ECO 550 Final Exam Answers

Topics: Economics, Pricing, Marginal cost Pages: 170 (32965 words) Published: October 22, 2014
ECO 550 Final Exam Answers ECO 550 Final Exam Answers
Question 1
The short-run cost function is:
where all inputs to the production process are variable
relevant to decisions in which one or more inputs to the production process are fixed not relevant to optimal pricing and production output decisions crucial in making optimal investment decisions in new production facilities In a study of banking by asset size over time, we can find which asset sizes are tending to become more prominent. The size that is becoming more predominant is presumed to be least cost. This is called: Answer

regression to the mean analysis.
breakeven analysis.
survivorship analysis.
engineering cost analysis.
a Willie Sutton analysis.
Which of the following is not
an assumption of the linear breakeven model:
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 all costs can be classified as fixed or variable
Question 4
A ____ total cost function implies that marginal costs ____ as output is increased. Answer
linear; increase linearly
quadratic; are constant
cubic; increase linearly
linear; are constant
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

Governmental pressure to lower the price
Reduced demand for long distance service
Entry into this industry pushes prices down
Lower price for a barrel of crude oil
Increased cost of providing long distance service
What is the profit maximization point for a firm in a purely competitive environment? Answer
The output where
The output where P < MC
The output where P > MC
The output where
The output where AVC < P
Question 7
The problems of asymmetric information exchange arise ultimately because Answer
one party to the exchange possesses different information than another one party has more information than another
one party knows nothing
one party cannot independently verify the information of another information is scarce
Question 8
An “experience good” is one that:
Only an expert can use
Has undetectable quality when purchased
Can be readily experienced simply by touching or tasting
Improves with age, like a fine wine
Question 9
Of the following, which is not
an economic rationale for public utility regulation?
production process exhibiting increasing returns to scale
constant cost industry
avoidance of duplication of facilities
protection of consumers from price discrimination
Question 10
____ as practiced by public utilities is designed to encourage greater usage and therefore spread the fixed costs of the utility’s plant over a larger number of units of output. Answer
Peak load pricing
Inverted block pricing
Block pricing
First degree price discrimination
Question 11
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

price would equal average cost.
price would exceed average cost.
price would be below average cost.
price would be at the profit maximizing level for natural monopoly Question 12
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 13
5 points
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
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