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The following payoff table depicts a zero-sum game:
Table 10-4
Refer to Table 10-4. The equilibrium of the zero-sum game is:
a) R1 versus C1.
b) R1 versus C2.
c) R2 versus C2.
d) R3 versus C3.
e) R2 versus C3.
The Juice Shop sells iced soft drinks. Management has found that demand is estimated
by the equation: Q = 1,000 '“ 240P + 80PC, where Q denotes the number of drinks sold
per day, P is the drink's price, and PCis the price of drinks at a nearby café.
(a) How many drinks will be sold if P = $1.50 and PC= $1.20?
Which of the following, if true, would be an example of a monopolistically competitive
industry?
a) In the utilities industry, average cost declines over all levels of output.
b) In the automobile industry, fixed costs as well as variable costs are high.
c) In the retail trade industry, a large number of firms provide similar products.
d) The market for basic office supplies (pencils, paper, and clips) is served by scores of
online suppliers.
e) In the pharmaceuticals industry, the entire market is served by a small number of
large firms.
Maximizing profit by enumerating the profit outcomes of different courses of action
a) Is only applicable to problems with a small number of alternatives.
b) Becomes increasingly costly as the number of choices increase.
c) Always discovers the best possible choice.
d) Provides a useful shortcut to finding the optimal choice.
e) Answers becomes increasingly costly as the number of choices increase and always
discovers the best possible choice are both correct.
You are the chief appraiser for a large art dealer in a major American city. You are
offered a chance to examine, and buy, a work of art. You have reason to believe that it is
a piece from a famous artist of the 15th century that has been lost to the art world for
hundreds of years. Such a painting would have an estimated market value of $1 million.
However, you face two risks. First, the painting may be a forgery, a chance that you
estimate to be .4. Second, even if the painting is authentic it may be stolen. Once you
buy the painting, you bear all risk. If it is a fake, its value is $0. If it proves to be stolen
(a .2 risk in your estimation), you must return the painting to its rightful owner and you
cannot recover the purchase price.
(a) You have the chance to buy the painting for $500,000. As a risk-neutral decision
maker, should you make the purchase?
Assume that the price and income elasticities of demand for luxury cars are EP= '“0.52
and EY= 3.2 respectively. In the coming year, car prices are expected to rise by 2
percent and income by 8 percent. Based on this information, sales of cars are expected
to _____.
a) fall by 0.52%
b) increase by 24.56%
c) increase by 5%
d) fall by 3.04%
e) fall by 32.84%
When a firm faces constant returns to scale, a proportionate increase in all inputs:
a) will keep output constant.
b) will increase output by the same proportion as the increase in inputs.
c) will lead to a decline in the cost of production.
c) will result in a higher-than-proportionate increase in output.
e) will not change the total costs of production.
The following table shows the total revenue (in dollars) and total cost (in dollars) from
the production and sale of different units of a product.
Table 2-1
Refer to Table 2-1. What is the profit-maximizing level of output for the firm?
a) 3 units
b) 2 units
c) 1 unit
d) 5 units
e) 6 units
Which of the following will increase the competitive efficiency of a market?
a) Setting prices below cost such that smaller firms are driven out of the market
b) Selling goods in complementary bundles
c) Selling the same product at different prices to different consumers
d) Mergers between firms that reduce costs but allow the new firm to set higher prices
e) Removing barriers to entry in the market
If a fair coin is tossed 1,000 times, the frequency of heads will be close to:
a) .6.
b) .5.
c) .3.
d) .2.
e) There is not enough information to provide an answer.
The equation Q = a + bt represents:
a) an exponential trend.
b) a linear trend.
c) an irregular downward trend.
d) a geometric trend.
e) a quadratic trend.
A research study estimates that the direct cost of constructing a bridge connecting two
boroughs in a city is $10 million. The revenue from the tolls on the bridge is estimated
to be $8 million. The dollar value of pollution from the construction is estimated to be
$5 million but the dollar value of the benefit to the city's residents is calculated to be
$20 million. The construction of the bridge is most likely to be undertaken by:
a) the government because revenues exceed costs.
b) the government because the total benefits exceed total costs.
c) a private firm because the total benefits exceed total costs.
d) a private firm because revenues exceed direct costs.
e) a private firm because the revenues exceed indirect costs.
In the short run, if the marginal product of labor is decreasing, then:
a) marginal cost must be increasing.
b) the marginal revenue of the firm must be decreasing.
c) average total cost must be increasing.
d) average variable cost must be decreasing.
e) average total cost must be decreasing. the marginal revenue product of labor must be
increasing.
Which of the following is a key characteristic of an oligopoly?
a) The firms in an oligopoly are mutually interdependent.
b) There are a small number of buyers in an oligopoly market.
c) There are a large number of firms in an oligopoly market.
d) Firms in an oligopoly market earn zero economic profit.
e) There are no entry barriers in an oligopoly market.
If the long-run market supply curve in a perfectly competitive industry is upward
sloping, then the industry:
a) is a constant-cost industry.
b) is an increasing-cost industry.
c) exhibits constant returns to scale.
d) exhibits increasing returns to scale.
e) is a decreasing-cost industry.
Dana, who is a trained yoga instructor, spends 4 hours on Monday baking and packing
10 boxes of cookies. She sells the cookies for $10 a box. Given that she can also teach
yoga for $80 an hour, what is her opportunity cost of baking cookies?
a) $320
b) $100
c) $220
d) $420
e) $800
The expected value of test information is:
a) zero if the new information does not change the firm's decisions.
b) the difference between the actual outcome with test information and without it.
c) the sum of the expected value with the information and without it.
d) the expected value of the decision taken using the test.
e) the same as the expected value of the decision taken without the test.
A bank has categorized its credit card accounts as high risk or low risk. The overall
default rate on all the bank's credit card accounts is .20. In the past, of the accounts that
defaulted, 50 percent were correctly identified by the bank as high risk. What is the
default risk for a high-risk credit card account?
a) .50.
b) .15.
c) .40.
d) .25.
e) There is not enough information to determine the answer.
Will a profit-maximizing firm typically sell a good at a price that is in the inelastic
portion of a demand curve? Explain
Explain the economic logic of the short-run shutdown rule. Why does it sometimes
make sense to operate at a loss?
Sleak Teak builds yard furniture, using domestic hardwoods and (in a smaller shop)
handcrafted knick-knacks from the same sort of wood. Although hardwoods were
readily available in the past, recently they have been much more difficult to obtain.
Consultation with the plant managers of the two lines has resulted in the following
production functions for hardwood usage in the two products. For yard furniture: Y =
2TY'“ .001TY2, while for Knick-knack: K = 20TK'“ .01TK2. Here Y and K denote units
of the two types of products and TYand TKdenote teak used in yard furniture and
knick-knacks respectively. Yard furniture can be sold at a profit of $100 per unit, and
knick-knacks can be sold at a profit of $25 each. Sleak Teak has 1,300 units of teak
available. How should it be allocated across the two products? Explain.
Discuss why many agricultural industries in the United States are primary examples of
perfectly competitive markets.
Derive the short-run supply curve of a firm under perfect competition.
A manufacturer of air-conditioning systems expects to sell 10,000 units next year if the
economy recovers from the present recession. If the economy remains at its present
state, the firm expects to sell 7,000 units, and if the recession worsens, sales will fall to
3,000 units. A survey of 40 economists reveals that 30 of them are forecasting recovery,
5 of them are expecting no change, and the rest expect a worse recession. Estimate the
expected sales of air-conditioning systems for next year.
