MGE Ch. 2, MGE Ch 3, MGE Ch 4, MGE Ch 5, MGE Ch 6, MGE Ch 7, MGE Ch. 8, MGE Ch. 9, MGE Ch. 10, MGE Ch. 11, MGE Ch. 19, MGE Ch 21

If a firm with monopoly pricing power in the market faces a demand curve of P = 2,000 - 2Q and marginal cost of MC = 1,100 + 2Q, then the firm will produce at a price of A)$16. B)$1,400. C)$1,700. D)$1,600.

$1,700.

Using cost plus pricing, what is the price if ATC = $14.50 and the target rate of return is 4 percent? A)$15.10 B)$49.34 C)$14.5 D)$22.10

$15.10

Calculate the markup price if MC = $10.00 and price elasticity equals 1.7. A)$5.88 B)$17.24 C)$24.27 D)$32.42

$24.27

If a company has a cost curve of TC = 300 + 2Q + Q2 and it produces 300 units per day, then its average (total) cost is A)$1. B)$303. C)$300. D)$602.

$303.

If Tiger Toys faces a demand curve of P = 85 − 0.25Q and a MC = ATC = 20, then the markup would be A)$52.50. B)$20.00. C)$32.50. D)$12.50.

$32.50.

Which of the following is a feature of a behavioral economic model?

It focuses on cognitive, emotional, and social factors that affect individual decisions.

Billy Mac Tailor drives an 18-wheeler CG Carriers. He always stops at All Bright truck stops to buy diesel fuel. He is a preferred customer and gets a free meal and shower worth $10. But All Bright charges $12more for a fill-up than most competitors. Which of the following is true? A)CG Carriers gets a benefit of $22 because Tailor is a preferred customer. B)CG Carriers has a wealth reduction of $2 even though they do not know about Tailor's actions. C)There is a wealth transfer to Billy Mac Tailor, and CG Carriers has a wealth reduction of $12. D)Billy Mac Tailor increases his income by $10 and CG Carriers also benefits.

There is a wealth transfer to Billy Mac Tailor, and CG Carriers has a wealth reduction of $12.

A necessary condition for market power to exist for a particular company in a market is that A)information must be understood by both buyers and sellers. B)effective barriers to entry must exist. C)the number of firms should be over 150. D)consumers perceive all products as homogeneous.

effective barriers to entry must exist.

Let Edt= -2. This implies that the demand for movie tickets is A)inelastic, because a 1 percent change in Pt changes Qdt by 2 units. B)inelastic, because a 1 percent change in Pt changes Qdt by 1 percent. C)elastic, because a 1 percent change in Pt changes Qdt by 1 percent. D)elastic, because a 1 percent change in Pt changes Qdt by 2 percent.

elastic, because a 1 percent change in Pt changes Qdt by 2 percent.

At the midpoint of a linear demand curve, the elasticity of demand is A)zero. B)one. C)greater than one. D)less than zero.

one.

The minimum wage is a A)cost ceiling. B)positive externality. C)price floor. D)price ceiling.

price floor.

The general rule for profit maximization in a firm is to A)set average cost at its minimum. B)reduce fixed costs by expanding output. C)maximize sales revenue. D)set marginal revenue equal to marginal cost.

set marginal revenue equal to marginal cost

Using the linear approximation system to estimate the profit maximizing price requires that managers have information on the cost of production A)and the nature of the production function. B)the total population and the percentage of people in labor force. C)the current price, the current quantity sold, and changes in price and quantity. D)and the decision-making process of the marketplace.

the current price, the current quantity sold, and changes in price and quantity.

The benefit of a mixed strategy is A)higher returns for both the players in the market. B)lower risks for both the players in the market. C)the element of consistency that baffles rivals. D)the element of surprise that baffles rivals.

the element of surprise that baffles rivals.

Assume the market for ceiling fans is perfectly competitive and is currently in equilibrium. If the demand increases while the supply decreases, then we can be certain that A)the equilibrium price will increase. B)the equilibrium quantity will increase. C)both price and quantity will increase. D)both price and quantity will decrease.

the equilibrium price will increase.

Assume that the quantity of apples is measured on the horizontal axis and the quantity of oranges is measured on the vertical axis. If the budget line rotates upward while keeping the same horizontal intercept, it implies that

the price of oranges has decreased.

Price elasticity is defined as the change in quantity demanded relative to a change in A)the price of substitute products. B)consumer income. C)the price of complementary products. D)the price of the product.

the price of the product.

