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Practice Questions for the Final Exam, Fall 2020

MGCR 293 Managerial Economics
Instructions:
 The final exam is cumulative; however, majority of questions will be from Chapter 6 – Chapter
12. You still have to use some topics/formulas from previous chapters to answer the questions
in the final exam.
 Format of the practice questions is the same as the final exam:
o There is a total of 75 questions worth 100 points. The questions are separated into 2
sections, as follows:
 Section 1: 50 questions; each question is worth 1 point.
 Section 2: 25 questions; each question is worth 2 points.
o The time limit for the final exam is 3 hours + 30-min. grace period.
o You will write the final exam in Quizzes, myCourses. That is the same way you have
done in the midterm exam.

Final exam schedule:

o Timed open-book exam: From 18 Dec 2020 at 2 PM to 20 Dec 2020 at 2 PM (48 hours
access period).
o You will have 3 hours + 30-min grace period to complete the final exam.

Section 1: 50 Questions: Each question is worth 1 point.

1. A firm’s total cost function is TC = 100 + 50Q – 10Q2 + Q3. What is the output level (Q*)
that minimizes the average variable cost?
A. Q* = 5 units.
B. Q* = 10 units.
C. Q* = 15 units.
D. Q* = 20 units.
E. None of the above.

2. A firm’s total cost function is TC = 10 + 5Q – 9Q2 + 0.5Q3. What is the output level (Q*) at
which diminishing marginal returns occur?
A. Q* = 5 units.
B. Q* = 6 units.
C. Q* = 12 units.
D. Q* = 20 units.
E. None of the above.
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3. A firm’s production is Q = 2L0.6K0.4, where L is the amount of labor and K is the amount of
capital. If the firm's capital is fixed at 250 units and the price per unit of capital is $5, then the
average fixed cost is
A. $1000/Q.
B. $1250/Q.
C. $1500/Q.
D. $2000/Q.
E. None of the above.

4. Albatross Software has two main products: WindSong is a program that can be used to edit
audio files and SunBurst is a program that can be used to edit digital photos. The two major
types of customers are small businesses and home users. The small business customers have
a reservation price of $300 for WindSong and $450 for SunBurst. The home users have a
reservation price of $100 for WindSong and $125 for SunBurst. Which of the following
statements is true?
A. Bundling the two software products is not likely to be profitable because the marginal
cost of producing software is positive by very small.
B. Bundling the two software products is not likely to be profitable because the
consumer demands are homogeneous.
C. Bundling the two software products is likely to be profitable because the demands are
negatively correlated.
D. Bundling the two software products is not likely to be profitable because the demands
are positively correlated.
E. Bundling the two software products is likely to be profitable because both products
are complementary.

5. If a firm’s total cost function is TC = 200Q – 4Q2 + 0.05Q3, at what levels of output (Q) does
the firm face diseconomies of scale?
A. 0 < Q < 40.
B. 0 < Q < 200.
C. Q > 40.
D. Q > 0.
E. None of the above.

6. Suppose that a firm sells a product for $250 per unit. Average variable cost is $150 per unit.
The firm’s total fixed cost is $1 million. What is the break-even level of output?
A. 30,300 units.
B. 25,000 units.
C. 20,000 units.
D. 10,000 units.
E. None of the above.
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7. Which of the following statements is TRUE?

A. Average fixed cost (AFC) rises as output falls.
B. Total variable cost (TVC) is the total cost divided by the quantity of output
produced.
C. Average variable cost (AVC) always decreases with increased output.
D. Marginal cost (MC) is positive, negative, or zero.
E. None of the above.

8. A firm’s production is Q = 2LK0.5, where L is the amount of labor and K is the number of
machines. The price per unit of labor is $2 and the price of a machine is $5. If the firm has
nine machines, what is the short-run total cost equation (STC)?
A. STC = 45 + Q.
B. STC = 45 + 3Q.
C. STC = 45 + Q0.5.
D. STC = 45 + Q/3.
E. None of the above.

9. Which of the following statements is TRUE?

A. The ATC curve goes through the minimum of the MC curve.
B. The AVC curve goes through the minimum of the MC curve.
C. The MC curve is at its minimum when the AVC curve is increasing.
D. The AFC curve is increasing as the output level increases.
E. The MC curve goes through the minimum of both the AVC curve and the ATC curve.

