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Question;1. Long distance telephone service has become a competitive market. The average cost per callis $0.05 aminute, and it?s declining. The likely reason for the declining price for long distance service is:a. Governmental pressure to lower the priceb. Reduced demand for long distance servicec. Entry into this industry pushes prices downd. Lower price for a barrel of crude oile. Increased cost of providing long distance service2. All of the following are true for both competition and monopolistic competition in the long run,exceptone of them. Which is it?a. P = M Cb. P = A Cc. Economic profits become zero in the long-rund. The barriers to entry and exit are relatively easye. None of the above is an exception3. In pure competition:a. the optimal price-output solution occurs at the point where marginal revenue is equal topriceb. a firm's demand curve is represented by a horizontal linec. a firm is a price-taker since the products of every producer are perfect substitutes for theproducts of every other producerd. a and b onlye. a, b, and cA firm in pure competition would shut down when:a. price is less than average total costb. price is less than average fixed costc. price is less than marginal costd. price is less than average variable cost5. All of the following are mechanisms which reduce the adverse selection problem except____.a.b.c.d.e.warranties from established enterprises with non-redeployable assetshigh interest rateslarge collateral requirementsbrand names and product-specific promotions and retail displayshigher prices in repeat customer transactions6. An "experience good" is one that:a. Only an expert can useb. Has undetectable quality when purchasedc. Can be readily experienced simply by touching or tastingd. Improves with age, like a fine winee. All of the above7. Unique Creations has a monopoly position in magnometers. If the marginal cost for amagnometer is $50and the price elasticity for magnometers is -4, what is the optimal monopoly price?Hint: P (1 +1/E) = MC.a. $37.50b. $41.25c. $66.67d. $75.00e. $82.508. Declining cost industriesa. have upward rising AC curves.b. have upward rising demand curves.c. have?-shaped total costs.d. have diseconomies of scale.e. have marginal cost curves below their average cost curve.9. In the case of pure monopoly:a. one firm is the sole producer of a good or service which has no close substitutesb. the firm's profit is maximized at the price and output combination where marginal costequals marginal revenuec. the demand curve is always elasticd. a and b onlye. a, b, and c10. A monopoly will always produce less than a purely competitive industry, ceteris paribus.a. trueb. false11. When the cross elasticity of demand between one product and all other products is low, oneis generallyreferring to a(n) ____ situation.a.b.c.d.e.oligopolymonopolypure competitionsubstitutionmonopolistic competition12. Regulatory agencies engage in all of the following activities except _______.a. controlling entry into the regulated industriesb. overseeing the quality of service provided by the firmsc. setting federal and state income tax rates on regulated firmsd. setting prices that consumers will paye. none of the above13. The kinked demand curve model was developed to help explain:a. fluctuations of prices in pure competitionb. rigidities observed in prices in oligopolistic industriesc. fluctuations observed in prices in oligopolistic industriesd. all of the abovee. none of the above14. Which of the following is an example of an oligopolistic market structure?a. public utilitiesb. air transport industryc. liquor retailersd. wheat farmerse. none of the above15. If a cartel seeks to maximize profits, the market share (or quota) for each firm should be setat a levelsuch that the ____ of all firms is identical.a. average total costb. average profitc. marginal profitd. marginal coste. marginal revenue16. A(n) ____ is characterized by a relatively small number of firms producing a product.a. monopolyb. syndicatec. cooperatived. oligopolye. none of the above17. The largest problem faced in cartel pricing agreements such as OPEC is:a. detecting violations of quota barriers by cartel participantsb. arriving at a profit maximizing pricec. attracting participants in the carteld. none of the above18. Barometric price leadership exists whena. one firm in the industry initiates a price change and the others follow it as a signal of changesin costor demand in the industry.b. one firm imposes its best price on the rest of the industry.c. all firms agree to change prices simultaneously.d. one company forms a price umbrella for all others.e. the firms are all colluding.19. Vertical integration may be motivated by all of the following except:a. Upstream market powerb. Economies of ever wider spans of managerial controlc. Technological interdependenciesd. Reduced search and bargaining coste. The hold-up problem.20. Which of the following is not among the functions of contract?a. to provide incentives for efficient relianceb. to reduce transaction costsc. to discourage the development of asymmetric informationd. to provide risk allocation mechanisms21. When retail bicycle dealers advertise and perform warranty repairs but do not deliver thepersonal sellingmessage that Schwinn has designed as part of the marketing plan but cannot observe at lessthanprohibitive cost, the manufacturer has encountered a problem of ____.a. reliance relationshipsb. uncertaintyc. moral hazardd. creative ingenuitye. insurance reliance22. Mac trucks and their dealers would likely have an organizational form ofa. fixed profit sharing franchise contractsb. spot market recontractingc. alliancesd. vertical integration23. When borrowers who do not intend to repay are able to hide their bad credit histories, alender's wellintentioned borrowers shoulda. complain to regulatory authoritiesb.c.d.e.withdraw their loan applicationsoffer more collateral in exchange for lower interest chargesdivulge still more information on their loan applicationshope for a pooling equilibrium24. Governance mechanisms are designeda. to increase contracting costsb. to resolve post-contractual opportunismc. to enhance the flexibility of restrictive covenantsd. to replace insurancee. none of the above25. Patents have been defended by some on the grounds that they stimulate inventive activity.Others haveargued for changes in current patent laws because:a. resources are misallocated by the grant of a patent monopolyb. patents may not be necessary to encourage inventive activityc. the current patent monopoly period (17 years) is too short to encourage any inventiveactivity.d. a and b onlye. all of the above26. Which of the following public policies has (have) the effect of restricting competition?a. licensingb. p a te n tsc. import quotasd. a and b onlye. a, b, and c27. ____ yields the same results as the theory of perfect competition, but requires substantiallyfewerassumptions than the perfectly competitive model.a. Baumol's sales maximization hypothesisb. The Pareto optimality conditionc. The Cournot modeld. The theory of contestable marketse. none of the above28. The ____ is equal to the some of the squares of the market shares of all the firms in anindustry.a. market concentration ratiob. Herfindahl-Hirschman indexc. correlation coefficientd. standard deviation of concentratione. none of the above29. ____ occurs whenever a third party receives or bears costs arising from an economictransaction in whichthe individual (or group) is not a direct participant.a. Pecuniary benefits and costsb. Externalitiesc. Intangiblesd. Monopoly costs and benefitse. none of the above30. In order to help assure that all relevant factors will be considered, the capital-expenditureselectionprocess should include the following steps except:a. generating alternative capital-investment project proposalsb. estimating cash flows for the project proposalsc. reviewing the investment projects after they have been implementedd. allocate manpower to the various divisions within the firme. a and d31. Project post-audit reviews are rarely of practical value because capital investments aresunk, irreversiblecosts.a. trueb. false32. The cost of internal equity (retained earnings) is ____ the cost of external equity (newcommon stock).a. greater thanb. equal toc. less than33. The ____ depicts the risk-return relationship in the market for all securities:a. characteristic lineb. security market linec. investment opportunity curved. marginal cost of capital schedulee. none of the above34. The discount rate utilized in public sector budgeting performs the functions of:a. allocating funds between the public and private sectorsb. allocating funds between present consumption and investment (i.e., future consumption)c. allocating funds between debt and equity securitiesd. a and b onlye. none of the above

 

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