There are two firms that compete against each other and each needs to decide if they will undertake ...

There are two firms that compete against each other and each needs to decide if they will undertake research and development to improve their product.

The payoffs are as follows: If Firm 1 does undertake R&D then Firm 2 will earn 25 million if they also do R&D or 50 million if not If Firm 1 does not undertake R&D then Firm 2 will earn 2 million if they do R&D or 0 million if not If Firm 2 does undertake R&D then Firm 1 will earn 10 million if they also do R&D or 20 million if not If Firm 2 does not undertake R&D then Firm 1 will earn 2 million if they do R&D or 0 million if not Regarding this game, which of the following is TRUE? A) Only one will do R&D but we cannot say which one.
B) Both firms will do R&D.
C) Both firms will not do R&D.
D) Firm 1 will do R&D and Firm 2 will not.

Ques. 2

The figure above shows the market for cotton in Georgestan. The government regulates the market with a production quota set at 8 million pounds per year. The price of cotton in Georgestan is

A) 30 cents per pound.
B) 40 cents per pound.
C) 60 cents per pound.
D) 50 cents per pound.

Ques. 3

The unregulated, single-price monopoly shown in the figure above makes a total economic profit of

A) 24.
B) 16.
C) 8.
D) 4.

Ques. 4

Although the United States is running a large current account deficit, it is still ranked as a major international net lender. Is the previous statement correct or incorrect? Briefly explain your answer.

What will be an ideal response?

Ques. 5

The table below shows the data (in millions) for Wells Fargo Bank in September 2007 and September 2008. Suppose that the required reserve ratio is 3 percent.

2007 2008
Loans 79 100
Reserves 11 11
Deposits 247 266

The data show that
A) the currency drain ratio increased.
B) the Federal Reserve must have increased the required reserve ratio.
C) Wells Fargo had excess reserves and could create money in 2007.
D) Wells Fargo was only able to make more loans in 2008 because it gained more deposits.

Ques. 6

In the above figure, at any price between 8 per unit to 12 per unit, how many units will a profit-maximizing perfectly competitive firm produce?

A) None, because the producer will never choose to operate at a loss.
B) Less than 20 because this will reduce marginal cost.
C) Between 20 and 30, because variable costs are covered so the firm's losses will be minimized by producing rather than shutting down.
D) More than 30, because variable costs are covered so that the producer can earn economic profits.

Ques. 7

In the above figure, the firm is a monopolistically competitive firm. In the long run, its economic profit will be

A) zero.
B) between zero and 50 per day.
C) greater than 50 per day.
D) some amount that cannot be determined without more information.

Ques. 8

In the figure above, the Lorenz curve that shows the least inequality, but NOT perfect equality, is

A) curve A.
B) curve B.
C) curve C.
D) curve D.

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There are two firms that compete against each other and each needs to decide if they will undertake ...

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