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The use of intuitive prediction in forecasting:
a) puts the wrong weights on different kinds of information.
b) provides approximately correct decisions most of the time.
c) is objective and reliable.
d) likely to produce inaccurate and biased results.
e) is consistent with probabilistic prediction.
In an infinitely repeated prisoner's dilemma (such as a repeated price war):
a) repeated defection is the only equilibrium.
b) there are two different equilibria: repeated defection and repeated cooperation.
c) repeated cooperation is the only equilibrium.
d) each player cooperates in the early stages, but defects near the end of the game.
e) there is no stable equilibrium strategy for either player.
Assume that a profit-maximizing firm practices price discrimination in two different
market segments. If the marginal cost of producing the good is the same, the price:
a) will be lower in the segment with lower cross price elasticity of demand.
b) will be higher in the segment with higher income elasticity of demand.
c) will be lower in the segment with lower fixed costs.
d) will be higher in the segment with more inelastic demand.
e) will be higher in the segment with higher marginal revenue.
A firm's total revenue function is given by R = 100 + 100Q - 2Q2. At Q = 10, which of
the following is true?
a) The firm's marginal revenue is $80.
b) The firm's marginal revenue is constant.
c) The firm's average revenue is $50.
d) The firm's total revenue is $500.
e) The firm's marginal revenue is $60.
Suppose a severe freeze damages the Florida orange crop. Everything else remaining
unchanged, which of the following is most likely to be true?
a) Because of the shortage of oranges, consumers will reduce their demand in order to
economize.
b) The supply curve for oranges will shift to the right.
c) Both the output and the price of oranges will decrease.
d) Both the supply curve and the demand curve for oranges will shift to the left.
e) The output of oranges will fall and the price will increase.
Which of the following is true of a monopoly market versus a perfectly competitive
one?
a) Prices are lower than in a perfectly competitive market.
b) Total output produced is smaller but the price is the same as in a perfectly
competitive market.
c) The total consumer surplus is smaller than in a perfectly competitive market.
d) The deadweight loss is smaller than in a perfectly competitive market.
e) Output is produced using a greater number of facilities than in a perfectly
competitive market.
When consumers possess imperfect information or misinformation:
a) there is a role for the government to intervene and mandate better outcomes.
b) firms have an incentive to reduce the information asymmetry in the market.
c) industry associations that have better information should regulate the market.
d) competitive efficiency is achieved as long as the market is unregulated.
e) less-efficient products will be driven out of the market.
Which of the following will eliminate the inefficiency problems associated with
negative externalities?
a) A subsidy to consumers in order to decrease the effective price and increase output.
b) A tax levied on consumers so as to increase the effective price.
c) A tax levied on producers so as to internalize the marginal cost of the externality.
d) A subsidy to producers in order to reduce their cost of production.
e) A government mandate using quantity standards to reduce the externality.
The demand function in a duopoly is: P = 100 '“ 2(Q1 + Q2). If the first firm decides to
sell 10 units while the second firm sells 20 units, which of the following will be true?
a) The second firm will earn twice as much revenue as the first firm.
b) The second firm will sell at a lower price than the first firm.
c) An increase in one firm's output will not affect the other firm's revenue.
d) The first firm will earn a higher profit than the second firm.
e) The market price will be determined by the second firm's output which is larger than
the first firm's output.
An investment has the possibility of earning $10,000, $8,000 or $2,000 depending on
the state of the economy that is prosperity, modern growth, and recession respectively.
The probabilities of prosperity, moderate growth, and recession are .4, .3, and .3
respectively. The expected value of the investment is:
a) $10,000.
b) $21,000.
c) $7,000.
d) $3,000.
e) $8,000.
The following table shows the total revenue and total cost (in dollars) from different
sales volumes of the good.
Table 2-1
Refer to Table 2-1. What is the marginal profit of the firm from the sale of the 3rd unit
of the good?
a) $9
b) $6
c) $2
d) $5
e) $21
Which of the following correctly describes a deterministic economic model?
a) A deterministic model is a model for which the outcome is predicted with certainty.
b) A deterministic model can only be used to explain short-run economic phenomena.
c) A deterministic model is most useful in identifying long-term trends.
d) A deterministic model is used in the study of normative economics.
e) The outcome of a deterministic model is random and has probabilities attached.
Firm Z is one of the 5 bidders, each with a value independently drawn from the range
$100,000 to $160,000 with all values in between being equally likely. In a sealed-bid
auction, Firm Z's equilibrium bidding strategy is:
a) bi= (.2)(160,000) + .8vi
b) bi= (.5)(160,000) + .5vi
c) bi= (.25)(100,000) + .75vi
d) bi= (.2)(100,000) + .8vi
e) bi= (.8)(100,000) + .2vi
Given that the market share of a firm depends on many unpredictable factors, a firm
will use a _____ economic model to estimate the market share for one of its products.
a) deterministic
b) dynamic
c) qualitative
d) probabilistic
e) comparative statics
Which one of the following is not a feature of the tit-for-tat strategy?
a) Limited punishments for an opponent's defections.
b) A cooperative high-payoff equilibrium.
c) Perpetual punishments for an opponent's defections.
d) Neither firm has an incentive to be the first to defect.
e) The use of contingent strategies to resolve the prisoner's dilemma.
The following figure shows the long-run average cost curve of a firm.
Figure 6-1
Refer to Figure 6-1. The production function of the firm displays increasing returns to
scale at all levels of output between _____.
a) A to E
b) C to D
c) D to E
d) A to C
e) B to E
Which of the following is an example of signaling?
a) A buyer who makes a large raise in bid at an auction to discourage other bidders.
b) A doctor who performs a large number of in-office tests and is paid per test.
c) An elderly couple who elect a generous medical insurance policy.
d) A board of directors that is trying to refine the compensation system for its CEO.
e) A pitcher (about to sign with a new team) who is aware of a nagging elbow pain.
Define a public good. How are private and public goods different?
Suppose that a firm faces the inverse demand curve: P = 20 '“ Q/40, where Q is quantity
demanded and P is price. Now suppose there is a reduction in demand. Provide a new
inverse demand equation consistent with this shift. How does the reduction in demand
affect the firm's revenue-maximizing output and price?
Determine the feasible region and the optimal corner of the following linear
programming problem:
Minimize: Z = 3x + 5y
Subject to: 2x + 5y >= 21
x + y >= 6
x >= 2 and y >= 0
A firm has prepared two different models to be used for forecasting. One has a fairly
large root mean squared error (RMSE), the other has a much smaller RMSE. Which
forecast would you expect to give the more accurate prediction? Explain.
A firm is considering the development of a new technology with a declining probability
of success in each research stage. The firm's researchers have estimated the
probabilities at .35, .25, .15, .07, and .01 for the various stages. The profit the firm
would receive for successful development is $100 million, while the cost of research in
each period is $10 million. How many investment stages should the firm undertake
before abandoning the project?
