Suppose your college institutes a new policy requiring you to pay for a permit to park your car in a campus parking lot. a. The cost of the parking permit is not part of the opportunity cost of attending college if you would not have to pay for parking otherwise. b. The cost of the parking permit is part of the opportunity cost of attending college if you would not have to pay for parking otherwise. c. Only half of the cost of the parking permit is part of the opportunity cost of attending college. d. The cost of the parking permit is not part of the opportunity cost of attending college under any circumstances. . Tom is restoring a car and has already spent $3500 on the restoration. He expects to be able to sell the car for $5000. Tom discovers that he needs to do an additional $2000 of work to make the table worth $5000 to potential buyers. He could also sell the car now, without completing the additional work, for $2800. What should he do? a. He should sell the car now for $2800. b. He should keep the car since it wouldn’t be rational to spend $5500 restoring a car and then sell it for only $5000. c. He should complete the additional work and sell the car for $5000. d.
It does not matter which action he takes since the outcome will be the same either way. 3. An increase in the price of rubber coincides with an advance in the technology of tire production. As a result of these two events, a. the demand for tires decreases and the supply of tires increases. b. the demand for tires is unaffected and the supply of tires decreases. c. the demand for tires is unaffected and the supply of tires increases. d. None of the above is necessarily correct. 4. Which of the following might cause the supply curve for an inferior good to shift to the right? a.
An increase in input prices. b. A decrease in consumer income. c. An improvement in production technology that makes production of the good more profitable. d. A decrease in the number of sellers in the market. Table 1 The demand schedule below pertains to sandwiches demanded per week. Price $3 $5 Charlie’s Quantity Demanded 3 1 Maxine’s Quantity Demanded 4 2 Quinn’s Quantity Demanded 3 x 5. Refer to Table 1. Regarding Charlie and Maxine, whose demand for sandwiches conforms to the law of demand? a. only Charlie’s b. only Maxine’s c. both Charlie’s and Maxine’s d. neither Charlie’s nor Maxine’s . Refer to Table 1. Regarding Charlie and Maxine, for whom are sandwiches a normal good? a. b. c. d. only for Charlie only for Maxine for Charlie and for Maxine This cannot be determined from the given information. 7. Refer to Table 1. Suppose x = 1. Then it must be true that a. Charlie and Quinn have the same income, which is lower than Maxine’s income. b. if sandwiches and potato chips are complements for Charlie, then those two goods are also complements for Quinn. c. Charlie’s demand curve is identical to Quinn’s demand curve. d. All of the above are correct. 8. Refer to Table 1.
Suppose x = 1. Then the slope of the market demand curve is a. -3. b. -1/3. c. 1/3. d. 3. 9. Refer to Table 1. Suppose Charlie, Maxine, and Quinn are the only demanders of sandwiches. Also suppose x = 2. Then a. the slope of Quinn’s demand curve is -1/2 and the slope of the market demand curve is -5/2. b. the slope of Quinn’s demand curve is -1/2 and the slope of the market demand curve is -2/5. c. the slope of Quinn’s demand curve is -2 and the slope of the market demand curve is -5/2. d. the slope of Quinn’s demand curve is -2 and the slope of the market demand curve is -2/5. 10.
Refer to Table 1. Suppose Charlie, Maxine, and Quinn are the only demanders of sandwiches and that the market demand violates the law of demand. Then, in the table, a. x 5. b. x 5. c. x 7. d. x 10. 11. Refer to Table 1. Suppose Charlie, Maxine, and Quinn are the only demanders of sandwiches. Also suppose the following: • x=2 • the current price of a sandwich is $5. 00 • the market quantity supplied of sandwiches is 10 • the law of supply applies to the supply of sandwiches Then a. there is a shortage of 5 sandwiches and the price would be expected to rise from its current level of $5. 00. . there is a shortage of 5 sandwiches and the price would be expected to fall from its current level of $5. 00. c. there is a surplus of 5 sandwiches and the price would be expected to rise from its current level of $5. 00. d. there is a surplus of 5 sandwiches and the price would be expected to fall from its current level of $5. 00. 12. Refer to Table 1. Suppose Charlie, Maxine, and Quinn are the only demanders of sandwiches. Also suppose the following: • x=2 • the current price of a sandwich is $3. 00 • the market quantity supplied of sandwiches is 4 • the slope of the supply curve is 2
Then a. there is currently a shortage of 6 sandwiches and the equilibrium price of a sandwich is less than $3. 00. b. there is currently a shortage of 6 sandwiches and the equilibrium price of a sandwich is $5. 00. c. there is currently a surplus of 6 sandwiches and the equilibrium price of a sandwich is less than $3. 00. d. there is currently a surplus of 6 sandwiches and the equilibrium price of a sandwich is $5. 00. 13. Refer to Table 1. Suppose Charlie, Maxine, and Quinn are the only demanders of sandwiches. Also suppose the following: • x=2 • the current price of a sandwich is $3. 00 the market quantity supplied of sandwiches is 5 • the slope of the supply curve is 1 Then a. there is currently a shortage of 5 sandwiches and the equilibrium price of a sandwich is between $3. 00 and $5. 00. b. there is currently a shortage of 5 sandwiches and the equilibrium price of a sandwich is $5. 00. c. there is currently a surplus of 5 sandwiches and the equilibrium price of a sandwich is between $3. 00 and $5. 00. d. there is currently a surplus of 5 sandwiches and the equilibrium price of a sandwich is $5. 00. 14. For a particular good, a 2 percent increase in price causes a 12 percent decrease in quantity demanded.
