question
Which of the following is true under a monopoly?
answer
P > MC
question
One of the sources of monopoly power for a monopoly maybe
answer
patents
question
In a competitive industry with identical firms, long-run equilibrium is not characterized by
answer
P > MC
question
The first-order condition for a firm maximizing its profit operating in a monopolistically competitive market is
answer
(dR(Q)/dQ) − (dC(Q)/dQ) = 0.
question
Compute the marginal revenue when the price elasticity of demand is −0.10.
answer
−9P, meaning marginal revenue is negative and 9 times greater than price.
question
In the long run, monopolistically competitive firms charge prices
answer
above the minimum of average total cost.
question
Which of the following is always true under a monopolistic competition market structure?
answer
P > MC
question
You are the manager of a monopoly that faces a demand curve described by P = 85 − 5Q. Your costs are C = 20 + 5Q. The revenue-maximizing output is
answer
8.0.
question
You are the manager of a firm that sells its product in a competitive market at a price of $60. Your firm's cost function is C = 50 + 3Q2. The profit-maximizing output for your firm is
answer
10
question
Consider a monopoly where the inverse demand for its product is given by P = 50 − 2Q. Total costs for this monopolist are estimated to be C(Q) = 100 + 2Q + Q2. At the profit-maximizing combination of output and price, deadweight loss is
answer
$32
question
You are the manager of a firm that produces output in two plants. The demand for your firm's product is P = 120 − 6Q, where Q = Q1 + Q2. The marginal costs associated with producing in the two plants are MC1 = 2Q1 and MC2 = 4Q2. How much output should be produced in plant 1 in order to maximize profits?
answer
6
question
You are the manager of a monopoly that faces a demand curve described by P = 63 − 5Q. Your costs are C = 10 + 3Q. The profit-maximizing output for your firm is
answer
6
question
You are the manager of a monopoly that faces a demand curve described by P = 80 − 5Q. Your costs are C = 10 + 5Q. The revenue-maximizing output is
answer
8
question
You are the manager of a firm that produces output in two plants. The demand for your firm's product is P = 20 − Q, where Q = Q1 + Q2. The marginal costs associated with producing in the two plants are MC1 = 2 and MC2 = 2Q2. How much output should be produced in plant 1 in order to maximize profits?
answer
8
question
The graph shows a monopolist firms cost and revenue curves. What is the profit-maximizing price?
answer
$70
question
An industry consists of four firms with annual sales of $3,000, $5,000, $4,000, and $6,000. What is the industry's HHI?
answer
2,654
question
A Herfindahl index of 10,000 suggests
answer
monopoly
question
An industry consists of six firms with annual sales of $300, $500, $400, $700, $600, and $600. What is the industry's C4?
answer
0.77
question
Consider a market characterized by two firms that set the same price in the market, P = $10. Total market demand is QT = 100 − 2P, of which the two firms share equally. Based on this information, we can conclude that the HHI equals
answer
5,000
question
Suppose that the demand in a particular industry is given by Qd = 100 − 2P. When the market price in the industry is $10 per unit, total demand in the industry is __________ . Furthermore, assume that each of the four largest firms in the industry sell 15 units. Based on this information, the four-firm concentration ratio is __________ .
answer
80 units; 0.75
question
In perfect competition, which is not true?
answer
There are barriers to entry.
question
A student figured out that the HHI for an industry was 15,000. What is the proper conclusion?
answer
The student made some computational errors.
question
In the 1960s, each firm in the computer industry was able to make extremely large profit margins, some as high as 50 to 60 percent. The margin decreased to 20 to 40 percent in the 1970s and to 10 to 20 percent in the 1980s. We conclude that
answer
the industry evolved from oligopolistic to a more competitive industry in the two decades.
question
The Lerner index in the paper industry is 0.58. Based on this information, a firm charging $3.25 per ream of paper should have a marginal cost of
answer
$1,365
question
Suppose the market for good X has a four-firm concentration ratio of 0.50. Furthermore, assume that total sales in the industry are $1.2 million. Based on this information, we know that sales for the largest four firms in the industry equal (in aggregate)
answer
$600,000
question
An unregulated industry has a Lerner index of zero. These numbers
answer
are consistent with the industry being perfectly competitive.
