Which of the following raises domestic prices only when demand is relatively low?
A. Domestic subsidies
B. Lump sum tariff
C. Excise tariff
D. Lump sum tariff and excise tariff
There are two existing firms in the market for computer chips. Firm A knows how to
reduce the production costs for the chip and is considering whether to adopt the
innovation or not. Innovation incurs a fixed setup cost of C, while increasing the
revenue. However, once the new technology is adopted, another firm, B, can adopt it
with a smaller setup cost of C/3. If A innovates and B does not, A earns $30 in revenue
while B earns $10. If A innovates and B does likewise, both firms earn $20 in revenue.
If neither firm innovates, both earn $10. Under what condition will firm B have an
incentive to adopt if firm A adopts the innovation?
A. C > 30
B. C < 30
C. 10 > C > 0
D. 35 > C > 25
In producing the efficient amount of a public good, government should take into
account:
A. only the demand from high-demand consumers.
B. only the demand from low-demand consumers.
C. the vertical sum of all individual inverse demand curves.
D. the horizontal sum of all individual inverse demand curves.
You are the manager of a monopoly that faces a demand curve described by P = 63 –
5Q. Your costs are C = 10 + 3Q. Your firms maximum profits are:
A. 0
B. 66
C. 120
D. 170
The manager of a national retailing outlet recently hired an economist to estimate the
firms production function. Based on the economists report, the manager now knows
that the firms production function is given by and that capital is fixed at 1
unit.a. Calculate the average product of labor when 9 units of labor are utilized.b.
Calculate the marginal product of labor when 9 units of labor are utilized.c. Suppose the
firm can hire labor at a wage of $10 per hour and output can be sold at a price of $100
per unit. Determine the profit-maximizing levels of labor and output.d. What is the
maximum price of capital at which the firm will still make nonnegative profits?
In a competitive market, the market demand is Qd = 400 – 5P and the market supply is
Q = 10P – 80. A price ceiling of $32 will result in
A. a shortage of 80 units.
B. a shortage of 44 units.
C. a surplus of 26 units.
D. neither a shortage nor a surplus.
An increase in firm 2s marginal cost will cause:
A. a downward shift in firm 1s reaction function, resulting in a new Cournot
equilibrium where firm 1 is producing a lower quantity and firm 2 is producing a higher
quantity.
B. an upward shift in firm 1s reaction function, resulting in a new Cournot equilibrium
where firm 1 is producing a higher quantity and firm 2 is producing a lower quantity.
C. a downward shift in firm 2s reaction function, resulting in a new Cournot
equilibrium where firm 1 is producing a higher quantity and firm 2 is producing a lower
quantity.
D. an upward shift in firm 2s reaction function, resulting in a new Cournot equilibrium
where firm 1 is producing a lower quantity and firm 2 is producing a higher quantity.
Suppose that consumers preferences are well behaved in that properties 4-1 to 4-4 are
satisfied. Furthermore, assume that both X and Y are normal goods and that the price of
good Y increases. Then, which of the following effects is known with certainty?
A. The income and substitution effects reinforce one another, leading to an overall
increase in the consumption of good X.
B. The income and substitution effects reinforce one another, leading to an overall
decrease in the consumption of good X.
C. There will be an indeterminate effect on the consumption of good X.
D. The income and substitution effects will reinforce one another, leading to an overall
increase in the consumption of good Y.
What is the maximum amount of good X that can be purchased if X and Y are the only
two goods available for purchase and Px = $10, Py = $20, Y = 0, and M = 400?
A. 0
B. 20
C. 40
D. 30
The demand curve for product X is given by QX = 50 – 2PX. How much consumer
surplus do consumers receive when PX = $5?
A. $400.
B. $200.
C. $100.
D. $500.
Under a price ceiling, the full economic price is
A. the dollar price paid to the firm.
B. the opportunity cost of not being able to buy a good when a consumer needs it.
C. lower than the free-market price.
D. higher than the free-market price.
You are the manager of a firm that sells its product in a competitive market at a price of
$50. Your firms cost function is C = 40 + 5Q2. Your firms maximum profits are:
A. 125
B. 250
C. 100
D. 85
Suppose a principal knew with certainty the level of profits that would result if an agent
put forth maximum effort.a. Would there be a principal-agent problem?b. Devise two
incentive contracts that would induce the manager to put forth maximum effort in this
instance.
What is the marginal net benefit of producing the twentieth unit?
A. 2
B. -5
C. -2
D. 8
Refer to the normal-form game of price competition in the payoff matrix below.
What is the maximum interest rate that can sustain collusion?
A. 30 percent
B. 15 percent
C. 66.7 percent
D. 20 percent
To ensure quality, piece-rate plans must usually be accompanied by:
A. quality control mechanisms.
B. time clocks.
C. spot checks.
D. profit-sharing plans.
Monopolistic competition is characterized by:
A. heterogeneous products.
B. employing labor from a perfectly competitive labor market.
C. no free entry.
D. large markets.
Cost complementarity exists in a multiproduct cost function when:
A. the average cost of producing one output is reduced when the output of another
product is increased.
B. the average cost of producing one output is increased when the output of another
product is increased.
C. the marginal cost of producing one output is increased when the output of another
product is decreased.
Before the breakup of AT&T, the firm charged a price for local telephone services that
was roughly one-half of its cost of providing the services. In contrast, it charged almost
two times it cost for long-distance services. Why do you think AT&T adopted this
pricing strategy?
Dallas-based Southwest Airlines recently announced a 10-year contract that gives pilots
a greater opportunity to share in the profits of the airline. According to the terms of the
contract, the pilots will receive options to buy 14 million shares of the firms stock over
the next 10 years. What impact do you think this new contract will have on Southwest
Airlines?
Draw the opportunity set of a consumer with an income of $200 who faces prices of Px
= 5 and Py = 10. What is the market rate of substitution between the two goods?
Firms like McDonalds and Wendys sell hamburgers, salads, and other products that are
differentiated in nature. While numerous fast-food restaurants exist in most locations,
the differentiated nature of the firms products permits them to charge prices that are in
excess of marginal cost. Given these observations, is the fast-food industry most likely
a perfectly competitive industry, a monopoly, monopolistically competitive, or an
oligopoly? Use the causal view of structure, conduct, and performance to explain the
roles of product differentiation in the industry, and explain how the feedback critique
applies in this context.
According to various trade publications, over 200,000 changes are made in airfares
each day. Why do you think this is the case?
RB, Inc., is a wholesaler specializing in dry foods, such as rice and dry beans. Its
manager is troubled by a recent article in The Wall Street Journal that say a recession in
imminent and that income will fall by 3 percent over the next year. What do you think is
likely to happen to the price of the products RB, Inc., sells? Why?
You are a strong advocate for a one-year investment project that would cost your firm
$10,000 today, but generate virtually certain earnings of $15,000 at year-end. Those in
your firms financial group concur that the investment is virtually risk-free, but
nonetheless your boss is concerned about the firms cash flow problems. In fact, the
problems are so severe that the firms bank currently charges it 20 percent on one-year
loans. Convince your boss to undertake the project.