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Econ 301-Managerial Economics

Name____________________

Spring 2014
Practice Exam 4

UIN_____________________

Part I: 10 common final exam questions


1.
2.
3.
4.
5.
6.
7.
8.
9.
10.

Types of elasticity
Own price elasticity and total revenue
Cost minimization condition
Profit maximization condition for labor
Short-run production feature
Profit maximization condition for quantity
Market power
Short-run decision for a perfectly competitive firm
Long-run adjustment for perfect competition industry
Characteristics for the four market structure

Part II: chapter 11, 9, and 10


Answer the questions on the basis of the following game.
Suppose you are an analyst for the Coca-Cola Company. An individuals inverse demand for Coca-Cola is
estimated to be P 98 4Q . If Coca-Cola is produced according to the following cost function
C (Q) 2Q .
1. Refer to the above information. If you engage in monopoly pricing strategy, the profit-maximizing
quantity and price are:
A.
and
B.
and
C.
and
D.
and

2. Refer to the above information. If you engage in the first-degree price discrimination, the profits are:
A.
B.
C.
D.

3. Refer to the above information. If you engage in two-part pricing, the price per unit is:
A.
B.
C.
D.

4. Refer to the above information. If you engage in two-part pricing, the fixed fee is:
A.
B.
C.
D.

5. Refer to the above information. If you engage in block pricing, the unit of the block is:
A.
B.
C.
D.

6. Refer to the above information. If you engage in block pricing, the price of the block is:
A.
B.
C.
D.

Suppose that JVC is trying to decide how to price a new stereo system composed of a receiver, CD player,
and speakers. The company's economists have estimated that two different groups will purchase these
products: students and club owners. The economists' analysis suggests that the total market for its brand of
stereos consists of 10 students and 50 club owners. In addition, it is estimated that the maximum amount
each group will pay for each stereo component is as follows:

Groups
Students
Club owners

Receiver
$250
$200

CD player
$150
$75

Speakers
$100
$250

7. Refer to the above information. If JVC charges $200 for a receiver and $125 for a CD player, the firm will
sell a receiver to:
A. students
B. club owners
C. students and club owners
D. None of the answers are correct

8. Refer to the above information. Suppose that JVC markets the receiver, CD player, and speakers together.
That is, it uses a commodity-bundle strategy such that the products are sold as one item. What price should
JVC charge to maximize revenues?
A. $500
B. $525
C. $480
D. $510

9. Snowpeak Ski Resort offers a price for a lift ticket that is barely over its marginal cost, but the high
equipment rental fee keeps generating big profits. Which pricing strategy is the management using?
A. Price discrimination
B. Two-part pricing
C. Commodity bundling
D. Cross-subsidization

10. Which of the following pricing strategies usually enhances the profits of firms with market power?
A. First-degree price discrimination.
B. Second-degree price discrimination.
C. Commodity bundling.
D. All of the above.

11. First-degree price discrimination:


A. occurs when a firm charges each consumer the maximum price he or she would be willing to pay for each
unit of the good purchased.
B. results in the firm extracting all surplus from consumers.
C. occurs when a firm charges each consumer the maximum price he or she would be willing to pay for each
unit of the good purchased and results in the firm extracting all surplus from consumers.
D. None of the answers are correct.

12. A campus auditorium sells tickets at half price to students during the last 30 minutes before a concert
starts. This is an example of
A. price discrimination.
B. peak-load pricing.
C. price discrimination or peak-load pricing.
D. none of the statements associated with this question are correct.

13. When two or more divisions mark up prices in excess of marginal cost:
A. double marginalization occurs.
B. two-part pricing occurs.
C. second-degree price discrimination occurs
D. None of the answers are correct.

14. Suppose that the inverse demand for a downstream firm is


. Its upstream division produces
a critical input with costs of
. The downstream firm's cost is
. When there is no
external market for the downstream firm's critical input, the downstream firm should produce:
A. 12.5 units.
B. 13.33 units.
C. 13.64 units.
D. 21.43 units.

15. An oligopolist has a marginal revenue curve that jumps down at 500 units of output. What kind of
oligopoly does the firm most likely belong to?
A. Sweezy.
B. Cournot.
C. Stackelberg.
D. Bertrand.

