Managerial Economics Final Test Solutions - 2659 Verified Questions by Quizplus

Managerial Economics

Final Test Solutions

Course Introduction

Managerial Economics is a course designed to equip students with the analytical tools and economic theories necessary for effective business decision-making. The course focuses on the application of microeconomic concepts such as demand analysis, production and cost functions, market structures, pricing strategies, and risk analysis to real-world managerial scenarios. By integrating quantitative techniques and case studies, students learn to interpret and respond to market signals, optimize resource allocation, and formulate strategies under uncertainty, ultimately enhancing their ability to solve complex business problems in a dynamic economic environment.

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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Sample Questions

Q1) If she spends her entire budget, Heidi can afford 39 peaches and 12 pears.She can also just afford 24 peaches and 17 pears.The price of peaches is 9 cents.What is the price of pears in cents?

A)12 cents

B)37 cents

C)27 cents

D)3 cents

E)None of the above.

Answer: C

Q2) A decrease in income pivots the budget line around the bundle initially consumed. 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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Sample Questions

Q1) if you have an income of $18 to spend, if commodity 1 cost $3 per unit, and if commodity 2 costs $9 per unit, then the equation for your budget line can be written

A)x1/3 + x2/9 = 18.

B)(x1 + x2)/12 = 18.

C)x1 + 3x2 = 6.

D)4x1 + 10x2 = 19.

E)12(x1 +x2) = 18.

Answer: C

Q2) 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

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Chapter 2: Preferences-Part A

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Sample Questions

Q1) Charlie's indifference curves have the equation xB = constant/xA, where larger constants denote better indifference curves.Charlie strictly prefers the bundle (6, 16)to

A)the bundle (16, 6).

B)the bundle (7, 15).

C)the bundle (10, 11).

D)more than one of these bundles.

E)none of these bundles.

Answer: E

Q2) Nancy's psychology teacher will give her a course grade that is the maximum of her scores on three midterm examinations.Nancy has convex preferences over the possible combinations of midterm scores.

A)True

B)False

Answer: False

Q3) A person with reflexive preferences is someone who does not shop carefully. A)True

B)False

Answer: False

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Page 5

Chapter 2: Preferences-Part B

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Sample Questions

Q1) if we graph Mary Granola's indifference curves with avocados on the horizontal axis and grapefruits on the vertical axis, then whenever she has more grapefruits than avocados, the slope of her indifference curve is -2.Whenever she has more avocados than grapefruits, the slope is -1/2.Mary would be indifferent between a bundle with 24 avocados and 30 grapefruits and another bundle with 30 avocados and A)22 grapefruits.

B)24 grapefruits.

C)26 grapefruits.

D)28 grapefruits.

E)25 grapefruits.

Q2) Charlie's indifference curves have the equation xB = constant/xA, where larger constants correspond to better indifference curves.Charlie strictly prefers the bundle (6, 15)to the bundle

A)(15, 6).

B)(7, 14).

C)(11, 13).

D)All of the above.

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) Isabella's utility function is U(x, y)= 4min{x, y} + y.If we draw her indifference curves with x on the horizontal axis and y on the vertical axis, these indifference curves are

A)L-shaped with kinks where x = y.

B)made up of two line segments that meet where x = y.One of these line segments is horizontal and the other has slope -4.

C)L-shaped with kinks where x = 5y.

D)made up of two line segments that meet where x = 5y.One of these line segments is vertical and the other has slope -1.

E)V-shaped with kinks where x =4y.

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Page 7

Chapter 3: Utility-Part B

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Sample Questions

Q1) Joe Bob has a cousin Sam who consumes goods 1 and 2.Sam 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 Sam's preferences?

A)U(x1, x2)=16x21 + 16x1x2 + 4x22.

B)U(x1, x2)=min{4x1, 2x2}.

C)U(x1, x2)=40x1 + 20x2 - 10,000.

D)U(x1, x2)=4x1 + 2x2 +1000.

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

Q2) Ambrose has the utility function U(x1, x2)=4x1/21 + x2.If Ambrose were initially consuming 4 units of nuts (good 1)and 27 units of berries (good 2), then what is the largest number of berries that he would be willing to give up in return for an additional 21 units of nuts?

A)5

B)12

C)6

D)32

E)3

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Chapter 4: Choice-Part A

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Sample Questions

Q1) Our old friend, Edmund Stench, of Chapter 2 loves punk rock video tapes.He has no income and therefore has to accept garbage in his backyard in return for money.Each video tape cost $2 and each sack of garbage that he accepts brings him $1.His utility function is given by U(c, g)= min{2c, 20 - g}, where c is the number of video tapes and g is the number of sacks of garbage that he gets per month.Each month he will choose to accept

A)20 sacks of garbage.

B)no garbage.

C)5 sacks of garbage.

D)10 sacks of garbage.

E)15 sacks of garbage.

Q2) 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."

Q3) Clara's utility function is U(x, y)= (x + 2)(y + 1).If her consumption of both x and y are doubled, then her marginal rate of substitution between x and y remains constant.

A)True

B)False

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Chapter 4: Choice-Part B

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Sample Questions

Q1) Ambrose's utility function is = 4x1/21 + x2.If the price of nuts (good 1)is $1, the price of berries (good 2)is $9, and his income is $369, how many units of berries will Ambrose choose?

A)10

B)4

C)325

D)5

E)8

Q2) Charlie has a utility function U(xA, xB)=xAxB, the price of apples is $1, and the price of bananas is $2.If Charlie's income were $320, how many units of bananas would he consume if he chose the bundle that maximized his utility subject to his budget constraint?

