Eco550
Review
1.
The short-run cost function is
a.
Where all inputs to the production process area
variable
b.
Relevant
to decisions in which one or more inputs to the production process are fixed
c.
Not relevant to optimal pricing and production
output decisions
d.
Crucial in making optimal investment decisions
in new production facilities
2.
In a study of banking by assets 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:
a.
Regression to the mean analysis
b.
Breakeven analysis
c.
Survivorship
analysis
d.
Engineering cost analysis
e.
A Willie Sutton analysis
3.
Which of the following is not an assumption of
the linear breakeven model:
a.
Constant selling price unit per price
b.
Decreasing variable cost per unit
c.
Fixed costs are independent of the output level
d.
A single product (or a constant mix of products)
is being produced and sold
e.
All cost
can be classified as fixed variable
4.
A ______ total cost function implies that
marginal costs_____ as output is increased
a.
Linear; increase linearly
b.
Quadratic; are constant
c.
Cubic; increase linearly
d.
Linear;
are constant
5.
Long distance telephone service became a
competitive market. The average cost per
call is $0.05 a minute, and itâs declining.
The likely reason for the declining price for long distance service I:
a.
Governmental pressure to lower price
b.
Reduced demand for long distance service
c.
Entry
into this industry pushes prices down
d.
Lower price for a barrel of crude oil
e.
Increased cost of providing long distance
service
6.
What is another term meaning the degree of
operating leverage?
a.
The measure of the importance of fixed cost
b.
The operating profit elasticity
c.
The measure of business risk
d.
D.O.L
e.
All of
the above
7.
Theoretically, in a long-run cost function:
a.
All inputs are fixed
b.
All
inputs are considered variable
c.
Some inputs are always fixed
d.
Capital and labor are always combined in fixed
proportions
e.
B and D
8.
In determining the shape of the cost-output
relationship only____ depreciation is relevant
a.
Direct
b.
Indirect
c.
Usage
d.
Time
e.
Scheduled
9.
A____ total cost function yields a U-shaped
average total cost functions
a.
Cubic
b.
Quadratic
c.
Linear
d.
A and B
only
e.
A, B and C
10. In the linear breakeven
model, the difference between selling per unit and variable cost per unit is referred
to as:
a.
Variable margin per unit
b.
Variable cost per unit
c.
Contribution
margin per unit
d.
Target margin per unit
e.
None of the above
11. In the linear breakeven
model, the breakeven sales volume (in dollars) is equal to fixed costs divided
by:
a.
Unit selling price less unit variable cost
b.
Contribution margin per unit
c.
One minus the variable cost ratio
d.
a and b
only
e.
a, b, and c
12. The degree of operating leverage is equal to
the ____ change in ____ divided by the ____change in ____
a.
Percentage; sales; percentage; EBIT
b.
Unit; sales; unit; EBIT
c.
Percentage; EBIT; percentage; sales
d.
Unit; EBIT; unit; sales
e.
None of the above.
13. In the linear breakeven
model, the breakeven sales volume (in dollars) can be found by multiplying the
breakeven sales volume (in units) by:
a.
One minus the variable cost ration
b.
Contribution margin per unit
c.
Selling price per unit
d.
Standard deviation of unit sales
e.
None of the above
14. The main difference between perfect
competition and monopolistic competition is
a.
The number of sellers in market
b.
The ease of entry and exit in the industry
c.
The degree of information about market price
d.
The
degree of product differentiation
e.
Whether it is the short run or the long run
15. Long distance telephone service has become a
competitive market. The average cost per
call is $0.05 a minute, and its decline.
The likely reason for the declining price for long distance service is:
a.
Governmental pressure to lower the price
b.
Reduced demand for long distance service
c.
Entry
into this industry pushes prices down
d.
Lower price for a barrel of crude oil.
e.
Increase cost of providing long distance service
16. What is the profit
maximization point for a firm in a purely competitive environment?
a.
The
output where P =MC
b.
The output where P < MC
c.
The output where P > MC
d.
The
output where MR = MC
e.
The output where AVC < P
17. All of the following are
true for both competition and monopolistic competition in the long run, except
one of them. Which is it?
a.
P = MC
b.
P = AC
c.
Economic profits become zero in the long-run
d.
The barriers to entry and exit are relatively
easy
e.
None of
the above
18. Which of the following
statements is (are) true concerning a pure competition situation?
a.
Its demand curve is represented by a vertical
line
b.
Firms must sell at or below market
c.
Both b and c
d.
Both a and b
Some option is missing in this
19. In the short-run for a purely competitive
market, a manufacturer will stop production when:
a.
The total revenue is less than total costs
b.
The
contribution to fixed costs is zero or less
c.
The price is greater than AVC
d.
Operating at a loss
e.
a and b
20. In the purely competitive case, marginal
revenue (MR) is equal to:
a.
Cost
b.
Profit
c.
Price
d.
Total revenue
e.
None of the above
21. If price exceeds average
costs under pure competition, ____firms will enter the industry, supply
will_____, and price will be driven____
a.
More; decrease; down
b.
More; increase; up
c.
More;
increase; down
d.
