question

Which of the following is the best alternative way to describe scarcity?

answer

limited resources

question

The main implication of scarcity is that

answer

decision-makers face trade-offs

question

For a rational buyer, the reservation price (RP) measures the

answer

maximum price the buyer is willing to pay for an incremental amount of a good, product, or service

question

The difference between the buyer's reservation price and the actual unit price of a transaction is referred to as

answer

consumer surplus

question

A rational buyer faces four alternative options, with reservation prices (RP) listed in the table.

Option A: 10

Option B: 6

Option C: 8

Option D: 9.5

If the prices are Pa= $4.00, Pb= $2.50, Pc= $3.00, and Pd= $3.20, which option would the rational buyer choose first?

Option A: 10

Option B: 6

Option C: 8

Option D: 9.5

If the prices are Pa= $4.00, Pb= $2.50, Pc= $3.00, and Pd= $3.20, which option would the rational buyer choose first?

answer

Option D;

A: 10-4= $6

B: 6-2.5= $3.5

C: 8-3= $5

D: 9.5-3.2= $6.3

A: 10-4= $6

B: 6-2.5= $3.5

C: 8-3= $5

D: 9.5-3.2= $6.3

question

A rational buyer faces four alternative options, with reservation prices (RP) listed in the table below:

Option A: 3.8

Option B: 7

Option C: 4.25

Option D: 6.1

If the prices are Pa= $4.00, Pb= $8.00, Pc= $4.50, and Pd= $6.50, which option would the rational buyer choose first?

Option A: 3.8

Option B: 7

Option C: 4.25

Option D: 6.1

If the prices are Pa= $4.00, Pb= $8.00, Pc= $4.50, and Pd= $6.50, which option would the rational buyer choose first?

answer

None of these options;

Option A: 3.8-4= -$0.2

Option B: 7-8= -$1

Option C: 4.25- 4.5= -$0.25

Option D: 6.1-6.5= -$0.4

Option A: 3.8-4= -$0.2

Option B: 7-8= -$1

Option C: 4.25- 4.5= -$0.25

Option D: 6.1-6.5= -$0.4

question

The lowest price at which quantity demanded equals 0 is referred to as the

answer

Choke price

question

Consider the market demand function: D(p)= 100-4p

Which of the following is the corresponding inverse demand function?

Which of the following is the corresponding inverse demand function?

answer

q= D(p), so

-q= 100-4p

-4p=100-q

-p(q)= 25-0.25p

-q= 100-4p

-4p=100-q

-p(q)= 25-0.25p

question

Which of the following is the best definition for the price elasticity of demand?

answer

The percentage change in quantity demanded from an infinitesimally small percentage increase in the price

question

Consider the demand function:

D(p)= 150-12p

What is the elasticity of demand at p=10?

D(p)= 150-12p

What is the elasticity of demand at p=10?

answer

Ed= -p/D(p) x D'(p)

-p/150-12p x (-12)

-12p/150-12p

-12(10)/150-12(10)

120/30

4, so Ed=4

-p/150-12p x (-12)

-12p/150-12p

-12(10)/150-12(10)

120/30

4, so Ed=4

question

Suppose a firm has a total cost function C(q)= 1000+10q+3q^2. Which of the following is the firms marginal cost function?

answer

Take the derivative of the cost function, so MC(q)= 10+6q

question

If marginal cost increases as q increases, then the firm exhibits

answer

decreasing returns to scale (and vice versa, if MC decreases as q increases, then it exhibits increasing returns to scale)

question

For a monopolist who wants to maximize profit, the key tradeoff it faces is that increasing its price leads to

answer

higher margin, but lower volume (and vice versa, decrease in price leads to lower margin but higher volume)

question

Given a linear demand curve,

p(q)= a-bq

where a and b are constant parameters, the marginal revenue curve is given by

p(q)= a-bq

where a and b are constant parameters, the marginal revenue curve is given by

answer

MR(q)= a - 2bq

question

Suppose a monopolist with constant marginal cost, MC(q)= 15 faces the following inverse demand equation:

p(q)= 75-2.5q

In the blank spaces below, calculate and fill in the profit-maximizing quantity q

p(q)= 75-2.5q

In the blank spaces below, calculate and fill in the profit-maximizing quantity q

**and price p**answer

-R(q)= p(q) x q

(75-2.5q)q= 75q-2.5q^2

-MR(q)= R'(q)= 75-5q

-MR(q)=MC(q), so 75-5q=15--> q=12

-then find p, so p(q)= 75-2.5(12)= 45

-q

(75-2.5q)q= 75q-2.5q^2

-MR(q)= R'(q)= 75-5q

-MR(q)=MC(q), so 75-5q=15--> q=12

-then find p, so p(q)= 75-2.5(12)= 45

-q

**=12 and p**=45question

Based on the Markup Formula, if a monopolist has a relative markup of 0.2 when it is maximizing profit, the elasticity of demand at the profit-maximizing price and quantity is equal to

answer

5; relative markup equals reciprocal of elasticity of demand

question

If Firm A's Lerner Index is 0.5, while Firm B's Lerner Index is 0.25, we can conclude that Firm B exercises a greater degree of market power than does Firm A.

answer

False, a greater Lerner Index indicates a greater degree of market power possessed by the monopolist

question

How do you find profit maximizing price based upon a graph?

