Eco550 final exam part 1
A ____ total cost function implies that marginal costs ____ as output is
linear; increase linearly
quadratic; are constant
cubic; increase linearly
Which of the following is not an assumption of the linear breakeven
constant selling price per unit
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
Break-even analysis usually assumes all of the following except:
in the short run, there is no distinction between variable and fixed
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.
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
The degree of operating leverage is equal to the ____ change in ____
divided by the ____ change in ____.
percentage; sales; percentage; EBIT
unit; sales; unit; EBIT
EBIT; percentage; sales
unit; EBIT; unit; sales
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
price per unit
standard deviation of unit sales
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
In the long-run, firms in a monopolistically competitive industry will
earn substantial economic profits
tend to just cover costs, including normal
seek to increase the scale of operations
seek to reduce the scale of operations
In the purely competitive case, marginal revenue (MR) is equal to:
An "experience good" is one that:
Only an expert can use
Has undetectable quality when purchased
Can be readily experienced simply by touching or
Improves with age, like a fine wine
Buyers anticipate that the temporary warehouse seller of unbranded
computer equipment will
deliver high quality products consistent with
not attempt to establish any warranty enforcement
offer several prices and qualities
produce only one quality
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
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
Regulatory agencies engage in all of the following activities except
controlling entry into the regulated industries
overseeing the quality of service provided by
setting federal and state income tax rates on
setting prices that consumers will pay
Of the following, which is not an economic rationale for public utility
production process exhibiting increasing returns
constant cost industry
avoidance of duplication of facilities
protection of consumers from price discrimination
____ 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
First degree price discrimination
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
The demand curve facing the firm in ____ is the same as the industry
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
first-degree price discrimination
none of the above
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.
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
“Conscious parallelism of action” among oligopolistic firms is an
example of ____.
a formal collusive agreement
informal, or tacit, cooperation
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
average total cost
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
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
all firms agree to change prices simultaneously.
one company forms a price umbrella for all
the firms are all colluding.
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 law of
the paradox of
Credibility in threats and commitments in sequential games is
one's actions so they are unpredictable
A key to analyzing subgame perfect equilibrium strategy in
sequential games is
order of play for at least some participants
sets that are known with certainty
threats clearly communicated
Consider the game known as the Prisoner's Dilemma. What's
By both not
confessing, both get to the cooperative solution and minimize time in prison.
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.
Non-cooperative sequential games can incorporate all the
following features except
decision-maker in the endgame
infinite time periods
order of play
Third-degree price discrimination exists whenever:
knows exactly how much each potential customer is willing to pay and will
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.
will bargain with buyers in each of the markets to obtain the best possible
Which of the following pricing policies best identifies when a
product should be expanded, maintained, or discontinued?
____ is the price at which an intermediate good or service is
transferred from the selling to the buying division within the same firm.
Firms that have a cover charge for their customers and charge
for each item they purchase as well are exhibiting
access price discrimination
block price discrimination.
Electricity pricing that varies in its billing expense
throughout the day is called
full cost pricing
Which of the following is not among the functions of contract?
incentives for efficient reliance
the development of asymmetric information
risk allocation mechanisms
Mac trucks and their dealers would likely have an organizational
sharing franchise contracts
When manufacturers and distributors establish credible
commitments to one another, they often employ
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 ____.
The sentiment for increased deregulation in the late 1970's and
early 1980's has been felt most significantly in the price regulation of
____ yields the same results as the theory of perfect
competition, but requires substantially fewer assumptions than the perfectly
The theory of
The lower the barriers to entry and exit, the more nearly a
market structure fits the ____ market model.
The antitrust laws regulate all of the following business
decisions except ____.
The ____ is equal to the some of the squares of the market
shares of all the firms in an industry.
deviation of concentration
Cost-benefit analysis is the public sector counterpart to ____
used in private, profit-oriented firms.
Which of the following should not be counted in a cost-benefit
benefits and costs
In determining the optimal capital budget, one should choose
those project's whose ____ exceeds the firm's ____ cost of capital.
of return, average
of return, marginal
of return, historic
of return, marginal
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 ____.
All of the following except ____ are shortcomings of
measuring third-party costs
measuring third-party benefits
consider the time value of benefits and costs
accounting for program interactions