ECO 550 Final Exam
Question 1
The degree of operating leverage is equal to the ____ change in ____ divided by the ____ change in ____.
percentage; sales; percentage; EBIT
unit; sales; unit; EBIT
percentage; EBIT; percentage; sales
unit; EBIT; unit; sales
Question 2
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.
10,000 customers
20,000 customers
30,000 customers
40,000 customers
50,000 customers
Question 3
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
Question 4
Theoretically, in a long-run cost function:
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 breakeven sales volume (in dollars) can be found by multiplying the breakeven sales volume (in units) by:
one minus the variable cost ratio
contribution margin per unit
selling price per unit
standard deviation of unit sales
Question 6
A ____ total cost function implies that marginal costs ____ as output is increased.
linear; increase linearly
quadratic; are constant
cubic; increase linearly
linear; are constant
Question 7
If price exceeds average costs under pure competition, ____ firms will enter the industry, supply will ____, and price will be driven ____.
more; decrease; down
more; decrease; up
more; increase; down
more; increase; up
Question 8
Buyers anticipate that the temporary warehouse seller of unbranded computer equipment will
deliver high quality products consistent with expectations
not attempt to establish any warranty enforcement mechanisms
offer several prices and qualities
produce only one quality
Question 9
In the long-run, firms in a monopolistically competitive industry will
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 10
The problems of asymmetric information exchange arise ultimately because
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 11
A search good is:
One that depends on how the product behaves over time
A product whose quality is only found out over time by finding how durable it is
Like a peach that can be examined for flaws
Like a used car, since it is easy to determine its inherent quality
Question 12
What is the profit maximization point for a firm in a purely competitive environment?
The output where
The output where P < MC The output where P > MC
The output where
The output where AVC < P Question 13 In the short-run for a purely competitive market, a manufacturer will stop production when: 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 14 The practice by telephone companies of charging lower long-distance rates at night than during the day is an example of: inverted block pricing second-degree price discrimination peak-load pricing first-degree price discrimination none of the above Question 15 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 16 When the cross elasticity of demand between one product and all other products is low, one is generally referring to a(n) ____ situation. oligopoly monopoly pure competition substitution monopolistic competition Question 17 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: 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 18 ____ as practiced by public utilities is designed to encourage greater usage and therefore spread the fixed costs of the utilitys plant over a larger number of units of output. Peak load pricing Inverted block pricing Block pricing First degree price discrimination Question 19 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. similar, similar elastic, lower elastic, higher inelastic, lower inelastic, higher Question 20 The existence of a kinked demand curve under oligopoly conditions may result in volatile prices competitive pricing. prices above the monopoly price. an increase in the coefficient of variation of prices. price rigidity Question 21 Which of the following is an example of an oligopolistic market structure? public utilities air transport industry liquor retailers wheat farmers Question 22 In the Cournot duopoly model, each of the two firms, in determining its profit-maximizing price-output level, assumes that the other firms ____ will not change. price output marketing strategy inventory Question 23 A(n) ____ is characterized by a relatively small number of firms producing a product. monopoly syndicate cooperative oligopoly Question 24 Some industries that have rigid prices. In those industries, we tend to find that output is also rigid over the business cycle find that output varies greatly over the business cycle find the employment in these industries is quite stable over the business cycle find that the rate of return is negative in boom times Question 25 Barometric price leadership exists when one firm in the industry initiates a price change and the others follow it as a signal of changes in cost or demand in the industry. one firm imposes its best price on the rest of the industry. all firms agree to change prices simultaneously. one company forms a price umbrella for all others. the firms are all colluding.