Producer and consumer surpluses are measures of:
A. industry performance.
B. market structure.
C. firm conduct.
D. None of the answers are correct.
Kate’s money income is $350, the price of X is $4, and the price of Y is $6. Given these
prices and income, Kate buys 50 units of X and 25 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 can she give up and still reach the
same level of utility?
A. 1
B. 1/3
C. 3
D. 2/3
In 1987 a 386 PC sold at a price of $6,995. Five years later, you could purchase
essentially the same computer for $1,495. Today, you can purchase a faster Pentium for
a fraction of the initial price of a slower 386 PC.
a. Why have computer prices fallen so dramatically?
b. What impact, if any, do you think the growing use of the Internet will have on the
price of computers?
An in-kind gift causes the budget line to:
A. shift to the right in a parallel fashion.
B. shift to the left in a parallel fashion.
C. rotate counterclockwise.
D. None of the statements is correct.
Brand loyalty can be enhanced through:
A. an advertising campaign.
B. a price war.
C. neither an advertising campaign nor a price war.
D. an advertising campaign and a price war.
Consider a market characterized by the following inverse demand and supply functions:
PX = 50 – 4QX and PX = 10 + 2QX. Compute the surplus producers receive when a $30
per unit price floor is imposed on the market.
A.$75.
B. $25.
C. $35.
D. $50.
Which of the following is NOT true?
A. An extensive form representation usually provides more information than a
normal-form representation of a game.
B. An extensive form game is most useful for sequential-move games.
C. The notion of perfect equilibrium is more useful in analyzing extensive form games
than normal-form games.
D. The notion of credible threats makes more sense in normal-form representations than
in extensive form representations of a game.
A drawback of separating ownership from control by creating a firm is:
A. the losses of specialization.
B. increased transaction costs.
C. the principal-agent problem.
D. synergies of team production.
Sunk costs are those costs that:
A. do not vary without output.
B. are forever lost after they have been paid.
C. can be collected even after they have been paid.
D. do vary with output.
Suppose a monopoly faces an inverse demand curve of P = 300 – 10Q and has constant
marginal cost of 20. If the government is considering legislation that would regulate
price to the competitive level, what is the maximum amount the monopoly would spend
on (legal) lobbying activities designed to thwart the regulation?
A. $280
B. $1,960
C. $2,240
D. None of the statements is correct.
Which of the following features is common to both perfectly competitive markets and
monopolistically competitive markets?
A. Firms produce homogeneous goods.
B. Prices are equal to marginal costs in the long run.
C. Long-run profits are zero.
D. Prices are above marginal costs in the long run.
Suppose that a one-way network leads to the development of a number of new
complementary products and services. This phenomenon is known as:
A. a direct network externality.
B. an indirect network externality.
C. a reputation effect.
D. lock-in.
Which of the following conditions is true when a producer minimizes the cost of
producing a given level of output?
A. The MRTS is equal to the ratio of input prices.
B. The marginal product per dollar spent on all inputs is equal.
C. The marginal products of all inputs are equal.
D. The MRTS is equal to the ratio of input prices, and the marginal product per dollar
spent on all inputs is equal.
Suppose both supply and demand increase. What effect will this have on the
equilibrium quantity?
A. It will fall.
B. It will rise.
C. It may rise or fall.
D. It will remain the same.
Suppose there is a simultaneous increase in demand and decrease in supply, what effect
will this have on the equilibrium price?
A. It will rise.
B. It will fall.
C. It may rise or fall.
D. It will remain the same.
The difference between a price increase and a decrease in income is that:
A. a decrease in income does not affect the slope of the budget line, while an increase in
price does change the slope.
B. a price increase does not affect the consumption of other goods, while a decrease in
income does.
C. a price increase will increase real income, while a decrease in income will increase
real income.
D. None of the statements is correct.