A)80

B)40

C)160

D)16

E)240

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Chapter 5: Demand-Part A

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Sample Questions

Q1) 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 $10, and Casper's income is $260, how many units of cocoa will he consume?

A)12

B)15

C)29

D)14

E)30

Q2) Miss Muffet insists on consuming 2 units of whey per 1 unit of curds.If the price of curds is $3 and the price of whey is $3, then if Miss Muffett's income is m, her demand for curds will be

A)m/3.

B)3m/3.

C)3C + 3W = m.

D)3m.

E)m/9.

Q3) Define each of the following:

a.Inverse demand function

b.Engel curve

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Page 11

Chapter 5: Demand-Part B

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Sample Questions

Q1) recall that Miss Muffett insists on consuming 2 units of whey per unit of curds.If the price of curds is $4 and the price of whey is $4, then if Miss Muffett's income is m, her demand for curds will be

A)4m/4.

B)m/4.

C)4C + 4W = m.

D)4m.

E)m/12

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 $51, how many units of cocoa will he consume?

A)3

B)5

C)11

D)6

E)12

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Chapter 6: Revealed Preference-Part A

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Q1) Hillary has an initial endowment of $500 and is interested in two things: how many visits she can make to the doctor and how much money will be left over to spend on other things.When a trip to the doctor costs $60, Hillary sees the doctor 2 times.After health care reform, a visit to the doctor will cost $10 but her taxes will rise by $100.

a.Explain what conditions are necessary for Hillary to be made better off by health care reform.

b.Is it possible to tell whether Hillary has been made better off with the given information?

c.Explain what conditions are necessary for Hillary to be made worse off by health care reform.

d.Is it possible to tell whether Hillary has been made worse off with the given information?

Q2) It is possible for a consumer to satisfy the weak axiom of revealed preference but violate the strong axiom of revealed preference.

A)True

B)False

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Chapter 6: Revealed Preference-Part B

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Sample Questions

Q1) Let us reconsider the case of Ronald in Problem 4.Let the prices and consumptions in the base year be as in situation D, where p1 = $3, p2 = $1, x1 = 5, and x2 = 15.If in the current year, the price of good 1 is $1 and the price of good 2 is $1, and his current consumptions of good 1 and good 2 are 25 and 20 respectively, what is the Laspeyres price index of current prices relative to base year prices? (Pick the most nearly correct answer.)

A)0.67

B)1.50

C)0.25

D)0.50

E)1

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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Sample Questions

Q1) Suppose a consumer has strictly convex preferences and her Engel curve for a good is a vertical line for some range of income.In that same income range, her demand curve for the good slopes down.

A)True

B)False

Q2) Cindy consumes goods x and y.Her demand for x is given by x(px, m)= 0.05m =5.15px.Now her income is $419, the price of x is $3, and the price of y is $1.If the price of x rises to $4 and if we denote the income effect on her demand for x by DI and the substitution effect on her demand for x by DS, then

A)DI = -0.28 and DS = -0.52.

B)DI = -0.28 and DS = -4.88.

C)DI = -0.52 and DS = -0.52.

D)DI = 0 and DS = -2.00.

E)None of the above.

Q3) Use a diagram to prove that in case there are two goods, the substitution effect of an increase in the price of good x reduces the demand for good x.

Q4) What conditions ensure that the quantity of a good demanded increases as its price falls? Explain your answer, using diagrams.

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Page 15

Chapter 7: Slutsky Equation-Part B

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Sample Questions

Q1) Neville, has a friend named Oswald.Oswald has the same demand function for claret as Neville, namely q = .02m - 2p, where m is income and p is price.Oswald's income is $5,500 and he initially had to pay a price of $40 per bottle of claret.The price of claret rose to $70.The substitution effect of the price change

A)reduced his demand by 42.

B)reduced his demand by 60.

C)increased his demand by 60.

D)reduced his demand by 78.

E)reduced his demand by 52.

Q2) Goods 1 and 2 are perfect complements, and a consumer always consumes them in the ratio of 2 units of good 2 per unit of good 1.If a consumer has an income of $300 and if the price of good 2 changes from $5 to $6, while the price of good 1 stays at $1, then the income effect of the price change

A)is exactly twice as strong as the substitution effect.

B)accounts for the entire change in demand.

C)does not change demand for good 1.

D)is 6 times as strong as the substitution effect.

E)is 5 times as strong as the substitution effect.

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Chapter 8: Buying and Selling-Part A

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Sample Questions

Q1) Mario consumes eggplants and tomatoes in the ratio of 1 bushel of eggplants per 1 bushel of tomatoes.His garden yields 30 bushels of eggplants and 10 bushels of tomatoes.He initially faced prices of $10 per bushel for each vegetable, but the price of eggplants rose to $30 per bushel, while the price of tomatoes stayed unchanged.After the price change, he would

A)decrease his consumption of eggplants by 7 bushels.

B)increase his consumption of eggplants by 7 bushels.

C)decrease his eggplant consumption by at least 5 bushels.

D)increase his eggplant consumption by 5 bushels.

E)decrease his tomato consumption by at least 1 bushel.

Q2) If a consumer is initially endowed with a positive amount of two goods and sells some of one to get more of the other and if she has no other sources of income, then her budget line will pass through her endowment point.

A)True

B)False

Q3) Is it ever possible that if someone is a net seller of a good, and the price of the good he sells falls, the consumer could wind up better off than he was before by switching from being a seller to being a buyer? Draw a graph to justify your answer.

