1. the marginal productivities of capital and labor for that firm must be equal

2. the firm must spend equal amounts on capital and labor

3. the last unit of labor should bring this firm p/w units of output

4. Both factors should bring the firm the same marginal product per dollar spent on them

5. C and D are correct

21. This graph illustrates the market demand for trinkets and the cost curves associated with the only existing technology of producing trinkets:

J udging by the graph, the trinket industry would most likely happen to be:

1. A natural monopoly

2. A monopoly

3. A monopolistically competitive industry

4. An oligopoly

5. A perfectly competitive industry

22. If every firm in a perfectly competitive industry would have the same technology characterized by constant returns to scale…

1. Individual LAC curves would look like hyperbolae

2. Such an industry would violate the Law of Diminishing Returns

3. A short-run increase in demand would not affect the equilibrium quantity

4. The long run supply curve would not depend on the actual number of firms in the industry

5. No right answer

23. Consider two constant-average-cost industries (#1 and #2) with linear market demand functions, which are exactly the same in everything except:

• industry #1 is perfectly competitive

• industry #2 is monopolized

The government introduces a per-unit subsidy of $1 for both industries. How will this affect the price paid by buyers of those industries?

1. #1 – increase by $1; #2 – increase by more than $1;

2. #1 – decrease by $1; #2 – decrease by less than $1

3. #1 – decrease by less than $1; #2 – increase by less than $1

4. #1 – increase by $1; #2 – increase by less than $1

5. #1 – decrease by $1; #2 – decrease by more than $1

24. The following graph illustrates a firm in the situation of long-run equilibrium.

Judging from this graph, which market structure could that firm operate in?

1. A perfectly competitive market

2. A monopolistically competitive market

3. A discriminating monopoly

4. A natural monopoly

5. Several answers are correct

25. Suppose there are two firms in an industry. There are three alternatives available to each firm: (A) invest in both quality and advertizing, (B) invest in advertizing only and (C) invest in cost reduction. The firms simultaneously choose their strategy. All possible payoffs are given by the following matrix:

	Firm 2
Firm 1		A	B	C
	A	0,5, 0,5	- 1, 1	1, -1
	B	1, - 1	0,5, 0,5	-1, 1
	C	- 1, 1	1, - 1	0,5, 0,5

According to that matrix:

1. “B” would be a dominant strategy for firm 1

2. {“C”, “C”} (mutual investment in cost reduction) would be the Nash equilibrium of this game

3. None of the possible outcomes of this game is Pareto-optimal

4. There are three Nash equilibria in this game

5. None of the above

26. Which of these markets would be closest to a monopolistically competitive market?