QAMO 2010 Practice Midterm 2 PDF

Name: _________________________________ UNID:_______________________________ QAMO 2010: Practice Midterm 2 Fall 2024 Time: 70 minutes Write your name...

Name: _________________________________ UNID:_______________________________ QAMO 2010: Practice Midterm 2 Fall 2024 Time: 70 minutes Write your name and UID on this exam as well as the Scantron. Do not remove the staple. Mark your exam version on the Scantron to avoid losing a grade. There are blank pages at the end of this exam; keep them stapled to this exam. o You may write anywhere on this exam and scratch paper, but only the answers on the Scantron will be graded. You may use a non-graphing calculator. Graphing calculators, smartwatches, cellphones, and earphones are prohibited. You may leave them in your backpack. If they are outside your bag, that is considered cheating. This is a closed-book exam. That is, you are not allowed to use any paper of your own. No notes, formula sheets, etc. Any indication of cheating on the exam will result in a grade of zero on the exam, likely a zero in the course, and reporting of all involved students for academic misconduct. Keep your eyes on your own exam. When you are finished, please return this exam and your scantron to the TA or instructor up front. You will be required to show your photo ID when submitting the exam. Good luck! True/False. Select A for True and B for False. 1. Fixed costs change when the quantity of output changes. 2. For a t-shirt manufacturing company, rent on a warehouse is considered part of variable costs. 3. If a firm’s output doubles and its total costs also double, the firm is experiencing economies of scale. 4. When marginal cost is above average total cost, average total cost must be increasing. 5. Profit is maximized where total revenue equals total cost. 6. A firm should produce at the level exactly where MR=MC. 7. If a firm is maximizing its profit with a markup of 0.5, then elasticity for that firm’s product must be -2. 8. The Lerner Index, also known as the markup, is always equal to the inverse elasticity. 9. Backward Induction helps find the equilibrium outcome in a sequential game 10. A strategy that is the best one for a player most of the time is her Dominant strategy. 11. In a Coordination game, both players lose if they choose the same strategy. 12. Price discrimination is when businesses refuse service to individuals of particular backgrounds. 13. Combo meals at fast food restaurants are an example of the bundling method of price discrimination. 14. Market power refers to a firm’s ability to control or manipulate the price of a good or service. 15. Fixed costs are included in the calculation of variable profit Multiple Choice. Select the best answer. 16. Lance’s Lumber is a lumber supply yard. The firm’s only costs are hourly labor, lumber, and rent. In July, the firm sold 1,000 yards of lumber, average total cost per yard of lumber sold was $2.00, and average variable cost per yard of lumber sold was $1.25. What were the firm’s total fixed costs in July? a. $0.75 b. $750 c. $1,125 d. $2,000 17. A company’s total cost function is given by 𝑇𝑇𝑇𝑇 = 200 + 2𝑄𝑄 + 4𝑄𝑄 2. What is the firm’s total cost when producing 4 units? a. $224 b. $68 c. $272 d. $72 18. A company’s total cost function is given by 𝑇𝑇𝑇𝑇 = 200 + 2𝑄𝑄 + 4𝑄𝑄2. What is the firm’s average total cost when producing 4 units? a. $50 b. $68 c. $18 d. $72 19. Alan owns a mobile car detailing company. His monthly fixed costs are just the $300 payment on his van. His variable costs include $5 in cleaning supplies per car detailed and employee pay, which is $20 per car detailed. What are Alan’s monthly total costs if his business details 60 cars in a month? a. $1,800 b. $150 c. $620 d. $19,500 20. A local university is considering expanding student enrollment from 10,000 to 12,000 students. If the university expands enrollment, they project that their total costs will increase from $500,000 per month to $550,000 per