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Chapter 8: Buying and Selling-Part B

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Q1) Mr.Cog has 18 hours per day to divide between labor and leisure.If he has a nonlabor income of 48 dollars per day and a wage rate of 15 dollars per hour, he will choose a combination of labor and leisure that allows him to spend

A)318 dollars per day on consumption.

B)149 dollars per day on consumption.

C)159 dollars per day on consumption.

D)183 dollars per day on consumption.

E)238.50 dollars per day on consumption.

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 $35 per day and is paid a wage of $0 per hour, how many hours of leisure will he choose per day?

A)11

B)9

C)10

D)13

E)12

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Chapter 9: Intertemporal Choice-Part A

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Q1) The nominal interest rate is 5% and the inflation rate is 6%.A rational consumer

A)will not save since the real interest rate is negative.

B)will save less than 1% of her income.

C)will save the same amount regardless of the inflation rate; only the nominal interest rate matters.

D)might save despite the negative real interest rate.

E)will necessarily save less if the inflation rate rises and the nominal interest rate does not change.

Q2) If the interest rate is less than the inflation rate, a rational person will never save money.

A)True

B)False

Q3) If apples today are perfect substitutes for bananas today, then apples today must also be perfect substitutes for bananas tomorrow.

A)True

B)False

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Page 19

Chapter 9: Intertemporal Choice-Part B

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Q1) Harvey Habit has a utility function U(c1, c2)= min{c1, c2}.If he had an income of $430 in period 1 and $860 in period 2 and if the interest rate were 15%, how much would Harvey choose to spend on bread in period 1?

A)$945

B)$210

C)$315

D)$1,260

E)$630

Q2) Suppose that Molly had an income of $600 in period 1 and an income of $880 in period 2.Suppose that her utility function were ca1c1-a2,

where a = 0.80 and the interest rate were 10%.If her income in period 1 doubled and her income in period 2 stayed the same, her consumption in period 1 would

A)increase by $240.

B)stay constant.

C)double.

D)increase by $480.

E)increase by $600.

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Page 20

Chapter 10: Asset Markets-Part A

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Sample Questions

Q1) Suppose that a dispute in the Persian Gulf halts the sale of oil from the Persian Gulf for one year.At the same time an important new oil field is found in a place where nobody expected there to be oil.What does economic theory predict will be the effect on the future price of oil to be delivered two years from now?

A)It will fall if the new pool is larger than the stock of oil in the Persian Gulf and rise otherwise.

B)It will fall.

C)It will rise unless the new pool can be brought into production before the Persian Gulf supply is resumed.

D)It will rise.

E)It will rise if the cost of extraction for the new oil is greater than the cost of extraction in the Gulf and fall otherwise.

Q2) If the interest rate is 10%, then an asset that returns $1 a year forever is worth $1/1.1.

A)True

B)False

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Chapter 10: Asset Markets-Part B

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Q1) 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.

Q2) The sum of the terms of the infinite geometric series 1, 0.95, 0.952, 0.953, ...is closest to A)1.95.

B)0.51.

C)20.

D)infinity.

E)105.26.

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Page 22

Chapter 11: Uncertainty-Part A

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Q1) Ronald has $18,000.But he is forced to bet it on the flip of a fair coin.If he wins he has $36,000.If he loses he has nothing.Ronald's expected utility function is .5x.5 + .5y.5, where x is his wealth if heads comes up and y is his wealth if tails comes up.Since he must make this bet, he is exactly as well off as if he had a perfectly safe income of

A)$16,000.

B)$15,000.

C)$12,000.

D)$11,000.

E)$9,000.

Q2) If the price of insurance goes up, people will become less risk averse.

A)True

B)False

Q3) An expected utility maximizer's preferences between two bundles contingent on event 1 happening must be independent of what he will get if event 2 happens.

A)True

B)False

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Chapter 11: Uncertainty-Part B

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Q1) Clancy has $4,800.He plans to bet on a boxing match between Sullivan and Flanagan.He finds that he can buy coupons for $4 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 $6 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 300 Sullivan tickets and 200 Flanagan tickets.

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

D)Buy 600 Sullivan tickets and 400 Flanagan tickets.

E)Buy 300 Sullivan tickets and 400 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 10% with zero standard deviation and one of which gives him an expected rate of return of 25% 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)1.50.

B)-1.50.

C)-3.

D)3.

E)4.50.

Q2) If two assets have the same expected rate of return but different variances, a risk-averse investor should always choose the one with the smaller variance, no matter what other assets she holds.

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 45% 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 combination that Smith can obtain, the slope of this budget line is

A)1.50.

B)-1.50.

C)-3.

D)3.

E)4.50.

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Chapter 13: Consumers Surplus-Part A

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Q1) If there is a price increase for a good that Susan 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

Q2) Kristina consumes only goods X and Y.Her income is $600 and her utility function is U(x, y)= max{x, y}, where x is the number of units of X she consumes and y is the number of units of Y she consumes.The price of good Y is 1.The price of good X used to be 1/2 but is now 2.The equivalent variation of this price change for Kristina is

A)$300.

B)$600.

C)$150.

D)$800.

E)None of the above.

Q3) 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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Page 27

Chapter 13: Consumers Surplus-Part B

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Q1) Ms.Quasimodo has the utility function U(x, m)= 100x - x2/2 + m, where x is her consumption of earplugs and m is money left over to spend on other stuff.If she has $10,000 to spend on earplugs and other stuff and if the price of earplugs rises from $50 to $75, then her net consumer's surplus

A)falls by 937.50.

B)falls by 625.

C)falls by 2,937.50.

D)increases by 468.75.

