REVIEW FOR FINAL EXAM
Q-1
• Total industry sales are $15 million. The
top four firms, A through D, account for
sales of $3 million, $1.5 million, $0.9
million and $0.7 million, respectively. What
is the four-firm concentration ratio?
Q-2
•
The behavioral assumption in the kinked
demand curve theory is that:
“if a single firm lowers price, other firms
will do likewise, but if a single firm raises
price, other firms will not necessarily
follow suit.”
- True/False
Q-3
In the price leadership theory, at a price
of $5 per unit the fringe firms supply the
entire market. At a price of $4, the
(market) quantity demanded is 2,000
units, and the quantity supplied by fringe
firms is 780. Given this, which of the
following quantity-price combinations is
represented by a point on the dominant
firm’s demand curve?
Q-4
• What does the price leadership theory say
about the fringe firms?
Q-5
•
Taking into consideration the price factor,
at what level does the profit-maximizing
monopolistic competitor produces?
Q-6
• If the four-firm concentration ratio is 0.85,
and the top four firms account for $15
million in sales. What is the total industry
sales?
Q-7
(1)
(2)
(3)
Units of Quantity Product
Factor X of Output Price
(4)
Marginal
Revenue
Product
0
10
$10
1
19
$10
A
2
27
$10
B
3
34
$10
C
4
40
$10
D
• What goes in
B?
• What goes in
D?
Q-8
• Suppose a factor price taker purchases
one unit of factor X for $20. At what price
would it purchase the second unit, and
what would marginal factor cost (MFC)
equal to?
Q-9
• If the firm is a perfectly competitive firm, it
will maximize its profits by hiring factors up
to what point?
Q-10
• What is VMP of a perfectly competitive
firm equal to?,
Q-11
• Applying the least-cost rule to two factors
such as A and B, when will a firm minimize
costs?
Q-12
• The wage rate increases 30 percent, and
the quantity demanded of labor falls by 60
percent. What is the absolute value of the
elasticity of demand for labor?
Q-13
• If the wage rate increases from $9 to $12
and, as a result, the quantity demanded of
labor decreases from 6,000 workers to
5,300 workers. What is the absolute value
of the elasticity of demand for labor?
Q-14
• If MRP = VMP = MFC = wages, then the
firm is
• In which market the firm sells its product?
• In which market the firm hires its labor?
Q-15
• Suppose you borrow $2,000 today with the
promise to pay back $2,250 one year from
today. Then the interest rate is
__________, and the interest is
__________.
Q-16
• Jimmy borrowed $12,000 to add a room to
his house. He financed the loan over 4
years at 12 percent a year. He expects a 3
percent inflation rate each year for the
next 3 years. What is the annual real
interest rate that Jimmy expects to pay?
Q-17
• If the nominal interest rate is 4 percent and
expected inflation rate is 6 percent, the
real interest rate IS?
Q-18
• The present value of $12,000 one year in
the future at a 8 percent interest rate is
approximately?
Q-19
• Approximately what is $1 million a year
from now worth today at an 8 percent
interest rate?
Q-20
• What is the present value of a stream of
three $2,000 payments to be received
one, two, and three years from today if the
interest rate is 7.75 percent?
Q-21
• If you place $1,500 in a savings account
that pays 7 percent interest per year and
you leave all the money, principal plus
interest earned, in the account for three
years, approximately how much money
will you have at the end of the three
years?