A negative side of long-term contracts is:
A. high transaction costs.
B. a loss of flexibility.
C. the continual need to renegotiate the contract.
D. None of the statements is correct.
Demand shifters do not include the
A. price of the good.
B. consumers tastes and preferences.
C. the price of the other related goods.
D. consumers expectations about future prices of the good.
The firm manager with horizontal indifference curves (output on the horizontal axis,
profit on the vertical axis) views:
A. only profits to be “goods.”
B. only output to be “goods.”
C. both profits and outputs to be “goods.”
D. None of the statements is correct.
Consider a Stackelberg duopoly with the following inverse demand function: P = 100 –
2Q1 – 2Q2. The firms marginal costs are identical and are given by MCi(Qi) = 2. Based
on this information, the followers reaction function is:
A. rF(QL) = 24.5 – 0.5QF.
B. QL = 49 – 0.5QF.
C. rF(QL) = 24.5 – 0.5QL.
D. QF = 49 – 0.25QL.
Suppose total benefits and total costs are given by B(Y) = 100Y – 8Y2 and C(Y) =
10Y2. What level of Y will yield the maximum net benefits?
A. 75/36
B. 75/18
C. 50/18
D. 100/36
You are the manager of a firm that produces output in two plants. The demand for your
firms product is P = 120 – 6Q, where Q = Q1 + Q2. The marginal costs associated with
producing in the two plants are MC1 = 2Q1 and MC2 = 4Q2. What price should be
charged to maximize profits?
A. 60
B. 66
C. 70
D. 76
Two firms produce identical products at zero cost, and they compete by setting prices. If
each firm charges a low price, then both firms earn profits of zero. If each firm charges
a high price, then each firm earns profits of $30. If one firm charges a high price and the
other firm charges a low price, the firm that charges the lower price earns profits of $50
and the firm charging the higher price earns profits of zero.
a. Which oligopoly model best describes this situation?
b. Write this game in normal form.
c. Suppose the game is infinitely repeated. Can the players sustain the “collusive
outcome” as a Nash equilibrium if the interest rate is 50 percent? Explain.
You are the manager of a monopoly that faces a demand curve described by P = 230 –
20Q. Your costs are C = 5 + 30Q. Your firms maximum profits are:
A. 495
B. 475
C. 480
D. 415
When two or more divisions mark up prices in excess of marginal cost:
A. double marginalization occurs.
B. two-part pricing occurs.
C. second-degree price discrimination occurs.
D. None of the answers are correct.
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 = 5, and M = 400?
A. 80
B. 20
C. 40
D. 30
Consider the following normal-form game.
a. What is player Bs best strategy in a simultaneous-move play of this game?
b. What is player As best strategy in a simultaneous-move play of this game?
c. What are player A and Bs equilibrium payoff in a simultaneous-move play of this
game?
d. Use an extensive-form representation to show that player B can earn higher payoffs
by exercising a first-mover advantage. (Note: Player Bs payoffs will appear first in this
extensive-form game since it is the first mover.)
e. List two things player B must do in order to be able to achieve these higher payoffs.
Advertising can influence demand by altering tastes of consumers. This type of
advertising is known as
A. persuasive advertising.
B. informative advertising.
C. strategic advertising.
D. influential advertising.
A firm has a marginal cost of $20 and charges a price of $40. The Lerner index for this
firm is:
A. 0.20
B. 0.50
C. 0.33
D. 0.75
If the annual interest rate is 0 percent, the present value of receiving $210 in the next
year is:
A. $221.
B. $200.
C. $201.
D. $210.
Under the buy one, get one free regime, the:
A. budget line rotates counterclockwise.
B. price is reduced by 50 percent.
C. budget set expands.
D. indifference curve is changed.
Suppose you are an analyst for the Coca-Cola Company. An individuals inverse demand
for Coca-Cola is estimated to be P = 98 – 4Q (in cents). If Coca-Cola is produced
according to the cost function C(Q) = 1,000 + 2Q (in cents), compute the optimal price
and the number of cans to sell as a single package.
A. $120 per package and 12 cans
B. $12 per package and 24 cans
C. $11.52 per package and 12 cans
D. $15 per package and 16.67 cans
Constant returns to scale exist when long-run average costs:
A. increase as output is increased.
B. decrease as output is increased.
C. remain constant as output is increased.
D. None of the statements is correct.
What is the average product of labor, given that the level of labor equals 10, total output
equals 1200, and the marginal product of labor equals 200?
A. 20
B. 120
C. 6
D. 2,000