MICROECON FINAL Exam Pt. 2 - Assignment Essays

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Firm B does not have a dominant strategy

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Both firms will enter and make a positive profit.

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(a) If you are sure that the other hunter will hunt stag, what is the best thing for you to do? - HUNT STAG
(b) If you are sure that the other hunter will hunt hare, what is the best thing for you to do? - HUNT HARE
(c) Does either hunter have a dominant strategy in this game? - NO
(d) Is (Hunt Stag, Hunt Stag) a Nash equilibrium of this game? - YES
(e) Is (Hunt Stag, Hunt hare) a Nash equilibrium of this game? - NO
(f) Is (Hunt Hare, Hunt Stag) a Nash equilibrium of this game? - NO
(g) Is (Hunt Hare, Hunt Hare) a Nash equilibrium of this game? - YES

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Lori employs Max. She wants him to work hard rather than to loaf. She considers offering him a bonus or not giving him one. All else the same, Max prefers to loaf. A payoff matrix for this game is the following. (The following is a description of the table: Rows are labeled by Lori's actions and columns are labeled with Max's actions. From top to bottom, Lori's actions are "Bonus" and "No bonus". From left to right, Max's actions are "Bonus" and "No bonus". Payoffs are as follows: The first row is (1,2) and (-1,3); the second row is (3,-1) and (0,0).)

If they choose actions simultaneously, what are their Nash equilibrium strategies?

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(No Bonus, Loaf)

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Consider the following game. Two players are put in separate rooms. Each player is given $10. The player can use this money in either of two ways. He can "keep" it or he can "contribute" it to a public fund. Money that goes into the public fund gets multiplied by 1.6 and then divided equally between the two players. If both contribute their $10, then each gets back $20x1.6/2=$16. If one contributes and the other does not, each gets back $10x1.6/2=$8 from the public fund so that the contributor has $8 at the end of the game and the non-contributor has $18-his original $10 plus $8 back from the public fund. If neither contributes, both have their original $10. The following is the payoff table for this game. (The following is a description of the table: Rows are labeled by player A's actions and columns are labeled with player B's actions. From top to bottom, A's actions are "Contribute" and "Keep". From left to right, B's actions are "Contribute" and "Keep". Payoffs, in dollars, are as follows: The first row is (16,16) and (8,18); the second row is (18,8) and (10,10).)

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(a) Suppose that you are player A. If the other player keeps, what is your payoff if you keep? - $10
(b)Suppose that you are player A. If the other player keeps, what is your payoff if you contribute? - $8
(c)Suppose that you are player A. If the other player contributes, what is your payoff if you keep? - $18
(d) Suppose that you are player A. If the other player contributes, what is your payoff if you contribute? - $16
(e) Is (Contribute,Contribute) a Nash equilibrium of this game?- FALSE
(f) Is (Contribute,Keep) a Nash equilibrium of this game? - FALSE
(g) Is (Keep,Contribute) a Nash equilibrium of this game? - FALSE
(h) Is (Keep,Keep) a Nash equilibrium of this game? - TRUE

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A monopolist

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sells at a price higher than the competitive price.

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A monopolist

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produces less than the competitive outcome.

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A monopolist's marginal revenue is 0 whenever the price elasticity of demand is -1.

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True

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A monopoly faces a demand function Q(p)=200-4p. Suppose that it has a constant marginal cost of 14 and no fixed costs. What is this monopoly's profit?

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1296

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A monopoly incurs a marginal cost of $1 for each unit produced. If the price elasticity of demand equals -2, the monopoly maximizes profits by charging a price of:

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The ability of a monopoly to charge a price that exceeds marginal cost depends on:

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price elasticity of demand

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A monopolist?

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Produces a quantity that is generally less than the competitive outcome.

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A monopolist?

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Produces a quantity that maximizes its profits

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A strictly dominant action produces:

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a higher payoff than any other action the player can use for every possible action of the other players.

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An action, say A, is strictly dominated by an action, say B, for an agent if

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B produces a higher payoff than A independently of what the other players do.

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A monopolist faces a demand for its product given by Q(p)=3000-100p. If her cost function is given by C(q)=4q+10000, she would maximize her profits by producing [a] units of output. Her profit will be [b].

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1300, 6900

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The following problem is designed to check that you understand the definition of Nash equilibrium. Consider an integer game between two players: Marilyn and Noah. Each of the player is required to announce a positive integer. In other words, a player can announce 1, 2, 3, 4, 5..., but cannot announce "infinity". Two players announce their integers simultaneously. Notice that this game is different from the games we learned in class in that each player has infinitely many actions to take. The payoffs of the players in the game are specified as follows: (1) when the two announced integers are different, whoever reports the strictly lower number pays $1 to the other player, so that the loser of the game has payoff -1 and the winner of the game has payoff 1; (2) when the two players announce the same integer, their payoffs are both 0. This game ________.

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has 0 Nash equilibrium (in pure strategies)

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A price-discriminating monopolist with a constant marginal cost sells in two separate markets such that the goods from one market cannot be resold in the other. The profit maximizing price in market 1 is 4 and in market 2 is 8. If the price elasticity of demand in market 1 is -1.5, what is the price elasticity of demand in market 2?

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-1.2

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A monopolist faces a demand curve described by P(Q)=100-2Q and has a constant marginal cost of 16 and 0 fixed cost. If this monopolist is able to practice perfect price discrimination, its total profits will be?

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1764

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A monopoly:

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is a firm that controls 100% of the production of a certain good.

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A monopolist maximizes _________ given the market demand.

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economic profit

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increase price by $4

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Perfect competition increases prices compared to the monopoly outcome.

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False

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Since a monopoly charges a price that is greater than the competitive price, then the government can reduce the deadweight loss in the society by imposing a sales tax.

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False

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Suppose that the market demand is given by Q(p)=1000-2p. Let p(q) be the maximal price at which the agents would buy q units. Then

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p(q)=500-(1/2)q

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If the inverse demand function for a monopoly's product is p = a - bQ, then the firm's marginal revenue function is:

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a - 2bQ

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In the following game, the strictly dominated action for Firm 1 is:

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Q=96

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In the following prisoner's dilemma problem, the strictly dominant action for each player is

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Confess.

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In the following prisoner's dilemma problem, the strictly dominant action for Player 1 is

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Confess

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If we assume that strictly dominated action are not selected, then the combination that survives the iterative elimination of strictly dominated actions in the following game is?

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(U, R)

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A monopolist sells in two states. The demand function in state 1 and 2 respectively is Q1(p1)=50 - p1 and Q2(p2)=90-1.5p2. The monopolist produces at a constant marginal cost of 10. If a government regulation prevents the monopolist from charging different prices in the two states, then the profit maximizing price will be p= [a]. (Hint: The monopoly serves both markets if the optimal price is below 50; assume that p is at most 50 and solve for the monopoly that maximizes profits with the aggregate demand; confirm that the solution is below 50).

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Which of the following statements is WRONG?

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Under the first-degree price discrimination, social welfare is minimized.

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In a local grocery store, avocado is priced "$1 each, 3 for $2". This can be viewed as a practice of ______.

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Second-degree price discrimination

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The following figure shows the market demand, the Marginal cost function, and the marginal cost function shifted by an amount "t" for a certain monopoly. Suppose that the Government DOES NOT impose a tax. Then the DWL at the quantity and price that maximize the monopolist's profit is?

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-(i+n)

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The following figure shows the market demand, the marginal cost function, and the marginal cost function shifted by an amount "t" for a certain monopoly. Suppose that the Government IMPOSES a sales tax of t per unit. Then the government's revenue if the monopolist maximizes the profit is?

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j+k+o+r

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A monopoly faces a demand function Q(p)=50-p/2. Suppose that it has a constant marginal cost of 16 and no fixed costs. What is this monopoly's profit maximizing price?

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A monopoly faces a demand function Q(p)=50-p/2. Suppose that it has a constant marginal cost of 16 and no fixed costs. What is this monopoly's profit maximizing quantity?

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A Nash Equilibrium is a profile of actions in which each agent is playing ________ to the other player's action.

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a best response

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An action, say A, for Player 1 is _______ to an action, say B, by the other player if it maximizes Player 1's payoff given that the other agent plays B.

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a best response

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In the following battle of sexes game,

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both (Movies, Movies) and (Football, Football) are Nash Equilibrium.

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Here, Firm A and B are two airlines. If the two airlines must decide simultaneously, which of the following statements is true if we predict a Nash equilibrium will result from their strategic interaction?

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firm b will not enter

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(No Bonus, Loaf)

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answer

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answer

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yes

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yes

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only firm a will enter the market

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A Nash Equilibrium is a profile of actions in which each agent is playing ________ to the other player's action.

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a best response

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a strictly dominant action produces

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a higher payoff than any other action the player can use for every possible action of the players

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the profile of actions in which each agent plays ___ is always a nash equilibrium

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a strictly dominant action

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an action, say a, for player 1 is ___ to an action, say b, by the other player if it maximizes player 1's payoff given that the other agent plays B

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a best response

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suppose that the market demand is given by Q(p)=1000-2p. Let P(q) be the maximal price at which the agents would buy q units. then,

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P(q)=500-(1/2)q

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since a monopoly charges a price that is greater than the competitive price, the government can reduce the deadweight loss in the society by imposing a sales tax

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false

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a monopoly faces a demand function Q(p)=50-p/2. What is the maximal price at which it is able to sell q units?

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p(q)=100-2q

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a monopolist maximizes profits by:

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by setting MR(q)=MC(q) at a q for which p(q) is at least AVC (q)

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a monopolist?

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produces a quantity that maximizes its PROFITS

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a monopoly faces a demand function Q(p)=200-4p. Suppose that it has a constant marginal cost of 14 & no fixed costs. What is this monopoly's profit?

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1296

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a monopoly faces a demand function Q(p)=50-p/2. Suppose that it has a constant marginal cost of 16 & no fixed costs. What is this monopoly's profit?

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882

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Perfect competition increases the aggregate welfare in the society compared to the monopoly outcome.

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true

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A monopoly faces a demand function Q(p)=50-p/2. Suppose that it has a constant marginal cost of 16 and no fixed costs. What is this monopoly's profit maximizing price?

answer

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If the inverse demand function for a monopoly's product is p = a - bQ, then the firm's marginal revenue function is:

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a - 2bQ

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Suppose that a monopolist faces the market demand Q(p)=1000-2p. Then its marginal revenue function MR(q) is?

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MR(q)=500-q

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A monopolist faces a demand for its product given by Q(p)=3000-100p. If her cost function is given by C(q)=4q+10000, she would maximize her profits by producing ______ units of output. Her profit will be ______.

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1300; 6900

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Suppose that a monopoly can sell q units at price P(q). Then, the marginal revenue at q is give by:

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MR(q)=(dP(q)/dq)q+P(q)

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increase price by $4

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A monopoly sets a price of $50 per unit for an item that has a marginal cost of $10. Assuming profit maximization by the monopoly and utility maximization by the agents, the price elasticity of demand measured at the quantity consumed by the agents is equal to:

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-1.25

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A monopoly incurs a marginal cost of $1 for each unit produced. If the price elasticity of demand equals -2, the monopoly maximizes profits by charging a price of:

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The ability of a monopoly to charge a price that exceeds marginal cost depends on:

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price elasticity of demand

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-1.2

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A monopolist sells in two states. The demand function in state 1 and 2 respectively is Q1(p1)=50 - p1 and Q2(p2)=90-1.5p2. The monopolist produces at a constant marginal cost of 10. If a government regulation prevents the monopolist from charging different prices in the two states, then the profit maximizing price will be p=_______-. (Hint: The monopoly serves both markets if the optimal price is below 50; assume that p is at most 50 and solve for the monopoly that maximizes profits with the aggregate demand; confirm that the solution is below 50).

answer

question

A monopolist sells in two states. The demand function in state 1 and 2 respectively is Q1(p1)=50 - p1 and Q2(p2)=90-1.5p2. The monopolist produces at a constant marginal cost of 10. If the monopolist is able to price discriminate and charge different prices in the two markets, she would choose to charge p1=____ and p2=_____.

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30; 35

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The following figure shows the market demand, the Marginal cost function, and the marginal cost function shifted by an amount "t" for a certain monopoly. Suppose that the Government DOES NOT impose a tax. Then the Consumer Surplus at the quantity and price that maximize the monopolist's profit is?

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a+b+c+d+e

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The following figure shows the market demand, the Marginal cost function, and the marginal cost function shifted by an amount "t" for a certain monopoly. Suppose that the Government IMPOSES a sales tax of t per unit. Then the government's revenue if the monopolist maximizes profits is?

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j+k+o+r

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answer

-(i+n)

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A monopolist maximizes _________ given the market demand.

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economic profit

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A monopoly:

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is a firm that controls 100% of the production of a certain good

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In an imperfect competition market,

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firms internalize the consequences of their pricing/production decisions

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A monopolist

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produces less than the competitive outcome

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Consider a monopoly that has a constant marginal cost c, zero fixed costs, and faces the demand function shown in the following graph. What is the producer surplus if the government provides a production subsidy of s per unit?

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n+d+g+i+j+k

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A monopoly faces a market demand Q(p)=1000-2p and has costs C(q)=240q. What is the price set by this monopoly?

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370

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Consider a monopoly that has a constant marginal cost c, zero fixed costs, and faces the demand function shown in the following graph. What is the total welfare if there is no government intervention?

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a+b+n+e+f+g

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A monopoly faces a market demand Q(p)=1500-5p and has costs C(q)=120q. What is the DWL induced by the lack of competition in this market?

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-20250

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A monopoly faces a market demand Q(p)=1000-2p and has costs C(q)=240q. Suppose that the government intervenes the market and splits the monopoly into two firms with costs C1(q)=240q and C2(q)=240q. If the newly created firms compete in prices (Bertrand competition), then the welfare gain or loss in the society from this intervention is?

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16900

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A monopoly has private cost C(q)=cpq and faces the market demand shown in the following figure.

If there is an additional pollution cost ca per unit produced, what is the DWL in the market if the government decides to impose a specific tax collected from the producer of ca per unit.

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-h-i-l

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Consider a monopoly that has a constant marginal cost c, zero fixed costs, and faces the demand function shown in the following graph. If the government provides a production subsidy of s per unit, then the monopoly produces?

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exactly q2

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Consider a monopoly that has a constant marginal cost c, zero fixed costs, and faces the demand function shown in the following graph. What is the government revenue (or deficit if negative) if the government provides a production subsidy of s per unit?

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-(d+k+j)

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A monopoly faces a market demand Q(p)=1500-5p and has costs C(q)=120q. What is the profit maximizing quantity for this monopoly?

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450

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A monopoly faces a market demand Q(p)=1500-5p and has costs C(q)=120q. Suppose that the government intervenes the market and splits the monopoly into two firms with costs C1(q)=120q and C2(q)=120q. If the newly created firms compete in quantities (Cournot competition), then the DWL in this market is?

answer

-9000

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A monopoly faces a market demand Q(p)=1000-2p and has costs C(q)=240q. Suppose that the government intervenes the market and splits the monopoly into two firms with costs C1(q)=240q and C2(q)=240q. If the newly created firms compete in quantities (Cournot competition) , then the DWL in this market is?

answer

-7511.11

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Two firms that share a market and compete in quantities (Cournot) face a demand Q(p)=2000-4p and have private costs C1(q)=200q and C2(q)=200q. There is a pollution cost that firms don't internalize and amounts to $100 per unit produced. What is the DWL in this market?

answer

question

Consider a monopoly that has a constant marginal cost c, zero fixed costs, and faces the demand function shown in the following graph. What is the producer surplus if there is no government intervention?

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b+n+f+g

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A monopoly faces a market demand Q(p)=1500-5p and has costs C(q)=120q. Suppose that the government intervenes the market and splits the monopoly into two firms with costs C1(q)=120q and C2(q)=120q. If the newly created firms compete in prices (Bertrand competition), then the welfare gain or loss in the society from this intervention is?

answer

20250

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Two firms that share a market and compete in quantities (Cournot) face a demand Q(p)=1200-3p and have private costs C1(q)=100q and C2(q)=100q. There is a pollution cost that firms don't internalize and amounts to $100 per unit produced. What is the DWL in this market?

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question

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600

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Consider a monopoly that has a constant marginal cost c, zero fixed costs, and faces the demand function shown in the following graph. What is the total welfare if the government provides a production subsidy of s per unit?

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a+b+n+e+f+g+h+i

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answer

11250

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A monopoly faces a market demand Q(p)=1000-2p and has costs C(q)=240q. Suppose that the government intervenes the market and splits the monopoly into two firms with costs C1(q)=240q and C2(q)=240q. If the newly created firms compete in quantities (Cournot competition), then the aggregate production is?

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346.67

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Consider a monopoly that has a constant marginal cost c, zero fixed costs, and faces the demand function shown in the following graph. What is the gain or loss in welfare if the government provides a production subsidy of s per unit compared with the unregulated monopoly (this is, Welfare with subsidy - Welfare with no subsidy)?

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h+i

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Consider a monopoly that has a constant marginal cost c, zero fixed costs, and faces the demand function shown in the following graph. What is the consumer surplus if the government provides a production subsidy of s per unit?

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a+b+e+f+h

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A monopoly faces a market demand Q(p)=1000-2p and has costs C(q)=240q. Suppose that the government intervenes the market and splits the monopoly into two firms with costs C1(q)=240q and C2(q)=240q. If the newly created firms compete in quantities (Cournot competition), then the welfare gain or loss in the society from this intervention is?

answer

9388.89

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A monopoly faces a market demand Q(p)=1000-2p and has costs C(q)=240q. What is the DWL induced by the lack of competition in this market?

answer

-16900

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A monopoly has private cost C(q)=cpq and faces the market demand shown in the following figure.

If there is an additional pollution cost ca per unit produced, what is the DWL in the market.

answer

-l

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A monopoly faces a market demand Q(p)=1500-5p and has costs C(q)=120q. What is the price set by this monopoly?

answer

210

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Analyzing a perfectly competitive industry.

Each of these firms is identical in every aspect to each other firm in the industry. The industry is a constant cost industry such that each firm produces at a constant cost where C(q)=120q and where the market demand is Q(p)-3000-10p.

The industry output is:

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q=1,800

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p=$120

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CS= $162,000

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answer

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Analyzing a duopoly that competes using price (Bertrand competition).

Each of these firms is identical in every aspect to each other firm in the industry. The industry is a constant cost industry such that each firm produces at a constant cost where C(q)=120q and where the market demand is Q(p)=3000-10p.

the industry output:

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q=1800

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p1=p2=mc= $120

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$162,000

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answer

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$162,000

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answer

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Analyzing a monopoly.

The industry is a constant cost industry where c(q)=120q and where the market demand is Q(p)=3000-10p.

The monopolist output:

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900 units

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Analyzing a monopoly.

The industry is a constant cost industry where c(q)=120q and where the market demand is Q(p)=3000-10p.

the monopolist price is:

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p= $210

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Analyzing a monopoly.

The industry is a constant cost industry where c(q)=120q and where the market demand is Q(p)=3000-10p.

The total amount of consumer surplus is

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CS= $40,500

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Analyzing a monopoly.

The industry is a constant cost industry where c(q)=120q and where the market demand is Q(p)=3000-10p.

The total amount of producer surplus is:

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PS= 81,000

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Analyzing a monopoly.

The industry is a constant cost industry where c(q)=120q and where the market demand is Q(p)=3000-10p.

The total welfare is:

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$121,500

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Analyzing a monopoly.

The industry is a constant cost industry where c(q)=120q and where the market demand is Q(p)=3000-10p.

The dead weight loss is:

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DWL= -40,500

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Analyze a monopoly.

The industry is a constant cost industry where C(q)=120q and where the market demand is Q(p)-3000-10p. Suppose the government intervenes the market and splits the monopoly into two firms with cost of C1(q)=120q and C2(q)=120q.

The aggregate production is:

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1200 units

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p= $180

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CS= $72,000

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answer

PS= $72,000

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$144,000

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answer

DWL= -18,000

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answer

$22,500 gain

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Two firms that share a market and compete in quantities (Cournot) face a demand Q(p)-1200-3p and have private costs C1(q)=100q and C2(q)=100q. There is a pollution cost that firms don't internalize and amounts to $50 per unit produced. What is the DWL in this market?

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DWL= $3,750

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Dynamic games are usually represented in their extensive form including:

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players, actions, playoffs & history of play

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for a monopoly, a marginal revenue is less than price because:

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the firm must lower price if it wishes to sell more output

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perfect competition increases price compared to the monopoly outcome

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false

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a monopolist faces a demand curve described by P(Q)=100-2q and has a constant marginal cost of 16 and 0 fixed cost. If this monopolist is able to practice perfect price discrimination, its total profits will be?

answer

1764

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The following figure shows the market demand, the Marginal cost function, and the marginal cost function shifted by an amount "t" for a certain monopoly. Suppose that the Government IMPOSES a sales tax of t per unit. Then the DWL at the quantity and price that maximize the monopolist's profit is?

answer

-(e+h+j+m+n+l+s)

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a monopolist sells at a price

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higher than its marginal cost at q' and at a price higher than the competitive price

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a monopolist has ______ profits than what would have in a ________ market

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higher; competitive

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Consider a monopoly that has a constant marginal cost c, zero fixed costs, and faces the demand function shown in the following graph. If there is no government intervention, the monopoly produces?

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exactly q1

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Consider a monopoly that has a constant marginal cost c, zero fixed costs, and faces the demand function shown in the following graph. What is the consumer surplus if there is no government intervention?

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a+e

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Here, Firm A and B are two airlines. If the two airlines must decide simultaneously, what is nash equilibrium prediction for the game if the government offers $30 subsidy to airlines that serve this route

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both firms will enter and make a positive profit

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Here, Firm A and B are two airlines. If the two airlines must decide simultaneously, which of the following statements is true?

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firm b does not have a dominant strategy

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This problem is designed to give you practice in reading a game matrix and to check that you understand the definition of a Nash equilibrium. Consider the game represented in the following table. (The following is a description of the table: Rows are labeled by player A's actions and columns are labeled with player B's actions. From top to bottom, A's actions are "Top" and "Bottom". From left to right, B's actions are "Left" and "Right". Payoffs are as follows: The first row is (a,b) and (c,d); the second row is (e,f) and (g,h).)

if (top,right) is a Nash strategy equilibrium, then we know that: c ≥____ and _____≥ b.

answer

g; d

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This problem is designed to give you practice in reading a game matrix and to check that you understand the definition of a Nash equilibrium. Consider the game represented in the following table. (The following is a description of the table: Rows are labeled by player A's actions and columns are labeled with player B's actions. From top to bottom, A's actions are "Top" and "Bottom". From left to right, B's actions are "Left" and "Right". Payoffs are as follows: The first row is (a,b) and (c,d); the second row is (e,f) and (g,h).)