10. Joe’s T-shirts has costs given by TC = $100 + 3Q, where Q is the number of shirts. If Joe
charges $5 each, the percentage markup for 100 shirts is:

A. 20%
B. 25%
C. 33%
D. 50%
E. 67%

11. In long-run equilibrium, a perfectly competitive firm will operate where the price is:
A. greater than MR but equal to MC and minimum ATC.
B. greater than MR and MC, but equal to minimum AFC.
C. greater than MC and minimum ATC, but equal to MR.
D. equal to MR, MC and minimum ATC.
E. equal to MR, MC and minimum AFC.
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12. A perfectly competitive market of Good A consists of 300 firms with identical cost
structures. The respective market demand (Qd) and market supply (Qs)
equations by this market are
Qd = 3000 – 60P;
Qs = 500 + 40P;
Where Qd is the quantity of Good A demanded, Qs is the quantity of Good A supplied,
and P is the price per unit of Good A. what is each firm’s total cost (TC) at the long-run
equilibrium?
A. TC = $250.
B. TC = $200.
C. TC = $150.
D. TC = $125.
E. None of the above.

13. A perfectly competitive firm’s long-run average cost function is

LAC = 200 – 4q + 0.05q2, where q is the firm’s output level. What is the price at the long-
run equilibrium?
A. P* = $200.
B. P* = $150.
C. P* = $120.
D. P* = $100.
E. None of the above.

14. All firms in a perfectly competitive market have the following total cost function:
TC = 25,000 + 150Q + 3Q2, where Q is a firm’s output level. What is the firm’s output level
(Q*) at the long-run equilibrium?
A. Q* = 150.5 units.
B. Q* = 120.8 units.
C. Q* = 100.4 units
D. Q* = 91.3 units.
E. None of the above.

15. Suppose there are 100 perfectly competitive firms. Total cost function of each firm is TC =
50 + 2q2, where q is the firm’s output level. What would the direct market supply function
be?
A. Qs = 100P.
B. Qs = 50P.
C. Qs = 50P.
D. Qs = 25P.
E. None of the above.
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16. There are 100 perfectly competitive firms in the market. Each firm’s total cost function is
TC = 50 + 2q2, where q is its output level. If the market price is $20, what would the market
producer surplus be?
A. $2000.
B. $3000.
C. $4000.
D. $5000.
E. None of the above.

17. There are 100 perfectly competitive firms in the market. Each firm’s total cost function is
TC = 50 + 2q2, where q is its output level. If the market price is $20, what would the firm’s
average variable cost at its profit-maximizing output be?
A. $10.
B. $15.
C. $20.
D. $50.
E. None of the above.

18. A firm’s total cost function is TC = 100 + 4q2, where q is its output level. At what price will
the firm earn zero profit?
A. P = $10.
B. P = $20.
C. P = $30.
D. P = $40.
E. None of the above.

19. Which of the following statements is TRUE?

A. In the long run, all firms’ profits equal zero in a perfectly competitive market because
they produce identical products.
B. If a firm cannot earn positive profit in the short run, it will shut down.
C. A firm’s supply curve is its entire marginal cost curve.
D. If the market price in a perfectly competitive market is below the minimum of a
firm’s average variable cost, the firm will supply zero output.
E. None of the above.

20. A perfectly competitive firm has the following total cost function:
TC = q3 – 8q2 + 30q + 5, where q is its output level. At what range of prices (P) will the firm
supply zero output?
A. P < $20.
B. P < $18.
C. P < $14.
D. P < $10.
E. None of the above.
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21. A perfectly competitive firm’s total cost function is TC = 2000 + 20q + 5q2, where q is its
output level. The market demand is Q = 10,000 – 40P, where Q is the total quantity
demanded, and P is the price per unit of output. What is the firm’s output level (q*) in the
long-run equilibrium?
A. q* = 20 units.
B. q* = 200 units.
C. q* = 1000 units.
D. q* = 1200 units.
E. None of the above.

