Question

If the price of good X is $25 and the price of good Y is $45, how much of good X will the consumer purchase if her income is $450?

• A. 18
• B. 10
• C. 450
• D. Unknown

For the cost function C(Q) = 550 + 5Q + 3Q (squared), the marginal cost of producing 2 units of output is

• A.

  12

• B.

  22

• C.

  550

• D.

  10

Which of the following conditions are not necessary for the existence of a Nash equilibrium?

• A. The existence of dominant strategies for both players.
• B. The existence of a dominant strategy for one player and the existence of a secure strategy for another player.
• C. A and B
• D. None of the answers is correct.

If you wish to open a store and you do not like risk, then you shouldn't sell:

• A. Giffen goods
• B. a mix of normal and inferior goods
• C. only normal goods.
• D. None of the statements is correct.

You are the manager of a company that is the only firm in the market and has the following inverse demand curve P = 85 − 5Q. Your total costs are 20 + 5Q. What would be the profit maximizing quantity for this firm:

• A. 8
• B. 7
• C. 6
• D. There is not enough information to solve this

Given the linear production function Q = 10K + 5L and K = 500, how much labor is utilized?

• A. 1,000
• B. 600
• C. 800
• D. Unable to determine

Answer 1

Ans-1) D. Unknown

Working-:

Price of X =25

Price of Y = 45

Money Income = 450

Money Income = PxQx + PyQy

450    = 25(Qx) + 45(Qy)

Now it cannot be calculated as to what amount of X is purchased because we dont know how much of Y the consumer is buying . It it was given that consumer buys Qy=0(i.e. no Y is bought) , then we could say that consumer buys 450/25 = 18 units of X . But here we dont have any information regarding Y units so we say the option D : Unknown is correct.

Ans-2)Correct answer =MC=17

(Note : Please check for the options . Either you have copied the option incorrectly or you have stated the cost function incorrectly. Let me know in the comment section if there is any discrepancy . I will help you accordingly)

Working-:

C=550 + 5Q + 3Q^2

To find marginal cost , differentiate cost function with respect to 'Q'

d(C)/dQ= 0 + 5 + 2(3Q)

MC = 5 + 6Q

MC WHEN Q= 2 , WE GET

Ans-3) (C) Both A and B

Reason :

Every Dominant strategy equilibrium is nash equilibrium. So it is not necessay for both the players to have dominant strategy. Only one player having dominant strategy will also lead to nash equilibrium.

It is not necessary to have nash equilibrium only when one player has domianat strategy and other has secured strategy . Not having a secured strategy or not having a dominant strategy can also lead to nash equilibrium.

Ans-4) (C) only normal goods.

Reason -: Normal goods are those goods that move in same direction as that of income i.e. if income increases the normal goods sale will also increase and if income decreases sale of normal goods will decrease. So only selling normal goods will create a risky situation for the seller as any decrease in income will lead to decline in sales . The seller must keep variety of goods (i.e. mix of normal , inferior, giffen goods) so that he can offer other types of goods when the income falls.

MC = 5 + 6(2) = 5 + 12 = 17