Economics for Business Chapter Exam Questions - 2659 Verified Questions

Economics for Business

Chapter Exam Questions

Course Introduction

Economics for Business introduces students to the core principles and concepts of economics with a focus on their practical application within business contexts. The course explores fundamental microeconomic and macroeconomic theories, including supply and demand, market structures, pricing strategies, and the influence of government policies on business decisions. Students will analyze how economic environments impact organizational strategy, resource allocation, and competitive advantage. Real-world case studies and contemporary examples are used to illustrate the relevance of economic thinking in managerial decision-making, globalization, and navigating market uncertainties.

Recommended Textbook

Intermediate Microeconomics A Modern Approach 9th Edition by Hal R. Varian

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Page 2

Chapter 1: Budget Constraint-Part A

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Q1) Your budget constraint for the two goods A and B is 12A + 4B = I, where I is your income.You are currently consuming more than 27 units of B.In order to get 3 more units of A, how many units of B would you have to give up?

A)0.33

B)0.11

C)3

D)9

E)None of the above.

Answer: D

Q2) If all prices double and income triples, then the budget line will become steeper. A)True

B)False

Answer: False

Q3) If all prices are doubled and money income is left the same, the budget set does not change because relative prices do not change.

A)True

B)False

Answer: False

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Chapter 1: Budget Constraint-Part B

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Q1) if you could exactly afford either 4 units of x and 27 units of y, or 9 units of x and 7 units of y, then if you spent all of your income on y, how many units of y could you buy?

A)23

B)63

C)43

D)13

E)None of the above.

Answer: C

Q2) if in the same amount of time that it takes her to read 40 pages of economics and 30 pages of sociology, Martha could read 20 pages of economics and 90 pages of sociology, then which of these equations describes combinations of pages of economics, E, and sociology, S, that she could read in the time it takes to read 40 pages of economics and 30 pages of sociology?

A)E + S = 110.

B)E/2 + S = 50.

C)3E + S = 150.

D)E + S = 70.

E)All of the above.

Answer: C

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Page 4

Chapter 2: Preferences-Part A

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Q1) Draw graphs with quantities of pepperoni pizza on the horizontal axis and quantities of anchovy pizza on the vertical axis to illustrate the following situations.In each case draw two different indifference curves and make a little arrow pointing in the direction of greater preference.

a.Marvin loves pepperoni pizza and hates anchovy pizza.

b.Mavis hates anchovy pizza and is completely indifferent about pepperoni pizza.

Answer: a.Indifference curves slope up and to the right.Arrow points down and to the left.

b.Indifference curves are horizontal lines.Arrow points down.

Q2) A person with reflexive preferences is someone who does not shop carefully.

A)True

B)False

Answer: False

Q3) The marginal rate of substitution measures the distance between one indifference curve and the next one.

A)True

B)False

Answer: False

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5

Chapter 2: Preferences-Part B

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Q1) Charlie's indifference curves have the equation x_B =constant/x_A, where larger constants correspond to better indifference curves.Charlie strictly prefers the bundle (7, 15)to the bundle A)(8, 14).

B)(15, 7).

C)(10, 13).

D)More than one of these options are correct.

E)None of the above are correct.

Q2) recall that Tommy Twit's mother measures the departure of any bundle from her favorite bundle for Tommy by the sum of the absolute values of the differences.Her favorite bundle for Tommy is (2, 7), that is, 2 cookies and 7 glasses of milk.Tommy's mother's indifference curve that passes through the point (c, m)= (4, 5)also passes through

A)the points (4, 7), (2, 5), and (2, 9).

B)the point (2, 7).

C)the points (2, 3), (6, 7), and (4, 9).

D)the point (6, 3).

E)None of the above.

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Chapter 3: Utility-Part A

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Q1) Molly's utility function is U(x, y)= y + 4x^.5.She has 25 units of x and 12 units of y.If her consumption of x is reduced to 0, how many units of y would she need in order to be exactly as well off as before?

A)48

B)37

C)32

D)112

E)None of the above.

Q2) Mac's utility function is U(x, y)=max{2x - y, 2y - x}.

A)Mac's preferences are quasilinear.

B)If Mac has more x than y, any increase in his consumption of y would lower his utility.

C)If Mac has more x than y, a decrease in his consumption of y would raise his utility.

D)Mac always prefers more of each good to less.

E)Goods x and y are perfect substitutes.

Q3) A person with the utility function U(x, y)= y + x² has convex preferences.

A)True

B)False

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Page 7

Chapter 3: Utility-Part B

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Q1) Charlie has the utility function U(x_A, x_B)=x_Ax_B.His indifference curve passing through 6 apples and 16 bananas will also pass through the point where he consumes 2 apples and

A)12 bananas.

B)24 bananas.

C)50 bananas.

D)54 bananas.

E)48 bananas.

Q2) Joe Bob has a cousin Martin who consumes goods 1 and 2.Martin thinks that 2 units of good 1 is always a perfect substitute for 4 units of good 2.Which of the following utility functions is the only one that would not represent Martin's preferences?

A)U(x₁, x₂)=40x₁ + 20x₂ - 10,000.

B)U(x₁, x₂)=16x²₁ +16x₁x₂ + 4x²₂.

C)U(x₁, x₂)= min{4x₁, 2x₂}.

D)U(x₁, x₂)=4x₁ + 2x₂ + 1000.

E)More than one of the above does not represent Martin's preferences.

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Page 8

Chapter 4: Choice-Part A

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Q1) Lorenzo lives on x and y alone.His utility function is U(x, y)=min{3x + 4y, 7y}.The prices of both goods are positive.He will

A)never buy more x than y.

B)buy equal amounts of the two goods.

C)always buy more y than x.

D)always buy more x than y.

E)More than one of the above is true.

Q2) Wanda Littlemore's utility function is U(x, y)= x + 46y - 2y².Her income is $135.If the price of x is $1 and the price of y is $18, how many units of good x will Wanda demand?

Q3) Is the following statement true or false? Briefly explain your answer."A utility maximizer will always choose a bundle at which his indifference curve is tangent to his budget line."

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Chapter 4: Choice-Part B

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Q1) Elmer's utility function is U(x, y)= min{x, y²}.If the price of x is $15, the price of y is $20, and Elmer chooses to consume 7 units of y, what must Elmer's income be?

A)$245

B)$1,750

C)$975

D)$875

E)There is not enough information to tell.

Q2) Charlie has a utility function U(x_A, x_B)=x_Ax_B, the price of apples is $1, and the price of bananas is $2.If Charlie's income were $160, how many units of bananas would he consume if he chose the bundle that maximized his utility subject to his budget constraint?

A)8

B)40

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Chapter 5: Demand-Part A

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Q1) Ray Starr has the utility function U(x, y)= y/(100 - x).

a.Does Ray prefer more to less of both goods?

b.Draw a diagram showing Ray's indifference curves corresponding to the utility levels U = 1/2, U = 1, and U = 2.

c.How can you describe the set of indifference curves for Ray?

d.If the price of x is $1 and the price of y is $1, find Ray's demand for x as a function of his income and draw a diagram showing his Engel curve for x.