More; increase; up
e.
None of the above
22. A firm in pure competition would shut down
when:
a.
Price is less than average total cost
b.
Price is less than average fixed cost
c.
Price is less than marginal cost
d.
Price is
less than average variable cost
23. In the long-run, firms in a monopolistically
competitive industry will
a.
Earn substantial economic profits
b.
Tend to
just cover costs, including normal profits
c.
Seek to increase the scale of operations
d.
Seek to reduce the scale of operations
24. Uncertainty includes all of the following
except_____.
a.
Unknown effects of deliberates actions
b.
Incomplete
information as to the type of competitor
c.
Random disturbances
d.
Unverified claims
e.
Accidents due to weather hazards
25. Experience goods are
products or service
a.
That the customer already knows
b.
Whose performance is highly unusual
c.
Whole
quality is undetectable when purchased
d.
Not likely to cause repeat purchases
e.
All of the above
26. All of the following are mechanisms which
reduce the adverse selection problem except___.
a.
Warranties from established enterprises with
non-redeployed assets
b.
High interest rates
c.
Large
collateral requirements
d.
Brand names and products-specific promotions and
retail displays
e.
Higher
prices in repeat customer transactions
27. Assets specificity is
largest when
a.
Value in first best use is large
b.
Value in second best use is large
c.
Customers choose their supplier at random
d.
Very
valuable assets are non-redeployable
e.
Customers are loyal to a particular seller
28. Under asymmetric
information
a.
You never get what you pay for
b.
You
sometimes get cheated
c.
You always get cheated
d.
At best you get what you pay for
e.
Sellers make profits in excess of competitive
returns
29. To escape adverse selection and elicit high
quality experience goods buyers can
a.
Offer price premiums to new firms in the market
b.
Seek out unbranded goods
c.
Buy from generic storefronts that have leased
temporary space
d.
Secure
warranties from warehouse retailers
e.
None of the above
30. The problems of
asymmetric information exchange arise ultimately because
a.
One party to the exchange possess different
information than another
b.
One party
has more information than another
c.
One party knows nothing
d.
One party cannot independently verify the
information of another
e.
Information is scarce
31. The market for âlemonsâ is one which
a.
The rational buyer discounts
b.
The sellerâs product claims are unverified at
the point of purchase
c.
âthe bad
apples drive out the goodâ
d.
The problem of adverse selection is rampant
e.
All of the above
32. The fraudulent delivery of low quality experience
goods at high prices is more likely if
a.
Interest rates decline
b.
Information
about notorious firms is speedily disseminated
c.
Price premiums for allegedly high quality
increase
d.
Sellers invest in non-transferable reputation
e.
None of the above
33. An âexperience goodâ is
one that:
a.
Only an expert can use
b.
Has
undetectable quality when purchased
c.
Can be readily experienced simply by touching or
tasting
d.
Improves with age, like a fine wine
e.
All of the above
34. A âsearch goodâ is
a.
One that depends on how the product behaves over
time
b.
A product whose quality is only found out over
time by finding how durable it is
c.
Like a peach that can be examined for flaws
d.
Like a used car, since it is easy to determine
its inherent quality
e.
None of the
above
35. The price for used for cars is well below the
price of new cars of the same general quality.
This is an example of :
a.
The Degree of Operating leverage
b.
A lemonâs
market
c.
Redeployment
assets
d.
Cyclical competition
e.
The unemployment rate
36. Unique creations has
monopoly position in magnometers. If the
marginal cost for a magnometer is $50 and the price elasticity for magnometers
is -4, what is the optimal monopoly price?
Hint: P (1+1/E) = MC
a.
$37.50
b.
$41.25
c.
$66.67
d.
$75.00
e.
$82.50
37. Landâs End estimates a demand curve for
turtleneck sweaters to be: Log Q = .41 + 2.3 Log Y-3 Log P
Where Q=quantity, P=price and Y=measure on
national income. If the marginal cost of
imported turtleneck sweaters is $9.00 (Hint: P (1 + 1/E) = MC. The optimal monopoly price would be:
a.
P = $13.50
b.
P =$26.50
c.
P = $27.50
d.
P = $34.50
e.
P =$56.22
38. Declining cost industries
a.
Have upward rising AC curves
b.
Have upward rising demand curves
c.
Have diseconomies of scale
d.
Have marginal cost curves below their average
cost curve
Option is missing
39. A monopolist seller of
Irish ceramics faces the following demand function for its product:
P=62-3Q. The fixed cost is $10 and the
variable cost per unit is $2. What is
the maximizing quantity for this monopoly? Hint: MR is twice as steep as the
inverse demand curve: MR=62-6Q (Pick closet answer)
a.
Q = 10
b.
Q = 15
c.
Q = 22
d.
Q = 37
e.
Q = 41
40. A monopolist faces the following
demand curve: P = 12 - .3Q with marginal costs of $3. What is the monopolistic PRICE?
a.
P = $5.50
b.
P = $6.50
c.
P =$ 7.50
d.
P = $8.50
e.
P = $9.50
41. In natural monopoly, AC continuously declines
due to economics 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:
a.
