Assume the LRAC curve for a particular industry hits its minimum point at a relatively low level of output and then increases, and the demand for industry output is quite large. In this case, consideration of the minimum efficient scale of operation suggest that the market should be served by: A) a large number of […]
Which of the following pairs of goods would be expected to have a positive cross-price elasticity of demand? A) coffee and tea. B) gasoline and large SUVs. C) tennis racquets and tennis balls. D) hot dogs and hot dog buns. ANSWER A
Comparing the situation of a nominal interest rate of 10 percent and an inflation rate of 9 percent with a nominal interest rate of 6 percent and inflation rate of 2 percent, consumers would borrow more in which situation? A) Nominal interest rate of 10 percent since real interest rate is 1 percent. B) Nominal […]
Assume the four major grocery stores in a large metropolitan area decide to meet secretly to fix prices for meat. It would be easiest to maintain this arrangement when: A) the number of additional competitors is very small. B) the cost conditions for the four firms differ substantially. C) individual firms are able to offer […]
Which of the following is not an example of a practice that facilitates “tacit collusion”? A) Uniform prices charged by the firms in a particular industry. B) Advance notice of price changes by one or more of the firms in an industry. C) The use of most-favored-customer clauses. D) The formation of a cartel. […]
If marginal propensity to save equals 0.50, then the marginal propensity to consume is: A) 1.25. B) 0.50. C) 0.70. D) 1.00. ANSWER B
The “marginal rate of substitution” between two goods is measured by: A) the ratio of the market prices of the two goods. B) the number of units of a good consumed divided by the market price of the other good. C) the number of units of one good a consumer would give up to consume […]
“Learning by doing” has the effect of causing: A) a movement down the LRAC curve. B) a movement up the LRAC curve. C) the LRAC curve to shift up. D) the LRAC curve to shift down. ANSWER D
Hot dogs and hot dog buns would be expected to have: A) positive income elasticities of demand with respect to each other. B) negative income elasticities of demand with respect to each other. C) a positive cross-price elasticity of demand. D) a negative cross-price elasticity of demand. ANSWER D
Assume the firms in an oligopoly produce a differentiated product and are initially colluding. If each firm begins to cheat (to increase sales) by underpricing the other firms, as the amount of cheating increases, the resulting industry price and output will approach the outcome for: A) perfect competition. B) monopolistic competition. C) noncooperative monopoly. D) […]