E)increases by 1,875.

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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Page 28

Chapter 14: Market Demand-Part A

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Q1) If there are only two goods, an increase in the price of good 1 will increase the demand for good 2

A)if and only if the price elasticity of demand for good 2 is greater than 1 in absolute value.

B)whenever both goods are normal goods.

C)only if the two goods are perfect substitutes.

D)never.

E)none of the above.

Q2) If the demand for the Weekly World News at a local grocery store is described by Q = 2,500 - 400P - I/10for I = $15,000 and P = $1.50, the marginal revenue of an additional paper sold at this store is

A)$1.50.

B)$.38.

C)$.50.

D)$.15.

E)$1.

Q3) Using the graph of a demand curve, explain why marginal revenue is less than price.

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Chapter 14: Market Demand-Part B

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Q1) the only quantities of good 1 that Barbie can buy are 1 unit or zero units.For x1 equal to zero or 1 and for all positive values of x2, suppose that Barbie's preferences were represented by the utility function (x1 + 6)(x2 + 4).Then if her income were $16, her reservation price for good 1 would be

A)$2.86.

B)$2.50.

C)$5.71.

D)$1.50.

E)$.57.

Q2) 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

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Page 30

Chapter 15: Equilibrium-Part A

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Q1) An economic situation is Pareto optimal only if there is no way to make someone better off.

A)True

B)False

Q2) Schrecklich and Lamerde are two obscure modernist painters, who are no longer alive but whose paintings are still enjoyed by persons of dubious taste.The demand function for Schrecklichs is 200 - 4PS - 2PL and the demand function for Lamerdes is 200 - 3PL - PS, where PS and PL are respectively the price of Schrecklichs and Lamerdes.If the world supply of Schrecklichs is 100 and the world supply of Lamerdes is 70, then the equilibrium price of Schrecklichs is

A)$46.

B)$4.

C)$25.

D)$42.

E)$8.

Q3) If the supply curve is vertical, then the amount supplied is independent of price.

A)True

B)False

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Page 31

Chapter 15: Equilibrium-Part B

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Q1) Suppose that King Kanuta from demands that each of his subjects give him 4 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(ps)= 100ps, where ps is the price received by suppliers.The demand for coconuts by the king's subjects is given by D(pd)= 2,080 - 100pd, where pd is the price paid by consumers.In equilibrium, the price received by suppliers will be

A)$4.

B)$10.40.

C)$52.

D)$6.

E)None of the above.

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Chapter 16: Auctions-Part A

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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 oil painting by means of an English auction with a reservation price just slightly below $54,000.If he fails to get his reservation price for the painting, he will burn it.There are two bidders.The dealer believes that there are only three possible values, $90,000, $54,000, and $45,000, that each bidder's willingness to pay might take.Each bidder has a probability of 1/3 of having each of these willingnesses 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 painting is slightly less than

A)$54,000.

B)$52,000.

C)$49,500.

D)$45,000.

E)$63,000.

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Page 33

Chapter 16: Auctions-Part B

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Q1) A dealer decides to sell an antique automobile by means of an English auction with a reservation price of $900.There are two bidders.The dealer believes that there are only three possible values that each bidder's willingness to pay might take, $6,500, $3,600, and $900.Each bidder has a probability of 1/3 of having each of these willingnesses to pay, and the probabilities 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 automobile is

A)$5,050.

B)$3,666.67.

C)$3,600.

D)$3,100.

E)$6,500.

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Chapter 17: Technology-Part A

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Q1) A firm has the production function f(x, y)= x + min{x, y}.The isoquants for the firm

A)are L-shaped with the corners of the L's on the line y = x.

B)are L-shaped with the corners of the L's on the line y = x + 1.

C)consist of two line segments, one vertical and the other with a slope of -1.

D)consist of two line segments, one horizontal and the other with a slope of F-1.

E)are upside down L-shaped.

Q2) A firm has a production function f(x, y)= 1.40(x0.60 +y0.60)2 whenever x > 0 and y > 0.When the amounts of both inputs are positive, this firm has

A)increasing returns to scale.

B)decreasing returns to scale.

C)constant returns to scale.

D)increasing returns to scale if x + y > 1 and decreasing returns to scale otherwise.

E)increasing returns to scale if output is less than 1 and decreasing returns to scale if output is greater than 1.

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Chapter 17: Technology-Part B

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Q1) if the exponents in the production function were 0.60 for x1 and 0.40 for x2, this production function would exhibit (constant, increasing, decreasing)returns to scale and (would, would not)have diminishing technical rate of substitution.

A)constant, would not B)increasing, would C)decreasing, would not D)constant, would E)decreasing, would

Q2) A firm has the production function

$f(x1, x2)=x2.501x0.502.The isoquant on which output is 505/10 has the equation

A)x2 =50x-51.

B)x2 =50x21.

C)x1/x2 = 5.

D)x2 = 50x-0.501.

E)x1 =0.50x-0.502.

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Page 36

Chapter 18: Profit Maximization-Part A

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Q1) Jiffy-Pol Consultants is paid $1,000,000 for each percentage of the vote that Senator Sleaze receives in the upcoming election.Sleaze's share of the vote is determined by the number of slanderous campaign ads run by Jiffy-Pol according to the function S = 100N/(N + 1), where N is the number of ads.If each ad costs $10,000 approximately how many ads should Jiffy-Pol buy in order to maximize its profits?

A)200

B)1,995

C)999

D)1,099

E)500

Q2) The production function is given by F(L)= 6L2/3.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.

