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The threat of new entrants would be higher under which of the following conditions?
Selected Answer:product differentiation in the industry is low
Which of the following is a device that controls imports and generates government revenue?
Selected Answer:tariffs
In repeated games, a strategy that involves attacking players that attack you and cooperating
with players that cooperate with you is a
Selected Answer:tit-for-tat strategy
An individual must decide whether or not to pursue a business opportunity. If he does pursue the
opportunity, then he will get a $20 profit if the business is successful and a $10 loss if the business
fails. Apply the maximin and minimax regret criteria to this decision.
Selected Answer:maximin: do not invest. minimax regret: invest
The fully allocated cost of a product is $45. If the firm wants to use a markup of 30%, then it should
charge a unit price of
Selected Answer:$58.5
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Question 10
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Identify the Nash equilibrium in the following game.
Company B
Bargain hard
Company ABargain hard(0,0)
Comply(-10,10)
Selected Answer:(0,0)
Comply
(10,-10
) (5,5)
If an increase in output by a firm imposes uncompensated costs on other firms, these costs are
referred to as
Selected Answer:external diseconomies of production
Which of the following is an example of the prisoners' dilemma?
Selected members of a commodity cartel produce excess output, driving down market
Answer: price
The market demand curve for a perfectly competitive industry is QD=12-2P. The market supply
curve is QS=3+P. The market will be in equilibrium if
Selected Answer:P=3 and Q=6
The prisoners' dilemma explains why
Selected Answer:cartels are inherently unstable
The restaurant industry has a market structure that comes closest to
Selected Answer:monopolistic competition
Investment A has an expected value of 5 and a standard deviation of 2. Investment B has an
expected value of 10 and a standard deviation of 5. Using the coefficient of variation approach to
comparing these two investments,
Selected Investment A would be selected because it has the smaller coefficient of
Answer: variation
An investment opportunity will pay $10 with a 20% probability, $20 with a 40% probability, $30
with a 30% probability, and $40 with a 10% probability. What is the standard deviation of the
investment?
Selected Answer:9
Suppose that the firms in an oligopolistic market engage in a price war and, as a result, all firms earn
lower profits. Game theory would describe this as
Selected Answer:a prisoners' dilemma
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Question 15
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Which of the following defines a zero-sum game?
Selected Answer:the negative effects plus the positive effects of the game sum to zero
In a two-player game, which of the following is a Nash equilibrium?
Selected Answer:each player chooses a strategy that is optimal given the others’ choice
Which of the following is a characteristic of both monopolistic competition and perfect competition?
Selected Answer:in the long run, a firm will earn zero economic profit
The break-up of AT&T in 1984 separated the poduction of long distance and local telephone
service and sacrificed beneftis from
Selected Answer:economies of scale
Answers: economies of scope
One difference between the public interest theory and the economic theory of regulation is that the
former
Selected asserts that regulation is a response to market failure and the latter that it is a
Answer: response to pressure group action designed to promote the interests of regulated
firms
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Question 20
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Which of the following is always illegal in the U.S.?
Selected Answer:collusion
A strategy that is best regardless of what rival players do is called
Selected Answer:a dominant strategy
A firm can borrow at an interest rate of 5%. Its marginal tax rate is 40%. What is its cost of debt?
Selected Answer:3%
Antilock brakes, airbags, and seatbelts increased the number of accidents while simultaneously
decreasing the number of fatal accidents. Why does this happen?
Selected Answer:moral hazard
An investment opportunity will pay $50 with a 10% probability, $20 with a 40% probability, and
will result in a loss of $20 with a 50% probability. What is the expected value of the investment?
Selected Answer:$3
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Which of these deals with asymmetry of information?
Selected Answer:all of the above
A firm that is considering one independent project should accept it if
Selected Answer:the internal rate of return on the project exceeds the firm's cost of capital
An individual is indifferent between a certain payment of $20 and a game that will pay $50 or
nothing with equal probabilities. The individual has a certainty equivalent coefficient of
Selected Answer:0.80
In the short run, a monoplist will shut down if it is producing a level of output where marginal
revenue is equal to short-run marginal cost, but price is
Selected Answer:less than average variable cost
A firm plans to raise $4 million by borrowing at an interest rate of 16% and to raise $1 million by
issuing common stock. The firm's stock has a beta coefficient of 2, the risk free interest rate is 6%,
the average rate of return on stocks is 9%, and the marginal tax rate is 25%. What is the firm's
composite cost of capital?
Selected Answer:12%
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Question 29
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Question 34
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Which of the following made monopolization and restraint of trade illegal?
Selected Answer:Sherman Act
There are two U.S. locations where your company is currently the only producer of soda. You
currently make 40 in each location, but Pepsi is entering the markets. What decision should you
make? (the chart applies to each location)
Pepsi
Low priceHigh price
Your Company Low price(2,2)(10,-5)
High price(-20,30)(-10,40)
Selected Answer:price low
An individual has a certainty equivalent coefficient equal to 0.4. What is the most this individual
would pay to play a game that pays $50 or $30 with equal probability?
Selected Answer:$16
The fully allocated cost of a product is $10. If the price elasticity of demand for the product is -2,
then the firm's optimal markup is
Selected Answer:100%
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Which of the following is a condition required for the practice of price discrimination?
Selected the seller must be able to identify different customer groups with different
Answer: demand elasticities
In game theory, a dominant strategy refers to a choice
Selected Answer:that is the best response regardless of the strategy selected by another player
A firm that uses profits earned in one market to sell a product or service below its average variable
cost in another market is engaged in
Selected Answer:predatory pricing
A monopolist faces a marginal revenue function of MR = 20 - Q. The monopolist's marginal cost is
$15 at all levels of output. How many units of output should the firm produce in order to maximize
profits?
Selected Answer:5
A market is comprised of five firms and their market shares are 30%, 25%, 20%, 15%, and 10%.
What is the Herfindahl index for the industry?
Selected Answer:2,250
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Question 39
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When several independent firms form a temporary network to take advantage of a short-
term business opportunity, the result is called a
Selected Answer:virtual corporation
A movie theater that charges a lower price for matinees than for evening showings is engaging in
Selected Answer:third-degree price discrimination
Question 40
