1.

For a steel factory, a decrease in the cost of electricity to the plant will cause the supply curve to:
a) become flatter.
b) shift to the left.
c) shift to the right.
d) become parallel to the price axis.
2. Which of the following is an implicit cost to a firm that produces a good or service?
a) Labor costs
b) Costs of operating production machinery
c) Foregone profits of producing a different good or service
d) Costs of renting or buying land for a production site
3. Basic principles that comprise good management include:
a) identifying goals and constraints.
b) recognizing the nature and importance of profits.
c) understanding incentives.
d) All of the statements associated with this question are correct.
4. Which of the following would not shift the demand for good A?
a) Drop in price of good A.
b) Drop in price of good B.
c) Consumer income.
d) Change in the level of advertising of good A.
5. In a competitive market, the market demand is Qd = 400 - 5P and the market supply is Qs = 10P -
80. A price ceiling of $32 will result in
a) a shortage of 80 units.
b) a shortage of 44 units.
c) a surplus of 26 units.
d) neither a shortage nor a surplus.
6. If the demand function for a particular good is Q = 50 − 4P, then demand at a price of $10 is:
a) elastic.
b) unit elastic.
c) inelastic.
d) Elasticity cannot be determined.
7. Suppose the demand for good x is ln Qxd = 21 − 0.8 ln Px − 1.6 ln Py + 6.2 ln M + 0.4 ln Ax. Then
we know good x is:
a) an inferior good.
b) an elastic good.
c) a normal good.
d) a Giffen good.
8. If quantity demanded for sneakers falls by 6 percent when price increases 20 percent, we know that
the absolute value of the own price elasticity of sneakers is:
a) 0.3.
b) 0.7.
c) 2.3.
d) 3.3.
9. The difference between average total costs and average variable costs is:
a) marginal cost.
b) average fixed cost.
c) fixed cost.
d) None of the statements is correct.
10. Suppose the production function is given by Q = min{K, L}. How much output is produced when
10 units of labor and 9 units of capital are employed?
a) 0
b) 4
c) 9
d) 13
11. For given input prices, isocosts closer to the origin are associated with:
a) lower costs.

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b) the same costs.
c) higher costs.
d) initially lower, then higher costs.
12. Isoquants are normally drawn with a convex shape because:
a) inputs are perfectly substitutable.
b) inputs are perfectly complementary.
c) inputs are not perfectly substitutable.
d) inputs are not perfectly complementary.
13. Costs that are forever lost after they have been paid are:
a) production costs.
b) fixed costs.
c) sunk costs.
d) variable costs.
14. Which of the following is NOT a type of integration?
a) Vertical mergers
b) Horizontal mergers
c) Mega mergers
d) Conglomerate merger
15. In perfect competition, which is NOT true?
a) Both concentration ratios and Rothschild indexes tend to be close to zero.
b) There are a large number of firms, and each is small relative to the entire market.
c) At least one firm has a perceptible impact on the market price.
d) Firms produce homogenous goods.
16. Differentiated goods are a feature of a:
a) perfectly competitive market.
b) monopolistically competitive market.
c) monopolistic market.
d) monopolistically competitive market and monopolistic market.
17. The chemical industry has a Lerner index of 0.67. Based on this information, a firm with marginal
cost of $10 should charge a price of:
a) $30.30.
b) $14.93.
c) $6.70.
d) $3.30.
18. In a competitive industry with identical firms, long-run equilibrium is characterized by:
a) P = AC.
b) P = MC.
c) MR = MC.
d) All of the statements associated with this question are correct.
19. Consider a monopoly where the inverse demand for its product is given by P = 200 − 5Q. Based
on this information, the marginal revenue function is:
a) MR(Q) = 400 − 2.5Q.
b) MR(Q) = 400 − 10Q.
c) MR(Q) = 200 − 10Q.
d) MR(Q) = 200 − 2.5Q.
20. A monopoly has produced a product with a patent for the last few years. The patent is going to
expire. What will happen after the patent expires?
a) The incumbent will leave the market.
b) The incumbent will retain its status as a monopoly but produce at a lower price.
c) Some firms will enter the industry.
d) None of the answers is correct.
21. One of the sources of monopoly power for a monopoly may be:
a) diseconomies of scale.
b) differentiated products.
c) patents.
d) free entry and exit.

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22. Which would you expect to make the highest profits, other things equal?
a) Bertrand oligopolist
b) Cournot oligopolist
c) Stackelberg leader
d) Stackelberg follower
23. Firm 1 and firm 2 compete as a Cournot oligopoly. There is an increase in marginal cost for firm
1. Which of the following is NOT true?
a) Firm 1 will produce less.
b) Firm 2 will produce more.
c) Both firm 1's and firm 2's reaction functions are shifted.
d) Profits of firm 1 will decrease.
24. If firms compete in a Cournot fashion, then each firm views the:
a) output of rivals as given.
b) prices of rivals as given.
c) profits of rivals as given.
d) All of the statements associated with this question are correct.
25. Which of the following is the major means to signal good quality of goods by firms?
a) Sales
b) Advertisements
c) Warranties/guarantees
d) Both sales and advertisements
26. A mixed strategy is a strategy that:
a) results in the highest payoff to a player regardless of the opponent's action.
b) guarantees the highest payoff given the worst possible scenario.
c) describes a set of circumstances in which no player can improve her payoff by unilaterally
changing her own strategy, given the other players' strategies.
d) randomizes over two or more available actions in order to keep rivals from being able to
predict a player's action.
27. Which of the following pricing policies does NOT extract the entire consumer surplus from the
market?
a) First-degree price discrimination
b) Peak load pricing
c) Two-part pricing
d) Block pricing
28. A coordination problem usually occurs in situations where there is:
a) no Nash equilibrium in a game.
b) a unique, but undesirable Nash equilibrium.
c) a unique, secure strategy for both players.
d) more than one Nash equilibrium.
29. To engage in first-degree price discrimination, a firm must:
a) be able to set P > MC.
b) know each consumer's maximum willingness to pay.
c) prevent low-value consumers from reselling to high-value consumers.
d) All of the answers are correct.
30. Refer to the figure below. During high-peak times, what price-quantity combination should the
firm charge to maximize profit?

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a) P1 and Q3
b) P2 and Q3
c) P4 and Q3
d) P1 and Q2