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Chapter 18: Profit Maximization-Part B

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Q1) the production function is given by F(L)=6L2/3.Suppose that the cost per unit of labor is $16 and the price of output is 16, how many units of labor will the firm hire?

A)32

B)64

C)192

D)128

E)None of the above.

Q2) the production function is f(x1, x2)=x1/21x1/22.If the price of factor 1 is $14 and the price of factor 2 is $7, in what proportions should the firm use factors 1 and 2 if it wants to maximize profits?

A)x1 = 0.50x2.

B)x1 =x2.

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

D)x1 = 2x2.

E)x1 =7x2.

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Chapter 19: Cost Minimization-Part A

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Q1) The total cost function c(w1, w2, y)expresses the cost per unit of output as a function of input prices and output.

A)True

B)False

Q2) If the production function is given by f (x1,x2, x3, x4)= min{x1, x2} + min{x3, x4} and the prices of inputs (x1,x2, x3, x4)are (2, 1, 5, 3), the minimum cost of producing 1 unit of output is closest to

A)$1.

B)$3.

C)$4.

D)$8.

E)$11.

Q3) If the production function is f (x1, x2)= min{x1, x2}, then the cost function is c(w1, w2, y)= min{w1, w2}y.

A)True

B)False

Q4) The production function for good y is y = max{10x1,4x2}, where x1 and x2 are the amounts of factors 1 and 2.Find the cost function for good y.

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Chapter 19: Cost Minimization-Part B

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Q1) the production function is f(L, M)= 4L1/2 M1/2, where L is the number of units of labor and M is the number of machines used.If the cost of labor is $100 per unit and the cost of machines is $16 per unit, then the total cost of producing 7 units of output will be

A)$140.

B)$406.

C)$112.

D)$280.

E)None of the above.

Q2) suppose that a new alloy is invented which uses copper and zinc in fixed proportions where 1 unit of output requires 5 units of copper and 3 units of zinc for each unit of alloy produced.If no other inputs are needed, the price of copper is $4, and the price of zinc is $2, what is the average cost per unit when 3,000 units of the alloy are produced?

A)$26

B)$13.33

C)$666.67

D)$.67

E)$13,333.33

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Page 40

Chapter 20: Cost Curves-Part A

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Q1) A goatherd has the cost function c(y)= 2y2, where y is the number of tubs of goat cheese she makes per month.She faces a competitive market for goat cheese,with a price of $40 a tub.How many tubs should she produce per month?

A)10

B)The square root of 40

C)4

D)The square root of 20

E)5

Q2) The cost function C(y)= 10 + 3y has marginal cost less than average cost for all levels of output.

A)True

B)False

Q3) A firm has the long-run cost function C(Q)= 4Q2 + 196.In the long run, it will supply a positive amount of output, so long as the price is greater than A)$120.

B)$112.

C)$56.

D)$28.

E)$61.

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Chapter 20: Cost Curves-Part B

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Q1) Mary Magnolia has variable costs equal to y2/F, where y is the number of bouquets she sells per month and where F is the number of square feet of space in her shop.If Mary has signed a lease for a shop with 400 square feet, if she is not able to get out of the lease or to expand her store in the short run, and if the price of a bouquet is $5 per unit, how many bouquets per month should she sell in the short run?

A)200

B)1,500

C)1,000

D)400

E)1,100

Q2) if Mr.Dent Carr's total costs were 2s2 + 20s + 40, then if he repairs 10 cars, his average variable costs will be

A)$44.

B)$80.

C)$40.

D)$60.

E)$30.

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Page 42

Chapter 21: Firm Supply-Part A

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Q1) Suppose that Dent Carr's long-run total cost of repairing s cars per week is c(s)= 3s2 + 75.If the price he receives for repairing a car is $18, then in the long run, how many cars will he fix per week if he maximizes profits?

A)3

B)0

C)6

D)4.50

E)9

Q2) A competitive firm has a long-run total cost function c(y)= 3y2 + 675 for y > 0 and c(0)= 0.Its long-run supply function is described as

A)y = p/6 if p > 90, y = 0 if p < 90.

B)y = p/3 if p > 88, y = 0 if p < 88.

C)y =p/3 if p > 93, y = 0 if p < 99.

D)y =p/6 if p > 93, y = 0 if p < 93.

E)y =p/3 if p > 95, y = 0 if p < 85.

Q3) In a perfectly competitive industry, the demand curve for the total output of the industry may be downward sloping.

A)True

B)False

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Page 43

Chapter 21: Firm Supply-Part B

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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) suppose that Irma's production function is f(x1, x2)= (min{x1, 3x2})1/2.If the price of factor 1 is w1 = $2 and the price of factor 2 is w2 = $15, then her supply function is given by the equation

A)S(p)= p/14.

B)S(p)= p(max{w1, 3w2})2.

C)S(p)= p(min{w1, 3w2})2.

D)S(p)= 7p.

E)S(p)= min{2p, 45p}.

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Chapter 22: Industry Supply-Part A

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Q1) In a certain industry, the supply curve of any firm is Si(p)= p/2.If a firm produces 5 units of output, what are its total variable costs?

A)$37.50

B)$25

C)$23

D)$50

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

Q2) In Baggs, Wyoming, cattle can be produced according to the following process: C = G/20 + P/40, where C is the number of cattle, G are bushels of grain, and P are acres of pasture.If grain costs $4 per bushel and pasture costs $3 per acre, how many cattle can Rancher Roy produce with a budget of $6,000?

A)50

B)100

C)1,500

D)75

E)300

Q3) The price elasticity of gasoline in the United States has been estimated to be 0.15.If this is so, should profit-maximizing gasoline stations raise their prices? (Explain why or why not.)

