The decision by the municipal transit authority to either


Question 1

The degree of operating leverage is equal to the ____ change in ____ divided by the ____ change in ____.

Answer

percentage; sales; percentage; EBIT

unit; sales; unit; EBIT

percentage; EBIT; percentage; sales

unit; EBIT; unit; sales

Question 2

In the linear breakeven model, the difference between selling price per unit and variable cost per unit is referred to as:

Answer

variable margin per unit

variable cost ratio

contribution margin per unit

target margin per unit

Question 3

Theoretically, in a long-run cost function:

Answer

all inputs are fixed

all inputs are considered variable

some inputs are always fixed

capital and labor are always combined in fixed proportions

Question 4

The short-run cost function is:

Answer

where all inputs to the production process are variable

relevant to decisions in which one or more inputs to the production process are fixed

not relevant to optimal pricing and production output decisions

crucial in making optimal investment decisions in new production facilities

Question 5

In a study of banking by asset 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:

Answer

regression to the mean analysis.

breakeven analysis.

survivorship analysis.

engineering cost analysis.

a Willie Sutton analysis.

Question 6

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.

Answer

10,000 customers

20,000 customers

30,000 customers

40,000 customers

50,000 customers

Question 7

If price exceeds average costs under pure competition, ____ firms will enter the industry, supply will ____, and price will be

driven ____.

Answer

more; decrease; down

more; decrease; up

more; increase; down

more; increase; up

Question 8

The problems of asymmetric information exchange arise ultimately because

Answer

one party to the exchange possesses different information than another

one party has more information than another

one party knows nothing

one party cannot independently verify the information of another

information is scarce

Question 9

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:

Answer

Governmental pressure to lower the price

Reduced demand for long distance service

Entry into this industry pushes prices down

Lower price for a barrel of crude oil

Increased cost of providing long distance service

Question 10

What is the profit maximization point for a firm in a purely competitive environment?

Answer

The output where P = MC

The output where P < MC

The output where P > MC

The output where MR = MC

The output where AVC < P

Question 11

In the purely competitive case, marginal revenue (MR) is equal to:

Answer

cost

profit

price

total revenue

Question 12

The price for used cars is well below the price of new cars of the same general quality. This is an example of:

Answer

The Degree of Operating Leverage

A Lemon's Market

Redeployment Assets

Cyclical Competition

The Unemployment Rate

Question 13

Uncertainty includes all of the following except ____.

Answer

unknown effects of deliberate actions

incomplete information as to the type of competitor

random disturbances

unverifiable claims

accidents due to weather hazards

Question 14

The practice by telephone companies of charging lower long-distance rates at night than during the day is an example of:

Answer

inverted block pricing

second-degree price discrimination

peak-load pricing

first-degree price discrimination

none of the above

Question 15

When the cross elasticity of demand between one product and all other products is low, one is generally referring to a(n) ____

situation.

Answer

oligopoly

monopoly

pure competition

substitution

monopolistic competition

Question 16

The demand curve facing the firm in ____ is the same as the industry demand curve.

Answer

pure competition

monopolistic competition

oligopoly

pure monopoly

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.

Answer

similar, similar

elastic, lower

elastic, higher

inelastic, lower

inelastic, higher

Question 18

Regulatory agencies engage in all of the following activities except _______.

Answer

controlling entry into the regulated industries

overseeing the quality of service provided by the firms

setting federal and state income tax rates on regulated firms

setting prices that consumers will pay

Question 19

In natural monopoly, AC continuously declines due to economies 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:

Answer

price would equal average cost.

price would exceed average cost.

price would be below average cost.

price would be at the profit maximizing level for natural monopoly

Question 20

A cartel is a situation where firms in the industry

Answer

have an agreement to restrict output.

agree to produce identical products.

obey the rules of dominant firm price leadership.

experience the pain of a kinked demand curve.

have a barometric price leader

Question 21

Even ideal cartels tend to be unstable because

Answer

firms typically prefer competition to collusion as competition, because it leads to more profits.

collusion leads to lowest possible overall profits in the industry.

oligopolistic managers are extremely risk loving.

firms can benefit by secretly selling more than they promised the other firms

Question 22

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.

