
C. a monopolistic market.
D. monopolistically competitive and monopolistic markets.
Which of the following institutions may result in hold-up?
A. Vertical integration
B. Piece rates
C. Long-term contracts
D. Spot markets
The dominant strategy for player 2 in the following game is:
A. t1.
B. t1 and t2.
C. t3.
D. None of the answers is correct.
Suppose that production for good X is characterized by the following production
function, Q = K0.5L0.5, where K is the fixed input in the short run. If the per-unit rental
rate of capital, r, is $15 and the per-unit wage, w, is $5, then the average fixed cost of
using 16 units of capital and 25 units of labor is:
A. $9.
B. $12.
C. $56.
D. There is insufficient information to determine the average fixed costs.
Suppose the cost function is C(Q) = 50 + Q – 10Q2 + 2Q3. What is the marginal cost of
producing 10 units?
A. $401
B. $1,060
C. $560
D. $1,010
A production function exhibits constant returns to scale if a twofold (threefold, etc.)
increase in all inputs leads to a twofold (threefold, etc.) increase in output. For example,
by doubling the use of capital and labor, the firm would exactly double its output.
a. What would the average and marginal cost curves look like under constant returns to
scale? Explain.
b. Give an example of a production function that exhibits constant returns to scale.
Consider the monopoly in the figure below with price regulated at $2 per unit.
Monopoly profits at the regulated price (assuming the presence of fixed costs) are:
A. $12.
B. $16.
C. $5.
D. There is insufficient information to determine the monopoly profits.
Hold-up:
A. is a hazard associated with relationship-specific exchange.
B. mitigates worker shirking.
C. makes spot exchange efficient.
D. solves the principal-agent problem.