Suppose market demand and supply are given by Qd = 300 – 4P and QS = -50 + 3P. The
equilibrium quantity is:
A. 100
B. 80
C. 115
D. 120
You are the manager of a firm that produces output in two plants. The demand for your
firms product is P = 78 – 15Q, where Q = Q1 + Q2. The marginal costs associated with
producing in the two plants are MC1 = 3Q1 and MC2 = 2Q2. What price should be
charged to maximize profits?
A. $20.5
B. $40.5
C. $60.5
D. $80.5
When there are economies of scope between products, selling off an unprofitable
subsidiary could lead to:
A. a major reduction in costs.
B. only a minor reduction in costs.
C. only a minor reduction in sales.
D. a major reduction in sales.
There are two existing firms in the market for computer chips. Firm A knows how to
reduce the production costs for the chip and is considering whether to adopt the
innovation or not. Innovation incurs a fixed setup cost of C, while increasing the
revenue. However, once the new technology is adopted, another firm, B, can adopt it
with a smaller setup cost of C/3. If A innovates and B does not, A earns $30 in revenue
while B earns $10. If A innovates and B does likewise, both firms earn $20 in revenue.
If neither firm innovates, both earn $10. Under what condition will firm A innovate?
A. C > 30
B. C < 30
C. 10 > C > 0
D. 35 > C > 25
A consumer spends more time searching for a good when her reservation price is:
A. increased.
B. reduced.
C. fixed.
D. None of the statements is correct.
Two firms compete as a Stackelberg duopoly. The demand they face is P = 24 – Q. The
cost function for each firm is C(Q) = 4Q. The profits of the two firms are:
A. L = $100; F = $50.
B. L = $50; F = $25.
C. L = $25; F = $12.5.
D. L = $20; F = $10.
An import quota is:
A. a fixed fee that an importing firm must pay the domestic government in order to
have the legal right to sell the product in the domestic market.
B. the fee an importing firm must pay to the domestic government on each unit it brings
into the domestic market.
C. a restriction limiting the quantity of imported goods that can legally enter a domestic
market.
D. None of the statements are correct.
If the profit-maximizing markup factor in a six-firm Cournot oligopoly is 3, what is the
corresponding market elasticity of demand?
A. -0.25
B. -1.25
C. 0.08
D. None of the answers are correct.
Suppose the growth rate of the firms profit is 5 percent, the interest rate is 6 percent,
and the current profits of the firm are $100 million. What is the value of the firm?
A. $111.5 million
B. $1,766.6 million
C. $10,600 million
D. None of the statements associated with this question are correct.
Suppose that a consumers preferences are well behaved in that properties 4-1 to 4-4 are
satisfied and the initial budget constraint is given by 300 = 2X + 4Y. At the initial
budget constraint, this consumer purchases 100 units of good X and 25 units of good Y.
Suppose the price of X increases to $4 per unit, resulting in a new consumption bundle
consisting of 60 units of X and 15 units of Y. Then, the slope of the inverse demand for
good X over this consumption range is:
A. 0.05.
B. -0.05.
C. -0.267.
D. -0.444.
Two firms produce different goods. Firm 1 has a positive-sloped reaction function. This
can be explained best by:
A. homogeneous product Cournot oligopoly.
B. homogeneous product Bertrand oligopoly.
C. heterogeneous product Bertrand oligopoly.
D. None of the answers is correct.
Revenues when a firm engages in peak-load pricing based on the figure below will be:
A. (P1 x Q1) + (P4 x Q3).
B. (P3 x Q1) + (P4 x Q3).
C. (P1 x Q2) + (P2 x Q3).
D. (P4 x Q3).
The most commonly used negative incentive used by firms is:
A. temporary layoffs.
B. dismissal.
C. unpaid suspensions.
D. verbal reprimands.
Which of the following is true under monopoly?
A. P > ATC
B. P > MC
C. P = MR
D. P = ATC
Rent seeking:
A. involves resources paid to politicians to enhance one group at the expense of
another.
B. results in less monopoly power.
C. results in externalities.
D. None of the statements are correct.
A new firm enters a market which is initially serviced by a Cournot duopoly charging a
price of $20. What will the new market price be should the three firms coexist after the
entry?
A. $20
B. Below $20
C. Above $20
D. None of the answers is correct.
Anns money income is $250, the price of X is $3, and the price of Y is $2. Given these
prices and income, Ann buys 60 units of X and 35 units of Y. Call this combination of X
and Y bundle J. At bundle J Anns MRS is 2. Given these prices and income, what is
Anns equilibrium consumption of X?
A. X < 60
B. X = 60
C. X > 60
D. None of the statements is correct.
Suppose B(Q) = 5Q – Q2 and C(Q) = 1 + Q2. Then, net benefits are ______ when Q
equals __________ units since the second-order condition is ______________.
A. maximized; 5/4; negative
B. minimized; -1; positive
C. maximized; 4/5; positive
D. minimized; 4/5; negative