Course Introduction
Industrial Organization
Textbook Exam Questions
Industrial Organization examines the structure, behavior, and performance of firms and industries in markets with varying degrees of competition. This course explores how market power, firm strategy, product differentiation, barriers to entry, and government regulation affect economic outcomes. Using both theoretical models and real-world case studies, students will analyze how companies compete, how market imperfections arise, and how these factors influence consumer welfare and public policy. Key topics include monopoly and oligopoly markets, pricing strategies, innovation, mergers and acquisitions, and antitrust policy.
Recommended Textbook
Managerial Economics and Business Strategy 7th Edition by Michael R. Baye
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14 Chapters
1912 Verified Questions
1912 Flashcards
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Page 2
Chapter 1: The Fundamentals of Managerial Economics
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136 Flashcards
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Sample Questions
Q1) Which of the following is incorrect?
A)Accounting profits generally overstate economic profits.
B)Accounting profits do not take opportunity cost into account.
C)Economic costs include not only the accounting costs but also the opportunity costs of the resources used in production.
D)Managers should only be interested in accounting profits.
Answer: D
Q2) Basic principles that comprise good management include
A)identifying goals and constraints.
B)recognizing the nature and importance of profits.
C)understanding incentives.
D)all of the statements associated with this question are correct.
Answer: D
Q3) Which of the following is an implicit cost to a firm that produces a good or service?
A)labor costs.
B)costs of operating production machinery.
C)foregone profits of producing a different good or service.
D)costs of renting or buying land for a production site.
Answer: C
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Page 3
Chapter 2: Market Forces: Demand and Supply
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155 Flashcards
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Sample Questions
Q1) The law of demand states that, holding all else constant:
A)as price falls, demand will fall also.
B)as price rises, demand will also rise.
C)price has no effect on quantity demanded.
D)as price falls, quantity demanded rises.
Answer: D
Q2) In a competitive market, the market demand is Q<sup>d</sup> = 60 - 6P and the market supply is Q<sup>s</sup> = 4P.A price floor of $9 will result in a
A)shortage of 30 units.
B)shortage of 12 units.
C)surplus of 30 units.
D)surplus of 12 units.
Answer: C
Q3) The buyer side of the market is known as the:
A)income side.
B)demand side.
C)supply side.
D)seller side.
Answer: B
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Chapter 3: Quantitative Demand Analysis
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166 Flashcards
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Sample Questions
Q1) When marginal revenue is negative for a linear (inverse) demand function, increases in output will cause total revenues to A)increase.
B)decrease.
C)remain unchanged.
D)there is not sufficient information to classify the elasticity of demand.
Answer: B
Q2) When the price of sugar was "low", consumers in the U.S.spent a total of $3 billion annually on sugar consumption.When the price doubled, consumer expenditures increased to $5 billion annually.This data indicates that:
A)The demand for sugar is inelastic.
B)The demand curve for sugar is upward sloping.
C)The quantity demanded of sugar increased.
D)the demand curve for sugar is upward sloping and the quantity demanded of sugar increased.
Answer: A
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5
Chapter 4: The Theory of Individual Behavior
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Sample Questions
Q1) Suppose earnings are given by E = $60 + $7(24 - L), where E is earnings and L is the hours of leisure.What is the maximum this worker can earn in three (3) days?
A)$519.
B)$417.
C)$228.
D)$684.
Q2) If a firm offers to pay a worker $10 for each hour of leisure the worker gives up then the opportunities confronting the worker will be given by the A)convex curve from the origin.
B)concave curve from the origin.
C)straight line with a negative slope.
D)straight line with a positive slope.
Q3) The budget set defines the combinations of good X and Y that A)are desirable to the consumer.
B)are affordable to the consumer.
C)maximizes consumer's utility.
D)maximizes supplier's profit.
Q4) Draw the opportunity set of a consumer with an income of $200 who faces prices of
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Chapter 5: The Production Process and Costs
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Sample Questions
Q1) What is implied when the total cost of producing Q<sub>1</sub> and Q<sub>2</sub> together is less than the total cost of producing Q<sub>1</sub> and Q<sub>2</sub> separately?
A)Economies of scale.
B)Diminishing average fixed costs.
C)Cost complementarity.
D)Economies of scope.
Q2) Given a cost function C(Q) = 200 + 14Q + 8Q<sup>2</sup>, what is the marginal cost function?
