Question 1 Which of the following is not an assumption of the linear breakeven model: Answer constan

Question 1

Which of the following is not an assumption of the linear
breakeven model:
Answer

constant
selling price per unit

decreasing variable cost per unit

fixed costs
are independent of the output level

a single
product (or a constant mix of products) is being produced and sold

Question 2

In the linear breakeven model, the breakeven sales volume (in
dollars) can be found by multiplying the breakeven sales volume (in units) by:
Answer

one minus the
variable cost ratio

contribution
margin per unit

selling price per unit

standard
deviation of unit sales

Question 3

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.
Answer

10,000
customers

20,000
customers

30,000 customers

40,000
customers

50,000
customers

Question 4

Theoretically, in a long-run cost function:
Answer

all inputs are
fixed

all inputs are considered variable

some inputs
are always fixed

capital and
labor are always combined in fixed proportions

Question 5

In the linear breakeven model, the difference between selling
price per unit and variable cost per unit is referred to as:
Answer

variable
margin per unit

variable cost
ratio

contribution margin per unit

target margin
per unit

Question 6

Break-even analysis usually assumes all of the following except:
Answer

in the short run, there is no
distinction between variable and fixed costs.

revenue and
cost curves are straight-lines throughout the analysis.

there appears
to be perfect competition since the price is considered to remain the same
regardless of quantity.

the
straight-line cost curve implies that marginal cost is constant.

Question 7

In the short-run for a purely competitive market, a
manufacturer will stop production when:
Answer

the total
revenue is less than total costs

the contribution to fixed costs
is zero or less

the price is
greater than AVC

operating at
a loss

Question 8

In the purely competitive case, marginal revenue (MR) is equal
to:
Answer

cost

profit

price

total revenue

Question 9

Asset specificity is largest when
Answer

value in first
best use is large

value in
second best use is large

customers
choose their supplier at random

very valuable assets are non-redeployable

customers are
loyal to a particular seller

Question 10

Uncertainty includes all of the following except ____.
Answer

unknown
effects of deliberate actions

incomplete information as to the type of
competitor

random
disturbances

unverifiable
claims

accidents due
to weather hazards

Question 11

The main difference between perfect competition and monopolistic
competition is:
Answer

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

Question 12

Experience goods are products or services
Answer

that the
customer already knows

whose performance is highly unusual

whose quality
is undetectable when purchased

not likely to
cause repeat purchases

Question 13

In the long-run, firms in a monopolistically competitive
industry will
Answer

earn
substantial economic profits

tend to just cover costs, including normal
profits

seek to
increase the scale of operations

seek to reduce
the scale of operations

Question 14

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.
Answer

similar,
similar

elastic, lower

elastic, higher

inelastic,
lower

inelastic, higher

Question 15

The demand curve facing the firm in ____ is the same as the
industry demand curve.
Answer

pure
competition

monopolistic
competition

oligopoly

pure monopoly

Question 16

When the cross elasticity of demand between one product and
all other products is low, one is generally referring to a(n) ____
situation.
Answer

oligopoly

monopoly

pure
competition

substitution

monopolistic competition

Question 17

Declining cost industries
Answer

have upward
rising AC curves.

have upward
rising demand curves.

have ?-shaped
total costs.

have
diseconomies of scale.

have marginal cost curves below their average
cost curve

Question 18

Regulatory agencies engage in all of the following activities
except _______.
Answer

controlling
entry into the regulated industries

overseeing
the quality of service provided by the firms

setting federal and state income tax rates on
regulated firms

setting
prices that consumers will pay

Question 19

The practice by telephone companies of charging lower
long-distance rates at night than during the day is an example of:
Answer

inverted block
pricing

second-degree
price discrimination

peak-load pricing

first-degree
price discrimination

none of the
above

Question 20

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
is identical.
Answer

average total
cost

average profit

marginal
profit

marginal cost

marginal
revenue

Question 21

A(n) ____ is characterized by a relatively small number of firms
producing a product.
Answer

monopoly

syndicate

cooperative

oligopoly

Question 22

Even ideal cartels tend to be unstable because
Answer

firms
typically prefer competition to collusion as competition, because it leads to
more profits.

collusion
leads to lowest possible overall profits in the industry.

oligopolistic
managers are extremely risk loving.

firms can benefit by secretly selling more than
they promised the other firms

Question 23

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.
Answer

price

output

marketing
strategy

inventory

Question 24

Which of the following is an example of an oligopolistic market
structure?
Answer

public
utilities

air transport industry

liquor
retailers

wheat farmers

4 points
Question 25

A cartel is a situation where firms in the industry
Answer

have an agreement to restrict output.

agree to
produce identical products.

obey the rules
of dominant firm price leadership.

experience the
pain of a kinked demand curve.

have a
barometric price leader

Part 2

Question 1

To trust a potential cooperator until the first defection and
then never cooperate thereafter is
Answer

a dominant
strategy

an irrational
strategy

a grim trigger strategy

a
non-cooperative finite game strategy

a subgame
imperfect strategy

Question 2

The difference between cooperative and non-cooperative games is
Answer

cooperative games allow side payments to support
collusion

non-cooperative
games encourage communication of sensitive information between arms-length
competitors

cooperative
games involve randomized behavior

cooperative
games necessitate an explicit order of play

inconsequential
except when players have contractual relationships

Question 3

When there is no Equilibrium (or no Nash Equilibrium), we expect
that:
Answer

the firms end
up in the cooperative strategy.

a firm will follow a randomized
strategy.