Answer

price

output

marketing strategy

inventory

Question 23

Some industries that have rigid prices. In those industries, we tend to

Answer

find that output is also rigid over the business cycle

find that output varies greatly over the business cycle

find the employment in these industries is quite stable over the business cycle

find that the rate of return is negative in boom times

Question 24

Which of the following is an example of an oligopolistic market structure?

Answer

public utilities

air transport industry

liquor retailers

wheat farmers

Question 25

In a kinked demand market, whenever one firm decides to lower its price,

Answer

other firms will automatically follow.

none of the other firms will follow.

one half of the firms follow and one half of the firms don't follow the price cut.

other firms all decide to exit the industry

all of the other firms raise their prices.

ECO 550 FINAL EXAM PART 1 SECOND VERSION

Question 26

The short-run cost function is:

Answer

where all inputs to the production process are variable

relevant to decisions in which one or more inputs to the production process are fixed

not relevant to optimal pricing and production output decisions

crucial in making optimal investment decisions in new production facilities

Question 27

Which of the following is not an assumption of the linear breakeven model:

Answer

constant selling price per unit

decreasing variable cost per unit

fixed costs are independent of the output level

a single product (or a constant mix of products) is being produced and sold

Question 28

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.

Answer

10,000 customers

20,000 customers

30,000 customers

40,000 customers

50,000 customers

Question 29

The degree of operating leverage is equal to the ____ change in ____ divided by the ____ change in ____.

Answer

percentage; sales; percentage; EBIT

unit; sales; unit; EBIT

percentage; EBIT; percentage; sales

unit; EBIT; unit; sales

Question 30

In a study of banking by asset 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:

Answer

regression to the mean analysis.

breakeven analysis.

survivorship analysis.

engineering cost analysis.

a Willie Sutton analysis.

Question 31

In the linear breakeven model, the breakeven sales volume (in dollars) can be found by multiplying the breakeven sales

volume (in units) by:

Answer

one minus the variable cost ratio

contribution margin per unit

selling price per unit

standard deviation of unit sales

Question 32

A firm in pure competition would shut down when:

Answer

price is less than average total cost

price is less than average fixed cost

price is less than marginal cost

price is less than average variable cost

Question 33

Under asymmetric information,

Answer

you never get what you pay for

you sometimes get cheated

you always get cheated

at best you get what you pay for

sellers make profits in excess of competitive returns

Question 34

An "experience good" is one that:

Answer

Only an expert can use

Has undetectable quality when purchased

Can be readily experienced simply by touching or tasting

Improves with age, like a fine wine

Question 35

A "search good" is:

Answer

One that depends on how the product behaves over time

A product whose quality is only found out over time by finding how durable it is

Like a peach that can be examined for flaws

Like a used car, since it is easy to determine its inherent quality

Question 36

All of the following are mechanisms which reduce the adverse selection problem except ____.

Answer

warranties from established enterprises with non-redeployable assets

high interest rates

large collateral requirements

brand names and product-specific promotions and retail displays

higher prices in repeat customer transactions

Question 37

Asset specificity is largest when

Answer

value in first best use is large

value in second best use is large

customers choose their supplier at random

very valuable assets are non-redeployable

customers are loyal to a particular seller

Question 38

In the purely competitive case, marginal revenue (MR) is equal to:

Answer

cost

profit

price

total revenue

Question 39

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.

Answer

similar, similar

elastic, lower

elastic, higher

inelastic, lower

inelastic, higher

Question 40

Declining cost industries

Answer

have upward rising AC curves.

have upward rising demand curves.

have ∩-shaped total costs.

have diseconomies of scale.

have marginal cost curves below their average cost curve.

Question 41

The demand curve facing the firm in ____ is the same as the industry demand curve.

Answer

pure competition

monopolistic competition

oligopoly

pure monopoly

Question 42

Of the following, which is not an economic rationale for public utility regulation?

Answer

production process exhibiting increasing returns to scale

constant cost industry

avoidance of duplication of facilities

protection of consumers from price discrimination

Question 43

In natural monopoly, AC continuously declines due to economies 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:

Answer

price would equal average cost.

price would exceed average cost.

price would be below average cost.

price would be at the profit maximizing level for natural monopoly

Question 44

When the cross elasticity of demand between one product and all other products is low, one is generally referring to a(n) ____

situation.

