Which of the following are signals to the owners of scarce resources about the best uses
of those resources?
A. Profits of businesses
B. Government regulations
C. Economic indicators
D. The accounting cost of those resources
Which of the following is true under perfect competition?
A. Profits are always positive.
B. P > MC.
C. P = MR.
D. All of the choices are true for perfect competition.
Given a linear demand function of the form QX
d = 100 – 0.5PX, find the inverse linear
demand function.
A. PX = 200 – 2QX.
B. PX = 100 – 0.5QX.
C. PX = 100 – 2QX.
D. PX = 100QX – 0.5PX.
Which of the following pricing strategies does NOT usually enhance the profits of firms
with market power?
A. Price matching
B. Cross-subsidies
C. Two-part pricing
D. Marginal cost pricing
What is the marginal revenue of producing the third unit?
A. 250
B. 70
C. 0
D. 90
An example of a job that usually involves a revenue-sharing plan would be:
A. waiters and waitresses.
B. car salesman.
C. insurance agents.
D. All of the statements associated with this question are correct.
The profits of the follower in a Stackelberg duopoly:
A. are greater than those of the leader.
B. equal those of the leader.
C. are less than those of the leader.
D. All the statements associated with this question are correct.
Price-matching strategies may fail to enhance profits when:
A. firms cannot prevent customers from making deceptive claims.
B. firms have different marginal costs.
C. firms cannot prevent customers from making deceptive claims or firms have
different marginal costs.
D. None of the statements are correct.
Consider the monopoly in the figure below with price regulated at $2 per unit. The
regulated price will result in a:
A. surplus of 2 units.
B. shortage of 2 units.
C. surplus of 5 units.
D. shortage of 5 units.
Long-term contracts are NOT efficient if:
A. a firm engages in relationship-specific exchange.
B. specialized investments are unimportant.
C. the contractual environment is simple.
D. managers shirk.
It is profitable to hire units of labor as long as the value of marginal product:
A. is less than wage.
B. exceeds average product.
C. equals price.
D. exceeds wage.
If a monopolist has an own price demand elasticity of -.8, is it maximizing profits?
Explain.
Three years ago the CEO of a large firm instituted a plan that encourages division
managers to share information obtained about the demographic characteristics of those
who purchase the firms final product. Since the plan was implemented, however, the
CEO has noticed that less information is available than ever. Why do you think the
CEOs plan backfired?
Manufacturers of laundry detergent and dishwashing soap reinvest a relatively large
percentage of their sales revenues on advertising campaigns. Most of these
advertisements that appear on television stress the fact that their product is “New and
Improved.” Why?
XYZ Labs-the sole producer of Diamatine-charges a price for its drug that is
significantly above the firms marginal cost. It takes XYZ Labs 10 years of research and
development before products like Diamatine are finally sold in the market. Do you
think government regulators would be wise to impose price ceilings on Diamatine in
order to bring the price in line with marginal costs? Explain.
In 1995 the U.S. Justice Department sued to block a merger between Microsoft and
Intuit, the producer of the nations best-selling business software. The Justice
Department argued that the merger would lessen competition and raise prices of
business software. Is there an economic argument that the merger might actually result
in lower prices? Explain.
Caviar and champagne are complements. Recently pollution has been a problem in the
Volga River, where much of the worlds caviar originates. The sturgeon that live in these
waters are laying fewer eggs than before. Show graphically and explain the effects on
the market for caviar and the market for champagne.