Which of the following statements is most likely applicable to this good? a. There are no close substitutes for this good. b. The good is a luxury. c. The market for the good is broadly defined. d. The relevant time horizon is short. 15. For a particular good, a 12 percent increase in price causes a 3 percent decrease in quantity demanded. Which of the following statements is most likely applicable to this good? a. There are many substitutes for this good. b. The good is a necessity. c. The market for the good is narrowly defined. d. The relevant time horizon is long. 16.
For a particular good, a 3 percent increase in price causes a 10 percent decrease in quantity demanded. Which of the following statements is most likely applicable to this good? a. The relevant time horizon is short. b. The good is a necessity. c. The market for the good is broadly defined. d. There are many close substitutes for this good. 17. For a particular good, a 10 percent increase in price causes a 3 percent decrease in quantity demanded. Which of the following statements is most likely applicable to this good? a. The relevant time horizon is short. b. The good is a luxury. c.
The market for the good is narrowly defined. d. There are many close substitutes for this good. Table 2 Good Price Elasticity of Demand A 1. 3 B 2. 1 18. Refer to Table 2. Which of the following is consistent with the elasticities given in Table 2? a. A is a luxury and B is a necessity. b. A is a good several years after a price increase, and B is that same good several days after the price increase. c. A is a Kit Kat bar and B is candy. d. A has fewer substitutes than B. 19. Refer to Table 2. Which of the following is consistent with the elasticities given in Table 2? a. A is grapes and B is fruit. . A is T-shirts and B is socks. c. A is train tickets before cars were invented, and B is train tickets after cars were invented. d. A is diamond necklaces and B is beds. 20. Studies indicate that the price elasticity of demand for cigarettes is about 0. 4. A government policy aimed at reducing smoking changed the price of a pack of cigarettes from $2 to $6. According to the midpoint method, the government policy should have reduced smoking by a. 30%. b. 40%. c. 80%. d. 250%. 21. Using the midpoint method, the price elasticity of demand for a good is computed to be approximately 0. 75.
Which of the following events is consistent with a 10 percent decrease in the quantity of the good demanded? a. a 7. 5 increase in the price of the good b. a 13. 33 percent increase in the price of the good c. an increase in the price of the good from $7. 50 to $10 d. an increase in the price of the good from $10 to $17. 50 22. Which of the following expressions can be used to compute the price elasticity of demand? a. Price elasticity of demand = • . b. c. d. Figure 1 Price elasticity of demand = • . Price elasticity of demand = • . Price elasticity of demand = • . A Price B Demand C Quantity 23. Refer to Figure 1.
Assume the section of the demand curve from A to B corresponds to prices between $6 and $12. Then, when the price increases from $8 to $10, a. the percent decrease in the quantity demanded exceeds the percent increase in the price. b. the percent increase in the price exceeds the percent decrease in the quantity demanded. c. sellers’ total revenue increases as a result. d. it is possible that the quantity demanded fell from 550 to 500 as a result. 24. Refer to Figure 1. Assume, for the good in question, two specific points on the demand curve are (Q = 1,000, P = $40) and (Q = 1,500, P = $30). Then which of the following scenarios is possible? . Both of these points lie on the section of the demand curve from B to C. b. The vertical intercept of the demand curve is the point (Q = 0, P = $60). c. The horizontal intercept of the demand curve is the point (Q = 1,800, P = $0). d. Any of these scenarios is possible. 25. Refer to Figure 1. Assume, for the good in question, two specific points on the demand curve are (Q = 2,000, P = $15) and (Q = 2,400, P = $12). Then which of the following scenarios is possible? a. Both of these points lie on section C of the demand curve. b. The vertical intercept of the demand curve is the point (Q = 0, P = $22). . The horizontal intercept of the demand curve is the point (Q = 5,000, P = $0). d. Any of these scenarios is possible. 26. Refer to Figure 1. If the price decreases in the region of the demand curve between points A and B, we can expect total revenue to a. increase. b. stay the same. c. decrease. d. first decrease, then increase until total revenue is maximized. 27. Refer to Figure 1. If the price increases in the region of the demand curve between points A and B, we can expect total revenue to a. increase. b. stay the same. c. decrease. d. first increase, then decrease until total revenue is maximized. 8. Refer to Figure 1. If the price decreases in the region of the demand curve between points B and C, we can expect total revenue to a. increase. b. stay the same. c. decrease. d. first increase, then decrease until total revenue is maximized. 29. Refer to Figure 1. If the price increases in the region of the demand curve between points B and C, we can expect total revenue to a. increase. b. stay the same. c. decrease. d. first decrease, then increase until total revenue is maximized. 30. Which of the following statements is valid when supply is perfectly elastic at a price of $4? a.
