QUESTION 1
1. Identify which of the following described scenarios involve a firm acting in such a way as to incur opportunity costs. Select any/all such scenarios.
A.
A firm is preparing a depreciation schedule for costs that have already been incu
ed to pursue an opportunity in order to accurately account for its return on investment.
B.
A firm has taken stock of the costs on its income statement for the purpose of conducting a
eak-even analysis, and now needs to estimate the
eak-even quantity.
C.
A firm is considering which of up to 4 attractive new market segments to enter, and has decided to enter markets #2 and #3 because they offer the most overall revenue.
D.
A firm holds a number of capital goods and assets with potential productive value, but has not yet identified any opportunities for their use so has chosen to keep them idle.
10 points
QUESTION 2
1. Identify which of the following statements are good descriptions of the conditions that exist under market equili
ium. Select any/all accurate statements.
A.
When a market is in equili
ium, every consumer who wants to obtain a good is able to buy it
B.
When a market is in equili
ium, prices reflect the maximum people are willing to pay for a good
C.
When a market is in equili
ium, every firm in the industry is earning equal overall profit margins
D.
When a market is in equili
ium, the number of units bought and units offered for sale are equal
10 points
QUESTION 3
1. Choose 1 of the wrong (unselected) answers from question 2 above and explain why it is not a good description of market equili
ium.
10 points
QUESTION 4
1.
Both of the building sets depicted above contain ~450 pieces and 3 figures, both leverage a popular theme, and both build a complex spaceship model using similar pieces.
The Mega Bloks Halo set is priced at $45, while the LEGO Star Wars set is priced at $55. In the last 10 years, LEGO grew from 70% to 80% share of the construction toy market and its revenue grew 3x faster than Mega Bloks’.
Based on the above descriptions of the firms’ market outcomes and product offerings, identify 1 of the following statements that is almost certainly true concerning these products and 1 statement that is almost certainly not true.
A. The Mega Bloks and LEGO sets shown are nearly perfect substitutes for each othe
B.
Mega Bloks’ average cost of production for a 450-piece set is less than LEGO’s cost
C.
Mega Bloks’ marginal profit per 450-piece set sold is less than LEGO’s marginal profit
D.
Consumers perceive the value of LEGO's’ set to be at least $10 more than Mega Bloks'
E.
Consumers on average are not willing to pay $55 for a 450-piece Mega Bloks building set
F.
Consumers on average are not sensitive to price increases in their demand for building sets
Which statement is most likely to be true?
Which statement is most likely to not be true?
10 points
QUESTION 5
1. Choose 1 of the wrong (unselected) answers from question 4 above and explain why it is not unambiguously true or false.
QUESTION 6
1. Compared to equili
ium in a perfectly competitive environment, consumers are worse off in at least 2 distinct ways when any firm with significant monopoly power is able to leverage this market position to its own advantage.
(Alternatively, you could also say that “2 distinct groups" or "2 distinct types" of consumers in the market are worse off.)
From the following statements, select exactly 2 which best describe a way which consumers in a market might suffer (and/or describe a group of consumers that suffer) in the presence of a firm with significant monopoly power.
Your selections must be uniquely true in a market with a high monopoly power firm and not true in a competitive market.
A.
Consumers in the market will be less willing to pay for the good than if there had been no monopoly
B.
Some consumers in the market will pay more than what they would have without the monopoly
C.
Some consumers in the market will feel that the price charged for the good or service is too high
D.
Some consumers in the market will like the firm less than they would have if it had no monopoly
E.
Some consumers in the market will be forced to pay more than their maximum willingness-to-pay
F.
Consumers in the market will not all be able to purchase and/or access the good or service
G.
Consumers in the market will overall purchase fewer goods than they would have without the monopoly
H.
Consumers in the market will overall not have access to high quality goods and services
10 points
QUESTION 7
1. Choose 1 of the wrong (unselected) answers from question 6 above and explain why it is either not unique to or not unavoidable in a market with a high monopoly power firm.