22. A perfectly competitive firm’s total cost function is TC = 2000 + 20q + 5q2, where q is its
output level. The market demand is Q = 10,000 – 40P, where Q is the total quantity
demanded, and P is the price per unit of output. What is the total quantity (Q*) in the long-
run equilibrium?
A. Q* = 2000 units.
B. Q* = 1500 units.
C. Q* = 1400 units.
D. Q* = 1200 units.
E. None of the above.

23. Which of the following statements is FALSE?

A. A horizontal market demand curve for a firm implies that the firm is selling in a
perfectly competitive market.
B. A firm’s supply curve is equal to the portion of its marginal cost curve that lies above
its minimum average variable cost.
C. If the market price is below the minimum of average variable cost, the firm will shut
down.
D. The perfectly competitive firm's marginal revenue curve is horizontal.
E. None of the above.

24. In the long run, profits will equal zero in a perfectly competitive market because of
A. constant returns to scale.
B. decreasing returns to scale.
C. identical products being produced by all firms.
D. the availability of information.
E. free entry and exit.
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25. A firm in monopolistic market faces the following demand and total cost equations for its
product as follows:
Q = 25 – 0.5P.
TC = 144 + 5Q + 0.25Q2.
What are the firm’s short-run profit-maximizing output (Q*) and price (P*)?
A. Q* = 20 units and P* = $10.
B. Q* = 18 units and P* = $14.
C. Q* = 15 units and P* = $20.
D. Q* = 10 units and P* = $30.
E. None of the above.

26. Consider a monopolist with a demand function q = 120 − 2p and a marginal cost of $40.
There is no total fixed cost. If the monopolist uses a single-price strategy, what would its
producer surplus be?
A. $400.
B. $200.
C. $100.
D. $50.
E. None of the above.

27. Suppose that for each firm in the perfectly competitive market for potatoes, a firm’s long-run
average cost is minimized at $0.1 when ten units of potatoes are grown. The market demand
for potatoes is Q = 200/P, where Q is the total quantity, and P is the price per unit of potatoes.
How many firms (N*) are in the long-run equilibrium?
A. N* = 500.
B. N* = 400.
C. N* = 200.
D. N* = 100.
E. None of the above.

28. When firms in monopolistic competition are earning a negative profit in the short-run, firms
will
A. enter the industry, and demand will decrease for the original firms.
B. enter the industry, and demand will increase for the original firms.
C. exit the industry, and demand will increase for the firms that remain.
D. exit the industry, and demand will decrease for the firms that remain.
E. None of the above.
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29. A firm has two customers and uses a two-part pricing with the price of its product per unit
(P) that exceeds the marginal cost of production. Customer 1’s consumer surplus (CS1) is
less than Customer 2’s consumer surplus (CS2). If the firm sets the entry fee equal to CS2,
then the number of customers that buy the product is equal to
A. zero.
B. one.
C. two.
D. three.
E. None of the above.

30. Suppose that a monopolist sells its product in two groups of consumers. The monopolist’s
marginal cost is $1 and no total fixed cost.
The market demand equation for Group 1 is Q1 = 12 – 2P1, and the market demand equation
for Group 2 is Q2 = 9 – P2.
If the monopolist can prevent resale, what would the profit-maximizing price of
Group 2 (P2*) be?
A. P2* = $5.0.
B. P2* = $4.0.
C. P2* = $3.5.
D. P2* = $2.0.
E. None of the above.

31. Which of the following statements is TRUE?

A. At the long-run equilibrium, firms in a monopolistic market earn either positive or
negative profit.
B. Monopolistically competitive firms have no market power because of free entry.
C. In perfect and monopolistic competitions, firms produce a homogeneous product.
D. If a firm can set the price of its product, it faces a downward-sloping demand curve.
E. None of the above.

32. Suppose all 1000 consumers in the market are identical, and their monthly demand for
Internet access from a certain leading provider can be represented as Q = 10 – 2P, where P is
the price in $ per hour and Q is hours per month. The firm faces a constant marginal cost of
$1 and zero total fixed cost.
If the firm uses a two-part pricing strategy, what would the total profit be?
A. $10000.
B. $14000.
C. $16000.
D. $18000.
E. $20000.
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33. A monopolist’s market demand function is Q = 120 – 2P, where P is the price per unit of a
product. The marginal cost is $40 and no total fixed cost. If the monopolist uses first-degree
price discrimination, what would its total profit be?
A. $100.
B. $200.
C. $300.
D. $400.
E. $500.

