ECO 550 FINAL EXAM (A++++++++++++)

Question 1

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

Answer

a. variable margin per unit

b. variable cost ratio

c. contribution margin per unit

d. target margin per unit

Question 2

Evidence from empirical studies of long-run cost-output relationships lends support to the: Answer

a. existence of a non-linear cubic total cost function

b. hypothesis that marginal costs first decrease, then gradually increase over the normal operating range of           the firm

c. hypothesis that total costs increase quadratically over the ranges of output examined

d. hypothesis that total costs increase linearly over some considerable range of output examined

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

a. 10,000 customers

b. 20,000 customers

c. 30,000 customers

d. 40,000 customers

e. 50,000 customers

Question 4

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

Answer

a. constant selling price per unit

b. decreasing variable cost per unit

c. fixed costs are independent of the output level

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

4 points

Question 5

A ____ total cost function implies that marginal costs ____ as output is increased.

Answer

a. linear; increase linearly

b. quadratic; are constant

c. cubic; increase linearly

d. inear; are constant

Question 6

Theoretically, in a long-run cost function:

Answer

a. all inputs are fixed

b. all inputs are considered variable

c. some inputs are always fixed

d.capital and labor are always combined in fixed proportions

Question 7

Long distance telephone service has become a competitive market. The average cost per call is $0.05 a minute, and it’s declining. The likely reason for the declining price for long distance service is:

Answer

a. Governmental pressure to lower the price

b. Reduced demand for long distance service

c. Entry into this industry pushes prices down

d. Lower price for a barrel of crude oil

e. Increased cost of providing long distance service

Question 8

Uncertainty includes all of the following except ____.

Answer

a.unknown effects of deliberate actions

b. incomplete information as to the type of competitor

c. random disturbances

d.unverifiable claims

e. accidents due to weather hazards

Question 9

A firm in pure competition would shut down when:

Answer

a. price is less than average total cost

b. price is less than average fixed cost

c. price is less than marginal cost

d. price is less than average variable cost

Question 10

An "experience good" is one that:

Answer

a. Only an expert can use

b. Has undetectable quality when purchased

c. Can be readily experienced simply by touching or tasting

d. Improves with age, like a fine wine

Question 11

The problems of asymmetric information exchange arise ultimately because:

Answer

a. one party to the exchange possesses different information than another

b. one party has more information than another

c. one party knows nothing

d. one party cannot independently verify the information of another

e. information is scarce

Question 12

A "search good" is:

Answer

a. One that depends on how the product behaves over time

b. A product whose quality is only found out over time by finding how durable it is

c. Like a peach that can be examined for flaws

d. Like a used car, since it is easy to determine its inherent quality

Question 13

The price for used cars is well below the price of new cars of the same general quality. This is an example of:

Answer

a. The Degree of Operating Leverage

b. A Lemon's Market

c. Redeployment Assets

d. Cyclical Competition

e. The Unemployment Rate

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

a. similar, similar

b. elastic, lower

c. elastic, higher

d. inelastic, lower

e. inelastic, higher

Question 15

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

Answer

a.inverted block pricing

b.second-degree price discrimination

c.peak-load pricing

d. first-degree price discrimination

e. none of the above

Question 16

In natural monopoly, AC continuously declines due to economies in distribution or in production, which tends to found in industries which face increasing returns to scale. If price were set equal to marginal cost, then:

Answer

a. price would equal average cost.

b. price would exceed average cost.

c. price would be below average cost.

d. price would be at the profit maximizing level for natural monopoly

Question 17

Declining cost industries:

Answer

a. have upward rising AC curves.

b. have upward rising demand curves.

c. have ∩-shaped total costs.

d. have diseconomies of scale.

e. have marginal cost curves below their average cost curve.

Question 18

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

Answer

a. pure competition

b. monopolistic competition

c. oligopoly

d. pure monopoly

Question 19

Of the following, which is not an economic rationale for public utility regulation?

Answer

a. production process exhibiting increasing returns to scale

b. constant cost industry

c. avoidance of duplication of facilities

d. protection of consumers from price discrimination

Question 20

Even ideal cartels tend to be unstable because

Answer

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

b. collusion leads to lowest possible overall profits in the industry.

c. oligopolistic managers are extremely risk loving.

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

Question 21

“Conscious parallelism of action” among oligopolistic firms is an example of ____.

Answer

a. intense rivalry

b. a formal collusive agreement

c. informal, or tacit, cooperation

d. a cartel

Question 22

Some industries that have rigid prices. In those industries, we tend to

Answer

a. find that output is also rigid over the business cycle

b. find that output varies greatly over the business cycle

c. Find the employment in these industries is quite stable over the business cycle

d. find that the rate of return is negative in boom times

Question 23

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

Answer

a. monopoly

b. syndicate

c. cooperative

d. oligopoly

Question 24

A cartel is a situation where firms in the industry

Answer

a. have an agreement to restrict output.

b. agree to produce identical products.

c. obey the rules of dominant firm price leadership.

d. experience the pain of a kinked demand curve.

e. have a barometric price leader

Question 25

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

Answer

a. public utilities

b. air transport industry

c. liquor retailers

d. wheat farmers