George likes skiing and needs one pair of bindings for each pair of skis he owns.
George’s indifference curves for skies and bindings
A. are approximately L-shaped.
B. are straight lines.
C. slope downward.
D. slope upward.
The following diagram shows a market in equilibrium. If there was a $3.50 price floor,
A. the quantity demanded would be 65 units.
B. the quantity demanded would be <<AU: Change to 60 units?>>60units.
C. there would be a shortage of 60 units.
D. there would be a surplus of 60 units.
Marginal costs
A. are the incremental costs associated with making a decision.
B. are the expenditures already made that can’t be recovered.
C. are not relevant when making an economic decision.
D. are costs that are usually classified under “miscellaneous."
A customer pays an admission fee to get into the local YMCA and also a monthly
membership fee. This is called
A. bundling.
B. two-part tariff.
C. price discrimination.
D. block pricing.
In the Cournot equilibrium, each firm assumes that the other’s ______ is/are being held
constant.
A. price
B. costs
C. output or sales
D. marketing strategy
Which of the following is true of implicit contracts?
A. Enforcement depends on the private incentives of individuals.
B. Agents do not act in the best interest of principals.
C. The gains from trade are low and there are market failures.
D. The opportunity cost of residual loss is low.
Dan Heath is the majority owner of Plain Truth Advertising. He hires Shirley Downs as
the chief executive officer (CEO). In terms of an economic model, Mr. Heath is the
______ and Ms. Downs is the ______.
A. agent; principal.
B. principal; agent.
C. principal; intermediary.
D. agent; intermediary.
The components of organizational architecture are ______.
A. interdependent on each other
B. independent of each other
C. likely to lead to incentive problems
D. likely to promote corporate culture
Computer equipment is believed to be a normal good. This means that
A. the quantity of computer equipment consumed decreases as income increases.
B. the income elasticity of demand for computer equipment is negative.
C. the quantity of computer equipment increases as income increases.
D. the quantity of computer equipment increases as income decreases.
In the case of team decision making, the size of the team is optimal when:
A. there are five members in the team.
B. the number of team members exceeds ten.
C. the additional cost of adding a new member equals the incremental benefits.
D. the additional cost of adding a new member is less than the incremental benefits.
According to Peter principle, employees:
A. keep getting promoted until they reach the level that they cannot handle.
B. should be promoted till they reach the top management level.
C. do not always value promotions.
D. resort to influencing activities to ensure their promotions.
Suppose the production function faced by the firm is Q = A1/3 B1/3. If the firm increases
the use of both inputs by 1 percent, output will increase by
A. 2 percent.
B. more than 10 percent.
C. 0 percent.
D. less than 1 percent.
Let Edt = -2. This implies that the demand for movie tickets is
A. inelastic, because a 1 percent change in Pt changes Qdt by 2 units.
B. inelastic, because a 1 percent change in Pt changes Qdt by 1 percent.
C. elastic, because a 1 percent change in Pt changes Qdt by 1 percent.
D. elastic, because a 1 percent change in Pt changes Qdt by 2 percent.
Informational asymmetry in constructing a contract between a buyer and a seller can
lead the seller to:
A. improve the quality of the product.
B. lower the price of the product.
C. focus on ethical codes of conduct.
D. make a perfect contract.
If a senior manager wishes to see her proposal win support, then she should:
A. design a proposal that will yield high returns if successful.
B. likely to design a proposal that can be modified easily.
C. wait for the CEO to change the organizational architecture.
D. wait for the senior management to ask for her proposal.
Employees often limit their output and engage in soldiering because of the fear that if
they exceed output levels this time, management will increase output goals for the next
time period. This is called the:
A. incentive effect.
B. ratchet effect.
C. benchmark effect.
D. goal standard effect.
At the midpoint of a linear demand curve, the elasticity of demand is
A. zero.
B. one.
C. greater than one.
D. less than zero.
Milton Friedman’s view on corporate social responsibility:
A. acknowledges that shareholders may use some of their wealth for altruistic purposes.
B. assumes shareholders are not rational.
C. advocates that corporations engage in philanthropic activities.
D. applies only to U.S. corporations.
Bebchuk and Fried’s managerial power theory states that:
A. the typical corporate board is not captured by managers.
B. all firms have about the same quality of governance.
C. product, labor, and takeover markets help limit executive pay but do not work
perfectly.
D. managers want performance-based pay but such a reward system is usually
inefficient.
When there are large network effects of adopting a new technology, firms often feel that
government regulation or joint ventures can solve the
A. problem of excessive investment.
B. coordination problem.
C. problem of excess capacity.
D. market inefficiency problem.
The minimum wage
A. increases economic efficiency.
B. creates a shortage of labor.
C. creates a surplus of labor.
D. increases producer surplus.
BaseBall Inc. is a leader in the industry for baseball bats. If new firms enter the industry
and BaseBall Inc. experiences a fall in market share, we can say that the product of the
company is in the ______ phase.
A. decline
B. maturity
C. growth
D. introductory
Beyond some minimum level of effort, it is usually expected that teamwork will have
the impact of ______ relative to individual effort.