10 points
QUESTION 8
1. Identify which of the following descriptions would characterize a scenario in which we would expect an industry to be experience a greater concentration of market power and/or a higher degree of imperfect competition. (Select all that apply.)
A.
An industry with a large number of firms but widely varying profit margins has seen the marginal costs of a number of key input factors rise substantially.
B.
An industry that previously had quickly increasing marginal cost has seen the development of new technology that allows for greater productive efficiencies at scale.
C.
An industry has seen rapid growth in demand after an initial early adopter phase successfully led to wider adoption of a new and unfamiliar product.
D.
An industry has seen a sharp decline in demand that has led to a surplus of unsold inventory, and firms have responded by seeking new sales outlets.
E.
An industry has experienced increased regulatory oversight as a result of high-profile safety concerns, which has led consumers to seek
ands with a reputation for reliability.
F.
An industry has experienced a rapid increase in new start-up firms entering the market, each trying to differentiate itself on customer service.
10 points
QUESTION 9
1.
The graphs above show the production cost curves for 4 different firms, "Firm I", "Firm II", "Firm III", and "FIrm IV".
For each firm, a horizontal price line is also shown to indicate the price that cu
ently prevails in the firm's market.
a. Which of the 4 firms is likely producing the highest quantity of output if all are acting as standard production cost theory would suggest?
b. Which of the 4 firms is likely not reaching overall
eak-even,
ut is nevertheless earning a positive gross profit margin (contribution margin)?
I.
Firm I
II.
Firm II
III.
Firm III
IV.
Firm IV
10 points
QUESTION 10
1.
The graph above shows data for physical and e-book sales (right axis) against e-book prices (left axis) over a given time period.
A. Given the data in the graph, calculate an (arc) price elasticity of demand for ebooks for the first half of 2014 (which starts where the ebook lines change direction).
Report your estimated elasticity as well as the starting and ending values of price and quantity that you used (so I can check your work), then answer the questions below using this value and the graph:
B. Given your estimated elasticity, estimate the profit-maximizing price for ebooks if the typical publisher's marginal cost is $1.00 per ebook (no, I don't know if the marginal cost is actually this high).
C. Given the above answers, explain whether it is likely that the recent price increase for ebooks has paid off for publishers despite the lower overall sales volume.
10 points
QUESTION 11
1. Child care is a good which has a relatively low price-elasticity of demand and a relatively high price-elasticity of supply.
Describe the most likely short-run outcome if the government were to provide a significant annual tax credit to child-care workers that was effective in incentivizing more people to pursue the occupation and offer child care services.
The price of child care would: ("fall", "rise", or "not change")
The change, if any, in price would be: ("large", "small", or "none")
The quantity of child care would: ("fall", "rise", or "not change")
The change, if any, in quantity would be: ("large", "small", or "none")
10 points
QUESTION 12
1. For each example below, identify whether the described pricing strategy is A. Direct price discrimination, B. Indirect price discrimination, C. Competitive equili
ium pricing, or D. Imperfect/monopoly pricing.
A.
Direct price discrimination
B.
Indirect price discrimination
C.
Competitive equili
ium pricing
D.
Imperfectly competitive pricing
Charging $8 for a regular hamburger and $10 for a veggie burger in a saturated restaurant market with many kinds of consumers.
Charging $6 for a hamburger during lunch hours, $8 for the same hamburger from 2:00 to 6:00 for happy hour, and $10 for the same hamburger after happy hour.
Charging $8 for a regular hamburger at most of a franchise's locations and $12 for the same hamburger sold in their location in a basketball stadium.
Charging $6 for a burger from a rotating 7-item "burger of the day" weekly menu and $10 for a burger of a customer's choice when it is not burger of the day.
Charging a $100 standard admission rate for a very popular weekend music festival with nationally-known headliners.
Charging a $100 standard admission rate to a weekend music festival and an additional $50 charge for a VIP seating area.
Charging a $10 cover charge for a weekend jazz nightclub performance with local musicians in the city of New Orleans.
Charging a $10 cover charge to enter a jazz nightclub and reducing the cover charge to $5 for people who sit on the patio instead of at the bar.
10 points