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.

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

• What goes in B?

• What goes in D?

(1) (2) (3) (4)

Units of Factor X

Quantity of Output

Product Price

Marginal Revenue Product

0 10 $10

1 19 $10 A

2 27 $10 B

3 34 $10 C

4 40 $10 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?