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Multiple Choices: There are 15 questions and each question is worth 1 points. Please select one and
only one answer and circle the letter of your answer.
1. A manager cares about the total labor cost and wants it to be minimized. She can
choose between two projects: Project A allows her to hire workers who must be paid WA
each, Project B allows her to hire workers who must be paid WB each. She has to
achieve a total profit of $100,000 by choosing either or both projects. In this constraint
optimization problem, which of the four following statements is true?
A. The objective function is Min (WANA + WBNB), where Ni is the number of workers on
project i (i = A, B).
B. The objective function is Max (WAN + WBN), where N is the number of workers and Wi is
the wage of the worker on project i (i = A, B).
C. The objective function is Min (NA + NB), where Ni is the number of workers on project i (i
= A, B).
D. The constraint is (WA + WB = $100,000).
2. If the interest rate is five percent, the present value of $200 received at the end of five
years is:
A. $121.34.
B. $156.71.
C. $176.41.
D. $132.62.
3. Suppose that Debbie and Joe are the only two individuals in the market for ski
equipments. Their demand curves are, respectively, P = 5 QDebbie/4 and P = 3 QJoe.
Which of the following gives the expression for market demand if price is above $5?
A. Qm = 0
B. P = 8 5Qm/4
C. Qm = 23 5P
D. Cannot be determined from the given information
EMA Microeconomics
4. Erins utility function is given by U(x,y) = xy. Suppose her income is I, price of x is Px
and price of y is Py what are the expressions for the demand curves for x?
A. x = 0
B. x = I/Px
C. x = I/(2Px)
D. Cannot be determined from the information given.
5. An electronic company purchases a food company. This is an example of:
A. vertical integration.
B. horizontal integration.
C. cointegration.
D. conglomerate integration.
6. The industry elasticity of demand for telephone service is -2 while the elasticity of
demand for a specific phone company is -5. What is the Rothchild index?
A. 0.2.
B. 0.4.
C. 0.5.
D. 0.7.
7. An industry consists of six firms with annual sales of $300, $500, $400, $700, $600, and
$600, respectively. What is the industry's C4?
A. 0.58.
B. 0.62.
C. 0.74.
D. 0.77.
8. An industry consists of six firms with annual sales of $300, $500, $400, $700, $600, and
$600, respectively. What is the industry's HHI?
A. 1,659.
B. 1,779.
C. 1,839.
D. 1,909.
EMA Microeconomics
EMA Microeconomics
EMA Microeconomics
Short Answer Questions: Point values for each question are indicated at the end of each question.
1. (12 points)
A homogeneous product duopoly faces a market demand function given by
P = 300 2Q , where Q = q1 + q2 . Both firms have a constant marginal cost and average
total cost ATC = MC = 100 . These two firms are competing against each other under
Cournot market structure by choosing their optimal ouput.
a. What is Firm 1s profit-maximizing quantity, given that Firm 2 produces an output of
50 units per year?
EMA Microeconomics
d. Summarize Cournot equilibrium (market output, market price and individual firms
profit)
e. What would the equilibrium price and quantity in this market be if it were perfectly
competitive?
f. What would the equilibrium price and quantity in this market be if the two firms
colluded to set the monopoly price?
g. Compare the market output and price you calculate from d, e and f. Which market
structure has the highest market output and which market structure has the highest
market price?
EMA Microeconomics
2. (7 points)
A monopolist sells a product with a total cost function TC = 1200 + 0.5Q 2 . The market
demand curve is given by the equation P = 300 Q .
a. Find the profit-maximizing output and price for this monopolist. Calculate the
monopolists profit.
c. Calculate the marginal cost at the monopolists profit-maximizing output and its
Lerner index.
EMA Microeconomics
3. (6 points)
Explain how each of the following affects the optimal method of acquiring an input.
a. A complex contracting environment.
b. A specialized investment.
c. Opportunism.
d. Bargaining costs.
EMA Microeconomics
4. (5 points)
The corn chips industry is perfectly competitive, and each producer has the long-run
total cost function TC = 40q 6q + (1/ 3)q . The market demand curve for corn chips
2
is Q = 2200 100 P .
a. What is the long-run equilibrium price in the corn chips industry?
c. How many firms are in the corn chips industry in a long-run competitive
equilibrium?