Suppose a consumer derives satisfaction from consuming two types of hamburgers, X
and Y.a. Graph the budget line of the consumer under the assumption that he is offered a
“buy two, get one free” deal for burger X (limit one free burger).b. Graph the budget
constraint under the assumption that the producer of burger Y also offers a “buy two,
get one free” deal (limit one free burger).c. Explain in words why each of the preceding
budget constraints looks as it does.
A monopoly produces widgets at a marginal cost of $20 per unit and zero fixed costs. It
faces an inverse demand function given by P = -100 – 4Q. Suppose fixed costs rise to
$401. What happens in the market?
A. The firm will raise the price.
B. The firm will shut down immediately.
C. The firm will continue to produce the same output and charge the same price.
D. The firm will reduce its output and raise price.
A monopoly producing a chip at a marginal cost of $6 per unit faces a demand elasticity
of -2.5. Which price should it charge to optimize its profits?
A. $6 per unit
B. $8 per unit
C. $10 per unit
D. $12 per unit
Firm A has a higher marginal cost than firm B. They compete in a homogeneous
product Bertrand duopoly. Which of the following results will NOT occur?
A. QA < QB
B. ProfitA < ProfitB
C. Revenue of firm A < Revenue of firm B
D. PriceA < PriceB
If a monopolistically competitive firm’s marginal cost increases, then in order to
maximize profits, the firm will:
A. reduce output and increase price.
B. increase output and decrease price.
C. increase both output and price.
D. reduce both output and price.
You are the manager of Copies Are Us. The only other copy store in town, the Carbon
Copy, recently got bids on adding a color copier. You must decide whether to obtain a
color copier, but you can base your decision on what your rival does. If your rival adds
a color copier and you don’t, you expect your profits to fall by $1,000 per week and its
profits to rise by $1,500 per week. Conversely, if you add the color copier and your
rival does not, your profits will increase by $1,500 per week and your rival’s profits will
fall by $1,000 per week. However, if you both do the same thing (add color copies or
not), you each expect profits to stay at their current level. Show the extensive form of
this game, and find the Nash equilibrium (or equilibria). Is there a subgame perfect
equilibrium?
By the property of “more is better” and transitivity, indifference curves:
A. can intersect one another only once.
B. can intersect one another only twice.
C. do not intersect one another.
D. may overlap one another.
The figure below presents information for a one-shot game.
What are dominant strategies for firm A and firm B respectively?
A. (low price, high price)
B. (high price, low price)
C. (high price, high price)
D. (low price, low price)
Refer to the normal-form game of advertising shown below.
Suppose there is a 10 percent chance that the advertising game depicted in Figure 10-17
will end next period. What is the present value to firm A of agreeing to the strategy {do
not advertise, do not advertise}?
A. $125
B. $237.50
C. $1,250
D. None of the answers is correct.
As long as marginal product is increasing, marginal product is:
A. less than average product.
B. greater than average product.
C. equal to average output.
D. equal to total product.
What is the net benefit associated with producing two units of the control variable, Q
(identify point C in the table)?
A. 600
B. 800
C. 1,200
D. 1,400
First-degree price discrimination:
A. occurs when a firm charges each consumer the maximum price he or she would be
willing to pay for each unit of the good purchased.
B. results in the firm extracting all surplus from consumers.
C. occurs when a firm charges each consumer the maximum price he or she would be
willing to pay for each unit of the good purchased and results in the firm extracting all
surplus from consumers.
D. None of the answers are correct.
Which group of policies aims at extracting all consumer surplus?
A. Price discrimination and peak load pricing.
B. Cross-subsidization and brand loyalty.
C. Price matching and randomized pricing.
D. Two-part pricing and commodity bundling.
You are a hotel manager and you are considering four projects that yield different
payoffs, depending upon whether there is an economic boom or a recession. The
potential payoffs and corresponding payoffs are summarized in the following table.
A risk-averse manager will prefer project:
A. A.
B. B.
C. C.
D. D.
Suppose that production for good X is characterized by the following production
function, Q = K0.5L0.5, where K is the fixed input in the short run. If the per-unit rental
rate of capital, r, is $15 and the per-unit wage, w, is $125, then the average fixed cost of
using 16 units of capital and 25 units of labor is:
A. $9.
B. $12.
C. $56.
D. There is insufficient information to determine the average fixed costs.
Tim is offered two gambles. With gamble A, he either gains $2 or loses $1 with a 50
percent probability. With gamble B, he either gains $3 or loses $2 with a 50 percent
probability. Tim prefers gamble B to gamble A. What can we conclude?
A. Tim is risk loving.
B. Tim is risk neutral.
C. Tim is risk averse.
D. Insufficient information to determine.
Consider a monopoly where the inverse demand for its product is given by P = 200 –
5Q. Based on this information, the marginal revenue function is:
A. MR(Q) = 400 – 2.5Q.
B. MR(Q) = 400 – 10Q.
C. MR(Q) = 200 – 10Q.
D. MR(Q) = 200 – 2.5Q.
In a monopoly where the marginal revenue and price are, respectively, given by $0.50
and $2, the price elasticity of demand is:
A. -0.75
B. -1
C. -5/4
D. -4/3
If the profit-maximizing markup factor in a 10-firm Cournot oligopoly is -2, what is the
corresponding market elasticity of demand?
A. -1.0
B. -1.2
C. -2.0
D. None of the statements is correct.