34. Suppose that two Cournot firms operate at zero marginal cost. The market demand is P = 30
– Q, where Q = Q1 + Q2. Firm 1's reaction function is
A. Q1 = 15 – 0.5Q2.
B. Q1 = 15 – Q2.
C. Q1 = 30 – 0.5Q2.
D. Q1 = 30 – Q2.
E. None of the above.

35. Suppose that a monopolist sells its product in two groups of consumers. The monopolist’s
marginal cost is $1 and no total fixed cost.
The market demand equation for Group 1 is Q1 = 12 – 2P1, and the market demand equation
for Group 2 is Q2 = 9 – P2.
If the monopolist can prevent resale, what would the profit-maximizing price of
Group 1 (P1*) be?
A. P1* = $5.0.
B. P1* = $4.0.
C. P1* = $3.5.
D. P1* = $2.0.
E. None of the above.

36. Suppose that a monopolist sells its product in two groups of consumers. The monopolist’s
marginal cost is $1 and no total fixed cost.
The market demand equation for Group 1 is Q1 = 12 – 2P1, and the market demand equation
for Group 2 is Q2 = 9 – P2.
If the monopolist cannot prevent resale, what would the profit-maximizing price (P*) be?
A. P* = $5.0.
B. P* = $4.0.
C. P* = $3.5.
D. P* = $2.0.
E. None of the above.
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37. If total revenues from selling quantities x and y of jointly produced goods x and y are TRx =
300 − xy + 50x and TRy = 1000 − xy + 2y, and 10 units of y are produced, then marginal
revenue with respect to x (MRx) will be:
A. MRx = 10.
B. MRx = 20.
C. MRx = 30.
D. MRx = 40.
E. None of the above.

38. In 2020, Coca-Cola announced that it was developing a “smart” vending machine. Such
machines can change prices according to the outside temperature. A machine has a maximum
capacity of 120 cans. The marginal cost of a can of Coke is 20 cents. Suppose that the
temperature can be either “High” or “Low”.
The demand during “High” temperature is Q = 280 − 2PH, where Q is the number of
cans of Coke sold during the day and PH is the price per can measured in cents.
On days of “Low” temperature, demand is only Q = 160 − 2PL, where Q is the number
of cans of Coke sold during the day and PL is the price per can measured in cents.
What price should Coca-Cola charge on a “Hot” day?
A. PH = 50 cents.
B. PH = 60 cents.
C. PH = 80 cents.
D. PH = 90 cents.
E. None of the above.

39. In 2020, Coca-Cola announced that it was developing a “smart” vending machine. Such
machines can change prices according to the outside temperature. A machine has a maximum
capacity of 120 cans. The marginal cost of a can of Coke is 20 cents. Suppose that the
temperature can be either “High” or “Low”.
The demand during “High” temperature is Q = 280 − 2PH, where Q is the number
of cans of Coke sold during the day and PH is the price per can measured in
cents.
On days of “Low” temperature, demand is only Q = 160 − 2PL, where Q is the
number of cans of Coke sold during the day and PL is the price per can
measured in cents.

What price should Coca-Cola charge on a “Cold” day?

A. PL = 80 cents.
B. PL = 60 cents.
C. PL = 50 cents.
D. PL = 40 cents.
E. None of the above.
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40. A firm has two divisions as follows:

 an upstream division with its average total cost of ATCU = 50 + 2QU
 a downstream division with its average total cost of ATCD = 20 + 3QD.
There is no external market. The transfer price (PU) should be:
A. PU = 50 + 3QU.
B. PU = 20 + 4QU.
C. PU = 50 + 4QU.
D. PU = 2QU.
E. None of the above.

41. Which of the following statements is FALSE?

A. Stores such as Costco require an annual membership before you can shop there. This is
an example of two-part pricing strategy.
B. A restaurant offers "early bird" price discounts for dinners ordered from 3:30 PM to 5:30
PM. This is an example of peak-load pricing strategy.
C. For first-degree price discrimination, a firm can capture 100% of the consumer surplus
by setting the market price equal to a consumer’s reservation price.
D. For second-degree price discrimination, a firm identifies groups of consumers by setting
different prices based on the quantity purchased.
E. None of the above.