If (top, right) is a Nash equilibrium then it must be a dominant strategy equilibrium (true/false)

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false

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answer

e;d;c;f

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This problem is designed to give you practice in reading a game matrix and to check that you understand the definition of a dominant strategy. Consider the game represented in the following table. (The following is a description of the table: Rows are labeled by player A's actions and columns are labeled with player B's actions. From top to bottom, A's actions are "Top" and "Bottom". From left to right, B's actions are "Left" and "Right". Payoffs are as follows: The first row is (a,b) and (c,d); the second row is (e,f) and (g,h).)

if (top,left) is a Nash equilibrium, then how many of the above strict inequalities must be satisfied (numeric answer, i.e., 0, 1, 2, 3, or 4)? ____

answer

question

This problem is designed to give you practice in reading a game matrix and to check that you understand the definition of a dominant strategy. Consider the game represented in the following table. (The following is a description of the table: Rows are labeled by player A's actions and columns are labeled with player B's actions. From top to bottom, A's actions are "Top" and "Bottom". From left to right, B's actions are "Left" and "Right". Payoffs are as follows: The first row is (a,b) and (c,d); the second row is (e,f) and (g,h).)

If (top, left) is an equilibrium in strictly dominant strategies then it must be a Nash equilibrium (write "T" if true, or "F" if false). ____

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true

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If we assume that the strictly dominated action is not selected, in the following game the combination that survives the iterative elimination of strictly dominated actions is

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(Q=64, Q=64)

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when we identify a strictly dominatED action, it is reasonable to predict

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the strictly dominated action will not be selected

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For a monopoly, marginal revenue is less than price because

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the firm must lower price if it wishes to sell more output

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A monopoly faces a demand function Q(p)=50-p/2. Suppose that it has a constant marginal cost of 16 and no fixed costs. What is this monopoly's profit maximizing quantity?

answer

question

suppose that the market demand is given by Q(p)=1000-2p and has a cost function C(q)=100q. Then the amount that maximizes its profits, q*, is?

answer

400

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perfect competition increases the aggregate welfare in society compared to the monopoly outcome.

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true

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a monopolist marginal revenue is 0 whenever the price elasticity of demand is -1

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true

question

in order for the price differentiation strategy to succeed, it is necessary that

answer

resale should be limited, firm has market power, consumers should differ

question

A Nash Equilibrium is a profile of actions in which each agent is playing ________ to the other player's action.

answer

a best response

question

The profile of actions in which each agent plays ________ is always a Nash equilibrium.

answer

a strictly dominant action

question

A tennis coach charges $15 per hour for tennis lesson for children and $30 per hour for tennis lessons for adults. This can be viewed as a practice of ______.

answer

Third-degree price discrimination

question

Which of the following statements is WRONG?

answer

Under the first-degree price discrimination, social welfare is minimized.

question

Suppose that a monopoly can sell q units at price P(q). Then, the marginal revenue at q is give by:

answer

MR(q)=(dP(q)/dq)q+P(q)

question

answer

-1.2

question

answer

1764

question

answer

Only firm A will enter the market

question

answer

Both firms will enter and make a positive profit.

question

A monopolist?

answer

Produces a quantity that is generally less than the competitive outcome.

question

A monopolist maximizes profits by:

answer

by setting MR(q)=MC(q) at a q for which p(q) is at least AVC(q)

question

The ability of a monopoly to charge a price that exceeds marginal cost depends on:

answer

price elasticity of demand

question

answer

-1.25

question

answer

Candidate A has a strictly dominant strategy.

question

In the following prisoner's dilemma problem, the strictly dominant action for each player is

answer

Confess

question

In the following prisoner's dilemma problem, which of the following statements is correct?

answer

(Don't confess, Don't confess) is neither a Nash equilibrium nor an equilibrium in strictly dominant strategies.

question

If the inverse demand function for a monopoly's product is p = a - bQ, then the firm's marginal revenue function is:

answer

a - 2bQ

question

When we identify a strictly dominated action, it is reasonable to predict

answer

the strictly dominated action will not be selected.

question

An action, say A, is strictly dominated by an action, say B, for an agent if

answer

B produces a higher payoff than A independently of what the other players do.

question

answer

increase price by $4

question

answer

(a) does this game have a dominant strategy (write "Yes" or "No")? [a](b) Is (Swerve, Swerve) a Nash equilibrium of this game (write "Yes" or "No")? [b](c) Is (Swerve, Don't Swerve) a Nash equilibrium of this game (write "Yes" or "No")? [c](d) Is (Don't Swerve, Swerve) a Nash equilibrium of this game (write "Yes" or "No")? [d](e) Is (Don't Swerve, Don't Swerve) a Nash equilibrium of this game (write "Yes" or "No")? [e]
Specified Answer for: aNOSpecified Answer for: bNOSpecified Answer for: cYESSpecified Answer for: dYESSpecified Answer for: eNO

question

This problem is designed to give you practice in reading a game matrix and to check that you understand the definition of a Nash equilibrium. Consider the game represented in the following table. (The following is a description of the table: Rows are labeled by player A's actions and columns are labeled with player B's actions. From top to bottom, A's actions are "Top" and "Bottom". From left to right, B's actions are "Left" and "Right". Payoffs are as follows: The first row is (a,b) and (c,d); the second row is (e,f) and (g,h).) (a) if (top,right) is a Nash strategy equilibrium, then we know that: c ≥ [a] and [b]≥ b.(b) If (top, right) is a Nash equilibrium then it must be a dominant strategy equilibrium (write "T" if true, or "F" if false). [c]

answer

g
d
f

question

answer

(No Bonus, Loaf)

question

If we assume that strictly dominated action are not selected, then the combination that survives the iterative elimination of strictly dominated actions in the following game is?

answer

64 64

question

answer

1300 6900

question

A monopoly faces a demand function Q(p)=50-p/2. Suppose that it has a constant marginal cost of 16 and no fixed costs. What is this monopoly's profit maximizing price?

answer

question

A monopoly faces a demand function Q(p)=50-p/2. Suppose that it has a constant marginal cost of 16 and no fixed costs. What is this monopoly's profit maximizing quantity?

answer

question

Perfect competition increases prices compared to the monopoly outcome.

answer

false

question

A monopoly faces a demand function Q(p)=50-p/2. Suppose that it has a constant marginal cost of 16 and no fixed costs. What is this monopoly's profit?

answer

882

question

The following figure shows the market demand, the Marginal cost function, and the marginal cost function shifted by an amount "t" for a certain monopoly. Suppose that the Government IMPOSES a sales tax of t per unit. Then the DWL at the quantity and price that maximize the monopolist's profit is?

answer

-(e+h+i+m+n+l+s)

question

answer

-(i+n)

question

In the following game, the strictly dominated action for Firm 2 is?

answer

question

In the following battle of sexes game, is there a strictly dominant action?

answer

question

A monopolist

answer

sells at a price higher than its marginal cost at q*.

question

A monopolist

answer

produces less than the competitive outcome.

question

answer

30
35

question

Suppose that the market demand is given by Q(p)=1000-2p. Let p(q) be the maximal price at which the agents would buy q units. Then

answer

p(q)=500-(1/2)q

question

For a monopoly, marginal revenue is less than price because:

answer

the firm must lower price if it wishes to sell more output.

question

A monopoly:

answer

is a firm that controls 100% of the production of a certain good.

question

In an imperfect competition market,

answer

firms internalize the consequences of their pricing/production decisions.

question

answer

A.) has 0 Nash equilibrium (in pure strategies)

question

If the inverse demand function for a monopoly's product is p = a - bQ, then the firm's marginal revenue function is:

A.) a - 2bQ

B.) a

C.) 2bQ

D.) a - bQ/2

E.) a - bQ

answer

A.) a - 2bQ

question

answer

a.= 30
b.= 35

question

A monopolist:

A.) produces more than the competitive outcome.

B.) produces the same units as the competitive outcome.

C.) produces less than the competitive outcome.

D.) has zero profits.

E.) has the same profits as what would have in a competitive market.

answer

C.) produces less than the competitive outcome.

question

A monopolist:

A.) sells at a price higher than its marginal cost at q*.

B.) sells at a price lower than its marginal cost at q*.

C.) sells at a price the same as its marginal cost at q*.

D.) sells at a price lower than the competitive price.

E.) sells at the same price as the competitive price.

answer

A.) sells at a price higher than its marginal cost at q*.

question

An action, say A, for Player 1 is _______ to an action, say B, by the other player if it maximizes Player 1's payoff given that the other agent plays B.

A.) a strictly dominated action

B.) a best response

C.) a strictly dominant action

D.) a worst response

E.) a dynamic response

answer

B.) a best response

question

The profile of actions in which each agent plays ________ is always a Nash equilibrium.

A.) a strictly dominant action

B.) a strictly dominated action

C.) a dominated action

D.) a strict action

E.) a dynamic action

answer

A.) a strictly dominant action

question

A profit maximizing monopolist faces a demand function given by Q(p)=70-p. The cost function is C(q)=5q. Suppose that the government introduces a tax of $8 per unit of output. As a result of the tax, the monopolist will?

A.) increase price by $4.

B.) increase price by $8.

C.) leave its price unchanged.

D.) increase price by $12.

E.) increase price by $5.

answer

A.) increase price by $4.

question

answer

j+k+o+r

question

The following figure shows the market demand, the Marginal cost function, and the marginal cost function shifted by an amount "t" for a certain monopoly. Suppose that the Government DOES NOT impose a tax. Then the Consumer Surplus at the quantity and price that maximize the monopolist's profit is? (PICTURE)

answer

a+b+c+d+e

question

For a monopoly, marginal revenue is less than price because:

A.) the firm must lower price if it wishes to sell more output.

B.) the demand for the firm's output is perfectly elastic.

C.) the firm can sell all of its output at any price.

D.) the firm is a price taker.

E.) the firm has no supply curve.

answer

A.) the firm must lower price if it wishes to sell more output.

question

Since a monopoly charges a price that is greater than the competitive price, then the government can reduce the deadweight loss in the society by imposing a sales tax.

A.) True

B.) False

answer

A.) True

question

In the following battle of sexes game, (PICTURE)

answer

both (Movies, Movies) and (Football, Football) are Nash Equilibrium.

question

Perfect competition increases the aggregate welfare in the society compared to the monopoly outcome.

A.) True

B.) False

answer

A.) True

question

Two teenagers in souped-up cars drive toward each other at great speed. The first one to swerve out of the road is "chicken." The best thing that can happen to you is that the other guy swerves and you don't. Then you are the hero and the other guy is the chicken. If you both swerve, you are both chickens. If neither swerves, you both end up in the hospital. A payoff matrix for a chicken-type game is the following. (The following is a description of the table: Rows are labeled by player A's actions and columns are labeled with player's B actions. From top to bottom, A's actions are "Swerve" and "Don't swerve". From left to right, B's actions are "Swerve" and "Don't swerve". Payoffs are as follows: The first row is (1,1) and (1,2); the second row is (2,1) and (0,0).) (PICTURE)
Fill in the blank:

(a) does this game have a dominant strategy (write "Yes" or "No")? [a]

(b) Is (Swerve, Swerve) a Nash equilibrium of this game (write "Yes" or "No")? [b]

(c) Is (Swerve, Don't Swerve) a Nash equilibrium of this game (write "Yes" or "No")? [c]

(d) Is (Don't Swerve, Swerve) a Nash equilibrium of this game (write "Yes" or "No")? [d]

(e) Is (Don't Swerve, Don't Swerve) a Nash equilibrium of this game (write "Yes" or "No")? [e]

answer

a. No
b. No
c. Yes
d. Yes
e. No

question

Lori employs Max. She wants him to work hard rather than to loaf. She considers offering him a bonus or not giving him one. All else the same, Max prefers to loaf. A payoff matrix for this game is the following. (The following is a description of the table: Rows are labeled by Lori's actions and columns are labeled with Max's actions. From top to bottom, Lori's actions are "Bonus" and "No bonus". From left to right, Max's actions are "Bonus" and "No bonus". Payoffs are as follows: The first row is (1,2) and (-1,3); the second row is (3,-1) and (0,0).)If they choose actions simultaneously, what are their Nash equilibrium strategies? (PICTURE)

A.) (No Bonus, Loaf)

B.) (Bonus, Loaf)

C.) (No Bonus, Work)

D.) (Bonus, Work)

E.) there is no Nash equilibrium in this game.

answer

A.) (No Bonus, Loaf)

question

Two hunters set out to kill a stag. One has agreed to drive the stag through the forest and the other to post at a place where the stag must pass. If both faithfully perform their assignment stag-hunting tasks, they will surely kill the stag and each will get an equal share of this large animal. During the course of the hunt, each hunter has an opportunity to abandon the stag hunt and to pursue a hare. If a hunter pursues the hare instead of the stag he is certain to catch the hare and the stag is certain to escape. Each hunter would rather share half of the stag than have a hare for himself. The matrix below shows payoffs in a stag hunt game. If both hunters hunt stag, each gets a payoff of 4. If both hunt hare, each gets 3. If one hunts stag and the other hunts hare, the stag hunter gets 0 and the hare hunter gets 3. (The following is a description of the table: Rows are labeled by player A's actions and columns are labeled with player B's actions. From top to bottom, A's actions are "Hunt stag" and "hunt hare". From left to right, B's actions are "Hunt stag" and "Hunt hare". Payoffs are as follows: The first row is (4,4) and (0,3); the second row is (3,0) and (3,3).)Fill in the blank: (PICTURE)

(a) If you are sure that the other hunter will hunt stag, what is the best thing for you to do (write either "Hunt Stag" or "Hunt Hare")? [a]

(b) If you are sure that the other hunter will hunt hare, what is the best thing for you to do (write either "Hunt Stag" or "Hunt Hare")? [b]

(c) Does either hunter have a dominant strategy in this game (write "Yes" or "No")? [c](d) Is (Hunt Stag, Hunt Stag) a Nash equilibrium of this game (write "Yes" or "No")? [d]

(e) Is (Hunt Stag, Hunt hare) a Nash equilibrium of this game (write "Yes" or "No")? [e]

(f) Is (Hunt Hare, Hunt Stag) a Nash equilibrium of this game (write "Yes" or "No")? [f]

(g) Is (Hunt Hare, Hunt Hare) a Nash equilibrium of this game (write "Yes" or "No")? [g]

answer

a. Hunt Stag
b. Hunt Hare
c. No
d. Yes
e. No
d. No
e. Yes

question

A monopoly faces a demand function Q(p)=50-p/2. Suppose that it has a constant marginal cost of 16 and no fixed costs. What is this monopoly's profit maximizing quantity?

A.) 21

B.) 58

C.) 2646

D.) 882

E.) 1764

answer

A.) 21

question

A monopoly faces a demand function Q(p)=50-p/2. Suppose that it has a constant marginal cost of 16 and no fixed costs. What is this monopoly's profit maximizing price?

A.) 58

B.) 21

C.) 2646

D.) 882

E.) 1764

answer

A.) 58

question

In the following prisoner's dilemma problem, the strictly dominant action for Player 1 is: (PICTURE)

A.) Confess

B.) Don't confess

C.) There is no strictly dominant action for Player 1

D.) Both Confess and Don't Confess are strictly dominant actions for
Player 1

E.) Strictly dominant actions are the derivative of the subgame perfect quantal equilibrium.

answer

A.) Confess

question

In the following prisoner's dilemma problem, which of the following statements is correct? (PICTURE)

A.) (Don't confess, Don't confess) is a Nash equilibrium and an equilibrium in strictly dominant strategies.

B.) (Don't confess, Don't confess) is a Nash equilibrium, but not an equilibrium in strictly dominant strategies.

C.) (Don't confess, Don't confess) is not a Nash equilibrium, but is an equilibrium in strictly dominant strategies.

D.) (Don't confess, Don't confess) is neither a Nash equilibrium nor an equilibrium in strictly dominant strategies.

E.) None of the above statements is correct.

answer

D.) (Don't confess, Don't confess) is neither a Nash equilibrium nor an equilibrium in strictly dominant strategies.

question

If we assume that strictly dominated action are not selected, then the combination that survives the iterative elimination of strictly dominated actions in the following game is? (PICTURE)

A.) Q=96, Q=96)

B.) (Q=96, Q=64)

C.) (Q=96, Q=48)

D.) (Q=48, Q=48)

E.) (Q=64, Q=64)

answer

E.) (Q=64, Q=64)

question

Suppose that a monopolist faces the market demand Q(p)=1000-2p and has a cost function C(q)=100q. Then the amount that maximizes its profits, q*, is?

A.) 200

B.) 300

C.) 600

D.) 400

E.) 100

answer

D.) 400

question

A strictly dominant action produces:

A.) a higher payoff than any other action the player can use for every possible action of the other players.

B.) a lower payoff than any other action the player can use for every possible combination of the other players.

C.) the same payoff as any other action the player can use for every possible combination of the other players.

D.) a lower or the same payoff as any other action the player can use for every possible combination of the other players.

E.) a lower payoff than any other action the player can use for one possible combination of the other players.

answer

A.) a higher payoff than any other action the player can use for every possible action of the other players.

question

When we identify a strictly dominated action, it is reasonable to predict:

A.) the strictly dominated action may be selected.

B.) the strictly dominated action will not be selected.

C.) the strictly dominated action may or may not be selected.

D.) the strictly dominated action must be selected.

E.) the strictly dominated profile will outperform the market.

answer

B.) the strictly dominated action will not be selected.

question

A tennis coach charges $15 per hour for tennis lesson for children and $30 per hour for tennis lessons for adults. This can be viewed as a practice of ______.

A.) Perfect first-degree price discrimination

B.) Imperfect first-degree price discrimination

C.) Second-degree price discrimination

D.) Third-degree price discrimination

E.) None of the above

answer

D.) Third-degree price discrimination

question

In a local grocery store, avocado is priced "$1 each, 3 for $2". This can be viewed as a practice of ______.

A.) Perfect first-degree price discrimination

B.) Imperfect first-degree price discrimination

C.) Second-degree price discrimination

D.)Third-degree price discrimination

E.) None of the above

answer

C.) Second-degree price discrimination

question

In an imperfect competition market,

A.) consumers internalize the consequences of their pricing/consumption decisions.

B.) firms internalize the consequences of their pricing/production decisions.

C.) neither agents nor firms can affect prices.

D.) only firms are price takers.

E.) consumers do not maximize utility and firms do not maximize profits.

answer

B.) firms internalize the consequences of their pricing/production decisions.

question

A monopoly:

A.) is a market in which production is controlled by a small number of firms.

B.) takes prices as given.

C.) does not maximize profits.

D.) is a firm that controls 100% of the production of a certain good.

E.) does not induce a deadweight loss.

answer

D.) is a firm that controls 100% of the production of a certain good.

question

A monopolist?

A.) Produces a quantity that maximizes its profits.

B.) Produces a quantity that maximizes its marginal revenue.

C.) Produces a quantity that maximizes its marginal profit.

D.) Usually breaks even.

E.) Produces a quantity that maximizes its revenue.

answer

A.) Produces a quantity that maximizes its profits.

question

A monopolist maximizes profits by:

A.) charging price equal to marginal cost.

B.) by setting marginal profit equal to marginal cost.

C.) by charging price equal to average cost.

D.) by setting MR(q)=MC(q) at a q for which p(q) is at least AVC(q)

E.) by setting marginal revenue equal to marginal profit at a q for which p(q) is at least AVC(q)

answer

D.) by setting MR(q)=MC(q) at a q for which p(q) is at least AVC(q)

question

Suppose that a monopoly can sell q units at price P(q). Then, the marginal revenue at q is give by:

A.) MR(q)=(dP(q)/dq)q+Q(q)

B.) MR(q)=(dP(q)/dq)p+P(q)

C.) MR(q)=(dP(q)/dq)p+Q(q)

D.) MR(q)=(dQ(q)/dq)p+Q(q)

E.) MR(q)=(dP(q)/dq)q+P(q)

answer

E.) MR(q)=(dP(q)/dq)q+P(q)

question

A monopoly faces a demand function Q(p)=50-p/2. Suppose that it has a constant marginal cost of 16 and no fixed costs. What is this monopoly's profit?

A.) 2646

B.) 58

C.) 21

D.) 882

E.) 1764

answer

D.) 882

question

In the following game, the strictly dominated action for Firm 2 is? (PICTURE)

A.) Q=48

B.) Q=64

C.) Q=96

D.) both Q=48 and Q=64

E.) There is no strictly dominated action.

answer

C.) Q=96

question

answer

A.) 1764

question

answer

C.) -1.2

question

Consider the following game. (The following is a description of the table: Rows are labeled by Firm A's actions and columns are labeled with Firm B's actions. From top to bottom, A's actions are "enter" and "do not enter". From left to right, B's actions are "enter" and "do not enter". Payoffs, in dollars, are as follows: The first row is (10, -20) and (50, 0); the second row is (0, 40) and (0, 0).) (PICTURE)

Here, Firm A and B are two airlines. If the two airlines must decide simultaneously, which of the following statements is true if we predict a Nash equilibrium will result from their strategic interaction?

A.) Only firm A will enter the market

B.) Only firm B will enter the market

C.) Neither firm will enter the market

D.) Firm A and firm B will both enter the market

E.) The outcome of the game is unpredictable (i.e., there is no Nash equilibrium for this game).

answer

A.) Only firm A will enter the market

question

Consider the following game. (The following is a description of the table: Rows are labeled by Firm A's actions and columns are labeled with Firm B's actions. From top to bottom, A's actions are "enter" and "do not enter". From left to right, B's actions are "enter" and "do not enter". Payoffs, in dollars, are as follows: The first row is (10, -20) and (50, 0); the second row is (0, 40) and (0, 0).) (PICTURE)

Here, Firm A and B are two airlines. If the two airlines must decide simultaneously, which of the following statements is true?

A.) Firm B does not have a dominant strategy

B.) Firm A does not have a dominant strategy

C.) Neither firm entering is a Nash equilibrium

D.) Both firms entering is a Nash equilibrium

E.) The outcome of the game is unpredictable

answer

A.) Firm B does not have a dominant strategy

question

A monopoly incurs a marginal cost of $1 for each unit produced. If the price elasticity of demand equals -2, the monopoly maximizes profits by charging a price of:

A.) $2

B.) $1

C.) $1.50

D.)$3

E. $2.50

answer

A.) $2

question

The ability of a monopoly to charge a price that exceeds marginal cost depends on:

A.) price elasticity of demand

B.) price elasticity of supply

C.) the firm's cost function

D.) slope of the demand curve

E.) shape of the marginal cost curve

answer

A.) price elasticity of demand

question

ATTEMPT 2:

A monopolist?

A.) Produces a quantity less than its production at the Bertrand competition outcome when there is another competitor with lower costs (when both have constant MC).

B.) Produces a quantity greater than its production at the Bertrand competition outcome when there is another competitor with equal marginal costs (when both have constant MC).

C.) Produces a quantity that is greater than the competitive outcome.

D.) Never makes a positive profit.

E.) Produces a quantity that is generally less than the competitive outcome.

answer

E.) Produces a quantity that is generally less than the competitive outcome.

question

In the following battle of sexes game, is there a strictly dominant action? (PICTURE)

A.) Yes

B.) No

answer

B.) No

question

answer

A.) -1.25

question

A monopoly faces a demand function Q(p)=50-p/2. What is the maximal price at which it is able to sell q units?

