Question 1 Which of the following is not an assumption of the linear breakeven model: Answer constan
Which of the following is not an assumption of the linear
selling price per unit
decreasing variable cost per unit
are independent of the output level
product (or a constant mix of products) is being produced and sold
In the linear breakeven model, the breakeven sales volume (in
dollars) can be found by multiplying the breakeven sales volume (in units) by:
one minus the
variable cost ratio
margin per unit
selling price per unit
deviation of unit sales
George Webb Restaurant collects on the average $5 per customer
at its breakfast & lunch diner. Its variable cost per customer averages $3,
and its annual fixed cost is $40,000. If George Webb wants to make a
profit of $20,000 per year at the diner, it will have to serve__________
customers per year.
Theoretically, in a long-run cost function:
all inputs are
all inputs are considered variable
are always fixed
labor are always combined in fixed proportions
In the linear breakeven model, the difference between selling
price per unit and variable cost per unit is referred to as:
margin per unit
contribution margin per unit
Break-even analysis usually assumes all of the following except:
in the short run, there is no
distinction between variable and fixed costs.
cost curves are straight-lines throughout the analysis.
to be perfect competition since the price is considered to remain the same
regardless of quantity.
straight-line cost curve implies that marginal cost is constant.
In the short-run for a purely competitive market, a
manufacturer will stop production when:
revenue is less than total costs
the contribution to fixed costs
is zero or less
the price is
greater than AVC
In the purely competitive case, marginal revenue (MR) is equal
Asset specificity is largest when
value in first
best use is large
second best use is large
choose their supplier at random
very valuable assets are non-redeployable
loyal to a particular seller
Uncertainty includes all of the following except ____.
effects of deliberate actions
incomplete information as to the type of
to weather hazards
The main difference between perfect competition and monopolistic
The number of
sellers in the market
The ease of
entry and exit in the industry
The degree of
information about market price
The degree of product differentiation
Whether it is
the short run or the long run
Experience goods are products or services
customer already knows
whose performance is highly unusual
is undetectable when purchased
not likely to
cause repeat purchases
In the long-run, firms in a monopolistically competitive
substantial economic profits
tend to just cover costs, including normal
increase the scale of operations
seek to reduce
the scale of operations
In the electric power industry, residential customers have
relatively ____ demand for electricity compared with large industrial
users. But contrary to price discrimination, large industrial users
generally are charged ____ rates.
The demand curve facing the firm in ____ is the same as the
industry demand curve.
When the cross elasticity of demand between one product and
all other products is low, one is generally referring to a(n) ____
Declining cost industries
rising AC curves.
rising demand curves.
diseconomies of scale.
have marginal cost curves below their average
Regulatory agencies engage in all of the following activities
entry into the regulated industries
the quality of service provided by the firms
setting federal and state income tax rates on
prices that consumers will pay
The practice by telephone companies of charging lower
long-distance rates at night than during the day is an example of:
none of the
If a cartel seeks to maximize profits, the market share (or
quota) for each firm should be set at a level such that the ____ of all firms
A(n) ____ is characterized by a relatively small number of firms
producing a product.
Even ideal cartels tend to be unstable because
typically prefer competition to collusion as competition, because it leads to
leads to lowest possible overall profits in the industry.
managers are extremely risk loving.
firms can benefit by secretly selling more than
they promised the other firms
In the Cournot duopoly model, each of the two firms, in
determining its profit-maximizing price-output level, assumes that the other
firm’s ____ will not change.
Which of the following is an example of an oligopolistic market
air transport industry
A cartel is a situation where firms in the industry
have an agreement to restrict output.
produce identical products.
obey the rules
of dominant firm price leadership.
pain of a kinked demand curve.
barometric price leader
To trust a potential cooperator until the first defection and
then never cooperate thereafter is
a grim trigger strategy
non-cooperative finite game strategy
The difference between cooperative and non-cooperative games is
cooperative games allow side payments to support
games encourage communication of sensitive information between arms-length
games involve randomized behavior
games necessitate an explicit order of play
except when players have contractual relationships
When there is no Equilibrium (or no Nash Equilibrium), we expect
the firms end
up in the cooperative strategy.
a firm will follow a randomized
a firm will not
care what it does.
a firm will
very likely have a dominant strategy.