Price would equal average cost.
b.
Price
would exceed average cost.
c.
Price would be below average cost.
d.
Price would be at the profit maximizing level
for natural monopoly
e.
All of the above
42. The
profit-maximizing monopolist, faced with a negative-sloping demand curve, will
always produce:
a.
at an output greater than the output where average costs are minimized
b.
at an output short of that output where average costs are minimized
c.
at an output equal to industry output under pure competition
d.
a and c
e. none of the above
43. In case of pure
monopoly:
a.
one firm is the sole producer of a good or service which has no close
substitutes
b. the firms profit is maximized at the price
and output combination where marginal cost
equals marginal revenue.
c. the demand curve is always elastic
d. a and
b only
e. a, b and c
44. The demand curve facing the firm in____ is
the same as the industry demand curve.
a. pure competition
b. monopolistic competition
c. oligopoly
d. pure monopoly
e. none of the above
45. When cross
elasticity of demand between one product and all other products is low, one is generally referring to a(n)_____ situation
a. production process exhibiting increasing
returns to scale
b. constant cost industry
c. avoidance of duplication of facilities
d. protection of consumers from price
discrimination
e. none of the above
46. The practice by
telephone companies of charging lower long-distance rates at night than during
the day is an example of:
a. inverted block pricing
b. second-degree price discrimination
c. peak-load pricing
d. first-degree price discrimination
e. none of the above
47. 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
a. similar, similar
b. elastic, lower
c. elastic, higher
d. inelastic, lower
e. inelastic, higher
48. Regulatory agencies engage in all of the
following activities except ______.
a. controlling entry
into the regulated industries
b. overseeing the
quality of service provided by the firms
c. setting federal and state income
tax rates on regulated firms
d. setting prices that
consumers will pay.
e. none of the above
49. âConscious parallelism of actionâ among oligopolistic
firms is an example of _____
a. intense rivalry
b. a formal collusive
agreement
c. informal, or tacit, cooperation
d. a cartel
e. none of the above.
50. The kinked demand curve model was developed
to help explain:
a. fluctuations of
prices in pure competition
b. rigidities observed in prices in oligopolistic
products
c. fluctuations observed
in prices in oligopolistic industries
d. all of the above
e. none of the above
51. An oligopoly is
characterized by:
a. a relatively small
number of firms
b. either differentiated
or undifferentiated products
c. actions of any
individual firm will affect sales of other firms in the industry
d. a and b
e. a, b and c
52. Which of the
following is an example of an oligopolistic market structure?
a. public utilities
b. air transport
c. liquor retailers
d. wheat farmers
e. none of the above
53. In the Cournot
duopoly model, each of the two firms, in determining its profit-maximizing
price-output level, assumes that the other firmâs _____ will not change.
a. price
b. output
c. marketing strategy
d. inventory
e. none of the above
54. 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
a. average total cost
b. average profit
c. marginal profit
d. marginal cost
e. marginal revenue
55. A(n)____ is
characterized by a relatively small number of firms producing a product.
a. monopoly
b. syndicate
c. cooperative
d. oligopoly
e. none of the above
56. Factors that affect
the ability of oligopolistic firms to successfully engage in cooperation
include_____
a. number and size
distribution of sellers
b. size and frequency of
orders
c. product heterogeneity
d. a and b
e. a, b and c
57. Some market
conditions make cartels MORE likely to succeed in collusion. Which of the following will make collusion
more successful?
a. The products are
heterogeneous
b. the orders are small
and frequent
c. the firms are all about the same size
d. costs differ across
the firms
e. firms are
geographically widely scattered
58. Even ideal cartels
tend to be unstable because
a. Firms typically
prefer competition to collusion as competition, because it leads to more
profits
b. collusion leads to
lowest possible overall profits in the industry
c. oligopolistic
managers are extremely risk loving
d. firms can benefit by secretly selling more than they
promised the other firms
e. all of the above
59. Suppose that in a
perfectly competitive industry the equilibrium industry quantity is 10,000 units. Suppose that the monopoly output is
5,000. For a 2-firm Cournot Oligopoly (N
=2) known as a duopoly, what is a likely Cournot QUANTITY for the industry?
a. 3,000units
b. 5,000 units
c. 6,667 units
d. 10,000 units
e. 15,000 units
60. A cartel is a situation
where firms in the industry
a. Have an agreement to restrict output
b. agree to produce
identical products
c. obey the rules of
dominant firm price leadership
d. experience the pain
of kinked demand curve
e. have barometric price
leader
61. In a kinked demand
market, whenever one firm decides to lower its price
a. other firms will automatically follow
b. none of the other
firms will follow
c. one half of the firms
follow and one half of the firm donât follow the price cut
d. other firms all decide
to exit the industry
e. all of the firms
raise their prices
62. The existence of a
kinked demand curve under oligopoly conditions may result in
a. volatile price
b. competitive pricing
c. prices above the
monopoly price
d. an increase in the
coefficient of variation of prices
e. price rigidity
63. Barometric price
leadership exists when
a. 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
b. one firm imposes its
best price on the rest of the industry
c. all firms agree to
change prices simultaneously
d. one company forms a
price umbrella for all others
e. the firms are all
colluding
64. Some industries that
have rigid prices. In those industries,
we tend to
a. find that output is
also rigid over the business
b. find that output varies greatly over the business
cycle
c. find the employment
in these industries is quite stable over the business cycle
d. find that the rate of
return is negative in boom times
e. all of the above
65. In____ 2 âperson,
nonzero-sum games there is no communication between the participants and no way
to enforce agreements
a. noncooperative
b. cooperative
c. a and b
d. none of the above
66. A strategy game is
a. any pricing
competition among firms
b. a situation arising
from independent decision making among economic participants
c. interdependent choice behavior by individuals or
groups who share a common goal
d. none of the above.