question
The HHI of a local market is usually _____________ that of national markets.
answer
higher than
question
Pricing is an aspect of a firm's
answer
conduct
question
Four firms control the market for a particular good, resulting in an HHI of 6,550. Total industry sales are $1,750, and it is known that one firm has sales of $1,400 and another has sales of $175. If each of the remaining two firms has the same sales, then we can conclude that the remaining two firms each have a market share of
answer
6,550.
question
An electronics company purchases a food company. This is an example of
answer
conglomerate integration.
question
Suppose compensation is given by W = 450,000 + 220 π + 15S, where W = total compensation of the CEO, π = company profits (in millions) = $300, and S = sales (in millions) = $500. What percentage of the CEO's total earnings is tied to profits of the firm?
answer
12.6 percent
question
Relationship-specific investments include all of the following except
answer
production-related variable costs.
question
If a firm manager has a base salary of $250,000 and also receives 6 percent of all profits, what percentage of his/her final income will be from a profit-sharing plan when profit equals $1,500,000?
answer
26.5%
question
Suppose a new contracting environment with an economic environment that looks more uncertain is considered. This new contract will result in
answer
an increase in the marginal cost and a shorter optimal contract.
question
Which of the following compensation methods is not based on a performance bonus?
answer
hourly wages
question
Hold-up
answer
is a hazard associated with relationship-specific exchange.
question
Managerial reputation is an _____ incentive that helps to mitigate the _______ principal-agent problem.
answer
external; owner-manager
question
When relationship-specific exchange occurs in complex contractual environments, the best way to purchase inputs is through
answer
vertical integration
question
In order for spot checks to be effective, they must be
answer
random in nature
question
An incentive for managers to maximize profits is all of the following except
answer
a fixed annual salary.
question
As a condition for reopening their offices during a time of a high-contagious virus, dental practices are mandated to purchase heat sterilization machines for instrument cleaning after each patient. Assume that the physical dimensions of the sterilization machines allow them to only fit within dental rooms. This
answer
increases dental office transaction costs since specialized investments are higher.
question
Which of the following is not a solution to the manager-worker principal-agent problem?
answer
fixed hourly wages
question
Suppose compensation is given by W = 500,000 + 200 π + 17S, where W = total compensation of the CEO, π = company profits (in millions) = $400, and S = sales (in millions) = $700. What percentage of the CEO's total earnings is tied to profits of the firm?
answer
13.5 percent
question
Solving the principal-agent problem ensures that the firm is operating
answer
on the production function.
question
A negative side of a revenue-sharing plan is that it
answer
gives no incentive for workers to minimize costs.
question
Given that Q = 2K + L, what is the absolute value of the MRTS between capital and labor?
answer
1/2
question
Given that the ATC function is represented by ATC = 18,000/Q + 20 + 0.8 Q, derive the average variable cost function?
answer
20 + 0.8Q
question
Given the following table, how many workers should be hired to maximize profits?
answer
2
question
Suppose the long-run average cost curve is U-shaped. When LRAC is in the increasing stage, there exist
answer
diseconomies of scale.
question
The Leontief production function
answer
implies inputs are used in fixed proportions.
question
Which of the following sets of economic data is minimizing the cost of producing a given level of output?
answer
MPL = 20, MPK = 40, w = $16, r = $32.
question
Consider an isocost line with capital on the vertical axis and labor on the horizontal axis. When the per-unit cost of capital increases,
answer
the Y-intercept moves towards the origin.
question
The production function Q = L.5K.5 is called
answer
Cobb Douglas.
question
Costs that are forever lost after they have been paid are
answer
sunk costs.
question
When there are economies of scope between products, selling off an unprofitable subsidiary could lead to
answer
only a minor reduction in costs.
question
A production function
answer
represents the technology available for turning inputs into output.
question
Which of the following is not a measure of productivity?
answer
average advertising
question
Which of the following cost functions exhibits cost complementarity?
answer
−5Q1Q2 + 7Q1
question
The demand for an input is
answer
the VMP of the input.
question
If the price of labor increases, in order to minimize the costs of producing a given level of output, the firm manager should use
answer
less of labor and more of capital.
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