A firm will have constant profits of $100,000 per year for the next four years, and the
interest rate is 6 percent. Assuming these profits are realized at the end of each year,
what is the present value of these future profits?
A. $325,816
B. $376,741
C. $400,000
D. $346,511
In a competitive market, the market demand is Qd = 60 – 6P and the market supply is Q
= 4P. A price floor of $9 will result in a
A. shortage of 30 units.
B. shortage of 12 units.
C. surplus of 30 units.
D. surplus of 12 units.
Consider a market consisting of two firms where the inverse demand curve is given by
P = 500 – 2Q1 – 2Q2. Each firm has a marginal cost of $50. Based on this information,
we can conclude that consumer surplus in the different equilibrium oligopoly models
will follow which of the following orderings?
A. CSCollusion > CSStackelberg > CSCournot > CSBertrand
B. CSBertrand > CSStackelberg > CSCournot > CSCollusion
C. CSBertrand > CSCournot > CSStackelberg > CSCollusion
D. CSStackelberg > CSBertrand > CSCournot > CSCollusion
A manager derives satisfaction from income and leisure on the job (shirking).
a. If the manager is paid a fixed salary of $100,000, how much leisure will she consume
on the job during an eight-hour day? Explain.
b. When the manager is given a salary of $100,000 plus 10 percent of the firms profits,
she chooses to spend six hours managing and two hours consuming leisure. Salary and
bonus total $120,000. Does the manager necessarily prefer this situation to the situation
in part (a)?
Consider two firms competing to sell a homogeneous product by setting price. The
inverse demand curve is given by P = 6 – Q. If each firms cost function is Ci(Qi) = 6 +
2Qi, then each firm will symmetrically produce _________ units of output and earn
___________.
A. 4 units; profits of $6
B. 2 units; profits of $2
C. 4 units; losses of $2
D. 2 units; losses of $6
Sanford Inc. currently competes in a duopoly. The market price is $10, and Sanfords
annual profit is $10 million. If Sanford were the only firm in the market, it could charge
the monopoly price of $25 per unit and earn $35 million annually for an indefinite
period of time. By charging $5 per unit for one year, Sanford could drive its rival out of
the market and maintain a monopoly position indefinitely. However, this strategy will
result in a $20 million loss since its marginal cost is $8 per unit.
a. What pricing strategy is the manager considering?
b. Ignoring legal considerations, is this pricing strategy profitable? Assume the interest
rate is 5 percent and, for simplicity, that any current period profits or losses occur
immediately (at the beginning of the year).
You are a hotel manager and you are considering four projects that yield different
payoffs, depending upon whether there is an economic boom or a recession. The
potential payoffs and corresponding payoffs are summarized in the following table.
The expected value of project D is:
A. $5.
B. $10.
C. $20.
D. None of the answers are correct.
A change in income will not lead to:
A. a movement along the demand curve.
B. a leftward shift of the demand curve.
C. a rightward shift of the demand curve.
D. all of the statements associated with the question are correct.
Suppose that the inverse demand for a downstream firm is P = 150 – Q. Its upstream
division produces a critical input with costs of CU(Qd) = 5(Qd)2. The downstream firms
cost is Cd(Q) = 10Q. When there is no external market for the downstream firms critical
input, the net marginal revenue for the downstream firm is:
A. NMRd = 140 – 2Q.
B. NMRd = 150 – 2Q.
C. NMRd = 140 – Q.
D. NMRd = 150 – Q.
Which of the following transactions are likely to result in relationship-specific
exchange?
a. Purchasing gasoline for the company carb.
Hiring an employee to operate a machine that only your company usesc.
Buying napkins for the company snack bard.
Purchasing coal for the factory furnacee. Buying electricity
What is the marginal cost of producing the tenth unit?
A. 80
B. 5
C. 40
D. 4
If the production function is Q = K.5L.5 and capital is fixed at 9 units, then the marginal
product of labor when L = 49 is:
A. 3
B. 9/98
C. 3/14
D. None of the answers are correct.
For given input prices, isocosts farther from the origin are associated with:
A. lower costs.
B. the same costs.
C. higher costs.
D. initially lower, then higher costs.
A firm with market power has an individual consumer demand of Q = 20 – 4P and costs
of C = 4Q. What is the optimal amount of this product to package in a single block?
A. 2
B. 3
C. 4
D. 5
Suppose earnings are given by E = $60 + $7(24 – L), where E is earnings and L is the
hours of leisure. The fixed payment for this worker is:
A. $7.
B. $24.
C. $60.
D. $0.
Other things held constant, the lower the price of a good
A. the lower the producer surplus.
B. the greater the producer surplus.
C. the higher the supply.
D. the lower the supply.
In order to minimize the cost of producing a given level of output, a firm manager
should use more inputs when:
A. that inputs price rises.
B. that inputs price falls.
C. that inputs price remains the same.
D. the prices of other inputs fall.