Wilma’s Car Repair can repair cars using kryptonite bolts, K, or lithium bolts, L, as long
as it uses 10 bolts in toto. The cost of repairing a car is TC = K2 + L2 ” KL. The
cost-minimizing combination of kryptonite and lithium bolts is:
a. K = 6 and L = 4.
b. K = 4 and L = 6.
c. K = 7 and L = 3.
d. K = 3 and L = 7.
e. K = 5 and L = 5.
Use the following profit function (per worker) for the Blue Delta Faucet Company to
answer this question.
P(e) = 40e ” (2e2 + 100)
Note that P = firm profits and e = worker-hours per day. Assume that effort is observed
perfectly. At the profit-maximizing level of effort for the firm, daily per-worker
compensation will be:
a. $100.
b. $200.
c. $300.
d. $340.
e. none of the above.
The following diagram represents the demand for trips to a local swimming pool during
the summer. If the price of a day of swimming is $5 per person, consumer surplus will
be:
a. $0.
b. $1,500.
c. $11,250.
d. $20,000.
e. none of the above.
The following figure represents the short-run total cost function for the Fidget
Company, which produces widgets. When output is 25, average fixed cost is:
a. $4.
b. $25.
c. $625.
d. $3,125.
e. none of the above.
In a decision tree, a decision fork is represented by a(n):
a. X.
b. open circle.
c. closed circle.
d. triangle.
e. square.
Harriet Quarterly wants a 25% return on the $100 of assets she has in her company. Her
average variable costs are $50 per unit, and she has no fixed costs. If she sells 10 units,
what price should she charge?
a. $52.50.
b. $62.50.
c. $75.00.
d. $87.50.
e. $125.00.
In a competitive market the equilibrium price is determined:
a. at the intersection of the firm’s demand and the market supply curves.
b. at the intersection of the market demand and supply curves.
c. at the intersection of the firm’s demand and marginal cost curves.
d. so as to cover the costs of the potential firms.
e. so as to cover the costs of the firms currently in the industry.
If a cartel is working properly, its firms will likely be producing where (MCi is each
firm i‘s marginal cost, MR is market marginal revenue, and P is price):
a. MCi = MR.
b. MCi > MR.
c. MCi < MR.
d. P = MR.
e. P < MR.
Consider the following decision tree. This tree illustrates hypothetical payoffs to
General Mills (GM) and Quaker Oats (Q) if they engage in a price war. If GM cuts
prices and Quaker Oats follows this behavior:
a. GM loses $10 million.
b. Quaker Oats loses $10 million.
c. GM loses $2 million.
d. Quaker Oats loses $2 million.
e. both firms gain $3 million.
The demand for office chairs in thousands is Q = 80 ” P2. At a price of $4, the price
elasticity of demand is:
a. “0.5.
b. “8.0.
c. “2.0.
d. “4.0.
e. “0.25.
The Herfindahl-Hirschman index measures market structure as the:
a. sum of the squared market shares of the 10 largest firms in an industry.
b. sum of the squared market shares of all firms in an industry.
c. sum of the squared market shares of the four largest firms in an industry.
d. squared market share of the largest firm in an industry.
e. sum of the market shares of the four largest firms in an industry.
An isoquant represents combinations of inputs that:
a. produce the same level of output.
b. produce increasing amounts of output.
c. minimize costs.
d. maximize output.
e. create wealth.
When the NCAA basketball tournament will only sell tickets to all three games held at a
given site as a package, it is practicing:
a. first-degree price discrimination.
b. second-degree price discrimination.
c. third-degree price discrimination.
d. markup pricing.
e. tying.
A firm’s demand curve is usually:
a. to the right of the market demand curve.
b. more inelastic than the market demand curve.
c. the same as the market demand curve.
d. drawn holding supply constant.
e. more elastic than the market demand curve.
When the t-ratio statistics on individual coefficients are all near 0 but the F-test statistic
is greater than 20:
a. multicollinearity is suggested.
b. nonconstant variance of the error terms is suggested.
c. serial correlation is suggested.
d. the root-mean-squared error will be large.
e. the Durbin-Watson statistic will be near 0.
Meteor Tie Company produces ties from fabric according to Q = 10 + 4F ” (1/3)F3. If
fabric is free and ties sell for $20, what is Meteor’s optimal usage of fabric?
a. 0
b. 2
c. 4
d. 6
e. 8
When economies of scale persist to such high levels of output that it is efficient to have
only one firm produce, the resulting firm is known as a(n):
a. patent holder.
b. regulated monopolist.
c. reluctant monopolist.
d. natural monopolist.
e. acceptable monopolist.
