QUESTION 1. Assume that a dress shirt is priced at $120.00 At that price six stores in a district sold 650 shirts in a week. Then all six stores declared a sale: buy one get one free. This advertisement increased the sale to 3050 shirt in the following week.
Calculate the price elasticity of demand and interpret your result.
Show all calculation and carry your work to 2 decimal points.
QUESTION 2. Assume the following demand and supply functions:
Demand: Q = 600 - .1P
Supply: Q = -150 + .5P
(a). Calculate equilibrium price and quantify
(b). Now assume that a seller declares 20% sale on the market equilibrium price. What will happen?
(c). If a seller decides to charge 20% more price than the market equilibrium price, what will happen?
QUESTION 3. Discuss how each of the following will affect the market clearing price and quantity in each market. Discuss how the supply and/or demand curves will shift in the following cases (if at all).
a. Incomes rise and the good is a normal good.
b. The state of technology improves.
QUESTION 4. Is the concept of elasticity useful to managers and business owners? Why or why not? Explain with examples.
QUESTION 5. How do price controls affect the managerial decision-making process (either maximum or minimum price controls)?
QUESTION 6. The main difference between perfect competition and monopolistic competition is:
the number of sellers in the market.
the ease of exit from the market.
the difference in the firm's profits in the long run.
the degree of product differentiation.
QUESTION 7. Which of the following industries is most likely to represent the Monopolistic competition market structure?
The Agriculture industry
Utility Companies
Restaurants services
Tobacco products
QUESTION 8. If firms are earning economic profit in a monopolistically competitive market, which of the following is most likely to happen in the long run?
Some firms will leave the market.
Firms will join together to keep others from entering.
New firms will enter the market, thereby eliminating the economic profit.
Firms will continue to earn economic profit.
QUESTION 9. In the Kinked Demand curve model, price tends to settle at the kink because
MR=MC rule does not apply
there is no unique MR curve
the demand curve is inelastic throughout the range
none of the above
QUESTION 10. A Cartel is defined to be:
Any oligopolistic industry with fewer than 4 firms.
A form of oligopoly in which firms agree to sell at different prices like in monopolistic competition.
A form of oligopoly in which firms formally agree to establish a common price, in effect acting like a monopoly.
A form of oligopoly in which firms agree to compete with each other on an equal basis.
QUESTION 11. Which of the following is the best example of a product or service that provides a benefit externality?
the construction of a private road that allows vehicles if a toll is paid
a public library
a bookstore that is open 24 hours
the construction of a golf course in a private hotel
QUESTION 12. An example of a cost externality occurs when a mining company:
dumps waste in river upstream from a popular fishing spot
produces coal that is not in demanded in a recession
underpays its employees
overwork its employees
QUESTION 13. Which of the following may change the supply curve?
Taste of consumers
Income of consumers
Technology
Price of related goods
QUESTION 14. X and Y are substitute goods. X is put on sale "buy one get one free". This will lead to
an increase in demand for Y
a decrease in demand for Y
an increase in demand for X and Y
a decrease in demand for X and Y
QUESTION 15. Economic surplus is
demand price less equilibrium price
supply price above market price
consumer's surplus plus producer's surplus
none of the above
QUESTION 16. A monopsony is a market with
one seller
one buyer
one buyer and one seller
two to eight sellers
QUESTION 17. A bilateral monopoly is a condition characterized by
a perfect competition firm facing a monopsony
a monopolistic firm facing a monopoly
an oligopoly facing a monopsony
a monopsony facing a union
QUESTION 18. A price discriminating firm will charge the lowest price when price elasticity of demand is
lowest
highest
equal to 1
zero
QUESTION 19. P = MC holds for
all firms
monopoly
oligopoly
perfect competition
QUESTION 20. Oligopolists tend to
allocate resources inefficiently
maximize employment
maximize social benefit
all of the above
QUESTION 21. In the short run, a monopolist may
attract other firms into the industry
upgrade technology
incur loss
none of the above
QUESTION 22. The best defense of oligopolist in our economy is
new orders for consumer goods and materials
the rate of change in sensitive materials prices
investment in research and development
growth through merger
QUESTION 23. During recessionary periods, the sale of ground beef goes up. This indicates that
people have more time to make their own hamburgers during recessionary times
people have more time to be outdoor and cook hamburgers during recessionary times
ground beef is an inferior good
ground beef is a normal good
QUESTION 24. In both monopolistic competition and oligopoly market structures
there is easy entry and exit
consumers perceive differences among the products of various competitors
economic profits may be earned in the long run
there are many sellers
QUESTION 25. In the short run, a monopolistically competitive firm
always earns profit
earns profit higher than an oligopolistic firm
earns profit higher than a perfectly competitive firm
may or may not earn profit
QUESTION 26. If the price elasticity of demand is 2, a 50% sale on a product will
decrease total revenue
increase total revenue
keep total revenue constant
increase total revenue by 50%
QUESTION 27. Successful price discrimination requires
the ability to prevent transfers among customers in different submarkets
inelastic demand in each submarket
constant marginal costs
identical price elasticities among submarkets
QUESTION 28. There is no scope for price discrimination in
Oligopoly
monopolistic competition
monopoly
perfect competition
QUESTION 29. Which of the following is not an example of monopsony?
National Football League
National Basketball Association
A Public School District
College professors
QUESTION 30. Labor unions are able to secure higher than market wage for their members by
negotiation only
restricting supply and negotiation
resorting to strike for an indefinite period
law suits
QUESTION 31. The concept of homogeneous product is applicable in
Oligopoly
monopoly
monopolistic competition
perfect competition
QUESTION 32. A monopolistically competitive firm maintains its market share through
artificial product differentiation
relying on brand loyalty
non-price competition
all of the above
QUESTION 33. A short run production function is one where
at least one factor of production is fixed
all factors of production are fixed
capital may or may not be substituted for labor
none of the above
QUESTION 34. Resources are always efficiently used in
any market with some degree of competition
monopolistic competition
oligopoly because of high investment in R&D
perfect competition
QUESTION 35. A brand of computers is assembled in Thailand, which is experiencing labor strike for for almost three months. This is expected to
Increase the supply of this brand of computers
lower the wage rate of labor in Thailand in the short-run
increase the price of this brand of computers
all of the above
QUESTION 36. If the cross price elasticity of demand of X and Y is 1.22, the two goods are
complementary goods
inferior goods
substitute goods
independent goods
QUESTION 37. Compared to competition, a monopolist
produces more
charges a lower price
produces less
charges a higher price
QUESTION 38. Most public utilities in our economy enjoy a good degree of monopoly because of
government regulation
decreasing returns to scale
increasing returns to scale
constant returns to scale
QUESTION 39. The long run ATC is flatter in shape because
all inputs are fixed
there is a greater degree of substitution between inputs
input elasticity is limited
the long run is undefined
QUESTION 40. Which function of management is most concerned with risk minimization?
cost minimization
human resource management
complying with government regulations
entrepreneurial