The elasticity of supply approaches infinity. b. The supply curve is vertical. c. At a price below $4, quantity supplied is infinite. d. At a price above $4, quantity supplied is zero. 31. You are offered a free ticket to see the Chicago Cubs play the Chicago White Sox at Wrigley Field. Assume the ticket has no resale value. Willie Nelson is performing on the same night, and his concert is your next-best alternative activity. Tickets to see Willie Nelson cost $40. On any given day, you would be willing to pay up to $50 to see and hear Willie Nelson perform. Assume there are no other costs of seeing either event.
Based on this information, at a minimum, how much would you have to value seeing the Cubs play the White Sox to accept the ticket and go to the game? a. $0 b. $10 c. $40 d. $50 32. Janine would be willing to pay $50 to see Les Miserables, but she buys a ticket for only $30. Janine values the performance at a. $20. b. $30. c. $50. d. $80. 33. Suppose that the equilibrium price in the market for widgets is $5. If a law increased the minimum legal price for widgets to $6, producer surplus a. would necessarily increase even if the higher price resulted in a surplus of widgets. . would necessarily decrease because the higher price would create a surplus of widgets. c. might increase or decrease. d. would be unaffected. 34. Suppose that the equilibrium price in the market for widgets is $5. If a law reduced the maximum legal price for widgets to $4, a. any possible increase in consumer surplus would be larger than the loss of producer surplus. b. any possible increase in consumer surplus would be smaller than the loss of producer surplus. c. the resulting increase in producer surplus would be larger than any possible loss of consumer surplus. d. he resulting increase in producer surplus would be smaller than any possible loss of consumer surplus. 35. John has decided to start his own lawn-mowing business. To purchase the mowers and the trailer to transport the mowers, John withdrew $1,000 from his savings account, which was earning 3% interest, and borrowed an additional $2,000 from the bank at an interest rate of 7%. What is John’s annual opportunity cost of the financial capital that has been invested in the business? a. $30 b. $140 c. $170 d. $300 Scenario 13-5 Samantha has been working for a law firm and earning an annual salary of $80,000.
She decides to open her own practice. Her annual expenses will include $15,000 for office rent, $3,000 for equipment rental, $1,000 for supplies, $1,200 for utilities, and a $35,000 salary for a secretary/bookkeeper. Samantha will cover her start-up expenses by cashing in a $20,000 certificate of deposit on which she was earning annual interest of $500. 36. Refer to Scenario 13-5. Samantha’s annual implicit costs will equal a. $55,200. b. $75,200. c. $80,500. d. $165,700. 37. Refer to Scenario 13-5. Samantha’s annual accounting costs will equal a. $55,200. b. $75,200. c. $80,500. d. $165,700. 38.
Refer to Scenario 13-5. Samantha’s annual economic costs will equal a. $55,200. b. $75,200. c. $80,500. d. $135,700. 39. Refer to Scenario 13-5. According to Samantha’s accountant, which of the following revenue totals will yield her business $50,000 in profits? a. $55,200. b. $105,200. c. $132,500. d. $185,700. 40. Refer to Scenario 13-5. According to an economist, which of the following revenue totals will yield her business $50,000 in economic profits? a. b. c. d. $55,200. $100,200. $132,500. $185,700. Figure 13-4 Cost D 11 C 10 B 9 8 7 6 5 4 3 2 1 A 1 2 3 4 5 6 7 8 9 10 11 12 Quantity 41. Refer to Figure 13-4.
Curve D is increasing because of a. diminishing marginal product. b. increasing marginal product. c. the fact that increasing marginal product follows decreasing marginal product. d. the fact that decreasing marginal product follows increasing marginal product. 42. Refer to Figure 13-4. Curve A is always declining because of a. diminishing marginal product. b. dividing fixed costs by higher and higher levels of output. c. the fact that increasing marginal product follows decreasing marginal product. d. the fact that decreasing marginal product follows increasing marginal product. 43. Refer to Figure 13-4.