A.) p(q)=100-3q

B.) p(q)=50-2q

C.) p(q)=50-q

D.) p(q)=100-2q

E.) p(q)=100-q

answer

D.) p(q)=100-2q

question

This problem is designed to give you practice in reading a game matrix and to check that you understand the definition of a Nash equilibrium. Consider the game represented in the following table. (The following is a description of the table: Rows are labeled by player A's actions and columns are labeled with player B's actions. From top to bottom, A's actions are "Top" and "Bottom". From left to right, B's actions are "Left" and "Right". Payoffs are as follows: The first row is (a,b) and (c,d); the second row is (e,f) and (g,h).)

Fill the blank:(a) if (top,right) is a Nash strategy equilibrium, then we know that: c ≥ [a] and [b]≥ b.(b)

If (top, right) is a Nash equilibrium then it must be a dominant strategy equilibrium (write "T" if true, or "F" if false). [c]

answer

a.) g

b.) d

c.) F

question

A monopolist maximizes _________ given the market demand.

A.) economic profit

B.) economic revenues

C.) economic costs

D.) prices

E.) units produced

answer

A.) economic profit

question

The following figure shows the market demand, the Marginal cost function, and the marginal cost function shifted by an amount "t" for a certain monopoly. Suppose that the Government IMPOSES a sales tax of t per unit. Then the DWL at the quantity and price that maximize the monopolist's profit is? (PICTURE)

answer

A.) -(e+h+i+m+n+l+s)

question

Which of the following statements is WRONG?

A.) Under the first-degree price discrimination, consumer surplus is equal to zero.

B.) Under the first-degree price discrimination, producer surplus is maximized.

C.) Under the first-degree price discrimination, social welfare is minimized.

D.) Under the first-degree price discrimination, the dead-weight loss is zero.

E.) Under the first-degree price discrimination, the total welfare is higher than that under the profit-maximizing single price scheme.

answer

C.) Under the first-degree price discrimination, social welfare is minimized.

question

Consider the following game. (The following is a description of the table: Rows are labeled by Firm A's actions and columns are labeled with Firm B's actions. From top to bottom, A's actions are "enter" and "do not enter". From left to right, B's actions are "enter" and "do not enter". Payoffs, in dollars, are as follows: The first row is (10, -20) and (50, 0); the second row is (0, 40) and (0, 0).) (PICTURE)

Firm A and B are two airlines. If the two airlines must decide simultaneously, what is the Nash equilibrium prediction for this game if the government offers a $30 subsidy to airlines that serve this route?

A.) Both firms will enter and make a positive profit.

B.) Firm A will decide not to enter since firm B will

C.) Firm B will decide not to enter since firm A will

D.) Neither firm will have a dominant strategy

E.) Neither firm entering is a Nash equilibrium

answer

A.) Both firms will enter and make a positive profit.

question

A monopoly faces a demand function Q(p)=200-4p. Suppose that it has a constant marginal cost of 14 and no fixed costs. What is this monopoly's profit?

A.) 32

B.) 256

C.) 64

D.) 1296

E.) 72

answer

D.) 1296

question

ATTEMPT 3:

Perfect competition increases prices compared to the monopoly outcome.

A.) True

B.) False

answer

B.) False

question

An action, say A, is strictly dominated by an action, say B, for an agent if:

A.) B produces a higher payoff than A independently of what the other players do.

B.) B produces a lower payoff than A independently of what the other players do.

C.) B produces the same payoff as A independently of what the other players do.

D.) B produces a lower or the same payoff as A independently of what the other players do.

E.) A produces a higher payoff than B independently of what the other players do.

answer

A.) B produces a higher payoff than A independently of what the other players do.

question

Suppose that the market demand is given by Q(p)=1000-2p. Let p(q) be the maximal price at which the agents would buy q units. Then

A.) p(q)=500-(1/2)q

B.) p(q)=1000-2q

C.) p(q)=500-2q

D.) p(q)=1000-q

E.) p(q)=500-q

answer

A.) p(q)=500-(1/2)q

question

A Nash Equilibrium is a profile of actions in which each agent is playing ________ to the other player's action.

A.) a strictly dominant action

B.) a strictly dominated action

C.) a best response

D.) a worst response

E.) a dynamic response

answer

C.) a best response

question

answer

B.) (U, R)

question

In the following game, the strictly dominated action for Firm 1 is: (PICTURE)

A.) Q=48

B.) Q=64

C.) Q=96

D.) both Q=48 and Q=64

E.) There is no strictly dominated action.

answer

C.) Q=96

question

In the following prisoner's dilemma problem, the strictly dominant action for each player is: (PICTURE)

A.) Confess.

B.) Don't confess.

C.) There is no strictly dominant action for Player 1.

D.) There is no strictly dominant action for Player 2.

E.) There is no strictly dominant action for both Player 1 and Player 2.

answer

A.) Confess.

question

answer

a.) 1300
b.) 6900

question

Consider a two-player game where two candidates choose the amount to spend on campaign respectively. Each player has three levels of spending on campaign, low, medium, and high. The payoffs are summarized in the matrix below. Which of the following statements is correct? (PICTURE)

A.) Candidate A has a strictly dominant strategy.

B.) Candidate B does not have a strictly dominant strategy.

C.) The game does not have an equilibrium in strictly dominant strategy.

D.) (medium, medium) is a Nash equilibrium.

E.) None of the above.

answer

A.) Candidate A has a strictly dominant strategy.

question

ATTEMPT 4

Consider the following game. Two players are put in separate rooms. Each player is given $10. The player can use this money in either of two ways. He can "keep" it or he can "contribute" it to a public fund. Money that goes into the public fund gets multiplied by 1.6 and then divided equally between the two players. If both contribute their $10, then each gets back $20x1.6/2=$16. If one contributes and the other does not, each gets back $10x1.6/2=$8 from the public fund so that the contributor has $8 at the end of the game and the non-contributor has $18-his original $10 plus $8 back from the public fund. If neither contributes, both have their original $10. The following is the payoff table for this game. (The following is a description of the table: Rows are labeled by player A's actions and columns are labeled with player B's actions. From top to bottom, A's actions are "Contribute" and "Keep". From left to right, B's actions are "Contribute" and "Keep". Payoffs, in dollars, are as follows: The first row is (16,16) and (8,18); the second row is (18,8) and (10,10).) (PICTURE)

(a) Suppose that you are player A. If the other player keeps, what is your payoff if you keep (do not include the dollar sign in your answers)? $ [a]

(b)Suppose that you are player A. If the other player keeps, what is your payoff if you contribute? $ [b]

(c)Suppose that you are player A. If the other player contributes, what is your payoff if you keep? $ [c]

(d) Suppose that you are player A. If the other player contributes, what is your payoff if you contribute? $ [d]

(e) Is (Contribute,Contribute) a Nash equilibrium of this game (answer "T" if true, or "F" if false)? [e]

(f) Is (Contribute,Keep) a Nash equilibrium of this game (answer "T" if true, or "F" if false)? [f]

(g) Is (Keep,Contribute) a Nash equilibrium of this game (answer "T" if true, or "F" if false)? [g]

(h) Is (Keep,Keep) a Nash equilibrium of this game (answer "T" if true, or "F" if false)? [h]

answer

a.) 10

b.) 8

c.) 18

d.) 16

e.) F

f.) F

g.) F

h.) T

question

This problem is designed to give you practice in reading a game matrix and to check that you understand the definition of a dominant strategy. Consider the game represented in the following table. (The following is a description of the table: Rows are labeled by player A's actions and columns are labeled with player B's actions. From top to bottom, A's actions are "Top" and "Bottom". From left to right, B's actions are "Left" and "Right". Payoffs are as follows: The first row is (a,b) and (c,d); the second row is (e,f) and (g,h).) (PICTURE)

(a) if (top,left) is an equilibrium in strictly dominant strategies, then we know that: a> [a], b> [b], [c]>g, and [d]>h.

(b) if (top,left) is a Nash equilibrium, then how many of the above strict inequalities must be satisfied (numeric answer, i.e., 0, 1, 2, 3, or 4)? [e]

(c) If (top, left) is an equilibrium in strictly dominant strategies then it must be a Nash equilibrium (write "T" if true, or "F" if false). [f]

answer

a.) e

b.) d

c.) c

d.) f

e.) 0

f.) T

question

ATTEMPT 5:

A monopolist sells in two states. The demand function in state 1 and 2 respectively is Q1(p1)=50 - p1 and Q2(p2)=90-1.5p2. The monopolist produces at a constant marginal cost of 10. If a government regulation prevents the monopolist from charging different prices in the two states, then the profit maximizing price will be p= [a]. (Hint: The monopoly serves both markets if the optimal price is below 50; assume that p is at most 50 and solve for the monopoly that maximizes profits with the aggregate demand; confirm that the solution is below 50).

answer

p*=33

question

A monopolist's marginal revenue is 0 whenever the price elasticity of demand is -1.

A.) True

B.) False

answer

A.) True

question

answer

B.) -(i+n)

question

...

answer

...

question

Suppose that y and x are variables and they are related by: 8x+2y=10. Then, y as a function of x is given by the expression?
a) y=5-2x
b) y=5+4x
c) y=5-4x
d) y=10-8x
e) y=2-4x

answer

c) y=5-4x

question

Suppose that y and x are variables and they are related by: 16x+4y=20. Is y as a function of x a line? True/False

answer

True

question

How many hw assignments will this course have?
a) 6
b) 8
c) 3
d) 7
e) 5

answer

d) 7

question

Consider the function F given by the following expression: F(n,k)=min{2n,k} where n and k are numbers. Here min{2n,k} is the minimum of 2n and k. What is F(10,2)?
a) F(10,2)= 5
b) F(10,2)= 4
c) F(10,2)= 10
d) F(10,2)= 20
e) F(10,2)= 2

answer

e) F(10,2)= 2

question

Suppose that a student has saved all answers of his or her first attempt for a homework assignment in this course and has 80% correct answers. This attempt is graded out of 100 points. According to the syllabus, if the deadline of the homework assignment is 11:59 pm on a given day and the student submits the first attempt at 11:59:01 pm on eCampus time, the student's grade for the assignment will be (suppose also that the student has no University accepted excuse for the late submission)?
a) 40, the average of 0 and 80.
b) 0 because is marked late by the system.
c) 10
d) It could be 0 or 80, depending on the student's ability to convince the instructor to waive the deadline.
e) 80 because the student did not enter any new answer after the deadline.

answer

b) 0 because is marked late by the system.

question

The following is the graph of two iso-level sets of a function of two variables, x and y. The graph is a two-axis graph in which the variable x is measured in the horizontal axis and the variable y is measured in the vertical axis. There are two red piece-wise linear curves that represent the iso-level sets of the function. The closest of these two curves from the origin is an L shaped curve that has the kink at the point (2,3). The second curve is also an L shaped curve that is farther away from the origin and never crosses the first curve. Which of the following is the expression of the function whose iso-level sets are shown in the graph? (the expression min{a,b} is the minimum between a and b; for instance min{1,2}=1).
a) f(x,y)=min{3x,2y}
b) f(x,y)=3x+2y
c) f(x,y)=min{2x,3y}
d) f(x,y)=min{2x2,3y2}
e) f(x,y)=x+y

answer

a) f(x,y)=min{3x,2y}

question

Consider the function F given by the following expression: F(n,k)=2n+k where n and k are numbers. Which of the following pairs (n,k) belongs to the same iso-level set as (1,3)?
a) (0,3)
b) (3,0)
c) (0,5)
d) (5,0)
e) (5,5)

answer

c) (0,5)

question

The following is the graph of two iso-level sets of a function of two variables, x and y. The graph is a two-axis graph in which the variable x is measured in the horizontal axis and the variable y is measured in the vertical axis. There are two red linear curves that represent the iso-level sets of the function. These lines are parallel and have negative slope. The x intercept of the curve that is closest to the origin is closer to the origin than the y intercept of this curve. Both x and y are measured in the same scale in the graph. Which of the following is the expression of the function whose iso-level sets are shown in the graph? (the expression min{a,b} is the minimum between a and b; for instance min{1,2}=1).
a) f(x,y)=3x+2y.
b) f(x,y)=2x+3y.
c) f(x,y)=x2y
d) f(x,y)=min{x,y}
e) f(x,y)=xy2

answer

a) f(x,y)=3x+2y

question

A student gets the following partial grades in this course. Hw1: 100; Hw2: 95; Hw3: 87.5; Hw4: 95; Hw5: 70.625; Hw6: 84.5833; Hw7: 88; Exam 1: 90; Exam2: 72.5; Final exam: 88.33. Suppose his or her average participation score is 1 after dropping the lowest four participation scores. What is the final letter grade of this student in the course?
a) B
b) D
c) C
d) A
e) F

answer

a) B

question

Suppose there are 14 classes where quizzes are given and a student participates in 2 of them. In one of the classes, 5 quizzes are given. The student answers 3 of them, and 2 are correct. In the other class, 1 quiz is given. The student correctly answers this question. What is the average participation score after dropping the lowest 4 participation scores?
a) 5
b) 10
c) 1.5
d) 1.07
e) 3

answer

c) 1.5

question

Consider the function F given by the following expression: F(n,k)=min{2n,k} where n and k are numbers. Here min{2n,k} is the minimum of 2n and k. Draw the iso-level set of F(n,k)=2. This iso-level set looks like:
a) An X shaped set
b) An L shaped set
c) A straight line
d) Half a circle
e) A bell shaped curve

answer

b) An L shaped set

question

Assume that the cost of producing n pair of shoes is given by C(n)=4n(1/2)+3n2. The marginal cost of producing shoes at n is the derivative of C at n. What is the expression of the marginal cost of producing shoes at n?
a) C'(n)= 4n^(-1/2)+3n^(2)
b) C'(n)= 2n^(-1/2)+6n^(2)
c) C'(n)= 2n^(-1/2)+12n
d) C'(n)= 2n^(-1/2)+6n
e) C'(n)= 2n^(-1/2)+3n

answer

d) C'(n)= 2n^(-1/2)+6n

question

The number of slices of pizza that a student buys during a semester depends on the student's available income, the price of the slices of pizza, and the prices of all the other products that the student can buy. The number of slices of pizza that a student buys during a semester is a function of how many variables?
a) 1
b) n+1, where n is the number of products that the student can buy (including pizza).
c) It's impossible to determine.
d) 2
e) 0

answer

b) n+1, where n is the number of products that the student can buy (including pizza).

question

Suppose that the cost of producing n pairs of shoes is given by the expression C(n)=30+5n. The average cost of producing a pair of shoes is given by A(n)=C(n)/n. What is the derivative of the average cost function?
a) A'(n)=0.30
b) A'(n)=-30/n^(2)
c) A'(n)=35
d) A'(n)=1
e) A'(n)=30/n^(2)

answer

b) A'(n)=-30/n^(2)

question

The following is the graph of function C. This function assigns an amount of money to each q. The graph of C passes through the origin. Then it is increasing. There are three reference levels of q in the graph. They are denoted from left to right by q1, q2, and q3. There is an auxiliary line shown in the graph, which interpolates the origin and (q1,C(q1)). This line has a slope of 1. If one traces a line passing through the origin and (q2,C(q2)), this line's slope will be lower than 1. If one traces a line passing through the origin and (q3,C(q3)), this line's slope will be lower than 1, but will be higher than the slope of the line passing through the origin and (q2,C(q2)).We learn from this graph that AC(q1)>C'(q1). (here C' is the derivative of C). True/False

answer

True

question

The cost of producing n pairs of shoes is C(n)=n^(2). What is the equation of the line that is tangent to the cost function C at n=3?
a) C=3n+9
b) C=3n+3
c) C=6n-9
d) C=9n-3
e) C=9n+3

answer

c) C=6n-9

question

The amount of a commodity that a firm can produce efficiently is a function of the numbers of hours of labor employed, L, and the stock of capital, K, and is given by the expression F(L,K)=4L^(2)K^(3). What is the partial derivative of F with respect to L evaluated at L=1 and K=2?
a) dF/dL(1,2)= 12
b) dF/dL(1,2)= 128
c) dF/dL(1,2)= 48
d) dF/dL(1,2)= 32
e) dF/dL(1,2)= 64

answer

e) dF/dL(1,2)= 64

question

Suppose that the cost of producing n pairs of shoes is given by the expression C(n)=30+5n. The average cost of producing a pair of shoes is given by A(n)=C(n)/n. What is the expression of the average cost as a function of n?
a) A(n)=n+C(n)
b) A(n)=5/n+C(n)/n
c) A(n)=(30+5n)/n
d) A(n)=(5+5n)/n
e) A(n)=n+2+C(n)/n

answer

c) A(n)=(30+5n)/n

question

What is the solution for y of the following system: x+7y=9 and x+y=3?
a) 2
b) 3
c) 1
d) 4
e) 0

answer

c) 1

question

The amount of a commodity that a firm can produce efficiently is a function of the numbers of hours of labor employed, L, and the stock of capital, K, and is given by the expression F(L,K)=4L^(2/3)K^(1/3). What is the partial derivative of F with respect to L?
a) dF(L,K)/dL=(8/3)L^(1/3)K^(-1/3)
b) dF(L,K)/dL= (4/3)L^(2/3)K^(2/3)
c) dF(L,K)/dL= (8/3)L^(1/3)K^(1/3)
d) dF(L,K)/dL= (4/3)L^(2/3)K^(-2/3)
e) dF(L,K)/dL=(8/3)L^(-1/3)K^(1/3)

answer

e) dF(L,K)/dL= (8/3)L^(-1/3)K^(1/3)

question

answer

False

question

Suppose that the cost of producing n pairs of shoes is given by the expression C(n)=30+5n. The average cost of producing a pair of shoes is given by A(n)=C(n)/n. What is the amount n for which the average cost 8?
a) 8
b) 7
c) 10
d) 5
e) 35

answer

c) 10

question

The amount of a commodity that a firm can produce efficiently is a function of the numbers of hours of labor employed, L, and the stock of capital, K, and is given by the expression F(L,K)=4L^(2)K^(3). What is the partial derivative of F with respect to K?
a) dF/dK(L,K)= 4LK^(3)
b) dF/dK(L,K)= 8LK^(3)
c) dF/dK(L,K)= 12L^(2)K^(2)
d) dF/dK(L,K)= 8L^(2)K^(3)
e) dF/dK(L,K)= 8L^(3)K^(3)

answer

c) dF/dK(L,K)= 12L^(2)K^(2)

question

The amount of a commodity that a firm can produce efficiently is a function of the number of hours of labor employed, L, and the stock of capital, K, and is given by the expression F(L,K)=4L^(2)K^(3). Consider the pair (L,K)=(4,1). Which of the following vectors belong to the iso-level set of F that passes through (4,1)?
a) (1,4)
b) (3^(1/2),2)
c) (2^(1/2),3)
d) (3^(1/2),3)
e) (2^(1/2),2)

answer

e) (2^(1/2),2)

question

Assume that the cost of producing n pairs of shoes is given by C(n)=50+3n. The marginal cost of producing shoes at n is the derivative of C at n. What is the expression of the marginal cost of producing shoes at n?
a) C'(n)=53
b) C'(n)=50n
c) C'(n)=3n
d) C'(n)=3
e) C'(n)=53

answer

d) C'(n)=3

question

What is the slope of the line that passes through (0,10) and (10,9)?
a) -9/10
b) -8/10
c) 0
d) -1/10
e) 9/10

answer

d) -1/10

question

Suppose that the depreciation of a car, which is measured in dollars, is determined by the miles it is driven and its age. Which of the following expressions may represent the depreciation of a car if depreciation increases with both miles driven and age? (D is depreciation, m is miles driven, and a is age of the car in years).
a) D(a)=100*a
b) D(m,a)=0.1m+100a
c) D(m,a)=0.1m-100a
d) D(m,a)=100a-0.1m
e) D(m)=2m.

answer

b) D(m,a)=0.1m+100a

question

Confess, Confess

answer

Player 2:
Confess Don't Confess

Confess 1,1 5,0
Player 1:
Don't Confess 0,5 3,3

In the following prisoner's dilemma problem, the equilibrium in strictly dominant action is

question

Confess

answer

Player 2:
Confess Don't Confess

Confess 1,1 5,0
Player 1:
Don't Confess 0,5 3,3

In the following prisoner's dilemma problem, the strictly dominant action for Player 1 is

question

A .monopolist

answer

produces less than the competitive outcome.

question

A monopolist

answer

sells at a price higher than the competitive price.

question

Q=96

answer

Firm 2:
Q= 96 Q=64 Q=48

Q=96 $0,$0 $3.1, $2.0 $4.6,$2.3
Firm 1: Q=64 . $2.0, $3.1 $4.1 $4.1 . $5.1, $3.8
Q=48 $2.3, $3.6 . $3.8, $5.1 . $4.6, $4.6

In the following game, the strictly dominated action for Firm 1 is:

question

Third-degree price discrimination

answer

A tennis coach charges $15 per hour for tennis lesson for children and $30 per hour for tennis lessons for adults. This can be viewed as a practice of

question

Under the first-degree price discrimination, social welfare is minimized.

answer

Which of the following statements is WRONG?

Under the first-degree price discrimination, consumer surplus is equal to zero.

Under the first-degree price discrimination, producer surplus is maximized.

Under the first-degree price discrimination, social welfare is minimized.

Under the first-degree price discrimination, the dead-weight loss is zero.

