Eco550 final exam spring 2014 (part 1 and 2)
Eco550 final exam part 1
Question 1
A ____ total cost function implies that marginal costs ____ as output is increased.
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linear; increase linearly |
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quadratic; are constant |
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cubic; increase linearly |
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linear; are constant |
Question 2
Which of the following is not an assumption of the linear breakeven model:
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constant selling price per unit |
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decreasing variable cost per unit |
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fixed costs are independent of the output level |
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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:
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in the short run, there is no distinction between variable and fixed costs. |
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revenue and cost curves are straight-lines throughout the analysis. |
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there appears to be perfect competition since the price is considered to remain the same regardless of quantity. |
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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.
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10,000 customers |
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20,000 customers |
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30,000 customers |
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40,000 customers |
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50,000 customers |
Question 5
The degree of operating leverage is equal to the ____ change in ____ divided by the ____ change in ____.
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percentage; sales; percentage; EBIT |
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unit; sales; unit; EBIT |
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percentage; EBIT; percentage; sales |
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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:
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one minus the variable cost ratio |
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contribution margin per unit |
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selling price per unit |
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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:
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Governmental pressure to lower the price |
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Reduced demand for long distance service |
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Entry into this industry pushes prices down |
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Lower price for a barrel of crude oil |
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Increased cost of providing long distance service |
Question 8
In the long-run, firms in a monopolistically competitive industry will
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earn substantial economic profits |
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tend to just cover costs, including normal profits |
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seek to increase the scale of operations |
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seek to reduce the scale of operations |
Question 9
In the purely competitive case, marginal revenue (MR) is equal to:
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cost |
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profit |
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price |
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total revenue |
Question 10
An "experience good" is one that:
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Only an expert can use |
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Has undetectable quality when purchased |
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Can be readily experienced simply by touching or tasting |
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Improves with age, like a fine wine |
Question 11
Buyers anticipate that the temporary warehouse seller of unbranded computer equipment will
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deliver high quality products consistent with expectations |
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not attempt to establish any warranty enforcement mechanisms |
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offer several prices and qualities |
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produce only one quality |
Question 12
Asset specificity is largest when
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value in first best use is large |
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value in second best use is large |
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customers choose their supplier at random |
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very valuable assets are non-redeployable |
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customers are loyal to a particular seller |
Question 13
In the short-run for a purely competitive market, a manufacturer will stop production when:
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the total revenue is less than total costs |
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the contribution to fixed costs is zero or less |
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the price is greater than AVC |
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operating at a loss Question 14 Regulatory agencies engage in all of the following activities except _______. Answer
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Question 15
Of the following, which is not an economic rationale for public utility regulation?
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production process exhibiting increasing returns to scale |
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constant cost industry |
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avoidance of duplication of facilities |
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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.
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Peak load pricing |
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Inverted block pricing |
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Block pricing |
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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.
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similar, similar |
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elastic, lower |
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elastic, higher |
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inelastic, lower |
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inelastic, higher |
Question 18
The demand curve facing the firm in ____ is the same as the industry demand curve.
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pure competition |
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monopolistic competition |
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oligopoly |
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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:
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inverted block pricing |
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second-degree price discrimination |
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peak-load pricing |
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first-degree price discrimination |
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none of the above |
Question 20
In a kinked demand market, whenever one firm decides to lower its price,
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other firms will automatically follow. |
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none of the other firms will follow. |
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one half of the firms follow and one half of the firms don't follow the price cut. |
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other firms all decide to exit the industry |
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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.
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price |
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output |
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marketing strategy |
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inventory |
Question 22
“Conscious parallelism of action” among oligopolistic firms is an example of ____.
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intense rivalry |
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a formal collusive agreement |
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informal, or tacit, cooperation |
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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.
