question
Marginal cost is
answer
the extra cost associated with making a decision
question
Sunk costs are
answer
the costs that were incurred in the past, before a decision is made, and cannot be recovered
question
Which point represents the basket that yields the consumer the highest utility?
answer
D
question
The black line represents the budget constraint and the blue lines represent indifference curves. Which point represents the consumer optimum?
answer
B
question
Assume that the quantity of shoes is measured on the horizontal axis, which the quantity of jackets is measured on the vertical axis. If available income decreases, then
answer
the budget line will shift inward
question
Assume that the quantity of X is measured on the horizontal axis, and the quantity of Y is measured on the vertical axis. Assumer that the price of X is $3 ad the price of Y is $6. If Sara has $90 to spend on X and Y, then
a. she can buy, at most, 30 units of good X
b. her budget line has a slope of -3
c. her budget line has a slope of -2
d. she can buy, at most, 30 units of good X
a. she can buy, at most, 30 units of good X
b. her budget line has a slope of -3
c. her budget line has a slope of -2
d. she can buy, at most, 30 units of good X
answer
she can buy, at most, 30 units of good X
question
Assume Sayan spends his entire income on X and Y, and his indifference curves have the usual convex shape. If Sayan maximizes his utility, then
a. he spends his entire available income.
b. the slope of his indifference curve is smaller than the slope of his budget line.
c. the slope of his indifference curve is greater than the slope of his budget line.
d. there are other bundles that are preferred at the current price ratio.
a. he spends his entire available income.
b. the slope of his indifference curve is smaller than the slope of his budget line.
c. the slope of his indifference curve is greater than the slope of his budget line.
d. there are other bundles that are preferred at the current price ratio.
answer
he spends his entire available income
question
Assume that the quantity of apples is measured on the horizontal axis and the quantity of oranges is measured on the vertical axis. If the budget line rotates upward while keeping the same horizontal intercept, it implies that
a. the price of oranges has decreased.
b. the available income has increased.
c. the price of apples has decreased.
d. the price of oranges has increased.
a. the price of oranges has decreased.
b. the available income has increased.
c. the price of apples has decreased.
d. the price of oranges has increased.
answer
the price of oranges has decreased
question
How does offering a buy-one-get-one free discount entice some customers to purchase a larger quantity?
answer
the budget lines becomes kinked due to the discount and some customers are then able to reach a higher indifference curve
question
Marginal utility is
answer
the additional utility obtained from consuming one additional until of a good
question
A point which lies within the Productions Possibilities Frontier (PPF) is
answer
attainable and ineffiecient
question
When a binding price ceiling is imposed on a market, which of the following is true?
a. It creates a surplus in the market.
b. It creates a shortage in the market.
c. It leads to efficient production.
d. It causes an increase in producer surplus.
a. It creates a surplus in the market.
b. It creates a shortage in the market.
c. It leads to efficient production.
d. It causes an increase in producer surplus.
answer
it creates a surplus in the market
question
Which of the following would most likely have the most inelastic demand?
a. boats
b. coffee
c. sirloin steaks
d. automobiles
a. boats
b. coffee
c. sirloin steaks
d. automobiles
answer
coffee
question
Assume the demand function for scooters is given by QD = 20,000 - 10P + 0.2I, where P = price of a scooter, and I = average income of consumers. Also, assume the supply function of scooters is given by QS = 20P. If the market for scooters is perfectly competitive, and the average income of consumers is $20,000, what are the equilibrium price and quantity in this market?
answer
The equilibrium price is $800 and 16000 scooters are traded
question
The demand and supply curves in the market for gasoline are illustrated in the graph. Starting at the equilibrium point, if the government imposes a price ceiling of $10, consumer surplus will then be given by the area
answer
A+B
question
Assume the demand function for basketballs is given by QD = 150 −3P + 0.1I, where P = price of a basketball, and I = average income of consumers. Also, assume the supply of basketballs is given by QS = 2P. If the market for basketballs is perfectly competitive, and the average income is equal to $1,500, what is the equilibrium price and quantity? What if a 20 percent income tax is introduced?
a. Before the tax, the equilibrium price was $60, and 120 basketballs were traded. Once the income tax is introduced, the price would decrease by $6, which would cause the quantity of basketballs traded to increase.
b. Before the tax, the equilibrium price was $60, and 108 basketballs were traded. Once the income tax is introduced, the price would decrease by $6, and only 120 basketballs would be traded.
c. Before the tax, the equilibrium price was $60, and 120 basketballs were traded. Once the income tax is introduced, the price would decrease by $6, and only 108 basketballs would be traded.
d. Before the tax, the equilibrium price was $60, and 120 basketballs were traded. The introduction of an income tax would have no effect on the equilibrium price and quantity.
a. Before the tax, the equilibrium price was $60, and 120 basketballs were traded. Once the income tax is introduced, the price would decrease by $6, which would cause the quantity of basketballs traded to increase.
b. Before the tax, the equilibrium price was $60, and 108 basketballs were traded. Once the income tax is introduced, the price would decrease by $6, and only 120 basketballs would be traded.
c. Before the tax, the equilibrium price was $60, and 120 basketballs were traded. Once the income tax is introduced, the price would decrease by $6, and only 108 basketballs would be traded.
d. Before the tax, the equilibrium price was $60, and 120 basketballs were traded. The introduction of an income tax would have no effect on the equilibrium price and quantity.
answer
Before the tax, the equilibrium price was $60, and 120 basketballs were traded. Once the income tax is introduced, the price would decrease b $6, and only 108 basketballs would be traded
question
In the figure, what is the opportunity cost of one bushel of soybeans?
answer
0.5 bushels of corn
question
The minimum wage is a
answer
price floor
question
Based on the figure, if countries "A" and "B" faced the production possibilities curves above, both countries would benefit if
a. "B" produced industrial goods, and "A" produced agricultural goods.
b. "A" produced industrial goods, and "B" produced agricultural goods.
c. they both produced both industrial and agricultural goods.
d. No trade took place.
a. "B" produced industrial goods, and "A" produced agricultural goods.
b. "A" produced industrial goods, and "B" produced agricultural goods.
c. they both produced both industrial and agricultural goods.
d. No trade took place.
answer
"A" produced industrial goods, and "B" produced agricultural goods
question
The demand curves in the market for gasoline are illustrated in the graph. Starting at the equilibrium point, if the government imposes a price ceiling of $10, producer surplus will fall an amount given by the area
answer
B+E
question
Which of the following is not a type of transaction cost that the existence of the firm helps to reduce?
a. search costs
b. bargaining costs
c. sunk costs
d. enforcement costs
a. search costs
b. bargaining costs
c. sunk costs
d. enforcement costs
answer
sunk costs
question
The production and distribution of goods and services in an economy is said to be Pareto-efficient if
answer
there exists no alternative that keeps all individuals at least as well off but makes even one person better off
question
Which of the following does not cause a shift in the supply curve for soybeans?