Q2) Darlene's utility function is U(x, y, z)= x ⁴y ⁸z.If her income doubles and prices remain unchanged, her demand for good y will more than double.

A)True

B)False

Q3) Define each of the following:

a.Inverse demand function

b.Engel curve

Q4) An inferior good is less durable than a normal good.

A)True

B)False

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11

Chapter 5: Demand-Part B

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Q1) if Charlie's utility function were X ⁶_AX_B, if apples cost 90 cents each, and if bananas cost 10 cents each, Charlie's budget line would be tangent to one of his indifference curves whenever A)X_A = 6X_B.

B)X_B = 6X_A.

C)X_B = X_A.

D)6X_B = 9X_A.

E)90X_A + 10X_B = M.

Q2) recall that Casper's utility function is 3x + y, where x is his consumption of cocoa and y is his consumption of cheese.If the total cost of x units of cocoa is x², the price of cheese is $4, and Casper's income is $56, how many units of cocoa will he consume?

A)6

B)5

C)11

D)3

E)12

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Chapter 6: Revealed Preference-Part A

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Q1) When the prices were ($5, $1), Vanessa chose the bundle (x, y)= (6, 3).Now at the new prices, (p_x, p_y), she chooses the bundle (x, y)= (5, 7).For Vanessa's behavior to be consistent with the weak axiom of revealed preference, it must be that

A)4p_y < p_x.

B)p_x < 4p_y.

C)5p_y < p_x.

D)p_y = 5p_x.

E)None of the above.

Q2) At prices ($4, $12), Harry chooses the bundle (9, 4).At the prices ($8, $4), Harry chooses the bundle (2, 9).Is this behavior consistent with the weak axiom of revealed preference?

A)Yes.

B)No.

C)It depends on his income.

D)We would have to observe a third choice to be able to say.

E)None of the above.

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Chapter 6: Revealed Preference-Part B

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Q1) Pierre's friend Jacques lives in a town where he has to pay 3 francs per glass of wine and 3 francs per loaf of bread.Jacques consumes 8 glasses of wine and 4 loaves of bread per day.Recall that Bob has an income of $15 per day and pays $.50 per loaf of bread and $2 per glass of wine.If Bob has the same tastes as Jacques and if the only thing that either of them cares about is the consumption of bread and wine, A)there is not enough information to determine whether one is better off than the other. B)both of them violate the weak axiom of revealed preferences.

C)Jacques is better off than Bob.

D)Bob is better off than Jacques.

E)Bob and Jacques are equally well off.

Q2) if situation D is p = (3, 1)and x = (5, 10),

A)Ronald's behavior is consistent with both the Weak and the Strong Axioms of Revealed Preference.

B)Ronald's behavior is consistent with the Weak but not the Strong Axiom of Revealed Preference.

C)Ronald's behavior violates both the Weak and the Strong Axioms of Revealed Preference.

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Page 14

Chapter 7: Slutsky Equation-Part A

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Q1) If two goods x and y are perfect complements, then if the price of x falls, the entire change in the demand for x is due to the income effect.

A)True

B)False

Q2) Charlie's utility function is x_Ax_B.The price of apples used to be $1 per unit and the price of bananas was $2 per unit.His income was $40 per day.If the price of apples increased to $2.25 and the price of bananas fell to $1.25, then in order to be able to just afford his old bundle, Charlie would have to have a daily income of A)$57.50.

B)$116.

C)$28.75.

D)$86.25.

E)$230.

Q3) A rational consumer prefers more of good x to less.If the price of good x rises and the prices of all other goods remain constant, then the consumer must necessarily demand less of x.

A)True

B)False

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Page 15

Chapter 7: Slutsky Equation-Part B

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Q1) refer to scenario above,, Charlie's utility function is x_Ax_B.The price of apples used to be $1 per unit, and the price of bananas $2 per unit.His income was $40 per day.If the price of apples increased to $1.25 and the price of bananas fell to $.25, then in order to be able to just afford his old bundle, Charlie would have to have a daily income of

A)$13.75.

B)$41.25.

C)$27.50.

D)$56.

E)$110.

Q2) Neville, has a friend named Marmaduke.Marmaduke has the same demand function for claret as Neville, namely q = .02m - 2p, where m is income and p is price.Marmaduke's income is $8,000 and he initially had to pay a price of $40 per bottle of claret.The price of claret rose to $80.The substitution effect of the price change

A)reduced his demand by 80.

B)increased his demand by 80.

C)reduced his demand by 16.

D)reduced his demand by 144.

E)reduced his demand by 26.

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Page 16

Chapter 8: Buying and Selling-Part A

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Q1) Diana consumes commodities x and y and her utility function is U(x, y)=xy².Good x costs $2 per unit and good y costs $1 per unit.If she is endowed with 3 units of x and 6 units of y, how many units of good y will she consume?

A)11

B)3

C)8

D)14

E)None of the above.

Q2) If a person is a net supplier of a normal good and its price increases while all other prices stay the same, then his demand for the good must decrease.

A)True

B)False

Q3) If leisure is an inferior good, then an increase in the wage rate will make a person work more.

A)True

B)False

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Chapter 8: Buying and Selling-Part B

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Q1) Dudley, has a utility function U(C, R)= C - (12 - R)², where R is leisure and C is consumption per day.He has 16 hours per day to divide between work and leisure.If Dudley has a nonlabor income of $35 per day and is paid a wage of $0 per hour, how many hours of leisure will he choose per day?

E)12

Q2) Dudley, has a utility function U(C, R)=C - (12 - R)², where R is leisure and C is consumption per day.He has 16 hours per day to divide between work and leisure.If Dudley has a nonlabor income of $15 per day and is paid a wage of $8 per hour, how many hours of leisure will he choose per day? A)5

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18

Chapter 9: Intertemporal Choice-Part A

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Q1) Kenny Kink's utility function is u(c₁, c₂)=min{c₁, c₂}, where c₁ is his consumption in period 1 and c₂ is his consumption in period 2.He earns $200 in period 1 and $220 in period 2.Kenny can borrow and lend at an interest rate of 10%, and there is no inflation.The number of dollars that Kenny spends on consumption in the first period must be

A)more than 200 but less than 220.

B)exactly 200.

C)more than 220.

D)exactly 180.

E)more than 180 but less than 200.

Q2) Peregrine consumes ($1,300, $1,320)and earns ($1,000, $1,680).If the interest rate is 0.20, the present value of his endowment is

A)$2,400.

B)$2,680.

C)$2,620.

D)$5,280.

E)$6,280.

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Chapter 9: Intertemporal Choice-Part B

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Q1) In the village, if the harvest this year is 6,000 bushels of grain and the harvest next year will be 1,100 bushels and if rats eat 10% of any grain that is stored for a year, how many bushels of grain could the villagers consume next year if they consume 1,000 bushels of grain this year?

