Refer to the figure below. Suppose that the marginal benefit of writing a contract is
$100 and the marginal cost of that contract is $150. Based on this information, the
optimal contract length should be:
A. increased by half.
B. increased by two-thirds.
C. decreased.
D. held constant at the contract length where MB = 100 and MC = 150.
When MB = 171 – 8Y and TC = 5Y2 + 108, the optimal level of Y is:
A. 25.
B. 9.5.
C. 8.
D. 24.
Suppose that 90 percent of the firms selling good X charge the low price. If the
remaining 10 percent of firms charge $50 per unit and the expected benefit of an
additional search is $10, then the lowest price in the market for good X is:
A. $45.
B. $38.89.
C. $10.
D. $0.
Marginal benefits are the:
A. incremental benefits of a decision.
B. average benefits of a decision.
C. total benefits of a decision.
D. present discounted benefit of a decision.
The spirit of equating marginal cost with marginal revenue is NOT held by:
A. perfectly competitive firms.
B. oligopolistic firms.
C. perfectly competitive firms and oligopolistic firms.
D. None of the answers is correct.
Which of the following is NOT a type of integration?
A. Vertical mergers
B. Horizontal mergers
C. Mega mergers
D. Conglomerate merger
You are the manager of a gas station in a small town, and your goal is to maximize
profits. Based on your experience, the elasticity of demand of Texans for a car wash is
-2, while that of non-Texans is -1.5. Your marginal cost is $6.a. Are the conditions
necessary for price discrimination to be an effective means of enhancing profits being
met? Explain.b. What is the profit-maximizing price to charge a Texan for a car wash?c.
What is the profit-maximizing price to charge a Californian for a car wash?
Consider the monopoly in the figure below with price regulated at $20 per unit. In this
market, ___________ units will be exchanged.
A. 10
B. 25
C. 42
D. 50
The industry elasticity of demand for good X is -1.5, while the elasticity of demand for
an individual manufacturer of good X is -9. Based on this information, the Rothschild
index of market power is:
A. 1/6, indicating there is little monopoly power in this industry.
B. 1/6, indicating there is significant monopoly power in this industry.
C. 6, indicating there is little monopoly power in this industry.
D. None of the answers are correct.
Consider a market characterized by a Herfindahl-Hirschman index of 5,000. One of the
firms in this market has a Lerner index of 0.89 and is considering a horizontal merger
with a competing firm. Based on this information, it is likely that the U.S. Department
of Justice will:
A. approve the merger since the industry is not concentrated and the firm proposing to
merge has little market power.
B. reject the merger since the industry is highly concentrated, even though the firm
proposing the merger has little market power.
C. reject the merger since the industry is highly concentrated and the firm proposing the
merger has significant market power.
D. None of the answers are correct.