42. Suppose that you sell 2 products, Good M and Good N. There are three types of customers
based on their reservation prices in the table below. The marginal cost of Good M is $5, and the
marginal cost of Good N is $5.
If you use a separate pricing strategy, what is the optimal price of Good M (PM)?
Customer Type Good M Good N
Type I 40 13
Type II 49 3
Type III 3 30
A. PM = $10.
B. PM = $20.
C. PM = $30.
D. PM = $40.
E. None of the above.
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43. Suppose that you sell 2 products, Good M and Good N. There are three types of customers
based on their reservation prices in the table below. The marginal cost of Good M is $5, and the
marginal cost of Good N is $5.
If you use a separate pricing strategy, what is the optimal price of Good N (PN)?
Customer Type Good M Good N
Type I 40 13
Type II 49 3
Type III 3 30
A. PN = $10.
B. PN = $20.
C. PN = $30.
D. PN = $40.
E. None of the above.

44. Suppose that you sell 2 products, Good M and Good N. There are three types of customers
based on their reservation prices in the table below. The marginal cost of Good M is $5, the
marginal cost of Good N is $5, and the marginal cost of a bundle is $10.
If you use a pure bundling strategy, what is the optimal price of a bundle (PB)?
Customer Type Good M Good N
Type I 40 13
Type II 49 3
Type III 3 30
A. PB = $84.
B. PB = $68.
C. PB = $52.
D. PB = $40.
E. None of the above.

45. Consider the following game in which two firms, A and B, choose between a high-price
strategy and a low-price strategy.
Firm B
Strategy Low Price High Price
Low Price 10, 10 25, 5
Firm A
High Price 5, 25 20, 20
For firm B,
A. setting a high price is the dominant strategy.
B. setting a low price is the dominant strategy.
C. there is no dominant strategy.
D. doing the opposite of firm A is always the best strategy.
E. Not enough information to answer.
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46. Consider the following game in which two players, 1 and 2, choose between Strategy A or
Strategy B. How many Nash equilibria are there?
Player 2
Strategy A B
A 20, 20 50, 30
Player 1
B 30, 50 10, 10
A. 0
B. 1
C. 2
D. 3
E. 4

47. The following game shows the payoff to two firms, A and B. If the two firms decide
simultaneously, which one of the following statements is TRUE?
Firm B
Strategy 3 Strategy 4
Strategy 1 10, -20 50, 0
Firm A
Strategy 2 0, 40 0, 0

A. Firm A does not have a dominant strategy

B. Firm B does not have a dominant strategy.
C. The game is an example of a Prisoner's Dilemma.
D. The game has no Nash equilibrium.
E. None of the above.

48. Bundling raises higher revenues than selling the goods separately when
A. demands for two goods are positively correlated
B. demands for two products are negatively correlated.
C. the goods are perfect substitutes.
D. the goods are complementary in nature.
E. None of the above.

49. Which of the following statements is FALSE?

A. If the marginal cost is constant, the average variable cost equals the marginal cost.
B. The average variable cost is at a minimum at the same amount of output at which the
average product is maximum.
C. If the marginal cost increases as increased output, the marginal product also increases.
D. Total cost is increasing at an increasing rate when the marginal cost is increasing.
E. None of the above.
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50. If revenues from selling quantities x and y of jointly produced goods X and Y were
TRX = 500 − XY + 40X and TRY = 1000 − XY + 2Y, and 10 units of Y were produced, then
marginal revenue with respect to X would be:

A. $10
B. $20
C. $30
D. $40
E. $50

Section 2- 25 Questions: Each question is worth 2 points.

51. A firm’s production is Q = 4L0.25K0.25, where L = the amount of labor and K = the number
of machines. The price per unit of labor = $2 and the price of a machine = $8. What is the
long-run total cost equation (LTC)?
A. LTC = 4Q.
B. LTC = 2Q.
C. LTC = Q.
D. LTC = 0.5Q2.
E. None of the above.