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Page 45

Chapter 22: Industry Supply-Part B

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Q1) in the absence of government interference, there is a constant marginal cost of $5 per ounce for growing marijuana and delivering it to buyers.If the probability that any shipment of marijuana seized is .30 and the fine if a shipper caught is $50 per ounce, then the equilibrium price of marijuana per ounce is

A)$28.57.

B)$20.

C)$55.

D)$3.50.

E)$6.50.

Q2) Suppose that the garden gnome industry was in long-run equilibrium as described in Problem 1.On January 1, 1993, the cost of plaster and labor remained at $7 per gnome, gnome molds still cost $1,000, and the interest rate remained at 10%, but the government introduced a tax of $4 on every garden gnome sold.Then the equilibrium price of garden gnomes in 1993 would be

A)$11.

B)$9.20.

C)$13.

D)$4.

E)$15.

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Chapter 23: Monopoly-Part A

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Q1) A monopolist faces a constant marginal cost of $1 per unit and has no fixed costs.If the price elasticity of demand for this product is constant and equal to -4, then

A)to maximize profits, he should charge a price of $4.

B)he is not maximizing profits.

C)to maximize profits, he should charge a price of $1.33.

D)to maximize profits, he should charge a price of $1.25.

E)None of the above.

Q2) A monopoly has the demand curve q = 10,000 - 100p.Its total cost function is c(q)= 1,000 + 10q.The government plans to tax the monopoly's profits at a rate of 50%.If it does so, the monopoly will

A)increase its price by 50%.

B)increase its price by more than 50%.

C)recover some but not all of the tax it pays by increasing its price.

D)not change its price or the quantity it sells.

E)None of the above.

Q3) A monopolist will always equate marginal revenue and marginal cost when maximizing profit.

A)True

B)False

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Page 47

Chapter 23: Monopoly-Part B

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Q1) The demand for Professor Bongmore's new book is given by the function Q = 6,000100p.If the cost of having the book edited and typeset is $18,000, 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 2,800 copies.

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

C)having it edited and typeset and selling 5,600 copies.

D)having it edited and typeset and selling 3,000 copies.

E)having it typeset and selling 1,400 copies.

Q2) if the demand schedule for Bong's book is Q = 3,000 - 100p, the cost of having the book typeset is $10,000, and the marginal cost of printing an extra book is $4, then he would maximize his profits by

A)having it typeset and selling 1,300 copies.

B)having it typeset and selling 1,500 copies.

C)having it typeset and selling 2,600 copies.

D)not having it typeset and not selling any copies.

E)having it typeset and selling 650 copies.

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Page 48

Chapter 24: Monopoly Behavior-Part A

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Q1) A monopolist sells in two markets.The demand curve for her product is given by p1 = 122 - 2x1 in the first market and p2 = 3065x2 in the second market, where xi is the quantity sold in market i and pi is the price charged in market i.She has a constant marginal cost of production, c = 6, and no fixed costs.She can charge different prices in the two markets.What is the profit-maximizing combination of quantities for this monopolist?

A)x1 = 58 and x2 = 32.

B)x1 = 29 and x2 = 30.

C)x1 = 59 and x2 = 29.

D)x1 = 39 and x2 = 28.

E)x1 = 49 and x2 = 40.

Q2) In a monopolistically competitive industry with zero profits, each firm will produce less than the amount that minimizes average costs.

A)True

B)False

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Chapter 24: Monopoly Behavior-Part B

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Q1) 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.

Q2) 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.

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Chapter 25: Factor Markets-Part A

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Q1) The bauble industry is competitive with free entry.There is a fixed-coefficient technology.One unit of labor and one unit of plastic are required for each bauble.Workers in the bauble industry must all belong to the Bauble-Makers Union.The union sets the wage that will be paid to all bauble makers.The price of plastic is 10 dollars per unit and the demand function for baubles is 1,000 - 10p.Long-run equilibrium requires that the price of baubles equals the cost of production.The wage per unit of labor that maximizes total revenue of workers is

A)100 dollars.

B)10 dollars.

C)45 dollars.

D)20 dollars.

E)infinity.

Q2) A monopsonist's market power enables him to hire labor at a marginal cost that is lower than the wage rate.

A)True

B)False

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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 = 40 - 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 istributor chooses an output to maximize profits.The price paid by consumers under this arrangement is

A)$2.50.

B)$20.

C)$1.25.

D)$30.

E)$10.

Q2) suppose that the demand curve for antimacassars is p = 51 - Q/900.The firm's profit-maximizing output is closest to

A)16,875 antimacassars.

B)5,625 antimacassars.

C)3,712.50 antimacassars.

D)11,250 antimacassars.

E)2,812.50 antimacassars.

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Page 52

Chapter 26: Oligopoly-Part A

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Q1) The duopolists Carl and Simon face a demand function for pumpkins of Q = 8,200400P, where Q is the total number of pumpkins that reach the market and P is the price of pumpkins.Suppose further that each farmer has a constant marginal cost of $.50 for each pumpkin produced.If Carl believes that Simon is going to produce Qs pumpkins this year, then the reaction function tells us how many pumpkins Carl should produce in order to maximize his profits.Carl's reaction function is A)RC (Qs)= 4,000 - Qs/2.

B)RC(Qs)= 8,200 - 400Qs.

C)RC(Qs)= 8,200 - 800Qs.

D)RC(Qs)= 2,000 - Qs/2.

E)RC(Qs)= 6,000 - Qs.

