In the purely competitive case, marginal revenue (MR) is equal to:
a. cost
b. profit
c. price
d. total revenue
e. none of the above
The British Automobile Company is introducing a brand new model called the “London
Special.” Using the latest forecasting techniques, BAC economists have developed the
following demand function for the “London Special”: QD= 1,200,000 – 40P What is the
point price elasticity of demand at prices of (a) $8,000 and (b) $10,000?
Shirking of one’s duties is often encountered in team production settings because
a. few individuals are well-intentioned
b. teamwork is recognized as less significant than individual performance
c. teammates face a dilemma posed by a dominant strategy to shirk
d. reputation effects dominate in long-term teams
e. teamwork can be less than the sum of the individual parts
The relevant cost in economic decision-making is the opportunity cost of the resources
rather than the outlay of funds required to obtain the resources.
a. true
b. false
Each of the following is an example of moral hazard in which people modify their
behavior in an opportunistic way, often frustrating the intent of governmental or
management policies. Which is NOT an example of moral hazard?
a. After a firm gets a loan from a bank to purchase inventory, the borrower instead
decides to use it to invest in call options on stocks.
b. Based on motorcycle accident data, a state passes a law requiring motorcyclists to
wear helmet, but then the motorcyclist wearing helmets start to drive faster and more
recklessly.
c. Bank and nonbank mortgage lenders make money granting loans. But the
Government through Freddie Mac and Fannie Mae decides to purchase these loans. The
mortgage lenders find that they earn a fee for each mortgage that they grant and then
sell to Freddie Mac or Fannie Mae. Since they never intended on holding on to the
mortgage, the mortgage granters are not too particular on whether the customer can
really pay it back. The lowest quality loans are sold to the Government.
d. A fellow buys a $1 million life insurance policy and then travels to Nepal to climb
Mount Everest.
e. A student learns that if he or she reads the chapter and studies lecture notes, the
student does better on the next test.
In deciding whether to invest in excess capacity in order to deter entry, incumbents
should consider all of the following except
a. the order of play in pricing and capacity choice decisions
b. the customer sorting pattern
c. the sunk cost required to achieve excess capacity
d. the joint-profit-maximizing cartel output
e. the potential entrant’s projected profitability
In calculating the benefit-cost ratio, social benefits and costs are discounted at the
a. internal rate of return
b. federal funds rate
c. Treasury Bill rate
d. long-term government bond rate
e. none of the above
The problems of asymmetric information exchange arise ultimately because
a. one party to the exchange possesses different information than another
b. one party has more information than another
c. one party knows nothing
d. one party cannot independently verify the information of another
e. information is scarce
In Chinese coastal provinces, brick housing for a fast expanding middle class is very
comparable in size to housing in the U.S. for a family with median income of $51,000
because
a. median income per capita has risen in China to nearly equal median income in the
U.S.
b. the Chinese government builds much of the housing in China
c. construction companies have begun to migrate to the coastal provinces of China
d. housing is an income inferior good
e. bricks, trade skill workers and construction labor are very cheap in China
Which of the following public policies has (have) the effect of restricting competition?
a. licensing
b. patents
c. import quotas
d. a and b only
e. a, b, and c
Uncertainty includes all of the following except ____.
a. unknown effects of deliberate actions
b. incomplete information as to the type of competitor
c. random disturbances
d. unverifiable claims
e. accidents due to weather hazards
Factors that affect the ability of oligopolistic firms to successfully engage in
cooperation include ____.
a. number and size distribution of sellers
b. size and frequency of orders
c. product heterogeneity
d. a and b only
e. a, b, and c
The degree of operating leverage is equal to the ____ change in ____ divided by the
____ change in ____.
a. percentage; sales; percentage; EBIT
b. unit; sales; unit; EBIT
c. percentage; EBIT; percentage; sales
d. unit; EBIT; unit; sales
e. none of the above
The type of economic indicator that can best be used for business forecasting is the:
a. leading indicator
b. coincident indicator
c. lagging indicator
d. current business inventory indicator
e. optimism/pessimism indicator
Given the following demand function:
Q = 2.0 P-1.33Y2.0A.50where Q = quantity demanded (thousands of units)
P = price ($/unit)
Y = disposable income per capita ($ thousands)
A = advertising expenditures ($ thousands) determine the following when P =
$2/unit, Y = $8 (i.e., $8000), and A = $25 (i.e., $25,000) (a) Price elasticity of demand
(b) The approximate percentage increase in demand if disposable income percentage
increases by 3%.
(c) The approximate percentage increase in demand if advertising expenditures are
increased by 5 percent.
The moral hazard in team production arises from
a. poorly designed team membership
b. lack of proper assignment of individual tasks
c. disorganization in groups
d. a conflict between tactically best interest and one’s duty
e. insufficient experience
A(n) ____ is characterized by a relatively small number of firms producing a product.
a. monopoly
b. syndicate
c. cooperative
d. oligopoly
e. none of the above
In testing whether each individual independent variables (Xs) in a multiple regression
equation is statistically significant in explaining the dependent variable (Y), one uses
the:
a. F-test
b. Durbin-Watson test
c. t-test
d. z-test
e. none of the above
The following is a cubic demand function in P. Find the derivative dQ/dP of: Q=
4+3P-.5P2 + .02P3.
a. dQ/dP = 4 + 3P ‘“ P + .06P2
b. dQ/dP = 3
c. dQ/dP = 3 ‘“ P + .06P2
d. dQ/dP = .06P2
e. dQ/dP = .06