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Eco550 exam questions spring 2013




Question;Question 1;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;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.;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;all costs can be classified as fixed;or variable;Question 4;A ____ total cost function implies that marginal;costs ____ as output is increased.;Answer;linear, increase linearly;quadratic, are constant;cubic, increase linearly;linear, are;constant;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;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 MR = MC;The output where AVC < P;Question 7;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 8;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;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;as practiced by public utilities is designed;to encourage greater usage and therefore spread the fixed costs of the;utility's plant over a larger number of units of output.;Answer;Peak load pricing;Inverted block pricing;Block pricing;First degree price discrimination;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 12;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;5 points;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;Barometric price leadership exists when;Answer;one 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.;Answer;monopoly;syndicate;cooperative;oligopoly;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;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;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;When there is no Equilibrium (or no Nash;Equilibrium), we expect that;Answer;the 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.;In 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 except;Answer;establishing a bond forfeited by;violating the commitment;investing in a non-redeployable;reputational asset tied to the promise or threat;interrupting the communication of;negotiated compromises;offering a;warranty;delivering 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.;Answer;Prestige pricing;Price lining;Skimming;Incremental pricing;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.;Which of the statements about price;discrimination is (are) false?;Answer;It must be possible to segment the;market.;It must be difficult to transfer;the seller's 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;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;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 26;When borrowers who do not intend to repay are;able to hide their bad credit histories, a lender's well-intentioned borrowers;should;Answer;complain to regulatory authorities;withdraw their loan applications;offer more;collateral in exchange for lower interest charges;divulge still more information on;their loan applications;hope for a pooling equilibrium;Question 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 a;Answer;breach of contractual obligations;denial of good guarantee;loss of reputation;moral hazard;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;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;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.;Answer;The Herfindahl index for A is 100.;The Herfindahl;index for A is 3,800.;The Herfindahl index for B is 3,600;The Herfindahl index for A is;greater than for B.;The Herfindahl index is for B is;4,000.;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;yields the same results as the theory of;perfect competition, but requires substantially fewer assumptions than the;perfectly competitive model.;Answer;Baumol's sales maximization;hypothesis;The Pareto optimality condition;The Cournot model;The theory of contestable markets;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;Capital expenditures;Answer;are easily reversible;are forms of operating expenditures;Affect long-run future profitability;Involve only money, not machinery;The ____ method assumes that the cash flows over;the life of the project are reinvested at the ____.;Answer;net present value, computed;internal rate of return;internal rate of return, firm's;cost of capital;net present;value, firm's cost of capital;net present value, risk-free rate;of return;The weights used in calculating the firm's;weighted-average cost of capital are equal to the proportion of debt and equity;Answer;used to finance the project;used to finance the projects;undertaken last year;in the industry average capital structure;in the firm's target capital structure


Paper#57488 | Written in 18-Jul-2015

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