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Eco550 final exam spring 2014 (part 1 and 2)

Question # 00010092
Subject: Economics / General Economics
Due on: 03/31/2014
Posted On: 03/12/2014 12:20 AM
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Eco550 final exam part 1

Question 1

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


linear; increase linearly

quadratic; are constant

cubic; increase linearly

linear; are constant

Question 2

Which of the following is not an assumption of the linear breakeven model:


constant selling price per unit

decreasing variable cost per unit

fixed costs are independent of the output level

a single product (or a constant mix of products) is being produced and sold

Question 3

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


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

revenue and cost curves are straight-lines throughout the analysis.

there appears to be perfect competition since the price is considered to remain the same regardless of quantity.

the straight-line cost curve implies that marginal cost is constant.

Question 4

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.


10,000 customers

20,000 customers

30,000 customers

40,000 customers

50,000 customers

Question 5

The degree of operating leverage is equal to the ____ change in ____ divided by the ____ change in ____.


percentage; sales; percentage; EBIT

unit; sales; unit; EBIT

percentage; EBIT; percentage; sales

unit; EBIT; unit; sales

Question 6

In the linear breakeven model, the breakeven sales volume (in dollars) can be found by multiplying the breakeven sales volume (in units) by:


one minus the variable cost ratio

contribution margin per unit

selling price per unit

standard deviation of unit sales

Question 7

Long distance telephone service has become a competitive market. The average cost per call is $0.05 a minute, and it’s declining. The likely reason for the declining price for long distance service is:


Governmental pressure to lower the price

Reduced demand for long distance service

Entry into this industry pushes prices down

Lower price for a barrel of crude oil

Increased cost of providing long distance service

Question 8

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


earn substantial economic profits

tend to just cover costs, including normal profits

seek to increase the scale of operations

seek to reduce the scale of operations

Question 9

In the purely competitive case, marginal revenue (MR) is equal to:





total revenue

Question 10

An "experience good" is one that:


Only an expert can use

Has undetectable quality when purchased

Can be readily experienced simply by touching or tasting

Improves with age, like a fine wine

Question 11

Buyers anticipate that the temporary warehouse seller of unbranded computer equipment will


deliver high quality products consistent with expectations

not attempt to establish any warranty enforcement mechanisms

offer several prices and qualities

produce only one quality

Question 12

Asset specificity is largest when


value in first best use is large

value in second best use is large

customers choose their supplier at random

very valuable assets are non-redeployable

customers are loyal to a particular seller

Question 13

In the short-run for a purely competitive market, a manufacturer will stop production when:


the total revenue is less than total costs

the contribution to fixed costs is zero or less

the price is greater than AVC

operating at a loss

Question 14

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


controlling entry into the regulated industries

overseeing the quality of service provided by the firms

setting federal and state income tax rates on regulated firms

setting prices that consumers will pay

Question 15

Of the following, which is not an economic rationale for public utility regulation?


production process exhibiting increasing returns to scale

constant cost industry

avoidance of duplication of facilities

protection of consumers from price discrimination

Question 16

____ 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.


Peak load pricing

Inverted block pricing

Block pricing

First degree price discrimination

Question 17

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.


similar, similar

elastic, lower

elastic, higher

inelastic, lower

inelastic, higher

Question 18

The demand curve facing the firm in ____ is the same as the industry demand curve.


pure competition

monopolistic competition


pure monopoly

Question 19

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


inverted block pricing

second-degree price discrimination

peak-load pricing

first-degree price discrimination

none of the above

Question 20

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


other firms will automatically follow.

none of the other firms will follow.

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

other firms all decide to exit the industry

all of the other firms raise their prices.

Question 21

In the Cournot duopoly model, each of the two firms, in determining its profit-maximizing price-output level, assumes that the other firm's ____ will not change.




marketing strategy


Question 22

“Conscious parallelism of action” among oligopolistic firms is an example of ____.


intense rivalry

a formal collusive agreement

informal, or tacit, cooperation

a cartel

Question 23

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.


average total cost

average profit

marginal profit

marginal cost

marginal revenue

Question 24

A cartel is a situation where firms in the industry


have an agreement to restrict output.

agree to produce identical products.

obey the rules of dominant firm price leadership.

experience the pain of a kinked demand curve.

have a barometric price leader

Question 25

Barometric price leadership exists when


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.

one firm imposes its best price on the rest of the industry.

all firms agree to change prices simultaneously.

one company forms a price umbrella for all others.

the firms are all colluding.

part II

Question 1

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


the Folk Theorem

the law of large numbers

the Prisoner's dilemma

the paradox of large numbers

the strategy of recusal

Question 2

Credibility in threats and commitments in sequential games is based on


randomizing one's actions so they are unpredictable

explicit communications with competitors

effective scenario planning

analyzing best reply responses

Question 3

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


predictable behavior

an explicit order of play for at least some participants

information sets that are known with certainty

credible threats clearly communicated


Question 4

Consider the game known as the Prisoner's Dilemma. What's the dilemma?