a. an increase in the production tax on soybeans
b. an increase in the price of fertilizer
c. an increase in the price of soybeans
d. an increase in the number of farmers selling soybeans
a. an increase in the production tax on soybeans
b. an increase in the price of fertilizer
c. an increase in the price of soybeans
d. an increase in the number of farmers selling soybeans
answer
an increase in the price of soybeans
question
Assume the current market price of candles is such that there is a surplus (i.e., excess supply). Which of the following best describes the adjustment process in a competitive market?
a. As the price increases, the quantity demanded decreases while the quantity supplied increases.
b. As the price decreases, the quantity demanded increases while the quantity supplied decreases.
c. As the price increases, the quantity demanded and the quantity supplied decrease.
d. As the price decreases, the quantity demanded decreases while the quantity supplied increases.
a. As the price increases, the quantity demanded decreases while the quantity supplied increases.
b. As the price decreases, the quantity demanded increases while the quantity supplied decreases.
c. As the price increases, the quantity demanded and the quantity supplied decrease.
d. As the price decreases, the quantity demanded decreases while the quantity supplied increases.
answer
as the price decreases, the quantity demanded increases while the quantity supplied decreases
question
Assume that Pyrotex Inc. estimates the demand for its fireworks to be linear. If the current price charged by Pyrotex is such that the elasticity of demand is equal to 2.5, which of the following statements is true?
a. Pyrotex will surely increase its profits by increasing the price of fireworks.
b. Not enough information is provided to determine whether Pyrotex is currently maximizing its profits.
c. Pyrotex will surely increase its profits by decreasing the price of fireworks.
d. Pyrotex cannot increase its profits by changing the price of fireworks.
a. Pyrotex will surely increase its profits by increasing the price of fireworks.
b. Not enough information is provided to determine whether Pyrotex is currently maximizing its profits.
c. Pyrotex will surely increase its profits by decreasing the price of fireworks.
d. Pyrotex cannot increase its profits by changing the price of fireworks.
answer
Not enough information is provided to determine whether Pyrotex is currently maximizing its profits
question
At the midpoint of a linear demand curve, the elasticity of demand is
answer
one
question
Which of the following describes the difference between the demand faced by a firm and the demand faced by an industry?
a. The elasticity of demand for a firm and for an industry is the same.
b. The demand facing individual firms tend to be less price-elastic than those for the entire industry.
c. The income elasticity of demand faced by a firm is higher than the income elasticity of demand faced by an industry.
d. The demand facing individual firms tend to be more price-elastic than those for the entire industry.
a. The elasticity of demand for a firm and for an industry is the same.
b. The demand facing individual firms tend to be less price-elastic than those for the entire industry.
c. The income elasticity of demand faced by a firm is higher than the income elasticity of demand faced by an industry.
d. The demand facing individual firms tend to be more price-elastic than those for the entire industry.
answer
The demand facing individual firms tend to be more price-elastic than those for the entire industry
question
Assume the demand function for skin care products is given by Q = 1,000 - 20 P + 5I. If P=$25 and I=$1,000 currently, then
a. the elasticity of demand is equal to 11.
b. skin care products are normal goods.
c. the elasticity of demand is equal to 10.
d. skin care products are inferior goods.
a. the elasticity of demand is equal to 11.
b. skin care products are normal goods.
c. the elasticity of demand is equal to 10.
d. skin care products are inferior goods.
answer
skin care products are normal goods
question
If the demand for product A displays high and positive cross-price elasticity with respect to the price of product B, then
answer
products A and B are substitutes
question
The long-run price elasticity of demand for a product is generally _______________ the short-run elasticity for the same product
answer
higher than
question
Evergreen Inc. has recently increased the price from $4 to $6. In response to this increase in price, sales decreased from 2,200 to 1,800 units. If no other information concerning the demand is available, which of the following is true about the sensitivity of demand (using the ARC or midpoints formula) for Evergreen's golf balls?
a. The ARC-elasticity (midpoints formula) of demand is 4/11 or .364.
b. The ARC-elasticity (midpoints formula) of demand is 2/3 or .667.
c. The ARC-elasticity (midpoints formula) of demand is 2.0.
d. The ARC-elasticity (midpoints formula) of demand is ½ or .50.
a. The ARC-elasticity (midpoints formula) of demand is 4/11 or .364.
b. The ARC-elasticity (midpoints formula) of demand is 2/3 or .667.
c. The ARC-elasticity (midpoints formula) of demand is 2.0.
d. The ARC-elasticity (midpoints formula) of demand is ½ or .50.
answer
the ARC-elasticity (midpoints formula) of demand is ½ or .50.
question
Assume SeatComfy Inc. estimates the demand for its table chairs to be Q = 5,000 -25P + 4I +10PA-15 PT, where P = the price of SeatComfy's chairs; PA = average price of competitors' chairs; PT = price of tables; and I = average income of SeatComfy's customers. Which of the following is true?
a. SeatComfy's chairs are normal goods; SeatComfy's chairs and tables are complements, while SeatComfy's and competitors' chairs are substitutes. SeatComfy's sales decrease by 25 units as price increases by $1.
b. SeatComfy's chairs are normal goods; SeatComfy's chairs and tables are complements, while SeatComfy's and competitors' chairs are substitutes. SeatComfy's sales decrease by 250 units as price increases by $1.
c. SeatComfy's chairs are normal goods; SeatComfy's and competitors' chairs are substitutes, while SeatComfy's sales are not affected by the pricing decisions of table producers. SeatComfy's sales increase by 50 percent if the price decreases by $2.
d. SeatComfy's chairs are inferior goods; SeatComfy's chairs and tables are complements, while SeatComfy's and competitors' chairs are substitutes. SeatComfy's sales decrease by 250 units for each $10 increase in their own price.
a. SeatComfy's chairs are normal goods; SeatComfy's chairs and tables are complements, while SeatComfy's and competitors' chairs are substitutes. SeatComfy's sales decrease by 25 units as price increases by $1.
b. SeatComfy's chairs are normal goods; SeatComfy's chairs and tables are complements, while SeatComfy's and competitors' chairs are substitutes. SeatComfy's sales decrease by 250 units as price increases by $1.
c. SeatComfy's chairs are normal goods; SeatComfy's and competitors' chairs are substitutes, while SeatComfy's sales are not affected by the pricing decisions of table producers. SeatComfy's sales increase by 50 percent if the price decreases by $2.
d. SeatComfy's chairs are inferior goods; SeatComfy's chairs and tables are complements, while SeatComfy's and competitors' chairs are substitutes. SeatComfy's sales decrease by 250 units for each $10 increase in their own price.
