Davenport Econ625 final exam

Question 1

1. In the long run, the most helpful action that a monopolistically competitive firm can take to maintain its economic profit is to

   		continue its efforts to differentiate its product.
   		raise its price.
   		lower its price.
   		do nothing, because it will inevitably experience a decline in profits.

2 points

Question 2

1. The four-firm concentration ratio

   		indicates the total profitability among the top four firms in an industry.
   		is an indicator of the degree of monopolistic competition.
   		indicates the presence and intensity of an oligopoly market.
   		is used by the government as a basis for anti-trust cases.

2 points

Question 3

1. Which of the following industries is most likely to represent the monopolistic competition market structure?

   		automobiles
   		tobacco products
   		restaurants
   		farm equipment

2 points

Question 4

1. Mutual interdependence occurs when

   		all firms in an industry are affected by the same macro economic conditions, such as a recession, inflation, interest rates, exchange rates, etc.
   		the actions of firms are independent of each other.
   		the actions of one firm in an industry are easily recognized and perhaps copied by others.
   		monopolists recognize that they must face eventual competition in the long run.

2 points

Question 5

1. Firms in monopolistic competition would

   		persistently realize economic profits in both the short and long run.
   		may realize economic profits in the long run and normal profits in the short run.
   		tend to incur persistent losses in both the short and long run.
   		tend to realize economic profits in the short run and normal profits in the long run.

2 points

Question 6

1. Transfer pricing is a method used to

   		determine whether a firm should make or buy a component product.
   		determine the correct value of a product as it moves from one stage of production to another.
   		minimize a multinational firm's tax liabilities.
   		All of these

2 points

Question 7

1. Dominant price leadership exists when

   		one firm drives the others out of the market.
   		the dominant firm decides how much each of its competitors can sell.
   		the dominant firm establishes the price at the quantity where its MR = MC, and permits all other firms to sell all they want to sell at that price.
   		the dominant firm charges the lowest price in the industry.

2 points

Question 8

1. In order for price discrimination to exist

   		markets must be capable of being separated.
   		markets must be interdependent.
   		different demand price elasticities must exist in different markets.
   		demand price elasticities must be identical in all markets.
   		Both markets must be capable of being separated and different demand price elasticities must exist in different markets

2 points

Question 9

1. Prices under an ideal cartel situation will be equal to

   		monopoly prices.
   		competitive prices.
   		prices under monopolistic competition.
   		marginal cost.

2 points

Question 10

1. All of the following are conditions which are favorable to the formation of cartels except

   		the existence of a small number of firms.
   		geographic proximity of firms.
   		homogeneity of the product.
   		easy entry into the industry.

2 points

Question 11

1. Market signaling

   		is a way of conveying information to other parties in a transaction where asymmetric information exists.
   		represents a dominant strategy in a multi-player game.
   		results in an optimum solution to a beach kiosk scenario.
   		None of these

2 points

Question 12

1. In a zero-sum game

   		the gains of one player are less than the gains of the other player.
   		the gains of one player are greater than the gains of the other player.
   		the gains of one player directly reflect the losses of another player.
   		the gains and losses of players are all expressed in zeros.

2 points

Question 13

1. Moral hazard is the

   		outcome of a Prisoner's Dilemma.
   		result of market signaling.
   		risk associated with a Dutch auction.
   		risk that one party to a contract may alter its post-contract behavior to the detriment of another party.

2 points

Question 14

1. If banks face a problem in loan markets when bad credit risks are the ones most likely to seek bank loans, it is described as

   		moral hazard.
   		moral suasion.
   		adverse selection.
   		fraud.

2 points

Question 15

1. Asymmetric information represents a market situation in which

   		all parties to a transaction possess less than full information.
   		one party in a transaction has more information than the other party.
   		some information possessed by the parties in a transaction may be false.
   		a zero-sum game exists.

2 points

Question 16

1. In order to maximize profits, multinationals typically use transfer pricing by showing ________ profits in the high-tax country and by showing ________ profits in the low-tax country.

   		high; low
   		low; high
   		economic; normal
   		above-normal; accounting

2 points

Question 17

1. Globalization has depressed wages in western industrialized countries, particularly those for

   		highly skilled workers.
   		highly educated workers.
   		semi-skilled workers.
   		low skilled workers.

2 points

Question 18

1. Transfer pricing is a method used to

   		determine whether a firm should make or buy a component product.
   		determine the correct value of a product as it moves from one stage of production to another.
   		minimize a multinational firm's tax liabilities.
   		All of these

2 points

Question 19

1. Which of the following would be an example of FDI?

   		A Brazilian investor buys German government bond.
   		An American buys a new Swedish car.
   		An Italian firm builds a plant in Nebraska.
   		A Canadian investor buys a French equity.

2 points

Question 20

1. Which of the following represents a way in which multinational corporations can protect themselves from exchange rate risks?

   		forward markets
   		futures markets
   		currency options
   		All of these

2 points

Question 21

1. When cost externalities exist, an optimal equilibrium can be attained if the government

   		restricts production.
   		levies a tax for the difference between private costs and social costs.
   		prohibits production.
   		All three of these
   		Both restricts production and levies a tax for the difference between private costs and social costs

2 points

Question 22

1. The supply for products that exhibit cost externalities is generally ________ the supply for products that do not.

   		greater than
   		less than
   		the same as
   		greater or less (depending on the market) than

2 points

Question 23

1. Which of the following is an example of a government action to internalize a cost externality?

   		a fine imposed on a company that pollutes a stream
   		the closing of a public library
   		a sales tax on jewelry
   		the increase on bridge tolls

2 points

Question 24

1. An example of a cost externality occurs when a mining company

   		dumps waste in river upstream from a popular fishing spot.
   		produces coal that is not in demand in a recession.
   		underpays its employees.
   		overwork its employees.

2 points

Question 25

1. The demand for products that provide benefit externalities is generally ________ the demand for products that do not.

   		greater than
   		less than
   		the same as
   		greater or less (depending on the market) than