A)14 + 16Q.
B)14Q + 8Q<sup>2</sup>.
C)200 + 8Q<sup>2</sup>.
D)14 + 16Q<sup>2</sup>.
Q3) Which of the following is the most common source of technology?
A)Independent R&D.
B)Licensing technology.
C)Publications or technical meetings.
D)Reverse engineering.
Q4) Show that the Cobb-Douglas production function
Q5) Suppose the production function of automobiles is given by
Page 7
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Chapter 6: The Organization of the Firm
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Sample Questions
Q1) A potential problem with piece rate plans is that
A)workers will have a tendency to under-produce the good.
B)workers have no incentive to work hard.
C)workers may put little emphasis on the quality of the good.
D)it is difficult for managers to enforce.
Q2) A payment plan that induces better worker effort by linking compensation to revenues of the firm is known as:
A)Revenue sharing.
B)Profit sharing.
C)Piece rate sharing.
D)Spot checking.
Q3) Spot markets are an inefficient way for the firm to purchase inputs if A)opportunism is a problem.
B)suppliers engage in hold-up.
C)profit-sharing is used to compensate managers.
D)opportunism is a problem and suppliers engage in hold-up.
Q4) In general, automobile manufacturers produce their own engines but purchase tires from independent suppliers.Why?
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Chapter 7: The Nature of Industry
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Sample Questions
Q1) Which of the following are measures of industry concentration?
A)Four-firm concentration ratio.
B)HHI index.
C)Consumer surplus.
D)Four-firm concentration ratio and HHI index.
Q2) An industry consists of six firms with annual sales of $300, $500, $400, $700, $600, and $600, respectively.What is the industry's C<sub>4</sub>?
A)0.58.
B)0.62.
C)0.74.
D)0.77.
Q3) A local telephone company charges $.10/min.based on a $.08/min.marginal cost of operation.What is the Lerner Index?
A)0.2.
B)0.25.
C)0.40.
D)0.50.
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Chapter 8: Managing in Competitive, Monopolistic, and Monopolistically Competitive Markets
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Sample Questions
Q1) Suppose the cost function for your firm is:
Q2) Eric provides cheese (H) and milk (M) to the market with the following total cost function C(H, M) = 10 + 0.4 H<sup>2</sup> + 0.2M<sup>2</sup>.The price of cheese and milk in the market are $2 and $5 respectively.Assume that the cheese and milk markets are perfectly competitivWhat output of cheese maximizes profits?
A)2.
B)2.5.
C)5. D)10.
Q3) You are the manager of a firm that produces output in two plants.The demand for your firm's product is P = 120 - 6Q, where Q = Q<sub>1</sub> + Q<sub>2</sub>.The marginal cost associated with producing in the two plants are MC<sub>1</sub> = 2Q<sub>1</sub> and MC<sub>2</sub> = 4Q<sub>2</sub>.How much output should be produced in plant 1 in order to maximize profits?
A)3.
B)6.
C)9. D)12.
Q4) You are a monopolist with the following cost and demand conditions:
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Chapter 9: Basic Oligopoly Models
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Sample Questions
Q1) "Tom and Jack are the only two local gas stations.Although they have different constant marginal costs, they both survive continued competition." Tom and Jack do not constitute a:
A)Sweezy oligopoly.
B)Cournot oligopoly.
C)Stackelberg oligopoly.
D)Bertrand oligopoly.
Q2) Consider a Cournot duopoly with the following inverse demand function: P = 100.5Q<sub>1</sub> - 0.5Q<sub>2</sub>.The firms' marginal cost are identical and given by MC<sub>i</sub>(Q<sub>i</sub>) = 3.Based on this information firm 1 and 2's reaction functions are
A)r<sub>1</sub>(Q<sub>2</sub>) = 7 - 0.5Q<sub>1</sub> and r<sub>2</sub>(Q<sub>1</sub>) = 7 - 0.5Q<sub>2</sub>.
B)r<sub>1</sub>(Q<sub>2</sub>) = 14 - 0.25Q<sub>2</sub> and r<sub>1</sub>(Q<sub>2</sub>) = 14 - 0.25Q<sub>1</sub>.
C)Q<sub>1</sub> = 7 - 0.5Q<sub>2</sub> and Q<sub>2</sub> = 7 - 0.5Q<sub>1</sub>.
