Economics Final Exam

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Question 1

Antitrust legislation is an attempt by government to make competition

		equal.
		efficient.
		structured.
		fair.

Question 2

An early piece of anti-trust legislation is the

		Sherman Act.
		Mann Act.
		DIDMCA of 1980.
		Federal Reserve Act of 1913.

Question 3

The Herfindahl-Hirschman Index is used to measure

		brand recognition.
		the ease of market entry.
		market power.
		none of these choices.

Question 4

A tax on an imported product is called a

		tariff.
		quota.
		dumping signal.
		all of these choices.

Question 5

According to economic theory, profits are maximized at the rate of output where

		price equals total revenue.
		marginal revenue equals marginal cost.
		economic profits are zero.
		price and marginal revenue are equal.

Question 6

Executives should

		spend an additional dollar on an activity if consumers value it by more than a dollar.
		do more of something if marginal revenue is positive.
		pend an additional dollar on an activity if consumers value it by less than a dollar.
		do more of something if average revenue is greater than zero.

Question 7

Entry of new firms causes

		accounting profits to go to zero.
		market share to grown.
		economic profits to go to zero.
		total revenue to be maximized.

Question 8

If a firm has market power it may be able

		to protect market share.
		to continue to earn economic profits.
		minimize marginal costs.
		to maximize total revenue.

Question 9

Government may make it possible

		to create a network externality.
		to find 'winners' in the stock market.
		for a firm to become a monopoly.
		all of these choices.

Question 10

If a firm's product becomes a commodity

		the firm gains market power.
		the firm's strategy has apparently paid off.
		the firm has become a monopoly.
		the firm looses market power.

Question 11

Brand names help

		create commodities.
		maintain market power.
		create competition.
		keep economic profits at zero.

Question 12

If firms are exiting a market then

		economic profits must be zero
		economic profits must be greater than zero
		economic profits must be less than zero
		both economic and accounting profits must be greater than zero.

Question 13

Fixed costs

		do not vary with output
		vary with output
		do not vary with price
		vary with price

Question 14

Variable costs

		do not vary with price.
		do not vary with output.
		vary with price.
		vary with output.

Question 15

The key to understanding the movement in stock prices is to understand

		expectations.
		market share.
		accounting profits.
		the firms contribution to the social welfare of its employees.

Question 16

Companies spend ____ on pricing decisions.

		too much time
		the right amount of time
		too little time
		too much money

Question 17

Knowing demand is equivalent to knowing the

		employee.
		customer.
		average investor.
		economic profit.

Question 18

In general, elasticities measure

		the change in quantity demanded when a product attribute changes.
		the change in consumer spending when income changes.
		the change in an attribute for a percentage change in price.
		the percentage change in the quantity demanded resulting from a fixed percentage change in some attribute.

Question 19

According to theory, where is the right price determined?

		where average cost equals marginal cost.
		where marginal revenue equals marginal cost.
		where total revenue equals total cost.
		where there is a markup of 300 percent.

Question 20

The area below the demand curve but above the market price line is

		represents a Nash game outcome.
		consumer surplus.
		total revenue.
		total profit.

Question 21

Firms try to capture consumer surplus by

		repeat Nash equilibrium games.
		finding markets with many competitors.
		exploiting suppliers.
		personalized pricing.

Question 22

If a firm can charge different prices for each consumer it can practice

		second degree price discrimination.
		perfect price discrimination.
		third degree price discrimination.
		consumer surplus reversal

Question 23

In a monopoly-given demand, the price is found where

		consumer surplus is maximized.
		average costs equal price.
		price equals marginal revenue.
		marginal revenue equals marginal cost.

Question 24

Commodity markets resemble

		monopolistic markets.
		competitive markets.
		oligopolistic markets.
		factor markets.

Question 25

When a firm has market power, price should be

		determined by equating average cost and marginal cost to determine quantity and then setting the price using that quantity and the demand curve.
		determined by equating marginal revenue and average revenue to determine quantity and then setting the price using that quantity and the demand curve.
		determined by equating marginal revenue and marginal cost to determine quantity and then setting the price using that quantity and the demand curve.
		determined by equating marginal revenue and long-run average cost to determine quantity and then setting the price using that quantity and the demand curve.

Question 26

Pricing is made difficult by

		firms having multiple products.
		concerns about the response of competitors.
		concerns about consumer linkages of price and quality.
		all of these choices make pricing difficult.

Question 27

Technology has allowing pricing to become

		automatic.
		personalized.
		standardized to minimize costs.
		regularized.