16. Which of the following produces the lowest market output?


A. Cournot.
B. Stackelberg.
C. Collusion.
D. Bertrand.

17. With linear demand and constant marginal cost, a Stackelberg leader's profits are ___________ the
follower.
A. less than
B. equal to
C. greater than
D. either less than or greater than

Two firms compete as a Cournot duopoly. The demand they face is


two firms are
, and
.
18. Refer to the above information. The reaction function of the firm 1 is:
A.
B.
C.
D.

19. Refer to the above information. The output of the firm 1 is:
A.
B.
C.
D.

20. Refer to the above information. The market price is:


A.
B.
C.
D.

. The cost functions for the

Two firms compete as a Stackelberg duopoly. The demand they face is


the leader is
. The cost function for the follower is
.

. The cost function for

21. Refer to the above information. The output of the leader is:
A.
21
B.
23
C.
24
D.
26

22. Refer to the above information. The output of the follower is:
A.
12.5
B.
11.5
C.
12
D.
11

23. Refer to the above information. The profits of the firms are:
A.
and
B.
and
C.
and
D.
and

Consider a market consisting of two firms where the inverse demand curve is given by
where
. Each firm has a marginal cost of $50.
24. Based on this information, the market price in Bertrand model will be:
A. $275
B. $250
C. $150
D. $50

25. Based on this information, the profit of each firm in Bertrand model will be:
A. $50
B. $25
C. $10
D. $0

26. Based on this information, the market price in collusion model will be:
A. $275
B. $250
C. $150
D. $50

27. Which of the following are quantity-setting oligopoly models?


A. Stackelberg.
B. Cournot.
C. Bertrand.
D. Stackelberg and Cournot.

28. Collusion in oligopoly is difficult to achieve because:


A. it is prohibited by law.
B. every firm has an incentive to cheat given that others follow the agreement.
C. firms usually take care of consumers' interests as a decision priority.
D. it is prohibited by law and every firm has an incentive to cheat given that others follow the agreement.

29. A coordination problem usually occurs in situations where there is


A. no Nash equilibrium in a game.
B. more than one equilibrium.
C. no dominant strategies for both players.
D. a unique, but undesirable Nash equilibrium.

30. When a player randomizes over several available actions to make her current action less predictable, then
a ______________________ strategy has been played.
A. dominant strategy.
B. secure strategy.
C. mixed strategy.
D. trigger strategy.

31. A strategy that results in the highest payoff to a player regardless of the opponents action is called
A. dominant strategy.
B. secure strategy.
C. mixed strategy.
D. trigger strategy.

Refer to the following normal form game of price competition for question.

32. What is the maximum interest rate that can sustain collusion?
A. 24.3%.
B. 12.5%.
C. 78.5%.
D. 112.5%.

Answer the question on the basis of the following one-shot game.

Player 1

Strategy
S1
S2

Player 2
T2
3, 0
2, 5

T1
4, 10
0, 8

T3
1, 3
10, 3

33. Refer to the above game, the dominant strategy for player 2:
A. is T1
B. is T2
C. is T3
D. doesnt exist.

34. Refer to the above game, the dominant strategy for player 1:
A. is S1
B. is S2
C. is S1 and S2
D. None of the above.

35. Refer to the above game, which of the following strategies constitutes a Nash equilibrium?
A. (S1, T1)
B. (S2, T2)
C. (S2, T1)
D. (S1, T3)

36. Refer to the above game, the secure strategy for player 2:
A. is T1
B. is T2
C. is T3
D. doesnt exist.

Answer the question on the basis of the following one-shot game.


Player 2
Player 1

Strategy
A
B

C
2, 2
-8, 10

D
10, -8
15, 15

37. Refer to the above game, what are the Nash equilibrium strategies for this game?
A. (A, C)
B. (B, D)
C. (A, C) and (B, D)
D. None of the answers is correct.

Answer the questions on the basis of the following game.

You

Low Price
High Price

Your Rival
Low Price
High Price
(1, 1)
(50, -5)
(-5, 50)
(10, 10)

38. Refer to the above game. Suppose the game is infinitely repeated and the interest rate is 10%. What are
your profits if you and your rival cooperate?
A. $10
B. $110
C. $60
D. $50

39. Refer to the above game. Suppose the game is infinitely repeated and the interest rate is 10%. What are
your profits if you cheat?
A. $10
B. $110
C. $60
D. $50

40. Refer to the above game. Suppose the game is infinitely repeated and the interest rate is 25%. Most likely
you or your rival may choose to
A. cheat.
B. cooperate.
C. Cant be determined.
D. None of the above.

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