If the price of a variable input increases, then A)the total cost curve will shift up. B)the average total cost curve will shift down. C)the marginal cost curve will shift down. D)the fixed cost curve will shift up.

the total cost curve will shift up.

A monopolist's demand curve is P = 10 - 2Q. Thus, the MR is A)5 - 2Q. B)10 - Q. C)10 - 4Q. D)5 - Q.

10 - 4Q.

______ makes designing efficient contracts costly. A)Signaling B)Self-selection C)Huge monitoring costs for the principal D)Huge monitoring costs for the agent

Huge monitoring costs for the agent

Which of these is an important determinant of contract duration as suggested by the economic models on franchise contracts? A)Asset ownership B)Market power C)Residual rights D)Recontracting costs

Recontracting costs

______ can provide incentives to honor implicit contracts. A)Value maximization B)Adverse selection C)Reputational concerns D)Bargaining powe

Reputational concerns

FarAwayDrive Inc. has recently increased the price from $4 to $6. In response to this increase in price, sales decreased from 2,200 to 1,800 units. If no other information concerning the demand is available, which of the following is true about the sensitivity of demand (using the ARC or midpoints formula) for FarAwayDrive's golf balls? A)The ARC-elasticity (midpoints formula) of demand is 2.0. B)The ARC-elasticity (midpoints formula) of demand is ½ or .50. C)The ARC-elasticity (midpoints formula) of demand is 2/3 or .667. D)The ARC-elasticity (midpoints formula) of demand is 4/11 or .364.

The ARC-elasticity (midpoints formula) of demand is ½ or .50.

ABC Corp. has a bonus plan in place for its CEO, linking her pay to annual earnings. ABC will pay her $180,000 if earnings are high, $90,000 if they are normal, and $0 if they are low. Each event is estimated to have equal probability. Assume the CEO is indifferent between this bonus plan and receiving $75,000 with certainty. Which of the following is true?

The CEO's expected bonus is $90,000.

Which of these will hold true for an unregulated, competitive industry? A)The market price will be higher than the marginal cost of production. B)The marginal cost will be higher than the average cost of production. C)The marginal cost of production will be equal to the market price. D)The market price will be lower than the marginal cost of production.

The marginal cost of production will be equal to the market price.

An informal understanding about the quality of product components supplied is a key to the relationship between most companies and their suppliers. This is a good example of A)an implicit contract. B)an explicit contract. C)a principal-agent conflict resolution. D)an adverse selection problem.

an implicit contract.

The prisoner's dilemma and the problem of the cartel are very similar. In both cases, A)cooperation would improve the outcome, but it rarely happens. B)cooperation is the only solution. C)noncooperation would improve the outcome, but it rarely happens. D)noncooperation is an instable solution.

cooperation would improve the outcome, but it rarely happens.

In a purely competitive market, a company views its demand curve as A)completely price insensitive. B)horizontal (flat). C)vertical. D)convex.

horizontal (flat).

Nonmarket transactions refer to: A)purchases in the spot market. B)horizontal integration. C)long-term contracts. D)purchases in the international market.

long-term contracts.

Markets use prices to allocate resources, while firms use A)cost-price ratios. B)managers. C)the board of directors. D)random decisions.

managers.

In a perfectly competitive market, the price faced by a firm is equal to its A)average variable cost. B)marginal revenue and average revenue. C)total cost. D)average revenue.

marginal revenue and average revenue.

Economies of scope are said to exist when A)one firm produces many products rather than separate firms for each. B)many firms produce many products rather than one firm producing all. C)many firms produce a single product rather than one firm. D)one firm can produce multiple products at a lower cost than separate firms producing each.

one firm can produce multiple products at a lower cost than separate firms producing each.

One of the ways of overcoming the problem of adverse selection is through A)signaling. B)bargaining. C)free-riding. D)costless contracting.

signaling

One of the mechanisms to replace poor management is to A)fire the low-level workers who are inefficient. B)fire the union leaders who create an environment of mistrust. C)tender offers and mergers. D)pay more to the senior management.

tender offers and mergers.

The nonmarket transactions refer to: A)purchases made in the spot market. B)vertical integration. C)short term contracts. D)market power.

vertical integration.

Human resources, as a source of creating value in a modern company, are also referred to as A)hardware. B)software. C)wetware. D)dryware.

wetware.

If Tiger Toys faces a demand curve of P = 85 − 0.25Q and a MC = ATC = 20, then the economic profits would be A)$130. B)$6,825. C)$2,600. D)$4,225.

