Refer to Figure 6.3. The situation pictured is one of A) constant returns to scale, because the line through the origin is linear. B) decreasing returns to scale, because the isoquants are convex. C) decreasing returns to scale, because doubling inputs results in less than double the amount of output. D) increasing returns to scale, […]
Once the state environmental protection agency devises its new policy to protect the environment, firms decide whether to remain in the state or move their operations to a neighboring state. In the language of game theory, this is an example of: A) a cooperative game. B) a sequential game. C) a threat. D) the Prisoner’s […]
Unequal outcomes are inherently unfair. Indicate whether the statement is true or false ANSWER F
If a competitive firm’s marginal costs always increase with output, then at the profit maximizing output level, producer surplus is A) zero because marginal costs equal marginal revenue. B) zero because price equals marginal costs. C) positive because price exceeds average variable costs. D) positive because price exceeds average total costs. E) positive because revenues […]
Refer to Figure 6.2. The situation pictured is one of A) constant returns to scale, because the line through the origin is linear. B) decreasing returns to scale, because the isoquants are convex. C) decreasing returns to scale, because doubling inputs results in less than double the amount of output. D) increasing returns to scale, […]
Refer to Scenario 17.4. Moral hazard arises in this situation because once the firm A) pays the premium that is based on the .005 probability, it has no incentive to spend the additional $1000 for the flood control system, so the true probability of loss is no longer .005. B) pays the premium that is […]
For net present value calculations, the rate of return that one could earn by investing in another project with similar risk is known as the: A) real interest rate. B) nominal interest rate. C) prime interest rate. D) opportunity cost of capital. ANSWER D
Getting and holding a job does guarantee financial success. Indicate whether the statement is true or false ANSWER F
A “sequential game” is A) another term for a repeated game. B) another term for a cooperative game. C) the term for a game in which individuals receive their payoffs at different times. D) the term for a game in which individuals do not commit to strategy choices at the same time. E) the term […]
Refer to Scenario 17.4. Moral hazard would be eliminated in this situation if A) the insurer would always charge $5000. B) the insurer would always charge $10,000. C) the insurer could costlessly monitor whether a flood control system is in place, and adjust the premium upward if it is not. D) the insurer could costlessly […]
