Question 1

Ten bidders in an oral auction have the following values for an antique clock ($10,$9,$8,$7,$6,$5,$4,$3,$2,$1).If bidders of the $10 and $9 bids collude and bidders of the $3,$4,and $5 bids collude what will the winning price be?

Accepted Answer

A)  $10
B)  $8
C)  $6
D)  $5 B

Question 2

After acquiring a substitute product,to achieve greater profitability,one should

Accepted Answer

A)  Raise price on both products,but raise price more on the less price elastic product
B)  Raise price on both products,but raise price more on the more price elastic product
C)  Raise price on just the less price product
D)  Raise price on just the more price elastic B

Question 3

Antilock brakes,airbags,and seatbelts increased the number of accidents while simultaneously decreasing the number of fatal accidents.Why does this happen?

Accepted Answer

A)  Adverse Selection
B)  Screening
C)  Signaling
D)  Moral Hazard
E)  None of the above D

Question 4

Research has shown that the majority of strategic alliance joint ventures between companies are not successful.Provide an adverse selection and moral hazard explanation for this lack of success.

Accepted Answer

The answer of Research has shown that the majority of...

Question 5

In the short term,a firm in a very competitive market

Accepted Answer

A)  can never earn positive economic profits.
B)  sets its price where marginal cost equals average total cost.
C)  must set its price at the competitive equilibrium price even if it is below their minimum average cost.
D)  maximizes its profits when it experiences economies of scale.

Question 6

Ivan loves classical music,and his favorite composer wrote nine symphonies.Ivan just happens to the 9 symphonies in exactly the order in which they were written.The table below shows the values that Ivan places on having these symphonies which he does not currently yet own:
Rank Total Personal Value
9
2_______________36

4_______________64
5_______________75
6_______________84

8_______________96
9_______________99
You can interpret the above to mean,for example,that Ivan values her favorite Symphony at $19,and that the total value of the first Symphony plus Symphony # 2 (his second favorite)is $36,etc.If the symphonies were sold individually on CDs - one symphony per disc - and the price per CD was $10.00,how many CDs would he buy?
[The above question was inspired by a question by Victor Tabush]

Accepted Answer

The answer of Ivan loves classical music,and his favorite composer...

Question 7

The data below are for a competitive business (price-taker).If the market price is $300 per unit,the company should $\begin{array}{rrrrr}
&\text { Average } & \text { Average } & \text { Average }\
\text { Output}& \text {Fixed Costs}& \text {Variable Costs}& \text {Total Costs} &\text {Marginal Cost }\
\hline
0&\$ 3,000\
1 & \$ 3,000 & \$ 900 & \$ 3,900 & \$ 900 \
2 & \$ 1,500 & \$ 800 & \$ 2,300 & \$ 700 \
3 & \$ 1,000 & \$ 700 & \$ 1,700 & \$ 500 \
4 & \$ 750 & \$ 600 & \$ 1,350 & \$ 300 \
5 & \$ 600 & \$ 500 & \$ 1,100 & \$ 100 \
6 & \$ 500 & \$ 550 & \$ 1,050 & \$ 800 \
7 & \$ 429 & \$ 600 & \$ 1,029 & \$ 900 \
8 & \$ 375 & \$ 650 & \$ 1,025 & \$ 1,000 \
9 & \$ 333 & \$ 700 & \$ 1,033 & \$ 1,100 \
10 & \$ 300 & \$ 750 & \$ 1,050 & \$ 1,200
\end{array}$

Accepted Answer

A)  produce as much as possible
B)  shut down (produce nothing) .
C)  produce four units.
D)  produce six units.

Question 8

In a principal-agent relationship,the principal's goal is to...

Accepted Answer

A)  control the agent
B)  pay the agent
C)  align agent's incentives with principal's goals
D)  eradicate shirking

Question 9

The publisher of an online Economics Primer course is trying to sell the primer to a group of MBA students and a group of EMBA students in the US.The maximum willingness to pay for the primer in each group of students as well as the number of students in each group is given in the table.Assume the marginal cost is $50. $$\begin{array} { | l | l | l | } 
\hline & \text { Willinemess to pay } & \text { Number af students } \
\hline \text { EMEA } & \$ 300 & 1,000 \
\hline \text { MEA } & \$ 100 & 2,000 \
\hline
\end{array}$$ What is (are)the publisher's profit maximizing price(s)?

Accepted Answer

A)  Charge $300 to EMBA and $100 to MBA
B)  Charge either $300 or $100 (the publisher is indifferent) 
C)  Charge a uniform price of $300
D)  Charge a uniform price of $100

Question 10

If a business can sell 10 units at a price of $30 but has to reduce price to $29 in order to sell 11 units,which of the following can we conclude?