D)Q<sub>1</sub> = 14 - 0.25Q<sub>2</sub> and Q<sub>2</sub> = 140.25Q<sub>1</sub>.
Q3) The (inverse) demand in a Cournot duopoly is
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Chapter 10: Game Theory: Inside Oligopoly
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Sample Questions
Q1) Consider the following information for a simultaneous move game: If you advertise and your rival advertises, you each will earn $5 million in profits.If neither of you advertise, you will each earn $10 million in profits.However, if one of you advertises and the other does not, the firm that advertises will earn $15 million and the non advertising firm will earn $1 million.If you and your rival plan to be in business for 10 years, then the Nash equilibrium is
A)For each firm to advertise every year.
B)For neither firm to advertise in early years, but to advertise in later years.
C)For each firm to not advertise in any year.
D)For each firm to advertise in early years, but not advertise in later years.
Q2) What are the Nash equilibrium strategies for Firm A and Firm B respectively in a one-shot game?
A)(low price, low price).
B)(high price, high price).
C)(low price, high price).
D)(low price, low price) and (high price, high price).
Q3) Would collusion be more likely in the shoe industry or in the airline industry? Why?
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Chapter 11: Pricing Strategies for Firms With Market Power
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Sample Questions
Q1) A local video store estimates their average customer's demand per year is Q = 7 - 2P, and knows the marginal cost of each rental is $0.5.How much should the store charge for an annual membership in order to extract the entire consumer surplus via an optimal two-part pricing strategy?
A)$9.
B)$10.
C)$11.
D)$12.
Q2) A monopoly produces widgets at a marginal cost of $10 per unit and zero fixed costs.It faces an inverse demand function given by P = 50 - Q.Suppose fixed costs rise to $400.What happens in the market?
A)The firm will raise the price.
B)The firm will shut down immediately.
C)The firm continues to produce the same output and charge the same price.
D)The firm will reduce its output and raise price.
Q3) A local dentist read an article published by the American Dental Association estimating that the elasticity of demand for the representative dentist's services is -2.5.How much should the dentist mark up her price over marginal cost?
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Chapter 12: The Economics of Information
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137 Flashcards
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Sample Questions
Q1) A risk-averse manager is considering a project that will cost $100.There is a 10 percent chance the project will generate revenues of $100, an 80 percent chance it will yield revenues of $50, and a 10 percent chance it will yield revenues of $500.Should the manager adopt the project? Explain.
Q2) Which project has the highest variance?
A)A
B)B
C)C
D)D
Q3) Consider an auctioneer who is selling an item through an auction.It is known that the 10 risk-neutral bidders have independent private values that are uniformly distributed between $1,000 and $2,000.Based on this information we can conclude that the expected revenue in this auction will be
A)$2,000.
B)$1,900.
C)$1,000.
D)There is insufficient information to determine the expected revenue.
Q4) Will consumers spend more time searching when stores are located in a mall or when they are spread all over town? Explain.
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Chapter 13: Advanced Topics in Business Strategy
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Sample Questions
Q1) A two-way network linking 9 users creates how many potential network connections? A)72.
B)56.
C)90.
D)18.
Q2) Consider a two-way network with 1,000 users.The number of potential connections is A)999.
B)1,000.
C)2,000.
D)999,000.
Q3) Firms 1 and 2 compete in a Cournot duopoly.If firm 2 adopts a strategy that raises firm 1's marginal cost:
A)Firm 1 will reduce its output.
B)Firm 2 will gain lose share.
C)Firm 1 will enjoy higher profits.
D)None of the statements associated with this question are correct.
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15
Chapter 14: A Managers Guide to Government in the Marketplace
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Sample Questions
Q1) Which of the following explains why big business typically spends more on rentseeking activities than consumers?
A)Lobbying is a public good to consumers.
B)Lobbying is a public good to businesses.
C)Labor unions in the involved firms.
D)Lobbying is a public good to businesses and labor unions in the involved firms.
Q2) The main purpose of antitrust policy is to:
A)reduce market power.
B)control negative externalities.
C)help make information easily obtainable for producers and consumers.
D)all of the statements associated with this question are correct.
Q3) What is the domestic quantity supplied at the domestic market price?
A)22,000.
B)10,000.
C)52,000.
D)30,000.
Q4) In the 1990s Japan reduced its exports of automobiles to the United States by 28 percent.If you were the manager of a Buick dealership, how would this affect your pricing strategy? Explain.
Page 16
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