67. Essential components
of a game include all of the following except:
a. players
b. payoffs
c. actions
d. an information set
e. cooperation
68. In a zero-sum game
a. all players receive a
$0 payoff
b. all players can
simultaneously win
c. the gains to the winners equal
the losses of the losers
d. none of the above
69. When
airlines post prices on an electronic bulletin board at 8:00 am each morning,
the decision-makers are engaged in
a. a single play game
b. a sequential game
c. an entry decision
d. a simultaneous game
e. an infinite
repetition game
70. Consider the game
known as the Prisonerâs Dilemma. Whatâs
the dilemma?
a. By both not
confessing, both get to the cooperative solution and minimize time in prison
b. by both confessing,
both get to the noncooperative solution and both serve significant time in
prison
c. as a group, they are better off cooperating by
not confessing, but each player has an incentive to be first to confess inn a
double cross
d. the problem is that
the spies should have been caught; they should move to Rio
71. When there is an
Equilibrium (or a Nash Equilibrium), we expect that:
a. once the firmâs get there, no
one will change their strategy
b. firms will tend to
select a randomized strategy
c. neither firm will
care what it does.
d. this is always a
dominated strategy
72. The Prisonerâs
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)?
a. The problem is lack
of information
b. The problem is that
it is a nonzero sum game
c. The problem is that both spies have incentives to
double cross each other.
d. The problem is that
all the outcomes are not particularly
good for either player
73. When there is no Equilibrium (or no Nash
Equilibrium), we expect that:
a. the firms end up in
the cooperative strategy
b. a firm will follow a randomized strategy
c. a firm will not care
what it does
d. a firm will very
likely have a dominant strategy
74. In a game, a dominated strategy is one where:
a. It is always the best strategy
b. It is always the
worst strategy
c. It is the strategy
that is the best among the group of worst possible strategies
d. Is sometimes the best
and sometimes the worst strategy
75. If two firms operate
in a market that is characterized as being a Prisonerâs Dilemma, and the two
strategies given them are to restrict output or expand output, which of the
following strategy pairs would represent the cooperative solution in a duopoly
for firm 1 and firm 2, and firm 1 given first in each pair?
a. expand output,
restrict output
b. restrict output,
expand output
c. restrict output, restrict output
d. expand output, expand
output
76. A key to analyzing subgame perfect
equilibrium strategy in sequential games is
a. randomizing oneâs
actions so they are unpredictable
b. explicit
communication with competitors
c. effective scenario
planning
d. analyzing best reply responses
e. none of the above
77. The difference
between cooperation and non-cooperative games is
a. cooperative games allow side payments to support
collusion
b. non-cooperative games
encourage communication of sensitive information between arms-length
competitors
c. cooperative games
involve randomized behavior
d. cooperative games necessitate an
explicit order of play
e. inconsequential
except when players have contractual relationships
78. A dominant strategy
differs from a Nash equilibrium strategy in that
a. Nash equilibrium
strategy does not assume best reply responses
b. dominant strategy
assumes best reply responses
c. only Nash strategy
applies to simultaneous games
d. one dominant strategy is sufficient to predict
behavior in a multi-person game
e. Nash strategy is
often unique
79. An illustration of a
non-credible commitment is the promise
a. to not increase capacity in a declining industry
b. to match a new
entrantâs discount price
c. to enter a profitable
industry
d. to restrain output to
the quota assigned by a cartel
e. Nash strategy is
often unique
80. In adopting mixed
Nash equilibrium strategy, a player is attempting to
a. randomize his or her
own behavior
b. make the opponent
favor a course of action preferred by the first player
c. randomize the outcome
of actions
d. make the opponent indifferent between one action
and another
e. none of the above
81. To trust a potential cooperator until the first defection and then never cooperate thereafter
is:
a. a dominant strategy
b. an irrational
strategy
c. a grim trigger strategy
d. a non-cooperative
finite game strategy
e. a subgame imperfect
strategy
82. If one-time gains from defection are always less than the discounted
present value of an infinite time stream of cooperative payoffs at some given
discount rate, the decision-makers have
Escaped
a.
The Folk Theorem
b.
The law of large numbers
c.
The Prisonerâs dilemma
d.
The paradox of large numbers
e.
