1- A monopolist faces the following demand curve: P - 12 - 0.3Q with marginal costs of $3. What is the monopolist PRICE?
A. $5.50
B. $6.50
C. $7.50
D. $8.50
E. $9.50
2- The demand curve facing the firm in ............. Is the same as the industry demand curve.
A. Pure competition
B. Monopolistic competition
C. Oligopoly
D. Pure monopoly
E. None of the above
3- In the case of Pure monopoly:
A. One firm is the sole producer of a good or service which has no close substitutes
B. The firms profit is maximized at the price and output combination where marginal cost equals marginal revenue
C. The demand curve is always elastic
D. A and b only
E. A, b, and c
4- If price exceeds average costs under pure competition, ............... firms will enter the industry, supply will ..........., and price will be driven ...........
A. More; decrease; down
B. More; decrease; up
C. More; increase; down
D. More; increase; down
E. None of the above
5- In a perfectly competitive market industry, firms prices are equal to
A. Average revenue
B. Marginal revenue
C. Both a and b
D. None of the above
6- If demand and supply both increase, the:
A. Equilibrium price will decrease while the quantity produced and sold could increase, decrease, or remain constant.
B. Quantity produced and sold will increase while the equilibrium price could increase, decrease, or remain constant.
C. Quantity produced and sold will decrease while the equilibrium market price could increase, decrease, or remain constant.
D. Equilibrium price will decrease while the quantity produced and sold could increase, decrease, or remain constant.
7- Holding all else equal, if supplies increase, the:
A. Equilibrium price will decrease while the quantity produced and sold could increase, decrease, or remain constant.
B. Quantity produced and sold will increase while the equilibrium price could increase, decrease, or remain constant.
C. Equilibrium price will increase while the quantity produced and sold could increase, decrease, or remain constant.
D. None of these
8- If the market price is higher than the equilibrium price a:
A. Shortage exists and the equilibrium price will rise until it equals the market price and the shortage is eliminated.
B. Surplus exists and the market price will fall until it equals the equilibrium price and the surplus is eliminated.
C. Surplus exists and the equilibrium price will rise until it equals the market price and the surplus is eliminated.
D. Shortage exists and the market price will fall until it equals the equilibrium price and the shortage is eliminated.
9- The equilibrium market price and quantity of beef would increase if:
A. Consumers increasingly view beef as unhealthy.
B. The rice of cattle feed decreased.
C. Consumer income increased.
D. Herd sizes fell following a severe drought.
10- A price elasticity of -1.50 indicates that for a ................ Increase in price, quantity demanded will ............. by ................ .
A. One percent; increases; 1.50 units.
B. One unit; increase; 1.50 units.
C. One percent; decreases; 1.50 percent.
D. One unit; decreases; 1.50 percent.
E. Ten percent; increase; fifteen percent.
11- If demand were inelastic, then we should immediately:
A. Cut the price
B. Keep the price where it is
C. Go to the Nobel Prize Committee to show we were the first to find an upward sloping demand curve
D. Stop selling since is inelastic
E. Raise the price
12- Marginal revenue (MR) is ................. when total revenue is maximized.
A. Greater than one
B. Equal to one
C. Less than zero
D. Equal to zero
E. Equal to minus one
13- Demand is given by Qd = 620 - 10xP and supply is given by Qs = 100 + 3xP. What is the price and quantity when the market is in equilibrium?
A. The price will be $30 and the quantity will be 132 units.
B. The price will be $11 and the quantity will be 122 units.
C. The price will be $40 and the quantity will be 220 units.
D. The price will be $35 and the quantity will be 137 units.
E. The price will be $10 and the quantity will be 420 units.
14- Total costs increase from $1000 to $1250 when a firm increases output from 40 to 50 units. Which of the following are true?
A. VC rise by $250
B. VC rise by $1250
C. VC rise by $1000
D. VC rise by $0
15- A firm is thinking of hiring an additional worker for their organization who they believe can increase total productivity by 300 units a week. The cost of hiring him or her is $1300 per week. If the price of each unit is $13,
A. The MR of hiring the worker is $1300
B. The MC of hiring the worker is $1200
C. The firm should hire the worker since MR = MC
D. All of the above
16- If the annual interest rate is 5%, the net present value of receiving $530 in the next year is:
A. $530
B. $523.80
C. $577.50
D. $500
TABLE
Number of workers Total costs
0 50
1 110
2 160
3 200
4 240
5 250
6 255
7 260
8 310
9 350
10 400
17- Refer to the table above. If the firm hires 7 workers, the average variable costs equals
A. $210
B. $50
C. $37.14
D. $30
18- When there are economies of scale,
A. Per-unit costs increases as output increases
B. Per-unit costs decreases as output decreases
C. Per-unit costs are constant as output increases
D. Output does not affect per-unit costs
19- Microsoft found out that instead of producing a dvd player and a gaming system separate, it is cheaper to incorporate dvd playing capabilities in their new version of the gaming system. Microsoft is taking advantage of
A. Economies of scale
B. Learning curve
C. Economies of scope
D. Decreasing marginal costs
20- The average total cost curve
A. Is downward sloping at all levels of output
B. Is downward sloping when marginal costs are decreasing and upward sloping when marginal costs are increasing
C. Is upward sloping when marginal costs are decreasing and downward sloping when marginal costs are increasing
D. Does not vary with output
21- Six possibilities are equally likely and have payoffs of $3, $5, $7, $9, $11, and $13. The expected value is:
A. $6
B. $7
C. $8
D. $9
22- You can invest in either project A or B. Project A has value $200 with probability 0.2 and value $100 with probability 0.8. Project B has value $150 with probability 0.4 and value $100 with probability 0.6.
A. You should invest in project A
B. You should invest in project B
C. You should not invest in either
D. Each investment yields the same profitability
23- Firms that face capacity constraints can only increase output only u to the capacity, but no further. Therefore, firms
A. Should price to capacity as long as MR > MC
B. Should price to capacity as long as MR = MC
C. Should price to capacity as long as MR < MC
D. Should not take capacity into consideration in pricing decisions
24- The goal of pricing discrimination is to
A. Convert consumer surplus to producer surplus
B. Maximize profits
C. Both a and b
D. Making pricing decision difficult
TABLE
Consumer A Consumer B
Good 1 $500 $200
Good 2 $100 $400
25- Refer to the table above. What is a better pricing strategy for the monopolist? At that price, what are the total profits?
A. Bundle the goods at $400, profits = $800
B. Bundle the goods at $500, profits = $1000
C. Bundle the goods at $600, profits = $1200
Short answer questions
26- You have the following market demand and supply equations:
Qd = 200 - 5P
Qs = 40 + 5P
1) Determine the market equilibrium price.
2) Determine the market equilibrium quantity.
3) If the market price is $10, by what amount will excess supply or excess demand be? (enter positive amount for excess supply and a negative amount for excess demand)
27- A monopoly has the following inverse demand function and marginal costs:
P = 2500 - 10Q
Marginal cost = $500
1) What is the output the monopoly produces?
2) How much does the monopoly earn in profit?
28- A firm has the following the following short run total cost function
SRTC = 4000 + 200Q - 10Q(square) + (1/3)Q(cube)
1) What output level is short-run marginal cost minimized?
29- The following demand function was estimated
Q = 50 - 4P
1) Evaluate the elasticity of demand when quantity is 100 and price is $20.
2) Should you raise or lower price to increase total revenue?
30- You are going to invest in a new technology that cost $15000. It is expected to generate $10000 the first year, $9000 the second year then be obsolete afterwards.
1) If current market interest rate is 5%, what is the net present value of the income stream?
2) Should you invest?