ECON5026

PRACTICE MID SEM TEST – PART A (MCQ/FILL IN THE BLANK Q’S)

PART A

Multiple choice and Objective part

Question 1

Which of the following statements provide appropriate comparison of pricing under first degree price discrimination and perfect competition when marginal cost is constant?

(a) Both competitive and first degree price discrimination entails Price= Marginal cost for all goods sold.

(b) In perfectly competitive market the last unit of the good is sold at Price=Marginal cost whereas in first degree price discrimination Price = Marginal cost for all goods sold.

(c) In perfectly competitive market Price= Marginal cost for all goods sold; whereas in first degree price discrimination Price=Marginal cost for the last unit of the good sold.

(d) In both perfect competition and first degree price discrimination Price > Marginal cost for all goods sold.

Question 2

Suppose that an investor can yield (X) three possible cash flows: $320, $200 or $40. The probability of each outcome is 2/8, 5/8 and 1/8, respectively. What is the expected value [E(X)] and standard deviation [SD(X)] of the investment?

(a) E(X) = 1800.23 and SD(X) = 1400

(b) E(X) = 210 and SD(X) = 81.853

(c) E(X) = 13027 and SD(X) = 156.934.

(d) E(X) = 184.8 and SD(X) = 114.138

Question 3

Which of the following statements is not correct?

(a) When dominant strategies do not exist, the concept of a Nash equilibrium is useful in predicting the outcome.

(b) A dominant strategy exists when it is optimal for a firm to choose that strategy no matter what its rival does.

(c) Coordination can prove more difficult in cases where precommitment communication is costly and/or there are many players.

(d) In a mixed strategy Nash equilibrium, players do not randomise over pure strategies.

Question 4

Which of the following is not an example of transaction cost?

(a) Costs of learning product characteristics.

(b) Costs of hiring new employees.

(c) Costs of negotiating and drafting contract for sellers.

(d) Search costs for customers.

Question 5

Both Mercedes Benz and BMW, the two popular automobile manufacturing companies have recently made a move to manufacture fully electric cars. Alternatively, they can just stick to their hybrid models. Suppose they have the following payoff as they compete in the market,

Which of the following options convey the pure strategy equilibrium in this game?

(a) One pure strategy is that both Mercedes and BMW manufacture hybrid vehicles.

(b) One pure strategy is that both Mercedes and BMW manufacture fully electric.

(c) One pure strategy is that Mercedes manufactures fully electric and BMW manufactures Hybrid. The other pure strategy is that Mercedes manufactures Hybrid and BMW manufactures fully electric vehicles.

(d) One pure strategy is that both Mercedes and BMW refrains from manufacturing given the negative and zero payoffs.

Question 6

Which of the following is an appropriate expression for total surplus?

(a) Total surplus = Price – Total Willingness to Pay

(b) Total surplus = Price – Marginal Cost

(c) Total surplus = Total Willingness to Pay – Marginal Cost

(d) Total surplus = Total Willingness to Pay – Price

Question 7

Which of the following is not a feature of the Stackleberg model?

(a) Firms are involved in price competition.

(b) a leader is able to commit to output before the follower(s).

(c) Firms produce identical products.

(d) Followers choose output to maximise profits after observing the leader’s output.

Question 8 (Fill in the blank question)

The demand for good X is given by P= 500 – 3Q, where Q is the market quantity, and P is the market price. Production of good X involves costs of C = 100 + 20q, where q is firm output. If a single firm operates in the market, then the profit-maximising price and quantity of the monopolist are   and   , respectively.

Question 9

Suppose Burger King is located at kilometre zero and Pizza hut is located in at Kilometre M. Both these restaurants are located on either end of a road that is K kilometres long. Restaurants’ location is fixed, and they can only affect price. There are 100 customers spaced equally along the road. Assume cost of travelling per kilometre = t, the cost of a meal at Burger King= PB and the cost of a meal at Pizza Hut = PP Based on the above information, which of the following expressions correctly shows the location (x) of the marginal customer who remains indifferent between the two shops.

Question 10 (fill in the blank/ drop down question)

Consider that a cable television company needs to decide about its monthly subscription for its movie channels for two types of families, for families with dependent children (D) and for families with no dependent children (N). Suppose the television company faces the following inverse demand functions:

PD=28−4Q

PN=48−8Q

Where Q represents the number of movie channels watched each month. Further, assume that the marginal cost of provision of the access to view the channels is zero. If the television company can identify two types of buyers (the families) with the information about whether the families possess dependent children collected, then for an all or nothing deal, the television company should charge the families without dependent children (N) and families with dependent children (D) a monthly subscription price of   and   , respectively.