**1.** **Fixed costs exist only in:**

**the long run.**

**capital-intensive markets.**

**the short run.**

**labor-intensive markets.**

**2.** **If apples have an own price elasticity of −1.2 we know the demand is:**

**unitary.**

**indeterminate.**

**elastic.**

**inelastic.**

**3.** **A consumer spends more time searching for a good when her reservation price is:**

**increased.**

**reduced.**

**fixed.**

**None of the statements is correct.**

**4.** **You are the manager of a monopoly that faces a demand curve described by P = 230 − 20Q. Your costs are C = 5 + 30Q. The profit-maximizing price is:**

**150.**

**90.**

**130.**

**110.**

**5.** **The optimal amount of studying is determined by comparing:**

**marginal benefit and the total cost of studying.**

**marginal benefit and the total benefit of studying.**

**marginal benefit and the marginal cost of studying.**

**total benefit and the total cost of studying.**

**6.** **Other things held constant, the lower the price of a good**

**the lower the demand.**

**the higher the demand.**

**the greater the consumer surplus.**

**the lower the consumer surplus.**

**7.** **You are the manager of a monopoly that faces a demand curve described by P = 85 − 5Q. Your costs are C = 20 + 5Q. The profit-maximizing price is:**

**45.**

**55.**

**60.**

**50.**

**8.** **The optimal bid in a first-price, sealed-bid auction with independent private values is to bid:**

**the true value of the item.**

**more than the true value of the item.**

**less than the true value of the item.**

**the true value of the item and more than the true value of the item, depending upon whether value estimates are affiliated.**

**4th option looks like a typo to me. pls check **

**9.** **The Lerner index in the paper industry is 0.58. Based on this information, a firm charging $3.25 per ream of paper should have a marginal cost of:**

**$0.**

**$1.365.**

**$1.885.**

**$3.25.**

**10. ** **The change in net benefits that arises from a one-unit change in quantity is the:**

**marginal net benefits.**

**total net benefits.**

**variable benefits.**

**present value benefits.**

**11. Firms have market power in:**

**perfectly competitive markets.**

**monopolistically competitive markets.**

**monopolistic markets.**

**monopolistically competitive markets and monopolistic markets.**

**12 Which of the following features is common to both perfectly competitive markets and monopolistically competitive markets?**

**Firms produce homogeneous goods.**

**There is free entry.**

**Long-run profits are zero.**

**There is free entry and long-run profits are zero.**

**13 Which of the following statements is true?**

**A mineral rights auction is not the same as a common-value auction.**

**An auctioneer is always indifferent between different kinds of auctions.**

**The Dutch and first-price, sealed-bid auctions are strategically equivalent.**

**An English auction always yields lower expected revenues than a second-price, sealed-bid auction.**

**Not sure**

**14. The optimal bid for an individual participating in a first-price, sealed-bid auction with independent private values is to bid:**

**more than the individual’s valuation of the item.**

**less than the individual’s valuation of the item.**

**exactly the individual’s valuation of the item.**

**There is not an optimal bid strategy for all individuals when independent private values exist.**

**15.** **You are the manager of a Mom and Pop store that can buy milk from a supplier at $3.00 per gallon. If you believe the elasticity of demand for milk by customers at your store is −4, then your profit-maximizing price is:**

**$2.00.**

**$2.50.**

**$4.00.**

**$5.00.**

**16 Other things held constant, the lower the price of a good**

**the lower the producer surplus.**

**the greater the producer surplus.**

**the higher the supply.**

**the lower the supply.**

**17. You are the manager of a monopoly that sells a product to two groups of consumers in different parts of the country. Group 1’s elasticity of demand is -3, while group 2’s is -6. Your marginal cost of producing the product is $80.**

**a. Determine your optimal markups and prices under third-degree price discrimination.**

**Instruction: Round your answers to two decimal places.**

**[P-MC]/P = 1/ elas**

**Markup for group 1:1/ 3= 33.3% **

**Price for group 1: 120**

**Markup for group 2: 1/6=16.67%**

**Price for group 2: 96**

**b. Which of the following are necessary conditions for third-degree price discrimination to enhance profits.**

**Instructions: You may select more than one answer. Click the box with a check mark for the correct answers and click twice to empty the box for the wrong answers. You must click to select or deselect each option in order to receive full credit.**

**___We are able to prevent resale between the groups.**

**___At least one group has elasticity of demand greater than 1 in absolute value.**

**___There are two different groups with different (and identifiable) elasticities of demand.**

**___At least one group has elasticity of demand less than one in absolute value.**

**18. The demand curve for product X is given by QXd = 500 – 5PX.**

**a. Find the inverse demand curve.**

**PX =** **100 – ** **.2QXd**

**Instructions: Round your answer to the nearest penny (2 decimal places).**

**b. How much consumer surplus do consumers receive when Px = $50?**

**When P= 50 then Q= 250**

**Surplus=.5*250*(100-50)= 6250**

**c. How much consumer surplus do consumers receive when Px = $30?**

**When P= 30 then Q= 350**

**Surplus=.5*350*(100-30)= 12250**

**d. In general, what happens to the level of consumer surplus as the price of a good falls?**

**The level of consumer surplus increase as the price of a good falls.**

**19.** **Suppose the own price elasticity of market demand for retail gasoline is -0.5, the Rothschild index is 0.3, and a typical gasoline retailer enjoys sales of $1,700,000 annually. What is the price elasticity of demand for a representative gasoline retailer’s product?**

**Own price elasticity = -0.5/.3= -1.67**

**_________________**

**Instruction: Round your answer to 2 decimal places.**