Under the first-degree price discrimination, the total welfare is higher than that under the profit-maximizing single price scheme.

question

B produces a higher payoff than A independently of what the other players do

answer

An action, say A, is strictly dominated by an action, say B, for an agent if

question

the strictly dominated action will not be selected.

answer

When we identify a strictly dominated action, it is reasonable to predict

question

False

answer

T/F Perfect competition increases prices compared to the monopoly outcome.

question

882

answer

A monopoly faces a demand function Q(p)=50-p/2. Suppose that it has a constant marginal cost of 16 and no fixed costs. What is this monopoly's profit?

question

True

answer

T/F A monopolist's marginal revenue is 0 whenever the price elasticity of demand is -1

question

400

answer

Suppose that a monopolist faces the market demand Q(p)=1000-2p and has a cost function C(q)=100q. Then the amount that maximizes its profits, q*, is?

question

economic profit

answer

A monopolist maximizes _________ given the market demand.

question

is a firm that controls 100% of the production of a certain good.

answer

A monopoly:

question

Firm B does not have a dominant strategy

answer

Firm B:
ENTER DO NOT ENTER

ENTER 10,-20 50,0
Firm A:
DO NOT ENTER 0,40 0,0

Here, Firm A and B are two airlines. If the two airlines must decide simultaneously, which of the following statements is true?

question

Firm B does not have a dominant strategy

answer

question

MR(q)=500-q

answer

Suppose that a monopolist faces the market demand Q(p)=1000-2p. Then its marginal revenue function MR(q) is?

question

price elasticity of demand

answer

The ability of a monopoly to charge a price that exceeds marginal cost depends on

question

answer

A monopoly incurs a marginal cost of $1 for each unit produced. If the price elasticity of demand equals -2, the monopoly maximizes profits by charging a price of:

question

answer

question

answer

Boy:
Movies Football

Movies 3,2 1,0
Girl:
Football 0,1 2,3

In the following battle of sexes game, is there a strictly dominant action?

question

answer

A monopoly faces a demand function Q(p)=50-p/2. Suppose that it has a constant marginal cost of 16 and no fixed costs. What is this monopoly's profit maximizing quantity?

question

answer

A monopoly faces a demand function Q(p)=50-p/2. Suppose that it has a constant marginal cost of 16 and no fixed costs. What is this monopoly's profit maximizing price?

question

has 0 Nash equilibrium (in pure strategies)

answer

question

-1.2

answer

question

1764

answer

question

increase price by $4.

answer

question

p(q)=100-2q

answer

A monopoly faces a demand function Q(p)=50-p/2. What is the maximal price at which it is able to sell q units?

question

False

answer

Since a monopoly charges a price that is greater than the competitive price, then the government can reduce the deadweight loss in the society by imposing a sales tax.

question

(No Bonus, Loaf)

answer

Max:
Work . Loaf

Bonus 1,2 -1,3
Lori:
No bonus . 3,-1 0,0

If they choose actions simultaneously, what are their Nash equilibrium strategies?

question

(Q=64, Q=64)

answer

Firm 2:
Q= 96 Q=64 Q=48

Q=96 $0,$0 $3.1, $2.0 $4.6,$2.3
Firm 1: Q=64 . $2.0, $3.1 $4.1 $4.1 . $5.1, $3.8
Q=48 $2.3, $3.6 . $3.8, $5.1 . $4.6, $4.6

If we assume that strictly dominated action are not selected, then the combination that survives the iterative elimination of strictly dominated actions in the following game is?

question

a best response

answer

A Nash Equilibrium is a profile of actions in which each agent is playing ________ to the other player's action

question

a strictly dominant action

answer

The profile of actions in which each agent plays ________ is always a Nash equilibrium.

question

Produces a quantity that maximizes its profits.

answer

A monopolist?

question

A monopolist?

answer

Produces a quantity that is generally less than the competitive outcome.

question

Skipped Questions 6

answer

Skipped Q: 35, 34, 30, 29,

question

Skipped Questions 7

answer

Q 1,2,3,4,5,21,22,31-38

question

-9000

answer

question

11250

answer

question

the marginal social cost curve is above the supply curve

answer

Constructing plastic containers produces air pollutants. Therefore, in the market for plastic containers

question

20250

answer

A monopoly faces a market demand Q(p)=1500-5p and has costs C(q)=120q. Suppose that the government intervenes the market and splits the monopoly into two firms with costs C1(q)=120q and C2(q)=120q. If the newly created firms compete in prices (Bertrand competition), then the welfare gain or loss in the society from this intervention is?

question

450

answer

A monopoly faces a market demand Q(p)=1500-5p and has costs C(q)=120q. What is the profit maximizing quantity for this monopoly?

question

210

answer

A monopoly faces a market demand Q(p)=1500-5p and has costs C(q)=120q. What is the price set by this monopoly?

question

answer

Two firms that share a market and compete in quantities (Cournot) face a demand Q(p)=2000-4p and have private costs C 1(q)=200q and C 2(q)=200q. There is a pollution cost that firms don't internalize and amounts to $100 per unit produced. What is the DWL in this market?

question

16900

answer

question

600

answer

question

a positive externality if you like the music, and a negative externality if you don't.

answer

Loud music from a neighbor's party is:

question

Internalizing positive externality results in efficiency loss.

answer

Which is WRONG?

Negative externality results in over-production.

Negative externality results in efficiency loss.

Positive externality results in under-production
.
Positive externality results in efficiency loss.

Internalizing positive externality results in efficiency loss.

question

has zero dead-weight loss

answer

The Bertrand equilibrium ____.

question

-16900

answer

A monopoly faces a market demand Q(p)=1000-2p and has costs C(q)=240q. What is the DWL induced by the lack of competition in this market?

question

You drink too much coffee and cannot sleep at night.

answer

Which of the following effect is NOT considered an externality?

Drunk driving jeopardizes public safety.

Your neighbor's dog keeps barking at night so that you cannot sleep.

Air pollution emitted by motor vehicles is detrimental to public health.

Recycling reduces landfills.

You drink too much coffee and cannot sleep at night.

question

-20250

answer

A monopoly faces a market demand Q(p)=1500-5p and has costs C(q)=120q. What is the DWL induced by the lack of competition in this market?

question

9388.89

answer

A monopoly faces a market demand Q(p)=1000-2p and has costs C(q)=240q. Suppose that the government intervenes the market and splits the monopoly into two firms with costs C1(q)=240q and C2(q)=240q. If the newly created firms compete in quantities (Cournot competition), then the welfare gain or loss in the society from this intervention is?

question

-7511.11

answer

A monopoly faces a market demand Q(p)=1000-2p and has costs C(q)=240q. Suppose that the government intervenes the market and splits the monopoly into two firms with costs C1(q)=240q and C2(q)=240q. If the newly created firms compete in quantities (Cournot competition) , then the DWL in this market is?

question

Q1 = 20 and Q2 = 60

answer

In a Cournot duopoly, we find that Firm 1's best response function to Firm 2's output is Q1 = 50 - 0.5Q2, and Firm 2's best response function to Firm's 1 is output is Q2 = 75 - 0.75Q1. What is the Cournot equilibrium outcome in this market?

question

answer

Two firms that share a market and compete in quantities (Cournot) face a demand Q(p)=1200-3p and have private costs C 1(q)=100q and C 2(q)=100q. There is a pollution cost that firms don't internalize and amounts to $100 per unit produced. What is the DWL in this market?

question

346.67

answer

A monopoly faces a market demand Q(p)=1000-2p and has costs C(q)=240q. Suppose that the government intervenes the market and splits the monopoly into two firms with costs C1(q)=240q and C2(q)=240q. If the newly created firms compete in quantities (Cournot competition), then the aggregate production is?

question

results in a larger output at a lower price

answer

Relative to the Nash equilibrium in the Cournot model, the Nash equilibrium in the Bertrand model with homogeneous products

question

profit is higher, and output level is lower in Cournot.

answer

In comparing the Cournot equilibrium with the competitive equilibrium,

question

370

answer

A monopoly faces a market demand Q(p)=1000-2p and has costs C(q)=240q. What is the price set by this monopoly?

question

(Firm 1 charges $2.99, Firm 2 charges $3)

answer

In the lecture, we have been assuming that firms can charge any price they want, for instance, $1.2745. In reality, firms usually only specify the dollar and the cent of a good. For instance, a firm may only be able to charge $1.27 or $1.28 instead of $1.2745 for a good. Under this more realistic assumption, consider a two-firm Bertrand competition with homogeneous goods where Firm 1 has a constant marginal cost of $2 and Firm 2 has a constant marginal cost of $3. When the two firms charge the identical price, each firm attracts half of the consumers. The market demand function is Q(p)=10-p. Which of the following is a Nash equilibrium in this Bertrand competition?

question

answer

In the lecture, we have been assuming that firms can charge any price they want, for instance, $1.2745. In reality, firms usually only specify the dollar and the cent of a good. For instance, a firm may only be able to charge $1.27 or $1.28 instead of $1.2745 for a good. Under this more realistic assumption, consider a two-firm Bertrand competition game where both firms have a constant marginal cost of $2. The market demand function is Q(p)=10-p. How many Nash equilibria in pure strategies does the game have?

question

n+d+g+i+j+k

answer

question

True

answer

T/f Perfect competition increases the aggregate welfare in society compared to monopoly outcome

question

(U,R)

answer

Player A
U & B L& R

100, -1

If we assume no strictly dominated is selected then the combination that survives the iterative elimination is

question

Candidate A has a strictly dominant strategy

answer

Candidate A & B
Medium Low High

Each has 3 levels of campaign spending which is correct?

question

Both (Movies, Movies) and (Football, Football) are Nash equilibriums

answer

In the following which is correct?

question

a best response

answer

An action, say A, for player 1 is ___ to an action, say B, if it maximizes its payout given that the other player plays B

question

B produces a higher payoff than A independently of what others do

answer

If an action, say A, is strictly dominated by an action, say B for an agent if___

question

Firms internalize the consequences of their pricing/production decisions

answer

In an imperfect competition market

question

Second degree pricing discrimination

answer

At a local grocery store an avocado is priced $1 each or 3 for $2. This can be viewed as

question

A) 1300
B) 6900

answer

A monopolist faces a demand for it's product 3000-100p. If her cost function is 4q + 1000 she would maximize her profits by

Producing _____ levels of output (a)
Her profit will be _______ (b)

question

A higher payoff than any other action the player can use for every possible action of the other players

answer

A strictly dominant action produces:

question

a - 2bQ

answer

If the inverse demand function for a monopoly's product is p = a - bQ the firms marginal revenue function is

question

the firm must lower its price if it wishes to sell more output

answer

For a monopoly, marginal revenue is less than price because

question

1296

answer

A monopoly faces a demand function of 200-4p with a marginal cost of 14 and no fixed costs? What is this monopolys profit?

question

-1.25

answer

A monopoly sets a price of $50 per unit of team and has a marginal cost of $10. Assuming profit maximization and utility maximization by the agents, the price elasticity of demand measured at the quantity consumed is equal to:

question

Dont Confess, Don't confess is neither a Nash equilibrium nor an equilibrium in dominant strategies

answer

Prisoners dilema which is correct?

question

e, d, c, f

answer

if (top,left) is an equilibrium in strictly dominant strategies we know that
a > __ , B > ____, ____>g and ____ > h

question

answer

if (top left) is a nash equilbrium how many of the above strict inequalities must be satisified?

question

True

answer

T/F if (top left) is a nash equilbrium in strictly dominant strategies then it must be a nash equilbrium

question

1) 10
2) 8
3) 18
4) 16

answer

Contribute Keep
A-D: Suppose you are player a
1) if other player keeps what is your payoff you keep
2)If other player keeps what is your payoff you contribute
3) If other player contributes, what is your payoff if you keep?
4) If other player contributes what is your payoff if you contribute:?

question

answer

Is (contribute, Keep) or (Keep, contribute) a nash equilbrium of this game?

question

answer

is (contribute, contribute) a nash equilbrium of this game?

question

yes

answer

Is (keep, keep) a nash equilbrium of this game?

question

setting MRc to MCq at q for which pq is at least AVC

answer

A monopolist maximizes profits by

question

pq= 500-(1/;2)q

answer

Suppose the market is given by Qp = 1000-2p. Let pq be the maximal price that you would buy units then:

question

Only Firm A will enter the market

answer

If the two airlines have to decide simultaneously which will result from strategic interaction whats true if we predict a Nash equilbrium:

question

Mrq=(dp(q)/dq)q+Pq

answer

Marginal revenue of a monopoly

question

Both firms enter and make a positive profit

answer

Two airlines decide simultaneously: Nash equilbrium if government offers a $30 subsidy

question

setting MR(q)=MC(q) at a q for which p(q) is at least AVC(q)
by setting marginal revenue equal to marginal profit at a q for which p(q) is at least AVC(q)

answer

A monopolist maximizes profits by:

question

400

answer

Suppose that a monopolist faces the market demand Q(p)=1000-2p and has a cost function C(q)=100q. Then the amount that maximizes its profits, q*, is?

question

Suppose that a monopolist faces the market demand Q(p)=1000-2p. Then its marginal revenue function MR(q) is?

answer

MR(q)=500-q

question

A monopolist produces a quantiy

answer

Produces a quantity that maximizes its profits.

question

A monopolist maximizes profits by:

answer

by setting MR(q)=MC(q) at a q for which p(q) is at least AVC(q)

question

answer

-1.25

question

The ability of a monopoly to charge a price that exceeds marginal cost depends on:

answer

price elasticity of demand

question

A monopoly faces a demand function Q(p)=50-p/2. Suppose that it has a constant marginal cost of 16 and no fixed costs. What is this monopoly's profit maximizing quantity?

answer

question

A monopoly faces a demand function Q(p)=50-p/2. Suppose that it has a constant marginal cost of 16 and no fixed costs. What is this monopoly's profit maximizing price?

answer

question

Suppose that a monopoly can sell q units at price P(q). Then, the marginal revenue at q is give by:

answer

MR(q)=(dP(q)/dq)q+P(q)

question

Suppose that a monopolist faces the market demand Q(p)=1000-2p and has a cost function C(q)=100q. Then the amount that maximizes its profits, q*, is?

answer

400

question

A strictly dominant action produces:

answer

a higher payoff than any other action the player can use for every possible action of the other players.

question

An action, say A, is strictly dominated by an action, say B, for an agent if

answer

B produces a higher payoff than A independently of what the other players do.

question

A monopolist sells -

answer

sells at a price higher than its marginal cost at q*.

question

A monopolist produces less than

answer

produces less than the competitive outcome

question

Perfect competition increases prices compared to the monopoly outcome

answer

False

question

answer

increase price by $4

question

answer

1764

question

answer

-1.2

question

In a local grocery store, avocado is priced "$1 each, 3 for $2". This can be viewed as a practice of ______.

answer

Second-degree price discrimination

question

A tennis coach charges $15 per hour for tennis lesson for children and $30 per hour for tennis lessons for adults. This can be viewed as a practice of ______.

answer

Third-degree price discrimination

question

answer

question

A monopoly faces a demand function Q(p)=50-p/2. Suppose that it has a constant marginal cost of 16 and no fixed costs. What is this monopoly's profit?

answer

882

question

A Nash Equilibrium is a profile of actions in which each agent is playing ________ to the other player's action.

answer

a best response

question

An action, say A, for Player 1 is _______ to an action, say B, by the other player if it maximizes Player 1's payoff given that the other agent plays B.

answer

a best response

question

In an imperfect competition market,

answer

firms internalize the consequences of their pricing/production decisions.

question

A monopolist maximizes ________ given to the market demand,

answer

economic profit

question

Since a monopoly charges a price that is greater than the competitive price, then the government can reduce the deadweight loss in the society by imposing a sales tax.

answer

False

question

Suppose that the market demand is given by Q(p)=1000-2p. Let p(q) be the maximal price at which the agents would buy q units. Then

answer

p(q)=500-(1/2)q

question

When we identify a strictly dominated action, it is reasonable to predict

answer

the strictly dominated action will not be selected

question

If the inverse demand function for a monopoly's product is p = a - bQ, then the firm's marginal revenue function is

answer

a-2bQ

question

For a monopoly, marginal revenue is less than price because

answer

the firm must lower price if it wishes to sell more output

question

A monopoly faces a demand function Q(p)=200-4p. Suppose that it has a constant marginal cost of 14 and no fixed costs. What is this monopoly's profit?

answer

1296

question

A monopolist sells at a price ______

answer

sells at a price higher than the competitive price

question

Perfect competition increases the aggregate welfare in the society compared to the monopoly outcome.

answer

True

question

The profile of actions in which each agent plays ________ is always a Nash equilibrium.

answer

a strictly dominant action

question

A monopoly incurs a marginal cost of $1 for each unit produced. If the price elasticity of demand equals -2, the monopoly maximizes profit by charging a price of

answer

question

A monopolist faces a demand for its product given by Q9p)=3000-100p. If her cost function is given by C(q)=4q+10000, she would maximize her profits by producing [a] units of output. Her profit will be [b].

answer

[a] 1300
[b] 6900

question

Which of the following statements is WRONG?

answer

Under the first-degree price discrimination, social welfare is minimized

question

A monopolist's marginal revenue is 0 whenever the price elasticity of demands is -1.

answer

True

question

answer

[a] 30
[b] 35

question

The following problem is designed to check that you understand the definition of Nash equilibrium. Consider an integer game between two players: Marilyn and Noah. Each of the player is required to announce a positive integer. In other words, a player can announce 1,2,3,4,5..., but cannot announce "infinity". Two players announce their integers simultaneously. Notice that this game is different from the games we learned in class in that each player had infinitely many actions to take. The payoffs of the players in the game are specified as follows: (1) when the two announced integers are different, whoever reports the strictly lower number pays $1 to the other player, so that the loser of the game has payoff -1 and the winner of the game has payoff1; (2) when the two players announce the sam integer, their playoffs are both 0. This game _______.

answer

has 0 Nash equilibrium (in pure strategies)

question

A monopoly faces a demand function Q(p)=50-p/2. What is the maximal price at which it is able to sell q units?

answer

p(q)=100-3q

question

The profile of actions in which each agent plays ______________ is always a Nash equilibrium.

answer

a strictly dominant action

question

A Nash Equilibrium is a profile of actions in which each agent is playing _____________ to the other player's action.

answer

a best response

question

A monopolist

answer

produces less than the competitive outcome; sells at a price higher than its marginal cost at q*

question

When we identify a strictly dominated action, it is reasonable to predict

answer

the strictly dominated action will not be selected

question

An action, say A, is strictly dominated by an action, say B, for an agent if

answer

B produces a higher payoff than A independently of what the other players do

question

In an imperfect competition market,

answer

firms internalize the consequences of their pricing/production decisions

question

A monopolist maximizes _________ given the market demand.

answer

economic profit

question

The ability of a monopoly to charge a price that exceeds marginal cost depends on

answer

the price elasticity of demand

question

In a local grocery store, avocado is priced "$1 each, 3 for $2". This can be viewed as a practice of ______.

answer

Second-degree price discrimination

question

Which of the following statements is WRONG?

answer

Under the first-degree price discrimination, social welfare is minimized

question

A monopolist's marginal revenue is 0 whenever the price elasticity of demand is

answer

-1

question

Which of the following effect is NOT considered an externality?

answer

You drink too much coffee and cannot sleep at night.

question

Relative to the Nash equilibrium in the Cournot model, the Nash equilibrium in the Bertrand model with homogeneous products ____.

answer

results in a larger output at a lower price

question

Constructing plastic containers produces air pollutants. Therefore, in the market for plastic containers, _____.

answer

the marginal social cost curve is above the supply curve

question

Which of the following statement is WRONG?

answer

Internalizing positive externality results in efficiency loss.

question

In comparing the Cournot equilibrium with the competitive equilibrium,

answer

profit is higher, and output level is lower in Cournot.

question

Loud music from a neighbor's party is:

answer

a positive externality if you like the music, and a negative externality if you don't.

question

The Bertrand equilibrium ____.

answer

has zero dead-weight loss

question

A monopolist

answer

sells at a price higher than the competitive price.

A monopolist (1) produces less than the competitive outcome, (2) sells at a price higher than the competitive price, (3) sells at a price higher than its marginal cost at q and (4) has higher profits than what would have in a competitive market (q is different from the competitive quantity).

question

A monopolist?

answer

Produces a quantity that maximizes its economic profit.

The monopolist maximizes economic profit.

question

For a monopoly, marginal revenue is less than price because:

answer

the firm must lower price if it wishes to sell more output.

Marginal revenue is less than price because a monopolist faces a downward sloping demand function.

question

Since a monopoly charges a price that is usually greater than the competitive price, the government can reduce the deadweight loss in the society by imposing a sales tax.

answer

False

The government induces even a higher DWL by imposing taxes.

question

A monopoly:

answer

is a firm that controls 100% of the production of a certain good.

A monopoly is a firm that controls 100% of the production of a certain good. It internalizes the consequences of their pricing and production decisions.

question

Suppose that a monopoly can sell q units at price P(q). Then, the marginal revenue at q is given by:

answer

MR(q)=(dP(q)/dq)q+P(q)

Since R(q)=P(q)q then MR(q)=(dP(q)/dq)q+P(q).

question

Suppose that the market demand is given by Q(p)=1000-2p. Let p(q) be the maximal price at which the agents would buy q units. Then

answer

p(q)=500-(1/2)q

p(q)=500-(1/2)q; it is calculated from Q(p)=1000-2p, by finding p in terms of q.

question

A monopoly faces a demand function Q(p)=50-p/2. What is the maximal price at which it is able to sell q units?

answer

p(q)=100-2q

The maximal price at which the monopoly can sell q units is exactly the price at which the agents would demand q units. Thus, q=50-p/2. Thus, p(q)=100-2q.

question

Suppose that a monopolist faces the market demand Q(p)=1000-2p. Then its marginal revenue function MR(q) is?

answer

MR(q)=500-q

we know that P(q)=500-(1/2)q; thus revenue is R(q)=p(q)q=(500-q/2)q;  thus, MR(q)=500-q.

question

A monopoly faces a demand function Q(p)=1000-2p.. Suppose that it has a constant marginal cost of 16 and no fixed costs. What is the own-price elasticity of demand at the amount produced by the monopolist?

answer

1.5

we know that P(q)=500-(1/2)q; thus revenue is R(q)=p(q)q=(500-q/2)q; thus, MR(q)=500-q. Then, MR=MC, implies 500-q=100. Thus, q=400 and the monopoly produces 400 units. Monopoly price is 500-400/2=300. Monopoly profit is 400(300-100)=400(200)=80000. We know that -(1/Eown-price)=(P-MC)/P=(300-100)300=200/300=2/3. Then, Eown-price=-3/2=-1.5.

question

The inverse demand function gives for each amount q the maximal price at which the producer is able to sell q units. If the inverse demand function for a monopoly's product is p(q) = a - bq, then the firm's marginal revenue function is?

answer

MR(q)=a - 2bq

If p(q) = a - bq then Revenue = pq = aq- bq2. Therefore, MR = a - 2bq.

question

A monopoly faces a demand function Q(p)=1000-2p.. Suppose that it has a constant marginal cost of 16 and no fixed costs. What is this monopoly's profit?

answer

$80,000.00

we know that P(q)=500-(1/2)q; thus revenue is R(q)=p(q)q=(500-q/2)q;  thus, MR(q)=500-q. Then, MR=MC, implies 500-q=100. Thus, q=400 and the monopoly produces 400 units. Monopoly price is 500-400/2=300. Monopoly profit is 400(300-100)=400(200)=80000.

question

A monopoly faces a demand function Q(p)=1000-2p. Suppose that it has a constant marginal cost of 16 and no fixed costs. What is this monopoly's profit maximizing quantity?

answer

400

we know that P(q)=500-(1/2)q; thus revenue is R(q)=p(q)q=(500-q/2)q;  thus, MR(q)=500-q. Then, MR=MC, implies 500-q=100. Thus, q=400 and the monopoly produces 400 units. Monopoly price is 500-400/2=300. Monopoly profit is 400(300-100)=400(200)=80000.

question

A monopoly faces a demand function Q(p)=1000-2p. Suppose that it has a constant marginal cost of 100 and no fixed costs. What is this monopoly's profit maximizing price?

answer

300

we know that P(q)=500-(1/2)q; thus revenue is R(q)=p(q)q=(500-q/2)q;  thus, MR(q)=500-q. Then, MR=MC, implies 500-q=100. Thus, q=400 and the monopoly produces 400 units. Monopoly price is 500-400/2=300. Monopoly profit is 400(300-100)=400(200)=80000.

question

A monopoly faces a demand function Q(p)=200-4p. Suppose that it has a constant marginal cost of 14 and no fixed costs. What is this monopoly's profit?

answer

1296

Since p(q)=50-q/4, then MR(q)=50-q/2. Since MC is constant and equal to 14, then MC(q)=MR(q) implies 50-q/2=14. Thus, q=72. Thus, p(72)=32. Profit=Revenue-Cost=3272 - 1472

question

A monopoly incurs a marginal cost of $1 for each unit produced. If the price elasticity of demand equals -2, the monopoly maximizes profits by charging a price of:

answer

$2

(P-MC)/P=-(1/Eown-price), then (P-1)/P=-(1/(-2))=1/2. Thus, 2P-2=P, and P=2.

question

Perfect competition increases the aggregate welfare in the society compared to the monopoly outcome.

answer

True

Competition reduces DWL, so increases aggregate welfare.

question

A monopolist's marginal revenue is 0 whenever the own-price elasticity of demand at the monopolist optimal production is -1.

answer

True

Since (P-MC)/P=-(1/Eown-price), then when Eown-price=-1, we have that P-MC=P, and MC=0. Since MR=MC for the monopolist, we have that MR=0.

question

answer

-1.25

(P-MC)/P=-(1/Eown-price). Then, -(1/Eown-price) =(50-10)/50=4/5. Thus, Eown-price=-5/4=-1.25.

question

answer

increase price by $4.