answer
SeatComfy's chairs are normal goods; SeatComfy's chairs and tables are complements, while SeatComfy's and competitors' chairs are substitutes. SeatComfy's sales decrease by 25 units as price increases by $1.
question
Let Edt= 2. This implies that the demand for movie tickets is
a. elastic, because a 1 percent change in Pt changes Qdt by 1 percent.
b. inelastic, because a 1 percent change in Pt changes Qdt by 2 units.
c. elastic, because a 1 percent change in Pt changes Qdt by 2 percent.
d. inelastic, because a 1 percent change in Pt changes Qdt by 1 percent.
a. elastic, because a 1 percent change in Pt changes Qdt by 1 percent.
b. inelastic, because a 1 percent change in Pt changes Qdt by 2 units.
c. elastic, because a 1 percent change in Pt changes Qdt by 2 percent.
d. inelastic, because a 1 percent change in Pt changes Qdt by 1 percent.
answer
c. elastic, because a 1 percent change in Pt changes Qdt by 2 percent
question
The shape of a perfectly inelastic demand curve is
answer
vertical, Ed=0
question
Sales of shampoo by CleanHair, Inc., have recently decreased from 1,300 to 1,100 units in response to a price decrease from $7 to $5 by its main competitor. Assuming that everything else is being held constant, we can infer that
a. the cross-price ARC-elasticity (midpoints formula) between the two products is ½.
b. the cross-price ARC-elasticity (midpoints formula) between the two products is 2.
c. the cross-price ARC-elasticity (midpoints formula) between the two products is -½.
d. the cross-price ARC-elasticity (midpoints formula) between the two products is -2.
a. the cross-price ARC-elasticity (midpoints formula) between the two products is ½.
b. the cross-price ARC-elasticity (midpoints formula) between the two products is 2.
c. the cross-price ARC-elasticity (midpoints formula) between the two products is -½.
d. the cross-price ARC-elasticity (midpoints formula) between the two products is -2.
answer
the cross-price ARC-elasticity (midpoints formula) between the two products is ½.
question
The shape of a perfectly elastic demand curve is
answer
horizontal, Ed = infinity
question
Assume Pyrotex Inc. estimates the demand for its fireworks to be linear. If the current price charged by Pyrotex is such that the elasticity of demand is equal to 2.5, which of the following statements is true?
a. Pyrotex cannot increase its revenues by changing the price of fireworks.
b. Not enough information is provided to determine whether or not Pyrotex is currently maximizing its revenues.
c. Pyrotex will increase its revenues by decreasing the price of fireworks.
d. Pyrotex will increase its revenues by increasing the price of fireworks.
a. Pyrotex cannot increase its revenues by changing the price of fireworks.
b. Not enough information is provided to determine whether or not Pyrotex is currently maximizing its revenues.
c. Pyrotex will increase its revenues by decreasing the price of fireworks.
d. Pyrotex will increase its revenues by increasing the price of fireworks.
answer
Pyrotex will increase its revenues by decreasing the price of fireworks
question
Elasticity of demand is equal to 5. This means that if
a. Qdt increases by 5 percent, Pt will decrease by 1 percent.
b. Pt increases by 1 percent, Qdt will decrease by 5 percent.
c. Pt decreases by $1, Qdt will decrease by 5 units.
d. Pt increases by 5 percent, then Qdt will decrease by 1 percent.
a. Qdt increases by 5 percent, Pt will decrease by 1 percent.
b. Pt increases by 1 percent, Qdt will decrease by 5 percent.
c. Pt decreases by $1, Qdt will decrease by 5 units.
d. Pt increases by 5 percent, then Qdt will decrease by 1 percent.
answer
Pt increases by 1 percent, Qdt will decrease by 5 percent.
question
A production function of the form Q = 150L.75 K.50exhibits ______ in the long run.
a. increasing returns to scale
b. decreasing returns to scale
c. constant returns to scale
d. diminishing returns to the variable input
a. increasing returns to scale
b. decreasing returns to scale
c. constant returns to scale
d. diminishing returns to the variable input
answer
increasing returns to scale
question
A production function of the form Q = 40 L.75 K.20exhibits ______ in the long run.
a. increasing returns to scale
b. decreasing returns to scale
c. constant returns to scale
d. diminishing returns to the variable input
a. increasing returns to scale
b. decreasing returns to scale
c. constant returns to scale
d. diminishing returns to the variable input
answer
decreasing returns to scale
question
Diminishing marginal returns occur when
answer
one input is increased and the others are held constant
question
Refer to the table and determine which of the following answers is correct
a. The missing values are MPL(L=2)=35, MPL(L=3)=33, APL(L=2)=35, and APL(L=4)=28.
b. The missing values are MPL(L=2)=45, MPL(L=3)=29, APL(L=2)=35, and APL(L=4)=28.
c. The missing values are MPL(L=2)=45, MPL(L=3)=29, APL(L=2)=45, and APL(L=4)=13.
d. The missing values are MPL(L=2)=45, MPL(L=3)=29, APL(L=2)=35, and APL(L=4)=13.
a. The missing values are MPL(L=2)=35, MPL(L=3)=33, APL(L=2)=35, and APL(L=4)=28.
b. The missing values are MPL(L=2)=45, MPL(L=3)=29, APL(L=2)=35, and APL(L=4)=28.
c. The missing values are MPL(L=2)=45, MPL(L=3)=29, APL(L=2)=45, and APL(L=4)=13.
d. The missing values are MPL(L=2)=45, MPL(L=3)=29, APL(L=2)=35, and APL(L=4)=13.
answer
The missing values are MPL(L=2)=45, MPL(L=3)=29, APL(L=2)=35, and APL(L=4)=28.
question
The marginal product curve of input Y shows
answer
how the quantity of output produced changes for each amount of input Y, holding all other inputs constant
question
Assume your company produces good X using only two inputs, capital (K) and labor (L). Also, assume L is measured on the vertical axis and K on the horizontal one. If the prices of inputs are PK=$30 and PL=15, and your company is behaving efficiently, what is the slope of the isoquant at the current input mix?
answer
-2
question
Refer to the figure. Observe the three isoquants depicted and determine which of the following statements is true
a. K and L are substitutes in each of the three cases.
b. K and L are substitutes in cases (1) and (2).
c. K and L are substitutes in cases (2) and (3).
d. K and L are substitutes in cases (1) and (3).
a. K and L are substitutes in each of the three cases.
b. K and L are substitutes in cases (1) and (2).
c. K and L are substitutes in cases (2) and (3).
d. K and L are substitutes in cases (1) and (3).
answer
K and L are substitutes in cases (1) and (3)
question
Bob owns an auto parts firm. he uses a combination of steel and aluminum to produce his auto parts. All of the following combinations will finish the task on time. Steel costs $15 per unit and the aluminum costs $50 per unit. What combination of steel should he use?
