ECO 550 FINAL EXAM PART 1 WITH FOUR OTHER VERSIONS

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Question 1

 

 

 

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 2

 

 

 

Evidence from empirical studies of long-run cost-output relationships lends support to the:

 

Answer

 

 

 

                existence of a non-linear cubic total cost function

 

 

 

                hypothesis that marginal costs first decrease, then gradually increase over the normal operating range of the firm

 

 

 

                hypothesis that total costs increase quadratically over the ranges of output examined

 

 

 

                hypothesis that total costs increase linearly over some considerable range of output examined

 

Question 3

 

 

 

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.

 

Question 4

 

 

 

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 5

 

 

 

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

 

Question 6

 

 

 

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 7

 

 

 

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

 

Question 8

 

 

 

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 9

 

 

 

Under asymmetric information,

 

Answer

 

 

 

                you never get what you pay for

 

 

 

                you sometimes get cheated

 

 

 

                you always get cheated

 

 

 

                at best you get what you pay for

 

 

 

                sellers make profits in excess of competitive returns

 

Question 10

 

 

 

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 11

 

 

 

Buyers anticipate that the temporary warehouse seller of unbranded computer equipment will

 

Answer

 

 

 

                deliver high quality products consistent with expectations

 

 

 

                not attempt to establish any warranty enforcement mechanisms

 

 

 

                offer several prices and qualities

 

 

 

                produce only one quality

 

Question 12

 

 

 

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 13

 

 

 

All of the following are mechanisms which reduce the adverse selection problem except ____.

 

Answer

 

 

 

                warranties from established enterprises with non-redeployable assets

 

 

 

                high interest rates

 

 

 

                large collateral requirements

 

 

 

                brand names and product-specific promotions and retail displays

 

 

 

                higher prices in repeat customer transactions

 

Question 14

 

 

 

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 15

 

 

 

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

 

Question 16

 

 

 

____ 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

 

Question 17

 

 

 

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 18

 

 

 

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 19

 

 

 

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 20

 

 

 

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 21

 

 

 

“Conscious parallelism of action” among oligopolistic firms is an example of ____.

 

Answer

 

 

 

                intense rivalry

 

 

 

                a formal collusive agreement

 

 

 

                informal, or tacit, cooperation

 

 

 

                a cartel

 

Question 22

 

 

 

Some industries that have rigid prices.  In those industries, we tend to

 

Answer

 

 

 

                find that output is also rigid over the business cycle

 

 

 

                find that output varies greatly over the business cycle

 

 

 

                find the employment in these industries is quite stable over the business cycle

 

 

 

                find that the rate of return is negative in boom times

 

Question 23

 

 

 

In a kinked demand market, whenever one firm decides to lower its price,

 

Answer

 

 

 

                other firms will automatically follow.

 

 

 

                none of the other firms will follow.

 

 

 

                one half of the firms follow and one half of the firms don't follow the price cut.

 

 

 

                other firms all decide to exit the industry

 

 

 

                all of the other firms raise their prices

 

Question 24

 

 

 

Some market conditions make cartels MORE likely to succeed in collusion.  Which of the following will make collusion more successful?

 

Answer

 

 

 

                The products are heterogeneous

 

 

 

                The orders are small and frequent

 

 

 

                The firms are all about the same size

 

 

 

                Costs differ across the firms

 

 

 

                Firms are geographically widely scattered

 

Question 25

 

 

 

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 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

 

Question 2

 

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

 

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

 

The degree of operating leverage is equal to the ____ change in ____ divided by the ____ change in ____.

 

Answer

 

 

 

                percentage; sales; percentage; EBIT

 

 

 

                unit; sales; unit; EBIT

 

 

 

                percentage; EBIT; percentage; sales

 

 

 

                unit; EBIT; unit; sales

 

Question 5

 

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.

 

Question 6

 

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 7

 

  A firm in pure competition would shut down when:

 

Answer

 

 

 

                price is less than average total cost

 

 

 

                price is less than average fixed cost

 

 

 

                price is less than marginal cost

 

 

 

                price is less than average variable cost

 

Question 8

 

Under asymmetric information,

 

Answer

 

 

 

                you never get what you pay for

 

 

 

                you sometimes get cheated

 

 

 

                you always get cheated

 

 

 

                at best you get what you pay for

 

 

 

                sellers make profits in excess of competitive returns

 

Question 9

 

  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

 

Question 10

 

A "search good" is:

 

Answer

 

 

 

                One that depends on how the product behaves over time

 

 

 

                A product whose quality is only found out over time by finding how durable it is

 

 

 

                Like a peach that can be examined for flaws

 

 

 

                Like a used car, since it is easy to determine its inherent quality

 

Question 11

 

All of the following are mechanisms which reduce the adverse selection problem except ____.

