In a competitive market, the market demand is Qd = 400 – 5P and the market supply is
Q = 10P – 80. The full economic price under a price ceiling of $25 is
A. 46
B. 37
C. 32
D. 29
A risk-neutral individual would:
A. prefer $5 with certainty to a risky prospect with the expected value of $5.
B. prefer a risky prospect with an expected value of $5 to a certain amount of $5.
C. be indifferent between a risky prospect with an expect value of $5 to a certain
amount of $5.
D. prefer a risky prospect with the expected value of $0.50 to $5 with certainty.
Given a linear demand function of the form QX
d = 500 – 2PX – 3PY + 0.01M, find the
inverse linear demand function assuming M = 20,000 and PY = 10.
A. PX = 500 – 2QX – 3PY + 0.01M.
B. PX = 335 – 0.5QX.
C. PX = 335 – 2QX.
D. PX = 500 – 2QX.
In order to eliminate the inefficiency brought about by a monopoly, the government
wants to impose a price ceiling on the monopoly. What is the optimal price to be
imposed?
A. The competitive price
B. The competitive price, unless it is below ATC.
C. The competitive price, unless it is below MR.
D. The competitive price, unless it is above ATC.
During spring break, students have an elasticity of demand for a trip to Las Vegas of -5.
How much should an airline charge students for a ticket if the price it charges the
general public is $660? Assume the general public has an elasticity of -3.
A. $440
B. $550
C. $352
D. $792
A new firm enters a market which is initially serviced by a Bertrand duopoly charging a
price of $30. Assuming that the new firm is equally as efficient as the incumbent firms,
what will the new price be should the three firms coexist after the entry?
A. Above $30
B. Below $30
C. Equal to $30
D. Unable to tell given the information provided.
You are the manager of a firm that produces output in two plants. The demand for your
firms product is P = 78 – 15Q, where Q = Q1 + Q2. The marginal costs associated with
producing in the two plants are MC1 = 3Q1 and MC2 = 2Q2. How much output should
be produced in plant 1 in order to maximize profits?
A. 1
B. 2
C. 3
D. 4
The point where diminishing marginal returns has begun to affect production is best
characterized by the point where the:
A. total product curve flattens out.
B. average product curve begins to be negatively sloped.
C. marginal product curve begins to be negatively sloped.
D. marginal product curve equals the average product curve.
The substitution effect isolates the change in the consumption of a good caused by:
A. the lower “real” income.
B. the change in the relative prices of two goods.
C. the change in consumer preferences.
D. None of the statements is correct.
Suppose the cost function is C(Q) = 50 + Q – 10Q2 + 2Q3. What is the total cost of
producing 10 units?
A. $2,060
B. $1,060
C. $560
D. $1,010
A positive side of long-term contracts is:
A. low transaction costs.
B. a loss of flexibility.
C. the continual need to renegotiate the contract.
D. None of the answers are correct.
Firms 1 and 2 compete in a Cournot duopoly. If firm 1 adopts a strategy that raises firm
2s marginal cost:
A. firm 2 will increase its output.
B. firm 1 will lose market share.
C. firm 1 will enjoy higher profits.
D. All of the statements associated with this question are correct.