The
strategy of recusal
83. The chain store paradox
of an incumbent who accommodates a finite stream of potential entrants
threatening to enter sequentially numerous markets illustrates
a. backwards induction
b. the unraveling
problem
c. subgame perfect
equilibrium
d. best reply response
e. all of the above
84. Cooperation in
repeated Prisonerâs dilemma situations seems to be enhanced by all of the
following except
a. Limited punishment schemes
b. clarity of conditional
rewards
c. grim trigger strategy
d. provocability i.e.,
credible threats of punishment
e. tit for tat strategy
85. Credible promises and hostage mechanisms can
support a continuous stream of cooperative exchanges except when
a. the promisor is
better off fulfilling than ignoring his promise
b. neither party has a
prior dominant strategy
c. the hostage can be
revoked for just causes
d. the hostage is more valuable than any given exchange
e. the hostage is
difficult to replace
86. In deciding whether
to invest in excess in order to deter entry, incumbents should consider all of
the following except
a. the order of play in
pricing and capacity choice decisions
b. the customer sorting pattern
c. the sunk cost
required to achieve excess capacity
d. the joint-profit
âmaximizing cartel output
87. An inverse intensity
customer sorting rule is one in which
a. customers with high
willingness to pay secure the discounted goods
b. customers are
rationed randomly between the discounted and full price goods
c. no customers purchase
below their willingness to pay.
d. customers with the lowest
willingness to pay secure the discounted goods
e. brand loyalty allows
the incumbent to retain its regular customers
88. An efficient
customer sorting rule is one in which
a. customers with high
willingness to pay secure the discounted goods
b. customers are
rationed randomly between the discounted and full price goods
c. no customers purchase
below their willingness to pay.
d. customers with the lowest willingness to pay secure
the discounted goods
e. brand loyalty allows
the incumbent to retain its regular customers
89. All of the
following are sunk cost investments that
precommit an incumbent to aggressively defend market share and the cash flow
prior to threatened entry except
a. reputational
investments in company logos (e.g. Beatrice)
b. automobile showrooms
c. retail displays which
hold only Lâeggs egg shaped hosiery package
d. neon signage for an
independently owned Krispy Kreme store
e. excess capacity in a declining
industry
90. The segmenting of
customers into several small groups such as household, industries institutional,
commercial and industrial users, and establishing a different rate schedule for
each group is known as:
a. first-degree price discrimination
b. market penetration
c. third-degree price
discrimination
d. second-degree
price discrimination
e. none of the above
91. Which of the
statements about price discrimination is (are) false?
a. It must be possible
to segment the market
b. it must be difficult
to transfer the sellerâs product from one market segment to another
c. public utilities practice first-degree price
discrimination
d. there must be
differences in the elasticity of demand from one segment to another
e. c and d
92. Which of the
following pricing policies best identifies when a product should be expanded
maintained or discontinued?
a. full-cost pricing policy
b. target-pricing policy
c. marginal-pricing
policy
d. market-share pricing
policy
e. markup pricing policy
93. Second-degree price
discrimination:
a. is also known as
block rate setting
b. is imperfect in the
eyes of the monopolist
c. is regularly
practiced by public utilities
d. is effective only in
the case of services or products which are sold in easily metered units
e. all of the above.
94. In______ price
discrimination, the entire surplus is captured by the producer.
a. first-degree
b. second-degree
c. third-degree
d. a and b
e. none of the above
95. In _____ price
discrimination, the monopolist charges each consumer the highest price that
purchaser is willing to pay for each unit purchased (provided that this price
exceeds the marginal cost of production).
a. first-degree
b. second-degree
c. third-degree
d. a and b.
e. none of the above
96. ______ is a new
product pricing strategy which results in a high product price. This price is reduced over time as demand at
the higher price is satisfied.
a. prestige pricing
b. price lining
c. skimming.
d. Incremental pricing
e. none of the above
97. ____is the price at which and intermediate
good or service is transferred from the selling to the buying division within
the same firm.
a. incremental price
b. marginal price
c. full-cost price
d. transfer price
e. none of the above
98. 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.
a. ratio of price to
marginal cost
b. ratio of marginal
cost of marginal utility
c. ratio of price
elasticity
d. marginal revenue
e. none of the above
99. Third-degree price discrimination exists whenever:
a. the seller knows
exactly how much each potential customer is willing to pay and ill charge
accordingly
b. the seller can separate markets by geography, income,
age, etc., and charge different prices to
these different groups.
c. different prices are
charged by blocks of services
d. the seller will
bargain with buyers in each of the markets to obtain the best possible price
100. The following are possible examples of price discrimination,
EXCEPT:
a. prices in export
markets are lower than for identical products in the domestic market
b. senior citizens pay
lower fares on public transportation than younger people at the same time
c. a product sells at higher price at location A
than location B, because transportation costs are higher from the factory to A
d. subscription prices
for a profession journal are higher when bought by a library than when bought
by an individual
101. Non-redeployed durable assets that are dependent upon complementary and perfectly
redeployable assets to achieve substantial value-added will typically be
organized as:
a. an export trading
company
b. a spot market
c. a vertically
integrated firm
d. an on-going
relational contract
e. a joint stock company
102. Vertical
integration may be motivated by all of the following except:
a. Upstream market power
b. economies of ever wider spans of managerial control
c. technological interdependencies
d. reduced search and
bargaining cost
e. the hold-up problem
103. Contracts are
distinguished from tactical alliances by
which of the following characteristics:
a. involve sequential
responses
b. require third-party enforcement
c. raise shareholder
value
d. elicit diminished
reactions from competitors
104. When manufacturers
and distributors establish credible commitments to one another, they often
employ
a. vertical requirements
contracts
b. third-party
monitoring
c. credible threat
mechanisms
d. non-price tactics
105. Which of the
following is not among the functions of contract ?
