ECO MCQ TEST 2 answers

ECO MCQ TEST 2 answers

  1. Which of the following forms of payment is not an incentive plan?
  2. Commission plans for salesman
  3. Flat salary for a plant manager
  4. Bounses for managers that increase as profits increase
  5. None of the above
  6. When relationship-specific exchange occurs in complex contractural environments, the best way to purchase inputs is through:
  7. Spot markets
  8. Vertical integration
  9. Short-term agency agreements
  10. Long-term contracts
  11. Suppose compensation is given by W = 512,000 + 217X(Profits)+ 10.08S, where W = total compensation of the CEO, X = company profits (in millions) = $200, and S = Sales (in millions) = $400. How much will this CEO be compensated?
  12. $812,431
  13. $43,400
  14. $555,400
  15. $559,432
  16. Long-term contracts are not efficient if:
  17. A firm engages in relationship-specific exchange
  18. Specialized investments are unimportant
  19. The contractural environment is simple
  20. A and C, only
  21. The solutions to the principal-agent problem ensures that the firm is operating
  22. On the production function
  23. Above the production function
  24. Below the production function
  25. Above the isoquant curve
  26. Spot exchange typically involves
  27. No transaction costs
  28. Some transaction costs
  29. Extremely high transaction costs
  30. Long-term contracts
  31. Given that the income of franchise restaurant managers is directly tied to profits and the income of the manager of the company owned restaurant is paid a flat fee, we might expect profits to be
  32. Higher in company-owned restaurants
  33. Lower in company-owned restaurants
  34. Equal in both types of restaurants
  35. None of the above
  36. Which of the following is not a benefit associated with producing inputs within a firm?
  37. Reductions in transaction costs
  38. Reductions in opportunism
  39. Gains of specializing
  40. Mitigation of hold-up problems
  41. A firm=s average cost is $20 and it charges a price of $20. The Lerner index for this firm is:
  42. .20
  43. .50
  44. .33
  45. Insufficient information
  46. The concentration and Herfindahl indices computed by the US Bureau of Census must be interpreted with caution because:
  47. They overstate the actual level of concentration in markets served by foreign firms.
  48. They undersate the degree of concentration in local markets, such as the gas market.
  49. All of the above.
  50. None of the above.
  51. Suppose that there are 2 industries, A and B. There are five firms in industry A with sales at $5 million, $2 million, $1 million, $ 1 million, and $1 million, respectively. There are 4- firms in industry B with equal sales of $2.5 million for each firm. The firm concentration ratio for industry A is:
  52. 0.7
  53. 0.8
  54. 0.9
  55. 1.0
  56. As a general rule of thumb, industries with a Herfindahl index below are considered to be competitive, while those above are considered non-competitive.
  57. 1000, 3000
  58. 1800, 1000
  59. 1500, 2500
  60. 1800, 3000
  61. Which of the following measures market structure?
  62. Four-firm concentration ratio B. Lerner index
  63. Herfindahl-Hirshman index
  64. All of the above may be used to make inferences about market structures
  65. Which of the following integration types exploits economies of scope?
  66. Vertical integration
  67. Horizontal integration
  68. Cointegration
  69. Conglomerate integration
  70. Which of the following may transform an industry from oligopoly to monopolistic competition?
  71. Entry
  72. Takeover
  73. Exit
  74. Acquisition
  75. Which market structure has the most market power?
  76. Monopolistic competition
  77. Perfect competition
  78. Monopoly
  79. Oligopoly
  80. You are the manager of a firm that produces output in 2 plants. The demand for your firm’s product is P = 78 – 15Q, where Q = Q1 + Q2. The marginal cost associated with producing in 2 plants are MC 1= 3Q 1 and MC 2 = 2Q 2. How much output should be produced in plant 1 in order to maximize profits
  81. 1
  82. 2
  83. 3
  84. 4
  85. Which of the following is true?
  86. A monopolist produces on the inelastic portion of its demand.
  87. A monopolist always earns an economic profit.
  88. The more inelastic the demand, the closer marginal revenue is to price.
  89. In the short run a monopoly will shutdown if P < AVC.
  90. You are the manager of a monopoly that faces a demand curve described by P = 63 – 5Q. Your costs are C = 10 + 3Q. Your firm’s maximum profits are
  91. 0
  92. 66
  93. 120
  94. 170
  95. If a monopolistically competitive firm’s marginal cost increases, then in order to maximize profits the firm will:
  96. Reduce output and increase price
  97. Increase output and decrease price
  98. Increase both output and price D. Reduce both output and price
  99. Suppose that initially the price is $50 in a perfectly competitive market. Firms are making zero economic profits. Then the market demand shrinks permanently and some firms leave the industry and the industry returns back to a long run equilibrium. What will be the new equilibrium price, assuming cost conditions in the industry remain constant?
  100. $50
  101. $45
  102. Lower than $50 but exact value cannot be known without more information.
  103. Larger than $45 buy exact value cannot be known without more information.
  104. A monoploy has 2 production plants with cost functions C 1 =50 +0.1Q1(squared) and C 2 =30+0.05Q The demand it faces is Q=500-10P. What is the condition for profit maximization?
  105. MC 1 (Q1 ) = MC 2 (Q2 ) = P (Q 1 + Q 2 )
  106. MC 1 (Q1 ) = MC 2 (Q2) =MR (Q 1 + Q 2)
  107. MC 1 (Q1 + Q 2) = MC 2 (Q1 + Q2) = P ( Q1+ Q 2)
  108. MC 1 (Q 1+ Q 2) = MC 2 (Q 1+Q 2) = MR (Q1 + Q 2)
  109. 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 + 0.5 Q(squared). What price should you charge in the short run.
  110. $18
  111. $16
  112. $14
  113. $12
  114. You are a manager for a monopolistically competitive firm. From experience, the profit- maximizing level of output of your firm is 100 units. However, it is expected that prices of other close substitutes will fall in the near future. How should you adjust your level of production in response to this change?
  115. Produce more than 100 units.
  116. Produces less than 100 units.
  117. Produce 100 units.
  118. Insufficient information to decide
  119. Which of the following is true?
  120. In Bertrand oligopoly each firm believes that their rivals will hold their output constant if it changes its output
  121. In Cournot oligopoly firms produce an identical product at a constant marginal cost and engage in price competition
  122. In oligopoly a change in marginal cost never has an affect on output or price
  123. None of the above are true
  124. Two firms compete in a Stackelberg fashion and firm 2 is the leader, then
  125. Firm one views the output of firm two as given
  126. Firm two views the output of firm 1 as given
  127. All of the above
  128. None of the above
  129. A firm=s isoprofit curve is defined as:
  130. The combinations of outputs produced by a firm that earns it the same level of profits
  131. The combinations of outputs produced by all firms that yield the firm the same level of profit.
  132. The combinations of outputs produced by all firms that makes total industry profits constant
  133. None of the above

