08 Jun Question 1. Rent seeking:
Question
1. Rent seeking:
o results in less market share for the rent seekers.
o involves lobbyists influencing government policies to benefit their interests.
o results in more negative externalities.
o None of the statements are correct.
2. The difference between marginal benefits and marginal costs is the:
o profits.
o marginal net benefits.
o opportunity cost.
o accounting cost.
3. The optimal amount of studying is determined by comparing:
o marginal benefit and the total cost of studying.
o marginal benefit and the total benefit of studying.
o marginal benefit and the marginal cost of studying.
o total benefit and the total cost of studying.
4. The purpose of randomized pricing is to reduce:
o consumer price information only.
o competitor price information only.
o both customer and competitor information about price.
o the firm’s pricing inflexibility.
5.Suppose market demand and supply are given by Qd = 100 – 2P and QS = 5 + 3P. The equilibrium quantity is:
o 92.
o 81.
o 45.
o 62.
Top of Form
6.
The figure below presents information for a one-shot game.
Picture
What are secure strategies for firm A and firm B respectively?
o (low price, high price)
o (high price, low price)
o (high price, high price)
o (low price, low price)
oBottom of Form
7.Other things held constant, the lower the price of a good
o the lower the demand.
o the higher the demand.
o the greater the consumer surplus.
o the lower the consumer surplus.
8.The quantity consumed of a good is relatively unresponsive to changes in price whenever demand is:
o elastic.
o unitary.
o falling.
o inelastic.
9.Which of the following is true concerning negative externalities?
o Firms tend to produce more than the efficient level of output.
o Society gains because firms do not pay the external costs of production.
o Perfect competition is better than monopoly from the viewpoint of society even in the presence of negative externalities.
o With negative externalities, a monopoly will always produce an output level less than is socially efficient.
10.Which of the following features is common to both perfectly competitive markets and monopolistically competitive markets?
o Firms produce homogeneous goods.
o There is free entry.
o Long-run profits are zero.
o There is free entry and long-run profits are zero.
11.You are the manager of a monopoly that faces a demand curve described by P = 230 − 20Q. Your costs are C = 5 + 30Q. The profit-maximizing price is:
o 150.
o 90.
o 130.
o 110.
12.Consider a monopoly facing a demand structure where the price elasticity of demand is −1.25. The optimal markup factor is:
o 5 times marginal revenue.
o 0.2 times marginal revenue.
o 5 times marginal cost.
o 0.2 times marginal cost.
13.You 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:
o 495.
o 475.
o 480.
o 415.
14.Which of the following pricing strategies does NOT usually enhance the profits of firms with market power?
o Price matching
o Cross-subsidies
o Two-part pricing
o Marginal cost pricing
15.Fixed costs exist only in:
o the long run.
o capital-intensive markets.
o the short run.
o labor-intensive markets.
16.A negative externality:
o is a payment received to parties not involved in the production or consumption of a good.
o is a cost borne by parties not involved in the production or consumption of a good.
o results from the absence of well-defined property rights.
o is a cost borne by parties not involved in the production or consumption of a good and results from the absence of well-defined property rights.
17.
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 -5, while group 2’s is -6. Your marginal cost of producing the product is $20.
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.
At least one group has elasticity of demand greater than 1 in absolute value.
o
We are able to prevent resale between the groups.
o
At least one group has elasticity of demand less than one in absolute value.
o
There are two different groups with different (and identifiable) elasticities of demand.
18.You are the manager of a firm that receives revenues of $60,000 per year from product X and $80,000 per year from product Y. The own price elasticity of demand for product X is -1.5, and the cross-price elasticity of demand between product Y and X is -1.4.
How much will your firm’s total revenues (revenues from both products) change if you increase the price of good X by 2 percent?
Instructions: Round your answer to the nearest dollar. Include a minus (-) sign if applicable.
$
19.
The manager of a local monopoly estimates that the elasticity of demand for its product is constant and equal to -4. The firm’s marginal cost is constant at $35 per unit.
a. Express the firm’s marginal revenue as a function of its price.
Instruction: Round your response to 2 decimal places.
MR =
x P
b. Determine the profit-maximizing price.
Instruction: Use the rounded value calculated above and round your response to 2 decimal places.
$
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