Since Q(p)=70-p, then P(q)=70-q. Thus, MR(q)=70-2q. The monopolist maximizes profits by setting MR(q)=MC(q). MC before tax is 5. Therefore, without tax q=65/2 and p=(70-65)/2. After the tax, MC(q)=13. Therefore, the quantity produced q'=57/2 and the price p'=(70-57)/2. Thus, p'-p=4.

question

Perfect competition increases prices compared to the monopoly outcome.

answer

False

Competitive prices are lower than monopoly prices.

question

The ability of a monopoly to charge a price that exceeds marginal cost depends on:

answer

own-price elasticity of demand

A monopoly can charge a price over marginal cost when consumers are not perfectly elastic

question

answer

-(d+k+j)

Government provides s per unit. Since the monopoly produces q2 units, then the government has a deficit of s*q2. That is, d+k+j.

question

answer

b+n+f+g

Producer surplus is the net area above the MC and below the horizontal line at p1.

question

answer

a+e

Consumer surplus is the net area above the horizontal line at p1 and below Q.

question

answer

a+b+n+e+f+g+h+i

Total welfare is CS+PS+G=a+b+n+d+e+f+g+h+i+j+k-(d+j+k)=a+b+n+e+f+g+h+i.

question

answer

h+i

Total welfare with subsidy is  CS+PS+G=a+b+n+d+e+f+g+h+i+j+k-(d+j+k)=a+b+n+e+f+g+h+i. Total welfare without is: a+b+n+e+f+g. The difference is: h+i.

question

answer

n+d+g+i+j+k

Producer surplus is the net area above the MC and below the horizontal line at p2.

question

answer

a+b+e+f+h

Consumer surplus is the net area above the horizontal line at p2 and below Q.

question

Consider a monopoly that has a constant marginal cost c, zero fixed costs, and faces the demand function shown in the following graph. If there is no government intervention, the monopoly produces?

answer

exactly q1.

Monopoly produces at the quantity in the intersection between MC and MR. They produce q1.

question

answer

a+b+n+e+f+g

Total welfare is CS+PS=a+b+n+e+f+g.

question

answer

exactly q2.

Monopoly produces at the quantity in the intersection between MC and MR. The MC is reduced to c-s when the government provides the subsidy. They produce q2.

question

A monopolist faces a demand curve Q(p)=50-P/2 and has a constant marginal cost of 16 and 0 fixed cost. If this monopolist cannot price discriminate, its economic profit will be?

answer

882

The price at which the monopolist is able to sell q units is P(q)=100-2q. Then, Revenue(q)=(100-2q)q, and marginal revenue is MR(q)=100-4q. If MR=MC, we have that 100-4q=16. Thus, q=21. The monopolist charges a price P(21)=100-2(21)=58. Profit is Revenue-Cost=P(q)q-c(q) where q is the amount that maximizes the monopolist profit, i.e., 21. Then, Profit is 58(21)-16*(21)=882.  If the monopolist is able to perfectly price discriminate (firs-order price discrimination), it is able to capture all the consumer surplus at the competitive equilibrium. Since there is no fixed cost, the perfectly discriminating monopoly's profit is equal to this consumer surplus. The competitive outcome is where demand intersects supply, i.e. the MC curve. Since MC is flat, the equilibrium price is 16 and the equilibrium quantity Q(16)=42. The profit of the monopolist in the competitive equilibrium is zero (pays 16 to produce a good it sells at 16). The CS is the triangle determined by the demand and the horizontal line at the level of 16. This triangle has base 42 and height (100-16). Its area is 42(100-16)/2=1764. Thus, the perfectly discriminating monopolist profit is 1764.

question

A monopolist faces a demand curve Q(p)=50-P/2 and has a constant marginal cost of 16 and 0 fixed cost. What is the firm's profit in the competitive outcome in this economy (this is the outcome in an economy in which demand is Q(p)=50-P/2 and supply is that of the monopolist if this firm was a price taker)?

answer

0

The price at which the monopolist is able to sell q units is P(q)=100-2q. Then, Revenue(q)=(100-2q)q, and marginal revenue is MR(q)=100-4q. If MR=MC, we have that 100-4q=16. Thus, q=21. The monopolist charges a price P(21)=100-2(21)=58. Profit is Revenue-Cost=P(q)q-c(q) where q is the amount that maximizes the monopolist profit, i.e., 21. Then, Profit is 58(21)-16*(21)=882.  If the monopolist is able to perfectly price discriminate (firs-order price discrimination), it is able to capture all the consumer surplus at the competitive equilibrium. Since there is no fixed cost, the perfectly discriminating monopoly's profit is equal to this consumer surplus. The competitive outcome is where demand intersects supply, i.e. the MC curve. Since MC is flat, the equilibrium price is 16 and the equilibrium quantity Q(16)=42. The profit of the monopolist in the competitive equilibrium is zero (pays 16 to produce a good it sells at 16). The CS is the triangle determined by the demand and the horizontal line at the level of 16. This triangle has base 42 and height (100-16). Its area is 42(100-16)/2=1764. Thus, the perfectly discriminating monopolist profit is 1764.

question

A monopolist faces a demand curve Q(p)=50-P/2 and has a constant marginal cost of 16 and 0 fixed cost. If this monopolist cannot price discriminate, its production will be?

answer

21

The price at which the monopolist is able to sell q units is P(q)=100-2q. Then, Revenue(q)=(100-2q)q, and marginal revenue is MR(q)=100-4q. If MR=MC, we have that 100-4q=16. Thus, q=21. The monopolist charges a price P(21)=100-2(21)=58. Profit is Revenue-Cost=P(q)q-c(q) where q is the amount that maximizes the monopolist profit, i.e., 21. Then, Profit is 58(21)-16*(21)=882.  If the monopolist is able to perfectly price discriminate (firs-order price discrimination), it is able to capture all the consumer surplus at the competitive equilibrium. Since there is no fixed cost, the perfectly discriminating monopoly's profit is equal to this consumer surplus. The competitive outcome is where demand intersects supply, i.e. the MC curve. Since MC is flat, the equilibrium price is 16 and the equilibrium quantity Q(16)=42. The profit of the monopolist in the competitive equilibrium is zero (pays 16 to produce a good it sells at 16). The CS is the triangle determined by the demand and the horizontal line at the level of 16. This triangle has base 42 and height (100-16). Its area is 42(100-16)/2=1764. Thus, the perfectly discriminating monopolist profit is 1764.

question

A monopolist faces a demand curve Q(p)=50-P/2 and has a constant marginal cost of 16 and 0 fixed cost. If this monopolist can perfectly price discriminate, its economic profit will be?

answer

1764

The price at which the monopolist is able to sell q units is P(q)=100-2q. Then, Revenue(q)=(100-2q)q, and marginal revenue is MR(q)=100-4q. If MR=MC, we have that 100-4q=16. Thus, q=21. The monopolist charges a price P(21)=100-2(21)=58. Profit is Revenue-Cost=P(q)q-c(q) where q is the amount that maximizes the monopolist profit, i.e., 21. Then, Profit is 58(21)-16*(21)=882.  If the monopolist is able to perfectly price discriminate (firs-order price discrimination), it is able to capture all the consumer surplus at the competitive equilibrium. Since there is no fixed cost, the perfectly discriminating monopoly's profit is equal to this consumer surplus. The competitive outcome is where demand intersects supply, i.e. the MC curve. Since MC is flat, the equilibrium price is 16 and the equilibrium quantity Q(16)=42. The profit of the monopolist in the competitive equilibrium is zero (pays 16 to produce a good it sells at 16). The CS is the triangle determined by the demand and the horizontal line at the level of 16. This triangle has base 42 and height (100-16). Its area is 42(100-16)/2=1764. Thus, the perfectly discriminating monopolist profit is 1764.

question

A monopolist faces a demand curve Q(p)=50-P/2 and has a constant marginal cost of 16 and 0 fixed cost. What is the production in the competitive outcome in this economy (this is the outcome in an economy in which demand is Q(p)=50-P/2 and supply is that of the monopolist if this firm was a price taker)?

answer

42

The price at which the monopolist is able to sell q units is P(q)=100-2q. Then, Revenue(q)=(100-2q)q, and marginal revenue is MR(q)=100-4q. If MR=MC, we have that 100-4q=16. Thus, q=21. The monopolist charges a price P(21)=100-2(21)=58. Profit is Revenue-Cost=P(q)q-c(q) where q is the amount that maximizes the monopolist profit, i.e., 21. Then, Profit is 58(21)-16*(21)=882.  If the monopolist is able to perfectly price discriminate (firs-order price discrimination), it is able to capture all the consumer surplus at the competitive equilibrium. Since there is no fixed cost, the perfectly discriminating monopoly's profit is equal to this consumer surplus. The competitive outcome is where demand intersects supply, i.e. the MC curve. Since MC is flat, the equilibrium price is 16 and the equilibrium quantity Q(16)=42. The profit of the monopolist in the competitive equilibrium is zero (pays 16 to produce a good it sells at 16). The CS is the triangle determined by the demand and the horizontal line at the level of 16. This triangle has base 42 and height (100-16). Its area is 42(100-16)/2=1764. Thus, the perfectly discriminating monopolist profit is 1764.

question

answer

-1.2

We know that the monopolist maximizes its profits by setting MR1=MC=MR2. We also know that MR=p(1+1/e1) where e1 stands for the elasticity of demand in market 1. Thus, 4/3=8(1+1/e2), which leads to e2=-1.2.

question

A monopolist faces a demand curve Q(p)=50-P/2 and has a constant marginal cost of 16 and 0 fixed cost. What is the price in the competitive outcome in this economy (this is the outcome in an economy in which demand is Q(p)=50-P/2 and supply is that of the monopolist if this firm was a price taker)?

answer

16

The price at which the monopolist is able to sell q units is P(q)=100-2q. Then, Revenue(q)=(100-2q)q, and marginal revenue is MR(q)=100-4q. If MR=MC, we have that 100-4q=16. Thus, q=21. The monopolist charges a price P(21)=100-2(21)=58. Profit is Revenue-Cost=P(q)q-c(q) where q is the amount that maximizes the monopolist profit, i.e., 21. Then, Profit is 58(21)-16*(21)=882.  If the monopolist is able to perfectly price discriminate (firs-order price discrimination), it is able to capture all the consumer surplus at the competitive equilibrium. Since there is no fixed cost, the perfectly discriminating monopoly's profit is equal to this consumer surplus. The competitive outcome is where demand intersects supply, i.e. the MC curve. Since MC is flat, the equilibrium price is 16 and the equilibrium quantity Q(16)=42. The profit of the monopolist in the competitive equilibrium is zero (pays 16 to produce a good it sells at 16). The CS is the triangle determined by the demand and the horizontal line at the level of 16. This triangle has base 42 and height (100-16). Its area is 42(100-16)/2=1764. Thus, the perfectly discriminating monopolist profit is 1764.

question

A monopolist faces a demand curve Q(p)=50-P/2 and has a constant marginal cost of 16 and 0 fixed cost. If this monopolist can perfectly price discriminate, its total production will be?

answer

42

The price at which the monopolist is able to sell q units is P(q)=100-2q. Then, Revenue(q)=(100-2q)q, and marginal revenue is MR(q)=100-4q. If MR=MC, we have that 100-4q=16. Thus, q=21. The monopolist charges a price P(21)=100-2(21)=58. Profit is Revenue-Cost=P(q)q-c(q) where q is the amount that maximizes the monopolist profit, i.e., 21. Then, Profit is 58(21)-16*(21)=882.  If the monopolist is able to perfectly price discriminate (firs-order price discrimination), it is able to capture all the consumer surplus at the competitive equilibrium. Since there is no fixed cost, the perfectly discriminating monopoly's profit is equal to this consumer surplus. The competitive outcome is where demand intersects supply, i.e. the MC curve. Since MC is flat, the equilibrium price is 16 and the equilibrium quantity Q(16)=42 (this is also the amount produced by the perfectly discriminating monopolist). The profit of the monopolist in the competitive equilibrium is zero (pays 16 to produce a good it sells at 16). The CS is the triangle determined by the demand and the horizontal line at the level of 16. This triangle has base 42 and height (100-16). Its area is 42(100-16)/2=1764. Thus, the perfectly discriminating monopolist profit is 1764.

question

A monopolist that produces an amount q*:

answer

sells at a price higher than its marginal cost at q*.

A monopolist (1) produces less than the competitive outcome, (2) sells at a price higher than the competitive price, (3) sells at a price higher than its marginal cost at q and (4) has higher profits than what would have in a competitive market (q is different from the competitive quantity).

question

A monopolist

answer

usually produces less than the competitive outcome.

A monopolist (1) produces less than the competitive outcome, (2) sells at a price higher than the competitive price, (3) sells at a price higher than its marginal cost at q and (4) has higher profits than what would have in a competitive market (q is different from the competitive quantity).

question

A monopolist maximizes profits by:

answer

by producing a quantity q for which MR(q)=MC(q) and for which p(q) is at least AVC(q).

The monopolist maximizes profits by setting marginal profit equal to 0. Since marginal profit=MR-MC, this is equivalent to setting MR=MC.

question

A monopoly faces a demand function Q(p)=1000-2p.. Suppose that it has a constant marginal cost of 100 and no fixed costs. What is the own-price elasticity of demand at the amount produced by the monopolist?

answer

-1.5

we know that P(q)=500-(1/2)q; thus revenue is R(q)=p(q)q=(500-q/2)q; thus, MR(q)=500-q. Then, MR=MC, implies 500-q=100. Thus, q=400 and the monopoly produces 400 units. Monopoly price is 500-400/2=300. Monopoly profit is 400(300-100)=400(200)=80000. We know that -(1/Eown-price)=(P-MC)/P=(300-100)300=200/300=2/3. Then, Eown-price=-3/2=-1.5.

question

A monopoly faces a demand function Q(p)=1000-2p. Suppose that it has a constant marginal cost of 100 and no fixed costs. What is this monopoly's profit maximizing quantity?

answer

question

A monopoly faces a demand function Q(p)=1000-2p.. Suppose that it has a constant marginal cost of 100 and no fixed costs. What is this monopoly's profit?

answer

question

The demand curve facing a perfectly competitive firm is ___________.

answer

perfectly horizontal

question

Suppose the market price is equal to 10. When a firm has the following cost function when capital is fixed: C(q)=100+4q2. What is the profit maximization output choice level?

answer

1.25

question

Suppose the market price is equal to 10. When a firm has the following cost function when capital is fixed: C(q)=100+4q2. What is the firm's maximized profit level?

answer

93.75

question

Suppose the cost function for an orange juice producer is C(q)=100+4q2. The firm's supply curve is?

answer

S(p)=0.125p

question

Suppose that the cost function for an orange juice producer is C(q)=10+0.1q2. The firm's supply curve is?

answer

S(p)=5p

question

Suppose that the cost function for an orange juice producer is C(q)=10+0.1q2. If there are 100 identical orange juice producers in the market, the market supply curve is?

answer

S(p)=500p

question

Suppose there are two firms in a market. Firm 1 has supply curve S1(p)=100p. Firm 2 has supply curve S2(p)=150p. Then the market supply curve should be ______.

answer

S(p)=250p

question

In a competitive market, the demand and supply curves are Q(p)=12-p and S(p) = 3p respectively. What is the price in a competitive equilibrium in this economy?

answer

question

In a competitive market, the demand and supply curves are Q(p)=12-p and S(p)=3p respectively. What is the output level in a competitive equilibrium in this economy?

answer

question

Suppose that the market is competitive. Each firm's cost function is C(q)=10q. The market demand is Q(p)=200-5p. The equilibrium price level is equal to _____.

answer

question

Suppose that the market is competitive. Each firm's cost function is C(q)=10q. The market demand is Q(p)=200-5p. The equilibrium output level is equal to ________.

answer

150

question

Suppose that the market demand is given by Q(p)=200-5p. Let p(q) be the maximal price at which the agents would buy q units, i.e., the inverse demand function. Then?

answer

p(q)=40-0.2q

question

Suppose that a monopolist faces the market demand Q(p)=200-5p. Then its marginal revenue function MR(q) is?

answer

MR(q)=40-0.4q

question

A monopolist faces a demand Q(p)=200-5p and have total costs C(q)=10q. What is the monopolists's choice of output level?

answer

question

A monopolist faces a demand Q(p)=200-5p and has total costs C(q)=10q. What is the price level in this market when the firm maximizes profit?

answer

question

A monopolist faces a demand Q(p)=200-5p and have total costs C(q)=10q. What is the monopolist's maximum profit?

answer

1125

question

A monopolist maximizes profits by

answer

by setting MR(q)=MC(q) at a q for which p(q) is at least AVC(q)

question

For a monopoly, marginal revenue is less than price because:

answer

the firm must lower price if it wishes to sell more output.

question

Suppose that the market demand is given by Q(p)=1000-2p. Let p(q) be the maximal price at which the agents would buy q units, i.e., the inverse demand function. Then

answer

p(q)=500-0.5q

question

Suppose that a monopolist faces the market demand Q(p)=1000-2p. Then its marginal revenue function MR(q) is?

answer

MR(q)=500-q

question

A monopoly faces a demand function Q(p)=50-p/2. Suppose that it has a constant marginal cost of 16 and no fixed costs. What is this monopoly's profit-maximizing quantity?

answer

question

A monopoly faces a demand function Q(p)=50-p/2. Suppose that it has a constant marginal cost of 16 and no fixed costs. What is this monopoly's profit-maximizing price?

answer

question

A monopoly faces a demand function Q(p)=50-p/2. Suppose that it has a constant marginal cost of 16 and no fixed costs. What is this monopoly's profit?

answer

882

question

A monopolist

answer

produces less than the competitive outcome.

question

A monopolist ___.

answer

sells at a price higher than the competitive price.

question

A monopolist

answer

sells at a price higher than its marginal cost at q*.

question

Rather than charging a single price to all customers, a firm charges a higher price to men and a lower price to women. This ______.

answer

is a practice of price discrimination.

question

Which of the following statements is WRONG?

answer

Under the first-degree price discrimination, social welfare is minimized.

question

A tennis coach charges $15 per hour for tennis lessons for children and $30 per hour for tennis lessons for adults. This can be viewed as a practice of ______.

answer

Third-degree price discrimination

question

When a firm charges each customer the maximum price that the customer is willing to pay, the firm:

answer

engages in first-degree price discrimination.

question

In a local grocery store, avocado is priced "$1 each, 3 for $2". This can be viewed as a practice of ______.

answer

Second-degree price discrimination

question

Suppose an accountant offers personalized prices for different customers for the essentially the same tax preparation service. The price is based on each customer's income level, family situation, asset level, etc, so that the price is close to the customer's willingness to pay. This can be viewed as a practice of ______.

answer

First-degree price discrimination

question

Price discrimination

answer

is an attempt by a monopoly to increases its profit by selling the same good to different customers at different prices.

question

A monopolist produces

answer

less than the socially efficient quantity of output, but at a higher price than in a competitive market.

question

Which of the following statements is true?

answer

If the monopolist's marginal revenue is greater than its marginal cost, the monopolist can increase profit by selling more units at a lower price per unit.

question

If a profit-maximizing monopolist faces a downward-sloping market demand curve, its

answer

marginal revenue is less than the price of the product.

question

The monopolist's profit-maximizing quantity of output is determined by the intersection of which of the following two curves?

answer

Marginal cost and marginal revenue

question

When a single firm can supply a product to an entire market at a smaller cost than could two or more firms, the industry is called a

answer

natural monopoly.

question

When a monopoly increases its output and sales,

answer

the output effect works to increase total revenue and the price effect works to decrease total revenue.

question

The economic inefficiency of a monopolist can be measured by the

answer

deadweight loss.

question

The marginal revenue of a monopolist falls below price because the firm:

answer

Confronts a downward-sloping demand curve.

question

A monopolist will charge a price that:

answer

exceeds the marginal cost.

question

Monopoly is a market structure where

answer

there is a single seller producing a unique product.

question

Monopoly is the market structure in which

answer

one firm makes up the entire market.

question

Average revenue for a monopolist is equal to

answer

the price the monopolist sets.

question

The demand curve for a monopolist is

answer

the same as the market demand curve.

question

A monopoly firm is different from a competitive firm in that

answer

the monopolist is a price-Maker, whereas the competitive firm is a price-Taker

question

The price a monopolist charges for its product is

answer

above marginal revenue

question

The monopolist's marginal revenue is less than price because

answer

the monopolist must lower the price of all units in order to sell an additional unit.

question

If Marginal Revenue is greater than Marginal Cost, the monopolist should

answer

decrease production.

question

The welfare loss triangle shows

answer

the welfare costs of monopoly in terms of consumer and producer surplus.

question

Compared to a perfectly competitive firm, a monopolist

answer

charges a higher price.

question

The social cost of monopoly refers to the fact that

answer

there is a loss in consumer surplus and producer surplus when a monopolist raises price and restricts output.

question

Natural monopoly exists when one firm can supply the output demanded at

answer

lower cost than two or more firms.

question

For a natural monopoly

answer

per unit costs are always falling.

question

A natural monopoly occurs when a single firm can supply the entire market demand for a product

answer

at a lower average total cost than would be possible if two or more firms supplied the market.

question

Price discrimination occurs when

answer

consumers are divided into two groups with one group paying a high price and the other paying a low price.

question

A monopolist engages in price discrimination to

answer

earn more profit than would be possible if every buyer paid the same price.

question

As compared to a normal monopolist, a price-discriminating monopolist produces a

answer

larger output and charges each consumer a different price.

question

A price-discriminating monopolist

answer

is able to capture some of the consumers' surplus.

question

Charging different prices to different customers for reasons other than cost

answer

Price discrimination

question

The ability to alter the market price of a good or service

answer

Market power

question

A market controlled by only one seller

answer

Monopoly

question

A monopoly may persist because of cost advantages over smaller firms if economies of scale exist

answer

Natural Monopoly

question

Obstacles that make it difficult or impossible for would-be producers to enter a particular market

answer

Barrier to entry

question

Which of the following is true for a monopolist?

answer

It faces a downward-sloping demand curve; It must lower its price on all of its units in order to sell any additional units; Its marginal revenue curve is below its demand curve.

question

Market power is

answer

The ability to alter the market price of a product.

question

The marginal revenue curve is below the demand curve:

answer

If a firm must lower its price to sell additional output.

question

A barrier to entry is

answer

An obstacle that makes it difficult for new firms to enter a market.

question

If the firms in a competitive market become plants owned by a monopoly, then the monopoly would

answer

Move upward along the market demand curve as it raises price.

question

Both a competitive firm and a monopoly

answer

Face downward-sloping market demand curves.

question

Monopolists set prices

answer

At the output where marginal revenue equals marginal cost.

question

Compared with a competitive market with the same cost and market-demand circumstances, monopoly results in

answer

Higher prices and lower output.

question

If a firm has market power, the marginal revenue curve always lies below the demand curve.

answer

True.

question

Since the monopolist's marginal revenue is below its price, its equilibrium output is the same as a perfectly competitive firm's.

answer

False.

question

Since a monopolist is a price taker, it cannot have a supply curve.

answer

False.

question

After the first unit sold, the marginal revenue a monopolist receives from selling one more unit of a good is less than the price at which that unit is sold, because of

answer

a downward sloping demand curve.

question

A monopolist's marginal revenue is less than price because

answer

the monopolist must lower the price of all units in order to sell an additional unit.

question

Suppose a monopoly is producing at the profit-maximizing level of output. At that level of output

answer

Marginal Revenue = Marginal Cost

question

The price a monopolist charges for its product is

answer

above marginal revenue.

question

The supply curve of a monopolist is

answer

nonexistent; a monopolist simply chooses the profit-maximizing point on the market demand curve.

question

A monopoly's short-run supply curve is its marginal cost curve above minimum average variable cost.

answer

False.

question

A monopolist should decrease production if

answer

Marginal Revenue < Marginal Cost; MR < MC

question

Generally speaking, the profit-maximizing output for a monopolist occurs where marginal revenue equals zero.

answer

False.

question

A monopolist maximizes profits by:

a. by setting MR(q)=MC(q) at a q for which p(q) is at least AVC(q)
b. charging price equal to marginal cost.
c. by charging price equal to average cost.
d. by setting marginal revenue equal to marginal profit at a q for which p(q) is at least AVC(q)
e. by setting marginal profit equal to marginal cost.

answer

a. by setting MR(q)=MC(q) at a q for which p(q) is at least AVC(q)

question

A monopolist?

a. Produces a quantity that maximizes its revenue.
b. Produces a quantity that maximizes its profits.
c. Produces a quantity that maximizes its marginal profit.
d. Usually breaks even.
e. Produces a quantity that maximizes its marginal revenue.

answer

b. Produces a quantity that maximizes its profits.

question

A monopolist?

a. Produces a quantity greater than its production at the Bertrand competition outcome when there is another competitor with equal marginal costs (when both have constant MC).
b. Produces a quantity that is greater than the competitive outcome.
c. Produces a quantity that is generally less than the competitive outcome.
d. Never makes a positive profit.
e. Produces a quantity less than its production at the Bertrand competition outcome when there is another competitor with lower costs (when both have constant MC).

answer

c. Produces a quantity that is generally less than the competitive outcome.

question

Since a monopoly charges a price that is greater than the competitive price, then the government can reduce the deadweight loss in the society by imposing a sales tax.