Curve D intersects curve C a. where the firm maximizes profit. b. at the minimum of average fixed cost. c. at the efficient scale. d. where fixed costs equal variable costs. Figure 13-5 44. Refer to Figure 13-5. Which of the following can be inferred from the figure above? (i) (ii) (iii) Marginal cost is increasing at all levels of output. Marginal product is increasing at low levels of output. Marginal product is decreasing at high levels of output. a. b. c. d. (i) and (ii) only (ii) and (iii) only (i) and (iii) only (ii) only 45. Refer to Figure 13-5. Why doesn’t the total cost curve begin at the origin (the point 0,0)? . because variable costs are positive when output is zero b. because fixed costs are positive when output is zero c. because the firm is producing at the efficient scale d. because the firm is maximizing profits Table 13-12 Listed in the table are the long-run total costs for three different firms. Quantity Firm A Firm B Firm C 1 100 100 100 2 100 200 300 3 100 300 600 4 100 400 1,000 5 100 500 1,500 46. Refer to Table 13-12. Which firm is experiencing diseconomies of scale? a. Firm A only b. Firm B only c. Firm C only d. Firm A and Firm B only 47. Refer to Table 13-12. Which firm is experiencing constant returns to scale? . Firm A only b. Firm B only c. Firm C only d. Firm A and Firm B only 48. Which of the following statements is correct? a. For all firms, marginal revenue equals the price of the good. b. Only for competitive firms does average revenue equal the price of the good. c. Marginal revenue can be calculated as total revenue divided by the quantity sold. d. Only for competitive firms does average revenue equal marginal revenue. 49. If the market elasticity of demand for potatoes is -0. 3 in a perfectly competitive market, then the individual farmer’s elasticity of demand a. will also be -0. 3. b. epends on how large a crop the farmer produces. c. will range between -0. 3 and -1. 0. d. will be infinite. 50. A profit-maximizing firm in a competitive market is able to sell its product for $7. At its current level of output, the firm’s average total cost is $10. The firm’s marginal cost curve crosses its marginal revenue curve at an output level of 9 units. The firm experiences a a. b. c. d. profit of more than $27. profit of exactly $27. loss of more than $27. loss of exactly $27. 51. Susan quit her job as a teacher, which paid her $36,000 per year, in order to start her own catering business.
She spent $12,000 of her savings, which had been earning 10 percent interest per year, on equipment for her business. She also borrowed $12,000 from her bank at 10 percent interest, which she also spent on equipment. For the past several months she has spent $1,000 per month on ingredients and other variable costs. Also for the past several months she has taken in $3,500 in monthly revenue. a. In the short run, Susan should shut down her business, and in the long run she should exit the industry. b. In the short run, Susan should continue to operate her business, but in the long run she should exit the industry. . In the short run, Susan should continue to operate her business, but in the long run she will probably face competition from newly entering firms. d. In the short run, Susan should continue to operate her business, and she is also in long-run equilibrium. 52. Bill operates a boat rental business in a competitive industry. He owns 10 boats and pays $1,000 per month on the loan that he took out to buy them. He rents each boat for $200 per month. The variable cost for each boat rental is $50. In the off season, Bill should a. operate his business as long as he rents at least 7 boats per month. b. perate his business as long as he rents at least 1 boat per month. c. operate his business as long as he rents all 10 boats each month. d. raise the price he charges per boat rental. 53. A competitive market is in long-run equilibrium. If demand increases, we can be certain that price will a. rise in the short run. Some firms will enter the industry. Price will then rise to reach the new long-run equilibrium. b. rise in the short run. Some firms will enter the industry. Price will then fall to reach the new long-run equilibrium. c. fall in the short run. All, some, or no firms will shut down, and some of them will exit the industry.