 

Answer

 

 

 

                warranties from established enterprises with non-redeployable assets

 

 

 

                high interest rates

 

 

 

                large collateral requirements

 

 

 

                brand names and product-specific promotions and retail displays

 

 

 

                higher prices in repeat customer transactions

 

Question 12

 

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 13

 

In the purely competitive case, marginal revenue (MR) is equal to:

 

Answer

 

 

 

                cost

 

 

 

                profit

 

 

 

                price

 

 

 

                total revenue

 

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

 

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 16

 

The demand curve facing the firm in ____ is the same as the industry demand curve.

 

Answer

 

 

 

                pure competition

 

 

 

                monopolistic competition

 

 

 

                oligopoly

 

 

 

                pure monopoly

 

Question 17

 

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

 

Question 18

 

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 19

 

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 20

 

The existence of a kinked demand curve under oligopoly conditions may result in

 

Answer

 

 

 

                volatile prices

 

 

 

                competitive pricing.

 

 

 

                prices above the monopoly price.

 

 

 

                an increase in the coefficient of variation of prices.

 

 

 

                price rigidity

 

Question 21

 

A(n) ____ is characterized by a relatively small number of firms producing a product.

 

Answer

 

 

 

                monopoly

 

 

 

                syndicate

 

 

 

                cooperative

 

 

 

                oligopoly

 

Question 22

 

Some market conditions make cartels MORE likely to succeed in collusion.  Which of the following will make collusion more successful?

 

Answer

 

 

 

                The products are heterogeneous

 

 

 

                The orders are small and frequent

 

 

 

                The firms are all about the same size

 

 

 

                Costs differ across the firms

 

 

 

                Firms are geographically widely scattered

 

Question 23

 

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 24

 

Which of the following is an example of an oligopolistic market structure?

 

Answer

 

 

 

                public utilities

 

 

 

                air transport industry

 

 

 

                liquor retailers

 

 

 

                wheat farmers

 

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

 

 

 

THIRD VERSION

 

Question 1

 

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

 

4 points

 

Question 2

 

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.

 

4 points

 

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

 

4 points

 

Question 4

 

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

 

4 points

 

Question 5

 

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

 

4 points

 

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.

 

4 points

 

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

 

4 points

 

Question 8

 

The price for used cars is well below the price of new cars of the same general quality. This is an example of:

 

Answer

 

 

 

                The Degree of Operating Leverage

 

 

 

                A Lemon's Market

 

 

 

                Redeployment Assets

 

 

 

                Cyclical Competition

 

 

 

                The Unemployment Rate

 

4 points

 

Question 9

 

In the purely competitive case, marginal revenue (MR) is equal to:

 

Answer

 

 

 

                cost

 

 

 

                profit

 

 

 

                price

 

 

 

                total revenue

 

4 points

 

Question 10

 

A "search good" is:

 

Answer

 

 

 

                One that depends on how the product behaves over time

 

 

 

                A product whose quality is only found out over time by finding how durable it is

 

 

 

                Like a peach that can be examined for flaws

 

 

 

                Like a used car, since it is easy to determine its inherent quality

 

4 points

 

Question 11

 

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

 

4 points

 

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

 

4 points

 

Question 13

 

If price exceeds average costs under pure competition, ____ firms will enter the industry, supply will ____, and price will be driven ____.

 

Answer

 

 

 

                more; decrease; down

 

 

 

                more; decrease; up

 

 

 

                more; increase; down

 

 

 

                more; increase; up

 

4 points

 

Question 14

 

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

 

4 points

 

Question 15

 

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

 

4 points

 

Question 16

 

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

 

4 points

 

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.

 

4 points

 

Question 18

 

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

 

4 points

 

Question 19

 

The demand curve facing the firm in ____ is the same as the industry demand curve.

 

Answer

 

 

 

                pure competition

 

 

 

                monopolistic competition

 

 

 

                oligopoly

 

 

 

                pure monopoly

 

4 points

 

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

 

4 points

 

Question 21

 

Some market conditions make cartels MORE likely to succeed in collusion. Which of the following will make collusion more successful?

 

Answer

 

 

 

                The products are heterogeneous

 

 

 

                The orders are small and frequent

 

 

 

                The firms are all about the same size

 

 

 

                Costs differ across the firms

 

 

 

                Firms are geographically widely scattered

 

4 points

 

Question 22

 

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 23

 

The existence of a kinked demand curve under oligopoly conditions may result in

 

Answer

 

 

 

                volatile prices

 

 

 

                competitive pricing.

 

 

 

                prices above the monopoly price.

 

 

 

                an increase in the coefficient of variation of prices.

 

 

 

                price rigidity

 

4 points

 

Question 24

 

In a kinked demand market, whenever one firm decides to lower its price,

 

Answer

 

 

 

                other firms will automatically follow.

 

 

 

                none of the other firms will follow.

 

 

 

                one half of the firms follow and one half of the firms don't follow the price cut.

 

 

 

                other firms all decide to exit the industry

 

 

 

                all of the other firms raise their prices.

 

4 points

 

Question 25

 

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

 

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