True
False

answer

false

question

Perfect competition increases the aggregate welfare in the society compared to the monopoly outcome.

True
False

answer

True

question

Perfect competition increases prices compared to the monopoly outcome.

True
False

answer

False

question

Suppose that a monopoly can sell q units at price P(q). Then, the marginal revenue at q is give by:

a. MR(q)=(dQ(q)/dq)p+Q(q)

b. MR(q)=(dP(q)/dq)p+P(q)

c. MR(q)=(dP(q)/dq)p+Q(q)

d. MR(q)=(dP(q)/dq)q+Q(q)

e. MR(q)=(dP(q)/dq)q+P(q)

answer

e. MR(q)=(dP(q)/dq)q+P(q)

question

Suppose that a monopoly faces a demand Q(p). Recall that the price elasticity of the demand for a good at p is given by e=(dQ(p)/dp)(p/Q(p)). Using the fact that if P(q) is the maximum price at which the monopoly can sell q units, we know that Q(P(q))=q. Thus, (dQ(p)/dp)(dP(q)/dq)=1, where p=P(q) and q=Q(p). Thus, we can express the monopolist's marginal revenue as?

a. MR(q)=p+p/e

b. MR(q)=p+pe

c.MR(q)=p/e

d. MR(q)=p-pe

e. MR(q)=p-p/e

answer

a. MR(q)=p+p/e

question

A monopolist's marginal revenue is 0 whenever the price elasticity of demand is -1.

True
False

answer

true

question

Suppose that the marginal rate of technical substitution of L for K is constant and equal to x. Then?

answer

If the firm substitutes one unit of labor for x units of capital, then production remains constant.

question

Suppose that the marginal rate of technical substitution of L for K is constant and equal to x. Then?

answer

If the firm substitutes x units of capital with 1 unit of labor, then production remains constant.

question

The MRTSLK(L,K) for a certain firm is constant and equal to 2. Then, if the firm substitutes 2 units of labor FOR one unit of capital?

answer

Production increases

question

Consider a firm whose cost function when both L and K are variable is shown in the figure below. (The following is a description of the figure. In a two-axis graph we measure q in the horizontal axis and dollars $ in the vertical axis. A single curve labeled C is shown in the figure. It is a linear curve with positive slope).

Is it possible that this is the COST function when both L and K are variable of a production function that satisfies the law of decreasing marginal returns of labor?

answer

True

question

Consider a firm whose cost function when both L and K are variable is shown in the figure below. (The following is a description of the figure. In a two-axis graph we measure q in the horizontal axis and dollars $ in the vertical axis. A single curve labeled C is shown in the figure. It is a linear curve with positive slope).

Then, the Marginal cost function associated with this production is:

answer

flat

question

The following figure shows the graph of the production function of a firm when capital is fixed at some level K. This is a description of the graph. This is a two axis graph in which the horizontal axis measures L and the vertical axis measures output units. A concave increasing curve is shown. It passes through the points (100,23) and (200,42).

Is this the graph of a linear production function when capital is fixed?

answer

question

The following figure shows the graph of the production function of a firm when capital is fixed at some level K. This is a description of the graph. This is a two axis graph in which the horizontal axis measures L and the vertical axis measures output units. A concave increasing curve is shown.

From the following, which can be the graph of L(q,K), i.e., the labor necessary to produce q units?

answer

The following is a description of the graph that is shown. A two axis graph in which the horizontal axis is labeled q and the vertical axis is labeled Units of Labor. A convex curve is shown.

question

answer

question

Suppose that the a firm's cost function is given by: C(q)=1+3q2. Then, the expression for this firm's profit function is?

answer

Profit(q)=pq-1-3q2

question

Suppose that a competitive firm maximizes profits, when capital is fixed, by producing q>0 units of output. Which of the following must be true?

answer

p ≥ AVC(q)

question

Consider the firm whose MC, AC, AVC, AFC functions are shown in the following graph. (The following is a description of the figure: This figure is a two-axis graph; in the horizontal line we measure output q, and in the vertical line dollars $; there are four curves. The first, MC starts at a positive level when q=0; more precisely, MC(0) is greater than 16 and lower than 30; then MC is decreasing for values of q in between 0 and 50; at 50 MC has a minimum; this minimum is MC(50)=10; after q=50, MC is increasing; in particular MC(100)=16, MC(120)=30. The second curve, AVC, starts at the same level of MC(0); it is decreasing when q is between 0 and 100; in this range AVC is above MC; at q=100, AVC crosses MC; more precisely, AVC(100)=MC(100)=16; for q>100, AVC is increasing and below MC. The third curve, AC, has a positive asymptote at zero, that is, it grows to plus infinity when q is very small; AC is decreasing when q is in between 0 and 120; in this range is above MC; AC(100)=34; AC and MC cross at q=120; more precisely, AC(120)=MC(120)=30; for q>=120, AC is increasing, below MC and above AVC.)

If the output price is equal to $12, then the firm maximizes profits by producing?

answer

0 units

question

answer

-$1800

question

answer

120 units

question

answer

question

answer

more than 120 units

question

If a competitive firm's marginal profit is positive at an output of 1000 units,

answer

it will not produce 1000 units

question

answer

$1800

question

what generates a greater dead weight loss: a specific tax of $11.9 collected from the producer or a sales (ad-valorem) tax of 11.9% collected from the producer's revenue?

answer

specific tax of $11.9

question

What is the producer surplus in this market situation if there is no government intervention?

answer

c+d+f

question

what is the value of the Producer Surplus in this market if consumers pay a price

answer

375

question

What is the total welfare in the market if consumers pay a price

answer

489

question

What ad-valorem tax (% collected from the producers revenue) would generate the same revenue for the government?

answer

20%

question

what is the total welfare in the market equilibrium?

answer

548.5

question

at what price is total welfare maximized?

answer

question

what is the dead weight loss if the govt decides to impose a specific tax of $11.9 collected from the producer?

answer

-59.5

question

What is the change in consumer surplus from this market intervention compared to the market equilibrium

answer

c-e

question

Since any market intervention generates a dead weight loss, then there is no reason to impose taxes or regulate markets.

answer

false

question

Assume that the economic cost of capital in the market (also called return) is 3% a year. Jane is analyzing the prospect of investing in a restaurant in a segment of the market that is competitive and for which there is free entry. She has the option to invest $100,000.00 in the restaurant, and sign a contract that determines her return as follows: she will be paid 2% of interest on her capital contribution, plus a 50% share of the business profit. What will be the return of Jane's investment if all other resources used by the restaurant are paid its economic cost?

answer

2.5

question

The following figure shows the graph of the production function of a firm when capital is fixed at some level K.

Is the law of diminishing marginal returns of labor satisfied for this production function (if the graph of all production functions when capital is fixed looks like this, i.e., concave)?

answer

Yes.

The Marginal Product of Labor is the slope of the production function when K is fixed. When the graph of this functions are concave, the Marginal Product of Labor is always decreasing as L increases. Thus the law of diminishing marginal returns of labor is satisfied for this production function.

question

Consider the following graph of a production function when capital is constant. (The following is a description of the figure: it shows a two-axis graph; the horizontal axis measures labor and the vertical axis measures output; for a K fixed, the graph shows that maximal production that the firm can achieve with different levels of labor; the graph starts at cero production for zero labor; then it is increasing in all of its range; three levels of labor are shown as reference; there are L1, L2, and L3; they are related as follows L1<L2<L3; the graph is convex from 0 to L1, that is, its slope is increasing; the graph is concave from L1 on, that is, its slope is decreasing; the line that is tangent to the curve at L2, passes through the origin of the graph.)

From the graph we know that for the corresponding K:

answer

MPL(L1,K)>MPL(L2,K)

The marginal product of labor is the slope of the graph of the production function when capital is fixed; in this case the slope is higher at L1 than at L2, and is higher at L2 than at L3; the only true relation from the possible answers is MPL(L1,K)>MPL(L2,K).

question

The following figure shows the production function of a restaurant for a fixed level of capital.

From the following options, which one can be the production function of this restaurant?

answer

f(L,K)=50(L+K)

The production function with K fixed is a line. The only functions that generate lines from the options are f(L,K)=50(L+K), f(L,K)=50L, ad f(L,K)=7LK. We know that neither f(L,K)=50L nor f(L,K)=7LK are the choice, for otherwise the graph would go through (0,0). If K is fixed at 2, then the graph of f(L,2) is exactly the one in the problem.

question

A firm's production function associates with each combination of inputs (L,K):

answer

The maximal amount of output that the firm is able to produce with (L,K).

question

Consider the following figure (The following is a description of the figure: it shows a two-axis graph; the horizontal axis measures labor and the vertical axis measures output; for a level of K fixed, the graph shows that maximal production that the firm can achieve with different levels of labor; the graph starts at cero production for zero labor; then it is increasing in all of its range; five units of labor is shown as reference in the horizontal axis; the corresponding production for this level of labor is 200; the graphs slope is initially increasing, then there is an inflexion point to the left of five levels of labor; after this inflexion point, the slope of the graph is decreasing; a line that passes through zero and is tangent to the graph is also shown; this line is tangent to the graph for a level of labor that is to the left of 5.)

Denote by APL(L,K)=f(L,K)/L the average product of labor (here f is the production function of the firm). From the graph we learn that for the corresponding K:

answer

APL(5,K)=40

APL(5,K)=f(5,K)/5=200/5=40. APL(L,K) is the slope of the line that interpolates the production function and the origin; it is increasing for small L.

question

Consider the following production function when K is fixed.

Can we say that the production function satisfies the law of decreasing marginal returns of labor?

answer

No, the production function does not satisfy the law of decreasing marginal returns of labor.

(it is constant and equal to the slope of the production function when K is constant).

question

A call center has a production function: f(L,K)=40L+200K. The maximal number of calls that the call center may receive given that L=1 and K=2 is?

answer

440

f(1,2)=40(1)+200(2)=440.

question

A firm has production function f(L,K,M)=L+K2+4M, where L is units of labor, K is units of capital, and M is units of materials. If this firm uses 100 units of labor, 40 units of capital, and 100 units of materials, what is the maximal number of units that they can produce?

answer

2100

If L=100, K=40, and M=100, then f(100,40,100)=100+402+4(100)=2100

question

Suppose that a farm has a production function f(L,K)=5LK. Suppose that at some given situation the farm is producing 100 units of output. What happens with production if the amount of each input is tripled?

answer

It increases by 800%.

The firm is operated for some L and K such that 5LK=100. If inputs are tripled, the firm produces 5(3L)(3K)=9(5LK)=9(100)=900. So production increases (900-100)/100x100%=800%.

question

Suppose that a firm that operates a vaccine production line has a production function f(L,K)=5L1/3K2/3. Suppose that at some given situation this firm is producing 100 million units of output. What happens with production if the amount of each input is doubled?

answer

It doubles.

The firm is operated for some L and K such that 5L1/3K2/3=100M. If inputs are doubled, the firm produces 5(2L)1/3(2K)2/3=2(5L1/3K2/3)=2(100M)=200M. So production doubles, i.e., it increases (200M-100M)/100Mx100%=100%.

question

Consider a call center with production function f(L,K)=30L+300K, where L is units of labor and K is units of capital. Denote by APL(L,K)=f(L,K)/L the average product of labor (here f is the production function of the firm). Suppose that K=2. For which amounts of labor is the Average Product of Labor equal to 10?

answer

There is no level of labor for which APL is equal to 10.

APL is f(L,K)/L. In this case (30L+600)/L, which is 30+600/L. No matter what L is, this figure is more than 30. Thus, it is never 10.

question

The marginal rate of technical substitution of L for K at (L,K) is equal to?

answer

The absolute value of the slope of the tangent to the iso-quant through (L,K) at (L,K)

question

2.5 / 2.5 pts

Denote by APL(L,K)=f(L,K)/L the average product of labor (here f is the production function of the firm). From the graph we know that for the corresponding K:

answer

APL(L1,K)<MPL(L1,K)

APL(L,K) is the slope of the line that interpolates the production function when for K fixed and the origin; for L1, this line is flatter than the tangent to the production function at L1; thus, APL(L1,K)<MPL(L1,K); none of the other relations are true.

question

A firm has a production function f. If for each pair (L,K), f(2L, 2K)= 2f(L, K), we say the firm has:

answer

constant returns to scale

If f(2L, 2K)= 2f(L, K), we say the firm has constant returns to scale

question

Consider a Cobb-Douglas production function f(L, K)= ALaKb, where A, a and b are positive constants. Then, f has increasing returns to scale if:

answer

a+b>1

For a Cobb-Douglas production function f(L, K)= ALaKb, f satisfies increasing returns to scale if and only if a+b>1 (please see lecture notes).

question

The following production function satisfies constant returns to scale: f(L,K)=3LaK1-a where 0<a<1.

answer

True

f(2L,2K)=3(2L) a (2K) 1-a = 2a21-a f(L,K)=2f(L,K). Then, f(2L,2K)=2f(L,K). The function is a Cobb-Douglas function with alpha=1 and beta=1-alpha. Since alpha+beta=1 then it satisfies constant returns to scale.

question

The following production function satisfies increasing returns to scale: f(L,K)=100LK.

answer

True

f(2L,2K)=100(2L)(2K)=4f(L,K). Then, f(2L,2K)>2f(L,K). Alternatively, the function is a Cobb-Douglas function with alpha=1 and beta=1. Since alpha+beta=2>1 then it satisfies increasing returns to scale.

question

Suppose that the marginal rate of technical substitution of L for K is constant and equal to x>1. Then?

answer

If the firm substitutes one unit of labor for x units of capital, then production remains constant.

(x less of capital, 1 more of labor = same production).

question

The MRTSLK(L,K) for a certain firm is constant and equal to 2. Then, if the firm substitutes 2 units of labor for one unit of capital?

answer

Production increases

MRTSLK(L,K) is the amount of capital that the firm can substitute with one unit of labor so the production remains constant. That means that in this particular problem if the firm substitutes one unit of labor for two of capital the production remains constant. Thus, substituting two units of labor for one unit of capital increases production.

question

Consider a Cobb-Douglas production function f(L, K)= AL2/3Kb, where A and b are positive constants. Then, f has constant returns to scale if and only if:

answer

b=1/3

For a Cobb-Douglas production function f(L, K)= ALaKb, f satisfies constant returns to scale if and only if a+b=1 (please see lecture notes). Then, this is so if b=1/3.

question

If profit maximizing firm's marginal profit is positive at an output of 1000 units,

answer

it will not produce 1000 units

Marginal profit is zero at an interior profit maximizer (i.e., greater than 0 production); thus, if marginal product is >0 at 1000, then 1000 is not profit maximizing.

question

The following figure shows the graph of the production function of a firm when capital is fixed at some level K.

From the following options, which can be the labor necessary to produce 40 units for this firm? (Hint: you need to understand what decreasing marginal returns of labor is).

answer

180

From the graph we know that the labor to produce 40 units is between 100 and 200. Suppose that the amount of labor necessary to produce 40 units is x. Notice that the graph shows that the marginal product of labor is decreasing as L increases. This means that x has to satisfy three conditions. First (40-23)/(x-100)<=23/100. This equation says that the increase from 100 to x gives per unit a contribution that is not more than that we have for the first 100 units. You can check that x=120, 140, 160 all violate this. Second, (42-40)/(200-x)<=(42-23)/(200-100). This equation says that the increase from x to 200 gives per unit a contribution that is not more than that we have for the second 100 units. You can check that x=195 violates this.

question

A firm has a production function that has strictly increasing returns to scale. That is, for any combination of factors, say (L,K), f(2L,2K)>2f(L,K). Their cost of producing 500 units of their product is $100,000.00. From the following options, which can be the cost of producing 1000 units?

answer

$190,000.00

Since the firm has strictly increasing returns to scale, then the cost per unit decrease with volume produced. Let L and K the amounts of inputs used by the firm to produce 500 units. Then, f(2L,2K)>2(500)=1000. Thus, the firm can produce more than 1000 units at a cost of $200,000.00. Thus, the cost to produce 1000 units is necessarily less than $200.000.00.

question

A firm has a production function that has strictly decreasing returns to scale. That is, for any combination of factors, say (L,K), f(2L,2K)<2f(L,K). Their cost of producing 500 units of their product is $100,000.00. From the following options, which can be the cost of producing 1000 units?

answer

$210,000.00

Since the firm has strictly decreasing returns to scale, then the cost per unit cannot decrease with volume produced. Suppose on the contrary that producing 1000 units costs less than $200,000.00, say c. Let L,K be the combination of factors used by the firm to do this. Then, (0.5L) and (0.5K) produce more than f(L,K), that is f(L,K)<2f(0.5L,0.5K). Thus, f(0.5L,0.5K)>1000/2=500. But, 0.5L and 0.5K cost 0.5c. Since c<$200,000.00, then 0.5c<$100.000.00. Thus, the firm would be able to produce 500 units for less than $100,000.00. Thus, this cannot be the cost of 500 units. Thus, the only possible option is the amount that is greater than $200,000.00.

question

The accounting profit of a firm can be positive even when its economic profit is zero.

answer

True.

Accounting profits only include accounting costs, which can be different from economic costs. For instance, completely depreciated physical capital does not generate depreciation expense. This capital has an economic cost, for it can be rented or sold.

question

A firm has a production function satisfying constant returns to scale (there is free entry in the industry in which it operates). Their cost of producing 100 units of their product is $200,000.00. What is their cost of producing 500 units?

answer

$1,000,000.00

If a production function satisfies constant returns of scale, its cost function is linear. That is, cost can be calculated by means of proportions. Thus, if 100 units cost $200,000.00, 500 units cost $1,000,000.00.

question

Consider a firm whose cost function when both L and K are variable is shown in the figure below.

Then, the Average cost function associated with this production is:

answer

Flat

MC=AC are both constant.

question

The following figure shows the graph of the production function of a firm when capital is fixed at some level K.

From the following, which can be the graph of L(q,K), i.e., the labor necessary to produce q units?

answer

straight, then upward

The graph of L(q,K) is obtained by rotating the graph of f when K is fixed and flipping it. This produces

question

The Economic Profit is:

answer

Revenue - Economic Cost

Economic Profit = Revenue - Economic Cost

question

Consider the firm whose MC, AC, AVC, AFC functions are shown in the following graph.

If the output price is equal to $12, then the firm maximizes profits by producing?

answer

0 units

The horizontal line at p=12, intersects MC when q<100. But at q, such that p<AVC(q). Thus the firm produces q=0.

question

Consider the firm whose MC, AC, AVC, AFC functions are shown in the following graph.

If the output price is equal to $8, then the firm maximizes profits by producing?

answer

0 units

The horizontal line at p=8, does not intersect MC. Thus the firm produces q=0.

question

Consider the firm whose MC, AC, AVC, AFC functions are shown in the following graph.

If the output price is equal to $10, then the firm maximizes profits by producing?

answer

0 units

The horizontal line at p=10, intersects MC when q=50. But at q=50, p<AVC(50). Thus the firm produces q=0.

question

The following figure shows the marginal and average cost functions of a firm. It is a two-axis graph in which the horizontal axis measures production output and the vertical axis measures marginal and average costs in $. The graph shows two increasing curves labeled MC and AC. The two curves have the same vertical intercept. For positive values of output MC is always greater than AC.

Could this be a marginal cost function for a firm participating in a market in which there is free-entry?

answer

No.

The marginal cost of this firm is increasing. A firm participating in a market in which there is free entry has constant marginal cost.

question

The following figure shows the marginal and average cost functions of a firm. It is a two-axis graph in which the horizontal axis measures production output and the vertical axis measures marginal and average costs in $. The graph shows a single flat line at level c that is labeled MC=AC.

Could this be a marginal cost function for a firm participating in a market in which there is free-entry?

answer

Yes.

A firm participating in a market in which there is free entry has constant marginal cost.

question

Consider the firm whose MC, AC, AVC, AFC functions are shown in the following graph.