a. 20 units of steel and 6 units of aluminum
b. 15 units of steel and 7 units of aluminum
c. 12 units of steel and 8 units of aluminum
d. 10 units of steel and 10 units of aluminum
a. 20 units of steel and 6 units of aluminum
b. 15 units of steel and 7 units of aluminum
c. 12 units of steel and 8 units of aluminum
d. 10 units of steel and 10 units of aluminum
answer
15 units of steel and 7 units of aluminum
question
If the price of a variable increases, then
answer
the total cost curve will shift up
question
If a company has significant economies of scale in the long-run, assuming a large market, the company will tend to
answer
grow larger and have a declining average cost curve
question
If a company has a cost curve of TC = 300 + 2Q + Q2 and it produces 300 units per day, then its average (total) cost is
answer
$303
question
Refer to the table which gives cost information for the production of widgets. Some values are missing, however. Which of the following is true?
a. A=45, E=40
b. A=45, E=10
c. A=75, E=40
d. A=75, E=10
a. A=45, E=40
b. A=45, E=10
c. A=75, E=40
d. A=75, E=10
answer
A=45, E=10
question
A firm produces 10 widgets that sell for $15 each. The average variable cost for the production of widgets is $13/ unit. The fixed cost for this firm equals $20. What is the value of this firm's profits?
answer
0
question
Which of the following could cause the shift of demand for good X shown here?
a. People do not like good X as much as they did before.
b. An increase in the number of buyers of good X.
c. The price of good X has increased.
d. An increase in the price of good Y, which is a complement to good X.
a. People do not like good X as much as they did before.
b. An increase in the number of buyers of good X.
c. The price of good X has increased.
d. An increase in the price of good Y, which is a complement to good X.
answer
An increase in the number of buyers of good X
question
Chloe and Ella like to design stickers and write books. The time it takes Chloe and Ella to design stickers and write books is given in the table below. Which person has a comparative advantage in designing stickers, and which person has a comparative advantage in writing books?
a. Chloe has a comparative advantage in designing stickers; Ella has a comparative advantage in writing books.
b. Both people have a comparative advantage in producing both goods.
c. Ella has a comparative advantage in designing stickers; Chloe has a comparative advantage in writing books.
d. Neither person has a comparative advantage at producing either good.
a. Chloe has a comparative advantage in designing stickers; Ella has a comparative advantage in writing books.
b. Both people have a comparative advantage in producing both goods.
c. Ella has a comparative advantage in designing stickers; Chloe has a comparative advantage in writing books.
d. Neither person has a comparative advantage at producing either good.
answer
Ella has a comparative advantage in designing stickers; Chloe has a comparative advantage in writing books
question
Assume the market for ceiling fans is perfectly competitive and is currently in equilibrium. If the demand increases while the supply decreases, we can be certain that:
a. The equilibrium price will increase
b. Both price and quantity will decrease
c. The equilibrium quantity will increase
d. Both price and quantity will increase
a. The equilibrium price will increase
b. Both price and quantity will decrease
c. The equilibrium quantity will increase
d. Both price and quantity will increase
answer
The equilibrium price will increase
question
Which of the following are substitutes?
A. Coffee and cream
B. 2% milk and whole milk
C. New computers and warranties
D. Bread and butter
A. Coffee and cream
B. 2% milk and whole milk
C. New computers and warranties
D. Bread and butter
answer
2% milk and whole milk
question
What is true about the following demand curve?
A. it is perfectly elastic
B. It is perfectly inelastic
C. It is unit elastic
D. None of the above
A. it is perfectly elastic
B. It is perfectly inelastic
C. It is unit elastic
D. None of the above
answer
B. It is perfectly inelastic
question
A working knowledge of both markets and firms is important for managers to be effective because it:
A. Helps them to exploit other executives
B. Helps them train their subordinates
C. Helps them make appropriate strategic and operational decisions
D. Helps them earn high bonuses
A. Helps them to exploit other executives
B. Helps them train their subordinates
C. Helps them make appropriate strategic and operational decisions
D. Helps them earn high bonuses
answer
Helps them make appropriate strategic and operational decisions
question
When you have an increase in income, your budget constraint is
A. Rotated inward
B. Shifted inward
C. Rotated outward
D. Shifted outward
A. Rotated inward
B. Shifted inward
C. Rotated outward
D. Shifted outward
answer
Shifted outward
question
The ability to produce more than someone else given the same amount of resources is called
answer
absolute advantage
question
Sara works at a local coffee shop making $10/hour. She has plans to see a movie at the theater with friends but gets a call from work asking her to pick up a four hour shift. If she goes into work she cannot see the movie. What is Sara's opportunity cost of going to the movie?
a. The price of the movie ticket.
b. The $40 she could have made working.
c. The utility she gets from seeing the movie.
d. None of the above.
a. The price of the movie ticket.
b. The $40 she could have made working.
c. The utility she gets from seeing the movie.
d. None of the above.
answer
The $40 she could have made working
question
When prices are higher than equilibrium price
answer
the quantity supplied is greater than the quantity demanded, and a surplus exists
question
A firm's average total cost is minimized at $5/ unit when it produces 10 units. What is the marginal cost when the firm produces 10 units?
answer
$5/ unit
question
Refer to the figure. On the graph that shows total costs, what is the level of variable costs when 6 units are produced?
answer
$400
question
The general rule for profit maximization in a firm is to
answer
set marginal revenue equal to marginal cost
question
The _______________ represents the additional revenue that comes from using one more unit of input
answer
marginal revenue product
question
While very few markets are "purely competitive" according to the strict economics definition, market analysts often use competition as
answer
the benchmark from which to judge other market settings
question
In a purely competitive market, a company views its demand curve as
answer
horizontal (flat)
question
In a perfectly competitive market, the price faced by a firm is equal to its
answer
marginal revenue and average revenue
question
For a perfectly competitive firm, profit maximization occurs at an output level where
answer
P=MC
question
The shutdown condition - the point where the company finds itself no longer viable to produce and sell a product - for a competitive firm, in the short run, is where the price is
A. less than marginal revenue
B. less than short-run average total cost
C. greater than marginal revenue
D. less than average variable cost
A. less than marginal revenue
B. less than short-run average total cost
C. greater than marginal revenue
D. less than average variable cost
answer
less than average variable cost
question
If a firm operating in a fairly competitive market earns a large economic profit, then, over time
a. old firms will exit and prices will rise.
b. old firms will exit and prices will fall.
c. new firms will enter and prices will rise.
d. new firms will enter and prices will fall.
a. old firms will exit and prices will rise.
b. old firms will exit and prices will fall.
c. new firms will enter and prices will rise.
d. new firms will enter and prices will fall.