a. to provide incentives
for efficient reliance
b. to reduce transaction
costs
c. to discourage the
development of asymmetric information
d. to provide risk
allocation mechanism
106. Buying electricity
off the freewheeling grid at one quarter âtil the hour for delivery on the hour
illustrates :
a. relational contracts with
distributors
b. vertical requirement contracts
c. spot market
transactions
d. variable price
agreements
107. When someone
contracts to do a task but fails to put full effort into the performance of an
agreement, yet the lack of effort is not independently variable, this lack of
effort constitutes a
a. breach of contractual
obligations
b. denial of good
guarantee
c. loss of reputation
d. moral hazard
108. When retail bicycle dealers advertise and
perform warranty repairs but do not deliver the personal selling message that
Schwinn has designed as part of the marketing plan but cannot observe at less
than prohibitive cost, the manufacturer has encountered a problem of ______
a. reliance relationships
b. uncertainty
c. moral hazard
d. creative ingenuity
e. insurance reliance
109. Which of the following are not approaches to
resolving the principal-agent problem?
a. ex ante incentive
alignment
b. deferred stock
options
c. ex post governance mechanism
d. straight salary
contracts
e. monitoring by
independent outside directions
110. To accomplish its purpose a linear
profit-sharing contract must
a. induce the employee
to moonlight
b. communicate a code of
conduct that will be monitored and enforced
c. establish a separating equilibrium
d. meet either the participation of the incentive
compatibility constraint
e. not realign
incentives
111. Mac trucks and their dealers would likely
have an organizational form of
a. fixed profit
b. spot market
recontracting
c. alliances
d. vertical integration
112. Reliant assets are always all of the
following except:
a. durable
b. have substantially
less value in second best use
c. dependent on unique
complementary inputs
d. pivotal in designing
strategy
113. Governance mechanisms are designed
a. to increase contracting costs
b. to resolve
post-contractual opportunism
c. to enhance the
flexibility of restrictive covenants
d. to replace insurance
e. none of the above
114. When borrows who do not intend to repay are
able to hide their bad credit histories, a
lenderâs well âintentioned borrowers should
a. complain to
regulatory authorities
b. withdraw their loan
applications
c. offer more collateral
in exchange for lower interest charges
d. divulge still more
information on their loan applications
e. hope for a pooling
equilibrium
115. Common value auctions with open bidding
necessarily entail
a. asymmetric
information
b. ascending prices
c. more than two bidders
d. amendment of bids
e. sealed final offers
116. An
incentive-compatible mechanism for revealing true willingness to pay in a
private value auction is
a. impossible
b. a Dutch auction
c. a second âhighest
sealed bid auction
d. a sequential auction
with open bidding
e. a discriminatory
price all-or-nothing auction
117. In comparing rules for serving a queue,
last-come first-served has all of the following effects except:
a. reduces the waiting
time
b. causes few customers
to arrive and depart more than once
c. increases the side
payments among those yet to be served
d. hastens the adoption
of a lottery system for deciding who should get the tickets
118. The principal advantage of an open
bidding system for allocating
telecommunications spectrum licenses was
a. the pooling
asymmetric information by the bidders
b. the reconfiguring of
cell phone license areas
c. the substitute value
of adjacent service areas
d. reduced cost
119. A
Dutch auction implies all the following except:
a. more than one unit
sale available
b. higher prices later
in the auction
c. identical expected
seller revenue for common value items
d. greater expected
seller revenue in estate sales with risk-averse bidders
120. Each partner in a simple profit-sharing contract
that splits the independently verifiable sales revenue minus unobservable cost has an incentive
a. to reject an
automatic renewal of the contract
b. to understate fixed
cost
c. to overstate avoidable cost
d. to understate
customer loyalty for repeat purchases
e. to renew the
partnership contract
121. An optimal incentives contract can induce the
revelation of true costs in a partnership by
a. imposing penalties
when costs are overstated
b. offering bonus
payments when costs are verified
c. renewing the reliance
relationship
d. linking revealed cost
to the partnerâs foregone expected profits
e. enlisting third-party
enforcement
122. An incentive-compatible revelation mechanism
is
a. s3lf-enforcing
b. always multi-period
c. too complicated to influence
decisions
d. prevalent in vertically integrated business
e. not adopted by
franchise businesses
123. Incentive-compatible revelation mechanism attempt to
a. induce an employee to reject the next best alternative
employment opportunity
b. elicit privately-held
information
c. secure enforcement
primarily by third parties
d. reject voluntary
contracting with third parties
e. impose similar risk
premiums on all employees
124. Revenue equivalence theorem refers to
equal seller revenue in which of the
following pairs:
a. sealed bud auctions and English
auctions
b. second highest wins
and pays auctions and Dutch auctions
c. English highest wins
and pays auctions and sealed bid Dutch
d. highest wins and pays
auctions and second highest wins and pays auctions
125. In Dutch auctions, the bidding
a. starts low and rises
until the highest bidder wins
b. is one in secret âsealed bidsâ which are opened at a specified
time
c. begins with a very high price, and is reduced
until the first person takes it
d. is accomplished by giving the price of the
second highest bid to the highest bidder
126. Winning an auction can be exhilarating, but
it can also lead to doubt as to whether you did the right thing or not. This is called:
a. the regret effect
b. moral hazard
c. second wind
d. the winnerâs curse
127. Auctions are used in place of markets when
the items traded are unique (e.g., a Ming vase or a right to drill for
oil). Which of the following examples
are typically sold using Vickrey auction methods?