If the output price is equal to $21, then the firm maximizes profits by producing?

answer

more than 100 but less than 120 units

The horizontal line at p=21, intersects MC when 100<q<120. At such a q, p>AVC(q). Then, the firm produces 100<q<120.

question

Consider the firm whose MC, AC, AVC, AFC functions are shown in the following graph.

If the output price is equal to $16, then the firm maximizes profits by producing?

answer

100 units

The horizontal line at p=16, intersects MC when q=100. At q=100, we have that  p=AVC(q). Thus the firm produces either q=0 or q=100.

question

Consider the firm whose MC, AC, AVC, AFC functions are shown in the following graph.

If the output price is equal to $34, then the firm maximizes profits by producing?

answer

more than 120 units

The horizontal line at p=34, intersects MC when q>120. At such a q, p>AVC(q). Then, the firm produces q>120.

question

The following figure shows the cost function of a firm. It is a two-axis graph in which the horizontal axis measures production output and the vertical axis measures cost in $. The graph shows and increasing function. The slope of the curve is increasing too.

Could this be a cost function for a firm participating in a market in which there is free-entry?

answer

No.

The marginal cost of this firm is increasing. A firm participating in a market in which there is free entry has constant marginal cost.

question

Consider the firm whose MC, AC, AVC, AFC functions are shown in the following graph.

What is this firm's fixed cost?

answer

$1800

C(q)=F+VC(q). Then, AC(q)=F/q+AVC(q). At q=100, 34=F/100+16. Then, F=1800.

question

Consider the firm whose MC, AC, AVC, AFC functions are shown in the following graph.

If the output price is equal to $30, then the firm's maximal profits is?

answer

$0

The horizontal line at p=30, intersects MC when q=120. At q=120, we have that p>AVC(q). Thus the firm produces q=120. Profit(q)=q(p-AC(q))=120(30-30)=0.

question

A call center has a production function: f(L,K)=40L+200K. If capital is fixed at K=2, what is the expression for the maximal production as a function of labor?

answer

f(L,2)=40L+400

if K=2, then f(L,4)=40L+400.

question

Consider the following production function when K is fixed.

f(10, K) f(5, K)

Can we say that the production function satisfies the law of decreasing marginal returns of labor?

answer

True

Yes, eventually the marginal return of labor decreases (becomes zero after L=10).

question

Consider a firm whose production function is f(L,K)=5L1/2K1/2. Denote by APL(L,K)=f(L,K)/L the average product of labor (here f is the production function of the firm). If K is equal to 1, for what level of labor is the Average Product of Labor equal to 1?

answer

25

APL is f(L,K)/L. If K=1, then APL is 5L1/2/L=5/L1/2. Thus, APL=1 if L1/2=5, or equivalently L=25.

question

The following production function is appropriate to represent an industry in which there is free entry: f(L,K)=100L1/2K1/3.

answer

False.

The function is a Cobb-Douglas function with alpha=1/2 and beta=1/3. Since alpha+beta=5/6<1 then it satisfies decreasing returns to scale. Free entry would require constant returns to scale.

question

Suppose that a competitive firm maximizes profits, when capital is fixed, by producing q>0 units of output. Which of the following must be true?

answer

If the firm substitutes one unit of labor for x units of capital, then production remains constant.

If the firm substitutes one unit of labor for x units of capital, then production remains constant. (x less of capital, 1 more of labor = same production)

question

Consider the firm whose MC, AC, AVC, AFC functions are shown in the following graph.

If the output price is equal to $30, then the firm maximizes profits by producing?

answer

120 units

The horizontal line at p=30, intersects MC when q=120. At such a q, p>AVC(q). Then, the firm produces q=120.

question

The following figure shows the supply function of a firm.

What is the quantity that maximizes the firm's profits when price is 12?

answer

300

The horizontal line at level p=12 intersects S at q=300. Then the optimal production of the firm is 300.

question

Suppose that a competitive firm maximizes profits, when capital is fixed, by producing q>0 units of output. Which of the following must be true?

answer

p ≥ AVC(q)

question

Consider the firm whose MC, AC, AVC, AFC functions are shown in the following graph.

If the output price is equal to $16, then the firm's maximal profits is?

answer

-$1800

question

Jane consumes bundles of apples and pears. In order to understand her behavior we use a graph of her consumption space in which we draw two axes. We measure apples in the horizontal axis and pears in the vertical axis. We write (x,y) to represent a bundle of x apples and y pears. Consider the following list of consumption bundles: (1,2); (1,3); (2,6); (1/2,1/3); and (3,7). Which of these bundles is located the most to the north east in our graph?

answer

(3,7)

The bundle that is most to the north east is the one that has the most of each commodity, i.e., (3,7).

question

Jane consumes bundles of apples and pears. In order to understand her behavior we use a graph of her consumption space in which we draw two axes. We measure apples in the horizontal axis and pears in the vertical axis. We write (x,y) to represent a bundle of x apples and y pears. What of the following bundles is to the north-east of (2,4) in our graph?

answer

five pears and three apples

(3,5) is to the north east of (2,4), because it contains more of each of the two commodities. Each of the other alternatives contains a lower amount of one of the commodities.

question

Elena consumes bundles of food and transportation. In order to understand her behavior we use a graph of her consumption space in which we draw two axes. We measure food in the horizontal axis and transportation in the vertical axis. Which of the following bundles has the largest amount of transportation (if the bundles are written consistently with the way we graph consumption)?

answer

(99,150)

With two commodities, say x and y, in which we draw x in the horizontal axis and y in the vertical axis, a bundle (x,y) contains x of the first commodity and y of the second commodity. Thus, bundle (100,80) has 100 units of food, which is the largest amount of food among these bundles; (99,150) has 100 units of transportation, which the maximum among these bundles.

question

Elena consumes bundles of food and transportation. In order to understand her behavior we use a graph of her consumption space in which we draw two axes. We measure food in the horizontal axis and transportation in the vertical axis. Which of the following bundles has the largest amount of food (if the bundles are written consistently with the way we graph consumption)?

answer

(100,80)

With two commodities, say x and y, in which we draw x in the horizontal axis and y in the vertical axis, a bundle (x,y) contains x of the first commodity and y of the second commodity. Thus, bundle (100,80) has 100 units of food, which is the largest amount of food among these bundles; (99,150) has 100 units of transportation, which the maximum among these bundles.

question

answer

(1/2,1/3)

The bundle that is most to the south west is the one that has the least of each commodity, i.e., (1/2,1/3).

question

Jon has complete and transitive preferences on bundles of sodas and pizza. Jon finds one soda and two slices of pizza at least as good as two sodas and a slice of pizza. Moreover, two sodas and a slice of pizza is not at least as good as one soda and two slices of pizza. Then, we know that:

answer

Jon prefers one soda and two slices of pizza to two sodas and one slice of pizza

Think of sodas a being represented in a horizontal axis and slices of pizza on the vertical. The two bundles in the statement are (1,2) and (2,1). Since (1,2) is at least as good as (2,1) but the opposite is not true, then (1,2) is preferred to (2,1). Since these bundles are not related by order, i.e., one is not greater-greater than the other, there is no implication for more is better here. Indeed, even if the bundles were related by order and there was no violation of more is better, we would not be able to say the property is satisfied in general, because we would not know if somewhere else there is a violation of it.

question

Charlie consumes apples and bananas. Charlie's utility function is U(A,B)=A*B where A is the number of apples and B is the number of bananas. Charlie has 40 apples and 5 bananas. Which of the following bundles would Charlie prefer to his?

answer

20 apples, 11 bananas

Calculate the utility of the given bundles. There is only one whose utility is greater than the utility of (40,5).

question

Ronald consumes apples and bananas. The value that Ronald's utility assigns to a bundle of one apple and one banana is U(1,1)=-100. Is it necessarily true that Ronald prefers zero apples and zero bananas, i.e., (0,0) to (1,1)?

answer

False

Utility has no meaning on its own. The meaning of utility is only to compare between bundles. It is possible that U(0,0)<U(1,1). For instance U(0,0)=-1000. So Ronald may prefer (1,1) to (0,0).

question

Suppose a utility function assigns 3 to bundle a, 2 to bundle b, and 1 to bundle c. Which of the following utility functions represent the same preferences? (To represent the same preferences means that the utility function will encode the same answers to the at least as good questions.)

answer

U(a)=-1, U(b)=-2, U(c)=-3

This utility function says that a is preferred to b and b is preferred to c. There is only one utility function in the options provided that says the same.

question

Charlie consumes apples and bananas. Charlie's utility function is U(A,B)=A*B where A is the number of applies and B is the number of bananas. Which of the following bundles would lie on the same indifference curve as the bundle 40 apples and 5 bananas?

answer

20 apples, 10 bananas

Calculate the utility of each of the alternatives and only one has the same utility as (40,5).

question

Consider the utility function U(x,y)=4x+2y. An agent who has this utility function prefers which of the following baskets:

answer

3 units of x and 1 unit of y

Evaluate the utility of each option and the one with greatest utility will be the preferred basket.

question

Natalia and her sister, Gina, have the following utility functions on the number of slices of pizza (x) and cans of soda (y) they consume in the semester. Natalia's is U(x,y)=3x+2y and Gina's is V(x,y)=4x+2y. Then, among the bundles that are indifferent to (2,0) for Natalia, the only bundle that gives Gina a utility of 7 is?

answer

(1, 3/2)

The bundles that are indifferent to (2, 0) for Natalia are such that U(2,0)=6=3x+2y. Thus, y=3-3x/2. If (x,y) gives utility 7 to Gina, then V(x,y)=7=4x+2y. This means that if a bundle gives utility 7 to Gina and is indifferent to (2,0) for Natalia, 7=4x+2(3-3x/2). This means that x=1 and y=3-2(1)/2=3/2.

question

Two people have identical preferences when for each pair of alternatives, say a and b, their answers to the questions "is a at least as good as b" is the same. Suppose that Evdekia has utility function, on bundles (x,y), U(x,y)=6x+8y, and Georgos, her fiance, has utility function U(x,y)=3xy. Are Evdekia and her boyfriend's preferences identical?

answer

No

For instance Georgos is indifferent between (0,1) and (1,0). Thus, Georgos finds (1,0) at least as good as (0,1). Evdekia, on the other hand, finds (1,0) is NOT at least as good as (0,1).

question

Linda's utility function is given by U(x,y)=2x+y. Then Linda's indifference curves are:

answer

Straight downward slopping lines.

question

Mark has utility function U(x,y)=x3y. Then, the equation of Mark's indifference curve through (2,1) is:

answer

y=8/x3

Mark's utility at (2,1) is 8. This his indifference curve has equation 8=x3y. Thus, y=8/x3.

question

Consider the utility function U(x,y)=4x+2y. Someone who has this utility function is indifferent between consuming 4 units of x and 0 units of y and which of the following?

answer

0 units of x and 8 units of y

Calculate the utility of each of the alternatives and only one has the same utility as (4,0).

question

Natalia and her sister, Gina, have the following utility functions on the number of slices of pizza (x) and cans of soda (y) they consume in the semester. Natalia's is U(x,y)=3x+2y and Gina's is V(x,y)=4x+2y. If we plot their indifference curves with x measured in the horizontal axis and y measured in the vertical axis, we find that:

answer

Gina's indifference curves are steeper than Natalia's

Both sisters have linear preferences. Thus their indifference curves are line. Take for instance the point (1,1). The equation of Natalia's indifferce curve through (1,1) is 5=3x+2y, and the equation of Gina's indifference curve through (1,1) is 6=4x+2y. Thus for Natalia y=5/2-3x/2 and for Gina y=3-2x. Thus, Gina's indifference curves are steeper: the slope is more negative. The only point in Gina's indifference curve through (0,0) is (0,0). The utility of Natalia in her indifference curve through (3,2) is 13. Thus, (0,0) is not on Natalia's indifference curve through (0,0).

question

Two people have identical preferences when for each pair of alternatives, say a and b, their answers to the questions "is a at least as good as b" is the same. Suppose that Elena has utility function on bundles of two goods (x,y), U(x,y)=6x+8y, and Tuna, her husband, has utility function V(x,y)=3x+4y. Are Elena and her husband's preferences identical?

answer

Yes

they are identical. Suppose that (x1,y1) is at least as good as (x2,y2) for Elena. Then 6x1+8y1=6x2+8y2. Then, 3x1+4y1=3x2+4y2. This means that Tuna finds (x1,y1) is at least as good as (x2,y2). One can see that the symmetric statement is also true. If Tuna finds (x1,y1) is at least as good as (x2,y2), then Elena finds the same. Thus, Elena and Tuna will have the same answers to all "at least as good" questions.

question

Jan Claude has the following utility function on the number of homework assignments, denoted by h, and the number of exams, denoted by e: U(h,e)=-5h-10e. Then, Jan Claude's indifference curves are thin lines that never cross?

answer

True

More-is-worse for Jan Claude. In the same way that we saw in class that more-is-better implies indifference curves are thin and never cross, one can see that more-is-worse implies the same.

question

Mr. Butcher consumes bundles of coffee and tea. Denote these bundles by (c,t). Mr. Butcher's utility function is U(c,t)=2c+t. One can prove that Mr. Butcher's MRS of coffee for tea is a constant, i.e., the slope of his indifference curves is the same for all curves no matter where it is measured. Using this fact, one can calculate that Mr. Butcher's MRS of coffee for tea is:

answer

2

Since Mr. Butcher's MRS of coffee for tea is constant, we can measure it at any point. Suppose that he is consuming (c,t). MRStc is the maximal amount of tea that he is willing to give up to consume one additional cup of coffee. This means that the utility of (c,t) is the same as the utility of (c+1,t- MRStc). Since we have the utility function, we know then that 2c+t=2(c+1)+t-MRStc. This can be simplified to MRStc=2. Note that this is intuitive. Mr. Butcher gets 2 units of additional utility for an additional cup of coffee. He gets the same additional utility from 2 cups of tea. So he is willing to give up 2 cups of tea for one cup of coffee and his utility remains constant.

question

Michael eats hamburgers and smores. If Michael eats two hamburgers and one smore, he would give up half hamburger in order to eat one smore more (his welfare remaining constant). When he eats smores, he wants more and more. Indeed, he would give up one hamburger more for eating his third smore (his welfare remaining constant). Because of this, we can say that Michael's MRS of smores for hamburgers is not decreasing.

answer

True

As Michael eats more smores, it is easier to substitute smores for hamburgers.

question

Lisa has a constant MRS of tea for coffee 3/4 (she is willing to give up at most 3 cups of coffee to get 4 cups of tea) then, if tea and coffee have the same price, she will:

answer

Buy only coffee

MRS of tea for coffee is 3/4 and the ratio of prices is 1. Thus, if we draw an x vs y representation of the problem with tea in x and coffee in y we see that the agent's indifference curves are flatter than the budget constraint. Thus, the agent consumes only of good y, i.e., coffee.

question

A decreasing MRS of x for y means:

answer

It is more and more difficult to substitute x for y as the consumption of x is higher.

question

Kenneth consumes bundles of food and clothing. He has constant MRS of food for clothing equal to 5/7. Then, what is the maximal amount of clothing that he is willing to give up in order to consume 3 units more of food.

answer

15/7

Since MRS food for clothing is 5/7, the maximal amount of clothing that he is willing to give up in order to consume 1 unit more of food is 5/7. Then, the maximal amount of clothing that he is willing to give up in order to consume 3 units more of food is 3*5/7=15/7.

question

James consumes pizzas, denoted by x, and sodas, denoted by y. The prices are px=3 and py=2, respectively. James income for the semester is $100. Can James afford to buy 25 slices of pizza and 10 sodas this semester?

answer

Yes

253+210=85. Then, James can afford this bundle.

question

Linda receives a raise at work and her income increases. How does her budget line change if prices do not change?

answer

It makes a parallel shift outward.

question

Suppose that the price of good x is $10, the price of good y is $15, and Katrina's income is $30. What is the equation of Katrina's budget constraint?

answer

2x + 3y = 6

The budget constraint is pxx+pyy=Income. Here it is: 10x+15y=30. Simplifying, 2x+3y=6.

question

Suppose that initially the prices of x and y are the same. If the price of good x doubles and the price of good y triples, while income is held constant, the budget line (x is measured in the horizontal axis and y in the vertical axis):

answer

becomes flatter

The slope of the budget constraint is initially -px/py=-1. Then it becomes -2px/3py. That means is less negative and the line is flatter.

question

Suppose the price of good x is $10, the price of good y is $15, and Katrina's income is $30. What is the slope of Katrina's budget line if the horizontal axis represents good x?

answer

-2/3

The slope of the budget constraint is -px/py=-10/15=-2/3.

question

Linda has an income of $100 which she spends completely on two goods: x and y. The price of x is $20 and the price of y is $12. What is the equation of Linda's budget constraint?

answer

10x+6y=50

The budget constraint is pxx+pyy=Income. Here, 20x+12y=100. Simplifying we get 10x+6y=50.

question

Otis consumes two goods: x and y. If the price of x is $2 and the price of y is $5, then the slope of Otis budget constraint when we plot good x in the horizontal axis is?

answer

-2/5

-px/py=-2/5.

question

What is the horizontal (x) intercept for the following budget constraint: 2x+3y=25?

answer

25/2

Is x such that 2x+3*0=25, i.e., 25/2.

question

If the prices of both goods increase by 50% while income remains constant:

answer

the slope of the budget constraint will stay the same

The slope of the budget constraint is initially -px/py. Then it becomes -1.5px/1.5py= -px/py. Thus, the slope stays the same. The budget constraint shrinks, because prices increase. Thus, it is not true that the budget constraint will be unchanged.

question

Linda has an income of $100, which she spends completely on two goods: x and y. The price of x is $20 and the price of y is $12. Which of the following is the slope of her budget constraint (in a graph where x is measured in the horizontal axis and y in the vertical axis)?

answer

-5/3

The slope of the budget constraint is -px/py=-20/12=-5/3.

question

Suppose that initially the price of good x is $10, the price of good y is $15, and Ellie's income is $30. Budget cuts at work reduce Ellie's income to $25. What is the new vertical (y) intercept of Ellie's budget constraint?

answer

5/3

The y intercept is where Ellie consumes all her income on good y, i.e., Income/py=25/15=5/3. One can also find the equation of the budget constraint and find its intercept.

question

Jon will get a $1000 tax refund this year. John files his taxes with a software company that offers him two options to get his tax refund. First, he can get the deposit back from the government. Alternatively, he can get a $1050 gift card from Amazon, which can be sold at a 6% discount online. Then, Jon will for sure be better off by choosing the Amazon card than the refund.

answer

False

Jon may be constrained to buy only products available at amazon. Even though his income would increase with the card, his unrestricted utility maximization may require he buys part of the $1000 in commodities not available in Amazon. For instance, he may need this money to help him pay school. Note that getting the card and selling it would give him less than $1000.

question

Jane is the manager of a local bank branch in College Station where he consumes bundles of two commodities x and y. Prices in College Station are px=1 and py=5. He is offered a transfer to Dallas where prices are px=4 and py=5; Jane is guaranteed a salary in Dallas with which he would be able to buy exactly what he buys in College Station. Jane's utility function is U(x,y)=xy2 and his income in College Station is $6000. What happens to Janes's utility if she accepts the transfer (Jane's utility maximization is always characterized by the tangency rule)?

answer

Increases 100%

Jane's utility function is of the Cobb-Douglass form. Using the formula for utility maximization we find that in College Station Jane consumes (2000,800). Thus her salary in Dallas is 12000. Again using the formula for utility maximization we find that she consumes (1000,1600) in Dallas with the new salary. Thus her utility changes from 1280000000 to 2560000000. Increases 100%.

question

The following figure shows the consumption space of an agent who consumes two goods, x and y. Good x is measured in the horizontal axis and good y in the vertical axis. The figure shows two budget constraints. These are two straight lines with negative slope. They have different slope. They cross at a single point, labeled B. This point is in the interior of the consumption space. The y intercept of the budget constraint that is flatter, is labeled A and the x intercept of the other budget constraint is labeled C. Suppose that the agent consumes bundle B when her budget constraint is the budget line that passes through B and C. Suppose also that this agents' preferences satisfy more is better. Then,

answer

The agent will never consume a bundle to the left of B when her budget constraint is the line that passes through A and B

If B is the maximizer in budget the constraint that passes through B and C, then B is better than any other point inside the triangle determined this budget line. Thus, all the points in the budget line that passes through A and B, that are to the left of B are worse than B. Thus, the agent will never choose them in this budget constraint.

question

Victor is the manager of a local bank branch in College Station where he consumes bundles of two commodities x and y. Prices in College Station are px=1 and py=5. He is offered a transfer to Dallas where prices are px=2 and py=8; Victor is guaranteed a salary in Dallas with which he would be able to buy exactly what he buys in College Station. Victor's utility function is U(x,y)=xy and his income in College Station is $5000. What happens to Victor's utility if he accepts the change?

answer

Increases 1.25%

Victor's utility function is of the Cobb-Douglass form. Using the formula for utility maximization for this type of utility, we find that in College Station victor consumes (2500,500). Thus his salary in Dallas is 9000. Using again the formula for utility maximization, we find that he consumes (2250, 565,5) in Dallas with the new salary. Thus his utility changes from 1250000 to 1265625. Increases 1.25%.

question

Consider the utility function U(x,y)=5x +2y. An agent with a budget constraint of 10x + 5y = 20 will choose which of the following bundles in order to maximize his/her utility?

answer

2 units of x

The ratio of prices is equal to 10/5=2, the absolute value of the slope of the budget line (y=20/5-10/2x); moreover, MRSxy is equal to 5/2=2.5; then, the agent's indifference curves are steeper than his/her budget constraint; then the agent consumes all her income in good x, i.e., 20/10=2 units.

question

Leon has complete and transitive preferences on greek sweets. He finds a piece of Bougatsa is at least as good as a portion of Melomakarona, and he prefers a portion of Melomakarona to a piece of Halva. Can the utility of a piece of Halva be greater than the utility of a piece of Bougatsa?

answer

No.

question

Suppose a cup of coffee at the campus coffee shop is $2.50 and a cup of hot tea is $1.25. Suppose a student's beverage budget is $20 per week. What is the algebraic expression of his/her budget constraint (denote cups of coffee by C and cups of tea by T)?

answer

2.5C + 1.25T=20

question

The following figure shows the budget constraint and one indifference curve of an agent whose preferences satisfy more is better. It is a two axis graph in which the horizontal axis measures x and the vertical axis measures y. The budget constraint is a line of negative slope. It passes through the points (1,7/3) and (8/3,1). The indifference curve, in red, is a downward sloping curve that touches the budget constraint at (1,7/3) and (8/3,1). No other point in this indifference curve is on or to the south west of the budget constraint. Then,

answer

The agent maximizes utility, given her budget, at both (1,7/3) and (8/3,1).

question

Consider the utility function U(x,y)=3x +6y. An agent with a budget constraint of 15x + 5y = 30 will choose which of the following bundles in order to maximize his/her utility?

answer

0 units of x and 6 unit of y

question

Victor is the manager of a local bank branch in College Station where he consumes bundles of two commodities x and y. Prices in College Station are px=1 and py=5. He is offered a transfer to Dallas where prices are px=2 and py=8; Victor's utility function is U(x,y)=xy and his income in College Station is $5000. (Victor's utility maximization is always characterized by the tangency rule). Will Victor be able to afford what he was buying in College Station if he is offered a salary in Dallas that guarantees his welfare is the same with the transfer?

answer

No.

question

Linda consumes two goods: x and y, has preferences that are smooth and maximizers are always interior, and has income $150. If px=$25 and py=$5, what is the marginal rate of substitution of good x for good y for Linda at her optimal bundle?

answer

question

Aggeliki works for a multinational corporation. They relocate her to a city in which housing and food is double as expensive as in her original city, but all the other goods, like transportation, entertainment, education, etc. are half the price. The company does not know how Aggeliki spends her money. If they want to make sure that Aggeliki is not worse off with the change, what is the minimal change in salary that they need to give her?

answer

Double her salary.

question

Consider an agent with utility function given by U(x,y)=100x+32y. Let (x,y) be the optimal consumption of money of the agent when her income is W (here W is positive) and the price of x is twice the price of y. Suppose that prices remain constant but the agent's income increases by 50%. Then,

answer

The agent's optimal consumption of both goods increases exactly by 50%, i.e., gets multiplied by a factor of 1.5.

question

If preferences on bundles of two commodities are complete, transitive, and satisfy more is better, then indifference curves:

answer

Are downward slopping thin curves that never cross.

question

The manager of the local branch of a bank in College Station is offered a transfer to Austin. This person is guaranteed a salary that is able to buy the goods and services that he/she was consuming in College Station. Assume that the welfare of this agent depends only on her consumption, and that the goods in College Station and Austin are comparable. Then, the manager:

answer

can be better off with the transfer but cannot be worse off.

question

answer

Increases 1.25%

question

Alexandra is maximizing her utility over goods x and y subject to her budget constraint. Her preferences are smooth (maximizers are always interior). At her optimal consumption bundle, her MRS of goof y for good x is equal to 1. The price of good x is $4. What is the price of good y?

answer

question

Victor is the manager of a local bank branch in College Station where he consumes bundles of two commodities x and y. Prices in College Station are px=1 and py=5. He is offered a transfer to Dallas where prices are px=2 and py=8; Victor's utility function is U(x,y)=xy and his income in College Station is $5000. (Victor's utility maximization is always characterized by the tangency rule). Will Victor be able to afford what he was buying in College Station if he is offered a salary in Dallas that guarantees his welfare is the same with the transfer?

answer

No.

question

Normal goods are always inferior.

answer

False.

