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Unformatted text preview: University of Michigan School of Business Administration Practice Final Exam 4 WITH ANSWERS Instructions: 1) You will have two hours to complete the exam. Check to make sure you have all of the pages. In the multiple choice section, there are 9 multiple choice problems and an additional three short answer related to the last multiple choice problem. In the short answer section, there are 4 problems. 2) When you have finished your exam a) Read and sign the Honor Policy below, and b) sign the sheet in the front of the room as you turn in your exam. 1) For the multiple choice section, fill in the correct answer on the form provided. 2) For the short answer section: a) Do not ramble on; but DO SHOW HOW YOU ARRIVED AT YOUR ANSWER where asked to. Even if your answer is correct, if you are asked to show your work and do not, you may receive no credit b) Do whatever work you want on scratch paper or on the back of pages, but give the complete and concise answer including the process of getting to that answer in the space provided below the question. c) If you do not know the first part to a question, do not skip the next parts -- even though your subsequent answers might be wrong, you will receive credit if they are correct given the answer you had in the first section. d) Any work that you want graded must be included in the stapled sheets of this test DO NOT INCLUDE LOOSE SCRATCHPAPER AS PART OF YOUR ANSWER. Multiple Choice Choose the BEST answer in each case (5 points each) 1. Middlebury, Vermont has only one video store. The incumbent video store has warned potential competitors that if the potential competitors establish a store in Middlebury that the incumbent will start a price war by charging a very low price. The potential entrant has determined the associated profits of this game and they are as follows: Potential Entrant Enter Stay Out Incumbent Low Price 10, -5 20, 0 High Price 40, 20 200, 0 Based on this information, which of the following is true? a. If the incumbent threatens a price war, the potential entrant would view that as credible. b. The potential entrant has a dominant strategy to enter. c. There are no Nash equilibria d. All of the above e. None of the above. (Questions 2-3) A constant-cost , perfectly competitive industry is initially in long-run equilibrium. Suddenly, demand unexpectedly decreases. 2. The short-run effect of this decrease in demand on price, quantity, and profit will be: a. decrease price, decrease quantity, and decrease profit b. decrease price, decrease quantity, but not change profit c. decrease price, decrease profit, but not change quantity d. decrease quantity, decrease profit, but not change price e. decrease quantity, but not change price or profit 3. Compared to the initial long-run equilibrium, the long-run effect of this decrease in demand on price, industry quantity, and profit will be: a. decrease price, decrease quantity, and decrease profit b. decrease price, decrease quantity, but not change profit...
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This test prep was uploaded on 04/02/2008 for the course BE 300 taught by Professor Masten during the Fall '07 term at University of Michigan.
- Fall '07