answer

Find where MR(q) and MC(q) intersect, then travel vertically to the p(q) line. Wherever p is on this line is where you will find the profit maximizing price

question

What is the Lerner Index when the profit maximizing price is 70?

answer

-LI= (P- MC(q))/P

-70-40/70

-30/70

-0.4286

-70-40/70

-30/70

-0.4286

question

Imperfect Substitutes can be written as

answer

-f (K,L)= K^2L^0.5

-f (K,L)= 5KL

-f (K,L)= (K^0.2+L^0.2)^5

-f (K,L)= 5KL

-f (K,L)= (K^0.2+L^0.2)^5

question

Perfect Substitutes (Linear) can be written as

answer

-f (K,L)= K+L

question

Perfect Complements (Fixed Proportions) can be written as

answer

f (K,L)= min (10K, 4L)

question

What kind of production is represented by an L shaped isoquant?

answer

Fixed Proportions production function

question

The marginal rate of technical substitution (MRTS) captures

answer

the rate at which one input can be decreased if the amount of the other input used is increased by a marginal (incremental) amount, while maintaining the same level of production

question

Consider the production function:

f (K,L)= 2.5K + 10L

Which of the following is (the magnitude of) the slope of the Isoquant with K on the vertical axis and L on the horizontal axis?

f (K,L)= 2.5K + 10L

Which of the following is (the magnitude of) the slope of the Isoquant with K on the vertical axis and L on the horizontal axis?

answer

-w/r= slope

-10/2.5= 4

-Slope= 4

-10/2.5= 4

-Slope= 4

question

Consider the production function

f (K,L)= K^0.4L^0.6

Which of the following is the marginal rate of technical substitution of labor for capital for this production function?

f (K,L)= K^0.4L^0.6

Which of the following is the marginal rate of technical substitution of labor for capital for this production function?

answer

-MRTS= MPL/MPK

-MRTS= 0.6/0.4

-MRTS= 1.5

-MRTS= 1.5K/L

-MRTS= 0.6/0.4

-MRTS= 1.5

-MRTS= 1.5K/L

question

Suppose the inverse demand equation in the market for a monopolist's product is given by p(q)= 45-0.5q and suppose the monopolist mazimizes profit by setting a price p=35 and selling the quantity q=20. Calculate the total consumer surplus generated in the market

answer

-Total CS= 1/2 x b x h

-Total CS= 1/2 x 20 x (45-35)

-Total CS=1/2 x 200

-Total CS= 100

-Total CS= 1/2 x 20 x (45-35)

-Total CS=1/2 x 200

-Total CS= 100

question

Suppose a monopolist has the production function f(K,L)= 3K + L and can purchase any amount of capital K at the per unit rent r=10 and any amount of labor L at the per unit wage w=5. From this information, in order to produce q=12 units of output at minimum cost, the firm should use --- units of capital and --- units of labor.

answer

-f (K,L)= 3K + L

-f (K,L)= 3(4) + 0

-f (K,L)= 12

- That was the combination (4,0) that had the lowest cost ($40)

-f (K,L)= 3(4) + 0

-f (K,L)= 12

- That was the combination (4,0) that had the lowest cost ($40)

question

According to the equal marginal principle, a firm with an imperfect substitutes production function minimizes cost by choosing the combination of inputs at which

answer

Marginal product per dollar spent on each input is equalized

question

What are examples of 2nd degree price discrimination?

answer

- A utility company charges $0.18 per kWh of electricity used up to 1000 kWh, and $0.10 for each kWh after that

-A pizza restaurant distributes coupons offering a buy-one, get-one-50% off special

-A pizza restaurant distributes coupons offering a buy-one, get-one-50% off special

question

Consider a monopolist who sells to two segments of consumers, Group A and Group B. Suppose the monopolist can identify consumers in each group and prevent resale between groups, so that group price discrimination is possible.

If Group A's demand is more elastic than Group B's demand, then

If Group A's demand is more elastic than Group B's demand, then

answer

The monopolist should charge a higher price to Group B than to Group A

question

What pricing strategy would maximize a firm's revenue?

answer

Sell elite version for a little under the RP and sell the regular version as normal

question

A monopolist with constant marginal cost, MC=10 is maximizing profit by setting a price of p=30.

What is the price elasticity of demand at this price?

What is the price elasticity of demand at this price?

answer

-30-10/30= reciprocal of elasticity of demand

-So, 20/30--> 30/20= 3/2=1.5

-So, 20/30--> 30/20= 3/2=1.5

question

You have MPl=20, MPk=30, w=12, and r=20, what should the firm do to minimize cost?

answer

20/12=30/20

They should use less labor and more capital to minimize the cost of producing q

They should use less labor and more capital to minimize the cost of producing q

question

Demand is given by D(p)= 1000-25p

What is the price elasticity of demand at p=30?

What is the price elasticity of demand at p=30?

answer

-(p/D(p)) x D'(p)

-(30/1000-25(30)) x 25

-750/250= 3

-(30/1000-25(30)) x 25

-750/250= 3

question

MC(q)= 10 and p(q)=150-7q

Find profit-maximizing quantity q

Find profit-maximizing quantity q

**and p**answer

-p(q)= 150-7q--> MR(q)=150-14q

-M(C)= 10

-So, 150-14q=10--> q*=10

-Plug in q, so, p(10)=150-7(10)= 80; p*=80

-M(C)= 10

-So, 150-14q=10--> q*=10

-Plug in q, so, p(10)=150-7(10)= 80; p*=80