question
Which of the following statements is incorrect?
answer
Fixed costs are always greater than sunk costs.
question
Which of the following conditions is true when a producer minimizes the cost of producing a given level of output?
answer
The MRTS is equal to the ratio of input prices, and the marginal product per dollar spent on all inputs is equal.
question
If the last unit of input increases total product, we know that the marginal product is
answer
positive
question
Total product begins to fall when
answer
marginal product is zero
question
In order for isoquants to have a diminishing marginal rate of substitution, they must be
answer
isoquant
question
Changes in the price of an input cause
answer
slope changes in the isocost line.
question
What is implied when the total cost of producing Q1 and Q2 together is less than the total cost of producing Q1 and Q2 separately?
answer
economies of scope
question
Which of the following cost functions exhibits cost complementarity?
answer
−4Q1Q2 + 8Q1.
question
Economies of scope exist when
answer
C(Q1) + C(Q2) > C(Q1, Q2)
question
Economies of scope exist when it is cheaper to produce
answer
given quantities of two different products together than to produce the same quantities separately.
question
Sunk costs are those costs that
answer
are forever lost after they have been paid
question
Suppose the long-run average cost curve is U-shaped. When LRAC is in the increasing stage, there exist
answer
diseconomies of scale
question
Which of the following forms of payment is NOT an incentive plan?
answer
Flat salary for a plant manager
question
Which of the following is NOT an incentive scheme to ensure that workers do a good job?
answer
Straight hourly wages for dock workers
question
Which of the following is NOT a means of avoiding opportunism?
answer
Spot exchange
question
Long-term contracts become longer
answer
when specialized investment becomes more important.
question
When relationship-specific exchange occurs in complex contractual environments, the best way to purchase inputs is through
answer
vertical integration
question
Spot exchange can be inefficient in the presence of
answer
opportunism
question
The disadvantage of vertical integration is that
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Firms no longer specialize in what they do best
question
In the absence of worker incentives
answer
there is a natural tendency for workers to not give their maximum effort
question
A drawback of separating ownership from control by creating a firm is
answer
the principle-agent problem
question
A negative side of a revenue-sharing plan is that it
answer
gives no incentive for workers to minimize costs.
question
Which type of compensation mechanism works by threats?
answer
spot check
question
In a competitive industry with identical firms, long-run equilibrium is characterized by
answer
MR=MC P=MC P=AC
question
Which of the following statements concerning monopoly is NOT true?
answer
A monopoly is always undesirable.
question
Which of the following is(are) basic feature(s) of a perfectly competitive industry?
answer
There is free entry and exit in the market.
Buyers and sellers have perfect information.
There are no transaction costs.
Buyers and sellers have perfect information.
There are no transaction costs.
question
You are a manager in a perfectly competitive market. What price should you charge in the short run?
answer
No firm has the power to change the price in the short run. If market rate is $14 charge $14
question
You are a manager in a perfectly competitive market. The price in your market is $14. Your total cost curve is C(Q) = 10 + 4Q + 0.5Q2. What will happen in the long run if there is no change in the demand curve?
answer
some firms will enter the market eventually since TC > 0
question
A perfectly competitive firm faces a
answer
Perfectly elastic demand function
question
In a competitive industry with identical firms, long-run equilibrium is characterized by
answer
MR = MC = min ATC.
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