ExERCISE 2 Multiple Choice Questions. (20 points, 5 points for each question) Q1

Question

ExERCISE 2 Multiple Choice Questions. (20 points, 5 points for each question) Q1) Marina has utility function u(z,T2) = log(x) + 2 . log(T2). Which of the following utility functions also represents Marina's preferences? a. u(T1,T2)= V log(x1)+ log(T2); b. v(x1,T2) = (11)2(T2)4-1; c. u(11,12) = min(n, 2T2): e. none of the above Q2) A firm technology is given by the production function f(xi, I2) -1r2. This technology exhibits a. decreasing returns to scale; b. constant returns to scale; c. increasing returns to scale; d. fixed proportions; d. none of the above Q3) A profit maximizing monopolist will NEVER produce a quantity at which a. the price is higher than the marginal cost; b. the price is higher than the marginal revenue; c. the demand is unit elastic; d. the marginal cost is lower than the marginal revenue Q4) Which of the following is a sequential move game? a. Cournot oligopoly; b. Bertrand competition; c. Stackelberg model; d. Prisoner's dilemma; e. none of the above

Explanation / Answer

1> b>

Reason

By taking exponential of the utility expression,

e^[log x1 + 2 log x2] = x1 x2^2

Now, square this and subtract 1 from this expression.

So, it is a result of a monotonic transformation.

2> c

It is increasing return to scale as doubling the inputs will double the output level.

3> c

The monopolist always produces at elastic part of the production.

4> c

The Stackelberg leadership model is a strategic game in economics in which the leader firm moves first and then the follower firms move sequentially.

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