ECO 550 Final Exam 3.docx

ECO 550 Final Exam 3 ECO 550 Final Exam Question 1 5 out of 5 points Evidence from empirical studies of short-run cost-output relationships lends support to the: Answer Selected Answer: hypothesis that total costs increase linearly over the range of output examined Correct Answer: hypothesis that total costs increase linearly over the range of output examined Question 2 5 out of 5 points 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. Question 3 5 out of 5 points In determining the shape of the cost-output relationship only ____ depreciation is relevant. Answer Selected Answer: usage Correct Answer: usage Question 4 5 out of 5 points In the linear breakeven model, the breakeven sales volume (in dollars) can be found by multiplying the breakeven sales volume (in units) by: Answer Selected Answer: selling price per unit Correct Answer: selling price per unit Question 5 5 out of 5 points A firm in pure competition would shut down when: Answer Selected Answer: price is less than average variable cost Correct Answer: price is less than average variable cost Question 6 5 out of 5 points Buyers anticipate that the temporary warehouse seller of unbranded computer equipment will Answer Selected Answer: produce only one quality Correct Answer: produce only one quality Question 7 5 out of 5 points An "experience good" is one that: Answer Selected Answer: Has undetectable quality when purchased Correct Answer: Has undetectable quality when purchased Question 8 5 out of 5 points Experience goods are products or services Answer Selected Answer: whose quality is undetectable when purchased Correct Answer: whose quality is undetectable when purchased Question 9 5 out of 5 points The demand curve facing the firm in ____ is the same as the industry demand curve. Answer Selected Answer: pure monopoly Correct Answer: pure monopoly Question 10 5 out of 5 points In the electric power industry, residential customers have relatively ____ demand for electricity compared with large industrial users. But contrary to price discrimination, large industrial users generally are charged ____ rates. Answer Selected Answer: inelastic, higher Correct Answer: inelastic, higher Question 11 5 out of 5 points 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 Question 12 5 out of 5 points Of the following, which is not an economic rationale for public utility regulation? Answer Selected Answer: constant cost industry Correct Answer: constant cost industry Question 13 5 out of 5 points 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 cost Correct Answer: marginal cost Question 14 5 out of 5 points Which of the following is an example of an oligopolistic market structure? Answer Selected Answer: air transport industry Correct Answer: air transport industry Question 15 5 out of 5 points Some market conditions make cartels MORE likely to succeed in collusion. Which of the following will make collusion more successful? Answer Selected Answer: The orders are small and frequent Correct Answer: The orders are small and frequent Question 16 5 out of 5 points Even ideal cartels tend to be unstable because Answer 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 Question 17 5 out of 5 points In making promises that are not guaranteed by third parties and in imposing penalties that are not enforced by third parties, all of the following are credibility-enhancing mechanisms except Answer Selected Answer: offering a warranty Correct Answer: offering a warranty Question 18 5 out of 5 points The Prisoner’s Dilemma involves two spies who are held in separate soundproof rooms. But even if the two spies could communicate, what makes it difficult for them to achieve the cooperative solution (both not confessing)? Answer Selected Answer: The problem is that both spies have incentives to double cross each other. Correct Answer: The problem is that both spies have incentives to double cross each other. Question 19 5 out of 5 points When airlines post prices on an electronic bulletin board at 8:00 a.m. each morning, the decision-makers are engaged in Answer Selected Answer: a simultaneous game Correct Answer: a simultaneous game Question 20 5 out of 5 points To trust a potential cooperator until the first defection and then never cooperate thereafter is Answer Selected Answer: a grim trigger strategy Correct Answer: a grim trigger strategy Question 21 5 out of 5 points 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. Question 22 5 out of 5 points Firms that have a cover charge for their customers and charge for each item they purchase as well are exhibiting Answer Selected Answer: two-part price discrimination. Correct Answer: two-part price discrimination. Question 23 5 out of 5 points 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 Question 24 5 out of 5 points Third-degree price discrimination exists whenever: Answer Selected Answer: the seller can separate markets by geography, income, age, etc., and charge different prices to these different groups. Correct Answer: the seller can separate markets by geography, income, age, etc., and charge different prices to these different groups. Question 25 5 out of 5 points Governance mechanisms are designed Answer Selected Answer: to resolve post-contractual opportunism Correct Answer: to resolve post-contractual opportunism Question 26 5 out of 5 points 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 Question 27 5 out of 5 points 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. Question 28 5 out of 5 points Reliant assets are always all of the following except: Answer Selected Answer: dependent on unique complementary inputs Correct Answer: dependent on unique complementary inputs Question 29 5 out of 5 points ____ 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 Question 30 5 out of 5 points The lower the barriers to entry and exit, the more nearly a market structure fits the ____ market model. Answer Selected Answer: perfectly contestable Correct Answer: perfectly contestable Question 31 5 out of 5 points The ____ is equal to the some of the squares of the market shares of all the firms in an industry. Answer Selected Answer: Herfindahl-Hirschman index Correct Answer: Herfindahl-Hirschman index Question 32 5 out of 5 points ____ yields the same results as the theory of perfect competition, but requires substantially fewer assumptions than the perfectly competitive model. Answer Selected Answer: The theory of contestable markets Correct Answer: The theory of contestable markets Question 33 5 out of 5 points In determining the optimal capital budget, one should choose those project's whose ____ exceeds the firm's ____ cost of capital. Answer Selected Answer: internal rate of return, marginal Correct Answer: internal rate of return, marginal Question 34 5 out of 5 points The ____ method assumes that the cash flows over the life of the project are reinvested at the ____. Answer Selected Answer: net present value; firm's cost of capital Correct Answer: net present value; firm's cost of capital Question 35 5 out of 5 points Any current outlay that is expected to yield a flow of benefits beyond one year in the future is: Answer Selected Answer: a capital expenditure Correct Answer: a capital expenditure Question 36 5 out of 5 points Capital expenditures: Answer Selected Answer: Affect long-run future profitability Correct Answer: Affect long-run future profitability