Mangerial Economics

Mangerial Economics

Mangerial Economics

1. Jane regularly sends funds to organizations seeking to save endangered animal species. This is an example of: Answer fairness. altruism. selfishness. self-interest. 10 points Question 2 1. Carla had received very low annual return from her investment portfolio comprising of stocks of five companies for two years. Her decision to continue holding the same portfolio of assets will be an example of: Answer bounded rationality. selfishness. altruism. systematically missed opportunities. 10 points Question 3 1. The costs which can be avoided if we alter our decisions or choices are referred to as: Answer average costs. opportunity costs. marginal costs. sunk costs. 10 points Question 4 1. Which of the following is an example of market governance? Answer A firm vertically integrating backward to own the necessary inputs A firm entering into a contract with input suppliers. A school recruiting a part-time teacher to cover for a permanent employee who falls very ill. A school requesting its permanent employees to cover for a teacher who suddenly falls ill. 10 points Question 5 1. If the transaction between you and the seller takes place at a price that equals your valuation of the product, then: Answer you realize all the gains from this transaction. the gains from this transaction are equally divided between the two of you. the entire economic value created by the transaction goes to the seller. the economic value created by this transaction is sub-optimal. 10 points Question 6 1. In the example of Ireland described in the text, the country’s production set shifted outward over time because: Answer of technological advancements which improved its potato cultivation and overall agricultural production. it gained new resources over time which enabled it to specialize and gain comparative advantage in software trade with the U.S. and Europe. of new resources which allowed it to gain absolute advantage over many of its trading partners. of reduction in trade barriers with the European Union. 10 points Question 7 1. Which of the following commodities can be considered as an inferior good? Answer Dwelling in a small apartment located in a suburb Washing clothes in a washer at home Eating out at an upscale restaurant Spending vacations at exotic locations 10 points Question 8 1. The area above the supply curve and below the market price represents: Answer the consumer surplus the producer surplus. the deadweight loss of the producer. the deadweight loss of the consumer. 10 points Question 9 1. Suppose a consumer is willing to pay a maximum of $45 for a brand of perfume whose price increases from $37 to $41. What will be the impact of this price rise on the consumer surplus? Answer Consumer surplus will increase by $8. Consumer surplus will decline by $8. Consumer surplus will increase by $4. Consumer surplus will decline by $4. 10 points Question 10 1. Which of the following is a property of an isoquant? Answer It is concave to the origin. Its slope is given by the ratio of the marginal products, for example, (marginal product of capital) ÷ (marginal product of labor), where capital and labor are measured on the Y and X-axes respectively. It gives the lowest-cost way of producing a certain level of output. Isoquants cannot intersect each other. 10 points Question 11 1. Which of the following is consistent with increasing returns to scale? Answer An upward sloping marginal cost curve A downward sloping marginal cost curve An upward sloping long-run average cost curve A downward sloping long-run average cost curve 10 points Question 12 1. In an industry characterized by a natural monopoly, which of the following characteristics will be observed? Answer The long-run average cost curve will be upward sloping. The market price of the product will be very low. Competition is both impossible and inefficient. Number of producers operating in this market will be low. 10 points Question 13 1. Assume that the government of a nation rations the crude oil available to car owners each month which reduces the overall demand for petroleum. However, the nation continues to import oil from the world market. Which of the following will be observed in the oil market? Answer The world price of petroleum would decline. The domestic price of petroleum would decline. The domestic price of petroleum would increase. The world price of petroleum will remain unaffected. 10 points Question 14 1. Suppose a legislation passed by the government encourages domestic oil exploration thereby reducing petroleum imports substantially. If the cost of production is uniform for all producers, which of the following will be observed in the petroleum market? Answer The world price of petroleum would decline. The domestic price of petroleum would decline. The world price of gasoline will remain unaffected. Crude oil consumption in the domestic and the world market would decrease. 10 points Question 15 1. Which of the following conditions define the short-run for any industry? Answer Firms do not incur a fixed cost. Firms incur both fixed as well as variable costs. Firms can easily enter and leave the market. Firms can enter but cannot leave the market. 10 points Question 16 1. The peak of the total revenue curve is achieved at the point where: Answer marginal revenue is the highest. price is the highest. marginal revenue is zero. marginal cost is zero. 10 points Question 17 1. The total revenue curve of a monopolist is: Answer U-shaped. inverted U-shaped. upward sloping. downward sloping. 10 points Question 18 1. When a monopolist’s marginal cost of production is zero: Answer the deadweight loss is reduced. production is lower than if marginal cost were positive. the price charged is higher than if marginal cost were positive. maximizing profit is same as maximizing revenue. 10 points Question 19 1. In an oligopoly market with a dominant firm and a competitive fringe, if market demand is _____, the market price will be low and the _____ profit will be small. Answer less elastic; fringe’s less elastic; dominant firm’s more elastic; fringe’s more elastic; dominant firm’s 10 points Question 20 1. Refer to Figure 7-1. If the dominant firm decides to maximize the present value of his future profits and threatens a price war: The figure given below represents the total output and price produced in an oligopoly market characterized by a dominant firm and a fringe. SF represents the supply curve of the fringe, D is the market demand curve, DRES represents the residual demand curve of the dominant firm, MRRES represents the residual marginal revenue curve of the dominant firm, and MCD represents the marginal cost of the dominant firm. Figure 7-1 Answer new firms will not enter the oligopoly market. new firms will enter the oligopoly market. the market share of the existing fringe would increase. the market share of the dominant firm would increase. 10 points Question 21 1. Which of the following factors can delay the entry of new competitive firms into the oligopoly market characterized by a dominant firm and some fringe firms? Answer Mergers and acquisitions Price threat Brandname and reputation of the dominant firm Quality controls set by the government 10 points Question 22 1. Assume that in a price-fixing game, if Player A breaks the agreement in the first year, she earns $11 while Player B earns $5. However, if Player A breaks the agreement once, Player B decides to break the agreement for eternity, leaving each to receive $8 per year for the rest of their lives. If they both keep the agreement each receives $9 per year for the rest of their life. If the discount rate is 120 percent per period: Answer Player A will prefer to break the agreement in the first year. Player A will prefer to break the agreement in the second year. Player A will prefer to keep the agreement throughout her life. Player A will prefer to keep the agreement only for the first five years. 10 points Question 23 1. Refer to Table 7-2. Which of the following strategic choices represents the Nash equilibrium? Suppose Chord are Fredler are two automobile manufacturers, each of whom is deciding whether to launch a new model of car or increase the production of their existing models. The payoffs which each receive are provided in the matrix given below. Table 7-2 Answer Chord increases the production of existing cars and Fredler launches a new model of car; Chord launches a new model of car and Fredler increases production. Both Chord and Fredler launch new models of cars. Both Chord and Fredler increase production of their existing cars. Chord increases production and Fredler decides to launch a new model of car. 10 points Question 24 1. Which of the following games will have a solution in mixed strategies? Answer A price-fixing game A Prisoner’s dilemma A drafting game used by racing cars. A product choice game with asymmetric profits 10 points Question 25 1. Assume that in a price-fixing game, if Player A breaks the agreement in the first year, she earns $11 while Player B earns $5. However, if Player A breaks the agreement once, Player B decides to break the agreement for eternity, leaving each to receive $8 per year for the rest of their lives. If they both keep the agreement each receives $9 per year for the rest of their lives. If the discount rate is 30 percent per period: Answer Player A will prefer to break the agreement in the first year. Player A will prefer to break the agreement in the second year. Player A will prefer to keep the agreement throughout her life. Player A will prefer to keep the agreement only for the first five years. 10 points Save and Submit