ECO500 FINAL EXAM
.Suppose market demand and supply are given by Qd = 300 – 4P and QS = -50 + 3P. The equilibrium quantity is:
2. Other things held constant, the higher the price of a good
the lower the producer surplus.
the greater the producer surplus.
the higher the supply.
the lower the supply.
3. A firm has a marginal cost of $200 and charges a price of $500. The Lerner index for this firm is:
4. You are the manager of a Mom and Pop store that can buy milk from a supplier at $3.00 per gallon. If you believe the elasticity of demand for milk by customers at your store is −4, then your profit-maximizing price is:
5.A monopoly producing a chip at a marginal cost of $6 per unit faces a demand elasticity of −2.5. Which price should it charge to optimize its profits?
$6 per unit
$8 per unit
$10 per unit
$12 per unit
6.The following provides information for a one-shot game.
What are secure strategies for firm A and firm B respectively?
(low price, low price)
(high price, low price)
(high price, high price)
Neither firm has a secure strategy.
7.The figure below presents information for a one-shot game.
What are dominant strategies for firm A and firm B respectively?
(low price, high price)
(high price, low price)
(high price, high price)
(low price, low price)
8.Which of the following is NOT an incentive scheme to ensure that workers do a good job?
Paying waitresses low wages, but allowing them to collect tips
Profit-sharing plans in large companies
Commission pay schedules for salesmen
Straight hourly wages for dock workers
9.The additional benefits that arise by using an additional unit of the managerial control variable is defined as the:
present value of benefits.
10.Suppose market demand and supply are given by Qd = 100 – 2P and QS = 5 + 3P. The equilibrium quantity is:
11.The purpose of randomized pricing is to reduce:
consumer price information only.
competitor price information only.
both customer and competitor information about price.
the firm’s pricing inflexibility.
12.Which of the following statements is NOT correct about monopoly?
A monopolist generally faces a downward-sloping demand curve.
Monopolists always make positive profits in the long run.
A monopoly may make negative profits in the short run.
There is no close substitute for a monopoly’s product.
13.In the absence of worker incentives:
everyone always gives maximum effort.
there is a natural tendency for workers to not give their maximum effort.
managers have little or no control.
None of the statements is correct.
14.In the short run, the marginal cost curve crosses the average total cost curve at:
a point just below the average fixed cost curve.
the minimum point of the average total cost curve.
the maximum point of the average total cost curve.
the point where the average total cost curve and average variable cost curve intersect.
15.An income elasticity less than zero tells us that the good is:
a normal good.
a Giffen good.
an inferior good.
an inelastic good.
16.Non-fed ground beef is an inferior good. In economic booms, grocery managers should:
increase their orders of non-fed ground beef.
reduce their orders of non-fed ground beef.
not change their orders of non-fed ground beef.
neither increase, reduce, nor maintain their current orders for non-fed ground beef.
17. Jaynet spends $40,000 per year on painting supplies and storage space. She recently received two job offers from a famous marketing firm – one offer was for $115,000 per year, and the other was for $85,000. However, she turned both jobs down to continue a painting career. If Jaynet sells 30 paintings per year at a price of $6,000 each:
a. What are her accounting profits?
b. What are her economic profits.
18. Use the following normal-form game to answer the questions below.
a. Identify the one-shot Nash equilibrium.
b. Suppose the players know this game will be repeated exactly three times. Can they achieve payoffs that are better than the one-shot Nash equilibrium?
c. Suppose this game is infinitely repeated and the interest rate is 5 percent. Can the players achieve payoffs that are better than the one-shot Nash equilibrium?
d. Suppose the players do not know exactly how many times this game will be repeated, but they do know that the probability the game will end after a given play is θ. If θ is sufficiently low, can players earn more than they could in the one-shot Nash equilibrium?
A risk-neutral consumer is deciding whether to purchase a homogeneous product from one of two firms. One firm produces an unreliable product and the other a reliable product. At the time of the sale, the consumer is unable to distinguish between the two firms’ products. From the consumer’s perspective, there is an equal chance that a given firm’s product is reliable or unreliable. The maximum amount this consumer will pay for an unreliable product is $0, while she will pay $210 for a reliable product.
Given this uncertainty, what is the most this consumer will pay to purchase one unit of this product?
How much will this consumer be willing to pay for the product if the firm offering the reliable product includes a warranty that will protect the consumer?
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