1. Suppose the government raises the price of cheese above the market equilibrium level (P0) by
imposing a high minimum price and purchasing all of the excess supply from the market, and
these quantities are destroyed. Based on the areas in the figure below, what is the deadweight
loss of this program?
A) Deadweight loss is area E+F+G.
B) Deadweight loss is area B+C+E+F+G.
C) Deadweight loss is area D.
D) Deadweight loss is area B+C+D+E+F+G.
2. The market demand and supply functions for domestic face masks (in millions) are:
QD = 12 – 0.04 P and QS = 0.01P + 2.
Suppose the government has hired you as a consultant to assess the impact of importing face
masks in the domestic market. The price in the world market of a face mask is Rs. 150.
You decide to compare the gain and loss of domestic consumers and producers after opening the
markets to recommend a policy. What is the change in consumer and producer surplus?
Change in consumer surplus: 250; Change in producer surplus: 187.5
3. Consider a perfectly competitive market with market supply Q s = −2 + P and market demand
Qd = 30 − P . Suppose the government imposes an excise tax of $4 per unit on this market.
What is total surplus (consumer surplus plus producer surplus) after the government imposes the
tax?
A) 72
B) 98
C) 144
D) 196
4. Suppose that a market is initially in equilibrium. The initial demand curve is P = 90 − Qd .
The initial supply curve is P = 2Q s . Suppose that the government imposes a Rs. 3 tax on this
market. How much of this Rs. 3 is paid for by producers?
A) 0.
B) 1.
C) 1.50.
D) 2.
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5. A monopolist has set her level of output to maximize profit. The firm's marginal revenue is
Rs. 20, and the price elasticity of demand is -2.0. The firm's profit maximizing price is
approximately Rs.:
A) 0
B) 20
C) 40
D) 10
6. Suppose the government sets a price ceiling of $50 in this market. What is the maximum level
of consumer surplus with the price ceiling?
A) 16,875
B) 11,250
C) 8,437.50
D) 4,687.50
Price
160.0
140.0
125
120.0
Supply
100
100.0
80.0
75
60.0
50
40.0
25
20.0
Demand
0.0
0
75
150
200 225
Quantity
375 400
7. Books can be produced at a constant marginal cost, and Peacock Publisher is releasing the
DVDs for its last two major books. The book Hari Putter is priced at Rs. 20 per book, and the
book Percy Jaikishan is priced at Rs. 30 per book. If the Lerner indices for Hari Putter divided
by the Lerner index for Percy Jaikishan equals 0.5, what is the constant marginal cost of
producing both books?
A) MC = Rs. 10
B) MC = Rs. 15
C) MC = Rs. 20
D) MC = Rs. 5
8. The marginal cost of a monopolist is constant and is Rs. 10. The demand curve and marginal
revenue curves are given as follows:
demand:
Q = 100 - P
marginal revenue: MR = 100 - 2Q
The deadweight loss from monopoly power is
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A) Rs. 1000.00
B) Rs. 1012.50
C) Rs. 1025.00
D) Rs. 1037.50
8. The marginal cost of a monopolist is constant and is Rs. 10. The demand curve and marginal
revenue curves are given as follows:
demand:
Q = 110 - P
marginal revenue: MR = 110 - 2Q
The deadweight loss from monopoly power is
A) Rs. 1000.00
B) Rs. 1012.50
C) Rs. 1025.00
D) Rs. 1037.50
9. Rau Real Estate Developer is a company that provides estate planning services to 100 clients.
Although the clients have different wealth levels, their demands for the hourly estate planning
services are identical. The aggregate annual demand for estate planning services facing Rau Real
Estate Developers is Q = 20000 – 200P where Q is the total hours of estate planning services and
P is the hourly rate charged for the services, and the firm’s total cost of providing the estate
planning services is TC = 80Q. The firm wants to establish a two-part tariff scheme for charging
the clients, and the fees include an annual fixed retainer (entry fee) plus an hourly rate (usage
fee).
What are the profit maximizing levels for the retainer and hourly rate? What is the firm’s
aggregate annual profit under this two-part tariff scheme?
Retainer (entry fee): Rs. 400; Hourly rate: Rs. 80/hour
Profit: Rs. 40,000
10. Rau Real Estate Developer is a company that provides estate planning services to 100 clients.
Although the clients have different wealth levels, their demands for the hourly estate planning
services are identical. The aggregate annual demand for estate planning services facing Rau Real
Estate Developers is Q = 20000 – 200P where Q is the total hours of estate planning services and
P is the hourly rate charged for the services, and the firm’s total cost of providing the estate
planning services is TC = 80Q. The firm wants to establish a two-part tariff scheme for charging
the clients, and the fees include an annual fixed retainer (entry fee) plus an hourly rate (usage
fee).
Suppose Rau Real Estate Developer has a local monopoly on estate planning services. What are
the profit maximizing hourly rate (price) and quantity under a single-price monopoly? What is
the difference in between profit earned under the single-price monopoly and the profit earned
under the two-part tariff scheme?
