Suppose that there are two types of cars, good and bad. The qualities of cars are not
observable but are known to the sellers. Risk-neutral buyers and sellers have their own
valuation of these two types of cars as follows:
When buyers do not observe the quality, what happens in the market?
A. Both good and bad cars are traded.
B. Only good cars are traded.
C. Only bad cars are traded.
D. Neither good nor bad cars are traded.
Incentive plans imply:
A. if managers get highly paid, then they work hard.
B. if managers put forth little effort, they receive little pay; if they put forth much effort
and hence generate many sales, they receive a lot of pay.
C. managers are not selfish.
D. managers should be watched all the time.
Penetration pricing is:
A. a way to raise a rivals marginal cost.
B. a way to raise a rivals fixed cost.
C. a way to overcome an incumbents first-mover advantage.
D. ineffective in markets with strong networks.
Spot checks:
A. measure presence only.
B. monitor the effort of workers precisely.
C. are the same as spot markets.
D. must be frequent enough to induce workers not to risk getting caught shirking.
A firm manager is an agent hired by the:
A. owner to control the production process.
B. workers to control the production process.
C. workers to consult with the owner.
D. owner to oversee the workers.
Which type of compensation method works by performance bonus?
A. Profit sharing
B. Revenue sharing
C. Piece rate
D. All of the statements associated with this question are correct.
In the absence of worker incentives:
A. everyone always gives maximum effort.
B. there is a natural tendency for workers to not give their maximum effort.
C. managers have little or no control.
D. None of the statements is correct.
C4 and HHI tend to ____________ the concentration in a domestic industry.
A. provide different rankings of
B. understate
C. overstate
D. understate or overstate, depending on the true geographic market
If a consumer is given a $10 gift certificate good only for items in store X, and all items
in store X are normal goods, then the consumer desires to consume:
A. more goods in store X.
B. fewer goods in store X.
C. the same amount of goods in store X.
D. None of the statements is correct.
EFI Conveyor Systems recently visited a local AC motor distributor. This transaction
most likely involves:
A. spot exchange.
B. vertical integration.
C. contract.
D. contract or vertical integration.
Suppose the utility function for a firm manager is U = π + bQ, where Q is output, π is
profit, and b is a negative constant. How would the firms output compare with what it
would be if the managers objective was to maximize profit?
A. It would be greater than the profit-maximizing output.
B. It would be less than the profit-maximizing output.
C. It would be the same as the profit-maximizing output.
D. None of the statements is correct.
Long-term contracts are LESS likely when:
A. specialized investments are important.
B. hold-up is likely.
C. the exchange environment is complex.
D. workers are paid based on piece rates.
Consider the monopoly in the figure below with price regulated at $2 per unit.
Deadweight loss resulting from the unregulated monopoly price is _________ than the
deadweight loss resulting from the regulated price.
A. greater
B. less
C. no different
D. There is insufficient information to determine the difference in the deadweight loss
between the regulated and unregulated prices.
Consider a game that pays 2 cents if the first tail is on the th toss of a fair-headed coin.
Determine the expected value of this game.
A. 1 cent
B. $2
C. Infinite cents
D. There is insufficient information to determine the expected value of this gamble.
Two firms compete as a Stackelberg duopoly. The demand they face is P = 40 – Q. The
cost function for each firm is C(Q) = 4Q. The profits of the two firms are:
A. L = $162; F = $81.
B. L = $81; F = $40.5.
C. L = $81; F = -$40.5.
D. L = $162; F = $40.5.
Genentech owns a patent on tissue plasminogen activator (TPA), which is an enzyme
that helps the body break down blood clots. TPA is particularly valuable to cardiac
patients, since it often allows heart problems to be treated with medication rather than
surgery. Recently, however, firms in the medical industry have come under fire from
some members of Congress and the press for charging high prices and earning
monopoly profits. Do you think cardiac patients would benefit if the government
stripped Genentech and other pharmaceutical firms of their patents? Explain.