You are the manager of a monopoly that faces a demand curve described by P = 85 –
5Q. Your costs are C = 20 + 5Q. The profit-maximizing price is:
A. 45
B. 55
C. 60
D. 50
Suppose the supply of good X is given by QS
x = 10 + 2Px. How many units of good X
are produced if the price of good X is 20?
A. 10
B. 20
C. 30
D. None of the statements associated with this question are correct.
A long-term contract:
A. occurs when a firm produces its own inputs.
B. is most likely in complex exchange environments.
C. exists when a firm is legally bound to purchase inputs from a particular supplier.
D. is shorter when specialized investments are important.
To avoid the problem of double marginalization:
A. transfer prices must be set that maximize the overall value of the firm rather than the
profits of the upstream division.
B. firms should put more emphasis on vertical integration.
C. firms should engage in two-part pricing.
D. firms should engage in commodity bundling, unless it is possible to engage in either
first-or second-degree price discrimination.
Suppose a risk-neutral competitive firm must set output before it knows for sure the
market price. Suppose the market price is given by p = p* + e, where p* is the mean
price and e is a random term with an expected value of zero. Then in order to maximize
expected profits, the firm should produce where:
A. p = MC.
B. p* = MC.
C. p* + e = MC.
D. p > MC.
Which of the following is true?
A. In Bertrand oligopoly each firm reacts optimally to price changes.
B. In Cournot oligopoly firms engage in quantity competition.
C. In Sweezy oligopoly a change in marginal cost may not have an effect on output or
price.
D. All of the statements associated with this question are correct.
You are the manager of a monopoly that faces a demand curve described by P = 230 –
20Q. Your costs are C = 5 + 30Q. The profit-maximizing output for your firm is:
A. 4
B. 5
C. 6
D. 7
Which of the following is the most common source of technology?
A. independent R&D
B. licensing technology
C. publications or technical meetings
D. reverse engineering
You are a manager in a perfectly competitive market. The price in your market is $14.
Your total cost curve is C(Q) = 10 + 4Q + 0.5Q2. What price should you charge in the
short run?
A. $12
B. $14
C. $16
D. $18
Consider a Stackelberg duopoly with the following inverse demand function: P = 100 –
2Q1 – 2Q2. The firms’ marginal costs are identical and are given by MCi(Qi) = 2. Based
on this information, the leader’s reaction function is:
A. r1(Q2) = 24.5 – 0.5Q1 and r2(Q1) = 24.5 – 0.5Q2.
B. r1(Q2) = 24.5 – 0.5Q2 and r1(Q2) = 24.5 – 0.5Q1.
C. Q1 = 49 – 0.5Q2 and Q2 = 49 – 0.5Q1.
D. The Stackelberg leader does not react to the output decision of its rival.
The industry elasticity of demand for gadgets is -2, while the elasticity of demand for
an individual gadget manufacturer’s product is -10. Based on the Rothschild approach to
measuring market power, we conclude that:
A. the Herfindahl index for this industry is 5
B. the Herfindahl index for this industry is 0.2
C. there is no monopoly power in this industry.
D. there is significant monopoly power in this industry.
Jane wants to buy a beautiful doll as a gift for her sister’s birthday. She knows that the
same product is offered in different shops with prices of $120, $100, and $80 with odds
of one-third of finding each price. She just stopped at a shop and knows that the price is
$100. If the search cost is $8 per time, what should she do?
A. Search once more and decide again upon knowing the price.
B. Accept the offer in hand.
C. She should toss a coin.
D. Insufficient information to determine.
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. Which of the following is true?
A. A dominant strategy for firm A is to advertise.
B. A dominant strategy for firm B is to advertise.
C. A Nash equilibrium is for both firms to advertise.
D. None of the answers is correct.
Which of the following kinds of market structure are NOT associated with market
power?
A. Oligopoly
B. Perfect competition
C. Monopolistic competition
D. Perfect competition and monopolistic competition
In highly concentrated markets, an increase in the HHI of more than _________ raises
potential concerns.
A. 5 points
B. 10 points
C. 30 points
D. 50 points
Game theory is especially useful for analysis in the following markets:
A. Perfect competition
B. Monopolistic competition
C. Oligopoly
D. Monopoly
In order to maximize net benefits, firms should produce where:
A. total benefits equal total costs.
B. profits are zero.
C. marginal cost is minimized.
How much would the monopoly in the figure below spend to prevent its price being
regulated to marginal (or average) cost?
A. $16
B. $8
C. $4
D. $0