Q2) An industry has two firms.The inverse demand function for this industry is p = 2636q.Both firms produce at a constant unit cost of $29 per unit.What is the Cournot equilibrium price for this industry?

A)$29

B)$31

C)$107

D)$53.50

E)None of the above.

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Page 53

Chapter 26: Oligopoly-Part B

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Q1) There are two firms in the blastopheme industry.The demand curve for blastophemes is given by p = 6,600 - 5q.Each firm has one manufacturing plant and each firm i has a cost function C(qi)= q2i, where qi is the output of firm i.The two firms form a cartel and arrange to split total industry profits equally.Under this cartel arrangement, they will maximize joint profits if

A)and only if each firm produces 300 units in its plant.

B)they produce a total of 600 units, no matter which firm produces them.

C)and only if they each produce a total of 660 units.

D)they produce a total of 440 units, no matter which firm produces them.

E)they shut down one of the two plants, having the other operate as a monopoly and splitting the profits.

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Chapter 27: Game Theory-Part A

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Q1) Suppose that in a Hawk-Dove game similar to the one discussed in your workbook, the payoff to each player is -6 if both play Hawk.If both play Dove, the payoff to each player is 3, and if one plays Hawk and the other plays Dove, the one that plays Hawk gets a payoff of 8 and the one that plays Dove gets 0.In equilibrium, we would expect hawks and doves to do equally well.This happens when the proportion of the total population that plays Hawk is A).45.

B).23.

C).11.

D).73.

E)1.

Q2) In a Nash equilibrium, everyone must be playing a dominant strategy.

A)True

B)False

Q3) A situation where everyone is playing a dominant strategy must be a Nash equilibrium.

A)True

B)False

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Chapter 27: Game Theory-Part B

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Q1) If the number of persons who attend the club meeting this week is X, then the number of people who will attend next week is 48 + 0.40X.What is a long-run equilibrium attendance for this club?

A)96

B)80

C)120

D)48

E)32

Q2) Alice and Betsy are playing a game in which each can play either of two strategies, leave or stay.If both play the strategy leave, then each gets a payoff of $100.If both play the strategy stay, then each gets a payoff of $400.If one plays stay and the other plays leave, then the one who plays stay gets a payoff of $C and the one who plays leave gets a payoff of $D.When is the outcome where both play leave a Nash equilibrium?

A)Never, since $400 > $100.

B)Whenever D < $400.

C)When D > C and C > $100.

D)When $100 > C and D > $400 but not when $400 > D.

E)Whenever $100 > C.

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Page 56

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) 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.In the movie, the existence of the Doomsday Machine was kept secret.This would enhance the effectiveness of such a machine.

A)True

B)False

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Chapter 28: Game Applications-Part B

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Q1) Suppose that in the Hawk-Dove game , the payoff to each player is -9 if both play Hawk.If both play Dove, the payoff to each player is 5, and if one plays Hawk and the other plays Dove, the one that plays Hawk gets a payoff of 9 and the one that plays Dove gets 0.In equilibrium, we would expect hawks and doves to do equally well.This happens when the proportion of the total population that plays Hawk is A).31.

B).15.

C).08.

D).65.

E)1.

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Chapter 29: Behavioral Economics

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Q1) Using lessons learned from behavioral economists, which of the following would be most likely to increase retirement savings?

A)Specifying that all retirement contributions are to be made by personal check only

B)Allowing customers to make contributions of any amount whenever they desire

C)Enabling automatic deductions from paychecks, but allow customers to make as many changes to the amount as they like without cost or obligation

D)Allowing customers to commit to an increasing portion of their paycheck being automatically deposited in retirement savings in future years

E)Charging service fees for contributions under $100

Q2) If a tennis player were truly randomizing over which half of the court to serve to, she would never serve to the same side of the court 5 times in a row.

A)True

B)False

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Chapter 30: Exchange-Part A

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Q1) 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)= x1/31x2/32.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

Q2) In a model with two consumers, two goods, and no production, the contract curve must be a line going from one consumer's origin to the other consumer's origin.

A)True

B)False

Q3) Every allocation on the contract curve is Pareto optimal.

A)True

B)False

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Page 60

Chapter 30: Exchange-Part B

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Q1) Suppose that Mutt's utility function is U(m, j)= max{3m, j} and Jeff's utility function is U(m, j)= 2m + j.Mutt is initially endowed with 2 units of milk and 2 units of juice, and Jeff is initially endowed with 6 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 and bottom edge of the Edgeworth box.

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

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

D)bottom 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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Q1) Robinson Crusoe has exactly 10 hours per day to spend gathering coconuts or catching fish.He can catch 3 fish per hour or he can pick 6 coconuts per hour.His utility function is U(F, C)= FC, where F is his consumption of fish and C is his consumption of coconuts.If he allocates his time in the best possible way between catching fish and picking coconuts, his consumption will be the same as it would be if he could buy fish and coconuts in a competitive market where the price of coconuts is $1.

A)His income is $60 and the price of fish is $2.

B)His income is $60 and the price of fish is $.33.

C)His income is $90 and the price of fish is $3.

D)His income is $30 and the price of fish is $3.

E)His income is $45 and the price of fish is $.33.

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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Q1) Al and Bill are the only workers in a small factory that makes geegaws and doodads.Al can make 7 geegaws per hour or 21 doodads per hour.Bill can make 4 geegaws per hour or 8 doodads per hour.Assuming that neither of them finds one task more odious than the other,

A)Al has a comparative advantage in producing geegaws and Bill has a comparative advantage in producing doodads.

B)Bill has a comparative advantage in producing both geegaws and doodads.