Answer

oligopoly

monopoly

pure competition

substitution

monopolistic competition

Question 45

The existence of a kinked demand curve under oligopoly conditions may result in

Answer

volatile prices

competitive pricing.

prices above the monopoly price.

an increase in the coefficient of variation of prices.

price rigidity

Question 46

A(n) ____ is characterized by a relatively small number of firms producing a product.

Answer

monopoly

syndicate

cooperative

oligopoly

Question 47

Some market conditions make cartels MORE likely to succeed in collusion. Which of the following will make collusion more

successful?

Answer

The products are heterogeneous

The orders are small and frequent

The firms are all about the same size

Costs differ across the firms

Firms are geographically widely scattered

Question 48

Even ideal cartels tend to be unstable because

Answer

firms typically prefer competition to collusion as competition, because it leads to more profits.

collusion leads to lowest possible overall profits in the industry.

oligopolistic managers are extremely risk loving.

firms can benefit by secretly selling more than they promised the other firms

Question 49

Which of the following is an example of an oligopolistic market structure?

Answer

public utilities

air transport industry

liquor retailers

wheat farmers

Question 50

A cartel is a situation where firms in the industry

Answer

have an agreement to restrict output.

agree to produce identical products.

obey the rules of dominant firm price leadership.

experience the pain of a kinked demand curve.

have a barometric price leader

Question 51

The starting point of many methods for predicting equilibrium strategy in sequential games is

Answer

designing proactive reactions to rival actions

information sets

uncertain outcomes

backwards induction based on an explicit order of play

endgame analysis

Question 52

When there is an Equilibrium (or a Nash Equilibrium), we expect that:

Answer

once the firm's get there, no one will change their strategy.

firms will tend to select a randomized strategy.

neither firm will care what it does.

this is always a dominated strategy.

Question 53

An illustration of a non-credible commitment is the promise

Answer

to not increase capacity in a declining industry

to match a new entrant's discount price

to enter a profitable industry

to restrain output to the quota assigned by a cartel

to exit in the face of projected losses.

Question 54

To trust a potential cooperator until the first defection and then never cooperate thereafter is

Answer

a dominant strategy

an irrational strategy

a grim trigger strategy

a non-cooperative finite game strategy

a subgame imperfect strategy

Question 55

The difference between cooperative and non-cooperative games is

Answer

cooperative games allow side payments to support collusion

non-cooperative games encourage communication of sensitive information between arms-length competitors

cooperative games involve randomized behavior

cooperative games necessitate an explicit order of play

inconsequential except when players have contractual relationships

Question 56

Vacation tours to Europe invariably package visits to disparate regions: cities, mountains, and the seaside. Bundling, a type of

second degree price discrimination, is most profitable when:

Answer

the preference rankings of vacationers travelling together are negatively correlated.

a preference for cities is always higher than preferences for mountain vistas.

preference rankings of vacationers travelling together are positively correlated.

preference for the seaside is always higher than preferences for city excursions.

Question 57

Which of the following pricing policies best identifies when a product should be expanded, maintained, or discontinued?

Answer

full-cost pricing policy

target-pricing policy

marginal-pricing policy

market-share pricing policy

markup pricing policy

Question 58

____ 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.

Answer

Prestige pricing

Price lining

Skimming

Incremental pricing

Question 59

Electricity pricing that varies in its billing expense throughout the day is called

Answer

full pricing

marginal cost pricing

dynamic pricing

variable pricing

full cost pricing pricing

Question 60

The following are possible examples of price discrimination, EXCEPT:

Answer

prices in export markets are lower than for identical products in the domestic market.

senior citizens pay lower fares on public transportation than younger people at the same time.

a product sells at a higher price at location A than at location B, because transportation costs are higher from the factory to A.

subscription prices for a professional journal are higher when bought by a library than when bought by an individual.

Question 61

Which of the following is not among the functions of contract?

Answer

to provide incentives for efficient reliance

to reduce transaction costs

to discourage the development of asymmetric information

to provide risk allocation mechanisms

Question 62

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 verifiable, this lack of effort constitutes a

Answer

breach of contractual obligations

denial of good guarantee

loss of reputation

moral hazard

Question 63

Which of the following are not approaches to resolving the principal-agent problem?

