Economics Quiz 4

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A firm that is technologically efficient

is not always economically efficient, but a firm that is economically efficient must always be technologically efficient

Which of the following statements does NOT correctly characterize normal​ profit?

it is equal to a firm's total revenue minus its opportunity cost

The limited liability enjoyed by Jitters Coffee Company​ Corporation, is a benefit that protects

its stockholders

An example of the principal-agent problem is when

managers devise incentives that encourage employees to act in the owner's behalf

Dell uses​ outsourcing, that​ is, Dell buys the components of the computers it produces from other firms. This is an example of

market coordination

The most important goal of the firm is to

maximize its profits

A command system is a

method of organizing production that uses a managerial hierarchy

An incentive system is a

method of organizing production that uses a market-like mechanism inside the firm

According to Nobel laureate Ronald​ Coase, firms exist in order to

minimize transaction costs

Which market type has characteristics as​ follows: large number of​ firms, differentiated​ product?

monopolistic competition

A market structure in which one firm produces a good or service that has no close substitutes is called

monopoly

The average return for supplying entrepreneurial ability is the​ entrepreneur's

normal profit

if economic profits are equal to zero then

normal profits are being earned

An economic profit is

not the same as the company's normal profit

A market structure in which a small number of firms compete is called

oligopoly

A normal profit for a self−employed entrepreneur is I. an opportunity cost. II. part of the implicit rental rate of the funds invested in the business.

only I

The legal responsibility for losses incurred by a proprietorship falls upon the

owner

A major disadvantage of a proprietorship is that the​ ________.

owner's entire wealth is at risk

A market structure in which many firms are selling an identical product is called

perfect competition

Which of the following pairs of market types are both characterized by having a large number of​ firms?

perfect competition and monopolistic competition

A firm has achieved technological efficiency whenever it has

produced the given output using the fewest inputs

The owner of a proprietorship has​ ________ liability and​ ________ required to use all of his or her entire wealth to pay for the​ firm's losses.

unlimitied; might be

The largest share of the U.S. private economy is

competitive or monopolistically competitive

The main disadvantage to organizing a business as a proprietorship is

unlimited liability

Owners of a proprietorship have​ ________ liability and stockholders in a corporation have​ ________.

unlimited;limited

Proprietorships, partnerships, and corporations are the primary forms of

business organization

A​ firm's market constraints include the conditions under which it can

buy its inputs and sell its outputs

A method that is technologically inefficient

can never be economically efficient

Wanda takes​ $3,000 from her savings account that pays 5 percent interest per year and uses the funds to purchase a computer for​ $3,000 for her business. At the end of the year the computer is worth​ $2,000. Wanda pays an implicit rental rate of​ ________ a year.

$1,150

An electrician quits her current​ job, which pays​ $40,000 per year. She can take a job with another firm for​ $45,000 per year or work for herself. The opportunity cost of working for herself is

$45,000

Tara, a​ pharmacist, is planning on opening her own pharmacy. Tara currently earns​ $50,000 a year at her job. She has calculated that it will cost her​ $6,000 in rent and utilities and​ $25,000 for an assistant per year to run her pharmacy. What is the amount of opportunity cost that Tara incurs in running her own​ pharmacy?

$81,000

If an industry were perfectly​ competitive, the four−firm concentration ratio would be close to​ ________ and the Herfindahl−Hirschman index would be close to​ ________.

0;0

If an industry is monopolized by one​ firm, the four−firm concentration ratio equals

100 percent

For monopoly

All of the above answers are correct

Techniques that produce 100 sweaters...(table)... In the above table, the techniques that is not technologically efficient is

C

Techniques that produce 100 sweaters..... (Table)..... in the above table, the technique that is never economically efficient is

C

Which types of firms have limited liability?

Corporations

​________ coordinate economic activity in which there are substantial​ ________.

Firms; economies of scale

Which of the following are characteristics of a​ proprietorship? I. Single owner II. Limited liability

I only

Which of the following are types of economic​ markets? I. perfectly competitive. II. oligopoly III. monopoly. IV. multilateral.

I, II and III

Which of the following constrain​ (that is,​ limit) a​ firm's profits? I. its technology II. its information III. the market in which it operates

I, II and III

Which of the following are part of a​ firm's opportunity​ costs? I. costs for resources bought in markets II. costs for resources the firm owns III. costs for resources supplied by the owner

I, II, and III

Which of the following can lead to a single firm being more efficient than a​ market? A firm can have I. economies of scale. II. economies of scope. III. lower transactions costs.

I,II and III

Which of the following statements is​ true? I. A firm that is not economically efficient does not maximize profit. II. Technological efficiency depends only on what is possible. III. Economic efficiency depends on the relative costs of resources. IV. A technological efficient firm is also economically efficient.

I,II,III only

Which of the following is true?

None of the above statements are correct

Which of the following is true?

