ECP3704 UPDATED TEST PAPER QUESTIONS AND
ANSWERS SURE A+
✔✔Suppose a perfectly competitive market conditions are characterized by the
following inverse demand and inverse supply functions: P=100-5Q and P = 10 + 5Q.
Then, the demand curve facing an individual firm operating in this market is (Hint: solve
for equilibrium P and Q by setting the demand and supply equations equal) - ✔✔A
horizontal line at $55
✔✔A market where a few firms produce most of the output is called a(n) -
✔✔Oligoplistic market
✔✔The prisoner's dilemma and the problem of the cartel are very similar. In both cases,
- ✔✔cooperation would improve the outcome, but it rarely happens
✔✔In a Nash equilibrium, firms are clearly strategically interdependent and - ✔✔they
are noncooperative in determining market outcomes
✔✔Under what market structure do we have strategic play? - ✔✔Oligopoly
✔✔According to the text, successful firms tend to set up - ✔✔an organizational
architecture that links decision making with decision rights
✔✔The income effect means that when the price of a good rises - ✔✔the buying power
of your income falls
✔✔Suppose canned soup is an inferior good. This means that - ✔✔when income rises,
fewer cans of soup will be bought
✔✔The opportunity cost of an action is the - ✔✔value of the most highly valued
alternative action given up
, ✔✔Marginal utility is the - ✔✔additional utility obtained by consuming one additional unit
of a good
✔✔The substitution effect - ✔✔reduces the quantity demanded of a good when its price
increases
✔✔Which of the following is an implicit cost of going to college? - ✔✔Foregone wages
✔✔Assume that the quantity of apples is measured on the horizontal axis and the
quantity of oranges is measured on the vertical axis. If Andy likes both apples and
oranges, then his Marginal Rate of Substitution along the indifference curve indicates -
✔✔how many oranges he is willing to give up in order to obtain one more apple
✔✔Assume MACROSOFT is planning to develop and sell a new word processor. It
estimates that R & D expenses will amount to $300000 for this new software, and it will
have to invest an additional $150,000 to advertise and distribute the new product. If
MACROSFOT'S managers are risk-neutral, they will undertake this project if the
expected revenues from the sales of the new software are - ✔✔at least $450,000
✔✔Susan Chen is a stock analyst. She values two goods: money (income) and her
integrity. Her bonus is based on the number of investments she recommends to the
company. Generally speaking, the higher the bonus she receives, - ✔✔the more she is
willing to trade off her integrity for money
✔✔The _____ of an uncertain payoff is defined as the weighted average of all possible
outcomes, where the probability of each outcome is used as the weights. - ✔✔Expected
value
✔✔The _______ model suggests that the productivity of employees in a firm will
increase if the firm offers lifetime employment and a high salary - ✔✔happy-is-
productive
✔✔If employees' activities follow the economists' view of behavior, managers will be
most effective if they can - ✔✔Influence the costs and benefits of employee actions
✔✔Assume that the quantity of apples is measured on the horizontal axis and the
quantity of oranges is measured on the vertical axis. If the budget line rotates upward
while keeping the same horizontal intercept, it implies that - ✔✔the price of oranges has
decreased
✔✔A budget line - ✔✔Shows all the combinations of goods that require the same total
expenditure
ANSWERS SURE A+
✔✔Suppose a perfectly competitive market conditions are characterized by the
following inverse demand and inverse supply functions: P=100-5Q and P = 10 + 5Q.
Then, the demand curve facing an individual firm operating in this market is (Hint: solve
for equilibrium P and Q by setting the demand and supply equations equal) - ✔✔A
horizontal line at $55
✔✔A market where a few firms produce most of the output is called a(n) -
✔✔Oligoplistic market
✔✔The prisoner's dilemma and the problem of the cartel are very similar. In both cases,
- ✔✔cooperation would improve the outcome, but it rarely happens
✔✔In a Nash equilibrium, firms are clearly strategically interdependent and - ✔✔they
are noncooperative in determining market outcomes
✔✔Under what market structure do we have strategic play? - ✔✔Oligopoly
✔✔According to the text, successful firms tend to set up - ✔✔an organizational
architecture that links decision making with decision rights
✔✔The income effect means that when the price of a good rises - ✔✔the buying power
of your income falls
✔✔Suppose canned soup is an inferior good. This means that - ✔✔when income rises,
fewer cans of soup will be bought
✔✔The opportunity cost of an action is the - ✔✔value of the most highly valued
alternative action given up
, ✔✔Marginal utility is the - ✔✔additional utility obtained by consuming one additional unit
of a good
✔✔The substitution effect - ✔✔reduces the quantity demanded of a good when its price
increases
✔✔Which of the following is an implicit cost of going to college? - ✔✔Foregone wages
✔✔Assume that the quantity of apples is measured on the horizontal axis and the
quantity of oranges is measured on the vertical axis. If Andy likes both apples and
oranges, then his Marginal Rate of Substitution along the indifference curve indicates -
✔✔how many oranges he is willing to give up in order to obtain one more apple
✔✔Assume MACROSOFT is planning to develop and sell a new word processor. It
estimates that R & D expenses will amount to $300000 for this new software, and it will
have to invest an additional $150,000 to advertise and distribute the new product. If
MACROSFOT'S managers are risk-neutral, they will undertake this project if the
expected revenues from the sales of the new software are - ✔✔at least $450,000
✔✔Susan Chen is a stock analyst. She values two goods: money (income) and her
integrity. Her bonus is based on the number of investments she recommends to the
company. Generally speaking, the higher the bonus she receives, - ✔✔the more she is
willing to trade off her integrity for money
✔✔The _____ of an uncertain payoff is defined as the weighted average of all possible
outcomes, where the probability of each outcome is used as the weights. - ✔✔Expected
value
✔✔The _______ model suggests that the productivity of employees in a firm will
increase if the firm offers lifetime employment and a high salary - ✔✔happy-is-
productive
✔✔If employees' activities follow the economists' view of behavior, managers will be
most effective if they can - ✔✔Influence the costs and benefits of employee actions
✔✔Assume that the quantity of apples is measured on the horizontal axis and the
quantity of oranges is measured on the vertical axis. If the budget line rotates upward
while keeping the same horizontal intercept, it implies that - ✔✔the price of oranges has
decreased
✔✔A budget line - ✔✔Shows all the combinations of goods that require the same total
expenditure
