Question

 

Part A)The number of firms in a perfectly competitive market:

Multiple Choice

• is fixed in the short run.

• is fixed in the long run.

• varies in the short run.

• is the same at all possible long-run equilibria.

Part B)

One of the defining characteristics of an oligopoly is that:

Multiple Choice

• one firm's behavior can affect the others' profits.

• all firms act independently to create a perfectly competitive outcome.

• all firms act independently to create a monopoly outcome.

• None of these statements is true.

Part C ) An oligopolist's production decision affects:

Multiple Choice

• its profits.

• the profits of other firms in the market.

• the prices charged by each firm.

• All of these statements are true.

Part D) Commitment strategies work by:

• making a desirable strategy more profitable than the alternatives.

• avoiding the prisoner's dilemma problem.

• making it impossible to choose other strategies.

Part E) The idea of time inconsistency:

Multiple Choice

• explains how it can be rational for someone to say he's going to eat a salad for dinner each night this week and end up eating pizza four out of five nights instead.

• explains how it can be rational for someone to pay more for something on his credit card than if he were to pay cash for the same thing.

• explains why people refuse to ignore only some sunk costs.

• Time inconsistency doesn't explain any of these behaviors.

• eliminating the first mover advantage.

Part F) Bill attends a local basketball game. The teams are very unbalanced, the play is bad, and the score quickly reaches 36-2. At halftime, Bill realizes he's having no fun, leaves the game, and goes home. Bill's behavior is NOT determined by

Multiple Choice

• economic logic.

• sunk costs.

• utility maximization.

• None are correct.

Part G) Kyle receives two free passes to the symphony as a bonus at work. He has never been to the symphony before and would probably not buy such tickets for their face value of $120. Kyle decides to use the tickets rather than sell them at face value. This type of behavior is:

Multiple Choice

• irrational, since Kyle would not pay $120 for the tickets, yet gives up $120 by not selling them.

• rational, since Kyle can check out the symphony and not have to pay for it himself.

• irrational, since Kyle ignores his sunk cost of $120.

• rational, since Kyle does not ignore his sunk cost of $120.

Part H) Because of the lack of buyer's information about a perfectly functioning used car:

Multiple Choice

• the buyer will pay less than what it's worth because of the chance that it will be a lemon.

• sellers of perfectly functioning used cars will be more likely to enter the market.

• the market will eventually become saturated with high quality cars.

• All of these statements are true.

Part I) Moral hazard:

Multiple Choice

• is about the unobserved characteristics of people.

• is about the unobserved actions of people.

• occurs before the parties have entered into an agreement.

• None of these statements is true.

Part J) One way to avoid the principal-agent problem would be to have:

Multiple Choice

• the employee constantly monitor the employer's activities.

• the employer constantly monitor the employee's efforts.

• the employer share all management choices with employees before making decisions.

Part k) A potential employee that dresses well for an interview is attempting to reduce asymmetric information by

Multiple Choice

• looking more intelligent.

• signaling their type.

• showing moral character.

• mandating that information be shared.

Answer 1

Part A): varies in the short run. (As the profit level changes, the no. of firms keeps on changing)

Part B): one firm's behavior can affect the others' profits. (The actions of each firm affects others. The firms are interdependent)

Part C ) All of these statements are true.

Part D): making a desirable strategy more profitable than the alternatives.

Part E): explains how it can be rational for someone to say he's going to eat a salad for dinner each night this week and end up eating pizza four out of five nights instead. (Decisions keeps on changing)

Part F): Sunk Costs

Part G): rational, since Kyle can check out the symphony and not have to pay for it himself.

Part H): the buyer will pay less than what it's worth because of the chance that it will be a lemon.

Part I): None of these statements is true. (lack of incentive to guard against risk where one is protected from its consequences, e.g. by insurance.)

Part J): the employer share all management choices with employees before making decisions.

Part K): showing moral character