A. reducing output
B. leaving output the same
C. increasing output
D. reducing and then increasing the output
Under monopoly we have “unexploited gains from trade” because
A. if the firm were competitive it would have increased output in the long run.
B. if the firm were competitive it would have decreased output in the long run.
C. if the firm were competitive it would have not changed output in the long run.
D. the FCC is always trying to regulate it.
In a competitive market, a firm has a difficult time capturing value due to the large
number of rivals. However, it can be successful in capturing value if the
A. firm’s cost curves are higher than those of rivals.
B. firm’s superior productivity is based on value of the whole organization.
C. firm’s superior productivity is based on selected components of superiority within the
firm.
D. demand for the firm’s product is inelastic.
Dan Unowsky assigns his computer repairers four tasks: customer service, replacement
of broken parts, clean-up of equipment, and sale of used equipment to customers. If the
company provides a 10% commission for all sales made by employees, then:
A. employees will clearly emphasize the clean-up task.
B. employees may ignore other tasks when faced with a potential sale.
C. replacement of broken parts will clearly be favored by employees.
D. the entire production process will be speeded up by the sales incentive.
There is an OPEC cartel that reduces the production of world oil by several million
barrels a day. Which of the following correctly captures the effect of this change on the
market for gasoline?
A. Both equilibrium quantity and price will increase.
B. Both equilibrium quantity and price will decrease.
C. Equilibrium quantity will increase, but equilibrium price will decrease.
D. Equilibrium quantity will decrease, but equilibrium price will increase.
The informativeness principle tells us that:
A. information is overrated because employees can always lie about their performance,
and detecting is costly and counter-productive.
B. one must use as much information as possible to develop compensation contracts,
even if the cost of obtaining the information is unreasonable.
C. one must only use information that is necessary to develop compensation contracts,
as long as the cost of obtaining the information is reasonable.
D. you must use as much information as possible to develop compensation contracts, as
long as the cost of obtaining the information is reasonable.
The CEO of a company repeatedly highlighted the performance of its rivals before
introducing a proposal that required a major change in the organizational architecture.
This implies that in marketing his proposal, he:
A. indulged in unethical business practices.
B. used force and coercion.
C. relied on reputation.
D. emphasized a crisis.
Which of the following is true of the demand curves shown below?
A. All of them have constant price elasticity.
B. None of them have constant price elasticity.
C. Curves (1) and (3) have constant price elasticity.
D. Curves (2) and (3) have constant price elasticity.
In a corporation, one important source of value is that the “whole organization” is worth
more than the sum of its parts. This is called
A. team production capabilities.
B. collective cost analysis benefits.
C. complementary goods value creation.
D. substitute goods value creation.
If a manager who does not own a company is allowed to make decisions for the
company, then:
A. the decisions will usually be effective.
B. inappropriate decisions will be taken.
C. a control system of rewards and evaluation must be set up.
D. the manager usually assumes the same position as the owner.
In Mexico, many garment or tailoring shops found they could entice many young
people to work for them if they offered clean, air-conditioned work areas with
high-quality locker rooms to clean up in after the work day. Typically, traditional
garment shops had to offer ______ to get workers to apply for the hard, repetitive, and
somewhat dangerous work.
A. benchmark competitive wages
B. compensating differentials
C. monopoly wages
D. wages based on human capital development of each employee
What is adverse selection? Give an example to illustrate this problem.
What are the three critical aspects of corporate organization? Which of the three
components is most important for the success of a firm?
Mahatma Gandhi, John F. Kennedy, Martin Luther King Jr. are all cited as charismatic
leaders. Economics tells us that charisma can be learned. What is the inconsistency in
the economic argument?
Tax Fighters, Inc., develops, markets, and sells software for tax preparation. Tax
Fighters, Inc. sells IRS Tax Fighter, a software for completing federal income tax forms
and Gopher Basher, a software for completing Minnesota state income tax forms. For
simplicity, assume that all of the costs in this industry are the fixed costs of developing
the software packages themselves. The marginal cost of producing another disk is
approximately zero.
Consider the following information about the demand for tax software. There are an
equal number of consumers in each group. Figure 7.1 shows the maximum that each
type of consumer is willing to pay for each product. As vice president for pricing,
explain your optimal bundling and pricing strategy to maximize Tax Fighter profits
from the sale of tax software. Be sure to clearly explain why your strategy is. optimal.
What are the two tasks of good leaders?
Tasty Chicken Inc. is a large producer of chicken for grocery stores. It usually engages
in a long-term contract with these stores to maintain demand for its product. However,
Tasty Chicken is regularly plagued with rising and falling prices for its supplies:
particularly chicken feed and new chicks. Should Tasty Chicken vertically integrate
upstream, building or buying a hatching company and an animal feed company? What
are the pluses and minuses of such a decision?
AutoCorp faces a demand of P = $30,000 – 5 Q for its primary line of sporty mini-cars
in Little Rock. The marginal cost of producing the car is $8,000. Discuss the
implications of selling the new mini-car through its own dealership or through the local
dealer: MiniMart.
Describe the lemons problem.