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415_Final_-_Blue_-_Fall_2008

# 415_Final_-_Blue_-_Fall_2008 - Acme Gizmo has a monopoly in...

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Acme Gizmo has a monopoly in its market. Demand for its product, average total costs, and marginal costs of production are shown in the graph below: 1. If Acme Gizmo is a revenue maximizer, we would expect the firm to charge _______ dollars per Gizmo. a) 12.00 b) 12.50 c) 13.50 d) 14.00 e) 15.00 2. If Acme Gizmo is a profit maximizing firm we would expect the firm to earn ________ dollars in profits. a) 120,000 b) 140,000 c) 160,000 d) 180,000 e) 200,000 3. Acme is concerned about potential entry into its market. If it commits to a limit price strategy we would expect the firm to produce and sell ________ Gizmos. The best a potential entrant could hope to earn under this strategy would be zero economic profits. a) 23,000 b) 24,000 c) 25,000 d) 26,000 e) 27,000 4. Acme’s profits under this limit pricing strategy will be reduced to ________ dollars. a) 118,000 b) 142,000 c) 158,000 d) 169,000 e) 176,000 5. Bob finds an old Gibson mandolin for sale in a pawn shop for \$5,000. He buys it, and then sells it ten years later on E-bay for \$10,000. On an annual basis, his rate of return on these transactions equals ___ percent. a) 5.29 b) 6.95 c) 7.18 d) 10.00 e) 100.00 0 25 40 35 30 25 20 15 10 20 15 10 5 5 D ATC MC \$ Gizmos (Thousands of Units)

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Consider the Treasury Yield Curve in place on Friday, December 12, 2008: Date 1 mo 3 mo 6 mo 1 yr 2 yr 3 yr 5 yr 7 yr 10 yr 20 yr 30 yr 12/12/08 0.03 0.02 0.21 0.50 0.78 1.05 1.55 1.98 2.60 3.36 3.07 The yields shown are annual percentage interest yields to U.S. Treasury Bills, Notes and Bonds. 6. If bond traders are risk neutral and transactions costs of buying and selling bonds are negligible we may conclude that the expected annual percentage interest yield to 3 year notes sold two years from this date equals: a) 1.05 b) 1.84 c) 2.07 d) 2.30 7. On this date a 90-Day T-Bill offering par or face value of \$10,000 sold for: a) \$9,803.92 b) \$9,9800.75 c) \$9,999.00 d) \$9,999.50 Consider the following simultaneous move game: Player 2 Strategy Yes No Player 1 Yes (200, 225) (400, 100) No (100, 100) (350, 200) 8. Which of the joint strategies [(Player 1’s move; Player 2’s move)] below is a Nash equilibrium? a) (Yes; Yes) b) (Yes; No) c) (No; Yes) d) (No; No) e) None of the above. 9. We would expect Player 1 to be willing to pay up to ______ dollars for the right to make the first move, assuming Player 2 would observe this move before she makes her move. a) 0 b) 50 c) 100 d) 150 e) 200 10. Player 2 would be willing to pay up to _______ dollars to prevent Player 1 from making the first move. a) 0 b) 25 c) 50 d) 75 e) 100 11. Two problems emerge in markets when there are asymmetries of information available to negotiating parties. _____________ is a problem before the contract is signed. After the contract is signed the problem is _______________. a)
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