Eco550 final exam (part 1 and 2) Eco550 final exam (part 1 and 2) Question Question 1 Save your time! Proper editing and formatting Free revision, title page, and bibliography Flexible prices and money-back guarantee ORDER NOW Which of the following is not an assumption of the linear breakeven model: Answer Make sure you submit a unique essay Our writers will provide you with an essay sample written from scratch: any topic, any deadline, any instructions. 100% ORIGINAL ORDER NOW 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 2 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 3 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 4 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 5 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 6 Break-even analysis usually assumes all of the following except: Answer in the short run, there is no distinction between variable and fixed costs. revenue and cost curves are straight-lines throughout the analysis. there appears to be perfect competition since the price is considered to remain the same regardless of quantity. the straight-line cost curve implies that marginal cost is constant. Question 7 In the short-run for a purely competitive market, a manufacturer will stop production when: Answer the total revenue is less than total costs the contribution to fixed costs is zero or less the price is greater than AVC operating at a loss Question 8 In the purely competitive case, marginal revenue (MR) is equal to: Answer cost profit price total revenue Question 9 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 10 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 11 The main difference between perfect competition and monopolistic competition is: Answer The number of sellers in the market The ease of entry and exit in the industry The degree of information about market price The degree of product differentiation Whether it is the short run or the long run Question 12 Experience goods are products or services Answer that the customer already knows whose performance is highly unusual whose quality is undetectable when purchased not likely to cause repeat purchases Question 13 In the long-run, firms in a monopolistically competitive industry will Answer earn substantial economic profits tend to just cover costs, including normal profits seek to increase the scale of operations seek to reduce the scale of operations Question 14 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 15 The demand curve facing the firm in ____ is the same as the industry demand curve. Answer pure competition monopolistic competition oligopoly pure monopoly Question 16 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 17 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 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 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 20 If a cartel seeks to maximize profits, the market share (or quota) for each firm should be set at a level such that the ____ of all firms is identical. Answer average total cost average profit marginal profit marginal cost marginal revenue Question 21 A(n) ____ is characterized by a relatively small number of firms producing a product. Answer monopoly syndicate cooperative oligopoly Question 22 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 23 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 24 Which of the following is an example of an oligopolistic market structure? Answer public utilities air transport industry liquor retailers wheat farmers 4 points Question 25 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 Part 2 Question 1 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 2 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 3 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 adopting mixed Nash equilibrium strategy, a player is attempting to a. randomize his or her own behavior b. make the opponent favor a course of action preferred by the first player c. randomize the outcome of actions d. make the opponent indifferent between one action and another e. none of the above Question 5 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 6 The segmenting of customers into several small groups such as household, institutional, commercial, and industrial users, and establishing a different rate schedule for each group is known as: Answer first-degree price discrimination market penetration third-degree price discrimination second-degree price discrimination Question 7 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 8 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 9 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 10 ____ 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 11 When manufacturers and distributors establish credible commitments to one another, they often employ Answer vertical requirements contracts third-party monitoring credible threat mechanisms non-price tactics uestion 12 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 13 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 14 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 15 Governance mechanisms are designed Answer to increase contracting costs to resolve post-contractual opportunism to enhance the flexibility of restrictive covenants to replace insurance Question 16 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 17 ____ 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 Question 18 The Herfindahl-Hirschman index (also shortened to just the Herfindahl index) is a measure of ____. Answer market concentration income distribution technological progressiveness price discrimination uestion 19 The antitrust laws regulate all of the following business decisions except ____. Answer collusion mergers monopolistic practices price discrimination wage levels uestion 20 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 21 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 Question 22 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 Question 23 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 24 Which of the following items is (are) not considered as part of the net investment calculation? Answer installation and shipping charges acquisition cost of new asset salvage value of old equipment that is being replaced first year's net cash flow Question 25 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 4 points