An inferior good is exactly the opposite of a normal good. Thus a normal good cannot be inferior.

question

An agent consumes bundles of two goods, x and y. The agent's demand of good y when prices are px and py and income is W is 3W/(px+3py). The agent's preferences satisfy more is better. The following figure shows the agent's demand curve for a fixed price py and a fixed income. The figure is a two-axis graph in which the horizontal axis measures Qx and the vertical axis measures px. It shows the agent's demand curve, in blue: a downward sloping curve that passes through the points (56,2) and (70,1).

What is the value of W in the curve shown in the figure?

answer

280

Let Qx(px,py,W) and Qy(px,py,W) be the agent's consumption of x and y when prices are px and py and income is W, respectively. Since the preferences satisfy more is better, consumption is always in the budget line. Thus, px Qx(px,py,W)+py Qy(px,py,W)=W. This means Qx(px,py,W)=W/px- py Qy(px,py,W)/px. This means Qx(px,py,W)=W/px- (py /px) [3W/(px+3py)]=W/(px+3py). From the information in the demand curve we know that 70=W/(1+3py) and 56=W/(2+3py). Thus, 70+210 py=W and 112+168py=W. Then, 70+210 py=112+168py. Then, py=1 and W=70+210=280.

question

(In this question income will be denoted by Y). The following figure shows a two-good consumption space for an agent. The horizontal axis measures good x and the vertical axis measures good y. There are three budget lines shown in the figure. The first budget line has vertical intercept Y/py and horizontal intercept Y/px. The second budget line has vertical intercept Y/p'y<Y/py, and horizontal intercept Y/px. The third budget line has vertical intercept Y/py, and horizontal intercept Y/p'x< Y/px. There are two indifference curves. These are downward sloping thin curves that do not touch. One of this curves intersects the third budget line only at bundle (3,2). The other curve intersects the second budget line only at (4,0.6) and intersects the third budget line only at (1,2.5).

Then the demand of good x for prices px and p'y and income Y is:

answer

4

The demand of good x for prices px and p'y and income Y is the x component of the utility maximizer for the second budget constraint, i.e., (4,0.6). Thus, Qx(px,p'y,Y)=4.

question

(In this question income will be denoted by Y). The following figure shows a two-good consumption space for an agent. The horizontal axis measures good x and the vertical axis measures good y. There are three budget lines shown in the figure. The first budget line has vertical intercept Y/py and horizontal intercept Y/px. The second budget line has vertical intercept Y/p'y<2, and horizontal intercept Y/px. The third budget line has vertical intercept Y/py, and horizontal intercept Y/p'x<3. There are two indifference curves. These are downward sloping thin curves that do not touch. One of this curves intersects the third budget line only at bundle (3,2). The other curve intersects the second budget line only at (4,0.6) and intersects the third budget line only at (1,2.5).

Then the demand of good x for prices p'x and p'y and income Y is less than 3?

answer

True.

The demand of good x for prices p'x and p'y and income Y is the x component of the utility maximizer for the budget line that has intercepts Y/p'x and Y/p'y. All the points on this budget line are t the south-west of (3,2).

question

(In this question we denote income by Y). The following figure shows a two-good consumption space for an agent. The horizontal axis measures good x and the vertical axis measures good y. There are three budget lines shown in the figure. The first budget line has vertical intercept Y/py and horizontal intercept Y/px. The second budget line has vertical intercept Y/p'y<Y/py, and horizontal intercept Y/px. The third budget line has vertical intercept Y/py, and horizontal intercept Y/p'x< Y/px. There are two indifference curves. These are downward sloping thin curves that do not touch. One of this curves intersects the first budget line only at bundle (3,2). The other curve intersects the second budget line only at (4,0.6) and intersects the third budget line only at (1,2.5).

Can we conclude that good x is a Giffen good for some market situation?

answer

No.

A good is Giffen when demand increases when its price increases. This change corresponds here to go from the first budget line to the third budget line. Consumption of x goes from 3 to 1. Thus, we cannot conclude that x is Giffen.

question

(In this question we denote income by Y). The following figure shows the Engle curve of an inferior good for the respective market situations?

answer

False.

An increase in Y always causes an increase in Qx. The demand for the good is normal for this range of income.

question

Juan has preferences that satisfy more is better on bundles of two goods (x,y). In some market situation Juan spends 2/3 of his income in good x. When the price of good x drops by 50%, all the other constant, Juan spends more than 2/3 of his income in good y. We can infer that good x is a Giffen good for Juan.

answer

Yes.

Let px and py be the initial market prices. Before the change Juan is spending (2/3)W in good x. Thus, he is consuming (2/3)W/px of good x. Juan's expenditure in the second market situation is: ypy+xpx/2, where he consumes x and y. If the consumption of x does not decrease when the price of x is cut by half, the total expenditure is more than 2/3W+(2/3)(W/px)(px/2)=W, because Juan would spend more than 2/3W in good y, and at least (2/3)(W/px)(px/2) in good x. Then, in order to buy more than 2/3 of his income in good y when the price of x is cut by half, Juan needs to buy less of x. Since the price of x dropped, x is a Giffen good.

question

Jane has preferences that satisfy more is better. Jane’s demand of good y as a function of prices px and py and income W is given by 3W/8py. What is Jane’s consumption of x when px=1, py=3, and W=32.

answer

20

Let x and y be Jane's consumption when px=1, py=3, and W=32. Observe that y=3W/8py=332/83=4. Then, Since (x,y) is on the budget line, then pxx+pyy=W. Then, x=W/px-(py/px)y*=32/1-(3/1)4=20.

question

(In this question income will be denoted by Y). The following figure shows a two-good consumption space for an agent. The horizontal axis measures good x and the vertical axis measures good y. There are three budget lines shown in the figure. The first budget line has vertical intercept Y/py and horizontal intercept Y/px. The second budget line has vertical intercept Y/p'y<2, and horizontal intercept Y/px. The third budget line has vertical intercept Y/py, and horizontal intercept Y/p'x<3. There are two indifference curves. These are downward sloping thin curves that do not touch. One of this curves intersects the third budget line only at bundle (3,2). The other curve intersects the second budget line only at (4,0.6) and intersects the third budget line only at (1,2.5).

Then the demand of good y for prices p'x and p'y and income Y is less than 2?

answer

True.

The demand of good y for prices p'x and p'y and income Y is the y component of the utility maximizer for the budget line that has intercepts Y/p'x and Y/p'y. All the points on this budget line are t the south-west of (3,2).

question

answer

No.

A good is Giffen when demand increases when its price increases. This change corresponds here to go from the first budget line to the second budget line. Consumption of y goes from 2 to 0.6. Thus, we cannot conclude that y is Giffen.

question

Suppose that an agent has utility function u(x,y)=x+2y. What information is necessary to calculate the agent's optimal consumption of x?

answer

price of x, price of y, and income

Since u(x,y)=x+2y then the agent either consumes all his/her income in x or all his/her income in y. This depends on the relation of MRSxy and MRTxy. Thus, we have to know px, py and W to determine demand of x.

question

(In this question we denote income by Y). The following figure shows the consumption of x and y for two market situations.

We can conclude that:

answer

x is a Giffen good for some market situation.

The consumption of x decreases when the price of x decreases: x is a Giffen good.

question

(In this question we denote income by Y). The following figure shows the consumption of x and y for two market situations.

We can conclude that:

answer

x is an inferior good for some market situation.

The consumption of x decreases when the price of x decreases: x is a Giffen good. All Giffen goods are inferior at some market situation.

question

answer

3

The demand of good x for prices px and py and income Y is the x component of the utility maximizer for the first budget constraint, i.e., (3,2). Thus, Qx(px,py,Y)=3.

question

The law of demand states that the consumption of a good decreases as its price increases, all other things equal. This "law" is actually not always true, because there are goods whose consumption increases when their price increases, all other things equal.

answer

True.

There are Giffen goods.

question

Jane's demand of good y as a function of prices px and py and income W is given by: 3W/8py. What is Jane's consumption of y when px=1, py=3, and W=32.

answer

4

3W/8py=332/83=4.

question

Johnny used to eat instant ramen noodles when he was young and poor. After he became famous and rich, he never ate this anymore. To the regular observer this seems quite normal. Economists, on the other hand, say that Johnny's demand for instant ramen noodles is not normal.

answer

True.

Economists reserve the label normal, for the demand of a commodity whose consumption increases when income increases.

question

Jane has preferences that satisfy more is better. Jane’s demand of good x as a function of prices px and py and income W is given by W/(px+5py). What is Jane’s consumption of y when px=1, py=3, and W=32.

answer

10

Let x and y be Jane's consumption when px=1, py=3, and W=32. Observe that x=W/(px+5py)=32/(1+53)=2. Since (x,y) is on the budget line, then pxx+pyy=W. Then, y=W/py-(px/py)x=32/3-(1/3)2=30/3=10.

question

Jane's Engel curve for the consumption of food shows:

answer

Jane's consumption of food as a function of income, all the other constant.

question

Jane's demand of good x as a function of prices px and py and income W is given by: W/(px+5py). What is Jane's consumption of x when px=1, py=3, and W=32.

answer

2

W/(px+5py)=32/(1+5*3)=2.

question

answer

1

Let Qx(px,py,W) and Qy(px,py,W) be the agent's consumption of x and y when prices are px and py and income is W, respectively. Since the preferences satisfy more is better, consumption is always in the budget line. Thus, px Qx(px,py,W)+py Qy(px,py,W)=W. This means Qx(px,py,W)=W/px- py Qy(px,py,W)/px. This means Qx(px,py,W)=W/px- (py /px) [3W/(px+3py)]=W/(px+3py). From the information in the demand curve we know that 70=W/(1+3py) and 56=W/(2+3py). Thus, 70+210 py=W and 112+168py=W. Then, 70+210 py=112+168py. Then, py=1 and W=70+210=280.

question

An agent consumes bundles of two goods, x and y. The agent's demand of good x when prices are px and py and income is W is W/(3px). The following figure shows the associated demand curve for good x for some fixed price of good y and fixed income. The figure is a two-axis graph in which the horizontal axis measures Qx and the vertical axis measures px. The demand curve shown, in blue, is a downward sloping curve. It passes through the point (10,4).

Then the value of W for which the demand curve shown is drawn is?

answer

120

Since 10= W/(3x4), then W=120.

question

(In this question we denote income by Y). The following figure shows the consumption of x and y for two market situations.

The income effect of a change in price of x from px to px' is?

answer

Positive and reinforces the substitution effect.

Positive and reinforces the substitution effect. The total effect is positive and the substitution effect is always positive. Income effect reinforces substitution effect.

question

Juan has preferences that satisfy more is better on bundles of two goods (x,y). In the market situation in which his income is $100 and prices of both goods are equal to $5, Juan consumes the same amount of both goods. When the price of good x decreases by 20%, all the other equal, Juan's substitution effect is 0.5 units and his income effect is 3.5 units. Then, Juan's consumption of good y?

answer

Drops by 22%.

Juan consumes 10 units of each good in the initial market situation, because since his preferences satisfy more is better, he spends all his income in goods. When price drops to $4, Juan consumes 14 units of x, because the total effect, which is the summation of substitution effect and income effects, is 4. This means that Juan spends $56 in good x. Since his income is $100, he spends $44 in good y. Since the price of y is $5, Juan consumes 8.8 units of good y after the change. His consumption of y decreases 2.2 units, which is 22%.

question

If the Engle curve for the consumption of good x is always non-decreasing, then:

answer

The income effect of a price reduction is always positive.

The income effect of a price reduction is always positive: an income increase implies a consumption increase.

question

If the Engle curve for the consumption of good x is decreasing at some income level, then:

answer

The income effect of a price reduction may be negative for some price changes.

The income effect of a price reduction may be negative for some price changes. It is not always negative because the Engel curve cannot be always decreasing.

question

If the government subsidizes the price of rice among poor communities in rural India:

answer

The demand of rice among these communities may either rise or fall (it depends on whether the income effect may be negative and outweigh the substitution effect).

question

The price elasticity of demand for residential energy in the U.S. is estimated by some researchers to be -0.24. Approximately, what percentage change in the price of residential energy induces an increase of 1% in its consumption?

answer

4.17% decrease

-4.17%=1%/(-.24).

question

The demand of good x increases when its price increases at certain market situation. If we measure the income elasticity of the demand of good x this will be:

answer

negative for some market situations.

The demand of good x increases when its price increases. Then x is a Giffen good. Giffen goods are always inferior at some market situations. If this happens the demand for the good has a negative income elasticity. It can be different from -1.

question

John works for the economic research department of the local cable company in his city. He is interested in the effect of a price increase in the demand for their services. He calculates that the price elasticity for the demand is -3. This means:

answer

Demand will fall approximately by 3% if price increases by 1%.

Price elasticity measures the relative change in consumption in proportion to the relative change in price. Thus, demand will fall approximately by 3% if price increases by1%.

question

A consulting firm estimated that the own-price elasticity of the demand of whole milk is -0.803 and for 2% milk is -0.512. If this estimates are correct, then whole milk is more elastic than 2% milk.

answer

Yes.

for each 1% in price increase of whole milk, demand decreases by 0.803 %; for each 1% in price increase of 2% milk, demand decreases by 0.512%. Demand for whole milk is more sensitive to price changes than the demand of 2% milk.

question

The demand curves (for a given level of income and price of all the other commodities constant) for the consumption of good x in town 1 and town 2 are shown below. (The figure shows a two-axis graph. In the horizontal axis we measure Qx, i.e., the consumption of good x; in the vertical line we measure px, i.e. the price of good x. There are two lines representing the demand functions in two markets. The demand for market 1 is steeper than the demand for market 2. These two lines intersect at px=3.)

Which demand is more elastic at px=3 (that is, the one with greater price elasticity at px=3)?

answer

Demand in town 2.

The flatter demand at px=3 is more elastic: a proportional change in price of x causes a bigger proportional change in consumption.

question

Jane, who works for the economic research department in a multinational corporation, is preparing a report for the advisory board of the company. The report intends to clarify in which country they should invest given the expected change in demand. The objective is, of course, to identify the country with greater change in demand. Jane analyzes countries A and B that currently have the same demand. She calculates the partial derivatives of demand with respect to income and finds that for country A it is greater than for country B. Demand in country A is measured in pounds and in country B in Kg. Can we conclude that if the only change expected in both countries is a change in income of 3.5%, then the company should invest in country A?

answer

no, we should calculate instead the income elasticity for the consumption of the good the company sells in each country.

Since the derivative is measured in different units of consumption in both countries, then the derivative is not conclusive. Since 1 kg is approximately 2 pounds, then the growth in demand in country A must be at least twice the growth in country B in order to justify the investment in country A. A greater elasticity in A would have picked up this effect.

question

The price elasticity of demand for Milk 1-percent Organic is estimated by some researchers to be -9.733. Approximately, what percentage change in the price of Milk 1-percent Organic induces an increase of 1% in its consumption?

answer

0.10% decrease

-0.10274%=1%/(-9.733).

question

The price elasticity of demand for gasoline is estimated by some researchers to be -0.02. Approximately, what percentage change in the price of gasoline induces an increase of 1% in its consumption?

answer

50% decrease

-50%=1%/(-0.02).

question

The following figure shows the demand function for a commodity. Suppose that the agent buys an amount q3 at price p1. What is the consumer surplus in this situation?

answer

A+B+E+C+F+K

The CS is the net size of the area determined by a horizontal line at the level of the price and the demand function up to the consumption of the agent: A+B+E+C+F+K.

question

The following figure shows the demand function for a commodity. Suppose that the agent buys an amount q2 at price p3. What is the consumer surplus in this situation?

answer

A-D

The CS is the net size of the area determined by a horizontal line at the level of the price and the demand function up to the consumption of the agent: A-D.

question

The following figure shows the demand function for a commodity. Suppose that the agent buys an amount q1 at price p1. What is the consumer surplus in this situation?

answer

A+B+C

The CS is the net size of the area determined by a horizontal line at the level of the price and the demand function up to the consumption of the agent: A+B+C.

question

The following figure shows the demand function for a commodity. Suppose that the agent buys an amount q3 at price p3. What is the consumer surplus in this situation?

answer

A-D-G-H

The CS is the net size of the area determined by a horizontal line at the level of the price and the demand function up to the consumption of the agent: A-D-G-H.

question

The following figure shows the demand function for a commodity. Suppose that the agent buys an amount q1 at price p3. What is the consumer surplus in this situation?

answer

A

The CS is the net size of the area determined by a horizontal line at the level of the price and the demand function up to the consumption of the agent: A.

question

Jonny consumes slices of pizza and tacos. Recently, the price of corn increased because of a shortage of this product, while the price of wheat remained the same. Because of this, the price of tacos increased and the price of the slices of pizza remained the same. If Jonny's income remains constant, is it possible that his consumption of pizza changes?

answer

Yes.

Depending on Jonny's preferences, he may substitute pizza for tacos, now that tacos are more expensive.

question

After Joyce and Larry purchased their first house, they made additional home improvements in response to increases in income. After a while, their income rose so much that they could afford a larger home. Once they realized they would be moving, they reduced the amount of home improvements. Their Engel curve for home improvements on their current home is:

answer

backward bending.

Demand for home improvements is decreasing with income. This means the Engel curve bends backward.

question

John's demand curve for movie tickets shows:

answer

The number of movie tickets consumed by John as a function of the price of tickets, all the other constant.

question

Both Sally and Sam receive a 5% raise in a single year. Sally increases her demand for ground beef, whereas Sam decreases his demand for ground beef.

answer

This is possible if ground beef is a normal good for Sally, and is an inferior good for Sam.

question

The demand of a normal good:

answer

always increases with an increase in income.

question

(In this question we denote income by Y). The following figure shows the consumption of x and y for two market situations.
y^2
The income effect of a change in price of x from px to px' is?

answer

Negative and DOMINATES the substitution effect (i.e., has the opposite sign and a larger absolute value).

Negative and dominates the substitution effect. The total effect is negative and the substitution effect is always positive.

question

Suppose that when the price of coffee doubles, all the other constant, John increases his consumption of coffee. This suggests that;

answer

The income effect of the raise in the price of coffee is positive.

Coffee is a Giffen good for John. An increase of price will always cause a negative substitution effect. Then the income effect of the decrease in income is positive.

question

We can determine if the demand of a good is normal at a certain market situation.

answer

By inspection of its Engel curve.

By inspection of its Engel curve: demand is normal when the corresponding Engel curves is non-decreasing.

question

Jane has utility function u(x,y)=x4y5. The price of x is px, the price of y is py, and Jane's income is W. What is the expression of her consumption of x as a function of prices and income?

answer

4W/9px.

Jane's utility function is of the Cobb-Douglass form. Using the formula for this case x*=4W/(5+4)px.

question

Jane has utility function u(x,y)=x4y5. The price of x is px, the price of y is py, and Jane's income is W. What is the expression of her consumption of x as a function of prices and income?

answer

5W/9py.

Jane's utility function is of the Cobb-Douglass form. Using the formula for this case x*=5W/(5+4)px.

question

The following figure shows the demand function for a commodity. Suppose that the agent buys an amount q2 at price p1. What is the consumer surplus in this situation?

answer

A+B+C+E+F

The CS is the net size of the area determined by a horizontal line at the level of the price and the demand function up to the consumption of the agent: A+B+C+E+F.

question

The following figure shows the demand function for a commodity. Suppose that the agent buys an amount q2 at price p2. What is the consumer surplus in this situation?

answer

A+B+E

The CS is the net size of the area determined by a horizontal line at the level of the price and the demand function up to the consumption of the agent: A+B+E.

question

Jane's Engel curve for the consumption of food shows:

answer

Jane's consumption of food as a function of income, all the other constant.

question

Jose works for the economic research department of the local utility company in his city. He is interested in the effect of a price increase in the demand for their services. He calculates that the price elasticity for the demand is -2.3. This means:

answer

Demand will fall approximately by 2.3% if price increases by 1%.

Price elasticity measures the relative change in consumption in proportion to the relative change in price. Thus, demand will fall approximately by 2.3% if price increases by1%.

question

The following figure shows the demand function for a commodity. Suppose that the agent buys an amount q1 at price p2. What is the consumer surplus in this situation?

answer

A+B

question

(In this question we denote income by Y). The following figure shows the consumption of x and y for two market situations.
Tall Rectangle, not y^2
The income effect of a change in price of x from px to px' is?

answer

Negative and is dominated by the substitution effect (i.e., has the opposite sign and a smaller absolute value).

question

The following figure shows the demand function for a commodity. Suppose that the agent buys an amount q3 at price p1. What is the consumer surplus in this situation?

answer

A+B+E+C+F+K

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question

answer

Firm B does not have a dominant strategy

question