Which of the following is true about an excise tariff?
A. Domestic firms’ marginal cost curves are shifted up by the amount of the excise
tariff.
B. Foreign firms’ average cost curves are shifted down by the amount of the excise
tariff.
C. Domestic firms’ average cost curves are shifted up by the amount of the excise tariff.
D. Foreign firms’ marginal cost curves are shifted up by the amount of the excise tariff.
Suppose the production function is given by Q = 2K + L. If w = $4 and r = $4, how
many units of K and L will be utilized in the production process?
A. All K and no L.
B. All L and no K.
C. Equal amounts of K and L.
D. A combination of K and L not represented above.
The second-order condition for maximizing net benefits is:
A. d2N/dQ2 < 0.
B. d(MB)/dQ < d(MC)/dQ.
C. d2B/dQ2 < d2C/dQ2.
D. All of the statements associated with this question are correct.
Over the past decade, medical costs have increased more rapidly than other prices. In
order to illustrate how rising medical costs have affected consumer alternatives, let X
represent the quantity of medical services, and let Y represent the quantity of other
goods. Furthermore, let income (M) be measured in hundreds of dollars, the price of
medical services and other goods in terms of dollars per minute, with M = 100, Px = 4,
and Py = 5.a. Graph the budget line, and determine the market rate of substitution.b.
Illustrate the budget set.c. Show in your graph what happens to the budget constraint if
Px increases to $10.d. What is the meaning of the slope of the two budget constraints?
In the game shown below, firms 1 and 2 must independently decide whether to charge
high or low prices.
Suppose the game is infinitely repeated. Then the “best” the firms could do in a Nash
equilibrium is to earn _________ per period.
A. (0, 0)
B. (5, -5)
C. (-5, 5)
D. (10, 10)
Suppose good X is a normal good. Then a decrease in income would lead to
A. an outward shift of the demand curve.
B. an inward shift of the demand curve.
C. no shift of the demand curve.
D. a movement along the demand curve.
Long-term contracts become longer:
A. when specialized investment becomes more important.
B. when the exchange environment is more complex.
C. when spot markets work well.
D. when marginal costs are declining.
The primary difference between monopolistic competition and perfect competition is:
A. the ease of entry and exit into the industry.
B. the number of firms in the market.
C. Both the ease of entry and exit into the industry and the number of firms in the
market are correct.
D. None of the answers is correct.
Which of the following involves the LEAST risk from the point of view of the
employee?
A. Piece rate
B. Profit sharing
C. Revenue sharing
D. Annual salary
Consider the following entry game: Here, firm B is an existing firm in the market, and
firm A is a potential entrant. Firm A must decide whether to enter the market (play
“enter”) or stay out of the market (play “not enter”). If firm A decides to enter the
market, firm B must decide whether to engage in a price war (play “hard”), or not (play
‘soft”). By playing “hard,” firm B ensures that firm A makes a loss of $2 million, but
firm B only makes $2 million in profits. On the other hand, if firm B plays ‘soft,” the
new entrant takes half of the market, and each firm earns profits of $4 million. If firm A
stays out, it earns zero while firm B earns $8 million. Which of the following are Nash
equilibrium strategies?
A. (enter, hard) and (not enter, hard)
B. (enter, soft) and (not enter, soft)
C. (not enter, hard) and (enter, soft)
D. (enter, hard) and (not enter, soft)
Consider a market characterized by the following inverse demand and supply functions:
PX = 10 – 2QX and PX = 2 + 2QX. Compute the number of units exchanged and the
price at which those units will be exchanged when there is an $8 per unit price floor.
A. 1 unit and $6 per unit.
B. 1 unit and $8 per unit.
C. 3 units and $6 per unit.
D. 3 units and $8 per unit.
What is the marginal net benefit of producing the fourth unit?
A. -50
B. 0
C. 60
D. 40
Kate’s money income is $250, the price of X is $3, and the price of Y is $2. Given these
prices and income, Kate buys 60 units of X and 35 units of Y. Call this combination of
X and Y bundle J. At bundle J, Kate’s MRS is 3. At bundle J, if Kate increases
consumption of Y by 1 unit, how many units of X must she give up in order to satisfy
her budget constraint?
A. 3/2
B. 3
C. 2/3
D. 1
The law of supply states that, holding all else constant, as the price of a good falls:
A. quantity demanded rises.
B. quantity supplied falls.
C. quantity supplied rises.
D. quantity demanded falls.
To open a new business, a manager must obtain a license from the city for $20,000. The
license is transferable, but only $3,000 is refundable in the event the firm does not use
the license.
a. What are the firm’s fixed costs? Sunk costs?
b. Suppose the manager obtains a license but then decides against opening the business.
If another firm offers the manager $2,000 for the license, should the manager accept the
offer?
Your firm is planning to hold an auction to sell its oil field. What type of auction should
you suggest to your boss?
A. Dutch auction
B. English auction
C. Second-price, sealed-bid auction
D. None of the statements is correct.
Compute the marginal revenue when the price elasticity of demand is -0.10.
A. -9P, meaning marginal revenue is negative and 9 times greater than price.
B. 9P, meaning marginal revenue is positive and 9 times greater than price.
C. -3P, meaning marginal revenue is negative and 3 times greater than price.
D. 3P, meaning marginal revenue is positive and 3 times greater than price.