Answer

ex ante incentive alignment

deferred stock options

ex post governance mechanism

straight salary contracts

monitoring by independent outside directors

Question 64

To accomplish its purpose a linear profit-sharing contract must

Answer

induce the employee to moonlight

communicate a code of conduct that will be monitored and enforced

meet either the participation or the incentive compatibility constraint

establish a separating equilibrium

not realign incentives

Question 65

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 ____.

Answer

reliance relationships

uncertainty

moral hazard

creative ingenuity

insurance reliance

Question 66

The antitrust laws regulate all of the following business decisions except ____.

Answer

collusion

mergers

monopolistic practices

price discrimination

wage levels

Question 67

The sentiment for increased deregulation in the late 1970's and early 1980's has been felt most significantly in the price

regulation of

Answer

coal

grain

transportation

automobiles

electric power generation

Question 68

The ____ is equal to the some of the squares of the market shares of all the firms in an industry.

Answer

market concentration ratio

Herfindahl-Hirschman index

correlation coefficient

standard deviation of concentration

Question 69

The Herfindahl-Hirschman index (also shortened to just the Herfindahl index) is a measure of ____.

Answer

market concentration

income distribution

technological progressiveness

price discrimination

Question 70

____ 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.

Answer

Pecuniary benefits and costs

Externalities

Intangibles

Monopoly costs and benefits

Question 71

All of the following except ____ are shortcomings of cost-benefit analysis.

Answer

difficulty in measuring third-party costs

difficulty in measuring third-party benefits

failure to consider the time value of benefits and costs

difficulty of accounting for program interactions

Question 72

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 ____.

Answer

yield-to-maturity

present value yield

risk-free rate

dividend growth rate

Question 73

Capital expenditures:

Answer

are easily reversible

are forms of operating expenditures

Affect long-run future profitability

Involve only money, not machinery

Question 74

Which of the following would not be classified as a capital expenditure for decision-making purposes?

Answer

purchase of a building

investment in a new milling machine

purchase of 90-day Treasury Bills

investment in a management training program

Question 75

Which of the following should not be counted in a cost-benefit analysis?

Answer

direct benefits and costs

real secondary benefits

technological secondary costs

pecuniary benefits

intangibles

SECOND VERSION OF EXAM PART 2

Question 76

In a game, a dominated strategy is one where:

Answer

It is always the best strategy

It is always the worst strategy

It is the strategy that is the best among the group of worst possible strategies.

Is sometimes the best and sometimes the worst strategy

Question 77

Cooperation in repeated prisoner's dilemma situations seems to be enhanced by all of the following except

Answer

limited punishment schemes

clarity of conditional rewards

grim trigger strategy

provocability--i.e., credible threats of punishment

tit for tat strategy

Question 78

Consider the game known as the Prisoner's Dilemma. What's the dilemma?

Answer

By both not confessing, both get to the cooperative solution and minimize time in prison.

By both confessing, both get to the noncooperative solution and both serve significant time in prison.

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.

The problem is that the spies should never have been caught; they should move to Rio.

Question 79

To trust a potential cooperator until the first defection and then never cooperate thereafter is

Answer

a dominant strategy

an irrational strategy

a grim trigger strategy

a non-cooperative finite game strategy

a subgame imperfect strategy

Question 80

When airlines post prices on an electronic bulletin board at 8:00 a.m. each morning, the decision-makers are engaged in

Answer

a single play game

a sequential game

an entry decision

a simultaneous game

an infinite repetition game

Question 81

The following are possible examples of price discrimination, EXCEPT:

Answer

prices in export markets are lower than for identical products in the domestic market.

senior citizens pay lower fares on public transportation than younger people at the same time.

a product sells at a higher price at location A than at location B, because transportation costs are higher from the factory to A.

subscription prices for a professional journal are higher when bought by a library than when bought by an individual.

Question 82

____ 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.

Answer

Prestige pricing

Price lining

Skimming

Incremental pricing

Question 83

____ is the price at which an intermediate good or service is transferred from the selling to the buying division within the same firm.