Technological efficiency occurs if the maximum feasible amount of output is achieved from a given quantity of inputs

Over the years the U.S. economy has become increasingly

competitive

A low concentration ratio indicates

a high degree of competition

Kansas Power and​ Light, the only supplier of electricity in​ Kansas, is an example of a firm in what type of​ market?

a monopoly market

A firm with two or more owners who have unlimited liability is known as

a partnership

An advantage of a partnership over a corporation is that

a partnership's profits are taxed only once, while retained profits of a corporation are taxed twice

In the principal−agent relationship between a bank manager and a bank​ teller, the manager is

a principal and the teller is an agent

An economic profit for a self−employed entrepreneur is

a profit over and above opportunity cost

A proprietorship is a firm with

a single owner who has unlimited liability

The principal−agent problem is the issue of inducing

agents to act in the best interests of principles

A large part of the principal − agent problem stems from the desire of

agents to avoid working

As owner of a one−third share of a​ partnership, Josh is legally liable for

all of its debts

Which of the following is a reason why firms may be more efficient than markets as coordinators of economic​ activity?

all of the above

Greg and Todd form a partnership and start a business in which each has a 50 percent share of the profit. After a​ year, the firm goes bankrupt and has debts of​ $20,000. Greg has no​ money, but Todd has​ $25,000 in the bank. Todd must pay​ ________ of debt.

all, or $20,000

A high four-firm concentration ratio implies

an absence of competition

Giving managers an ownership stake in a company is an example of

an incentive system

If worker output is not measurable in physical​ units, and employees are hard to​ monitor, it would be best to organize the firm using

an incentive system

When a firm links its​ employees' compensation to the performance of the​ firm, the firm is using

an incentive system

Coca Cola and​ Pepsi, which together account for about 85 percent of the soft drink​ market, are best described as being in

an oligopolistic market

The air travel​ market, which is dominated by a few large​ firms, is an example of

an oligopolistic market

If instead of working on his own as a consultant making​ $25,000, Joe takes a job at a​ bank, the​ $25,000 is

an opportunity cost

The implicit rental rate for capital is

an opportunity cost

Economies of scale exist when the​ ________ a unit of a good​ ________.

average cost of producing; falls as its output rate increases

During the twentieth century, the market structure of the U.S. economy has

become more competitive

A manager in a corporation is likely to be

both a principal and an agent

Where large amounts of capital are​ used, the dominant form of business organization is the

corporation

The vast majority of all business sales are accounted for by

corporations

Which of the following forms of business organization is likely to suffer most from the principal agent problem between the owners and managers of the​ business?

corporations

Economies of scale exist when the

cost of producing a unit of a good falls as its output increases

The principal-agent problem refers to the fact that firms must

devise incentives to get employees to work in the best interest of the firms owners

Firms that survive in the long run are usually those that

earn the largest possible profit

​________ is the change in market value of capital over a given period.

economic depreciation

Which of the following are two components of the opportunity cost of using capital already owned by the​ firm?

economic depreciation and forgone interest

A company needs to know the price of each resource it employs if it wants to determine whether or not it is achieving

economic efficiency

​"When the cost of producing a unit of a good falls as its output rate​ increases" is the definition of

economies of scale

Which of the following is a reason why firms can be more efficient than markets as coordinators of economic​ activity?

economies of scale and scope

If an industry has a four−firm concentration ratio equal to one hundred​ percent, then it is definitely the case that the industry is

either a monopoly or an oligopoly

Economic profit is

equal to the firm's total revenue minus its opportunity costs

Firms are often more efficient than markets as coordinators of economic activity because

firms can achieve lower transaction costs

The​ ________ the Herfindahl−Hirschman Index​ (HHI), the​ ________ the industry.

higher; less competitive

​Tudor's Deli and Catering could have sold their delivery van on December​ 31, 2010 for​ $16,000. If they could sell the same van on December​ 31, 2011 for​ $13,000, then the economic depreciation in 2011 for this van

is $3,000.

A firm that is maximizing its profits

is economically efficient and technologically efficient

Owners of​ ________ have unlimited liability.

proprietorships and partnerships

The Herfindahl − Hirschman Index measures an​ industry's concentration of

sales

The four−firm concentration ratio equals the percentage of the value of​ ________ accounted for by the four​ ________ firms in the industry.

sales; largest

A corporation is a firm owned by

stockholders who have limited liability

The profits of a partnership are

taxed as personal income

The profits of a proprietorship are

taxed at the same rate as the owner's other personal income

Emma owns a firm that produces umbrellas.​ Currently, Emma produces​ 2,500 umbrellas a day. Emma cannot produce more umbrellas in a day unless she purchases another machine or else hires more workers. Emma is​ ________ efficient.

technologically

If a firm chooses to produce 100 units of output for​ $150 with 10 units of labor and 12 units of​ capital, when they could produce the same 100 units for​ $120 with 10 units of labor and 8 units of​ capital, the firm is

technologically and economically inefficient

Costs as measured by accountants generally does not include

the economic depreciation of the firm's equipment

Industry concentration measures the extent to which

the market is dominated by a small number of firms

If the four−firm concentration ratio is a very small​ number, then

there is a high degree of competition in the market

Kris wants to purchase a house. She buys newspapers to read the classified advertisements and spends her evenings with realtors looking at houses. Kris has incurred the​ ________ costs of making a purchase.

transactions

Costs to the firm arising from reaching agreements on input prices with suppliers and then ensuring that terms of agreements are​ fulfilled, are called

transactions costs


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