month. What is the marginal cost per student of the enrollment expansion? a. $25 b. $41.67 c. $45.83 d. $50 21. A firm’s total cost function is 𝑇𝑇𝑇𝑇 = 8 + 2𝑄𝑄2 and marginal cost is 𝑀𝑀𝑀𝑀 = 4𝑄𝑄. What quantity of output is efficient scale for this firm? a. 2 b. 4 c. 6 d. 8 22. A firm’s total cost function is 𝑇𝑇𝑇𝑇 = 8 + 2𝑄𝑄2 and marginal cost is 𝑀𝑀𝑀𝑀 = 4𝑄𝑄. What is the lowest average total cost per unit this firm could have (assuming they produce a positive amount of units)? a. $2 b. $4 c. $6 d. $8 23. A firm’s total cost equation is 𝑇𝑇𝑇𝑇 = 2𝑄𝑄 2 − 4𝑄𝑄 + 12. Which of the following is correct for the range of output between 15 and 20 units? a. Variable cost is falling. b. Fixed cost is rising. c. This firm is experiencing economies of scale. d. This firm is experiencing diseconomies of scale. For the following four questions, refer to the table below. Price Quantity Revenue Total Marginal Marginal Profit Cost Revenue Cost 5 0 1 4 2 5 3 4 9 2 6 13 1 8 17 0 10 21 24. At which price or prices is revenue maximized? a. P=5 and P=0 b. P=3 c. P=3 and P=2 d. P=4 25. What is marginal revenue (MR) at P=3? a. 1 b. 2 c. 3 d. 4 26. What is marginal cost (MC) at P=1? a. 1 b. 2 c. 3 d. 4 27. What is the firm’s profit maximizing level of quantity to produce? a. 2 b. 3 c. 4 d. 5 28. If a firm faces a constant marginal cost (MC) of $1, own-price elasticity of demand of -1.1, then what would their profit-maximizing price be? a. $0.91 b. $1.91 c. $10 d. $11 29. What does the Inverse Elasticity Pricing Rule suggest about the relationship between price and elasticity for a profit-maximizing firm with market power? a. Price is equal to marginal cost for any elasticity of demand.  b. The less elastic the demand, the lower the price should be relative to marginal cost. c. Price should be set higher when demand is more elastic. d. Price should be set higher when demand is less elastic. 30. According to the Inverse Elasticity Pricing Rule, if the price elasticity of demand for a product is -2 and marginal cost is $10, what price should the firm set to maximize profit? a. 10 b. 15 c. 20 d. 30 31. Suppose that Firm A faces elasticity of demand at -2, a marginal cost (MC) of $5 per unit, and they are currently pricing the product at $15. Which following statement is true? a. Firm A is maximizing their profit b. Firm A needs to lower their price c. Firm A needs to raise their price d. Firm A needs to decrease the quantity they are producing To answer the next two questions, consider the following payoff matrix. The numbers inside each cell represent the payoffs of each player for the corresponding strategies: Bob Left Right Top 15 8 Alex 10 5 Bottom 7 6 12 18 32. What is Alex’s dominant strategy? a. Top b. Bottom c. No dominant strategy exists 33. What is Bob’s dominant strategy? a. Left b. Right c. No dominant strategy exists 34. Suppose Alex chooses Bottom. How much is the externality that Bob causes when he chooses to play Left instead of Right? a. 12 b. 18 c. -6 d. -8  35. Which of the following is a Nash Equilibrium of the game? Answers are represented in the form (Alex’s Strategy, Bob’s Strategy). a. (Top, Left) b. (Top, Right) c. (Bottom, Left) d. (Bottom, Right) To answer the next two questions, consider the following sequential game between Delta Airlines and United Airlines. Both Airlines are planning a new route between SLC and one more city. Both would prefer to operate different routes, rather than be on the same route. However, they expect that a route to Detroit would be more profitable than a route to Atlanta. Delta Detroit Atlanta United United Detroit Detroit Atlanta Atlanta 5 10 8 6 5 8 10 6 36. Use backward induction to find the equilibrium. Answers are represented in the form (Delta’s Strategy, United’s Strategy). a. (Detroit, Detroit) b. (Detroit, Atlanta) c. (Atlanta, Detroit) d. (Atlanta, Atlanta) 37. Is there a first-mover advantage or second-mover advantage in this game? a. First-mover advantage b. Second-mover advantage c. Both, first-mover