A)5,600

B)4,500

C)7,100

D)8,400

E)1,200

Q2) Patience has a utility function U(c₁, c₂)=c^1/2₁ +.080c^1/2₂, where c₁ is her consumption in period 1 and c₂ is her consumption in period 2.Her income in period 1 is 3 times as large as her income in period 2.At what interest rate will she choose to consume the same amount in period 1 as in period 2?

A)0.75

B)0.13

C)0.25

D)0

E)0.38

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Chapter 10: Asset Markets-Part A

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Q1) The interest rate will be 10% for one more year, but a year from now, it will fall to 5% and stay at 5% forever.What is the market value of an investment that is sure to pay $220 a year forever, starting two years from today?

A)$4,000

B)$4,400

C)$2,000

D)$2,200

E)$5,000

Q2) Suppose that the cost of personal computers falls by 20% per year.To make this problem relatively easy, we will assume that their quality does not change and that computers never wear out.You plan to get one sometime.What is the rational way to decide when to buy one?

Q3) Suppose that the cost of cutting down a tree is zero and the tree grows on land that is useless for anything else, that the interest rate is constant, and that the price of lumber does not change.The optimal time to cut the tree is when the difference between its growth rate and the interest rate is maximized.

A)True

B)False

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21

Chapter 10: Asset Markets-Part B

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Q1) The sum of the terms of the infinite geometric series 1, 0.78, 0.78², 0.78³, ...is closest to

A)0.56.

B)infinity.

C)4.55.

D)1.78.

E)128.21.

Q2) Chillingsworth has a neighbor, Shivers, who faces the same options for insulating his house as Chillingsworth.But Shivers has a larger house.Shivers's annual fuel bill for home heating is 700 dollars per year.Plan A will reduce his annual fuel bill by 15%, plan B will reduce it by 20%, and plan C will eliminate his need for heating fuel altogether.The plan A insulation job would cost Shivers 700 dollars, plan B would cost him 1,200 dollars, and plan C would cost him 7,700 dollars.If the interest rate is 10% and his house and the insulation job last forever, which plan is the best for Shivers?

A)Plan A.

B)Plan B.

C)Plans A and B are equally good.

D)Plan C.

E)He is best off using none of the plans.

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Page 22

Chapter 11: Uncertainty-Part A

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Q1) Gary likes to gamble.Donna offers to bet him $70 on the outcome of a boat race.If Gary's boat wins, Donna would give him $70.If Gary's boat does not win, Gary would give her $70.Gary's utility function is U(c₁, c₂, p₁, p₂)+p₁c²₁ + p₂c²₁, where p₁ and p₂ are the probabilities of events 1 and 2 and where c₁ and c₂ are his consumption if events 1 and 2 occur respectively.Gary's total wealth is currently only $80 and he believes that the probability that he will win the race is .3.

A)Taking the bet would increase his expected utility.

B)Taking the bet would reduce his expected utility.

C)Taking the bet would leave his expected utility unchanged.

D)There is not enough information to determine whether taking the bet would increase or decrease his expected utility.

E)The information given in the problem is self-contradictory.

Q2) Of any two gambles, no matter what their expected returns, a risk averter will choose the one with the smaller variance.

A)True

B)False

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Chapter 11: Uncertainty-Part B

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Q1) Clancy has $1,800.He plans to bet on a boxing match between Sullivan and Flanagan.He finds that he can buy coupons for $1 each that will pay off $10 each if Sullivan wins.He also finds in another store some coupons that will pay off $10 if Flanagan wins.The Flanagan tickets cost $9 each.Clancy believes that the two fighters each have a probability of 1/2 of winning.Clancy is a risk averter who tries to maximize the expected value of the natural log of his wealth.Which of the following strategies would maximize his expected utility?

A)Don't gamble at all.

B)Buy 450 Sullivan tickets and 50 Flanagan tickets.

C)Buy exactly as many Flanagan tickets as Sullivan tickets.

D)Buy 900 Sullivan tickets and 100 Flanagan tickets.

E)Buy 450 Sullivan tickets and 100 Flanagan tickets.

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Chapter 12: Risky Assets-Part A

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Q1) Suppose that Fenner Smith of Workouts must divide his portfolio between two assets, one of which gives him an expected rate of return of 15% with zero standard deviation and one of which gives him an expected rate of return of 30% and has a standard deviation of 5%.He can alter the expected rate of return and the variance of his portfolio by changing the proportions in which he holds the two assets.If we draw a "budget line" with expected return on the vertical axis and standard deviation on the horizontal axis, depicting the combinations that Smith can obtain, the slope of this budget line is A)3.

B)-3.

C)1.50.

D)-1.50.

E)4.50.

Q2) If the returns on two assets are negatively correlated, then a portfolio that contains some of each will have less variance in its return per dollar invested than either asset has by itself.

A)True

B)False

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Chapter 12: Risky Assets-Part B

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Q1) Suppose that Fenner Smith must divide his portfolio between two assets, one of which gives him an expected rate of return of 15% with zero standard deviation and one of which gives him an expected rate of return of 25% and has a standard deviation of 10.He can alter the expected rate of return and the variance of his portfolio by changing the proportions in which he holds the two assets.If we draw a "budget line" with expected return on the vertical axis and standard deviation on the horizontal axis, depicting the combinations that Smith can obtain, the slope of this budget line is A)1.

B)-1.

C)0.50.

D)-0.50.

E)1.50.

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26

Chapter 13: Consumers Surplus-Part A

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Q1) Bernice has the utility function u(x, y)= min{x, y}, where x is the number of pairs of earrings she buys per week and y is the number of dollars per week she has left to spend on other things.(We allow the possibility that she buys fractional numbers of pairs of earrings per week.)If she originally had an income of $10 per week and was paying a price of $8 per pair of earrings, then if the price of earrings rose to $13 per pair, the compensating variation of that price change (measured in dollars per week)would be closest to

A)$3.57.

B)$5.56.

C)$12.11.

D)$11.11.

E)$10.11.

Q2) If there is a price increase for a good that Marilyn consumes, her compensating variation is the change in her income that allows her to purchase her new optimal bundle at the original prices.

A)True

B)False

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Chapter 13: Consumers Surplus-Part B

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Q1) Sir Plus has a demand function for mead that is given by the equation D(p)= 100 - p.If the price of mead is $85, how much is Sir Plus's net consumer's surplus?

A)15

B)225

C)56.25

D)112.50

E)7,650

Q2) Betsy's utility function for BMWs and money is given by 24,000x + y, where x is the number of BMWs she has and y is the amount of money she has.Her income is $32,000.Her reservation price for one BMW is

A)$24,000.

B)$24,000 - p.

C)$24,000 - y.

D)$8,000.

E)$56,000.