Accepted Answer

A)  Marginal revenue is negative.
B)  Marginal revenue is decreasing,but it is still higher than price.
C)  Demand is elastic and marginal revenue is positive.
D)  Total revenue increases,so demand must be inelastic.

Question 11

A company manufactures three products as shown below.It is considering a decision to discontinue the production of product C.Corporate overhead of $60,000 is allocated to each product in equal parts.If the company decides to discontinue product C,50% of its quantity demanded will shift to product A (i.e.,products A and C are substitutes).Product B is neither a substitute nor a complement for product A or product C. $\begin{array}{|l|r|r|r|}
\hline &A&B&C\
\hline \text { Unit Price } & \$ 10.00 & \$ 15.00 & \$ 5.00 \
\hline \text { Marginal Cost } & \$ 5.00 & \$ 5.00 & \$ 3.00 \
\hline \text { Quantity Sold } & 10,000 & 2,000 & 3,000 \
\hline \text { Unit Margin } & \$ 5.00 & \$ 10.00 & \$ 2.00 \
\hline \text { Total Margin } & \$ 50,000.00 & \$ 20,000.00 & \$ 6,000.00 \
\hline \text { Overhead Allocation } & \$ 20,000.00 & \$ 20,000.00 & \$ 20,00.00 \
\hline \text { Accounting Profit } & \$ 30,000.00 & \$ 0.00 & -\$ 14,000.00\
\hline
\end{array}$ The company should:

Accepted Answer

A)  continue producing C because it has a positive unit margin.
B)  continue producing C because the substitution effect does not compensate for the loss of profit contribution from product C.
C)  discontinue producing C because this decision maximizes the total economic profit contribution generated by the company.
D)  discontinue both B and C since neither has a positive contribution to economic profit.

Question 12

Why might a company use an indirect price discrimination scheme versus direct price discrimination?

Accepted Answer

A)  The different customer types shop at different stories
B)  The demand for each customer type is the same
C)  The different customer types can not be uniquely identified directly
D)  The company can prevent arbitrage between its different customer types

Question 13

A computer manufacturer can produce 5 computers for $5,000 and 10 computers for $7,500.Based on this information,what is the marginal cost per computer of the 6th through 10th computers?

Accepted Answer

A)  $500
B)  $750
C)  $1,000
D)  $2,500

Question 14

Given payoff matrix
  What's the Nash Equilibrium?
Suppose Joe can move first,choosing his color before Sally.Use a tree diagram to show what color Joe will choose.
How much would Joe be willing to pay to choose first?

Accepted Answer

The answer of Given payoff matrix
  What's the Nash...

Question 15

If Sam's,a local watering hole,increased the price of a pint of Guinness by 20%,it estimates the number of MBA students purchasing Guinness would decrease by 4%.Based on this data,

Accepted Answer

A)  total revenues would increase because demand is elastic.
B)  total revenues would decrease because demand is elastic.
C)  total revenues would remain the same.
D)  total revenues would increase because demand is inelastic.

Question 16

The forces that create high rivalry within an industry include all of the following except:

Accepted Answer

A)  numerous competitors.
B)  high fixed costs.
C)  fast industry growth.
D)  low switching costs for buyers.

Question 17

If a firm's average cost is falling (economies of scale)with output,then

Accepted Answer

A)  marginal cost is less than average cost.
B)  marginal cost is rising.
C)  marginal cost is greater than average cost.
D)  average cost is rising as a function of output.

Question 18

Which feature is not included in the best strategies that earn the highest profit in a repeated Prisoner's Dilemma?

Accepted Answer

A)  Be nice
B)  Be forgiving
C)  Be easily provoked
D)  Be envious

Question 19

For a competitive firm (price-taker),

Accepted Answer

A)  If it increased price,total revenues would rise.
B)  If it increased price,total revenues would rise,but profits could fall.
C)  If it increased price,both total revenues and profits would rise.
D)  If it increased price,all revenues would disappear.

Question 20

A bidders' value for a good may be low ($2),medium ($5),or high ($7).There are an equal number of potential bidders having each value.Suppose two bidders show up for an auction at which the good is offered.What is the best estimate of the expected revenue from the auction assuming there is no minimum bid increment?

Accepted Answer

A)  $4.11
B)  $3.99
C)  $3.56
D)  $5.00

Exam 1: Managerial Economics

Ten bidders in an oral auction have the following values for an antique clock ($10,$9,$8,$7,$6,$5,$4,$3,$2,$1) .If bidders of the $10 and $9 bids collude and bidders of the $3,$4,and $5 bids collude what will the winning price be?