1)The minimum average cost of producing alternate levels of output, allowing for
ID: 1194951 • Letter: 1
Question
1)The minimum average cost of producing alternate levels of output, allowing for optimal selection of all variables of production is defined by the:
long-run average total cost curve.
short-run average fixed cost curve.
short-run marginal cost curve.
long-run marginal cost curve.
2) Suppose market demand and supply are given by Qd = 300 - 4P and QS = -50 + 3P. The equilibrium quantity is:
100.
80.
115.
120.
3) Which of the following is true concerning negative externalities?
Firms tend to produce more than the efficient level of output.
Society gains because firms do not pay the external costs of production.
Perfect competition is better than monopoly from the viewpoint of society even in the presence of negative externalities.
With negative externalities, a monopoly will always produce an output level less than is socially efficient.
4) 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.
5) Having worked for many of the firms in the petroleum industry, you know that the price elasticity of demand for a representative firm is about 1.25. An industry publication recently reported that the Rothschild index for the petroleum industry is estimated to be 0.88. Based on this information, you know that the price elasticity of demand for the firm you currently work for in the petroleum industry is:
1.42.
1.10.
0.704.
1.10.
6) Suppose the long-run average cost curve is U-shaped. When LRAC is in the increasing stage, there exist:
economies of scope.
diseconomies of scope.
economies of scale.
diseconomies of scale.
7) Fixed costs exist only in:
the long run.
capital-intensive markets.
the short run.
labor-intensive markets.
8) ou are the manager of a monopoly that faces a demand curve described by P = 230 20Q. Your costs are C = 5 + 30Q. Your firm's maximum profits are:
495.
475.
480.
415.
9) The special demand structure that induces a firm to use a cross-subsidization strategy is:
perfect substitution among products.
imperfect substitution among products.
independent demand for products.
interdependent demand for products.
10) 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
11) The figure below presents information for a one-shot game.
What are the Nash equilibrium strategies for firm A and B respectively?
(low price, high price)
(high price, low price)
(high price, high price)
(low price, low price)
12) A necessary cost-side condition for a firm to implement a cross-subsidization pricing strategy is:
economies of scale.
economies of scope.
constant marginal cost.
limited capacity.
13) ou 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:
$2.00.
$2.50.
$4.00.
$5.00.
14) 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.
15) A perfectly competitive firm faces a:
perfectly elastic demand function.
perfectly inelastic demand function.
demand function with unitary elasticity.
None of the answers is correct.
16) Producer surplus is measured as the area
below the demand curve and above the market price.
above the demand curve and below the market price.
above the supply curve and below the market price.
below the supply curve and above the market price.
17) Suppose the own price elasticity of market demand for retail gasoline is -0.9, the Rothschild index is 0.3, and a typical gasoline retailer enjoys sales of $2,350,000 annually. What is the price elasticity of demand for a representative gasoline retailer’s product?
Instruction: Round your answer to 2 decimal places.
18) se the following normal-form game to answer the questions below.
Player 2
Strategy
C
D
Player 1
A
15, 15
40, -10
B
-10, 40
25, 25
a. Identify the one-shot Nash equilibrium.
(Click to select)(A,D)(B,C)(B,D)(A,C)
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?
(Click to select)NoYes
c. Suppose this game is infinitely repeated and the interest rate is 7 percent. Can the players achieve payoffs that are better than the one-shot Nash equilibrium?
(Click to select)YesNo
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 . If is sufficiently low, can players earn more than they could in the one-shot Nash equilibrium?
(Click to select)NoYes
19) You are the manager of a monopoly that sells a product to two groups of consumers in different parts of the country. Group 1’s elasticity of demand is -6, while group 2’s is -5. Your marginal cost of producing the product is $50.
a. Determine your optimal markups and prices under third-degree price discrimination.
Instruction: Round your answers to two decimal places.
Markup for group 1:
Price for group 1: $
Markup for group 2:
Price for group 2: $
b. Which of the following are necessary conditions for third-degree price discrimination to enhance profits.
Instructions: You may select more than one answer. Click the box with a check mark for the correct answers and click twice to empty the box for the wrong answers. You must click to select or deselect each option in order to receive full credit.
We are able to prevent resale between the groups.
There are two different groups with different (and identifiable) elasticities of demand.
At least one group has elasticity of demand less than one in absolute value.
At least one group has elasticity of demand greater than 1 in absolute value.
Essay question.
Explain why excise taxes are more effective at raising tax revenues when applied to products with price inelastic demand versus ones with price elastic demand. Under what conditions would it be possible for tax revenues to decline with higher excise taxes?
2)Discuss each of the pricing strategies below. What conditions are necessary to make each strategy successful in terms of increasing profits? Explain your answer.
a. A local restaurant/bar offers discounted drinks during “happy hour,” from 5 to 6 PM on weeknights.
b. The price Company X charges for its ink cartridges is nearly as much as it charges for a printer.
c. Packs of 5 T-shirts cost $10 while an individual T-shirt costs $4.
d. Coupons for specials at a local grocery store can be downloaded from an online site.
e. Computer and appliance manufacturers promote service contracts.
f. Microsoft Office includes several programs in one package.
3)You hire a contractor to remodel your house. Identify three potential areas where asymmetric information and the principal-agent problem may be present. What are ways to mitigate the problems? Do you think having local government representatives inspect remodeling and building activities helps to reduce any of the problems? Explain your answers.
4) Explain how natural monopolies cause market failure? How is the deadweight loss associated with this form of market failure measured? What is a typical form of government intervention to correct it? How effective is this type of intervention? Use the material from this course to support your answer.
Player 2
Strategy
C
D
Player 1
A
15, 15
40, -10
B
-10, 40
25, 25
Explanation / Answer
1)
long run average total cost curve.
Hence, option 'A' is correct.
2)
Given demand function: Qd = 300 - 4P
Given supply function: QS = -50 + 3P
Calculation of equilibrium price and quantity is as follows:
Qd = : QS
300 - 4P = -50 + 3P
7P = 350
P = 50
Thus, equilibrium price P = 50.
Substitute price value into demand function:
Qd = 300 - 4P
= 300 - 4(50)
= 100
Therefore, equilibrium quantity Qd = 100.
3)
Firms tend to produce more than the efficient level of output.
Hence, option 'A' is correct.
4)
It is not possible to get positive profits for monopolists in the long run.
Hence, option 'B' is correct.
5)
Price elasticity of demand = % change in quantity demanded / % change in price
= - 1.25 / 0.88
= - 1.42
6)
The increasing part of the Lang Run Average Cost (LRAC) illustrates the effect of diseconomies of scale.
Hence, option 'D' is correct.
7)
Expenditure doesn't change the function of business in short run only. Fixed cost is not possible in long run.
Hence, option 'C' is correct.
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