Economics of Strategy EC229 Practice Exam
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Practice Exam
Economics of Strategy EC229
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Section A: Answer ALL TEN questions |
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1) A monopolist has a total cost function given by
The demand function is given by P=30-Q a) The monopolist will produce 10 units at a price of 20 b) The monopolist will produce 20 units at a price of 10 c) The monopolist will produce 15 units at a price of 15 d) The monopolist will not enter the market. |
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2) A monopolist has a total cost function given by
The demand function is given by P=30-Q a) The monopolist will produce 10 units at a price of 20 b) The monopolist will produce 20 units at a price of 10 c) The monopolist will produce 15 units at a price of 15 d) The monopolist will not enter the market. |
3) Tesla is planning to sell 2500 units of its new Roadster model for $200,000. The production costs are given by X*$120,000 where X denotes the number of units produced. Given
a) Tesla should lower its price to increase sales.
b) Tesla should lower its price as long as there is a positive markup
c) Tesla should lower its price if its demand elasticity at this price is lower than -2.5
d) Tesla should lower its price if its demand elasticity at this price is higher than -2.5
4) A seller of a painting faces a single buyer and makes a take-it-or-leave-it offer. The buyer values the item at either 100 or 200. In particular, he values it at 200 with probability p and 100 with probability 1-p. The seller has no value for the good but knows p.
a) Given that the seller has no value for the painting, he should quote a price of zero.
b) Given that the seller has no value for the painting, he should quote a price of 100.
c) The seller should offer a price which is strictly between 100 and 200. The price would be increasing in p
d) The seller would ask for a price of 200 if p>=0.5 and otherwise it should ask for a price of 100.
5) In the 50 years post-WWII Japan has experienced high growth as compared to the US. As a result.
a) The Yen has appreciated versus the US dollars but inflation in Japan was higher compared to the US by a similar amount.
b) The Yen has appreciated versus the US dollars but inflation in Japan was lower compared to the US by a similar amount.
c) The price increase in Japanese real estate was higher than the inflation in Japan.
d) The price increase in Japanese real estate was lower than the inflation in Japan.
6) The chocolate market has two products: dark chocolate and milk. A local store decides on the sale prices and faces two buyers with the following WTP's:
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Dark Chocolate |
White Chocolate |
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Consumer A |
5 |
3 |
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Consumer B |
3 |
6 |
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Production cost |
2 |
1 |
What is the optimal price if each product is sold independently?
a) Dark Chocolate: 5, White Chocolate: 3
b) Dark Chocolate: 5, White Chocolate: 6
c) Dark Chocolate: 3, White Chocolate: 3
d) Dark Chocolate: 3, White Chocolate: 6
7) Now the store from the previous question considers selling a bundled package. Suppose that when consumers purchase different types of chocolate their valuations are additive. By how much will the store profits increase?
a) $1
b) $2
c) Nothing
d) $3
8) A government wants to impose a $1 tax on the single product that consumers wish to buy. Which of the following is true?
a) If the demand is completely inelastic then post-tax the same number of units will be sold.
b) For elasticities that are not completely elastic or inelastic, there will be no dead weight.
c) The consumer surplus will increase .
d) None of the above.
9) Suppose that the current exchange rate is 1.4 dollars to one British Pound and the one year forward is 1.42 dollars to one British Pound. Also, assume that there are no transaction costs.
a) US firm that wishes to purchase million pounds should buy it in the spot market and not in the forward market.
b) With a high probability, the pound will appreciate in the coming year.
c) Suppose that the 1-year interest rate is 0% in the US and 2% in the UK. There exists an arbitrage strategy in which one buys the pound in the forward market.
d) Suppose that the 1-year interest rate is 2% in the US and 0% in the UK. There exists an arbitrage strategy in which one buys the pound in the forward market.
10) In a competitive equilibrium with 5 identical firms:
a) Only some of the firms produce and the rest don't
b) All firms will produce, though with different prices
c) Either all firms produce at the same price or none of the firms produce
d) None of the above
Section B: Answer BOTH questions
11) Consider a manufacturer that produces towels. The cost of producing the good is 
(
) = 10 + 2
+ 
2, where 
is the manufacturer's output.
The manufacturer sells his product to a single retailer at a price of 
per unit. Assume that the retailer is a monopoly in the industry and the demand function for the good is: 
(
) = 50 − 2
where 
is the price paid by consumers to the retailer. The retailer has no cost of retailing and its only cost is buying the good from the manufacturer (at the price 
per unit).
The manufacturer is debating whether to sell directly to the consumers (without the dealer) . If the manufacturer sells directly the additional cost per unit is 12$ .
a) Suppose the manufacturer sells directly. How many units would he sell, and at what price?
b) Suppose the manufacturer sells through the dealer. How many units would he sell to the dealer, and at what price?
c) Based on your answer to parts a) and b) what should the manufacturer do?
12) Suppose a particular perfectly competitive industry has 20 identical firms, each with the total cost function 
(
) = 2
+ 
. There is no possibility of entry into or exit from
this industry. If demand for the item in question is given by
(
) = 10(20 − 
).
a) What will be the equilibrium price in this market?
b) What will be the profit of each firm?
2022-05-21