ICA

1
ICA 1

• Question One
• Define the term Industrial Organization.
• Hint This is one sentence.

2
ICA 1

• Question Two
• The relatively stable features of the market
  environment that influence the rivalry among the
  buyers and sellers operating within. This is the
  definition of
• market performance.
• market structure.
• market conduct.

3
ICA 1

• Question Three
• A theoretical approach that uses formal models
  to analyze conflict and cooperation between firms
  and individuals. This is the definition of
• Industrial Organization.
• Contestable Markets Theory.
• Structure-Conduct-Performance Paradigm
• Game Theory.

4
ICA 1

• Question Four
• According to lecture, who is more risk-averse?
• a. Managers.
• b. Owners.
• c. Each are equally risk averse.
• d. This is an impossible question to answer
  since risk aversion would depend upon the
  individual.

5
ICA 1

• Question Five
• According to lecture, which of the following
  methods would an economist most likely employ
  when determining if two goods are likely to be
  substitutes?
• Surveying potential consumers.
• Testing the goods to see if they can indeed be
  used for the same task.
• Utilizing the cross-price elasticity.

6
ICA 2

• Question One
• Given Y 10 2X 3Z
• In this equation the dependent variable is
• a. X
• b. Z
• c. Y
• d. X and Z are both dependent variables

7
ICA 2

• Question Two
• Given Total Fixed Cost 200
• Output 10
• What is average fixed cost?

8
ICA 2

• Question Three
• Given P 200 2Q
• What is the equation for total revenue?

9
ICA 2

• Question Four
• A firm lowers its price. Given this action
• the own-price elasticity for this firm will
  _____ in absolute terms.
• a. rise b. fall
• c. be unchanged

10
ICA 2

• Question Five
• Given P 200 2Q
• Currently Q 60
• What is this firms own price elasticity?

11
ICA 3

• Question One
• Given P 400 4Q
• Currently Q 80
• What is this firms own price elasticity?

12
ICA 3

• Given P 400 4Q
• What is the level of output that will maximize
  total revenue?

13
ICA 3

• Question Three
• A firm determines that price is currently
  elastic with respect to sales. Therefore, an
  increase in price will cause total revenue to
• a. fall. b. rise.
• c. be unchanged.

14
ICA 3

• Question Four
• A firm determines that average cost is currently
  greater than marginal cost. Therefore, an
  increase in output will cause average cost to
• a. fall. b. rise.
• c. be unchanged.

15
ICA 3

• Question Five
• Given P 600 4Q
• Currently price is 400. If this firm were to
  lower its price, total revenue would
• a. rise. b. fall.
• c. be unchanged.

16
ICA 4

• Question One
• A firm observes its average cost is 40, while
  its marginal cost is 50. If the firm wishes to
  minimize average cost the firm should
• a. expand output.
• b. reduce output.
• c. maintain its current output.

17
ICA 4

• Question Two
• A firm observes it marginal revenue is 50 while
  its marginal cost is 55. If the firm wishes to
  maximize profit it should
• a. increase output.
• b. decrease output.
• c. maintain its current output.

18
ICA 4

• Question Three
• Given
• TC 2000 20Q 5Q2
• How much should this firm produce if it wishes
  to minimize average cost? Show your work.

19
ICA 4

• Question Four
• Given
• P 520 2Q
• TC 2700 20Q 3Q2
• How much output should this firm produce if it
  wishes to maximize profits? Show your work.

20
ICA 4

• Question Five
• Given
• P 420 3Q
• TC 1800 20Q 2Q2
• What is this firms own price elasticity when it
  is profit-maximizing? Show your work.

21
ICA 5

• Question One
• Given P 60
• TC 100 10Q Q2
• What is the level of output this firm will
  produce when it is profit maximizing? Show your
  work.

22
ICA 5

• Question Two
• Given P 60
• TC 100 10Q Q2
• Assuming that this firm is a representative,
  profit-maximizing company, what will be the
  long-run price in this industry? Show your work.

23
ICA 5

• Question Three
• Given P 800 4Q
• TC 112,500 20Q 5Q2
• What is the own-price elasticity of demand if
  this firm is average cost minimizing? Show your
  work.

24
ICA 5

• Question Four
• Given P 920 4Q
• TC 112,500 20Q 5Q2
• What is the the level of output this firm will
  produce when it is profit maximizing, average
  cost minimizing, and revenue maximizing? Show
  your work. Hint There are three answers.

25
ICA 5

• Question Five
• What is the one characteristic of a
  monopolistically competitive industry that is not
  a characteristic of a perfectly competitive
  industry?

26
ICA 6

• Question One
• What is the formula for the four-firm
  concentration ratio?

27
ICA 6

• Question Two
• What is the formula for the Herfindahl-Hirschman
  index?

28
ICA 6

• Question Three
• Researchers observe a profit maximizing firm
  whose price equals average cost as well as
  marginal cost. Such a firm must exist within a
  ____ industry.
• Monopoly
• Monopolistically Competitive
• Perfectly Competitive
• All of the above are possible.

29
ICA 6

• Question Four
• A monopolistically competitive firm will observe
  price equaling ______ in the long-run.
• average cost
• marginal cost
• average cost and marginal cost
• neither average cost or marginal cos

30
ICA 6

• Question Five
• If a firm faces a downward sloping demand curve,
  price will _____ marginal cost when the firm is
  profit maximizing.
• exceed
• be less than
• equal
• All of the above are possible.

31
ICA 7

• Question One
• A firm observes that its own-price elasticity is
  0.76. If this firm were to decrease price,
  total revenue would
• a. fall.
• b. rise.
• c. be unchanged.

32
ICA 7

• Question Two
• If a monopoly and monopsony exist within the
  same market, the price of the product will
  ultimately be
• above the competitive price.
• below the competitive price.
• determined by bargaining.

33
ICA 7

• Question Three
• Research reveals that the Rothschild index is
  0.23. Given the work of Matthew Shapiro, what
  would be a reasonable value for the Lerner Index?

34
ICA 7

• Question Four
• A firm increases its expenditure on advertising.
  If the advertising is successful we can expect
  the slope of the demand curve to (in absolute
  terms)
• a. increase. b. decrease.

35
ICA 7

• Question Five
• Given P 200 2Q
• If Q 40, what is the own-price elasticity for
  this firm?

36
ICA 8

• Question One
• Given
• TC 2000 20Q 5Q2
• If this was a cost function for a firm in a
  perfectly competitive industry, what would be the
  long-run price of the firm?

37
ICA 8

• Question Two
• A firm seeks entry into an industry and observes
  that the existing firms have a cost advantage at
  every level of output. Such a barrier to entry
  is defined as a(n)
• a. scale economy barriers to entry.
• b. absolute cost barriers to entry.
• c. product differentiation barriers to entry.

38
ICA 8

• Question Three
• Given P 550 2Q
• TC 300 50Q 3Q2
• What is the Lerner Index when this firm is
  profit maximizing?

39
ICA 8

• Question Four
• A firm seeks to enter an industry.
  Unfortunately to match the cost of existing
  companies this firm would have to capture a
  significant share of the market. Such a barrier
  to entry is defined as
• a. scale economy barriers to entry.
• b. absolute cost barriers to entry.
• c. product differentiation barriers to entry.

40
ICA 8

• Question Five
• Barriers to exit is defined by the size of a
  firms
• a. total cost. b. marginal cost.
• c. sunk costs. d. opportunity costs.