What economics game theory concept is demonstrated by the Erie Canal public works
project?
a) Nash equilibrium
b) Lock-in
c) Backwards induction
d) Fair division
e) Prisoner’s dilemma
What term best refers to a wage payment made to an agent that exceeds his opportunity
cost of working and discourages the agent from shirking?
a) Living wage
b) Efficiency wage
c) Minimum wage
d) Efficiency payment
e) Termination wage
What term coined by Michael Porter describes a firm that pursues elements of cost
leadership and benefit leadership at the same time and in the process fails to achieve
either a cost advantage or a benefit advantage?
a) Five forces
b) Value creation
c) Value chain
d) Stuck in the middle
e) Generic strategy
What term describes the optimal allocation of society’s resources at a given point in
time?
a) Creative destruction
b) Static efficiency
c) Dynamic efficiency
d) Efficient allocation
e) Resource efficiency
Which of the following is a source for horizontal differentiation?
a) Price
b) Quality
c) Advertising
d) Location
e) Availability of substitutes
Which of the following is not a Legal Restriction?
a) Patent
b) Copyright
c) Trademark
d) Intellectual property
e) Operating rights
When multiple firms’ price-quality positions line up along the same indifference curve
offering a consumer the same amount of consumer surplus, what term describes the
situation?
a) Price-quality parity
b) Price matching
c) Maximum willingness-to-pay
d) Consumer surplus parity
e) Consumer surplus
What term describes when a firm sells a combination of goods and services at a price
below what the individual items would cost?
a) Packaging
b) Combining
c) Bundling
d) Mixing
e) Assembling
Which of the following encouraged firms to develop through internal R&D rather than
through M&A in the 20th century?
a) Lower wage costs for internal labor compared to merged or acquired labor
b) Faster results obtained with R&D
c) Federal antitrust policies
d) Lack of financial capital to engage in M&A
e) High transactions costs associated with M&A activity.
What is a market firm?
a) Firm representing a particular industry
b) Financial firm
c) Subsidiary of the larger parent firm
d) Large scale firm
e) An independent outsourcing partner
When consumers learn about many products at once, it is known as a:
a) Simultaneous search
b) Parallel search
c) Serial search
d) Sequential search
e) Divided search
Which of the following represents total surplus in t he value creation equation, (B-P) +
(P-C)?
a) B + C
b) P + C
c) B ” C
d) P ” C
e) None of the above
In which of the following ways can entry erode incumbents’ profits?
a) Entrants divide market demand among fewer sellers
b) Entrants decrease market concentration
c) Entrants usually grow the market for all parties
d) Entrants increase market concentration
e) Entrants reduce internal rivalry
Which of the following terms describes a contract based on information that cannot be
observed by courts or arbitrators?
a) Explicit incentive contract
b) Implicit incentive contract
c) Risk sharing contract
d) Compensation contract
e) Pay-for-performance
Benefit proximity refers to which of the following?
a) Competing firms offering products with exactly the same benefit
b) Cost leading firms offering products with slightly less benefit
c) Product benefits that cannot easily be differentiated by the consumer
d) Cost leading firms offering products with slightly more benefit
e) The inability for competing firms to produce products with similar benefits
Which of the following terms best describes a type of network structure that involves
relatively self-contained organizational subunits tied together through a technology that
focuses on standardized linkages?
a) Unitary functional organization
b) Multidivisional organization
c) Matrix organization
d) Modular organization
e) Hierarchical organization
How does carrying inventories contribute to economies of scale?
a) Increases the interest on the expenses to produce the inventory
b) Inventory depreciates in value while waiting to be used or sold
c) Increases the storage facilities necessary
d) Increases competition with rivals for customers
e) Minimizes the chance of stock-out
Which of the following modes of task interdependence exists when two or more
workers or work groups depend on each other to do their work?
a) Technology interdependence
b) Environment interdependence
c) Reciprocal interdependence
d) Sequential interdependence
e) Pooled interdependence
Which of the following would be the range of elasticity for a product with an “inelastic”
demand?
a) η< 1
b) η = 1
c) η > 1
d) η > 2
e) none of the above
What is a Nash equilibrium?
a) A state where each player is doing the best it can, given the strategies of all other
players
b) A state where the sum of all payoffs is maximized
c) A state where the players always have achieved their best possible result
d) A state at which the MR=MC for a firm
e) A state where each player always must play a dominant strategy
What kind of strategy is one by which a firm exploits its benefit or cost advantage
through a higher market share rather than through high price-cost margins?
a) Pricing strategy
b) Share strategy
c) Margin strategy
d) Focus strategy
e) Generic strategy
Location can provide which of the following?
a) Vertical differentiation
b) Horizontal differentiation
c) Isolation
d) Customer switching costs
e) Availability of substitutes
What product characteristic refers to the situation where consumers place higher value
on a product if other consumers also use it?
a) Value creation effect
b) Product linkage
c) Product externality
d) Complementary effect
e) Network effect
What term describes a firm that faces little or no competition in one of its input
markets?
a) Monopolist
b) Monopsonist
c) Oligopolist
d) Oligopsonist
e) Cartelist
Which of the following in the late 19th century was predicted by the asset-specificity
hypothesis?
a) Forward integration was most likely to occur for products that require specialized
investments in human capital
b) Increases in the size of manufacturing firms led to independent wholesale and
marketing agents losing scale/scope cost advantages and in turn led to manufacturers
forward integrating into marketing and distribution
c) Forward integration was most likely to occur for products that do not require
specialized investments in equipment and facilities
d) For industries with small manufacturers, marketing relied on specialized assets
e) For industries with small manufacturers, distribution relied on specialized assets
The reduction of co-ordination and hold-up problems depends on:
a) Governance arrangements
b) Manager contracts
c) Required quality of finished product
d) Cost of upstream vertical supplies
e) None of the above
What term best refers to fundamental changes that lead to major shifts of competitive
positions in a market?
a) Jump
b) Shock
c) Alteration
d) Bolt
e) Shift
How can incumbents legally erect entry barriers around novel and non-obvious
products or production processes?
a) Copyrights
b) Exclusive franchise agreements
c) Patents
d) None of the above
e) All of the above
Which of the following structures best describes a small group of people where one
member of the group specializes in monitoring and coordinating the work of other
members?
a) Complex hierarchy
b) Individually
c) Self-managed team
d) Hierarchy of authority
e) Divisional
Which of the following represents consumer surplus in the value creation equation,
(B-P) + (P-C)?
a) B
b) P
c) C
d) B-P
e) P-C
Which of the following terms best describes a contract that guarantees an agent some
payment, but provides enough incentive so that the agent does not shirk?
a) Certainty equivalent contract
b) Risk-sharing contract
c) Risk premium contract
d) Variability reduction contract
e) Risk-averse contract
Which of the following is a method a monopolist firm would not use to prevent entry
into a market?
a) Limit pricing
b) Predatory pricing
c) Capacity expansion
d) Strict patent enforcement
e) Utilizing excess capacity for generic branded products