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28

Chapter 14: Market Demand-Part A

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Q1) The demand for watches is Q = 1,000P ^-2.50I².Assume that per capita income I is $6,000.At a price P of $45, the price elasticity of demand is

A)1.0.

B)2.25.

C) 2

D) -0.50.

E)2.50.

Q2) If the demand function is q = m - 2(ln p)over some range of values of p, then at all such values of p, the absolute value of the price elasticity of demand

A)increases as p increases.

B)decreases as p increases.

C)is constant as p changes.

D)increases with p at small values and decreases with p at large values.

E)decreases with p at large values and increases with p at small values.

Q3) The inverse demand curve P(x)for a good x measures the price per unit at which the quantity x would be demanded.

A)True

B)False

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Chapter 14: Market Demand-Part B

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Source URL: https://quizplus.com/quiz/68698

Sample Questions

Q1) In the same football conference there is another university where the demand for football tickets at each game is 160,000 - 12,000p.If the capacity of the stadium at that university is 90,000 seats, what is the revenue-maximizing price for this university to charge per ticket?

A)$6.67

B)$13.33

C)$5.83

D)$3.33

E)$20

Q2) the demand function for drangles is given by D(p)= (p + 1)^-².If the price of drangles is $11, then the price elasticity of demand is

A)-7.33.

B)-3.67.

C)-5.50.

D)-0.92. E)-1.83.

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Chapter 15: Equilibrium-Part A

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Sample Questions

Q1) The inverse demand function for apples is defined by the equation p = 214 - 5q, where q is the number of units sold.The inverse supply function is defined by p = 7 + 4q.A tax of $36 is imposed on suppliers for each unit of apples that they sell.When the tax is imposed, the quantity of apples sold falls to

A)23

B)14

C)17

D)19

E)21.

Q2) The demand function for corn is q = 200 - p and the supply function is q = 50 + .5p.The government sets the price of corn at $150 and agrees to purchase and destroy any excess supply of corn at that price.How much money does it cost the government to buy this corn?

A)$11,250

B)$18,750

C)$7,500

D)$10,750

E)$14,500

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Chapter 15: Equilibrium-Part B

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Q1) Suppose that King Kanuta demands that each of his subjects give him 2 coconuts for every coconut that they consume.The king puts all of the coconuts that he collects in a large pile and burns them.The supply of coconuts is given by S(p_s)= 100p_s, where p_s is the price received by suppliers.The demand for coconuts by the king's subjects is given by D(p_d)= 2,666.67100p_d, where p_d is the price paid by consumers.In equilibrium, the price received by suppliers will be

A)$8.

B)$12.

C)$13.33.

D)$40.

E)None of the above.

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Chapter 16: Auctions-Part A

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Sample Questions

Q1) The reserve price in an auction is the lowest price at which the seller of a good will part with it.

A)True

B)False

Q2) A dealer decides to sell an antique automobile by means of an English auction with a reservation price of $2,700.There are two bidders.The dealer believes that there are only three possible values, $5,400, $3,600, and $2,700, that each bidder's willingness to pay might take.Each bidder has a probability of 1/3 of having each of these willingness to pay, and the probabilities for each of the two bidders are independent of the other's valuation.Assuming that the two bidders bid rationally and do not collude, the dealer's expected revenue from selling the car is approximately

A)$4,500.

B)$3,900.

C)$3,600.

D)$3,300.

E)$5,400.

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Chapter 16: Auctions-Part B

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Q1) An antique cabinet is being sold by means of an English auction.There are four bidders, Gloria, Elise, Judy, and Arabella.These bidders are unacquainted with each other and do not collude.Gloria values the cabinet at $800, Elise values it at $500, Judy values it at $1,800, and Arabella values it at $600.If the bidders bid in their rational self-interest, the cabinet will be sold to

A)Gloria for about $800.

B)either Judy or Gloria for about $800.Which of these two buyers gets it is randomly determined.

C)Judy for slightly more than $800.

D)Judy for about $1,800.

E)either Judy or Gloria for about $500.Which of these two buyers gets it is randomly determined.

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34

Chapter 17: Technology-Part A

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Sample Questions

Q1) A firm uses 3 factors to produce its output.Its production function is f(x, y, z)= min{x³/y, y², (z⁴x⁴)/y²}.If the amount of each input is multiplied by 3, its output will be multiplied by A)0.30.

B)3.

C)9.

D)27.

E)The answer depends on the original choice of x, y, and z.

Q2) The UJava espresso stand needs two inputs, labor and coffee beans, to produce its only output, espresso.Producing an espresso always requires the same amount of coffee beans and the same amount of time.Which of the following production functions would appropriately describe the production process at UJava, where B represents ounces of coffee beans, and L represents hours of labor?

A)Q = 0.5B + 0.5L^0.5.

B)Q =B^0.80L^0.20.

C)Q = min(2B, 60L).

D)Q = B/2 + L/30.

E)None of the above.

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Chapter 17: Technology-Part B

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Sample Questions

Q1) A firm has the production function f(x, y)= x^1.20y².This firm has

A)constant returns to scale.

B)decreasing returns to scale and increasing marginal product for factor x.

C)increasing returns to scale and decreasing marginal product for factor x.

D)decreasing returns to scale and diminishing marginal product for factor x.

E)None of the above.

Q2) if a = 2.40, b = 0.50, and c = 1, the marginal products of x₁, x₂, and x₃ (in this order)are

A)increasing, decreasing, and constant.

B)all increasing.

C)all decreasing.

D)decreasing, increasing, and decreasing.

E)all increasing if A > 1.

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Chapter 18: Profit Maximization-Part A

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Sample Questions

Q1) The production function is given by F(L)= 6L^2/3.Suppose that the cost per unit of labor is $16 and the price of output is $8.How many units of labor will the firm hire?

A)16

B)8

C)4

D)24

E)None of the above.

Q2) Just as in the theory of utility-maximizing consumers, the theory of profit-maximizing firms allows the possibility of Giffen factors.These are factors for which a fall in price leads to a fall in demand.

A)True

B)False

Q3) If the value of the marginal product of factor x increases as the quantity of x increases and the value of the marginal product of x is equal to the wage rate, then the profit-maximizing amount of x is being used.

A)True

B)False

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Chapter 18: Profit Maximization-Part B

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Sample Questions

Q1) when Farmer Hoglund applies N pounds of fertilizer per acre, the marginal product of fertilizer is 1 - N/200 bushels of corn.If the price of corn is $1 per bushel and the price of fertilizer is $.20 per pound, then how many pounds of fertilizer per acre should Farmer Hoglund use in order to maximize his profits?

A)320

B)328

C)160

D)84

E)200

Q2) the production function is f(x₁, x₂)= x^1/2₁x^1/2₂.If the price of factor 1 is $8 and the price of factor 2 is $16, in what proportions should the firm use factors 1 and 2 if it wants to maximize profits?

A)x₁ = x₂.

B)x₁ = 0.50x₂.

C)x₁ = 2x₂.

D)We can't tell without knowing the price of output.

