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.
If a manager adopted both project A and B simultaneously, the variance in returns
associated with this joint project would be:
A. 0
B. 10
C. 30
D. 500
Consider the monopoly in the figure below with price regulated at $2 per unit. The
deadweight loss under the regulated price is:
A. $4.50.
B. $5.
C. $8.
D. There is insufficient information to compute the deadweight loss at the regulated
price.
If A and B are complementary goods, a decrease in the price of good A would:
A. have no effect on the quantity demanded of B.
B. lead to an increase in demand for B.
C. lead to a decrease in demand for B.
D. none of the statements associated with this question are correct.
Apples and oranges are substitutes. A freeze in Florida destroys most of the orange
crop. What would you expect to happen to the market for the following:
a. Oranges?
b. Apples?
c. Orange juice?
A Broadway theater sells weekday show tickets at a lower price than for a weekend
show. This is an example of:
A. price discrimination.
B. peak-load pricing.
C. price discrimination or peak-load pricing.
D. None of the statements is correct.
Suppose the production function is given by Q = 3K + 4L. What is the average product
of capital when 10 units of capital and 10 units of labor are employed?
A. 3
B. 4
C. 7
D. 45
You are the manager of the ABC novelty store, and your only competitor is the XYZ
novelty store. You are both trying to decide on which magic tricks and party favors to
carry in stock. The product mixes available to both of you are low, medium, and high in
variety. Your expected earnings in this market are shown in the following table:
a. Find the Nash equilibrium (or equilibria) for a simultaneous-move, one-shot play of
this game.
b. What outcome would you expect in this one-shot game? Why?
The following table contains different consumers values for three software titles:
PowerPoint, Excel, and Word. Suppose there are 100 consumers of each type. It costs
Microsoft $5 to produce each piece of software. If Microsoft wants to devise a pricing
strategy that is incentive compatible between consumer types and will maximize its
profit, then it should:
A. charge $50 for PowerPoint, $80 for Excel, and $75 for Word.
B. charge a single price of $300 for the bundle of PowerPoint, Excel, and Word.
C. charge $125 for PowerPoint, $175 for Excel, and $150 for Word.
D. charge $325 for the bundle of PowerPoint, Excel, and Word and permit consumers to
purchase each software title individually at $81.10 each.
What is the total cost associated with producing eight units of the control variable, Q
(identify point B in the table)?
A. 3,000
B. 3,600
C. 3,800
D. 4,200
If you advertise and your rival advertises, you each will earn $4 million in profits. If
neither of you advertises, you will each earn $10 million in profits. However, if one of
you advertises and the other does not, the firm that advertises will earn $1 million and
the non-advertising firm will earn $5 million. Suppose this game is repeated for a finite
number of times, but the players do not know the exact date at which the game will end.
The players can earn profits of $10 each period as a Nash equilibrium to a repeated play
of the game if the probability the game terminates at the end of any period is:
A. close to 1
B. close to 0
C. between 0 and 1
D. All of the statements associated with this question are correct.
Consider the following information for a simultaneous move game: If you advertise and
your rival advertises, you each will earn $5 million in profits. If neither of you
advertises, you will each earn $10 million in profits. However, if one of you advertises
and the other does not, the firm that advertises will earn $15 million and the
non-advertising firm will earn $1 million. If you and your rival plan to hand your
business down to your children (and this “bequest” goes on forever), then a Nash
equilibrium when the interest rate is zero is:
A. for each firm to not advertise until the rival does, and then to advertise forever.
B. for your firm to never advertise.
C. for your firm to always advertise when your rival does.
D. for each firm to advertise until the rival does not advertise, and then not advertise
forever.
You are an efficiency expert hired by a manufacturing firm that uses K and L as inputs.
The firm produces and sells a given output. If w = $40, r = $100, MPL = 20, and MPK =
40 the firm:
A. is cost minimizing.
B. should use less L and more K to cost minimize.
C. should use more L and less K to cost minimize.
D. is profit maximizing but not cost minimizing.
When the relevant markets are local, the concentration and HHI based on figures for the
entire United States tend to:
A. be biased downward.
B. be biased upward.
C. give a more precise description of the real situation.
D. ignore the presence of import goods.