answer
new firms will enter and prices will fall
question
If a competitive firm can sell its product at $1,600 per unit and the marginal cost of the firm is MC = 1,100 + 2Q, then the firm will produce
answer
250 units
question
A necessary condition for market power to exist for a particular company in a market is that
a. the number of firms should be over 150.
b. consumers perceive all products as homogeneous.
c. effective barriers to entry must exist.
d. information must be understood by both buyers and sellers.
a. the number of firms should be over 150.
b. consumers perceive all products as homogeneous.
c. effective barriers to entry must exist.
d. information must be understood by both buyers and sellers.
answer
effective barriers to entry must exist
question
A monopolist's demand curve is P = 10 - 2Q. Thus, the MR is
answer
10 - 4Q
question
For any company operating in a marketplace, the firm attempts to maximize the value of the company's worth by setting the output where
answer
MR=MC
question
If a firm with monopoly pricing power in the market faces a demand curve of P = 2,000 - 2Q and marginal cost of MC = 1,100 + 2Q, then the firm will produce
answer
150 units
question
If a firm with monopoly pricing power in the market faces a demand curve of P = 2,000 - 2Q and marginal cost of MC = 1,100 + 2Q, then the firm will produce at a price of
answer
$1700
question
Under monopoly, there are
a. many competitors
b. unexploited gains from trade
c. advantages of heterogeneous products
d. problems of easy entry
a. many competitors
b. unexploited gains from trade
c. advantages of heterogeneous products
d. problems of easy entry
answer
unexploited gains from trade
question
Currently, a monopolist's MR = $5 and its MC = $10 and it serves 10 consumers. An 11th consumer walks in. Should the company provide service to the additional customer?
a. Yes, MC is equal to the number of customers, so it should provide service to the additional customer.
b. Yes, MR < MC, so it should provide service to the additional customer.
c. No, MR is less than the number of customers, so it should not provide service to the additional customer.
d. No, MR < MC, so it should not provide service to the additional customer.
a. Yes, MC is equal to the number of customers, so it should provide service to the additional customer.
b. Yes, MR < MC, so it should provide service to the additional customer.
c. No, MR is less than the number of customers, so it should not provide service to the additional customer.
d. No, MR < MC, so it should not provide service to the additional customer.
answer
No, MR < MC, so it should not provide service to the additional customer
question
Refer to the figure. The monopolist earns a profit equal to
answer
$330
question
In a monopolistic competitive market, the seller maximizes profits by
a. setting price where P = MC.
b. setting price where MR = MC.
c. setting P = ATC.
d. setting MC = ATC.
a. setting price where P = MC.
b. setting price where MR = MC.
c. setting P = ATC.
d. setting MC = ATC.
answer
setting price where MR = MC
question
A market where new firms produce most of the output is called a(n)
answer
oligopolistic markey
question
In a Nash equilibrium, firms are clearly strategically independent and
answer
they are noncooperative in determining market outcome
question
In the Cournot equilibrium, each firm assumes that the other's _______ is/ are being held constant
answer
output or sales
question
In the Cournot equilibrium, the price that each firm accepts is
answer
lower than the monopoly price, but higher than the competitive price
question
The prisoner's dilemma and the problem of the cartel are very similar. In both cases
a. cooperation would improve the outcome, but it rarely happens.
b. cooperation is the only solution.
c. noncooperation would improve the outcome, but it rarely happens.
d. noncooperation is an instable solution.
a. cooperation would improve the outcome, but it rarely happens.
b. cooperation is the only solution.
c. noncooperation would improve the outcome, but it rarely happens.
d. noncooperation is an instable solution.
answer
cooperation would improve the outcome, but it rarely happens
question
Under what market structure do we have strategic play?
answer
Oligopoly
question
A firm with market power in pricing faces a
a. flat demand curve.
b. downward-sloping demand curve.
c. downward-sloping supply curve.
d. supply curve parallel to the horizontal axis.
a. flat demand curve.
b. downward-sloping demand curve.
c. downward-sloping supply curve.
d. supply curve parallel to the horizontal axis.
answer
downward-sloping demand curve
question
If Tiger Toys faces a demand curve of P = 85 − 0.25Q and a MC = ATC = 20, then the market price would be
answer
$52.50
question
If Tiger Toys faces a demand curve of P = 85 − 0.25Q and a MC = ATC = 20, then the output would be
answer
130 units
question
If Tiger Toys faces a demand curve of P = 85 − 0.25Q and a MC = ATC = 20, then the economic profits would be
answer
$4225
question
If Tiger Toys faces a demand curve of P = 85 − 0.25Q and a MC = ATC = 20, then the markup would be
answer
$32.50
question
For decision-making purposes, fixed costs incurred by a firm with market power are
answer
not taken into consideration
question
A firm's market power decreases if the price elasticity of demand for its product
answer
increases
question
Using cost plus pricing, what is the price if ATC = $14.50 and the target rate of return is 4 percent?
answer
$15.10
question
Calculate the markup price if MC = $10.00 and price elasticity equals 1.7.
answer
$24.27
question
Many college basketball programs require alumni to join a booster club before they can buy season tickets. This is an example of
a. block pricing.
b. cost-plus pricing
c. a two-part tariff.
d. first-degree price discrimination.
a. block pricing.
b. cost-plus pricing
c. a two-part tariff.
d. first-degree price discrimination.
answer
a two-part tariff
question
A company might charge a customer different prices per unit, depending upon the number of units purchased. This is called
a. price discrimination.
b. block pricing.
c. two-part tariff.
d. bundling.
a. price discrimination.
b. block pricing.
c. two-part tariff.
d. bundling.
answer
block pricing
question
Many firms offer substantial rebates by mail or coupons for discounts at the point of sale. The people who use the rebates or coupons have ___________ than the people who don't use them.
answer
greater price sensitivity
question
Economists have observed that when average incomes increase, purchases of fast food tend to decline. Based on this information, what can we definitely say about fast food?
a. fast food is a substitute
b. fast food is an inferior good
c. fast food is a normal good
d. the price of a complement to fast food has risen
a. fast food is a substitute
b. fast food is an inferior good
c. fast food is a normal good
d. the price of a complement to fast food has risen
answer
fast food is an inferior good
question
Suppose there are only two gas stations in a town and the owners want to maximize profits, but in order to do so they have to agree to cooperate with each other and set their prices together to maximize joint payoffs. This would be considered
answer
collusion
question
If rent is a fixed cost and is $1000 for the month and the variable costs of labor and material were $200 and $300 respectively for the month, what is the total cost that the firm is paying?
answer
$1500
question
Which of the following describes the shut down decision of a firm?