28.Two firms compete as a Stackelberg duopoly. The demand they face is P = 100 – 3Q. The cost function for each firm is C(Q) = 4Q. The profits of the 2 firms are:

  1. P L=leader) = $56; Q(F=follower) = $28
  2. P L= $384; PF = $192
  3. PL = 192; PF= 91
  4. PL = 56; PF= -28
  5. The spirit of equating marginal cost with marginal revenue is not held by:
  6. Perfectly competitive firms
  7. Oligopolistic firms
  8. Both A and B
  9. None of the above
  10. Which would expect to make the highest profits, other things equal:
  11. Bertrand oligopolist
  12. Cournot oligopolist
  13. Stackelberg leader
  14. Stackelberg follower
  15. The inverse demand in a Cournot duopoly is P = a – b (Q 1 + Q 2), and costs are C1 (Q1 ) = c 1 Q 1, and C 2 (Q2) = c 2 Q 2 . The Government has imposed a per unit tax of $t on each unit sold by each firm. The tax revenue is:
  16. t times the total output of the 2 firms should there be no sales tax
  17. Less than t times the total output of the 2 firms should there be no sales tax
  18. Greater than t times the total output of the 2 firms should there be no sales tax
  19. None of the above
  20. A new firm enters a market which is initially serviced by a Cournot duopoly charging a price of $20. What will the new market price be should the 3 firms co-exist after the entry?
  21. $20
  22. Below $20
  23. Above $20
  24. None of the above
  25. Firm A has higher marginal cost than Firm B. They compete in a homogeneous product Cournot Duopoly. Which of the following results will not occur.
  26. Qa> Qb
  27. Profit A < Profit B
  28. Revenue of A< Revenue of B
  29. Price A=< Price B
  30. If a firm manager has a base salary of $50,000 and also gets 2% of all profits, how much will his income be if revenues are $8,000,000 and profits are $2,000,000.
  31. $250,000
  32. $210,000
  33. $90,000
  34. $150,000
  35. The industry elasticity of demand for telephone service is -2 while the elasticity of demand for a specific phone company is -5. What is the Rothchild index?
  36. 0.2
  37. 0.4
  38. 0.5
  39. 0.7
  40. You are the manager in a perfectly competitive market. The price in your market is $14. Your total cost curve is C(Q) = 10 + 4Q + 0.5 Q(squared). What will happen in the long-run if there is no change in the demand curve?
  41. Some firms will leave the market eventually.
  42. Some firms will enter the market.
  43. There will be neither entry nor leave.
  44. None of the above
  45. 2 firms compete as a Stackelberg duopoly. The demand they face is P = 100 -3Q. The cost function for each firm is C(Q) = 4Q. The profits (X) of the 2 firms are:
  46. X L = $384; X F = $192
  47. X L = $192; X F = $91
  48. X L = $56; X F = (- $28)
  49. X L = $56; X F = $28
  50. Sue and Jane own 2 local gas stations. They have identical constant marginal costs, but earn zero economic profits. Sue and Jane constitute:
  51. A Sweezy oligopoly
  52. A Cournot oligopoly
  53. A Bertrand oligopoly
  54. None of the above

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