By both not confessing, both get to the cooperative solution and minimize time in prison.

By both confessing, both get to the noncooperative solution and both serve significant time in prison.

As a group, they are better off cooperating by not confessing, but each player has an incentive to be first to confess in a double cross.

The problem is that the spies should never have been caught; they should move to Rio.

Question 5

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


a single decision-maker in the endgame

no communication

finite or infinite time periods

third-party enforceable agreements

an explicit order of play

Question 6

Third-degree price discrimination exists whenever:


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

different prices are charged by blocks of services.

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

the seller will bargain with buyers in each of the markets to obtain the best possible price.

Question 7

Which of the following pricing policies best identifies when a product should be expanded, maintained, or discontinued?


full-cost pricing policy

target-pricing policy

marginal-pricing policy

market-share pricing policy

markup pricing policy

Question 8

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


Incremental price

Marginal price

Full-cost price

Transfer price

Question 9

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


universal access price discrimination

declining block price discrimination.

mixed bundling price discrimination.

two-part price discrimination.

uniform pricing

Question 10

Electricity pricing that varies in its billing expense throughout the day is called


full pricing

marginal cost pricing

dynamic pricing

variable pricing

full cost pricing pricing

Question 12

Which of the following is not among the functions of contract?


to provide incentives for efficient reliance

to reduce transaction costs

to discourage the development of asymmetric information

to provide risk allocation mechanisms

Question 13

Mac trucks and their dealers would likely have an organizational form of


fixed profit sharing franchise contracts

spot market recontracting


vertical integration

Question 14

When manufacturers and distributors establish credible commitments to one another, they often employ


vertical requirements contracts

third-party monitoring

credible threat mechanisms

non-price tactics

Question 15

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 ____.


reliance relationships


moral hazard

creative ingenuity

insurance reliance

Question 16

The sentiment for increased deregulation in the late 1970's and early 1980's has been felt most significantly in the price regulation of






electric power generation

Question 17

____ yields the same results as the theory of perfect competition, but requires substantially fewer assumptions than the perfectly competitive model.


Baumol's sales maximization hypothesis

The Pareto optimality condition

The Cournot model

The theory of contestable markets

Question 18

The lower the barriers to entry and exit, the more nearly a market structure fits the ____ market model.


monopolistic competition

perfectly contestable



Question 19

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




monopolistic practices

price discrimination

wage levels

Question 20

The ____ is equal to the some of the squares of the market shares of all the firms in an industry.


market concentration ratio

Herfindahl-Hirschman index

correlation coefficient

standard deviation of concentration

Question 21

Cost-benefit analysis is the public sector counterpart to ____ used in private, profit-oriented firms.


ratio analysis

break-even analysis

capital budgeting techniques

economic forecasting

uestion 22

Which of the following should not be counted in a cost-benefit analysis?


direct benefits and costs

real secondary benefits

technological secondary costs

pecuniary benefits


Question 23

In determining the optimal capital budget, one should choose those project's whose ____ exceeds the firm's ____ cost of capital.


internal rate of return, average

internal rate of return, marginal

internal rate of return, historic

average rate of return, marginal

Question 24

In the constant-growth dividend valuation model, the required rate of return on common stock (i.e., cost of equity capital) can be shown to be equal to the sum of the dividend yield plus the ____.



present value yield

risk-free rate

dividend growth rate

Question 25

All of the following except ____ are shortcomings of cost-benefit analysis.


difficulty in measuring third-party costs

difficulty in measuring third-party benefits

failure to consider the time value of benefits and costs

difficulty of accounting for program interactions

4 points

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Eco550 final exam (part 1 and 2)

