Subject: Economics    / General Economics
The supply function for good X is given by Qxs = 1,000 + PX – 5PY – 2PW, where PX is the price of X, PY is the price of good Y, and
PW is the price of input W. If the price of input W increases by $20, then the supply of good X:
will increase by 20 units.
will increase by 40 units.
will decrease by 20 units.
will decrease by 40 units.

For the cost function C(Q) = 75 + 3Q + 5Q2, the marginal cost of producing 5 units of output is:
Long-term contracts are MORE likely when:
specialized investments are not needed.
hold-up is likely.
the exchange environment is very certain.
workers are paid based on piece rates

Suppose a monopolist knows the own price elasticity of demand for its product is ?2 and that its marginal cost of production is
constant MC(Q) = 20. To maximize its profit, the monopoly price is:
$2 per unit.
$20 per unit.
$40 per unit.
$10 per unit.

Refer to the normal-form game shown below.

What are the pure Nash equilibrium strategies for this game?
(high, right)
(low, right)
(high, left)
(high, left) and (low, right)

A monopoly produces widgets at a marginal cost of $4 per unit and zero fixed costs. It faces an inverse demand function given by
P = 40 – Q. What are the profits of the monopoly in equilibrium?
None of the statements is correct.

Which of the following statements is true in the presence of negative externalities?
The socially efficient equilibrium is found at the intersection of MC to society and the demand curve.
The social marginal cost curve is equal to the sum of the internal and external marginal cost curves.
An unregulated monopoly will produce where the internal marginal cost curve intersects with the demand curve.
All of the above statements are true

The demand curve for product X is given by QXd = 350 – 2PX.
a. Find the inverse demand curve.
PX = – QXd

Instructions: Round your answer to the nearest penny (2 decimal places).
b. How much consumer surplus do consumers receive when Px = $60?
c. How much consumer surplus do consumers receive when Px = $45?
d. In general, what happens to the level of consumer surplus as the price of a good falls?
The level of consumer surplus as the price of a good falls.

You are the manager of a firm that receives revenues of $40,000 per year from product X and $80,000 per year from product Y.
The own price elasticity of demand for product X is -2, and the cross-price elasticity of demand between product Y and X is -1.7.
How much will your firm’s total revenues (revenues from both products) change if you increase the price of good X by 1 percent?
Instructions: Round your answer to the nearest dollar. Include a minus (-) sign if applicable.

Describe how a manager who derives satisfaction from both income and shirking allocates a 10-hour day between these activities
when paid an annual, fixed salary of $105,000.
Time spent working: hours
Time spent shirking: hours
When this same manager is given an annual, fixed salary of $105,000 and 3 percent of the firm’s profits—amounting to a total
salary of $140,000 per year—the manager chooses to work 8 hours and shirks for 2 hours. Given this information, which of the
compensation schemes does the manager prefer?

The manager is indifferent between the two payment schemes.
The scheme with fixed payment of $105,000 and a percentage of profits.
The scheme with only a fixed payment of $105,000.

Suppose the own price elasticity of market demand for retail gasoline is -0.6, the Rothschild index is 0.4, and a typical gasoline
retailer enjoys sales of $1,800,000 annually. What is the price elasticity of demand for a representative gasoline retailer’s
Instruction: Round your answer to 2 decimal places.

Use the following normal-form game to answer the questions below.

a. Identify the one-shot Nash equilibrium.

b. Suppose the players know this game will be repeated exactly three times. Can they achieve payoffs that are better than the oneshot Nash equilibrium?

c. Suppose this game is infinitely repeated and the interest rate is 4 percent. Can the players achieve payoffs that are better than
the one-shot Nash equilibrium?

d. Suppose the players do not know exactly how many times this game will be repeated, but they do know that the probability the
game will end after a given play is ?. If ? is sufficiently low, can players earn more than they could in the one-shot Nash

You are the manager of a monopoly that sells a product to two groups of consumers in different parts of the country. Group 1’s
elasticity of demand is -4, while group 2’s is -5. Your marginal cost of producing the product is $60.
a. Determine your optimal markups and prices under third-degree price discrimination.
Instruction: Round your answers to two decimal places.
Markup for group 1:
Price for group 1: $

Markup for group 2:
Price for group 2: $
b. Which of the following are necessary conditions for third-degree price discrimination to enhance profits.
Instructions: You may select more than one answer. Hilight in red for the correct answers and click twice to empty the box for
the wrong answers. You must click to select or deselect each option in order to receive full credit.

We are able to prevent resale between the groups.
At least one group has elasticity of demand greater than 1 in absolute value.
There are two different groups with different (and identifiable) elasticities of demand.
At least one group has elasticity of demand less than one in absolute value.

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