E)x₁ = 16x₂.

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Page 38

Chapter 19: Cost Minimization-Part A

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Sample Questions

Q1) A firm has two factories.One factory has the cost function c1(y1)= 2y21 + 90 and the other has the cost function c2(y2)= 6y22 +40.If the firm wishes to produce a total of 32 units as cheaply as possible, how many units will be produced in the second factory?

A)7

B)2

C)8

D)14

E)None of the above.

Q2) If there are increasing returns to scale, then average costs are a decreasing function of output.

A)True

B)False

Q3) A firm uses a single variable input x to produce outputs according to the production function f (x)= 300x 6x2.This firm has fixed costs of $400.This firm's short-run marginal cost curve lies below its short-run average variable cost curve for all positive values of x.

A)True

B)False

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Chapter 19: Cost Minimization-Part B

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Sample Questions

Q1) Suppose that Nadine has a production function 4x₁ + x₂.If the factor prices are $4 for factor 1 and $2 for factor 2, how much will it cost her to produce 70 units of output?

A)$700

B)$1,260

C)$140

D)$70

E)$105

Q2) Suppose that in the short run, the firm which has production function F(L, M)= 4L^1/2M^1/2 must use 9 machines.If the cost of labor is $10 per unit and the cost of machines is $4 per unit, the short-run total cost of producing 60 units of output is

A)$420.

B)$600.

C)$240.

D)$572.

E)$286.

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Chapter 20: Cost Curves-Part A

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Sample Questions

Q1) A competitive firm has the short-run cost function c(y)= 2y3 - 16y2 + 128y + 10.The firm will produce a positive amount in the short run if and only if the price is greater than

A)$192.

B)$48.

C)$99.

D)$96.

E)$95.

Q2) In the reclining chair industry (which is perfectly competitive), two different technologies of production exist.These technologies exhibit the following total cost functions:

C1(Q)= 1,000 + 600Q - 40Q2 + Q3

C2(Q)= 200 + 145Q- 10Q2 + Q3

Due to foreign competition, the market price of reclining chairs has fallen to $190.In the short run, firms using technology 1

A)and firms using technology 2 will remain in business.

B)will remain in business and firms using technology 2 will shut down.

C)will shut down and firms using technology 2 will remain in business.

D)and firms using technology 2 will shut down.

E)More information is needed to make a judgment.

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Page 41

Chapter 20: Cost Curves-Part B

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Sample Questions

Q1) Rex Carr could pay $10 for a shovel that lasts one year and pay $5 a car to his brother Scoop to bury the cars, or he could buy a low-quality car smasher that costs $200 a year to own and that smashes cars at a marginal cost of $1 per car.If it is also possible for Rex to buy a high-quality hydraulic car smasher that cost $650 per year to own and if with this smasher he could dispose of cars at a cost of $.75 per car, it would be worthwhile for him to buy this high-quality smasher if he planned to dispose of

A)at least 1,800 cars per year.

B)no more than 900 cars per year.

C)at least 1,810 cars per year.

D)no more than 1,800 cars per year.

E)at least 900 cars per year.

Q2) if Mr.Dent Carr's total costs were 4s² + 40s + 20, then if he repairs 10 cars, his average variable costs will be

A)$120.

B)$82.

C)$160.

D)$80.

E)$60.

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Page 42

Chapter 21: Firm Supply-Part A

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Sample Questions

Q1) A firm's production function is f(x1, x2)= (min{x₁, 3x₂})^1/2.If the price of factor 1 is w1 = $6 per unit and the price of factor 2 is w2 = $6 per unit, then its supply function is given by the equation S(p)=

A)max{w1, 3w2}p.

B)min{w1, 3w2}p

C)8p.

D)p/16.

E)min{6p, 18p}p.

Q2) In a perfectly competitive industry, the demand curve for the total output of the industry may be downward sloping.

A)True

B)False

Q3) Mr.O.Carr has the cost function c(y)= y2 + 64 if his output, y, is positive and c(0)= 0.If the price of output is 12, Mr.Carr's profit-maximizing output is zero.

A)True

B)False

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Chapter 21: Firm Supply-Part B

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Sample Questions

Q1) A firm has a long-run cost function, C(q)= 9q² + 9.In the long run, this firm will supply a positive amount of output, as long as the price is greater than A)$36.

B)$44.

C)$9.

D)$18.

E)$23.

Q2) A firm has a long-run cost function, C(q)= 8q² + 288.In the long run, this firm will supply a positive amount of output, as long as the price is greater than A)$200.

B)$192.

C)$96.

D)$48.

E)$101.

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44

Chapter 22: Industry Supply-Part A

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Sample Questions

Q1) On a tropical island there are 100 potential boat builders, numbered 1 through 100.Each can build up to 16 boats a year, but anyone who goes into the boatbuilding business has to pay a fixed cost of $15.Marginal costs differ from person to person.Where y denotes the number of boats built per year, boat builder 1 has a total cost function c(y)= 15 + y.Boat builder 2 has a total cost function c(y)=15 +2y, and more generally, for each i, from 1 to 100, boat builder i has a cost function c(y)= 15 + iy.If the price of boats is 40, how many boats will be built per year?

A)624

B)200

C)936

D)400

E)Any number between 640 and 656 is possible.

Q2) The possibility of more firms entering an industry in the long run tends to make long-run industry supply more price elastic than short-run industry supply.

A)True

B)False

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Chapter 22: Industry Supply-Part B

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Source URL: https://quizplus.com/quiz/68714

Sample Questions

Q1) Suppose that the cost of capturing a cockatoo and transporting him to the United States is about $40 per bird.Cockatoos are drugged and smuggled in suitcases to the United States.Half of the smuggled cockatoos die in transit.Each smuggled cockatoo has a 10% probability of being discovered, in which case the smuggler is fined.If the fine imposed for each smuggled cockatoo is increased to $700, then the equilibrium price of cockatoos in the United States will be

A)$61.

B)$244.44.

C)$75.

D)$110.

E)$155.56.

Q2) the supply curve of any firm is S_i(p)= p/2.If a firm produces 3 units of output, what are its total variable costs?

A)$9

B)$13.50

C)$7

D)$18

E)There is not enough information given to determine total variable costs.

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Chapter 23: Monopoly-Part A

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Sample Questions

Q1) A profit-maximizing monopolist has the cost schedule c(y)= 20y.The demand for her product is given by y = 600/p⁴, where p is her price.Suppose that the government tries to get her to increase her output by giving her a subsidy of $15 for every unit that she sells.Giving her the subsidy would make her

A)decrease her price by $7.50.

B)decrease her price by $15.

C)decrease her price by $20.

D)decrease her price by $35.

E)leave her price unchanged.

Q2) A profit-maximizing monopolist faces a demand function given by q = 1000 - 20p, where p is the price of her output in dollars.She has a constant marginal cost of 20 dollars per unit of output.In an effort to induce her to increase her output, the government agrees to pay her a subsidy of $10 for every unit that she produces.She will

A)increase her price and lower her output.