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Eco550_final_exam_part_II.docx (134.89 KB)
Preview: policyCorrect xxxxxxxxxxxxxxxxxxxxxxxxxxx policyQuestion xx out of x points____ is xxx price xx xxxxx an xxxxxxxxxxxx good or xxxxxxx is transferred xxxx the xxxxxxx xx the xxxxxx division within xxx same firm xxxxxxxxxxxxxx Answer:  Transfer xxxxxxxxxxxx xxxxxxxxxxxxxxxxxxx priceQuestion xx out of x pointsFirms that xxxx a xxxxx xxxxxx for xxxxx customers and xxxxxx for each xxxx they xxxxxxxx xx well xxx exhibitingAnswerSelected Answer:  mixed xxxxxxxx price discrimination xxxxxxx Answer:  two-part xxxxx xxxxxxxxxxxxxx Question xxx out of x pointsElectricity pricing xxxx varies xx xxx billing xxxxxxx throughout the xxx is calledAnswerSelected xxxxxxxxxxxxxxx cost xxxxxxx xxxxxxxxxxxxxx Answer:  dynamic xxxxxxxxxxxxxxx 110 out xx 4 pointsVertical xxxxxxxxxxx may xx xxxxxxxxx by xxx of the xxxxxxxxx except:AnswerSelected Answer:  The xxxxxxx problem xxxxxxx xxxxxxxxxxxxxxxxxxxx of xxxx wider spans xx managerial controlQuestion xxx out xx x pointsWhich xx the following xx not among xxx functions xx xxxxxxxxxxxxxxxxxxxxxxx Answer:  to xxxxxxxxxx the development xx asymmetric informationCorrect xxxxxxxxxxxxx discourage xxx xxxxxxxxxxx of xxxxxxxxxx informationQuestion 130 xxx of 4 xxxxxxxxx trucks xxx xxxxx dealers xxxxx likely have xx organizational form xxxxxxxxxxxxxxxx Answer:  vertical xxxxxxxxxxxxxxxxxx xxxxxxxxxxxxxxxx profit xxxxxxx franchise contractsQuestion xxx out of x pointsWhen xxxxxxxxxxxxx xxx distributors xxxxxxxxx credible commitments xx one another, xxxx often xxxxxxxxxxxxxxxxxxxx xxxxxxxxxxxxxxxxxxx requirements xxxxxxxxxxxxxxxx Answer:  vertical requirements xxxxxxxxxxxxxxxxx 150 out xx 4 xxxxxxxxxx xxxxxx bicycle xxxxxxx advertise and xxxxxxx warranty repairs xxx do xxx xxxxxxx the xxxxxxxx selling message xxxx Schwinn has xxxxxxxx as xxxx xx the xxxxxxxxx plan but xxxxxx observe at xxxx than xxxxxxxxxxx xxxxx the xxxxxxxxxxxx has encountered x problem of xxxx AnswerSelected xxxxxxxxxxxxxxxxxxx xxxxxxxxxxxxxxxxxxxx Answer:  moral xxxxxxxxxxxxxx 160 out xx 4 pointsThe xxxxxxxxx for xxxxxxxxx xxxxxxxxxxxx in xxx late 1970's xxx early 1980's xxx been xxxx xxxx significantly xx the price xxxxxxxxxx ofAnswerSelected Answer:  electric xxxxx generationCorrect xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx xxx out xx 4 points____ xxxxxx the same xxxxxxx as xxx xxxxxx of xxxxxxx competition, but xxxxxxxx substantially fewer xxxxxxxxxxx than xxx xxxxxxxxx competitive xxxxx AnswerSelected Answer:  The xxxxxx of contestable xxxxxxxxxxxxxx Answer:  The xxxxxx xx contestable xxxxxxxxxxxxxxx 184 out xx 4
Eco550_final_exam_part_1.docx (33.94 KB)
Preview: George xxxx wants xx make a xxxxxx of $20,000 xxx year xx xxx diner, xx will have xx serve__________ customers xxx year xxxxxxxxxxxxxx xxxxxxxxxxxxxxxxx customersCorrect xxxxxxxxxxxxxxxxx customersQuestion 54 xxx of 4 xxxxxxxxx degree xx xxxxxxxxx leverage xx equal to xxx ____ change xx ____ xxxxxxx xx the xxxx change in xxxx AnswerSelected Answer:  percentage; xxxxx percentage; xxxxxxxxxxxx xxxxxxxxxxxxxxxxxxxxxx EBIT; xxxxxxxxxxx salesQuestion 64 xxx of 4 xxxxxxxx the xxxxxx xxxxxxxxx model, xxx breakeven sales xxxxxx (in dollars) xxx be xxxxx xx multiplying xxx breakeven sales xxxxxx (in units) xxxxxxxxxxxxxxxxx Answer:  selling xxxxx xxx unitCorrect xxxxxxxxxxxxxxxxxx price per xxxxxxxxxxxx 74 out xx 4 xxxxxxxxxx xxxxxxxx telephone xxxxxxx has become x competitive market xxx average xxxx xxx call xx $0 05 x minute, and xxxxxx declining xx xxx likely xxxxxx for the xxxxxxxxx price for xxxx distance xxxxxxx xxxxxxxxxxxxxxxxx Answer:  Entry xxxx this industry xxxxxx prices downCorrect xxxxxxxxxxxxxxxx into xxxx xxxxxxxx pushes xxxxxx downQuestion 84 xxx of 4 xxxxxxxx the xxxxxxxxx xxxxx in x monopolistically competitive xxxxxxxx willAnswerSelected Answer:  tend xx just xxxxx
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