Review for Final Exam

1. Craigs Red Sea Restaurant is the only restaurant in Columbia, South Carolina, that sells
Ethiopian food. The demand for Ethiopian food is given by Q = 25 P. Craigs costs are
given by TC = 25 + Q + 5Q2. Its maximum monopoly profit is:
a. $1.
b. $21.
c. $22.
d. $24.
e. $26.

ANS: A

2. For the Minnie Mice Company, the elasticity of demand is 6, and the profit-maximizing
price is 30. If MC is marginal cost and AVC is average variable cost, then:
a. MC = 25.
b. AVC = 25.
c. MC = 30.
d. AVC = 36.
e. MC = 36.

ANS: A

3. So long as price exceeds average variable cost, in the model of monopoly, the firm
maximizes profits by producing where:
a. the difference between marginal revenue and marginal cost is maximized.
b. marginal revenue equals price.
c. the difference between price and marginal cost is maximized.
d. price equals marginal cost.
e. marginal cost equals marginal revenue.

ANS: E

4. In the model of monopoly, there:

a. are many firms producing differentiated products.
b. are a few firms producing undifferentiated products.
c. are a few firms producing differentiated products.
d. are many firms producing undifferentiated products.
e. is one firm producing a highly differentiated product.

ANS: E
5. If revenues from selling quantities x and y of jointly produced goods X and Y were TRX = 100
xy + 2x and TRY = 500 xy + 3y, then marginal revenue with respect to X would be:
a. 2 y.
b. y.
c. x(2y + 5).
d. (2y + 5).
e. 2(1 y).
ANS: E

6. A producer of fixed proportion goods X and Y (Q = QX = QY) has marginal costs and
revenues of MC = 10Q, MRX = 50 6QX, MRY = 100 4QY . The producer should produce
how many units?
a. 3.
b. 5.25.
c. 6.
d. 7.5.
e. 10.
ANS: D
7. In the model of monopolistic competition, firms produce a:
a. standardized product with considerable control over price.
b. differentiated product with considerable control over price.
c. standardized product with no control over price.
d. differentiated product with no control over price.
e. differentiated product with some control over price.

ANS: E
8. A monopsonist faces a market labor supply curve w = 40 + 2L, where w is the wage rate and
L is the number of workers employed. If the firms labor demand curve is w = 200 L, what
is the optimal wage rate and quantity of labor employed?
a. w = 146.7 and L = 53.3.
b. w = 168 and L = 32.
c. w = 104 and L = 32.
d. w = 40 and L = 160.
e. w = 32 and L = 168.

ANS: C
9. Oligopoly is a market structure that necessarily has:
a. cartels.
b. a large number of firms with homogeneous products.
c. a large number of firms with slightly different products.
d. a small number of firms but more than one.
e. only one firm.

ANS: D
10. Duopolists A and B face the following demand curves: QA = 120 2PA + PB and QB = 120
2PB + PA. If both firms have zero marginal cost and they form a cartel, what is the profit-
maximizing price and quantity?
a. P = 30, Q = 180.
b. P = 40, Q = 160.
c. P = 60, Q = 120.
d. P = 80, Q = 80.
e. P = 75, Q = 90.
ANS: C
11. If a cartel is working properly, its firms will likely be producing where (MCi is each firm is
marginal cost, MR is market marginal revenue, and P is price):
a. MCi = MR.
b. MCi > MR.
c. MCi < MR.
d. P = MR.
e. P < MR.
ANS: A
12. Glyde Air Fresheners is the dominant firm in the solid room aromatizer industry, which has a
total market demand given by Q = 80 2P. Glyde has competition from a fringe of four
small firms that produce where their individual marginal costs equal the market price. The
fringe firms each have total costs given by TCi = 10Qi + 2Q2i . If Glydes total costs are given
by TCG = 100 + 6QG, what is Glydes maximum profit?
a. $148.
b. $184.
c. $240.
d. $332.
e. $362.
ANS: D
13. Duopolists who compete on the basis of price will:
a. end up with price equal to marginal cost.
b. charge a price greater than marginal cost.
c. charge a price less than marginal cost.
d. price discriminate.
e. charge a price equal to marginal revenue.

ANS: A
14. Suppose duopolists in the market for spring water share a market demand curve given by P =
50 0.02Q, where P is the price per gallon and Q is thousands of gallons of water per day.
The marginal cost of producing water is near zero for both firms. If one firm acts as a first
mover, the second firm will produce:
a. 0 gallons of water per day per firm.
b. 625 gallons of water per day.
c. 833 gallons of water per day.
d. 1,250 gallons of water per day.
e. 2,500 gallons of water per day.

ANS: A
15. Duopolists A and B face the following demand curves: QA = 100 2PA + 5PB and QB = 120
3PB + 4PA. If both firms have zero marginal cost, what are the profit-maximizing prices and
quantities?
a. PA = 300, QA = 600, PB = 220, QB = 660.
b. PA = 200, QA = 400, PB = 200, QB = 400.
c. PA = 200, QA = 700, PB = 200, QB = 320.
d. PA = 300, QA = 750, PB = 250, QB = 570.
e. PA = 300, QA = 1,250, PB = 350, QB = 270.

ANS: A
16. A dominant strategy is one that:
a. beats all others, regardless of the opponents choice.
b. beats all others, given the opponents choice.
c. is beaten by all others, regardless of the opponents choice.
d. is beaten by all others, given the opponents choice.
e. beats at least one other, given the opponents choice.

ANS: A
17. Given the following payoff matrix, who has a dominant strategy?

a. It depends on what the other player does.

b. Both players have it.
c. Neither player has it.
d. A does; B doesnt.
e. B does; A doesnt.

ANS: C
18. Getting to a Nash equilibrium requires:
a. each knowing the opponents payoffs and cooperation.
b. knowing the opponents payoffs but not cooperation.
c. cooperation but not knowing the opponents payoffs.
d. neither cooperation nor knowing the opponents payoffs.
e. either cooperation or knowing the opponents payoffs, depending on the game.

ANS: D
19. Which pair of strategies would competing firms A and B choose given this payoff matrix?

a. W, Y.
b. W, Z.
c. X, Y.
d. X, Z.
e. Either X, Y or W, Z.

ANS: C DIF: Easy REF: 472 TOP: The Nash Equilibrium