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

Question 5

An illustration of a non-credible commitment is the promise
Answer

to not
increase capacity in a declining industry

to match a new
entrant’s discount price

to enter a
profitable industry

to restrain output to the quota assigned by a
cartel

to exit in the
face of projected losses.

Question 6

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:
Answer

first-degree
price discrimination

market
penetration

third-degree price discrimination

second-degree
price discrimination

Question 7

Which of the following pricing policies best identifies when a
product should be expanded, maintained, or discontinued?
Answer

full-cost
pricing policy

target-pricing
policy

marginal-pricing policy

market-share
pricing policy

markup pricing
policy

Question 8

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:
Answer

the preference
rankings of vacationers travelling together are negatively correlated.

a preference
for cities is always higher than preferences for mountain vistas.

preference rankings of vacationers travelling
together are positively correlated.

preference for
the seaside is always higher than preferences for city excursions.

Question 9

The following are possible examples of price discrimination,
EXCEPT:
Answer

prices in
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.

a product
sells at a higher price at location A than at location B, because
transportation costs are higher from the factory to A.

subscription
prices for a professional journal are higher when bought by a library than
when bought by an individual.

Question 10

____ 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.
Answer

Prestige
pricing

Price lining

Skimming

Incremental
pricing

Question 11

When manufacturers and distributors establish credible
commitments to one another, they often employ
Answer

vertical requirements contracts

third-party
monitoring

credible
threat mechanisms

non-price tactics

uestion 12

Buying electricity off the freewheeling grid at one quarter ’til
the hour for delivery on the hour illustrates:
Answer

relational
contracts with distributors

vertical
requirements contracts

spot market
transactions

variable price agreements

Question 13

Which of the following is not among the functions of contract?

Answer

to provide incentives for efficient reliance

to reduce transaction costs

to discourage the
development of asymmetric information

to provide risk allocation mechanisms

Question 14

To accomplish its purpose a linear profit-sharing contract must

Answer

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

Question 15

Governance mechanisms are designed

Answer

to increase contracting costs

to resolve post-contractual opportunism

to enhance the flexibility of restrictive covenants

to replace insurance

Question 16

The sentiment for increased deregulation in the late 1970’s and early 1980’s
has been felt most significantly in the price regulation of

Answer

coal

grain

transportation

automobiles

electric power generation

Question 17

____ yields the same results as the theory of perfect competition, but
requires substantially fewer assumptions than the perfectly competitive model.

Answer

Baumol’s sales maximization hypothesis

The Pareto optimality condition

The Cournot model

The theory of contestable markets

Question 18

The Herfindahl-Hirschman index (also shortened to just the Herfindahl index)
is a measure of ____.

Answer

market concentration

income distribution

technological progressiveness

price discrimination

uestion 19

The antitrust laws regulate all of the following business decisions except
____.

Answer

collusion

mergers

monopolistic practices

price discrimination

wage levels

uestion 20

The ____ is equal to the some of the squares of the market shares of all the
firms in an industry.

Answer

market concentration ratio

Herfindahl-Hirschman index

correlation coefficient

standard deviation of concentration

Question 21

If the acceptance of Project A makes it impossible to accept Project B, these
projects are:

Answer

contingent projects

complementary projects

mutually inclusive projects

mutually exclusive projects

Question 22

The ____ method assumes that the cash flows over the life of the project are
reinvested at the ____.

Answer

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

Question 23

Any current outlay that is expected to yield a flow of benefits beyond one
year in the future is:

Answer

a capital gain

a wealth maximizing factor

a capital expenditure

a cost of capital

a dividend reinvestment

Question 24

Which of the following items is (are) not considered as part of
the net investment calculation?
Answer

installation
and shipping charges

acquisition
cost of new asset

salvage value
of old equipment that is being replaced

first year’s net cash flow

Question 25

In order to help assure that all relevant factors will be
considered, the capital-expenditure selection process should include the
following steps except:
Answer

generating
alternative capital-investment project proposals

estimating
cash flows for the project proposals

reviewing the
investment projects after they have been implemented

allocate manpower to the various divisions
within the firm

4 points