Managerial Economics Exam Latest
Questions with Correct Answers
The average consumer at a firm with market power has an inverse demand function of
P = 10 - Q. The firm's cost function is C = 2Q. If the firm engages in two part pricing,
what is the optimal fixed fee to charge each consumer? - Answer-$32
You are the manager of a gas station and your goal is to maximize profits. Based on
your past experience, the elasticity of demand by Texans for a car wash is -4, while the
elasticity of demand by non-Texans for a car wash is -6. If you charge Texans $20 for a
car wash, how much should you charge a man with Oklahoma license plates for a car
wash? - Answer-$18.00
Suppose two types of consumers buy suits. Consumers of type A will pay $100 for a
coat, and $50 for pants. Consumers of type B will pay $75 for a coat, and $75 for pants.
The firm selling suits faces no competition and has a marginal cost of zero. If the firm
charges $75 for pants and $75 for a coat, the firm will sell a coat to: - Answer-Type A
consumers and type B consumers
A local video store estimates their average customer's demand per year is Q = 7 - 2P,
and knows the marginal cost of each rental is $0.5. How much should the store charge
for an annual membership in order to extract the entire consumer surplus via an optimal
two-part pricing strategy? - Answer-$9
Suppose two types of consumers buy suits. Consumers of type A will pay $100 for a
coat, and $50 for pants. Consumers of type B will pay $75 for a coat, and $75 for pants.
The firm selling suits faces no competition and has a marginal cost of zero. The optimal
commodity bundling strategy is: - Answer-Charge $150 for a suit
What price should a firm charge for a package of two shirts given a marginal cost of $2
and an inverse demand function P = 6 - 2Q by the representative consumer? - Answer-
$8
Second-degree price discrimination - Answer-Is the practice of posting a discrete
schedule of declining prices for different ranges of quantities
Which of the following phenomena shows that risk aversion is the characteristic of many
people? - Answer-Auto Insurance
, The optimal strategy for a risk neutral bidder in a second-price, sealed-bid auction with
independent private values is to bid - Answer-His or her true valuation
John is a seller in an affiliated values auction environment where bidders are risk-
neutral. Which auction yields John the greatest expected revenue? - Answer-English
Which of the following auction examples have a common value information structure -
Answer-Three firms bid for an oil lease
If insurance companies are required to offer coverage to all interested people, it is said
that premiums for each person will be increased. Assume that the insurance market is
perfectly competitive. What is the major reason for raising the premium? - Answer-Less
healthy people join the pool of insured and hence increase the risk and the premium
When each bidder in an auction knows for sure what the item is worth to that bidder, but
doesn't know the valuations of other bidders, the auction exhibits: - Answer-Private
values
The industry elasticity of demand for telephone services is -2 while the elasticity of
demand for a specific phone company is -5. What is the Rothchild index? - Answer-0.4
A student figured out that the HHI for an industry was 15,000. What is the proper
conclusion? - Answer-The student made some computational errors
Which of the following kinds of market structure are not associated with market power? -
Answer-Perfect Competition
Suppose the market for good X has a four-firm concentration ratio of 0.80. Having
worked for the four largest firms in the industry, you know the sales for these four firms
are given by $100,000, $125,000, $150,000, $175,000. Based on this information we
know that sales for the remaining firms in the industry are: - Answer-$137,500
When the relevant markets are local, the concentration and HHI based on figures for the
entire United States tend to: - Answer-Be biased downward
An industry consists of six firms with annual sales of $300, $500, $400, $700, $600, and
$600. What is the industry's C4? - Answer-0.77
In perfect competition, which is not true? - Answer-Every firm has a small but
perceivable market power
If a monopolistically competitive firm's marginal cost increases, then in order to
maximize profits the firm will: - Answer-Reduce output and increase price
Questions with Correct Answers
The average consumer at a firm with market power has an inverse demand function of
P = 10 - Q. The firm's cost function is C = 2Q. If the firm engages in two part pricing,
what is the optimal fixed fee to charge each consumer? - Answer-$32
You are the manager of a gas station and your goal is to maximize profits. Based on
your past experience, the elasticity of demand by Texans for a car wash is -4, while the
elasticity of demand by non-Texans for a car wash is -6. If you charge Texans $20 for a
car wash, how much should you charge a man with Oklahoma license plates for a car
wash? - Answer-$18.00
Suppose two types of consumers buy suits. Consumers of type A will pay $100 for a
coat, and $50 for pants. Consumers of type B will pay $75 for a coat, and $75 for pants.
The firm selling suits faces no competition and has a marginal cost of zero. If the firm
charges $75 for pants and $75 for a coat, the firm will sell a coat to: - Answer-Type A
consumers and type B consumers
A local video store estimates their average customer's demand per year is Q = 7 - 2P,
and knows the marginal cost of each rental is $0.5. How much should the store charge
for an annual membership in order to extract the entire consumer surplus via an optimal
two-part pricing strategy? - Answer-$9
Suppose two types of consumers buy suits. Consumers of type A will pay $100 for a
coat, and $50 for pants. Consumers of type B will pay $75 for a coat, and $75 for pants.
The firm selling suits faces no competition and has a marginal cost of zero. The optimal
commodity bundling strategy is: - Answer-Charge $150 for a suit
What price should a firm charge for a package of two shirts given a marginal cost of $2
and an inverse demand function P = 6 - 2Q by the representative consumer? - Answer-
$8
Second-degree price discrimination - Answer-Is the practice of posting a discrete
schedule of declining prices for different ranges of quantities
Which of the following phenomena shows that risk aversion is the characteristic of many
people? - Answer-Auto Insurance
, The optimal strategy for a risk neutral bidder in a second-price, sealed-bid auction with
independent private values is to bid - Answer-His or her true valuation
John is a seller in an affiliated values auction environment where bidders are risk-
neutral. Which auction yields John the greatest expected revenue? - Answer-English
Which of the following auction examples have a common value information structure -
Answer-Three firms bid for an oil lease
If insurance companies are required to offer coverage to all interested people, it is said
that premiums for each person will be increased. Assume that the insurance market is
perfectly competitive. What is the major reason for raising the premium? - Answer-Less
healthy people join the pool of insured and hence increase the risk and the premium
When each bidder in an auction knows for sure what the item is worth to that bidder, but
doesn't know the valuations of other bidders, the auction exhibits: - Answer-Private
values
The industry elasticity of demand for telephone services is -2 while the elasticity of
demand for a specific phone company is -5. What is the Rothchild index? - Answer-0.4
A student figured out that the HHI for an industry was 15,000. What is the proper
conclusion? - Answer-The student made some computational errors
Which of the following kinds of market structure are not associated with market power? -
Answer-Perfect Competition
Suppose the market for good X has a four-firm concentration ratio of 0.80. Having
worked for the four largest firms in the industry, you know the sales for these four firms
are given by $100,000, $125,000, $150,000, $175,000. Based on this information we
know that sales for the remaining firms in the industry are: - Answer-$137,500
When the relevant markets are local, the concentration and HHI based on figures for the
entire United States tend to: - Answer-Be biased downward
An industry consists of six firms with annual sales of $300, $500, $400, $700, $600, and
$600. What is the industry's C4? - Answer-0.77
In perfect competition, which is not true? - Answer-Every firm has a small but
perceivable market power
If a monopolistically competitive firm's marginal cost increases, then in order to
maximize profits the firm will: - Answer-Reduce output and increase price