Price will then rise to reach the new long-run equilibrium. d. not rise in the short run because firms will enter to maintain the price. 54. The profit-maximization problem for a monopolist differs from that of a competitive firm in which of the following ways? a. A competitive firm maximizes profit at the point where marginal revenue equals marginal cost; a monopolist maximizes profit at the point where marginal revenue exceeds marginal cost. b. A competitive firm maximizes profit at the point where average revenue equals marginal cost; a monopolist maximizes profit at the point where average revenue exceeds marginal cost. . For a competitive firm, marginal revenue at the profit-maximizing level of output is equal to marginal revenue at all other levels of output; for a monopolist, marginal revenue at the profit-maximizing level of output is smaller than it is for larger levels of output. d. For a profit-maximizing competitive firm, thinking at the margin is much more important than it is for a profit-maximizing monopolist. 55. Which of the following statements is correct for both a monopolist and a perfectly competitive firm? i) The firm maximizes profits by equating marginal revenue with marginal cost. i) The firm maximizes profits by equating price with marginal cost. iii) Demand equals marginal revenue. iv) Average revenue equals price. a. b. c. d. i), iii), and iv) only i) and iv) only i), ii), and iv) only i), ii), iii), and iv) 56. For a monopolist, marginal revenue is a. positive when the demand effect is greater than the supply effect. b. positive when the monopoly effect is greater than the competitive effect. c. negative when the price effect is greater than the output effect. d. negative when the output effect is greater than the price effect. 57. Which of the following statements is true? (i)
When a competitive firm sells an additional unit of output, its revenue increases by an amount less than the price. (ii) When a monopoly firm sells an additional unit of output, its revenue increases by an amount less than the price. (iii) Average revenue is the same as price for both competitive and monopoly firms. a. b. c. d. (ii) only (iii) only (i) and (ii) only (ii) and (iii) only 58. If a monopolist has zero marginal costs, it will produce a. the output at which total revenue is maximized. b. in the range in which marginal revenue is still increasing. c. at the point at which marginal revenue is at a maximum. . in the range in which marginal revenue is negative. 59. A reduction in a monopolist’s fixed costs would a. decrease the profit-maximizing price and increase the profit-maximizing quantity produced. b. increase the profit-maximizing price and decrease the profit-maximizing quantity produced. c. not effect the profit-maximizing price or quantity. d. possibly increase, decrease or not effect profit-maximizing price and quantity, depending on the elasticity of demand. A monopolist faces the following demand curve: Price $51 $47 $42 $36 $29 $21 $12 Quantity 1 2 3 4 5 6 7 60.
The monopolist has total fixed costs of $60 and has a constant marginal cost of $15. What is the profit-maximizing level of production? a. 2 units b. 3 units c. 4 units d. 5 units 61. A monopoly market a. always maximizes total economic well-being. b. always minimizes consumer surplus. c. generally fails to maximize total economic well-being. d. generally fails to maximize producer surplus. 62. Monopolies are inefficient because they (i) eliminate barriers to entry. (ii) price their product at a level where marginal revenue exceeds marginal cost. (iii) restrict output below the socially efficient level of production. . b. c. d. (i) and (ii) only (ii) and (iii) only (iii) only (i), (ii), and (iii) 63. Which of the following statements is correct? a. The benefits that accrue to a monopoly’s owners are equal to the costs that are incurred by consumers of that firm’s product. b. The deadweight loss that arises in monopoly stems from the fact that the profitmaximizing monopoly firm produces a quantity of output that exceeds the sociallyefficient quantity. c. The deadweight loss caused by monopoly is similar to the deadweight loss caused by a tax on a product. d. The primary social problem caused by monopoly is monopoly profit.
Figure 15-7 Price MC F G D MR A B D C Quantity 64. Refer to Figure 15-7. What area represents the total surplus lost due to monopoly pricing? a. the rectangle (F-D)xA b. the triangle 1/2[(F-D)x(B-A)] c. the triangle 1/2[(F-G)x(B-A)] d. the rectangle (F-D)xA plus the triangle 1/2[(F-D)x(B-A)] Figure 15-9 Price P MC A B C ATC F G H D O JK L Quantity MR 65. Refer to Figure 15-9. What area measures the deadweight loss? a. (B-F)*K b. 0. 5[(P-O)*(L-O)] c. 0. 5[(A-H)*(L-J)] d. 0. 5[(B-F)*(L-K)] Scenario 15-4 Black Box Cable TV is able to purchase an exclusive right to sell a premium movie channel (PMC) in its market area.
Let’s assume that Black Box Cable pays $150,000 a year for the exclusive marketing rights to PMC. Since Black Box has already installed cable to all of the homes in its market area, the marginal cost of delivering PMC to subscribers is zero. The manager of Black Box needs to know what price to charge for the PMC service to maximize her profit. Before setting price, she hires an economist to estimate demand for the PMC service. The economist discovers that there are two types of subscribers who value premium movie channels. First are the 4,000 die-hard TV viewers who will pay as much as $150 a year for the new PMC premium channel.
Second, the PMC channel will appeal to about 20,000 occasional TV viewers who will pay as much as $20 a year for a subscription to PMC. 66. Refer to Scenario 15-4. If Black Box Cable TV is unable to price discriminate, what price will it choose to maximize its profit, and what is the amount of the profit? a. price = $20; profit = $400,000 b. price = $20; profit = $330,000 c. price = $150; profit = $450,000 d. price = $150; profit = $600,000 67. Refer to Scenario 15-4. If Black Box Cable TV is able to price discriminate, what would be the maximum amount of profit it could generate? a. $500,000 b. $600,000 c. 850,000 d. $925,000 68. Refer to Scenario 15-4. What is the deadweight loss associated with the nondiscriminating pricing policy compared to the price discriminating policy? a. $375,000 b. $400,000 c. $475,000 d. It cannot be determined from the information provided. 69. How does a competitive market compare to a monopoly that engages in perfect price discrimination? a. In both cases, total social welfare is the same. b. Total social welfare is higher in the competitive market than with the perfectly price discriminating monopoly. c. In both cases, some potentially mutually beneficial trades do not occur. d.