Price: Rs. 90/hour; Quantity: 2000
Difference in Profit: Rs. 20,000
9. Rau Real Estate Developer is a company that provides estate planning services to 100 clients.
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Although the clients have different wealth levels, their demands for the hourly estate planning
services are identical. The aggregate annual demand for estate planning services facing Rau Real
Estate Developers is Q = 10000 – 100P where Q is the total hours of estate planning services and
P is the hourly rate charged for the services, and the firm’s total cost of providing the estate
planning services is TC = 80Q. The firm wants to establish a two-part tariff scheme for charging
the clients, and the fees include an annual fixed retainer (entry fee) plus an hourly rate (usage
fee).
What are the profit maximizing levels for the retainer and hourly rate? What is the firm’s
aggregate annual profit under this two-part tariff scheme?
Retainer (entry fee): Rs. 200; Hourly rate: Rs. 80/hour
Profit: Rs. 20,000
10. Rau Real Estate Developer is a company that provides estate planning services to 100 clients.
Although the clients have different wealth levels, their demands for the hourly estate planning
services are identical. The aggregate annual demand for estate planning services facing Rau Real
Estate Developers is Q = 10000 – 100P where Q is the total hours of estate planning services and
P is the hourly rate charged for the services, and the firm’s total cost of providing the estate
planning services is TC = 80Q. The firm wants to establish a two-part tariff scheme for charging
the clients, and the fees include an annual fixed retainer (entry fee) plus an hourly rate (usage
fee).
Suppose Rau Real Estate Developer has a local monopoly on estate planning services. What are
the profit maximizing hourly rate (price) and quantity under a single-price monopoly? What is
the difference in between profit earned under the single-price monopoly and the profit earned
under the two-part tariff scheme?
Price: Rs. 90/hour; Quantity: 1000
Difference in Profit: Rs. 10,000
11. The Cournot equilibrium can be found by treating __________ as a pair of simultaneous
equations and by finding the combination of Q1 and Q2 that satisfy both equations.
A) the reaction curves for firms 1 and 2
B) the market supply curve and the market demand curve
C) the contract curve and the market demand curve
D) the contract curve and the market supply curve
E) the firm's supply curve and the firm's demand curve
12. Suppose a new immunity building drug. The market demand curve for this drug is linear and
is given as follows:
P = 200 - 2Q
The marginal cost to produce this drug is Rs. 40.
What is the monopoly price of this new drug?
A) 40
B) 60
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C) 80
D) 93.33
E) 120
13. Suppose a new immunity building drug. The market demand curve for this drug is linear
and is given as follows:
P = 200 - 2Q
The marginal cost to produce this drug is Rs. 40. What will be the price of this new drug in the
long run if the industry is a Cournot duopoly?
A) 40
B) 60
C) 80
D) 93.33
E) 120
14. Suppose a new immunity building drug. The market demand curve for this drug is linear and
is given as follows:
P = 200 - 2Q
The marginal cost to produce this drug is Rs. 40.
What will be the price of this new drug in the long run if the industry is a Stackelberg duopoly?
A) 40
B) 60
C) 80
D) 93.33
E) 120
15. Suppose a new immunity building drug. The market demand curve for this drug is linear and
is given as follows:
P = 200 - 2Q
The marginal cost to produce this drug is Rs. 40.
What will be the price of this new drink in the long run if the industry is a Bertrand duopoly?
A) 40
B) 60
C) 80
D) 93.33
E) 120
12. Suppose a new immunity building drug. The market demand curve for this drug is linear and
is given as follows:
P = 200 - Q
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The marginal cost to produce this drug is Rs. 40.
What is the monopoly price of this new drug?
A) 40
B) 60
C) 80
D) 93.33
E) 120
13. Suppose a new immunity building drug. The market demand curve for this drug is linear
and is given as follows:
P = 200 - Q
The marginal cost to produce this drug is Rs. 40. What will be the price of this new drug in the
long run if the industry is a Cournot duopoly?
A) 40
B) 60
C) 80
D) 93.33
E) 120
14. Suppose a new immunity building drug. The market demand curve for this drug is linear and
is given as follows:
P = 200 - Q
The marginal cost to produce this drug is Rs. 40.
What will be the price of this new drug in the long run if the industry is a Stackelberg duopoly?
A) 40
B) 60
C) 80
D) 93.33
15. Suppose a new immunity building drug. The market demand curve for this drug is linear and
is given as follows:
P = 200 - Q
The marginal cost to produce this drug is Rs. 40.
What will be the price of this new drink in the long run if the industry is a Bertrand duopoly?
A) 40
B) 60
C) 80
D) 93.33
16. In a Nash equilibrium,
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A) each player has a dominant strategy.
B) no players have a dominant strategy.
C) at least one player has a dominant strategy.
D) players may or may not have dominant strategies.
E) the player with the dominant strategy will win.
17. The relationship between a pure-strategy Nash equilibrium and a dominant-strategy
equilibrium is that
A) a dominant-strategy equilibrium is a special case of a pure-strategy Nash equilibrium.
