Final Exam Mba501

Topics: Supply and demand, Price elasticity of demand, Elasticity Pages: 8 (2192 words) Published: February 25, 2013
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Final Exam MBA501
Version A

There are 25 multiple choice questions. Please select the one alternative that best answers each question. Each question is worth 3 points.

1) Suppose farms in the competitive market for potatoes are identical. Each farm’s long-run average cost is minimized at 500 pounds, and the corresponding minimum average cost is $0.20 per pound. If the long-run supply curve is horizontal, then A) some firms will enjoy positive long-run economic profits because they operate at the minimum average cost. B) the long-run equilibrium price in potato market is $0.20 per pound. C) each consumer will purchase $100 worth of potatoes.

D) the long-run price will be set just above $0.20 per pound. Answer: B

2) This question is a continuation on question 1). Suppose the demand for potatoes is Q =10,000/p. How many firms will this industry sustain in the long run? A) 0
B) 100
C) 50,000
D) There is not enough information to answer.
Answer: B

3) In a competitive industry with identical firms, long run equilibrium is characterized by  A. P = AC.
B. P = MC.
C. MR = MC.
D. All of the statements associated with this question are correct. Answer: D
4) Residents in a small town have identical demand for DVD rental. A local DVD rental store estimates a consumer’s demand per year is Q = 7 - 2P. Its marginal cost of each rental is $0.5. How much should the store charge for an annual membership in order to extract the entire consumer surplus via an optimal two-part pricing strategy?  A. $9.

B. $10.
C. $11.
D. $12.
Answer: A
5) Theatres charge lower prices for a matinee (movie presented in the daytime, usually in the afternoon) and usually do not accept coupons for the night showing of movies because A) consumers that attend the matinee have a higher price elasticity of demand. B) consumers that attend the night show have a lower price elasticity of demand. C) it increases profits compared to charging a single price. D) All of the above.

Answer: D

6) A perfect-price-discriminating monopoly’s marginal revenue curve A) lies below the demand curve.
B) is the demand curve.
C) varies across consumers
D) is the same as the single-price monopolist’s marginal revenue curve. Answer: B) or C)
The best answer for this question is B). However, C) also makes sense in some situation. So, you get credits if your answer is either B) or C).

7) If you purchase one pound of apples the price is $1.50 per pound. If you buy a five pound bag of apples, the cost is $5.00. This is most likely an example of A) quantity discounts.
B) multimarket price discrimination
C) perfect price discrimination
D) price gouging.
Answer: A

8) Bob is the only carpet installer in a small isolated town. The above figure shows the demand curves of two distinct groups of customers, residential and business. If the marginal cost of installing carpet is $1 per square yard, what price does Bob charge each segment? A) $1 in each market

B) $5.50 in the residential market and $8 in the business market C) $1 in the residential market and $5 in the business market D) $10 in the residential market and $15 in the business market Answer: B

9) This question is a continuation on question 8). Bob is likely to price discriminate because A) demand elasticities differ across markets.
B) the installation of carpets cannot be resold.
C) Bob can probably identify which consumers belong to which segment. D) All of the above.
Answer: D

10) 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 at your store is -4, then your profit-maximizing price is  A. $2.00.

B. $2.50.
C. $4.00.
D. $5.00.
Answer: C
11) Which of the following is not a condition for a firm to engage in price discrimination?  A. Consumers are partitioned into two or...
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