52. A firm faces 2 demand functions as follows:

 Strong demander: Ps = 8 – Qs.
 Weak demander: Pw = 6 – Qw.
The firm’s marginal cost MC = $2. There is no total fixed cost. For simplicity, there are one
strong demander and one weak demander in the market.
The firm considers using a two-part pricing strategy. The firm assumes that only a strong
demander in the market and a product’s price (P) equals its marginal cost (MC). What will
the firm’ s profit (π*) be?
A. π* = $8.
B. π* = $10.
C. π* = $14.
D. π* = $18.
E. None of the above.
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53. A firm faces 2 demand functions as follows:

 Strong demander: Ps = 8 – Qs.
 Weak demander: Pw = 6 – Qw.
The firm’s marginal cost (MC) = $2. There is no total fixed cost. For simplicity, there are one
strong demander and one weak demander in the market.
The firm considers using a two-part pricing strategy. The firm assumes that both strong and
weak demanders in the market and a product’s price (P) equals its marginal cost (MC). What
will the entry fee (A*) be?
A. A* = $8.
B. A* = $10.
C. A* = $14.
D. A* = $16.
E. None of the above.

54. A perfectly competitive firm’s total cost function is TC = 24 + 8q + q2, where q is the firm’s
output level. If the market price per unit of output (P) is $20, what will the firm’s decision in
the short run be?
A. The firm should shut down because P exceeds its average variable cost at its
profit-maximizing output.
B. The firm should shut down because P is less than its average variable cost at its
profit-maximizing output.
C. The firm should operate in the short run because P is less than its average variable
cost at its profit-maximizing output.
D. The firm should operate in the short run because P exceeds its average total cost at
its profit-maximizing output.
E. None of the above.

55. A perfectly competitive firm’s total cost function is TC = 1000 + 20Q + 5Q2, where Q is the
firm’s output level. In the short run, the market price per unit of output (P) is $50. How does
the market price adjust to the long-run equilibrium?
A. The market price will decrease until it equals the firm’s minimum average cost in
the long run.
B. The market price will decrease until it equals the firm’s minimum marginal cost in
the long run.
C. The market price will increase until it equals the firm’s minimum average cost in
the long run.
D. The market price will increase until it equals the firm’s minimum marginal cost in
the long run.
E. None of the above.
 16

56. A perfectly competitive firm’s total cost function is TC = 2000 + 20q + 5q2, where q is the
firm’s output level. What is the firm’s marginal cost (LMC) in the long-run equilibrium?
A. LMC = $850.
B. LMC = $640.
C. LMC = $220.
D. LMC = $180.
E. None of the above.

57. Each of 12 firms in a perfectly competitive market has a total cost function of
TC = 600 + 2q2, where q is its output level. The market demand function is
QD = 600 – 2P, where P is the price per unit of output and QD is total market demand. What
is the firm’s producer surplus at its profit-maximizing output level?
A. $1200.
B. $1500.
C. $1800.
D. $2200.
E. None of the above.

58. A perfectly competitive firm’s total cost function is TC = 200 + 40q + 10q2 where q is its
output level. If the price per unit of output is $120, what would the firm’s total profit (π) be?
A. π = -$40. The firm should shut down in the short run.
B. π = -$40. The firm should operate the short run.
C. π = -$160. The firm should shut down in the short run.
D. π = $160. The firm should operate in the short run.
E. None of the above.

59. Suppose that a firm is a monopsonist in the labor market. The market demand of the firm’s
output is P = 70 – 0.5Q, where P is the price per unit of output. The firm’s production
function is Q = L, where Q is the firm’s output level, and L is the amount of labor. If the
labor supply function is PL = 10 + L, what is the firm’s profit-maximizing price of labor
(PL*)?
A. PL* = $30.
B. PL* = $20.
C. PL* = $18.
D. PL* = $10.
E. None of the above