In adopting mixed Nash
equilibrium strategy, a player is attempting to
randomize his or her own behavior
make the opponent favor a course of action preferred by
the first player
randomize the outcome of actions
make the opponent
indifferent between one action and another
none of the above
An illustration of a non-credible commitment is the promise
increase capacity in a declining industry
to match a new
entrant’s discount price
to enter a
to restrain output to the quota assigned by a
to exit in the
face of projected losses.
The segmenting of customers into several small groups such as
household, institutional, commercial, and industrial users, and establishing a
different rate schedule for each group is known as:
third-degree price discrimination
Which of the following pricing policies best identifies when a
product should be expanded, maintained, or discontinued?
Vacation tours to Europe invariably package visits to disparate
regions: cities, mountains, and the seaside. Bundling, a type of
second degree price discrimination, is most profitable when:
rankings of vacationers travelling together are negatively correlated.
for cities is always higher than preferences for mountain vistas.
preference rankings of vacationers travelling
together are positively correlated.
the seaside is always higher than preferences for city excursions.
The following are possible examples of price discrimination,
export markets are lower than for identical products in the domestic market.
senior citizens pay lower fares on public
transportation than younger people at the same time.
sells at a higher price at location A than at location B, because
transportation costs are higher from the factory to A.
prices for a professional journal are higher when bought by a library than
when bought by an individual.
____ is a new product pricing strategy which results in a high
initial product price. This price is reduced over time as demand at the higher
price is satisfied.
When manufacturers and distributors establish credible
commitments to one another, they often employ
vertical requirements contracts
Buying electricity off the freewheeling grid at one quarter ’til
the hour for delivery on the hour illustrates:
contracts with distributors
variable price agreements
Which of the following is not among the functions of contract?
to provide incentives for efficient reliance
to reduce transaction costs
to discourage the
development of asymmetric information
to provide risk allocation mechanisms
To accomplish its purpose a linear profit-sharing contract must
induce the employee to moonlight
communicate a code of conduct that will be monitored and enforced
meet either the
participation or the incentive compatibility constraint
establish a separating equilibrium
not realign incentives
Governance mechanisms are designed
to increase contracting costs
to resolve post-contractual opportunism
to enhance the flexibility of restrictive covenants
to replace insurance
The sentiment for increased deregulation in the late 1970’s and early 1980’s
has been felt most significantly in the price regulation of
electric power generation
____ yields the same results as the theory of perfect competition, but
requires substantially fewer assumptions than the perfectly competitive model.
Baumol’s sales maximization hypothesis
The Pareto optimality condition
The Cournot model
The theory of contestable markets
The Herfindahl-Hirschman index (also shortened to just the Herfindahl index)
is a measure of ____.
The antitrust laws regulate all of the following business decisions except
The ____ is equal to the some of the squares of the market shares of all the
firms in an industry.
market concentration ratio
standard deviation of concentration
If the acceptance of Project A makes it impossible to accept Project B, these
mutually inclusive projects
mutually exclusive projects
The ____ method assumes that the cash flows over the life of the project are
reinvested at the ____.
net present value; computed internal rate of return
internal rate of return; firm’s cost of capital
net present value; firm’s cost of capital
net present value; risk-free rate of return
Any current outlay that is expected to yield a flow of benefits beyond one
year in the future is:
a capital gain
a wealth maximizing factor
a capital expenditure
a cost of capital
a dividend reinvestment
Which of the following items is (are) not considered as part of
the net investment calculation?
and shipping charges
cost of new asset
of old equipment that is being replaced
first year’s net cash flow
In order to help assure that all relevant factors will be
considered, the capital-expenditure selection process should include the
following steps except:
alternative capital-investment project proposals
cash flows for the project proposals
investment projects after they have been implemented
allocate manpower to the various divisions
within the firm
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