B)decrease her price by $5 per unit.

C)decrease her price by $10 per unit.

D)decrease her price by more than $10 per unit but by less than $16 per unit.

E)decrease her price by more than $16 per unit.

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Chapter 23: Monopoly-Part B

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Sample Questions

Q1) The demand for Professor Bongmore's new book is given by the function Q = 4,000100p.If the cost of having the book edited and typeset is $17,000, if the marginal cost of printing an extra copy is $4, and if he has no other costs, then he would maximize his profits by

A)having it edited and typeset and selling 1,800 copies.

B)having it edited and typeset and selling 2,000 copies.

C)not having it edited and typeset and not selling any copies.

D)having it edited and typeset and selling 3,600 copies.

E)having it typeset and selling 900 copies.

Q2) if demand for the book is Q = 1,400 - 100p, the marginal revenue function is given by A)100.

B)14 - Q/50.

C)1,400 - 200.

D)14Q - Q²/100.

E)-1/100.

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48

Chapter 24: Monopoly Behavior-Part A

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Sample Questions

Q1) Third-degree price discrimination occurs when a monopolist sells output to different people at different prices but every unit that an individual buys costs the same amount.

A)True

B)False

Q2) A monopolist is able to practice third-degree price discrimination between two markets.The demand function in the first market is q = 500 - 2p and the demand function in the second market is q = 1,500 - 6p.To maximize his profits, he should

A)charge a higher price in the second market than in the first.

B)charge a higher price in the first market than in the second.

C)charge the same price in both markets.

D)sell only in one of the two markets.

E)None of the above.

Q3) A monopolist who is able to practice third-degree price discrimination will make greater profits than a monopolist who is able to practice first-degree price discrimination.

A)True

B)False

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Chapter 24: Monopoly Behavior-Part B

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Sample Questions

Q1) if demand in the United States is given by Q₁ = 11,200800p₁, where p₁ is the price in the United States, and if the demand in England is given by 1,600 - 200p₂, where p₂ is the price in England, then the difference between the price charged in England and the price charged in the United States will be

A)$8.

B)$3.

C)$6.

D)$0.

E)$9.

Q2) If a monopolist faces an inverse demand curve, p(y)=100 - 2y and has constant marginal costs of $4 and zero fixed costs and if this monopolist is able to practice perfect price discrimination, its total profits will be A)$24.

B)$3,456.

C)$2,304.

D)$1,152.

E)$576.

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50

Chapter 25: Factor Markets-Part A

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Q1) If an upstream monopolist sells to a downstream monopolist, the price to consumers will be higher than the competitive price but not so high as it would be if the downstream monopolist took control of the upstream monopolist's business and ran both the upstream and downstream markets to maximize total profits.

A)True

B)False

Q2) For a monopsonist, the more elastic the supply of labor, the greater the difference between the marginal cost of labor and the wage rate.

A)True

B)False

Q3) If a monopsonist pays the wage rate w, then the amount of labor that he can hire is L(w)= Aw, where A is a positive constant.The marginal cost of labor to the monopsonist is A)equal to the wage rate.

B)twice the wage rate.

C)half the wage rate.

D)greater than the wage rate but less than twice as great.

E)less than the wage rate but more than half as great.

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Chapter 25: Factor Markets-Part B

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Q1) Suppose the demand curve for mineral water is given by p = 20 - 16q, where p is the price per bottle paid by consumers and q is the number of bottles purchased by consumers.Mineral water is supplied to consumers by a monopolistic distributor, who buys from a monopolist producer who is able to produce mineral water at zero cost.The producer charges the distributor a price of c per bottle, that will maximize the producer's total revenue.Given his marginal cost of c, the distributor chooses an output to maximize profits.The price paid by consumers under this arrangement is

A)$10.

B)$15.

C)$1.25.

D)$.63.

E)$5.

Q2) suppose that the demand curve for antimacassars is p = 66 - Q/1,000.The firm's profit-maximizing output is closest to

A)24,375 antimacassars.

B)16,250 antimacassars.

C)5,362.50 antimacassars.

D)8,125 antimacassars.

E)4,062.50 antimacassars.

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Page 52

Chapter 26: Oligopoly-Part A

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Sample Questions

Q1) An industry has two firms-a Stackelberg leader and a follower.The price of the industry output is given by P = 84 - Q, where Q is the total output of the two firms.The follower has a marginal cost of $0.The leader has a marginal cost of $21.How much should the leader produce in order to maximize profits?

A)21

B)24

C)42

D)19

E)None of the above.

Q2) In Bertrand competition between two firms, each firm believes that if it changes its output, the rival firm will change its output by the same amount.

A)True

B)False

Q3) Conjectural variation refers to the fact that in a single market there is variation among firms in their estimates of the demand function in future periods.

A)True

B)False

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Chapter 26: Oligopoly-Part B

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Sample Questions

Q1) suppose that two Cournot duopolists serve the Peoria-Dubuque route, and the demand curve for tickets per day is Q = 170 - 2p (so p = 85 - Q/2).Total costs of running a flight on this route are 850 + 10q, where q is the number of passengers on the flight.Each flight has a capacity of 80 passengers.In Cournot equilibrium, each duopolist will run one flight per day and will make a daily profit of

A)$400.

B)$425.

C)$170.

D)$800.

E)$1,750.

Q2) If the inverse demand for bean sprouts were given by P(Y)= 300 - 3Y and the total cost of producing Y units for any firm were TC(Y)= 30Y and if the industry consisted of two Cournot duopolists, then in equilibrium each firm's production would be A)45 units.

B)22.50 units.

C)30 units.

D)15 units.

E)25 units.

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Chapter 27: Game Theory-Part A

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Q1) If a game does not have an equilibrium in pure strategies, then it will not have an equilibrium in mixed strategies either.

A)True

B)False

Q2) While game theory predicts noncooperative behavior for a single play of the prisoner's dilemma, it would predict cooperative tit-for-tat behavior if the same people play prisoner's dilemma together for, say, 20 rounds.

A)True

B)False

Q3) In a Nash equilibrium, everyone must be playing a dominant strategy.

A)True

B)False

Q4) In the prisoner's dilemma game, if each prisoner believed that the other prisoner would deny the crime, then both would deny the crime.

A)True

B)False

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Chapter 27: Game Theory-Part B

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Q1) A small community has 10 people, each of whom has a wealth of $18,000.Each individual must choose whether to contribute $200 or $0 to the support of public entertainment for their community.The money value of the benefit that a person gets from this public entertainment is .80 times the total amount of money contributed by individuals in the community.

A)This game has a Nash equilibrium in which 5 people contribute $200 and for public entertainment and 5 people contribute nothing.

B)This game has no Nash equilibrium in pure strategies, but has a Nash equilibrium in mixed strategies.

C)This game has two Nash equilibria, one in which everybody contributes $200 and one in which no-body contributes $200.

