Which of the following is true regarding the relationship between returns to scale and economies of scope? A) A firm experiencing economies of scope must also experience increasing returns to scale. B) Economies of scale and economies of scope must occur together. C) A firm experiencing increasing returns to scale must also experience economies of […]
A plastics factory emits water pollutants into a nearby river. The marginal private cost of producing plastics and the marginal external cost of the pollutants are both constant with respect to the quantity of plastics produced. If the demand for plastics is downward sloping, what happens to the socially optimal level of output and market […]
A minimum wage policy induces an: A) excess demand for labor. B) excess supply of labor. C) efficient market outcome. D) elastic labor supply response. ANSWER B
Mixed bundling is more profitable than pure bundling when A) the marginal cost of each good being sold is positive. B) the consumers’ reservation values of each good being sold are not perfectly negatively correlated with one or another. C) Both A and B are correct. D) the marginal cost of one good is zero. […]
If the initial distribution of labor and capital is Pareto optimal, which of the following statements is TRUE? A) It is possible to reallocate labor and capital across industries so as to increase the production of one good without decreasing the production of another good. B) It is possible to reallocate labor and capital across […]
Use the following two statements in answering this question: I. All Giffen goods are inferior goods. II. All inferior goods are Giffen goods. A) I and II are true. B) I is true, and II is false. C) I is false, and II true. D) I and II are false. ANSWER B
Refer to Figure 2.1. At point B, demand is: A) small. B) inelastic, but not completely inelastic. C) unit elastic. D) elastic, but not infinitely elastic. E) infinitely elastic. ANSWER D
Loud music from a neighbor’s party is A) a negative externality whether or not you like it. B) a positive externality whether or not you like it. C) a positive externality if you like the music, and a negative externality if you don’t. D) a negative externality if you like the music, and a positive […]
Nervous Norman holds 70% of his assets in cash, earning 0%, and 30% of his assets in an insured savings account, earning 2%. The expected return on his portfolio A) is 0%. B) is 0.6% C) is 1%. D) is 2%. E) cannot be determined without knowing what the dollar value of his assets is. […]
Is there a first-mover advantage in the Bertrand duopoly model with homogenous products? A) Yes, first-movers always hold the advantage over other firms. B) Yes, first-movers may have an advantage, but it depends on the model assumptions. C) No, first-movers cannot choose a profit maximizing quantity because the second-mover can always produce a bit less […]