a. The firm is exiting the market
b. The firm will choose to shut down when p < AVC
c. It is a long run decision
d. The firm will choose to shut down when p < ATC
a. The firm is exiting the market
b. The firm will choose to shut down when p < AVC
c. It is a long run decision
d. The firm will choose to shut down when p < ATC
answer
the firm will choose to shutdown when p< AVC
question
In perfect competition, what type of demand curve does an individual firm face?
answer
perfectly elastic
question
The production function Q = (K)2/3(L)2/3 exhibits which type of returns to scale?
a. Not enough information
b. Constant returns to scale
c. Increasing returns to scale
d. Decreasing returns to scale
a. Not enough information
b. Constant returns to scale
c. Increasing returns to scale
d. Decreasing returns to scale
answer
increasing returns to scale
question
If Starbucks Coffee and Tim Hortons Coffee are substitutes for each other, and the price of Starbucks coffee increases what happens to the demand for Tim Hortons coffee?
a. Demand for Starbucks coffee increases
b. Demand for Tim Hortons coffee decreases
c. Demand for Starbucks coffee decreases
d. Demand for Tim Hortons coffee increases
a. Demand for Starbucks coffee increases
b. Demand for Tim Hortons coffee decreases
c. Demand for Starbucks coffee decreases
d. Demand for Tim Hortons coffee increases
answer
Demand for Tim Hortons coffee increases
question
If demand is given by P= 600 - 3Q, what is marginal revenue?
answer
600 - 6Q
question
Finding a way to create and capture value is part of
answer
business strategy
question
As opposed to corporate strategy, business strategy is focused on
answer
how to compete with other firms in the industry
question
If transaction costs can be reduced in a marketplace, then total producer and consumer surplus will
answer
increase
question
If consumers find that there are substantial transaction costs to purchasing a product, then
answer
overall consumer demand is less at each price
question
Putting together two goods—shaving cream and razors—to increase value is using the power of
answer
complementary goods
question
Bundling of complements to create value strategically usually leads to lower prices for the consumer, ______.
answer
greater volumes sold and greater profits
question
A company can translate its assets into value if it effectively uses them in the marketplace. The three types of assets are tangible assets, intangible assets, and
answer
human assets
question
Human resources, as a source of creating value in a modern company, are also referred to as
answer
wetware
question
With the creation of value there is a
answer
rightward shift of the demand curve
question
Manufacturers of printers and computers set prices independently. This means that they
answer
do not consider the negative effect that the high prices have on each other's profit
question
In a corporation, one important source of value is that the "whole organization" is worth more than the sum of its parts. This is called
answer
team production cpabilities
question
Profits will be
a. high, regardless of the degree of rivalry if there are no entry barriers.
b. high, when the degree of rivalry is high.
c. low, when the degree of rivalry is low.
d. low, when the degree of rivalry is high.
a. high, regardless of the degree of rivalry if there are no entry barriers.
b. high, when the degree of rivalry is high.
c. low, when the degree of rivalry is low.
d. low, when the degree of rivalry is high.
answer
low, when the degree of rivalry is high
question
The profit earned by an industry is likely to be low if the
a. product produced in the industry has only a few substitutes.
b. degree of rivalry among industries is low.
c. industry has only a few large customers.
d. industry has many customers.
a. product produced in the industry has only a few substitutes.
b. degree of rivalry among industries is low.
c. industry has only a few large customers.
d. industry has many customers.
answer
industry has only a few large customers
question
We have two players A and B, where A can go L or R, and B can go T, B, or R. The payoffs are decided after this. Which of the following is a characteristic of such games?
a. Dominant strategies
b. Simultaneous moves
c. Sequential moves
d. Backward induction
a. Dominant strategies
b. Simultaneous moves
c. Sequential moves
d. Backward induction
answer
simultaneous moves
question
he benefit of mixed strategy is
answer
the element of surprise that baffles rivals
question
Which of the following is a difference between a pure strategy and a mixed strategy?
a. A pure strategy has an element of surprise, while a mixed strategy can be easily predicted by rivals.
b. When a player assigns a probability to an action, it is a pure strategy, while in a mixed strategy players choose their actions sequentially.
c. When a player chooses a specific action in a game, it is a pure strategy, while in a mixed strategy players randomize.
d. A pure strategy involves all players making their moves simultaneously, while a mixed strategy minimizes the losses of players.
a. A pure strategy has an element of surprise, while a mixed strategy can be easily predicted by rivals.
b. When a player assigns a probability to an action, it is a pure strategy, while in a mixed strategy players choose their actions sequentially.
c. When a player chooses a specific action in a game, it is a pure strategy, while in a mixed strategy players randomize.
d. A pure strategy involves all players making their moves simultaneously, while a mixed strategy minimizes the losses of players.
answer
When a player chooses a specific action in a game, it is a pure strategy, while in a mixed strategy players randomize
question
Actions like entering a new market, pricing a new product, or making a bid to buy another company are all useful Nash-like managerial decisions because they are
answer
not repeated often and the outcome depends on the simultaneous decisions of rivals.
question
The display of a game in a tree diagram with nodes for every move by the players is a(n)
answer
extensive-form game
question
As GMB and VolgaBus compete, GMB selects a new and superior brake technology. VolgaBus prefers a different brake technology, but feels trapped into selecting the same one used by GMB. This is due to
answer
first-mover advantage
question
If a strategic move is credible, it is likely to
answer
change the actions of rivals
question
Though Nash games are noncooperative, a cooperative outcome is more likely if
answer
the long-run gains are greater than the short-run gains.
question
You are the manager of Big Cats Real Estate which specializes in construction of luxury apartment buildings. Your marketing team informs you that the company has to choose an advertising strategy in order to compete with your largest competitor, C. Baskin Builders. You are given the following information:
If C. Baskin Builders runs an "aggressive" ad strategy and if you choose to run an "aggressive" strategy in response, your revenues will increase by $2,800,000. If you choose to run a "passive" ad strategy in response your revenues will increase by $1,900,000.
If C. Baskin Builders chooses to run a "passive" ad strategy instead, your company would see revenues increase by $3,700,000 if you ran an "aggressive" ad strategy. Your revenues would increase by $2,900,000 if you ran a "passive" strategy in response.
Which of the following is true?
a. Big Cats Real Estate should choose a mixed strategy in advertising to maximize payoffs.
b. Big Cats Real Estate has a dominant strategy in "passive" advertising.
c. Big Cats Real Estate has a dominant strategy in "aggressive" advertising.
d. Not enough information to answer this question.
If C. Baskin Builders runs an "aggressive" ad strategy and if you choose to run an "aggressive" strategy in response, your revenues will increase by $2,800,000. If you choose to run a "passive" ad strategy in response your revenues will increase by $1,900,000.
If C. Baskin Builders chooses to run a "passive" ad strategy instead, your company would see revenues increase by $3,700,000 if you ran an "aggressive" ad strategy. Your revenues would increase by $2,900,000 if you ran a "passive" strategy in response.