D)This game has a dominant strategy equilibrium in which all 10 citizens contribute $200 to support public entertainment.

E)This game has a dominant strategy equilibrium in which nobody contributes anything for public entertainment.

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Chapter 28: Game Applications-Part A

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Q1) An equilibrium in a sequential game is always a Nash equilibrium in a simultaneous game with equivalent payoffs.

A)True

B)False

Q2) In the classic 1960s macabre comedy Dr.Strangelove, the Soviet Union constructed a Doomsday Machine which would end all life on earth if ever the Soviet Union were attacked.When playing against a rational opponent, the existence of such a machine would be of great benefit to the Soviets.

A)True

B)False

Q3) The February 24, 1997, issue of Forbes has an article about a private Belgian utility company which is aggressively expanding its overseas holdings.Loosely quoting from Forbes, "At least one of the Belgian utility's foreign moves was inspired by game theory.Last year, the Belgian utility paid $141 million for 49% of a Hungarian power station.The firm's CEO figured that if French utilities threatened to dump cheap power into the Belgian market, he could retaliate by dumping cheap Hungarian power into France."

a.What is this CEO trying to accomplish?

b.What is necessary for this plan to be successful?

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Page 57

Chapter 28: Game Applications-Part B

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Q1) The old Michigan football coach had only two strategies, Run the Ball to the Left Side of the line, and Run the Ball to the Right Side.The defense can concentrate either on the left side or the right side of Michigan's line.If the opponent concentrates on the wrong side, Michigan is sure to gain at least 5 yards.If the defense defended the left side and Michigan ran left, Michigan would be stopped for no gain.But if the opponent defended the right side when Michigan ran right, Michigan would still gain at least 5 yards with probability .50.It is the last play of the game and Michigan needs to gain 5 yards to win.Both sides choose Nash equilibrium strategies.In Nash equilibrium, Michigan would A)run to the two sides with equal probability.

B)be sure to run to the right side.

C)run to the right side with probability .67.

D)run to the right side with probability .80.

E)run to the right side with probability .50.

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Chapter 29: Behavioral Economics

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Q1) Deb plans and prepares her meals 1 month in advance.Scott eats out for lunch every day.According to observations from behavioral economics, Scott will eat more varied meals than Deb.

A)True

B)False

Q2) Professor Bob has an incredibly messy office, and really wants to change but just can't.Professor Bob just read his first book about behavioral economics.To help him keep his office more neat, Professor Bob could hire

A)an expensive office consultant to set up an organizational scheme.Because the consultant's visit was so expensive, Professor Bob will not want to lose his investment.

B)a very expensive custodial service that will clean and bill Professor Bob only when his office needs cleaning.

C)somebody to clean his office once a week for the entire year whether it needs it or not.

D)a sarcastic graduate student to make fun of him when his office becomes messy.

E)All of the above would be equally effective in changing Professor Bob's behavior.

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Chapter 30: Exchange-Part A

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Q1) A situation is Pareto efficient if

A)there is no way to make everyone worse off without making someone better off.

B)aggregate profits are maximized.

C)there is no way to make someone better off without making someone else worse off.

D)there is some way to make everyone better off.

E)there is no way to make anyone better off.

Q2) Colette and Hans both consume the same goods in a pure exchange economy.Colette is originally endowed with 15 units of good 1 and 12 units of good 2.Hans is originally endowed with 97 units of good 1 and 4 units of good 2.They both have the utility function

U(x₁, x₂)= x^1/3₁x^2/3₂.If we let good 1 be the numeraire, so that p₁ = $1, then what will be the equilibrium price of good 2?

A)$14

B)$28

C)$2

D)$1

E)$7

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Chapter 30: Exchange-Part B

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Sample Questions

Q1) Suppose that Mutt's utility function is U(m, j)= max{2m, j} and Jeff's utility function is U(m, j)= 3m + j.Mutt is initially endowed with 6 units of milk and 2 units of juice, and Jeff is initially endowed with 2 units of milk and 6 units of juice.If we draw an Edgeworth box with milk on the horizontal axis and juice on the vertical axis and if we measure goods for Mutt by the distance from the lower left corner of the box, then the set of Pareto optimal allocations includes the

A)left edge of the Edgeworth box but no other edges.

B)bottom edge of the Edgeworth box but no other edges.

C)left edge and bottom edge of the Edgeworth box.

D)right edge of the Edgeworth box but no other edges.

E)right edge and top edge of the Edgeworth box.

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Chapter 31: Production-Part A

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Sample Questions

Q1) Tip can write 2 pages of term paper or solve 2 workbook problems in an hour, while Spot can write 2 pages of term paper or solve 6 workbook problems in an hour.If they each decide to work a total of 8 hours and to share their output, then if they produce as many pages of term paper as possible given that they produce 14 workbook problems, A)Tip will spend all of his time writing term papers and Spot will spend some time at each task.

B)Spot will spend all of his time writing term papers and Tip will spend some time at each task.

C)Spot will write term papers only and Tip will do workbook problems only.

D)both students will spend some time at each task.

E)Tip will write term papers only and Spot will do workbook problems only.

Q2) When there is production, a competitive equilibrium is not Pareto optimal unless there are increasing returns to scale.

A)True

B)False

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Chapter 31: Production-Part B

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Sample Questions

Q1) Suppose thatTip can write 4 pages of term papers or solve 4 workbook problems in an hour, while Spot can write 5 pages of term papers or solve 15 workbook problems in an hour.If they each decide to work a total of 6 hours and to share their output, then if they produce as many pages of term paper as possible given that they produce 20 workbook problems,

A)both students will spend some time at each task.

B)Spot will write term papers only and Tip will do workbook problems only.

C)Spot will spend all of his time writing term papers and Tip will spend some time at each task.

D)Tip will spend all of his time writing term papers and Spot will spend some time at each task.

E)Tip will write term papers only and Spot will do workbook problems only.

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63

Chapter 32: Welfare-Part A

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Q1) A parent has two children living in cities with different costs of living.The cost of living in city B is 3 times the cost of living in city A.The child in city A has an income of $2,000 and the child in city B has an income of $6,000.The parent wants to give a total of $2,000 to her two children.Her utility function is U(C A, C B)= C A C B, where C A and C B are the consumptions of the children living in cities A and B respectively.She will choose to give A)each child $1,000, even though this will buy less goods for the child in city B

B)the child in city B 3 times as much money as the child in city A.

C)the child in city B 1.50 times as much money as the child in city A.

D)the child in city A 3 times as much money as the child in city B.

E)the child in city A 1.50 times as much money as the child in city B.

Q2) The utility possibilities frontier is the boundary of the production possibilities set. A)True B)False

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Chapter 32: Welfare-Part B

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Q1) A parent has two children living in cities with different costs of living.The cost of living in city B is 3 times the cost of living in city A.The child in city A has an income of $3,000 and the child in city B has an income of $9,000.The parent wants to give a total of $2,000 to her two children.Her utility function is U(C_A, C_B)=C_AC_B, where C_A and C_B are the consumptions of the children living in cities A and B respectively.She will choose to give

A)the child in city B 3 times as much money as the child in city A.