Answer

Incremental price

Marginal price

Full-cost price

Transfer price

Question 84

Third-degree price discrimination exists whenever:

Answer

the seller knows exactly how much each potential customer is willing to pay and will charge accordingly.

different prices are charged by blocks of services.

the seller can separate markets by geography, income, age, etc., and charge different prices to these different groups.

the seller will bargain with buyers in each of the markets to obtain the best possible price.

Question 85

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.

Answer

ratio of price to marginal cost

ratio of marginal cost to marginal utility

ratio of price to elasticity

marginal revenue

Question 86

Which of the following is not among the functions of contract?

Answer

to provide incentives for efficient reliance

to reduce transaction costs

to discourage the development of asymmetric information

to provide risk allocation mechanisms

Question 87

Non-redeployable durable assets that are dependent upon unique complementary and perfectly redeployable assets to achieve

substantial value-added will typically be organized as

Answer

an export trading company

a spot market contract

a vertically integrated firm

an on-going relational contract

a joint stock company.

Question 88

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 ____.

Answer

reliance relationships

uncertainty

moral hazard

creative ingenuity

insurance reliance

Question 89

Which of the following are not approaches to resolving the principal-agent problem?

Answer

ex ante incentive alignment

deferred stock options

ex post governance mechanism

straight salary contracts

monitoring by independent outside directors

Question 90

Buying electricity off the freewheeling grid at one quarter 'til the hour for delivery on the hour illustrates:

Answer

relational contracts with distributors

vertical requirements contracts

spot market transactions

variable price agreements

Question 91

The antitrust laws regulate all of the following business decisions except ____.

Answer

collusion

mergers

monopolistic practices

price discrimination

wage levels

Question 92

The ____ is equal to the some of the squares of the market shares of all the firms in an industry.

Answer

market concentration ratio

Herfindahl-Hirschman index

correlation coefficient

standard deviation of concentration

Question 93

____ 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.

Answer

Pecuniary benefits and costs

Externalities

Intangibles

Monopoly costs and benefits

Question 94

The lower the barriers to entry and exit, the more nearly a market structure fits the ____ market model.

Answer

monopolistic competition

perfectly contestable

oligopoly

monopoly

Question 95

The Herfindahl-Hirschman index (also shortened to just the Herfindahl index) is a measure of ____.

Answer

market concentration

income distribution

technological progressiveness

price discrimination

Question 96

Any current outlay that is expected to yield a flow of benefits beyond one year in the future is:

Answer

a capital gain

a wealth maximizing factor

a capital expenditure

a cost of capital

a dividend reinvestment

Question 97

In order to help assure that all relevant factors will be considered, the capital-expenditure selection process should include the

following steps except:

Answer

generating alternative capital-investment project proposals

estimating cash flows for the project proposals

reviewing the investment projects after they have been implemented

allocate manpower to the various divisions within the firm

Question 98

Cost-benefit analysis is the public sector counterpart to ____ used in private, profit-oriented firms.

Answer

ratio analysis

break-even analysis

capital budgeting techniques

economic forecasting

Question 100

The decision by the Municipal Transit Authority to either refurbish existing buses, buy new large buses, or to supplement the

existing fleet with mini-buses is an example of:

Answer

independent projects

mutually exclusive projects

contingent projects

separable projects

Question 100

If the acceptance of Project A makes it impossible to accept Project B, these projects are:

Answer

contingent projects

complementary projects

mutually inclusive projects

mutually exclusive projects

 

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2/12/2016 1:35:22 AM

Choose the most appropriate word for the following sentences. Illustrate it to validate your answer. Q1. In linear breakeven model, difference between the selling price per unit and variable cost per unit is termed to as: a) Variable margin per unit b) Contribution margin per unit c) Variable cost ratio d) Target margin per unit Q2. Hypothetically, in a long-run cost function: a) All inputs are fixed b) All inputs are considered variable c) A few inputs are for all time fixed d) Capital and labor are for all time combined in fixed proportions Q3. The short-run cost function is: a) Where all inputs to production process are variable b) Relevant to decisions in which one or more inputs to production process are fixed c) Not relevant to optimal pricing and production output decisions d) Crucial in making optimal investment decisions in latest production facilities