Multiple Choice

5. Suppose there are two inputs for production, labor and capital. The firm's production process is defined by the following production function y=f(L,K). How do we interpret the firm's marginal rate of technical substitution? a) How many units of capital the firm would have to give up in order to attain one more unit of labor, such that the firm maintains the same cost level b) How many units of capital the firm would have to give up in order to attain one more unit of labor, such that the firm produces one more unit of output c) How many units of capital the firm would have to give up in order to attain one more unit of labor, such that the firm maintains the same level of production d) a) and b) are correct e) a) and c) are correct 6. A firm creates an allergy medicine, call it Chemical X, and sells it on the market under patent protection. Now suppose the patent expires, and other firms can now produce and sell Chemical X in the market. What do we expect to happen to the market equilibrium quantity and price of Chemical X? a) The equilibrium price and quantity will increase b) The equilibrium price and quantity will decrease c) Equilibrium quantity will decrease and equilibrium price will increase d) Equilibrium quantity will increase and equilibrium price will decrease e) The market equilibrium will not be affected 7. Which of the following is a characteristic of an oligopoly market? a) many firms b) unique product c) price setting power d) best response functions e) none of the above 8. A nash equilibrium is a strategy profile such that: a) Both players are playing a best response strategy b) Both players must be playing a dominant strategy c) Both players achieve their highest possible payoff d) a) and c) e) b) and c)