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average total cost |
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average profit |
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marginal profit |
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marginal cost |
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marginal revenue |
Question 24
A cartel is a situation where firms in the industry
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have an agreement to restrict output. |
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agree to produce identical products. |
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obey the rules of dominant firm price leadership. |
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experience the pain of a kinked demand curve. |
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have a barometric price leader |
Question 25
Barometric price leadership exists when
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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. |
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one firm imposes its best price on the rest of the industry. |
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all firms agree to change prices simultaneously. |
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one company forms a price umbrella for all others. |
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the firms are all colluding. |
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
Answer
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the Folk Theorem |
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the law of large numbers |
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the Prisoner's dilemma |
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the paradox of large numbers |
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the strategy of recusal |
Question 2
Credibility in threats and commitments in sequential games is based on
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randomizing one's actions so they are unpredictable |
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explicit communications with competitors |
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effective scenario planning |
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analyzing best reply responses |
Question 3
A key to analyzing subgame perfect equilibrium strategy in sequential games is
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predictable behavior |
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an explicit order of play for at least some participants |
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information sets that are known with certainty |
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credible threats clearly communicated |
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randomness |
Question 4
Consider the game known as the Prisoner's Dilemma. What's the dilemma?
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By both not confessing, both get to the cooperative solution and minimize time in prison. |
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By both confessing, both get to the noncooperative solution and both serve significant time in prison. |
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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. |
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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
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a single decision-maker in the endgame |
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no communication |
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finite or infinite time periods |
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third-party enforceable agreements |
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an explicit order of play |
Question 6
Third-degree price discrimination exists whenever:
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the seller knows exactly how much each potential customer is willing to pay and will charge accordingly. |
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different prices are charged by blocks of services. |
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the seller can separate markets by geography, income, age, etc., and charge different prices to these different groups. |
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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?
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full-cost pricing policy |
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target-pricing policy |
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marginal-pricing policy |
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market-share pricing policy |
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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.
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Incremental price |
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Marginal price |
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Full-cost price |
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Transfer price |
Question 9
Firms that have a cover charge for their customers and charge for each item they purchase as well are exhibiting
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universal access price discrimination |
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declining block price discrimination. |
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mixed bundling price discrimination. |
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two-part price discrimination. |
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uniform pricing |
Question 10
Electricity pricing that varies in its billing expense throughout the day is called
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full pricing |
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marginal cost pricing |
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dynamic pricing |
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variable pricing |
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full cost pricing pricing |
Question 12
Which of the following is not among the functions of contract?
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to provide incentives for efficient reliance |
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to reduce transaction costs |
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to discourage the development of asymmetric information |
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to provide risk allocation mechanisms |
Question 13
Mac trucks and their dealers would likely have an organizational form of
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fixed profit sharing franchise contracts |
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spot market recontracting |
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alliances |
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vertical integration |
Question 14
When manufacturers and distributors establish credible commitments to one another, they often employ
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vertical requirements contracts |
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third-party monitoring |
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credible threat mechanisms |
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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 ____.
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reliance relationships |
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uncertainty |
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moral hazard |
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creative ingenuity |
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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
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coal |
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grain |
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transportation |
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automobiles |
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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.
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Baumol's sales maximization hypothesis |
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The Pareto optimality condition |
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The Cournot model |
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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.
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monopolistic competition |
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perfectly contestable |
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oligopoly |
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monopoly |
Question 19
The antitrust laws regulate all of the following business decisions except ____.
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collusion |
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mergers |
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monopolistic practices |
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price discrimination |
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wage levels |
Question 20
The ____ is equal to the some of the squares of the market shares of all the firms in an industry.
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market concentration ratio |
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Herfindahl-Hirschman index |
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correlation coefficient |
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standard deviation of concentration |
Question 21
Cost-benefit analysis is the public sector counterpart to ____ used in private, profit-oriented firms.
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ratio analysis |
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break-even analysis |
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capital budgeting techniques |
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economic forecasting |
uestion 22
Which of the following should not be counted in a cost-benefit analysis?
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direct benefits and costs |
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real secondary benefits |
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technological secondary costs |
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pecuniary benefits |
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intangibles |
Question 23
In determining the optimal capital budget, one should choose those project's whose ____ exceeds the firm's ____ cost of capital.
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internal rate of return, average |
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internal rate of return, marginal |
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internal rate of return, historic |
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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 ____.
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yield-to-maturity |
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present value yield |
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risk-free rate |
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dividend growth rate |
Question 25
All of the following except ____ are shortcomings of cost-benefit analysis.
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difficulty in measuring third-party costs |
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difficulty in measuring third-party benefits |
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failure to consider the time value of benefits and costs |
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difficulty of accounting for program interactions |
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Rating:
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Solution: Eco550 final exam (part 1 and 2)