C)Al has a comparative advantage in producing both geegaws and doodads.

D)Bill has a comparative advantage in producing geegaws and Al has a comparative advantage in producing doodads.

E)both have a comparative advantage in producing doodads.

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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) If a social welfare function is an increasing function of each person's utility, then every allocation that maximizes this social welfare function must be a Pareto optimum.

A)True

B)False

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Chapter 32: Welfare-Part B

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Q1) Hatfield and McCoy burn with hatred for each other.They both consume corn whisky.Hatfield's utility function is U = WH - W 2M /8 and McCoy's utility is U = WM - W 2H /8, where WH is Hatfield's whisky consumption and WM is McCoy's whisky consumption, measured in gallons.The sheriff has a total of 48 gallons of confiscated whisky which he could give back to them.For some reason, the sheriff wants them both to be as happy as possible and he wants to treat them equally.The sheriff should give them each

A)24 gallons.

B)4 gallons and spill 40 gallons in the creek.

C)2 gallons and spill 44 gallons in the creek.

D)8 gallons and spill the rest in the creek.

E)1 gallon and spill the rest in the creek.

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Chapter 33: Externalities-Part A

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

A)True

B)False

Q2) A clothing store and a jeweler are located side by side in a shopping mall.If the clothing store spend C dollars on advertising and the jeweler spends J dollars on advertising, then the profits of the clothing store will be (36 + J )C - 2C 2 and the profits of the jeweler will be (30 + C )J - 2J 2.The clothing store gets to choose its amount of advertising first, knowing that the jeweler will find out how much the clothing store advertised before deciding how much to spend.The amount spent by the clothing store will be

A)$17.

B)$34.

C)$51.

D)$8.50.

E)$25.50.

Q3) The only known way to eliminate externalities is through taxes or subsidies.

A)True

B)False

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Page 66

Chapter 33: Externalities-Part B

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Q1) suppose Albert, a typical citizen, has the utility function U(m, d, h)= m + 5d2 - d2 - 2h, 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 = 5 and D2 = 0.

B)D1 = D2 = 2.

C)D1 = 2 and D2 = 1.

D)D1 = 4 and D2 = 2.

E)D1 = 2 and D2 = 0.

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Chapter 34: Information Technology-Part A

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Q1) If the demand curve for the DoorKnobs operating system is related to perceived market share s and actual market share t by the equation p = 144s(1 - x), then in the long run, the highest price at which DoorKnobs would maintain a market share of 4/6 would be

A)$48.

B)$41.60.

C)$32.

D)$28.80.

E)$38.40.

Q2) If the demand curve for the DoorKnobs operating system is related to perceived market share s and actual market share t by the equation p = 147s(1 - x), then in the long run, the highest price at which DoorKnobs would maintain a market share of 4/7 would be

A)$36.

B)$46.80.

C)$54.

D)$32.40.

E)$43.20.

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Chapter 34: Information Technology-Part B

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Q1) Eleven consumers are trying to decide whether to connect to a new communications network.Consumer 1 is of type 1, consumer 2 is of type 2, consumer 3 is of type 3, and so on.Where k is the number of consumers connected to the network (including oneself), a consumer of type n has a willingness to pay to belong to this network equal to k times n.What is the highest price at which 4 consumers could all connect to the network and either make a profit or at least break even?

A)$24

B)$64

C)$40

D)$28

E)$32

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Chapter 35: Public Goods-Part A

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Q1) Bob and Ray are thinking of buying a sofa.Bob's utility function is UB (S, MB)= (1 + S )MB and Ray's utility function is UR (S, MR)= (3 + S )MR, where S = 0 if they don't get the sofa and S = 1 if they do and where MB and MR are the amounts of money they have respectively to spend on their private consumptions.Bob has a total of $800 to spend on the sofa and other stuff.Ray has a total of $1,600 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)$533.33.

B)$800.

C)$1,200.

D)$450.

E)$1,600.

Q2) If the supply of public goods is determined by majority vote, then the outcome must be Pareto optimal.

A)True

B)False

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Page 70

Chapter 35: Public Goods-Part B

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Q1) Lucy's utility function is 2XL + G and Melvin's utility function is XMG, where G is their expenditures on the public goods they share in their apartment and where XL and XM are their respective private consumption expenditures.The total amount they have to spend on private goods and public goods is $21,000.They agree on a Pareto optimal pattern of expenditures in which the amount that is spent on Lucy's private consumption is $6,000.How much do they spend on public goods?

A)$5,550

B)$10,000

C)$2,500

D)$5,000

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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Q1) An example of adverse selection is the situation where someone chooses a car that is not as good as it is claimed to be.

A)True

B)False

Q2) In a market where there is a pooling equilibrium, different types of agents choose the same action.

A)True B)False

Q3) In a market where there is a separating equilibrium, different types of agents make different choices of actions.

A)True

B)False

Q4) The incentive compatibility constraint requires that incentives be consistent with a consumers budget constraint.

A)True B)False

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Chapter 36: Asymmetric Information-Part B

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Q1) Suppose that in New Crankshaft, Pennsylvania, the quality distribution of the 2,000 used cars on the market is such that the number of used cars of value less than V is V/2.Original owners must sell their used cars.Original owners know what their cars are worth, but buyers can't determine a car's value until they buy it.An owner can either take his car to an appraiser and pay the appraiser $500 to appraise the car (accurately and credibly)or sell the car unappraised.In equilibrium, car owners will have their cars appraised if and only if their value is at least

A)$1,500.

B)$1,000.

C)$500

D)$1,000

E)$2,000

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