eco 550Final Exam

Question 1 5 out of 5 points

In the linear breakeven model, the difference between selling price per unit and variable cost per unit is referred to as:Answer

Selected Answer: contribution margin per unit

Correct Answer: contribution margin per unit


A ____ total cost function implies that marginal costs ____ as output is increased.Answer

Selected Answer: linear; increase linearly

Correct Answer: linear; are constant


The short-run cost function is:Answer

Selected Answer: relevant to decisions in which one or more inputs to the production process are fixed

Correct Answer: relevant to decisions in which one or more inputs to the production process are fixed


In a study of banking by asset size over time, we can find which asset sizes are tending to become more prominent. The size that is becoming more predominant is presumed to be least cost. This is called:Answer

Selected Answer: survivorship analysis.

Correct Answer: survivorship analysis.


In determining the shape of the cost-output relationship only ____ depreciation is relevant.Answer

Selected Answer: time

Correct Answer: usage


The main difference between perfect competition and monopolistic competition is:Answer

Selected Answer: The degree of product differentiation

Correct Answer: The degree of product differentiation


An "experience good" is one that:Answer

Selected Answer: Has undetectable quality when purchased

Correct Answer: Has undetectable quality when purchased


All of the following are true for both competition and monopolistic competition in the long run, except one of them. Which is it?Answer

Selected Answer: The barriers to entry and exit are relatively easy

Correct Answer: P = MC


If price exceeds average costs under pure competition, ____ firms will enter the industry, supply will ____, and price will be driven ____.Answer

Selected Answer: more; increase; down

Correct Answer: more; increase; down


In the long-run, firms in a monopolistically competitive industry willAnswer

Selected Answer: earn substantial economic profits

Correct Answer: tend to just cover costs, including normal profits


Regulatory agencies engage in all of the following activities except _______.Answer

Selected Answer: setting federal and state income tax rates on regulated firms

Correct Answer: setting federal and state income tax rates on regulated firms


In natural monopoly, AC continuously declines due to economies in distribution or in production, which tends to found in industries which face increasing returns to scale. If price were set equal to marginal cost, then:Answer

Selected Answer: price would exceed average cost.

Correct Answer: price would equal average cost.


The practice by telephone companies of charging lower long-distance rates at night than during the day is an example of:Answer

Selected Answer: first-degree price discrimination

Correct Answer: peak-load pricing


Of the following, which is notan economic rationale for public utility regulation?Answer

Selected Answer: protection of consumers from price discrimination

Correct Answer: constant cost industry


When the cross elasticity of demand between one product and all other products is low, one is generally referring to a(n) ____ situation.Answer

Selected Answer: oligopoly

Correct Answer: monopoly


If a cartel seeks to maximize profits, the market share (or quota) for each firm should be set at a level such that the ____ of all firms is identical.Answer

Selected Answer: marginal profit

Correct Answer: marginal cost


Which of the following is an example of an oligopolistic market structure?Answer

Selected Answer: air transport industry

Correct Answer: air transport industry


Some market conditions make cartels MORE likely to succeed in collusion. Which of the following will make collusion more successful?Answer

Selected Answer: The firms are all about the same size

Correct Answer: The orders are small and frequent


In a kinked demand market, whenever one firm decides to lower its price,Answer

Selected Answer: one half of the firms follow and one half of the firms don't follow the price cut.

Correct Answer: other firms will automatically follow.


Barometric price leadership exists whenAnswer

Selected Answer: one firm in the industry initiates a price change and the others follow it as a signal of changes in cost or demand in the industry.

Correct Answer: one firm in the industry initiates a price change and the others follow it as a signal of changes in cost or demand in the industry.


The difference between cooperative and non-cooperative games isAnswer

Selected Answer: cooperative games allow side payments to support collusion

Correct Answer: cooperative games allow side payments to support collusion


Credible promises and hostage mechanisms can support a continuous stream of cooperative exchanges except whenAnswer

Selected Answer: the hostage can be revoked for just causes

Correct Answer: the hostage can be revoked for just causes


Credibility in threats and commitments in sequential games is based onAnswer

Selected Answer: explicit communications with competitors

Correct Answer: analyzing best reply responses


A key to analyzing subgame perfect equilibrium strategy in sequential games isAnswer

Selected Answer: information sets that are known with certainty

Correct Answer: an explicit order of play for at least some participants


Non-cooperative sequential games can incorporate all the following features exceptAnswer

Selected Answer: an explicit order of play

Correct Answer: third-party enforceable agreements


Which of the statements about price discrimination is (are) false?Answer

Selected Answer: There must be differences in the elasticity of demand from one segment to another.

