Eco550 exam questions

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 it’s 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 “lemons” is one which

a. The rational buyer discounts

b. The seller’s product claims are unverified at the point of purchase

c. “the bad apples drive out the good”

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 “experience good” 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 “search good” 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 lemon’s 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. Land’s 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. “Conscious parallelism of action” 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 firm’s _____ 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 don’t 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 –person, 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 Prisoner’s Dilemma. What’s 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 firm’s 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 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)?

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 Prisoner’s 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 one’s 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 entrant’s 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 Prisoner’s 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 Prisoner’s 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 –maximizing 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 L’eggs 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 seller’s 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 ‘til 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 lender’s well –intentioned 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 –highest 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 partner’s 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 “sealed bids” 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 winner’s 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 Filene’s 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 1970’s and early 1980’s 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. Baumol’s 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 project’s 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 firm’s 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 firm’s 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 firm’s target capital structure

e. none of the above

152. In determining the optimal capital budget, one should choose those projects whose ____ exceeds the firm’s ____ 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 security’s returns and returns for the market index.

c. useful estimating the firm’s 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; firm’s cost of capital

c. net present value; firm’s 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