TAMUC Eco562 final exam 2105

1. In the market structure called monopolistic competition (Points : 1.25)

a) Very little advertising will occur

b) There are only a few companies in the industry

c) These industries offer only few products

d) None of the above

Question 2. 2. In a purely competitive industry (Points : 1.25)

a) Products are differentiated

b) A large amount of advertising occurs

c) Price will be higher than in other market structure

d) None of the above

Question 3. 3. A used lawn mower is an example of (Points : 1.25)

a) a search good

b) an experience good

c) a homogenous good

d) None of the above

Question 4. 4. The problem of asymmetric can be overcome by (Points : 1.25)

a) Reputation

b) Brand name

c) Warranties

d) All of the above

e) None of the above

Question 5. 5. A monopolist will always charge a higher price than a purely competitive industry (Points : 1.25)

True

False

Question 6. 6. Given TC = 10 + 5Q, Ed = -2, what price will be a monopolist charge? (Points : 1.25)

a) 5

b) 12

c) 8

d) 10

e) None of the above

7. The monopolist determines optimal output the same way as does a purely competitive industry (Points : 1.25)

True

False

Question 8. 8. Given a company with some monopoly power and Ed=3, the optimal markup is (Points : 1.25)

a) 33%

b) 50%

c) 72%

d) None of the above

Question 9. 9. Given the information given in 8 above and MC=6, gross margin is (Points : 1.25)

a) 50%

b) 42%

c) 33%

d) 38%

e) None of the above

Question 10. 10. You would expect gross margin in a store brand to be higher than gross margin in a brand name product (Points : 1.25)

True

False

Question 11. 11. You expect products that are less price elastic to have lower gross margins than products with greater price elasticity (Points : 1.25)

True

False

Question 12. 12. A company with large gross margins will have large profits (Points : 1.25)

True

False

13. If a company is incurring losses, it should stop operating (Points : 1.25)

a) Yes

b) No

c) Not enough information

Question 14. 14. A monopolist may not charge the highest price they could get (at MR=MC) in the short run (Points : 1.25)

True

False

Question 15. 15. All price discrimination is illegal (Points : 1.25)

True

False

Question 16. 16. A company that faces different levels of demand (different price elasticities) (Points : 1.25)

a) Must charge the same price to all customers

b) is violating the law

c) Can charge different price to customers

Question 17. 17. Patents allow a company the exclusive right to act as a monopolist (Points : 1.25)

a) This is not justified economically

b) It is justified economically

Question 18. 18. The kinked demand curve model was developed to help explain: (Points : 1.25)

a) fluctuations of prices in pure competition

b) rigidities observed in prices in oligopolistic industries

c) fluctuations observed in prices in oligopolistic industries

d) all of the above

e) none of the above

Question 19. 19. 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. (Points : 1.25)

a) average total cost

b) average profit

c) marginal profit

d) marginal cost

e)marginal revenue

Question 20. 20. Factors that affect the ability of oligopolistic firms to successfully engage in cooperation include_________________. (Points : 1.25)

a) number and size distribution of sellers

b) size and frequency of orders

c) product heterogeneity

d) a and b only

e) a, b, and c

21. Joint products are: (Points : 1.25)

a) products which are technically independent in the production process

b) exemplified by beef and hide from cattle

c) products whose production processes are interdependent

d) a and b

e) b and c

Question 22. 22. 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). (Points : 1.25)

a) first-degree

b) second-degree

Question 23. 23. ___________ is a new product pricing strategy which results in a high initial product price. This price is reduced over time as demand at the higher price is satisfied. (Points : 1.25)

a) Prestige pricing

b) Price lining

c) Skimming

d) Incremental pricing

e) None of the above

Question 24. 24. ____________ is the price at which an intermediate good or service is transferred from the selling to the buying division within the same firm. (Points : 1.25)

a) Incremental price

b) Marginal price

c) Full-cost price

d) Transfer price

e) none of the above

Question 25. 25. For a monopolist that engages in price discrimination, when the price elasticity in market 1 is less (in absolute value) than in market 2, the optimal price in market 1 will exceed the optimal price in market 2. (Points : 1.25)

a) Ture

b) False

Question 26. 26. 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. (Points : 1.25)

a) ratio of price to marginal cost

b) ratio of marginal cost to marginal utility

c) ratio of price to elasticity

d) marginal revenue

e) none of the above

Question 27. 27. The segmenting of customers into several small groups such as household, institutional, commercial, and industrial users, and establishing a different rate schedule for each group is known as: (Points : 1.25)

a) first-degree price discrimination

b) market penetration

c) third-degree price discrimination

d) second-degree price discrimination

e) none of the above

Question 28. 28. Transfer pricing: (Points : 1.25)

a) is typical of a centralized firm

b) assumes no external sources available

c) should maximize a division's profits, rather than the firm's

d) can exist with or without an external competitive market

e) none of the above

Question 29. 29. A company sells 20,000 pairs of jeans a year at an average price of $10. Fixed costs are $60,000 and total variable costs are $120,000. They estimate that a 10% increase in output would not affect fixed cost but would reduce average variable costs by 40 cents. Someone suggests reducing price by 5% to increase sales and project. The price elasticity of demand (ARC) is -2.

The impact on total revenue would be: (Points : 1.25)

a) a decrease of $10,000

b) an increase of $10,000

c) an increase of $180,000

d) None above

Question 30. 30. Given the information in (29) above. The change in total costs would be: (Points : 1.25)

a) a decrease of $3,500

b) an increase of $ 3,800

c) an increase of $180,000

d) None above

31. Given the information in (29) above. The effect on profit would be: (Points : 1.25)

a) an increase of $42,000

b) a decrease of $6,200

c) an increase of 50,000

d) an increase of $6,200

e) None above