Consumer surplus is the same in both cases. A monopolistically competitive firm has the following cost structure: Output Total Cost($) 1 30 2 32 3 36 4 42 5 50 6 63 7 77 9 5 7 6 4 7 The firm faces the following demand curve: Price ($) Quantity 20 1 18 2 15 3 12 4 70. To maximize profit (or minimize losses), the firm will produce a. b. c. d. 2 units. 3 units. 4 units. 5 units. 71. Which of the following conditions is characteristic of a monopolistically competitive firm in long-run equilibrium? a. P > MR and P = MC b. ATC = demand and MR = MC c. P < MC and demand = ATC d. P > ATC and demand > MR 72.
Which of the following represents the best government policy to reduce the deadweight loss associated with a monopolistically competitive market? a. The government should regulate firms in a manner similar to natural monopolies. b. The government should encourage more firms to enter the industry because without government intervention, there are likely to be “too few” firms. c. The government should encourage some firms to exit the industry because without government intervention, there are likely to be “too many” firms. d. There is no government policy that can reduce deadweight loss without creating other problems. 3. If regulators required firms in monopolistically competitive markets to set price equal to marginal cost, a. firms would most likely experience economic losses. b. firms would also operate at their efficient scale. c. new firms would likely to enter the market. d. the most efficient firms would not likely to be affected. Table 17-1 Imagine a small town in which only two residents, Lisa and Mark, own wells that produce safe drinking water. Each week Lisa and Mark work together to decide how many gallons of water to pump. They bring the water to town and sell it at whatever price the market will bear.
To keep things simple, suppose that Lisa and Mark can pump as much water as they want without cost so that the marginal cost of water equals zero. The weekly town demand schedule and total revenue schedule for water is shown in the table below: Quantity (in gallons) 0 100 200 300 400 500 600 700 800 900 1,000 1,100 1,200 Price $120 110 100 90 80 70 60 50 40 30 20 10 0 Total Revenue (and Total Profit) $0 11,000 20,000 27,000 32,000 35,000 36,000 35,000 32,000 27,000 20,000 11,000 0 74. Refer to Table 17-1. If Lisa and Mark operate as a profit-maximizing monopoly in the market for water, what price will they charge? . $20 b. $40 c. $60 d. $70 75. Refer to Table 17-1. If Lisa and Mark operate as a profit-maximizing monopoly in the market for water, how many gallons of water will be produced and sold? a. 0 b. 500 c. 600 d. 1,200 76. Refer to Table 17-1. If Lisa and Mark operate as a profit-maximizing monopoly in the market for water, how much profit will each of them earn? a. $0 b. $18,000 c. $32,000 d. $36,000 77. Refer to Table 17-1. Suppose the town enacts new antitrust laws that prohibit Lisa and Mark from operating as a monopoly. What will be the price of water once Lisa and Mark reach a Nash equilibrium? a. . c. d. $30 $40 $50 $60 78. Refer to Table 17-1. Suppose the town enacts new antitrust laws that prohibit Lisa and Mark from operating as a monopoly. How many gallons of water will be produced and sold once Lisa and Mark reach a Nash equilibrium? a. 600 b. 700 c. 800 d. 900 Table 17-4. The information in the table below shows the total demand for high-speed Internet subscriptions in a small urban market. Assume that each company that provides these subscriptions incurs an annual fixed cost of $200,000 (per year) and that the marginal cost of providing an additional subscription is always $80. Quantity 2,000 4,000 6,000 8,000 10,000 12,000 14,000 16,000 Price (per year) $320 $280 $240 $200 $160 $120 $ 80 $ 40 $0 79. Refer to Table 17-4. Suppose there is only one high-speed Internet service provider in this market and it seeks to maximize its profit. The company will a. sell 6,000 subscriptions and charge a price of $200 for each subscription. b. sell 8,000 subscriptions and charge a price of $160 for each subscription. c. sell 10,000 subscriptions and charge a price of $120 for each subscription. d. sell 12,000 subscriptions and charge a price of $80 for each subscription. 80. Refer to Table 17-4.
Assume there are two high-speed Internet service providers that operate in this market. If they are able to collude on the quantity of subscriptions that will be sold and on the price that will be charged for subscriptions, then their agreement will stipulate that a. each firm will charge a price of $120 and each firm will sell 5,000 subscriptions. b. each firm will charge a price of $160 and each firm will sell 4,000 subscriptions. c. each firm will charge a price of $100 and each firm will sell 3,000 subscriptions. d. each firm will charge a price of $200 and each firm will sell 3,000 subscriptions. 1. Refer to Table 17-4. Assume there are two profit-maximizing high-speed Internet service providers operating in this market. Further assume that they are able to collude on the quantity of subscriptions that will be sold and on the price that will be charged for subscriptions. How much profit will each company earn? a. b. c. d. $80,000 $120,000 $160,000 $210,000 82. Refer to Table 17-4. Assume there are two profit-maximizing high-speed Internet service providers operating in this market. Further assume that they are not able to collude on the price and quantity of subscriptions to sell.