a. for-sale-by-owner houses
b. household furnishing
c. items sold in
Fileneâs Basement, with the price discounted after a certain date
d. vintage postage
stamps
128. The Sherman Act prohibits:
a. contracts in
restraint of commerce
b. monopolization of an industry
c. price discrimination
d. a and b
e. a, b, and c
129. The sentiment for increase deregulation in
the late 1970âs and early 1980âs has been felt most significantly in the price
regulation of
a. coal
b. grain
c. transportation
d. automobiles
e. a, b, and c
130. Which of the following public policies has
(have) the effect of restricting competition?
a. licensing
b. patents
c. import quotas
d. a and b only
e. a, b, and c
131. The concept of
market structure refers to three main characteristic of buyers and sellers in a
particular market. These include ______
a. the degree of seller
and buyer concentration in the market.
b. the degree of actual
or imagined differentiation between the
products or services of competing producers
c. the pricing behavior
of the firms
d. a and b
e. a, b, and c
132. The concept of market conduct includes such
things as _____.
a. pricing behavior of
the firms
b. product policy of the
firm or group of firms
c. the degree of seller
and buyer concentration in the market
d. a and b only
e. a, b, and c
133. _______ yields the same results as the theory
of perfect competition, but requires substantially fewer assumption than the perfectly
competitive model.
a. Baumolâs sales
maximization hypothesis
b. the Pareto optimality
condition
c. the Cournot model
d. the theory of
contestable markets
e. none of the above
134. The lower the barriers to entry and exit, the
more nearly a market structure fits the ____ market mode.
a.
Monopolistic
competition
b.
Perfectly contestable
c.
Oligopoly
d.
Monopoly
e.
None of the above
135. The Herfindahl-Hirschman index (also
shortened to just that Herfindahl index) is a measure of ______
a. market concentration
b. income distribution
c. technological
progressiveness
d. price discrimination
e. none of the above
136. The ____ is equal to the some of the squares
of the market shares of all the firms in an industry
a.
Market concentration
b.
Hefindahl-Hirschman
index
c.
Correlation coefficient
d.
Standard deviation of concentration
e.
None of the above
137. Industry a has market shares of 50, 30, and
20. Industry B has market shares of 45,
40, and 15. Hint HHI = (si2), where si
is the market shares of the i-th firm in the industry.
a. the Herfindahl index
for A is 100
b. the Herfindahl index for A is 3,800
c. the Herfindahl index
for B is 3,600
c. the Herfindahl index
for A is greater than for B
d. the Herfindahl index
for B is 4,000
138. The antitrust laws regulate all of the
following business decisions except ____
a. collusion
b. mergers
c. monopolistic
practices
d. price discrimination
e. wage levels
139. ____ 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 .
a. pecuniary benefits and
costs
b. externalities
c. intangibles
d. monopoly costs and
benefits
e. none of the above
140. Capital expenditures:
a. are easily reversible
b. are forms of
operating expenditures
c. affect long-run
future profitability
d. involve only money,
not machinery
e. none of the above
141. Any current outlay that is expected to yield
a flow of benefits beyond one year in the future is:
a. a capital gain
b. a wealth maximizing
factor
c. a capital expenditure
d. a cost of capital
e. a dividend reinvestment
142. If the acceptance of Project A makes it
impossible to accept Project B, these projects are:
a. contingent projects
b. complementary
projects
c. mutually inclusive
projects
d. mutually exclusive projects
e. none of the above
143. Which of the following is (are) a guideline
to be used in the estimation of cash flows?
a. cash flows should be
measured on an incremental basis
b. cash flows should be measured on an after-tax basis
c. all the indirect
effects of the projects should be included
d. all of the above
e. none of the above
144. Which of the following would not classified as
a capital expenditure for decision-making purposes?