Question 28

In a product line extension

		a constant price elasticity of demand is assumed.
		a firm introduces different products and lets buyers self-select themselves into different groups.
		is able to identify different markets at very low costs.
		demand is assumed to be elastic

Question 29

If a firm is unable to distinguish different customer groups

		it will not use product differentiation.
		it will be unable to maximize profits.
		it will find the quantity to product indeterminate.
		it might use a product line extension.

Question 30

The use of "anytime minutes" and "after-hour minutes" suggests that price is being influenced by

		extensions.
		costs.
		time.
		constant elasticities.

Question 31

When pricing is used to limit entry, it is often described as

		effective.
		predatory.
		exclusive.
		aggressive.

Question 32

When firm’s price based on the packaging of several products, they are

		using a limit price.
		predatory in their marketing.
		bundling.
		none of these choices.

Question 33

When the pricing of one product produced by a firm adversely affects the revenue earned by another product of the same firm, the second product has been

		cannibalized.
		tied.
		bundled.
		sacrificed.

Question 34

Grocery stores often replace

		low profit margin goods with services.
		low profit margin goods with high profit margin goods.
		high profit margin goods with low profit margin goods.
		goods with one type of elasticity with goods of similar elasticities.

Question 35

Information

		is difficult to own.
		is never a separate attribute of a product.
		is easy to connect to physical product.
		is not scarce in the knowledge economy.

Question 36

In the knowledge economy

		physical property rights appear to be lacking.
		property rights have become stronger.
		property rights have been replaced by network externalities.
		intellectual property rights appear to be lacking.

Question 37

Some products of the knowledge economy

		have an initial marginal cost that is very low and then rises.
		have no marginal costs.
		have an initial marginal cost that is very high and then falls to zero.
		none of these choices.

Question 38

For patents to be effective

		small networks.
		network externalities must be realized.
		property rights need to be enforced.
		there needs to be fewer economies of scope.

Question 39

Diminishing marginal returns to labor means

		that each additional worker costs more.
		that each additional worker produces less than the previous worker.
		that each additional worker costs less.
		that total product grows at a constant rate when workers are added to production.

Question 40

If diminishing marginal returns is in effect

		marginal costs fall.
		marginal costs rise.
		average costs fall.
		average revenue is constant.

Question 41

Marginal costs and marginal benefits

		do not include sunk costs.
		include sunk costs.
		are really just fixed costs.
		are not useful in decision making.

Question 42

Market prices contain

		some information.
		all information.
		only past information.
		a bias for old stocks.

Question 43

Capital structure refers to

		the ratio of equity to debt.
		the ratio of common stock to preferred stock.
		the ratio of debt to equity.
		the ratio of cash to current liabilities

Question 44

A risk-free rate can be measured by

		the rate of inflation.
		the rate on corporate bonds.
		the Federal Reserve's discount rate.
		a rate of a Treasury security.

Question 45

The Capital Asset Pricing Model.

		is a way to formulate the cost of capital.
		is a way to calculate the weighted cost of capital.
		is a usual model for stock market investing.
		none of these choices

Question 46

Market prices

		are limited in their information content.
		contain all available information.
		contain only past information.
		none of these choices.

Question 47

Internal markets

		can be useful suppliers of information.
		suffer from some of the same problems that external markets suffer.
		are becoming increasingly popular.
		all of these choices.

Question 48

Economic profit equals

		net operating profit after taxes plus the cost of capital.
		net operating profit after taxes divided by the cost of capital.
		net operating profit after taxes multiplied by the cost of capital.
		net operating profit after taxes minus the cost of capital.

Question 49

The equity premium is the return

		investors expect to equal a risk free investment.
		covered by stockholder insurance.
		on bonds.
		investors expect above a risk free investment.

Question 50

Entry into a competitive market will continue until

		economic profits are zero.
		normal profits are zero.
		when accounting losses are zero.
		a. and b. are true

Question 51

Normal profit

		is when economic profits are zero.
		is the profit that competition will allow.
		is the opportunity cost of capital.
		all of these choices.

Question 52

To practice second-degree price discrimination

		different markets must be able to communicate with each other.
		different markets must have the same number of customers.
		similar markets must have similar elasticities.
		different markets must have different elasticities.

Question 53

Pricing can be

		in the form of a markup.
		can be based on peak loads.
		a barrier to entry.
		all of these choices.

Question 54

With free entry

		economic profits are possible over the long run.
		economic profits are possible but only over limited amounts of time.
		economic profits are not possible.
		the cost of capital will not be covered.