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Question 1 The short-run cost function is:Answerwhere all inputs to the production process are variablerelevant to decisions in which one or more inputs to the production process are fixednot relevant to optimal pricing and production output decisionscrucial in making optimal investment decisions in new production facilitiesIn 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:Answerregression to the mean analysis.breakeven analysis.survivorship analysis.engineering cost analysis.a Willie Sutton analysis.Which of the following is notan assumption of the linear breakeven model:Answerconstant selling price per unitdecreasing variable cost per unitfixed costs are independent of the output levela single product (or a constant mix of products) is being produced and soldall costs can be classified as fixed or variableQuestion 4 A ____ total cost function implies that marginal costs ____ as output is increased.Answerlinear; increase linearlyquadratic; are constantcubic; increase linearlylinear; are constantLong distance telephone service has become a competitive market. The average cost per call is $0.05 a minute, and its declining. The likely reason for the declining price for long distance service is:AnswerGovernmental pressure to lower the priceReduced demand for long distance serviceEntry into this industry pushes prices downLower price for a barrel of crude oilIncreased cost of providing long distance serviceWhat is the profit maximization point for a firm in a purely competitive environment?AnswerThe output whereThe output where P < MCThe output where P > MCThe output whereThe output where AVC < PQuestion 7 The problems of asymmetric information exchange arise ultimately becauseAnswerone party to the exchange possesses different information than anotherone party has more information than anotherone party knows nothingone party cannot independently verify the information of anotherinformation is scarceQuestion 8 An experience good is one that:AnswerOnly an expert can useHas undetectable quality when purchasedCan be readily experienced simply by touching or tastingImproves with age, like a fine wineQuestion 9 Of the following, which is notan economic rationale for public utility regulation?Answerproduction process exhibiting increasing returns to scaleconstant cost industryavoidance of duplication of facilitiesprotection of consumers from price discriminationQuestion 10 ____ as practiced by public utilities is designed to encourage greater usage and therefore spread the fixed costs of the utilitys plant over a larger number of units of output.AnswerPeak load pricingInverted block pricingBlock pricingFirst degree price discriminationQuestion 11 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:Answerprice 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 monopolyQuestion 12 Regulatory agencies engage in all of the following activities except _______.Answercontrolling entry into the regulated industriesoverseeing the quality of service provided by the firmssetting federal and state income tax rates on regulated firmssetting prices that consumers will payQuestion 13 5 pointsIn the Cournot duopoly model, each of the two firms, in determining its profit-maximizing price-output level, assumes that the other firms ____ will not change.Answerpriceoutputmarketing strategyinventoryQuestion 14 Barometric price leadership exists whenAnswerone 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.one firm imposes its best price on the rest of the industry.all firms agree to change prices simultaneously.one company forms a price umbrella for all others.the firms are all colluding.Question 15 A(n) ____ is characterized by a relatively small number of firms producing a product.AnswermonopolysyndicatecooperativeoligopolyQuestion 16 Even ideal cartels tend to be unstable becauseAnswerfirms 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 firmsQuestion 17The starting point of many methods for predicting equilibrium strategy in sequential games isAnswerdesigning proactive reactions to rival actionsinformation setsuncertain outcomesbackwards induction based on an explicit order of playendgame analysisQuestion 18 Cooperation in repeated prisoners dilemma situations seems to be enhanced by all of the following exceptAnswerlimited punishment schemesclarity of conditional rewardsgrim trigger strategyprovocabilityi.e., credible threats of punishmenttit for tat strategyQuestion 19When there is no Equilibrium (or no Nash Equilibrium), we expect that:Answerthe firms end up in the cooperative strategy.a firm will follow a randomized strategy.a firm will not care what it does.a firm will very likely have a dominant strategy.Question 20In making promises that are not guaranteed by third parties and in imposing penalties that are not enforced by third parties, all of the following are credibility-enhancing mechanisms exceptAnswerestablishing a bond forfeited by violating the commitmentinvesting in a non-redeployable reputational asset tied to the promise or threatinterrupting the communication of negotiated compromisesoffering a warrantydelivering a hostage (e.g., a patent license triggered by violating the promise)Question 21 ____ 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.AnswerPrestige pricingPrice liningSkimmingIncremental pricingThird-degree price discrimination exists whenever:Answerthe 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.Which of the statements about price discrimination is (are) false?AnswerIt must be possible to segment the market.It must be difficult to transfer the sellers product from one market segment to another.Public utilities practice first-degree price discrimination.There must be differences in the elasticity of demand from one segment to another.The following are possible examples of price discrimination, EXCEPT:Answerprices 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 individualWhich of the following is not among the functions of contract?Answerto provide incentives for efficient relianceto reduce transaction coststo discourage the development of asymmetric informationto provide risk allocation mechanismsQuestion 26 When borrowers who do not intend to repay are able to hide their bad credit histories, a lenders well-intentioned borrowers shouldAnswercomplain to regulatory authoritieswithdraw their loan applicationsoffer more collateral in exchange for lower interest chargesdivulge still more information on their loan applicationshope for a pooling equilibriumQuestion 27 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 aAnswerbreach of contractual obligationsdenial of good guaranteeloss of reputationmoral hazardQuestion 28Which of the following are not approaches to resolving the principal-agent problem?Answerex ante incentive alignmentdeferred stock optionsex post governance mechanismstraight salary contractsmonitoring by independent outside directorsQuestion 29The lower the barriers to entry and exit, the more nearly a market structure fits the ____ market model.Answermonopolistic competitionperfectly contestableoligopolymonopolyQuestion 30 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.AnswerThe Herfindahl index for A is 100.The Herfindahl index for A is 3,800.The Herfindahl index for B is 3,600The Herfindahl index for A is greater than for B.The Herfindahl index is for B is 4,000.Question 31____ 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.AnswerPecuniary benefits and costsExternalitiesIntangiblesMonopoly costs and benefitsQuestion 32____ yields the same results as the theory of perfect competition, but requires substantially fewer assumptions than the perfectly competitive model.AnswerBaumols sales maximization hypothesisThe Pareto optimality conditionThe Cournot modelThe theory of contestable marketsQuestion 33Which of the following would not be classified as a capital expenditure for decision-making purposes?Answerpurchase of a buildinginvestment in a new milling machinepurchase of 90-day Treasury Billsinvestment in a management training programQuestion 34Capital expenditures:Answerare easily reversibleare forms of operating expendituresAffect long-run future profitabilityInvolve only money, not machineryQuestion 35The ____ method assumes that the cash flows over the life of the project are reinvested at the ____.Answernet present value; computed internal rate of returninternal rate of return; firms cost of capitalnet present value; firms cost of capitalnet present value; risk-free rate of returnQuestion 36 The weights used in calculating the firms weighted-average cost of capital are equal to the proportion of debt and equity ____.Answerused to finance the projectused to finance the projects undertaken last yearin the industry average capital structurein the firms target capital structureSearch TutorialsTop of Form

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