Hedge Fun is a landscaping firm that specializes in topiary. Last year, the firm had 60
employees and served 120 customers. This year, it had 70 employees and served 140
customers. What is the marginal product of labor?
a. 2
b. 3
c. 4
d. 5
e. None of the above
As a result of historically high gasoline prices in 2008, traffic volume in the United
States (measured in terms of billions of miles driven per month) declined significantly.
These changes were caused by a of gasoline and .
a. surplus; a decrease in the quantity demanded of gasoline
b. surplus; a decrease in the demand for gasoline
c. shortage; a decrease in the quantity demanded of gasoline
d. shortage; a decrease in the demand for gasoline
e. shortage; an increase in the demand for gasoline
When significant uncertainty exists surrounding the true value of an object at auction,
buyers contemplating a bid should bid less when:
a. they have less information about the true value of the item.
b. they are less confident in their own estimates of the true value of the object.
c. there are many other buyers bidding against them.
d. all of the above.
e. none of the above.
The following figure represents the short-run total cost function for the Fidget
Company, which produces widgets. The equation for the total cost function is:
a. TC = 100.
b. TC = 10Q.
c. TC = 5Q2.
d. TC = 100Q.
e. TC = 100 + 5Q2.
Bringing Up Baby (BUB) produces step-by-step manuals for child rearing. If BUB’s
total cost of producing manuals is given by TC = 0.004Q3 ” 0.1Q2 + 0.5Q + 250, the
marginal cost of producing the 50th manual is:
a. $5.50.
b. $20.50.
c. $20.95.
d. $21.50.
e. $21.95.
A firm has a division that produces chemical Y, whose average total costs are ATC = 50
+ 2Q (where Q is the quantity of Y), and a marketing division that adds its own average
total costs of ATC = 20 + 3Q. There is no external market price of Y. The transfer price
of Y should be:
a. $50.
b. $4Q.
c. $50 + 4Q.
d. $2Q.
e. $5Q.
Consider the following budget constraints. These constraints represent the market
baskets that Edith can afford to buy at alternative:
a. prices of good X.
b. levels of income.
c. prices of good Y.
d. preferences over goods X and Y.
e. prices of goods X and Y.
If price P, unit costs C, and quantity Q are known, the markup of markup-cost pricing
is:
a. (PQ ” CQ)/Q.
b. P ” C/Q.
c. (P ” C)/Q.
d. (P ” C)/C.
e. 1 ” (P ” C)/Q.
When a producer of joint goods refuses to sell all of one good, the producer:
a. is not rational.
b. must destroy some of the high-demand good.
c. must destroy some of the low-demand good.
d. must give away some of the high-demand good.
e. must give away some of the low-demand good.
A frequency definition of probability is:
a. a weighted average of different peoples’ degrees of certainty of an event’s occurring.
b. a theoretical probability distribution.
c. a person’s degree of certainty of an event’s occurring.
d. an expected value of a particular outcome.
e. the number of occurrences of an event in a large number of repetitions of an
experiment.
Short-run marginal cost eventually increases with increasing output because:
a. eventually marginal returns will diminish.
b. not all variable inputs increase at the same rate.
c. diseconomies of scale usually set in immediately.
d. of diseconomies of scope.
e. eventually diseconomies of scale set in.
If an analyst were confident that all factors that shift the supply curve were constant
when observing changing prices and quantities traded:
a. the analyst would be confident that the demand curve had been identified.
b. neither the supply nor the demand curve would have been identified.
c. the analyst should gather more data to find shifts in both curves.
d. both the supply and demand curves would have been identified.
e. the analyst would be confident that the supply curve had been identified.
If s is the standard deviation of a project with expected returns $100 and s2 = 4, the
coefficient of variation is:
a. 1/25.
b. 1/50.
c. $200.
d. $400.
e. $5,000.
An effluent fee is a:
a. fine polluters must pay the government for discharging waste.
b. brokerage fee paid to the EPA by parties exchanging transferable emissions permits.
c. fine paid to the EPA by firms caught violating the pollution laws.
d. fine paid to the injured parties by firms caught violating the pollution laws.
e. way to reduce the costs of regulated firms.