and second-mover advantage  38. Consider the following sequential game. Use backward induction to find the equilibrium. Lyft High price Low price Uber Uber High High Low price Low price price price 15 10 18 11 15 18 10 11 Answers are represented in the form (Lyft’s Strategy, Uber's Strategy). a. (High price, High Price) b. (High price, Low Price) c. (Low price, High Price) d. (Low price, Low Price) To answer the next two questions, consider the following sequential game between Taylor and Billie. Both players must choose between Heads and Tails. Taylor wins if both of them choose the same thing, Billie wins if they choose different things. For some reason, Taylor especially dislikes losing if she chooses Tails, while Billie chooses Heads. Taylor Heads Tails Billie Billie Heads Heads Tails Tails 1 -1 -2 1 -1 1 1 -1  39. Use backward induction to find the equilibrium. Answers are represented in the form (Taylor’s Strategy, Billie’s Strategy). a. (Heads, Heads) b. (Heads, Tails) c. (Tails, Heads) d. (Tails, Tails) 40. Is there a first-mover advantage or second-mover advantage in this game? a. First-mover advantage b. Second-mover advantage c. Both, first-mover and second-mover advantage Use the following information to answer the following four questions. During the summers, Adrian runs a popsicle truck in downtown Salt Lake City. Through years of experience Adrian has a pretty good idea of the business’s costs and how demand responds to prices. He has observed that both demand and costs respond to weather. On very hot days he can charge more for each popsicle, but the cost of keeping them frozen also rises. Specifically, Adrian knows that the demand function for his popsicles on hot days in July is Q=500-20P. His marginal revenue equation is MR=25-0.1*Q. His marginal cost equation is MC=2. 41. When Adrian is maximizing profits, how many popsicles does he sell? a. 200 b. 230 c. 250 d. 320 42. What is the profit maximizing price? a. $2 b. $5 c. $9.5 d. $13.5 43. Suppose Adrian charges $3 per popsicle (not necessarily the profit maximizing price). What will Adrian’s variable profit be? a. $440 b. $2645 c. $3105 d. $3300  44. What is the deadweight loss when Adrian is charging $3? a. $6 b. $10 c. $20 d. $120 Regular memberships with Amazon Prime cost $14.99 per month. Amazon gives students a discount, charging them $7.49 per month. Suppose marginal costs are the same for both the regular membership and the student membership. 45. Assuming Amazon is pricing these memberships to maximize profits, which of the following statements is true? a. Students must be more price elastic than the typical Amazon customer. b. Students must be less price elastic than the typical Amazon customer. c. Students must be equally as price elastic as the typical Amazon customer. d. Not enough information. 46. This is an example of what type of price discrimination? a. Bundling b. Market segmentation c. Hurdle method d. Dynamic pricing 47. For which group will the per-membership variable profits be greater? a. Regular memberships b. Student memberships c. Student and regular memberships will be equally profitable d. Not enough information 48. Which of the following is an example of price discrimination? a. Utility companies using time-of-use pricing, where electricity costs more during peak hours and less during off-peak hours. This encourages consumers to use electricity when demand is lower. b. Starbucks and Dutch Bros charge different amounts for a very similar coffee product. c. A grocery store puts on a weekly sale discounting all items by 20% d. Starbucks increases the price of the Pumpkin Cream Cold Brew when it finds out demand is more inelastic than it previously thought. Answer key: 1. B 2. B 3. B 4. A 5. B 6. A 7. A 8. B 9. A 10. B 11. B 12. B 13. A 14. A 15. B 16. B 17. C 18. B 19. A 20. A 21. A 22. D 23. D 24. C 25. B 26. B 27. C 28. D 29. D 30. C 31. B 32. B 33. A 34. C 35. C 36. B 37. A 38. D 39. B 40. B 41. B 42. D 43. A 44. B 45. A 46. B 47. A 48. A