A+ Answers

QUESTION 1

Assume that a dress shirt is priced at $120.00 At that price six stores in a district sold 650 shirts in a week. Then all six stores declared a sale: buy one get one free. This advertisement increased the sale to 3050 shirt in the following week.

Calculate the price elasticity of demand and interpret your result.

Show all calculation and carry your work to 2 decimal points.

QUESTION 2

Assume the following demand and supply functions:

Demand: Q = 600 - .1P

Supply:  Q = -150 + .5P

(a). Calculate equilibrium price and quantify

(b). Now assume that a seller declares 20% sale on the market equilibrium price. What will happen?

(c). If a seller decides to charge 20% more price than the market equilibrium price, what will happen?

QUESTION 3

Discuss how each of the following will affect the market clearing price and quantity in each market. Discuss how the supply and/or demand curves will shift in the following cases (if at all). 
a. Incomes rise and the good is a normal good. 
b. The state of technology improves.

QUESTION 4

Is the concept of elasticity useful to managers and business owners? Why or why not? Explain with examples.

QUESTION 5

How do price controls affect the managerial decision-making process (either maximum or minimum price controls)?

QUESTION 6

The main difference between perfect competition and monopolistic competition is:

                        the number of sellers in the market.

                        the ease of exit from the market.

                        the difference in the firm's profits in the long run.

                        the degree of product differentiation.

QUESTION 7

Which of the following industries is most likely to represent the Monopolistic competition market structure?

                        The Agriculture industry

                        Utility Companies

                        Restaurants services

                        Tobacco products

QUESTION 8

If firms are earning economic profit in a monopolistically competitive market, which of the following is most likely to happen in the long run?

                        Some firms will leave the market.

                        Firms will join together to keep others from entering.

                        New firms will enter the market, thereby eliminating the economic profit.

                        Firms will continue to earn economic profit.

QUESTION 9

In the Kinked Demand curve model, price tends to settle at the kink because

                        MR=MC rule does not apply

                        there is no unique MR curve

                        the demand curve is inelastic throughout the range

                        none of the above

QUESTION 10

A Cartel is defined to be:

                        Any oligopolistic industry with fewer than 4 firms.

                        A form of oligopoly in which firms agree to sell at different prices like in monopolistic competition.

                        A form of oligopoly in which firms formally agree to establish a common price, in effect acting like a monopoly.

                        A form of oligopoly in which firms agree to compete with each other on an equal basis.

QUESTION 11

Which of the following is the best example of a product or service that provides a benefit externality?

                        the construction of a private road that allows vehicles if a toll is paid

                        a public library

                        a bookstore that is open 24 hours

                        the construction of a golf course in a private hotel

QUESTION 12

An example of a cost externality occurs when a mining company:

                        dumps waste in river upstream from a popular fishing spot

                        produces coal that is not in demanded in a recession

                        underpays its employees

                        overwork its employees

QUESTION 13

Which of the following may change the supply curve?

                        Taste of consumers

                        Income of consumers

                        Technology

                        Price of related goods

QUESTION 14

X and Y are substitute goods. X is put on sale "buy one get one free". This will lead to

                        an increase in demand for Y

                        a decrease in demand for Y

                        an increase in demand for X and Y

                        a decrease in demand for X and Y

QUESTION 15

Economic surplus is

                        demand price less equilibrium price

                        supply price above market price

                        consumer's surplus plus producer's surplus

                        none of the above

QUESTION 16

A monopsony is a market with

                        one seller

                        one buyer

                        one buyer and one seller

                        two to eight sellers

QUESTION 17

A bilateral monopoly is a condition characterized by

                        a perfect competition firm facing a monopsony

                        a monopolistic firm facing a monopoly

                        an oligopoly facing a monopsony

                        a monopsony facing a union

QUESTION 18

A price discriminating firm will charge the lowest price when price elasticity of demand is

