ECO 550 FINAL EXAM PART 1 (NEW)

Question 1

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

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 2

Theoretically, in a long-run cost function:

all inputs are fixed

all inputs are considered variable

some inputs are always fixed

capital and labor are always combined in fixed proportions

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.

10,000 customers

20,000 customers

30,000 customers

40,000 customers

50,000 customers

Question 4

A ____ total cost function implies that marginal costs ____ as output is increased.

linear; increase linearly

quadratic; are constant

cubic; increase linearly

linear; are constant

Question 5

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

percentage; sales; percentage; EBIT

unit; sales; unit; EBIT

percentage; EBIT; percentage; sales

unit; EBIT; unit; sales

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:

one minus the variable cost ratio

contribution margin per unit

selling price per unit

standard deviation of unit sales

Question 7

In the short-run for a purely competitive market, a manufacturer will stop production when:

the total revenue is less than total costs

the contribution to fixed costs is zero or less

the price is greater than AVC

operating at a loss

Question 8

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

The Degree of Operating Leverage

A Lemon's Market

Redeployment Assets

Cyclical Competition

The Unemployment Rate

Question 9

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

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 10

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

more; decrease; down

more; decrease; up

more; increase; down

more; increase; up

Question 11

Under asymmetric information,

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 12

Asset specificity is largest when

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

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:

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 14

Regulatory agencies engage in all of the following activities except _______.

controlling entry into the regulated industries

overseeing the quality of service provided by the firms

setting federal and state income tax rates on regulated firms

setting prices that consumers will pay

Question 15

The practice by telephone companies of charging lower long-distance rates at night than during the day is an example of:

inverted block pricing

second-degree price discrimination

peak-load pricing

first-degree price discrimination

none of the above

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.

Peak load pricing

Inverted block pricing

Block pricing

First degree price discrimination

Question 17

Declining cost industries

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.

Qiestion 18

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.

similar, similar

elastic, lower

elastic, higher

inelastic, lower

inelastic, higher

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.

oligopoly

monopoly

pure competition

substitution

monopolistic competition

Question 20

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

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 21

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.

price

output

marketing strategy

inventory

Question 22

Even ideal cartels tend to be unstable because

firms typically prefer competition to collusion as competition, because it leads to more profits.

collusion leads to lowest possible overall profits in the industry.

oligopolistic managers are extremely risk loving.

firms can benefit by secretly selling more than they promised the other firms

Question 23

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

volatile prices

competitive pricing.

prices above the monopoly price.

an increase in the coefficient of variation of prices.

price rigidity

Question 24

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

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 25

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

intense rivalry

a formal collusive agreement

informal, or tacit, cooperation

a cartel