B)the child in city B 1.50 times as much money as the child in city A.

C)the child in city A 3 times as much money as the child in city B.

D)each child $1,000, even though this will buy less goods for the child in city B.

E)the child in city A 1.50 times as much money as the child in city B.

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65

Chapter 33: Externalities-Part A

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Sample Questions

Q1) The "tragedy of the commons" refers to the tendency for common property to be overused.

A)True

B)False

Q2) Millie Bush has written a best-seller.Revenues net of production costs are $300T^1/3A^1/3, where T is the number of publicity trips Millie takes and A is the number of ads for the book that appear.Millie has to pay for all of her own publicity trips, which cost $100 each.Her publisher pays for the advertising, which costs $100 per ad.Revenues from the book are split equally between Millie and her publisher.Let T₁ be the number of trips that Millie would choose to make in a Nash equilibrium where she chooses the number of trips and the publisher chooses the amount of advertising.Let T₂ be the number of trips that Millie should make if trips and advertising are determined so as to maximize total profits net of trip and ad costs.

A)T₁ = 1 and T₂ = 1.

B)T₁ = 1 and T₂ = 2.

C)T₁ = 2 and T₂ = 1.

D)T₁ = 1 and T₂ = 1/8.

E)T₁ = 1/8 and T₂ =1.

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Page 66

Chapter 33: Externalities-Part B

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Sample Questions

Q1) suppose Wilfred, a typical citizen, has the utility function U(m, d, h)= m + 13d² - d² - 4h, where d is the number of hours per day that he spends driving around, h is the average number of hours per day spent driving around by other people in his home town, and m is the amount of money he has left to spend on other stuff besides gasoline and auto repairs.Gas and auto repairs cost $1 per hour of driving.If each citizen believes that their own driving will not affect the amount of driving done by others, they will all drive D₁ hours per day.If all citizens drive to maximize the utility of a typical citizen, they will all drive D₂ hours per day, where

A)D₁ = 6 and D₂ = 4.

B)D₁ = D₂ = 6.

C)D₁ = 8 and D₂ = 5.

D)D₁ = 9 and D₂ = 0.

E)D₁ = 6 and D₂ = 2.

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Chapter 34: Information Technology-Part A

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Sample Questions

Q1) Video marketers and publishers are more likely to profit from allowing rentals of their products, the higher the ratio of cost of production of originals to the transaction cost of rentals.

A)True

B)False

Q2) One proposed remedy for the Microsoft antitrust case is to break Microsoft into three equal parts and strictly prohibit any coordination between the parts.The three mini-Microsoft's would then compete with one another in both the operating system and applications markets.From a Systems Competition perspective, comment on how this proposed settlement might eventually affect consumers.

Q3) Economic theory suggests that the existence of a used-book market lowers the profits of publishers below what they would be if every reader had to buy a new copy.

A)True

B)False

Q4) List three examples of products for which there are significant network externalities.Explain why you believe network externalities are present in each case.

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68

Chapter 34: Information Technology-Part B

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Sample Questions

Q1) If the demand function for the DoorKnobs operating system is related to perceived market share s and actual market share x by the equation p = 512s(1 - x), then in the long run, the highest price at which DoorKnobs could sustain a market share of 3/4 is A)$256.

B)$113.78.

C)$96.

D)$128.

E)$81.92.

Q2) If the demand function for the DoorKnobs operating system is related to perceived market share s and actual market share x by the equation p = 512s(1 - x), then in the long run, the highest price at which DoorKnobs could sustain a market share of 3/4 is A)$256.

B)$128.

C)$113.78.

D)$96.

E)$81.92.

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Chapter 35: Public Goods-Part A

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Sample Questions

Q1) Bob and Ray are thinking of buying a sofa.Bob's utility function is U_B(S, M_B)= (1 + S)M_B and Ray's utility function is U_R(S, M_R)= (3 + S)M_R, where S = 0 if they don't get the sofa and S = 1 if they do and where M_B and M_R are the amounts of money they have respectively to spend on their private consumptions.Bob has a total of $2,000 to spend on the sofa and other stuff.Ray has a total of $2,400 to spend on the sofa and other stuff.The maximum amount that they could pay for the sofa and still arrange to both be better off than without it is

A)$2,400.

B)$800.

C)$1,600.

D)$850.

E)$3,200.

Q2) If preferences are single peaked, then everyone will agree about the right amount of public goods to be supplied.

A)True

B)False

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Page 70

Chapter 35: Public Goods-Part B

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Sample Questions

Q1) Lucy's utility function is 2X_L + G and Melvin's utility function is X_MG, where G is their expenditures on the public goods they share in their apartment and where X_L and X_M are their respective private consumption expenditures.The total amount they have to spend on private goods and public goods is $39,000.They agree on a Pareto optimal pattern of expenditures in which the amount that is spent on Lucy's private consumption is $9,000.How much do they spend on public goods?

A)$9,550

B)$20,000

C)$5,000

D)$10,000

E)There is not enough information here to be able to determine the answer.

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Chapter 36: Asymmetric Information-Part A

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Sample Questions

Q1) Suppose that in Enigma, Ohio, klutzes have a productivity of $1,000 and kandos have a productivity of $5,000 per month.You can't tell klutzes from kandos by looking at them or asking them, and it is too expensive to monitor individual productivity.Kandos, however, have more patience than klutzes.Listening to an hour of dull lectures is as bad as losing $250 for a klutz and $150 for a kando.There will be a separating equilibrium in which anybody who attends a course of H hours of lectures is paid $5,000 per month and anybody who does not is paid $1,000 per month

A)only in the limit as H approaches infinity.

B)if 16 < H < 53.33.

C)for all positive values of H.

D)if 16 < H < 26.67.

E)if 14 < H < 23.33.

Q2) The incentive compatibility constraint requires that incentives be consistent with a consumers budget constraint.

A)True

B)False

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Page 72

Chapter 36: Asymmetric Information-Part B

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Q1) In Rustbucket, Michigan, there are 200 used cars for sale, half of them are good and half of them are lemons.Owners of lemons are willing to sell them for $200.Owners of good used cars are willing to sell them for prices above $1,100 but will keep them if the price is lower than $1,100.There is a large number of potential buyers who are willing to pay $500 for a lemon and $1,500 for a good car.Buyers can't tell good cars from bad, but original owners know.

A)There will be an equilibrium in which all used cars sell for $650.

B)There will be an equilibrium in which lemons sell for $200 and good used cars sell for $1,100.

C)There will be an equilibrium in which all used cars sell for $1,000.

D)The only equilibrium is one in which all used cars on the market are lemons and they sell for $500.

E)There will be an equilibrium in which lemons sell for $500 and good used cars sell for $1,500.

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