a. purchase of a
building
b. investment in a new
milling machine
c. purchase of 90-day treasury bills
d. investment in a
management training program
e. all of the above are
capital expenditures
145. In order to help assure that all relevant
factors will be considered, the capital-expenditure selection process should
include the following steps except:
a. generating alternative
capital investment project proposal
b. estimating cash flows
for the project proposal
c. reviewing the investment
projects after they have been implemented
d. allocate manpower the
various divisions
e. a and d
146. The decision by the Municipal Transit
Authority to either refurbish existing buses, buses new large buses, or to
supplemental the existing fleet with mini-buses is an example of:
a. independent projects
b. mutually exclusive
projects
c. contingent projects
d. separable projects
e. none of the above
147. Which of the following is (are) a basic principle(s) when
estimating a projectâs cash flows?
a. cash flows should be
measured on a pre-tax basis
b. cash flows should ignore depreciation since it is a
non-cash charge
c. only direct effects
of a project should be included in the cash flow calculation
d. cash flow should be
measured on an incremental basis
e. all of the above
148. The relationship between NPV and IRR is such
that
a. both approaches
always provide the same ranking of alternatives
b. the IRR of a project
is equal to the firmâs cost of capital
when NPV of a project is $0
c. if the NPV of a
project is negative, then the IRR must be greater than the cost of capital
e. none of the above
149. The cost of internal equity (retained
earnings) is _____ the cost of external equity
(new common stock).
a. greater than
b. equal to
c. less than
d. none of the above
150. The expected rate of return from a share of
stock consist of
a. a dividend return
b. capital appreciation
(or depreciation)
c. interest
d. a and b only
e. a, b, and c
151. The weights use in calculating the firmâs
weighted-average cost of capital are equal to the proportion of debt and equity
_____.
a. used to finance the project
b. used to finance the
projects undertaken last year
c. in the industry
average capital structure
d. in the firmâs target
capital structure
e. none of the above
152. In determining the optimal capital budget,
one should choose those projects whose ____ exceeds the firmâs ____ cost of
capital
a. internal rate of return, average
b. internal rate of
return, marginal
c. internal rate of
return, historic
d. average rate of
return, marginal
e. none of the above
153. In the constant growth dividend valuation
model, the required rate of return on common stock (i.e., cost of equity
capital) can be show to be equal to the sum of the dividend yield plus the
_____
a. yield-to-maturity
b. present value yield
c. risk-free rate
d. dividend growth rate
e. none of the above
154. The ____ depicts
the risk-return relationship in the market for all securities:
a. characteristic line
b. investment
opportunity curve
c. marginal cost of
capital schedule
d. security market line
e. none of the above
155. Beta in the CAPM is ____
a. one measure of the systemic risk
of a stock
b. estimated as the
slope of regression line between an individual securityâs returns and returns
for the market index.
c. useful estimating the
firmâs cost of debt capital
d. a and b
e. a, b, and c
156. The effect of changes in the level of
interest rates on security returns is an example of ___
a. systemic risk
b. unsystemic risk
c. nondiversifiable risk
d. a and c only
e. b and c only
157. All of the following except _____ are
shortcomings cost benefit analysis.
a. difficulty in
measuring third- party costs
b. difficulty in
measuring third-party benefits
c. failure to consider
the time value of benefits and cost
d. difficulty of accounting for program interactions
e. a and b
158. The ____method assumes that the cash flows
over the life of the project are reinvested at the ____
a. net present value;
computed internal rate of return
b. internal rate of
return; firmâs cost of capital
c. net present value;
firmâs cost of capital
d. net present value;
risk-free rate of return
e. none of the above
159. Which of the following should not be counted
in a cost benefit analysis?
a. direct benefits and
costs
b. real secondary
benefits
c. technological
secondary costs
d. pecuniary benefits
e. intangibles
160. The social rate of discount is best
approximated by:
a. the cost of
government borrowing
b. the opportunity cost of resources taken from the
private sector.
c. 3 percent
d. 30 percent
e. none of the above
161. In cost-effectiveness analysis constant cost studies:
a. are rarely used
b. attempt to specify
the output which maybe achieved form a number of alternative programs assuming
all are funded at the same level
c. are useless because
they fail to adequately evaluate program benefits
d. try to find the least
expensive way of achieving a certain objective
e. none of the above
not sure
162. Cost-benefit analysis is the public sector
counterpart to _____ used in private, profit-oriented firms
a. ratio analysis
b. break-even analysis
c. capital budgeting techniques
d. economic forecasting
e. none of the above
163. In calculating the benefit-cost ratio, social
benefits and costs are discounted at the
a. internal rate of
return
b. federal funds rate
c. Treasury Bill rate
d. long-term government
bond rate
e. none of the above
164. The discount rate utilized in public sector
budgeting performs the functions of
a. allocating funds
between the public and private sectors
b. allocating funds
between present consumption and investment
(i.e., future consumption)
c. allocating funds
between debt and equity securities
d. a and b only
e. none of the above
165. Public sector investment projects are
economically justifiable only when:
a. the discounted social
benefits exceed the discounted social costs
b. the internal rate of
return exceeds the social discount rate
c. the benefit-cost
ratio exceeds zero
d. a and b only
e. a,, b, and c
166. In the cost-benefit analysis, intangibles
include such factors as:
a. quality of life
considerations
b. changes in land
values resulting from a project
c. aesthetic
contributions
d. a and b only
e. a and c only
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