60. In a Cournot duopoly, we find that Firm 1's reaction function is Q1 = 50 – 0.5Q2, and Firm
2's reaction function is Q2 = 75 – 0.75Q1. What is the Cournot equilibrium outcome in this
market?
A. Q1* = 20 and Q2* = 60
B. Q1* = 20 and Q2* = 20
C. Q1* = 60 and Q2* = 60
D. Q1* = 60 and Q2* = 20
E. Not enough information to answer.
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61. A firm in a monopolistic market faces the demand equation: Q = 25 – 0.5P, where Q is the
firm’s output level and P is the price of a product per unit. The firm’s total cost equation is
TC = 144 + 5Q + 0.25Q2. Assuming a parallel shift in the firm’s demand curve, what is the
firm’s total profit in the short run and what will happen to the firm’s demand curve?
A. Total profit = -$63. The firm’s demand cure will shift to the right.
B. Total profit = -$63. The firm’s demand curve will shift to the left.
C. Total profit = $81. The firm’s demand curve will shift to the right.
D. Total profit = $81. The firm’s demand curve will shift to the left.
E. None of the above.

62. Suppose that a firm jointly produces 2 products, A and B in a 1:1 fixed proportion.
The primary product is A and B is a by-product of A.
The firm’s total cost is TC = 100 + Q + 2Q2, where Q is the output of the primary product.
The market demand equations for A and B as follows:
 QA = 200 – PA, where QA is the quantity demanded for A and PA is the price per unit
of A.
 QB = 75 – 0.5PB. where QB is the quantity demanded for A and PB is the price per unit
of B.
What is the profit-maximizing price of A (PA*)?
A. PA* = $165.1.
B. PA* = $80.2.
C. PA* = $75.5.
D. PA* = $55.1.
E. None of the above.

63. Suppose that a firm jointly produces 2 products, A and B in a 1:1 fixed proportion.
The primary product is A and B is a by-product of A.
The firm’s total cost is TC = 100 + Q + 2Q2, where Q is the output of the primary product.
The market demand equations for A and B as follows:
 QA = 200 – PA, where QA is the quantity demanded for A and PA is the price per unit
of A.
 QB = 75 – 0.5PB. where QB is the quantity demanded for A and PB is the price per unit
of B.
What is the profit-maximizing price of B (PB*)?
A. PB* = $165.1.
B. PB* = $80.2.
C. PB* = $75.5.
D. PB* = $55.1.
E. None of the above.
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64. Suppose that the market for tennis shoes has one dominant firm and five small firms. The
market demand is Q = 400 – 2P, where Q is the total market demand and P is the price of a
pair of tennis shoes.
The dominant firm has a constant marginal cost of $20. Each small firm has a marginal cost
of MC = 20 + 5q. What is the profit-maximizing quantity of the dominant firm (QDF*)?
A. QDF* = 280 units.
B. QDF* = 200 units.
C. QDF* = 180 units.
D. QDF* = 150 units.
E. None of the above.

65. Suppose that the market for tennis shoes has one dominant firm and five small firms. The
market demand is Q = 400 – 2P, where Q is the total market demand and P is the price of a
pair of tennis shoes.
The dominant firm has a constant marginal cost of $20. Each small firm has a marginal cost
of MC = 20 + 5q. What is the profit-maximizing price of the dominant firm (P*)?
A. P* = $180.
B. P* = $150.
C. P* = $100.
D. P* = $80.
E. None of the above.

66. A homogeneous-good duopoly faces a market demand function of P = 60 – Q, where

Q = Q1 + Q2, Q1 is Firm1’s output level, and Q2 is Firm 2’s output level. Both firms have
marginal costs equal to zero. What is the market price (P*) at a Cournot equilibrium?
A. P* = $10.
B. P* = $15.
C. P* = $20.
D. P* = $30.
E. None of the above.

67. Your local grocery store offers a coupon that reduces the price of milk during the coming
week. The posted price of milk in the store is $4 per gallon, and the coupon reduces the price
per gallon by $1.5 for the next week. If the store maximizes profits and the own-price
elasticity for milk is -5 for coupon users, what is the own-price elasticity for non-users?

A. -0.5
B. -1.0
C. -1.4
D. -2.0
E. -2.5
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68. A homogeneous-good duopoly faces a market demand function of P = 60 – Q, where

Q = Q1 + Q2, Q1 is Firm1’s output level, and Q2 is Firm 2’s output level. Both firms have
marginal costs equal to zero. What is the market price (P*) at a Collusive equilibrium?
A. P* = $10.
B. P* = $15.
C. P* = $20.
D. P* = $30.
E. None of the above.