How many subscriptions will be sold altogether when this market reaches a Nash equilibrium? a. 6,000 b. 8,000 c. 10,000 d. 12,000 83. Refer to Table 17-4. Assume there are two high-speed Internet service providers operating in this market. Further assume that they are not able to collude on the price and quantity of subscriptions to sell. What price will they charge for a subscription when this market reaches a Nash equilibrium? a. $120 b. $160 c. $200 d. $240 84. Refer to Table 17-4. Assume that there are two profit-maximizing high-speed Internet service providers operating in this market.
Further assume that they are not able to collude on the price and quantity of subscriptions to sell. How much profit will each firm earn when this market reaches a Nash equilibrium? a. $120,000 b. $150,000 c. $200,000 d. $225,000 Table 17-11 Two home-improvement stores (Big Box Deluxe and Homes R Us) in a growing urban area are interested in expanding their market share. Both are interested in expanding the size of their store and parking lot to accommodate potential growth in their customer base. The following game depicts the strategic outcomes that result from the game.
Increases in annual profits of the two home-improvement stores are shown in the table below. Homes R Us Increase the size of store and parking lot Do not increase the size of store and parking lot Big Box Deluxe Increase the size of store Do not increase the size of and parking lot store and parking lot Big Box Deluxe = $0. 50 Big Box Deluxe = $0. 20 million million Homes R Us = $0. 75 Homes R Us = $1. 70 million million Big Box Deluxe = $1. 60 Big Box Deluxe = $1. 00 million million Homes R Us = $0. 30 Homes R Us = $1. 25 million million 85. Refer to Table 17-11.
Increasing the size of its store and parking lot is a dominant strategy for a. b. c. d. Big Box Deluxe, but not for Homes R Us. Homes R Us, but not for Big Box Deluxe. both stores. neither store. 86. Refer to Table 17-11. If both stores follow a dominant strategy, Homes R Us’s annual profit will grow by a. $0. 30 million. b. $0. 75 million. c. $1. 25 million. d. $1. 70 million. 87. Refer to Table 17-11. If both stores follow a dominant strategy, Big Box Deluxe’s annual profit will grow by a. $0. 20 million. b. $0. 50 million. c. $1. 00 million. d. $1. 60 million. 88. Refer to Table 17-11.
When this game reaches a Nash equilibrium, annual profit will grow by a. $0. 75 million for Homes R Us and by $0. 50 million for Big Box Deluxe. b. $1. 70 million for Homes R Us and by $0. 20 million for Big Box Deluxe. c. $0. 30 million for Homes R Us and by $1. 60 million for Big Box Deluxe. d. $1. 25 million for Homes R Us and by $1. 00 million for Big Box Deluxe. 89. Refer to Table 17-11. Suppose the owners of Big Box Deluxe and Homes R Us meet for a friendly game of golf one afternoon and happen to discuss a strategy to optimize growth related profit. They should both agree to a. ncrease their store and parking lot sizes. b. refrain from increasing their store and parking lot sizes. c. be more competitive in capturing market share. d. share the context of their conversation with the Federal Trade Commission. 90. Hot-dog vendors on the beach fail to cooperate with one another on the quantity of hotdogs they should sell to earn monopoly profits. A consequence of their failure is that, relative to the outcome the vendors would like, (i) the quantity of hot dogs supplied is closer to the socially optimal level. (ii) the price of hot dogs is closer to marginal cost. (iii) he hot-dog market at the beach is less competitive. a. b. c. d. (i) and (ii) (ii) and (iii) (i) and (iii) (iii) only 91. Why would lack of cooperation between criminal suspects be desirable for society as a whole? a. The suspects are able to choose optimal outcomes for themselves by acting in their own self interest. b. The prisoners’ dilemma safeguards the criminals’ constitutional rights. c. More criminals will be convicted. d. None of the above is correct. 92. Barb and Sue are competitors in a local market. Each is trying to decide if it is better to advertise on TV, on radio, or not at all.
If they both advertise on TV, each will earn a profit of $5,000. If they both advertise on radio, each will earn a profit of $7,000. If neither advertises at all, each will earn a profit of $10,000. If one advertises on TV and other advertises on radio, then the one advertising on TV will earn $8,000 and the other will earn $3,000. If one advertises on TV and the other does not advertise, then the one advertising on TV will earn $15,000 and the other will earn $2,000. If one advertises on radio and the other does not advertise, then the one advertising on radio will earn $12,000 and the other will earn $4,000.