Which of the following is true?
a. Big Cats Real Estate should choose a mixed strategy in advertising to maximize payoffs.
b. Big Cats Real Estate has a dominant strategy in "passive" advertising.
c. Big Cats Real Estate has a dominant strategy in "aggressive" advertising.
d. Not enough information to answer this question.
answer
Big Cats Real Estate has a dominant strategy in "aggressive" advertising.
question
Consider the following game in which two firms decide how much output to produce. The payoffs for each firm are listed in the game below. The first payoff in each box is Firm A's payoff. The second value in each box is Firm B's payoff.
What is the Nash Equilibrium in this game?
a. Firm A chooses low output, Firm B chooses high output
b. Firm A chooses high output, Firm B chooses low output
c. Both firms choose high output
d. Both firms choose low output
What is the Nash Equilibrium in this game?
a. Firm A chooses low output, Firm B chooses high output
b. Firm A chooses high output, Firm B chooses low output
c. Both firms choose high output
d. Both firms choose low output
answer
both firms choose low output
question
What happens to market power when demand becomes more elastic?
answer
decreases
question
Which of the following is NOT a way to increase demand?
a. Improve product quality
b. Change the price of substitute goods
c. Change the price of complementary goods
d. Raise transaction costs
a. Improve product quality
b. Change the price of substitute goods
c. Change the price of complementary goods
d. Raise transaction costs
answer
raise transaction costs
question
Which of the following is a type of producer transaction cost we discussed?
a. Product search
b. Learning product characteristics and quality
c. Legal expenses
d. None of the above
a. Product search
b. Learning product characteristics and quality
c. Legal expenses
d. None of the above
answer
legal expenses
question
What is true about block pricing?
a. It is a type of 3rd degree price discrimination.
b. It is a type of 2nd degree price discrimination.
c. Same as two part tariff.
d. Both A and C.
a. It is a type of 3rd degree price discrimination.
b. It is a type of 2nd degree price discrimination.
c. Same as two part tariff.
d. Both A and C.
answer
It is a type of 2nd degree price discrimination
question
Which of the following represents a monopsony market?
a. Many buyers and many sellers
b. Many buyers and a few sellers
c. A few buyers and a few sellers
d. A few buyers and many sellers
a. Many buyers and many sellers
b. Many buyers and a few sellers
c. A few buyers and a few sellers
d. A few buyers and many sellers
answer
a few buyers and many sellers
question
What is the markup of an item priced at $37 with ATC of $12?
answer
$25
question
If the degree of rivalry in a market is high, what will happen to profits?
answer
profits will be low
question
Microsoft Word is an example of:
answer
software
question
Many wholesale companies require customers to join a rewards club before they can buy their products. This is an example of
answer
a two-part tariff
question
Which of the following is an example of wetware?
a. A brand new office building
b. A database
c. Brand name recognition
d. An employee knowing how to code
a. A brand new office building
b. A database
c. Brand name recognition
d. An employee knowing how to code
answer
an employee knowing how to code
question
A household-products manufacturing firm was required to examine its organizational architecture in order to survive in the market. The three aspects of its organization that it looked into are
answer
decision rights, rewards, and evaluation systems.
question
Within corporations, there are _______ systems that motivate individuals and teams to make the most efficient decisions on products sales.
answer
no automatic administrative
question
The movement of goods and resources within a corporation is done on the basis of
answer
administrative decisions.
question
If a manager who does not own a company is allowed to make decisions for the company, then
answer
a control system of rewards and evaluation must be set up.
question
Fred Powell, the CEO of TruLite, is in a quandary. He wants to bring a new lamp to the market that is based on fuel technology. He just does not understand the technology involved, but he has several engineers who have spent a lot of time investigating the issue. Powell needs to
answer
decentralize decision making to people with specific knowledge.
question
Organizational architecture varies from firm to firm. The three important external determinants of a firm's administrative structure are
answer
government regulation, technology, and markets.
question
The key to understanding changing organizational architecture is that
answer
there are direct and indirect costs.
question
The components of organizational architecture are ______.
answer
interdependent on each other
question
Role models, company folklore, and rituals are
answer
the key components of corporate culture.
question
W. Edwards Deming, the quality expert, has hinted that incentive pay is actually counterproductive. Economic analysis indicates that enhancing corporate culture and incentive rewards plans are
answer
complements for each other.
question
One of the mechanisms to replace poor management is to
answer
tender offers and mergers.
question
If a company picks an organizational architecture that is inappropriate for its marketplace, then
answer
the company is unlikely to survive market competition.
question
When a corporation participates in more than one successive stage in a multi-stage production process, it is said to be:
answer
vertically integrated
question
Nonmarket transactions refer to:
answer
long-term contracts
question
An iron and steel manufacturing plant was facing a power crisis on a daily basis. The unit had to stall production for about two hours on an average per day. In order to minimize the loss, the owner decided to invest in a cogeneration unit that would produce enough power to facilitate production during the peak load hours. This action of the manufacturer exemplifies:
answer
a backward or upstream integration.
question
When a firm establishes a long-term contract with another firm that is characterized by common ownership of a supplier with another firm, it is referred to as a:
answer
joint venture
question
When a firm establishes a long-term contract with another firm whereby it acquires an asset such as a machine or a building through a rental agreement, it is called a:
answer
lease contract
question
When a firm decides to move away from ownership of a vertically integrated production process and begins to purchase supplies or other services from other businesses, it is said to be:
answer
outsourcing
question
A firm that produces its own output is engaging in ______ integration, while a firm that markets its own good is engaging in ______ integration.
answer
backward; forward
question
When a firm purchases a part of its supplies from any one of a large number of potential suppliers at the current market price without long-term commitments, it is:
answer
making a spot market purchase.
question
Which of these motivate a firm to use nonmarket transactions to acquire inputs and downstream services?
a. Zero transaction costs in the spot market
b. Absence of market power
c. Steady supply of the key input used in production
d. Imposition of low tax rates on a particular production unit
a. Zero transaction costs in the spot market
b. Absence of market power
c. Steady supply of the key input used in production
d. Imposition of low tax rates on a particular production unit
answer
Imposition of low tax rates on a particular production unit
question
If an important component of a firm's production process is difficult to specify in a contract and even more difficult to enforce in its production standards, then it probably makes sense to:
answer
vertically integrate upstream to build the component.
question
Catering, trucking, copying, and mainframe computing are among frequently outsourced services because these activities:
answer
have a relatively low potential for holdup actions.
question
When asset specificity is very high and there is a lot of market uncertainty, then it is best for a firm to:
answer
vertically integrate
question
Agri-Tech makes machinery for chicken slaughterhouses. Agri-Tech has developed a de-boning technique specifically for Tasty Chicken. It is likely that Agri-Tech will desire:
answer
a detailed long-term contract with Tasty Chicken.