B) a pure-strategy Nash equilibrium is a special case of a dominant-strategy equilibrium.
C) they are the same.
D) there may not be a dominant-strategy equilibrium, but there always is a pure-strategy Nash
equilibrium.
E) they are mutually exclusive and exhaustive, in that a dominant-strategy equilibrium is the
same thing as a mixed-strategy Nash equilibrium.
18. Suppose that the market for corn is initially in equilibrium and is perfectly competitive. The
demand curve can be expressed as P = 10 − Qd ; the supply curve can be expressed as
P = 0.25Q s . Quantity is expressed in millions of bushels. Now suppose that the government
imposes a price floor of Rs. 3 per bushel of corn. What is the dead-weight loss (per million
bushels) associated with the price floor when the most efficient producers are active?
A) 9.375
B) 2.25
C) 1
D) 0.63
18. Suppose that the market for corn is initially in equilibrium and is perfectly competitive. The
demand curve can be expressed as P = 10 − Qd ; the supply curve can be expressed as
P = 0.25Q s . Quantity is expressed in millions of bushels. Now suppose that the government
imposes a price floor of Rs. 3 per bushel of corn. What is the dead-weight loss (per million
bushels) associated with the price floor when the least efficient producers are active?
A) 9.375
B) 2.25
C) 1
D) 0.63
19. A monopolist faces demand P = 400 − 4Qd and has constant marginal cost MC = 80 . If this
monopolist engages in first-degree price discrimination, consumer surplus will be
a)
0
b)
1,600
c)
3,200
d)
12,800
20. Let the inverse demand curve for a monopolist’s product be P = 100 – 2Q and the marginal
cost of production be constant at MC = 10. Which of the following is the optimal two-block
tariff for the firm?
e)
P1 = $70; Q1 = 15; P2 = $40; Q2 = 30
f)
P1 = $60; Q1 = 20; P2 = $30; Q2 = 15
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g)
h)
P1 = $80; Q1 = 10; P2 = $40; Q2 = 15
P1 = $55; Q1 = 22.5; P2 = $55; Q2 = 22.5
21. A monopolist faces two consumer groups: old and young. The inverse demand of old clients
for the output of the monopolist is Po = 100 – 2Qo. The inverse demand of young clients for the
output of the monopolist is Py = 80 – Qy. The marginal cost of supplying any type of client is
MC = 10. If the monopolist can price discriminate between the two groups (i.e., charge a
different uniform price to each group), what price will old and young clients be charged?
i)
Po = $45; Py = $55
j)
Po = $55; Py = $45
k)
Po = $50; Py = $50
l)
Po = $40; Py = $60
22. Reservation price for four consumers for two products – instant noodles and energy drink - is
given below.
A
B
C
D
Instant noodles Energy drink
50
180
80
110
100
90
140
30
Assume you are the product manager responsible for the pricing strategy for both these products
for the firm you work for. Assume the marginal cost of producing these products is zero.
Under pure bundling strategy, the price of the bundle is ……………. and the profit from the
bundle is ………………………
Bundle price: Rs. 170; Profit: 680
23. Reservation price (in Rs.) for four consumers for two products – instant noodles and energy
drink - is given below.
A
B
C
D
Instant noodles Energy drink
50
180
80
110
100
90
140
30
Assume you are the product manager responsible for the pricing strategy for both these products
for the firm you work for. Assume the marginal cost of producing these products is zero.
Under a mixed bundling strategy, the price of the bundle is …………………….., price of instant
noodles is ……………….. and energy drink is …………………… The profit from this strategy
is ………………………
Answer 1: Bundle: 190, Noodles: 139; Drink: 179; Profit: 698
Answer 2: Bundle: 190, Noodles: 139; Drink: 180; Profit: 709
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24. In the short-run equilibrium in a monopolistically competitive industry, a firm’s marginal
cost is equal to its _________ but in the long run equilibrium, a firm’s average cost is equal to its
__________.
m)
price; demand.
n)
average cost; price.
o)
marginal revenue; marginal cost.
p)
marginal revenue; price.
25. In the following game, payoffs are listed with the row player’s payoffs first and the column
player’s payoffs second
Player B
B1
B2
B3
A1 10, 12 8, 8 12, 10
Player A A2
9, 3
7, 6
A3
8, 5
9, 4 14, 10
11, 8
In this game,
A) there is one Nash equilibrium.
B) there are two Nash equilibria.
C) there are three Nash equilibria.
D) there are four Nash equilibria.
25. In the following game, payoffs are listed with the row player’s payoffs first and the column
player’s payoffs second
Player B
B1
B2
B3
A1 10, 12 8, 8 12, 10
Player A A2
9, 3
7, 6
11, 8
A3
8, 10
9, 4
14, 5
In this game,
A) player A choosing A1 and Player B choosing B1 is a Nash equilibrium.
B) player A choosing A1 and Player B choosing B3 is a Nash equilibrium.
C) player A choosing A3 and Player B choosing B1 is a Nash equilibrium.
D) player A choosing A3 and Player B choosing B3 is a Nash equilibrium.
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