A stockholder named Sue must cast a vote for chair of the board. Sue prefers Mr. Lee to
Ms. Doe, Ms. Doe to Mr. James, and Mr. James to Mr. Lee.a. Are Sues preferences
consistent with our assumptions about consumer behavior? Explain.b. If all
stockholders had the same preferences as Sue, who would win the appointment as chair
of the board? Explain.
Firms will try to signal superior quality of their goods by:
A. making sales information available to the public.
B. advertising.
C. issuing warranties or guarantees.
D. making sales information available to the public and advertising.
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/2. If A innovates and B does not, A earns $20 in revenue
while B earns $0. If A innovates and B does likewise, both firms earn $15 in revenue. If
neither firm innovates, both earn $5. If C = 15, which is the perfect equilibrium of the
game?
A. A innovates, B does not.
B. A innovates, B innovates.
C. Neither firm innovates.
D. None of the answers is correct.
Holding all else constant, higher prices will:
A. increase the Lerner index.
B. decrease the Lerner index.
C. have no impact on the Lerner index.
D. increase or decrease the Lerner index depending on the relative magnitude of the
price increase.
According to Wikipedia.com, former Philippines President Marcos authorized
construction of a new nuclear power plant on a known earthquake fault line in the
province of Bataan. The projected $500 million power plant was to be constructed by
Westinghouse. The project was backed by EXIR-a U.S. government-backed Export
Credit Agency-which guaranteed the Philippine loan to Westinghouse. The actual cost
of the completed project was $2.3 billion. Westinghouse was paid despite the fact that
the nuclear plant never went online since it was built on a fault line. This is an example
of:
A. signaling.
B. screening.
C. moral hazard.
D. adverse selection.
Suppose the demand for good X is given by Qd
x = 10 + axPx + ayPy + aMM. If aM is
negative, then good y is:
A. a normal good.
B. an inferior good.
C. a complement.
D. a substitute.
Which of the following is a feature of a Dutch auction?
A. The auctioneer begins with a very low asking price.
B. The winner pays exactly what she bid for the item.
C. Bidders simultaneously write their valuations on paper and submit them
independently.
D. Several bidders will announce their valuations.
From a consumers point of view, which type of oligopoly is most desirable?
A. Sweezy
B. Cournot
C. Stackelberg
D. Bertrand
In the game depicted below, firms 1 and 2 must independently decide whether to charge
high or low prices.
A dominant strategy for firm 1 is:
A. high price.
B. low price.
C. different from firm 1s secure strategy.
D. low price and different from firm 1s secure strategy.
You are the manager of a monopoly that faces a demand curve described by P = 85 –
5Q. Your costs are C = 20 + 5Q. The revenue-maximizing output is:
A. .85
B. 9
C. 10
D. None of the answers is correct.
Refer to the normal-form game of price competition shown below.
Firm B is the incumbent facing potential entry from its rival, firm A. Firm As strategies
consist of {entry, stay out}. Firm Bs strategies are then {hard if entry; hard if stay out;
soft if entry; soft if stay out}. Find the non-subgame Nash equilibrium to this game, if
one exists.
A. Firm A plays {stay out}; firm B plays {hard if entry}.
B. Firm A plays {entry}; firm B plays {hard if entry}.
C. Firm A plays {entry}; firm B plays {soft if entry}.
D. There is no non-subgame Nash equilibrium to this game.
Predatory pricing is a strategy:
A. whereby an incumbent maintains a price below the monopoly level to prevent entry
by potential competitors.
B. whereby a firm enjoys lower costs due to knowledge gained from its past production
decisions.
C. whereby a firm temporarily prices below its marginal cost to drive competitors out of
the market.
D. used by a vertically integrated firm to squeeze the margins of its competitors.
The agent is an individual:
A. who acts independently of the principal.
B. who can direct the principal to achieve goals.
C. hired by the principal to achieve goals.
D. hired by the principal to consult with him.
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 price is:
A. 150
B. 90
C. 130
D. 110
Which of the following pricing policies compensate customers if the firm fails to
provide the best price in the market?
A. Price matching
B. Beat-or-pay
C. Brand loyalty
D. Randomized pricing
Which of the following is true regarding the relationship between the elasticity of
demand for an individual firm and the elasticity of demand for the market in a Cournot
oligopoly with five identical firms?
A. EF = (df(p)/dP) x (5P/Q)
B. EF = (df(p)/dP) x (5Q/P)
C. EM = 5EF
D. EF = (1/5)EM
Suppose a managers preferences depend only on profit. Such a manager will then have
an indifference curve that:
A. is tangent to the profit curve somewhere between quantities of 0 and 2.5.
B. is tangent to the profit curve somewhere between quantities of 2.5 and 5.
C. is tangent to the profit curve at a quantity exactly equal to 2.5.
D. intersects the profit curve at a quantity exactly equal to 5.
In the absence of price regulation, a monopolist:
A. charges a price below MR.
B. charges a price above MC.
C. charges a price equal to MR.
D. charges a price above MC and equal to MR.
When the price of a good increases with other things unchanged, the real income of the
consumer:
A. is unchanged.
B. increases.
C. decreases.
D. None of the statements is correct.
Suppose that three consumers are in the market for good X. Consumer 1s (inverse)
demand is PX = 40 – QX; Consumer 2s (inverse) demand is PX = 50 – 2QX; and
Consumer 3s (inverse) demand is PX = 70 – 4QX. When PX = $20, the market will
demand:
A. 41 units.
B. 47.5 units.
C. 19.5 units.
D. None of the statements is correct.