                        lowest

                        highest

                        equal to 1

                        zero

QUESTION 19

P = MC holds for

                        all firms

                        monopoly

                        oligopoly

                        perfect competition

QUESTION 20

Oligopolists tend to

                        allocate resources inefficiently

                        maximize employment

                        maximize social benefit

                        all of the above

QUESTION 21

In the short run, a monopolist may

                        attract other firms into the industry

                        upgrade technology

                        incur loss

                        none of the above

QUESTION 22

The best defense of oligopolist in our economy is

                        new orders for consumer goods and materials

                        the rate of change in sensitive materials prices

                        investment in research and development

                        growth through merger

QUESTION 23

During recessionary periods, the sale of ground beef goes up. This indicates that

                        people have more time to make their own hamburgers during recessionary times

                        people have more time to be outdoor and cook hamburgers during recessionary times

                        ground beef is an inferior good

                        ground beef is a normal good

QUESTION 24

In both monopolistic competition and oligopoly market structures

                        there is easy entry and exit

                        consumers perceive differences among the products of various competitors

                        economic profits may be earned in the long run

                        there are many sellers

QUESTION 25

In the short run, a monopolistically competitive firm

                        always earns profit

                        earns profit higher than an oligopolistic firm

                        earns profit higher than a perfectly competitive firm

                        may or may not earn profit

QUESTION 26

If the price elasticity of demand is 2, a 50% sale on a product will

                        decrease total revenue

                        increase total revenue

                        keep total revenue constant

                        increase total revenue by 50% 

QUESTION 27

Successful price discrimination requires

                        the ability to prevent transfers among customers in different submarkets

                        inelastic demand in each submarket

                        constant marginal costs

                        identical price elasticities among submarkets

QUESTION 28

There is no scope for price discrimination in

                        Oligopoly

                        monopolistic competition

                        monopoly

                        perfect competition

QUESTION 29

Which of the following is not an example of monopsony?

                        National Football League

                        National Basketball Association

                        A Public School District

                        College professors

QUESTION 30

Labor unions are able to secure higher than market wage for their members by

                        negotiation only

                        restricting supply and negotiation

                        resorting to strike for an indefinite period

                        law suits

QUESTION 31

The concept of homogeneous product is applicable in

                        Oligopoly

                        monopoly

                        monopolistic competition

                        perfect competition

QUESTION 32

A monopolistically competitive firm maintains its market share through

                        artificial product differentiation

                        relying on brand loyalty

                        non-price competition

                        all of the above

QUESTION 33

A short run production function is one where

                        at least one factor of production is fixed

                        all factors of production are fixed

                        capital may or may not be substituted for labor

                        none of the above

QUESTION 34

Resources are always efficiently used in

                        any market with some degree of competition

                        monopolistic competition

                        oligopoly because of high investment in R&D

                        perfect competition

QUESTION 35

A brand of computers is assembled in Thailand, which is experiencing labor strike for for almost three months. This is expected to

                        Increase the supply of this brand of computers

                        lower the wage rate of labor in Thailand in the short-run

                        increase the price of this brand of computers

                        all of the above

QUESTION 36

If the cross price elasticity of demand of X and Y is 1.22, the two goods are

                        complementary goods

                        inferior goods

                        substitute goods

                        independent goods

QUESTION 37

Compared to competition, a monopolist

                        produces more

                        charges a lower price

                        produces less

                        charges a higher price

QUESTION 38

Most public utilities in our economy enjoy a good degree of monopoly because of

                        government regulation

                        decreasing returns to scale

                        increasing returns to scale

                        constant returns to scale

QUESTION 39

The long run ATC is flatter in shape because

                        all inputs are fixed

                        there is a greater degree of substitution between inputs

                        input elasticity is limited

                        the long run is undefined

QUESTION 40

Which function of management is most concerned with risk minimization?

                        cost minimization

                        human resource management

                        complying with government regulations

                        entrepreneurial