Correct Answer: Public utilities practice first-degree price discrimination.


Third-degree price discrimination exists whenever:Answer

Selected Answer: the seller knows exactly how much each potential customer is willing to pay and will charge accordingly.

Correct Answer: the seller can separate markets by geography, income, age, etc., and charge different prices to these different groups.


Vacation tours to Europe invariably package visits to disparate regions: cities, mountains, and the seaside. Bundling, a type of second degree price discrimination, is most profitable when:Answer

Selected Answer: a preference for cities is always higher than preferences for mountain vistas.

Correct Answer: the preference rankings of vacationers travelling together are negatively correlated.


____ is a new product pricing strategy which results in a high initial product price. This price is reduced over time as demand at the higher price is satisfied.Answer

Selected Answer: Skimming

Correct Answer: Skimming


The optimal mark-up is: m = -1/ (E+1). When the mark-up on cookware equals 50%, then demand elasticity (E) for cookware is:Answer

Selected Answer: -2

Correct Answer: -2


When borrowers who do not intend to repay are able to hide their bad credit histories, a lender's well-intentioned borrowers shouldAnswer

Selected Answer: offer more collateral in exchange for lower interest charges

Correct Answer: offer more collateral in exchange for lower interest charges


Agency problems appear in many settings within a firm. All of the following are examples, except which is NOT a good example of this problem? Answer

Selected Answer: Diversified stockholders are more enthusiastic on accepting business risks than are firm managers.

Correct Answer: Firm managers receive cash bonuses based on the performance of the firm.


Buying electricity off the freewheeling grid at one quarter 'til the hour for delivery on the hour illustrates:Answer

Selected Answer: spot market transactions

Correct Answer: spot market transactions


Vertical integration may be motivated by all of the following except:Answer

Selected Answer: Economies of ever wider spans of managerial control

Correct Answer: Economies of ever wider spans of managerial control


The Herfindahl-Hirschman index (also shortened to just the Herfindahl index) is a measure of ____.Answer

Selected Answer: market concentration

Correct Answer: market concentration


____ occurs whenever a third party receives or bears costs arising from an economic transaction in which the individual (or group) is not a direct participant.Answer

Selected Answer: Externalities

Correct Answer: Externalities

Sunday, March 17, 2013 5:46:08 PM EDTOK


In the linear breakeven model, the difference between selling price per unit and variable cost per unit is referred to as:Answer

Selected Answer: contribution margin per unit

Correct Answer: contribution margin per unit


In a study of banking by asset size over time, we can find which asset sizes are tending to become more prominent. The size that is becoming more predominant is presumed to be least cost. This is called:Answer

Selected Answer: survivorship analysis.

Correct Answer: survivorship analysis.


George Webb Restaurant collects on the average $5 per customer at its breakfast & lunch diner. Its variable cost per customer averages $3, and its annual fixed cost is $40,000. If George Webb wants to make a profit of $20,000 per year at the diner, it will have to serve__________ customers per year.Answer

Selected Answer: 30,000 customers

Correct Answer: 30,000 customers


Break-even analysis usually assumes all of the following except:Answer

Selected Answer: in the short run, there is no distinction between variable and fixed costs.

Correct Answer: in the short run, there is no distinction between variable and fixed costs.


The short-run cost function is:Answer

Selected Answer: relevant to decisions in which one or more inputs to the production process are fixed

Correct Answer: relevant to decisions in which one or more inputs to the production process are fixed


In the long-run, firms in a monopolistically competitive industry willAnswer

Selected Answer: tend to just cover costs, including normal profits

Correct Answer: tend to just cover costs, including normal profits


Under asymmetric information,Answer

Selected Answer: you always get cheated

Correct Answer: at best you get what you pay for


The price for used cars is well below the price of new cars of the same general quality. This is an example of:Answer

Selected Answer: A Lemon's Market

Correct Answer: A Lemon's Market


The main difference between perfect competition and monopolistic competition is:Answer

Selected Answer: The degree of product differentiation

Correct Answer: The degree of product differentiation


If price exceeds average costs under pure competition, ____ firms will enter the industry, supply will ____, and price will be driven ____.Answer

Selected Answer: more; increase; down

Correct Answer: more; increase; down


Declining cost industriesAnswer

Selected Answer: have diseconomies of scale.

Correct Answer: have marginal cost curves below their average cost curve.


