1. When an exchange economy achieves a competitive equilibrium the contact curve and budget constraint: a.

Are tangential to each other b. Intersect at tangential indifference curves c. Are tangential to the indifference curves d. Intersect at intersecting indifference curves 2.Total revenue is maximised where a. Elasticity of demand is 0 and MR = 0 b. Elasticity of demand is -1 and MR = MC c. Elasticity of demand is -1 and MR = 0 d. Elasticity of demand is 0 and MR = MC 3. The relationship between MR and MC for a monopolist implies that the monopolist operates where demand is e. Elastic f. Equal to marginal cost g. Inelastic h. Equal to average total cost 4. Under a Cournot equilibrium, each firm will produce: a. Where MR = MC b. The same output as each other firm c. As much output as possible d. The same output as for a perfectly competitive firm 5. Suppose that a particular market is served by two firms. The market demand curve is given by P = 100 Q where P = price, and Q = market demand. Each firm incurs a constant cost per unit of 10. The Bertrand solution to this duopoly problem is: a. Each firm charges P = 10 b. Each firm charges P = 20 c. Each firm charges P = 25 d. Each firm charges P = 30 6. In a bilateral monopoly labour market: a. The wage is between reservation wage and MRP bThe wage rate must equal the MC of labour cThe wage rate must equal the AC of labour dThe wage rate must equal both the MC and AC of labour 7. If total costs are given by C=Q ^2, where C is total cost, and Q is output, and total revenue is given by R=12Q-Q^2, where R is total revenue, than the profit maximisation occurs where a. Q=2 b. Q=3 c. Q=8 d. Q=15 8. In the following price setting game in which firms are not assumed to be identical, how many Nash equilibria exist?

Firm 1 High Price Low Price

Firm 2 High Price 8, 6 12, 0

Low Price 2, 2 1, 1

a. b. c. d. e.

Payoffs are profits in millions: firm 1 profits stated first 0 1 2 4

9. Which of the following makes price cooperation between firms difficult? a. A finitely repeated game b. An infinitely repeated game c. The adoption of a Trigger strategy in an infinitely repeated game d. The adoption of a Tit-for-Tat strategy in an infinitely repeated game

10. There are two goods (whose cross price elasticity of demand is zero). The government wishes to raise tax revenue, in a way that was least inefficient. Would it (a) Levy a higher tax on the good with the lower price elasticity. (b) Levy a lower tax on the good with the lower price elasticity. (c) Levy a higher tax on the good with the higher income elasticity (d) Levy a lower tax on the good with the higher income elasticity 11. Assume straight line demand curves. Under perfect competition, firms equate price to marginal cost; and industry output is where price is equal to average revenue. Under monopoly, industry output is where marginal cost is equal to marginal revenue. Assume output is produced under constant returns and that cost conditions are the same under competition and monopoly. Which of the following statements is true? The deadweight loss of monopoly: (a) is double the profits and monopoly sales is half the level of sales under competition. (b) is half of the profits and monopoly sales is half the level of sales under competition. (c) is half the profits and monopoly sales is double the level of sales under competition. (d) is double the profits and monopoly sales is double the level of sales under competition. 12. Which of the following statements is true? a) A dominant strategy equilibrium will also be a Nash equilibrium b) A Nash equilibrium will also be a dominant strategy equilibrium c) A game can have a dominant strategy equilibrium but no Nash equilibrium d) There will always be at least two Nash equilibria in a game

13 Consider the following payoff matrix: Left Up Down (3, 2) (0, 0) Middle (5, 3) (7, 2) Right (4, 1) (7, 3)

Which of the following is a Nash-equilibrium? (a) Up, Middle (b) Down, Right (c) Up, Left (d) None of the above.

14. Newt Gingrich consumes nachos and milk. The slope of his budget constraint is

-4. We may infer that a. The ratio of Newt's income to the price of nachos is 4 b. The ratio of the prices of the two goods is 4 c. The slope of the budget constraint will increase as he moves down the budget constraint d. Both (a) and (c) are true e. None of the above is true
15. A decrease in the price of a good, ceteris paribus, causes

aThe budget constraint to rotate inward, i.e. toward the origin bThe budget constraint to rotate outward, i.e. away from the origin cThe budget constraint to shift outward, i.e. away from the origin dThe budget constraint to shift inward, i.e. toward the origin 16. The magnitude of the slope of the budget constraint f. g. h. i. j. Is the ratio of prices of two goods Is the ratio of income to price of a good Falls as we move down the budget constraint Is always the same as the marginal rate of substitution None of the above

17. A monopolist faces inverse demand P = a - bQ. The monopolists marginal revenue function is a) MR = a-bQ. b) MR = a Q. c) MR = a 2bQ. d) MR = a/Q b. 18. A monopolist faces inverse demand P 300 6Q and has marginal cost MC 120 6Q . What price should this monopolist charge to maximize profit? e) 10 f) 50 g) 210 h) 240 19. A natural monopoly refers to i) Any monopoly based on natural resources. j) Any monopolized market. k) A monopolized market where the barriers to entry are not structural. l) A market for which the total cost incurred by a single firm producing that output is less than the combined total cost of two or more firms producing the same total output between them.