69. Which of the following statements is FALSE?

A. If a market is controlled by a perfect price discrimination, then consumer surplus is the
same as under perfect competition.
B. A perfect price discrimination sets a price equal to marginal revenue for each unit.
C. A firm uses price discrimination to maximize its total profit.
D. If two identifiable markets differ with respect to their price elasticity of demand and
resale is impossible, a firm with market power will set a lower price in the market that is
more price elastic.
E. None of the above.

70. Suppose that a firm consists of two divisions: a downstream division, and an upstream one.
 The upstream division’s total cost is 𝐓𝐂𝐔 = 𝟏𝟎 + 𝟐𝐐𝐔 + 𝟎. 𝟓𝐐𝟐𝐔 , where QU is the
quantity produced by the upstream division.
 The downstream division’s total cost is TCD = 200 + 10Q, where Q is the
quantity produced by the downstream division.
 The downstream division’s demand equation is Q = 100 – P, where P is the price
per unit of a product.
If there is no external market, what would the optimal transfer price be?
A. $29.3.
B. $28.4.
C. $31.3.
D. $35.6.
E. None of the above.

71. Suppose that a firm consists of two divisions: a downstream division, and an upstream one.
 The upstream division’s total cost is 𝐓𝐂𝐔 = 𝟏𝟎 + 𝟐𝐐𝐔 + 𝟎. 𝟓𝐐𝟐𝐔 , where QU is the
quantity produced by the upstream division.
 The downstream division’s total cost is TCD = 200 + 10Q, where Q is the
quantity produced by the downstream division.
 The downstream division’s demand equation is Q = 100 – P, where P is the price
per unit of a product.
If there is no external market, what price (P*) should the downstream division charge?
A. $29.3.
B. $28.4.
C. $31.3.
D. $35.6.
E. None of the above.
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72. A firm faces 2 demand function as follows:

 Strong demander: Ps = 8 – Qs.
 Weak demander: Pw = 6 – Qw.
The firm’s marginal cost MC = $2. There is no total fixed cost. for simplicity, there are one
strong demander and one weak demander in the market.
The firm considers using a two-part pricing strategy. If the firm assumes that both strong and
weak in the market and a product’s price (P) exceeds its marginal cost (MC), what would the
entry fee (A*) and the price of a product (P*) be?
A. A* = $9, P* = $2.
B. A* = $4.5, P* = $3.
C. A* = $9, P* = $3.
D. A* = $4.5, P* = $2.
E. None of the above.

73. Suppose that you sell 2 products, Good M and Good N. There are three types of customers
based on their reservation prices in the table below.
The marginal cost of Good M is $5, the marginal cost of Good N is $5, and the marginal cost of
a bundle is $10.
If you use a mixed bundling strategy, what would the total profit be?
Customer Type Good M Good N
Type I 40 13
Type II 49 3
Type III 3 30
A. $410.
B. $300.
C. $270.
D. $112.
E. None of the above.

74. Consider the following game. Which of the following is a Nash equilibrium? Is it a
Prisoner’s Dilemma game?
Company B
Strategy 1 Strategy 2
Strategy 1 10, 10 25, 5
Company A
Strategy 2 5, 25 20, 20

A. Company A chooses Strategy 1 and Company B chooses Strategy 1. Yes.

B. Company A chooses Strategy 1 and Company B chooses Strategy 1. No.
C. Company A chooses Strategy 1 and Company B chooses Strategy 2. Yes.
D. Company A chooses Strategy 1 and Company B chooses Strategy 2. No.
E. Company A chooses Strategy 2 and Company B chooses Strategy 1. No.
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75. Suppose the market for shoes has one dominant firm and five small firms. The total market
demand is Q = 100 – P. The dominant firm has a constant marginal cost of 18. The total
supply function for all small firms is QSF = 0.25P – 2.5.
What is the residual demand function (QDF)?
A. QDF = 97.5 – 1.25P.
B. QDF = 97.5 – 0.75P.
C. QDF = 102.5 – 1.25P.
D. QDF = 102.5 – 0.25P.
E. QDF = 100 – 0.25P