ECO – The difference between the short-run and the long-run production function is

1. The difference between the short-run and the long-run production function is:a. three months or one business quarter.b. the time it takes for firms to change all production inputs.c. the time it takes for firms to change only their variable inputs.d. more information is required to answer this question.2. Which of the following statements about the short-run production function is true?a. MP always equals AP at the maximum point of MP.b. MP always equals zero when TP is at its maximum.c. TP starts to decline at the point of diminishing returns.d. When MP diminishes, AP is at its minimum point.e. None of the above is true.3. A firm using two inputs, X and Y, is using them in the most efficient manner whena. MPX = MPYb. PX = PY and MPX = MPYc. MPX/PY = MPY/PXd. MPX/MPY = PX/PY4. Average fixed cost isa. AC minus AVCb. TC divided by Qc. AVC minus MCd. TC minus TVC5. Diseconomies of scale can be caused bya. the law of diminishing returns.b. bureaucratic inefficiencies.c. increasing advertising and promotional costs.d. all of the above.6. Which of the following cost relationship is not true?a. AFC = AC – MCb. TVC = TC – TFCc. the change in TVC divided by the change in Q = MCd. the change in TC divided by the change in Q = MC7. When a firm produces at the point where MR = MC, and the price of its product is higherthat the cost per unit, the profit that it is earning is considered to bea. maximumb. normalc. above normald. below normal8. Which of the following is not characteristic of perfect competition?a. A differentiated productb. No barriers to entryc. Large number of buyersd. Complete knowledge of market price9. Suppose a firm is currently maximizing its profits (i.e., following the MR = MC rule).Assuming that it wants to continue maximizing its profits, if its fixed costs increase, itshoulda. maintain the same priceb. raise its pricec. lower its priced. not enough information to answer this question10. Which of the following is true about a monopoly?a. Its demand curve is generally less elastic than in more competitive markets.b. It will always earn economic profit.c. It will charge the highest possible price.d. It will always be subject to government regulations.11. If an oligopolistic firm decides to raise its price,a. other firms will automatically follow.b. none of the other firms will follow.c. other firms may follow if it is the price leader.d. None of the above.12. Barometric price leadership exist whena. one firm in the industry initiates a price change and the other may or may not follow.b. one firm imposes its best price on the rest of the industry.c. all firms agree to change prices simultaneously.d. one company forms a price umbrella for all others.13. When state universities charge higher tuition fees to out-of-state students than to local students, the universities are practicing a. first-degree discrimination.14. If a product which costs $8 is sold at $10, the mark-up isa. $2.b. 25 %.c. 20 %.d. impossible to determine.Short-Answer Questions (6 points each)15. Savings accounts pay very low rates of interest. The average return on the stock marketis about 10-12 %, in the long run. Why would anyone put money into a savings account?316. The following matrix shows the payoffs for advertising game between Coke and Pepsi.The firms can choose to advertise or to not advertise. Number in the matrix representprofits; the first number in each cell is the payoff to Coke. (Numbers in millions.)Coke (rows)/Pepsi (columns)AdvertiseDon’t AdvertiseAdvertise(10, 10)(-50, 500)Don’t Advertise(500, -50)(100, 100)Explain why this would be describes as a Prisoner’s Dilemma game.Explain the probable outcome of this game.Extra-Credit QuestionA firm in an oligopolistic industry has the following demand and total cost equations:P = 600 20QTC = 700 + 160Q + 15Q2Calculate:a. quantity at which profit is maximized.b. maximum profit.c. quantity at which revenue is maximized.d. maximum revenue.e. maximum quantity at which profit will be at least $580.f. maximum revenue at which profit will be at least $580.