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. 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.
3. Which of the following industries is most likely to represent the monopolistic competition market structure?
- automobiles
- tobacco products
- restaurants
- farm equipment
4. 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.
5. 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.
6. 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
7. 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.
8. 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
9. Prices under an ideal cartel situation will be equal to
- monopoly prices.
- competitive prices.
- prices under monopolistic competition.
- marginal cost.
10. 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.
11. 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
12. 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.
13. 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.
14. 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.
15. 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.
16. 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
17. Globalization has depressed wages in western industrialized countries, particularly those for
- highly skilled workers.
- highly educated workers.
- semi-skilled workers.
- low skilled workers.
18. 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
19. 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.
20. 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
21. 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
22. 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
23. 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
24. 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.
25. 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