Topics: Costs, Economics, Marginal cost Pages: 13 (1701 words) Published: April 10, 2011
Question 1 (5 points)

1. Which of the following may lead to vertical integration?

a) Technological interdependencies

b) Reduced search and bargaining cost

c) The hold-up problem

d) All of the above

Question 2 (5 points)

Effective collusion generally is more difficult when

a) the number of oligopolistic firms involved decreases

b) the number of oligopolistic firms involved increases

c) when customer orders are small, frequent, and received on a regular basis as compared with large orders that are received infrequently at irregular intervals.

d) (a) and (c)

Question 3 (5 points)

A pencil manufacturer is in a perfectly competitive market. The firm can sell as much as it wants at a price of $1.50 per pencil. At some production levels, its average variable costs are less than $1.50, but there is not production level where its average total cost is equal or less than $1.50. What would be your recommendation to the pencil manufacturer?

a) Increase production to decrease fixed costs per unit.

b) Exit the business immediately.

c) Continue production in both the short and long runs.

d) Continue production in the short run, but exit the business in the long run unless prices are expected to rise or costs to fall.

Question 4 (5 points)

A pure monopoly refers to a situation in which:

a) the firm's profit is maximized at the price and output combination where average cost equals average revenue

b) the demand curve is always elastic

c) one firm is the only producer of a good or service which has no close substitutes

d) the demand curve facing the firm is less than the industry demand curve

Question 5 (5 points)

Cost-benefit analysis is the public sector counterpart to _______________ used in private, profit-oriented firms.

a) Cost-effectiveness analysis

b) break-even analysis

c) economic forecasting techniques

d) capital budgeting techniques

Question 6 (5 points)

Which of the following factor does not affect the ability of oligopolistic firms to successfully engage in cooperation?

a) number and size distribution of sellers

b) product heterogeneity

c) product homogeneity

d) size and frequency of orders

Question 7 (5 points)

Antilock brakes, airbags, and seatbelts increased the number of accidents while simultaneously decreasing the number of fatal accidents. Why does this happen?

a) Adverse Selection

b) Screening

c) Signaling

d) Moral hazard

Question 8 (5 points)

In a principal-agent relationship, the principal’s goal is to

a) control the agent

b) pay the agent

c) align agent’s incentives with principal’s goals

d) eradicate shirking

Question 9 (5 points)

A number of the costs of a manufacturing firm are fixed in the short run, like its building and machinery costs. Given these fixed costs,

a) if the manufacturer were to increase production, average fixed costs would increase.

b) these costs should be considered in a decision to increase short-run production levels.

c) if the manufacturer were to expand production, average fixed costs would decrease.

d) if the manufacturer decreased production, total costs would increase

Question 10 (5 points)

-------------------- is defined as the uncompensated effect of an individual’s actions on the well-being of a third-party.

a) An indirect cost

b) An externality

c) An intangible cost

d) Adverse selection

Question 11 (5 points)

Which of the following is (are) a basic principle(s) when estimating a project's cash flows?

a) cash flows should be measured on a pre-tax basis

b) cash flows should be measured on an incremental basis

c) cash flows should ignore depreciation since it is a non-cash charge

d) only direct effects of a project should be included in the cash flow calculations

Question 12 (5 points)

The Herfindahl-Hirschman index is a measure of

a) market share

b) market concentration

c) market...
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