A monopoly will usually produce
A) where its demand curve is inelastic.
B) where its demand curve is elastic.
C) where its demand curve is either elastic or inelastic.
D) only when its demand curve is perfectly inelastic.
If the consumption of sugar does not change at all following a price increase from 50
cents per pound to 65 cents per pound, the demand for sugar is considered to be
A) relatively inelastic.
B) perfectly elastic.
C) perfectly inelastic.
D) unitary elastic.
The results of many empirical studies of short-run cost functions have shown that total
costs conform to
A) a quadratic total cost function.
B) a power cost function.
C) a linear cost function.
D) a cubic cost function.
Given the total cost function TC = 100 + 40Q – 15Q2 + 5Q3, calculate the
a. average fixed cost function (AFC)
b. average variable cost function (AVC)
c. marginal cost function (MC)
When a company is faced by a kinked demand curve, the marginal revenue curve
A) will be upward sloping.
B) will be horizontal.
C) will always be zero at the quantity produced.
D) will be discontinuous.
Suppose the price of beans rises from $1.00 a pound to $2.00 a pound, quantity
demanded falls from 10 units to 6 units. In this example, the demand for beans is said to
be
A) relatively elastic.
B) relatively inelastic.
C) perfectly elastic.
D) perfectly inelastic.
Porter’s “Five Forces Model” is based on
A) the laws of supply and demand.
B) the law of diminishing returns.
C) the Structure-Conduct-Performance model.
D) the key factors affecting demand.
The four-firm concentration ratio
A) indicates the total profitability among the top four firms in an industry.
B) is an indicator of the degree of monopolistic competition.
C) indicates the presence and intensity of an oligopoly market.
D) is used by the government as a basis for anti-trust cases.
Which of the following can result in a decrease in the demand for I-Pods in the short
run?
A) a decrease in the population
B) a decrease in real household incomes
C) a decrease in the price of MP4s
D) All of the above
Firms undertake multinational operations in order to
A) hire low-wage workers.
B) manufacture in nations they have difficulty exporting to.
C) obtain necessary factor inputs.
D) All of the above
Which of the following best describes the “guiding function” of price?
A) In response to a surplus or shortage in two markets, price serves as a “guiding
function” by decreasing in one market and increasing in the other market in the short
run.
B) The guiding function of price is the movement of resources into or out of markets in
response to a change in the equilibrium price of a good or service.
C) The guiding function of price occurs when the market price changes to eliminate the
imbalance between supply and demand caused by a shortage or surplus at the original
price.
D) The guiding function usually occurs in the short run while the rationing function
usually occurs in the long run.
In the short-run if there is a surplus in the market for a product, the rationing function of
price can be expected to cause
A) an increasing shift in the demand for the product.
B) a decreasing shift in the supply of the product.
C) an increase in the market price of the product.
D) a decrease in the market price of the product.
In the Baumol model, a change in fixed costs will
A) increase total quantity sold.
B) have no effect on total quantity sold.
C) decrease total quantity sold.
D) have an effect on total quantity sold.
A real option can present management with the opportunity to
A) vary output.
B) abandon a project.
C) postpone a project.
D) All of the above
As a researcher, which aspect of the results would be of greatest concern?
A) the negative value of the constant (i.e., -6,500)
B) the relatively low impact of the competitor’s price
C) the fact that not all of the variables are statistically significant
D) the poor fit of the regression line
“Tying” is a form of price discrimination which involves a buyer
A) agreeing to purchase a product at a fixed price regardless of the amount purchased.
B) paying different prices based on the amounts of a product purchased.
C) required to buy one product in order to purchase some other product.
D) All of the above
Which of the following is not true about the law of diminishing returns?
A) It is a short-run phenomenon.
B) It refers to diminishing marginal product.
C) It will have an impact on the firm’s marginal cost.
D) It divides Stage I and II of the production process.
E) All of the above are true.
Other things being equal, the higher the cost of capital
A) the higher the NPV of a project.
B) the higher the IRR of the project.
C) the lower the NPV of the project.
D) The cost of capital has no effect on the NPV of the project.
For each of the following cost functions, find MC, AC, and AVC.
a. TC = 20,000 + 10 Q
b. TC = 18,000 + Q + 0.2 Q2
The cross-price elasticity of demand for coffee and caskets is likely to be
A) less than zero.
B) greater than zero.
C) zero.
D) infinity.
The payback period for a project, requiring an initial outlay of $10,000 and producing
ten uniform annual cash inflows of $1,500, is
A) six years.
B) six years and eight months.
C) six years and six months.
D) seven years.
You start working at age 20 and you plan to deposit $5,000 in a savings account every
year for the next 45 years.
a. At the end of this time, how much money will you have if the interest rate is 5%?
b. You decide that’s not enough money. How much will you have to save every year if
you wish to have $1,000,000 when you retire?
Monopoly is characterized by
A) unique products.
B) market entry and exit are difficult or impossible.
C) non-price competition not necessary.
D) All of the above
Holding supply constant, an increase in demand will
A) increase both the quantity and price.
B) increase the equilibrium price and decrease the equilibrium quantity.
C) decrease the equilibrium price and increase the equilibrium quantity.
D) decrease both the quantity and price.
Charting observations on a semi-logarithmic graph will help the analyst to ascertain
whether
A) absolute changes from period to period are constant.
B) whether percentage changes from period to period are constant.
C) whether percentage changes from period to period are declining.
D) Both B and C
A major problem in projecting with a trend line is that
A) only straight-line projections can be accommodated.
B) it is valid only if the trend is upward.
C) it will not forecast turning points in activity.
D) it is a very complex method of forecasting.
For each of the following changes, show the effect on the demand curve and state what
will happen to market equilibrium price and quantity in the short run.
a. Consumers expect that the price of the good will be higher in the future.
b. The price of a substitute good rises.
c. Consumer incomes fall, and the good is normal.
d. Consumer incomes fall, and the good is inferior.
e. A medical report is published showing that this good is hazardous to your health.
f. The price of the good rises.
Barometric price leadership can occur when oligopolistic firms
A) compete on the basis of differentiated products.
B) want to avoid price competition and violating antitrust laws.
C) try to enforce cartel agreements.
D) All of the above
The Coase theorem states that, in the presence of cost externalities, an optimal
equilibrium can be attained
A) with government taxation.
B) by prohibiting production.
C) by correctly defining property rights and through negotiation between the parties.
D) None of the above
A market is in equilibrium when
A) supply is equal to demand.
B) the price is adjusting upward.
C) the quantity supplied is equal to the quantity demanded.
D) tastes and preference remain constant.
Market signaling
A) is a way of conveying information to other parties in a transaction where asymmetric
information exists.
B) represents a dominant strategy in a multi-player game.
C) results in an optimum solution to a beach kiosk scenario.
D) None of the above
According to the shutdown rule, a firm should produce no output in the short run if
A) price is below minimum average total cost.
B) price is above minimum average total cost.
C) total revenues are lower than total fixed costs.
D) price is below minimum average variable costs.
Decreasing returns to scale
A) indicate that an increase in all inputs by some proportion will result in a decrease in
output.
B) must always occur at some point in the production process.
C) are directly related to the law of diminishing returns.
D) All of the above are true.
E) None of the above is true.
The use of real options in capital budgeting
A) may raise the NPV of a capital project.
B) makes the analysis of the project considerably easier.
C) allows management to make decisions more quickly.
D) eliminates the need for calculating the project’s risk adjusted discount rate.