question
Independent distributors of soda can free ride on the brand name of the company manufacturing soda. Two solutions to this problem are:
answer
advertising and granting exclusive territories.
question
Double markups refer to the tendency of the:
answer
manufacturer and the distributor to increase the product's price above the marginal cost.
question
AutoCorp is a dealership that has a contract that prevents the main company from opening another dealership within a 30-mile radius. This is an example of:
answer
an exclusive territory right.
question
If property rights are enforced and contracts in trade are legally respected, it is usually assumed that:
answer
investment will be encouraged.
question
Most governments enforce patents, copyrights, and trademarks. While these are clear restrictions on free trade, it is believed that inventors and investors:
answer
favor these restrictions since they promote inventive activities.
question
The transaction costs of writing and enforcing contracts are higher in:
answer
countries with poorly enforced property rights.
question
Information asymmetries between producers or consumers along with the problems of externalities can:
answer
cause market failure
question
A jury ordered McDonald's to pay $2.7 million to Stella Liebeck, a drive-through customer who burned herself with hot coffee after placing the cup between her legs to remove the top and add cream. She claimed that the coffee was too hot. This tells us that our legal system can:
answer
raise costs by creating incentives to litigate suits which were not expected or intended.
question
public goods
answer
are goods whose consumption by one does not diminish the amount available to others.
question
The problem generally associated with public goods is:
answer
free-riding
question
A person buys a used 1998 Honda Civic and finds that there is a problem in the drive train so that the whole set of axles must be replaced. However, the state has a law that protects the buyer from these kinds of discoveries for 30 days post purchase. These lemon laws attempt to correct the problem of:
answer
adverse selection resulting from asymmetric information.
question
Special interest groups, in the theory of regulation, may be defined as:
answer
self-interested individuals who benefit from regulation.
question
Many people believe that the supply and demand for regulation in an industry often results in the creation of a powerful coalition group controlling the regulatory body. That powerful group often comprises of executives from the same industry that is supposed to be regulated. This is called:
answer
capturing
question
Which of the following is true in a regulatory environment?
a. The number of consumers is large, and their individual payoffs from successful lobbying are also large.
b. The number of consumers is large, and their individual payoffs from successful lobbying are small.
c. The demand for regulation is perfectly inelastic.
d. The supply of regulation is usually tied to another industry's success.
a. The number of consumers is large, and their individual payoffs from successful lobbying are also large.
b. The number of consumers is large, and their individual payoffs from successful lobbying are small.
c. The demand for regulation is perfectly inelastic.
d. The supply of regulation is usually tied to another industry's success.
answer
The number of consumers is large, and their individual payoffs from successful lobbying are small.
question
Which of the following is not a component of organizational architecture?
a. business environment
b. performance evaluation systems
c. rewards systems
d. decision rights
a. business environment
b. performance evaluation systems
c. rewards systems
d. decision rights
answer
business environment
question
Which of the following is NOT true about a mixed strategy?
a. It offers an element of surprise or randomness
b. Firms no longer choose one specific action, or a pure strategy
c. Firms randomize their choices
d. Occurs when a Nash Equilibrium exists
a. It offers an element of surprise or randomness
b. Firms no longer choose one specific action, or a pure strategy
c. Firms randomize their choices
d. Occurs when a Nash Equilibrium exists
answer
occurs when a Nash Equilibrium exists
question
Which of the following is an NOT an example of direct costs from organizational architecture:
a. Changes in architecture often require costly changes to accounting and information systems.
b. New architecture needs to be explained and/or demonstrated to the employees.
c. Can cause job uncertainty and disincentive to learn skills if employees know that there will be a large change.
d. Changes to performance evaluations can be costly for accounting departments.
a. Changes in architecture often require costly changes to accounting and information systems.
b. New architecture needs to be explained and/or demonstrated to the employees.
c. Can cause job uncertainty and disincentive to learn skills if employees know that there will be a large change.
d. Changes to performance evaluations can be costly for accounting departments.
answer
Can cause job uncertainty and disincentive to learn skills if employees know that there will be a large change
question
A principal agent problem is associated most closely with
a. A conflict between two managers
b. A conflict between the manager and the accountant of the firm
c. A conflict of interest between a manager and owner of the firm
d. None of the above
a. A conflict between two managers
b. A conflict between the manager and the accountant of the firm
c. A conflict of interest between a manager and owner of the firm
d. None of the above
answer
a conflict of interest between a manager and owner of the firm
question
Individuals who report that they wear FitBits and have a gym membership to their insurance companies are partaking in:
answer
signalling
question
If there are two firms, and one firm has a dominant strategy, they would do which of the following:
a. Maintain that strategy regardless of the actions made by the competitor
b. Adjust its strategy based on the competitor
c. Make a move and see if the competitor responds
d. Randomize between the strategies
a. Maintain that strategy regardless of the actions made by the competitor
b. Adjust its strategy based on the competitor
c. Make a move and see if the competitor responds
d. Randomize between the strategies
answer
Maintain that strategy regardless of the actions made by the competitor
question
Belen is the owner of a successful vinyard and winery in Chile. Her company produces the grapes, makes the wine and sells directly to consumers throughout the country. Her marginal cost of production is $21/bottle. Belen decides to put her wine on the market it America and plans to sell it through a local distribution company in the US. Market analysis shows that demand for her wine in the US is given by P = 80,000 - 300Q. What is the demand curve Belen's company faces for their wine given this information?
answer
P=80,000 - 600Q
question
Which of the following scenarios would favor vertical integration?
a. Low asset specificity, low uncertainty
b. High asset specificity, low uncertainty
c. Low asset specificity, high uncertainty
d. High asset specificity, high uncertainty
a. Low asset specificity, low uncertainty
b. High asset specificity, low uncertainty
c. Low asset specificity, high uncertainty
d. High asset specificity, high uncertainty
answer
high asset specificity, high uncertainty
question
Managers of E Corp had the option of launching a product line in a new market which could have raised revenues. Since it was a new market, the company did not have a way to gauge consumer demand, and it was fearful of product failure that could greatly hurt profit. Ultimately, they chose to not launch the product, upsetting shareholders.
answer
differential risk exposure
question
Which of the following is an example of forward integration
a. A farmer acquiring a manufacturing plant to produce their own farming equipment
b. A farmer acquiring a grocery store to sell their crops directly to consumers
c. A farmer acquiring a seed company
d. None of the above
a. A farmer acquiring a manufacturing plant to produce their own farming equipment
b. A farmer acquiring a grocery store to sell their crops directly to consumers
c. A farmer acquiring a seed company
d. None of the above
answer
a farmer acquiring a seed company
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