If both follow their dominant strategy, then Barb will a. advertise on TV and earn $5,000. b. advertise on radio and earn $7,000. c. not advertise at all and earn $10,000. d. None of the above is correct. Barb and Sue do not have dominant strategies. 93. George and Jerry are competitors in a local market. Each is trying to decide if it is better to advertise on TV, on radio, or not at all. If they both advertise on TV, each will earn a profit of $3,000. If they both advertise on radio, each will earn a profit of $5,000. If neither advertises at all, each will earn a profit of $10,000.
If one advertises on TV and the other advertises on radio, then the one advertising on TV will earn $4,000 and the other will earn $2,000. If one advertises on TV and the other does not advertise, then the one advertising on TV will earn $8,000 and the other will earn $5,000. If one advertises on radio and the other does not advertise, then the one advertising on radio will earn $9,000 and the other will earn $6,000. If both follow their dominant strategy, then George will a. advertise on TV and earn $3,000. b. advertise on radio and earn $5,000. c. advertise on TV and earn $8,000. d. not advertise and earn $10,000.
Table 17-20. Brian and Matt own the only two bicycle repair shops in town. Each must choose between a low price for repair work and a high price. The annual economic profit from each strategy is indicated in the table. The profits are shown as (Matt, Brian) in each cell. Brian Low Price High Price Low Price (1500, 1500) (5000, 200) Matt High Price (200, 3000) (4000, 4000) 94. Refer to Table 17-20. Which of the following statements is correct? a. Matt’s dominant strategy is to charge a low price. b. Brian’s dominant strategy is to charge a high price. c. The dominant strategy for both Brian and Matt is to charge a low price. . Matt’s dominant strategy is to charge a high price. 95. Refer to Table 17-20. Which of the following statements is correct if Brian and Matt will play this game only once? a. The Nash equilibrium is the high price. b. A Nash equilibrium cannot be established unless Brian and Matt collude. c. A Nash equilibrium cannot be established without the players repeating the game. d. The Nash equilibrium price is the low price. Table 17-21. Two bottled beverage manufacturers (Firm A and Firm B) determine that they could lower their costs, and thus increase their profits, if they reduced their advertising budgets.
But in order for the plan to work, each firm must agree to refrain from advertising. Each firm believes that advertising works by increasing the demand for the firm’s product, but each firm also believes that if neither firm advertises, the costs savings will outweigh the lost sales. Listed in the table below are the individual profits for each firm. Firm B Breaks the agreement and advertises Maintains the agreement and does not advertise Firm A Breaks the agreement Maintains the agreement and advertises and does not advertise Firm A profit = $9,000 Firm A profit = $8,000 Firm B profit = $4,000
Firm B profit = $6,000 Firm A profit = $11,000 Firm B profit = $3,500 Firm A profit = $10,000 Firm B profit = $5,000 96. Refer to Table 17-21. Suppose that the two firms, A and B, make an agreement to withhold any advertising for one month in order to lower each firm’s costs and raise each firm’s profits. If the firms reach the Nash equilibrium, a. both firms will choose not to advertise. b. firm A will choose not to advertise, but firm B will break the agreement and choose to advertise. c. firm B will choose not to advertise, but firm A will break the agreement and choose to advertise. d. oth firms will break the agreement and choose to advertise. 97. Refer to Table 17-21. At the Nash equilibrium, how much profit will Firm A earn? a. $8,000 because firm A will maintain the agreement not to advertise, but firm B will break the agreement and choose to advertise. b. $9,000 because each firm will break the agreement and choose to advertise. c. $10,000 because each firm will maintain the agreement and choose not to advertise. d. $11,000 because firm B will maintain the agreement not to advertise, but firm A will break the agreement and choose to advertise. 98. Refer to Table 17-21.
At the Nash equilibrium, how much profit will Firm B earn? a. $3,500 because firm B will maintain the agreement not to advertise, but firm A will break the agreement and choose to advertise. b. $4,000 because each firm will break the agreement and choose to advertise. c. $5,000 because each firm will maintain the agreement and choose not to advertise. d. $6,000 because firm A will maintain the agreement not to advertise, but firm B will break the agreement and choose to advertise. 99. When the price of oranges increases from $4 to $6 per bag, the quantity demanded of oranges decreases from 800 to 700.
The price elasticity of demand over this price range is equal to A) 3 B) 3/7 or 0. 4286 C) 1/3 or 0. 3333 D) 1/4 or 0. 25 100. “The more apple I eat, the less orange I am willing to give up for the extra apple. ” The statement is consistent with a. the law of demand. b. the diminishing marginal utility. c. the diminishing marginal rate of substitution. d. the law of diminishing marginal returns. 101. John received $100 cash coupon of a book store as he paid $10 to join the membership of the book store. Which of the following diagrams shows the effect on John’s budget line? A) Other