Of the following, which is notan economic rationale for public utility regulation?Answer

Selected Answer: constant cost industry

Correct Answer: constant cost industry


____ as practiced by public utilities is designed to encourage greater usage and therefore spread the fixed costs of the utility's plant over a larger number of units of output.Answer

Selected Answer: Block pricing

Correct Answer: Block pricing


Regulatory agencies engage in all of the following activities except _______.Answer

Selected Answer: setting federal and state income tax rates on regulated firms

Correct Answer: setting federal and state income tax rates on regulated firms


The practice by telephone companies of charging lower long-distance rates at night than during the day is an example of:Answer

Selected Answer: peak-load pricing

Correct Answer: peak-load pricing


"Conscious parallelism of action" among oligopolistic firms is an example of ____.Answer

Selected Answer: informal, or tacit, cooperation

Correct Answer: informal, or tacit, cooperation


A cartel is a situation where firms in the industryAnswer

Selected Answer: have an agreement to restrict output.

Correct Answer: have an agreement to restrict output.


Even ideal cartels tend to be unstable becauseAnswer

Selected Answer: firms can benefit by secretly selling more than they promised the other firms

Correct Answer: firms can benefit by secretly selling more than they promised the other firms


In a kinked demand market, whenever one firm decides to lower its price,Answer

Selected Answer: other firms will automatically follow.

Correct Answer: other firms will automatically follow.


The existence of a kinked demand curve under oligopoly conditions may result inAnswer

Selected Answer: price rigidity

Correct Answer: price rigidity


The starting point of many methods for predicting equilibrium strategy in sequential games isAnswer

Selected Answer: endgame analysis

Correct Answer: endgame analysis


Essential components of a game include all of the following except:Answer

Selected Answer: cooperation

Correct Answer: cooperation


Credibility in threats and commitments in sequential games is based onAnswer

Selected Answer: analyzing best reply responses

Correct Answer: analyzing best reply responses


In a game, a dominated strategy is one where:Answer

Selected Answer: It is always the best strategy

Correct Answer: It is always the best strategy


Credible promises and hostage mechanisms can support a continuous stream of cooperative exchanges except whenAnswer

Selected Answer: the hostage can be revoked for just causes

Correct Answer: the hostage can be revoked for just causes


Vacation tours to Europe invariably package visits to disparate regions: cities, mountains, and the seaside. Bundling, a type of second degree price discrimination, is most profitable when:Answer

Selected Answer: the preference rankings of vacationers travelling together are negatively correlated.

Correct Answer: the preference rankings of vacationers travelling together are negatively correlated.


____ is the price at which an intermediate good or service is transferred from the selling to the buying division within the same firm.Answer

Selected Answer: Transfer price

Correct Answer: Transfer price


The segmenting of customers into several small groups such as household, institutional, commercial, and industrial users, and establishing a different rate schedule for each group is known as:Answer

Selected Answer: third-degree price discrimination

Correct Answer: third-degree price discrimination


To maximize profits, a monopolist that engages in price discrimination must allocate output in such a way as to make identical the ____ in all markets.Answer

Selected Answer: marginal revenue

Correct Answer: marginal revenue


Firms that have a cover charge for their customers and charge for each item they purchase as well are exhibitingAnswer

Selected Answer: two-part price discrimination.

Correct Answer: two-part price discrimination.


Non-redeployable durable assets that are dependent upon unique complementary and perfectly redeployable assets to achieve substantial value-added will typically be organized asAnswer

Selected Answer: a vertically integrated firm

Correct Answer: a vertically integrated firm


Which of the following are not approaches to resolving the principal-agent problem?Answer

Selected Answer: straight salary contracts

Correct Answer: straight salary contracts


Governance mechanisms are designedAnswer

Selected Answer: to enhance the flexibility of restrictive covenants

Correct Answer: to resolve post-contractual opportunism


Agency problems appear in many settings within a firm. All of the following are examples, except which is NOT a good example of this problem? Answer

Selected Answer: Firm managers receive cash bonuses based on the performance of the firm.

Correct Answer: Firm managers receive cash bonuses based on the performance of the firm.


____ occurs whenever a third party receives or bears costs arising from an economic transaction in which the individual (or group) is not a direct participant.Answer

Selected Answer: Externalities

Correct Answer: Externalities


The antitrust laws regulate all of the following business decisions except ____.Answer

Selected Answer: wage levels

Correct Answer: wage levels

Sunday, March 17, 2013 8:09:01 PM EDT

eco 550Final Exam

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