$4,225.

A firm's average total cost is minimized at $5/unit when it produces 10 units. What is the marginal cost when the firm produces 10 units? A)Less than $5/unit B)Greater than $5/unit C)$5/unit D)$10/unit

$5/unit

If Tiger Toys faces a demand curve of P = 85 − 0.25Q and a MC = ATC = 20, then the market price would be A)$85.00. B)$52.50. C)$130.00. D)$32.50.

$52.50.

Assume your company produces good X using only two inputs, capital (K) and labor (L). Also, assume L is measured on the vertical axis and K on the horizontal one. If the prices of inputs are PK=$30 and PL=15, and your company is behaving efficiently, what is the slope of the isoquant at the current input mix? A)-2 B)-1/2 C)2 D)1/2

-2

A firm produces 10 widgets that they sell for $15 each. The average variable cost for the production of 10 widgets is $13/unit. The fixed cost for this firm equals $20. What is the value of this firm's profits? A)-$20 B)-$2 C)0 D)$20

0

If Tiger Toys faces a demand curve of P = 85 − 0.25Q and a MC = ATC = 20, then the output would be A)65.0 units. B)85.0 units. C)130.0 units. D)32.5 units.

130.0 units.

If a firm with monopoly pricing power in the market faces a demand curve of P = 2,000 - 2Q and marginal cost of MC = 1,100 + 2Q, then the firm will produce A)542 units. B)150 units. C)200 units. D)900 units.

150 units.

If a competitive firm can sell its product at $1,600 per unit and the marginal cost of the firm is MC = 1,100 + 2Q, then the firm will produce A)1,084 units. B)250 units. C)160 units. D)1,100 units.

250 units.

Which one of the following is a source of conflict between owners and managers? A)A manager's effort leaves the firm's value and the manager's utility unchanged. B)A manager's effort decreases the firm's value and the manager's utility. C)A manager's effort increases the firm's value but decreases the manager's utility. D)A manager's effort increases the firm's value and the manager's utility.

A manager's effort increases the firm's value but decreases the manager's utility.

Which one of the following does not cause a shift in the demand curve for gasoline? A)An increase in the amount of alternative fuels B)An increase in gas tax C)An increase in the price of gasoline D)An increase in oil imports from the Gulf

An increase in the price of gasoline

Assume the current market price of candles is such that there is a surplus (i.e., excess supply). Which of the following best describes the adjustment process in a competitive market? A)As the price increases, the quantity demanded and the quantity supplied decrease. B)As the price increases, the quantity demanded decreases while the quantity supplied increases. C)As the price decreases, the quantity demanded increases while the quantity supplied decreases. D)As the price decreases, the quantity demanded decreases while the quantity supplied increases.

As the price decreases, the quantity demanded increases while the quantity supplied decreases.

There is an increase in availability of alternative fuels through research and development. Which of the following correctly captures the effect of this change on the market for gasoline? A)Both equilibrium quantity and price will increase. B)Both equilibrium quantity and price will decrease. C)Equilibrium quantity will increase, but equilibrium price will decrease. D)Equilibrium quantity will decrease, but equilibrium price will increase.

Both equilibrium quantity and price will decrease.

The idea that resource allocation can remain efficient, even in the presence of externalities, as long as property rights are clearly assigned and transaction costs are low is referred to as the: A)law of demand. B)Black/Schloes formula. C)Coase Theorem. D)law of diminishing returns.

Coase Theorem.

If the demand for movie tickets is elastic, then A)Ed > 1. B)Ed < 1. C)Ed = 1. D)Ed = 0.

Ed > 1.

Which of the following is not a problem in owner-manager or principal-agent conflicts? A)Choice of effort B)Perquisite taking C)Identical time horizons D)Differential risk exposure

Identical time horizons

Which of these motivate a firm to use nonmarket transactions to acquire inputs and downstream services? A)Zero transaction costs in the spot market B)Absence of market power C)Steady supply of the key input used in production D)Imposition of low tax rates on a particular production unit

Imposition of low tax rates on a particular production unit

Which of the following is true of a production function? A)It specifies the maximum feasible output that can be produced for given amounts of inputs. B)It specifies the maximum revenue that a firm can generate by selling its output. C)It specifies the amount of goods that can be purchased in a market at a given price. D)It specifies the expenses a firm can incur as a result of a production process.

It specifies the maximum feasible output that can be produced for given amounts of inputs.

LightCo sells fairly standard light bulbs to Bodyworks, while BodyWorks sells components that can only be used by AutoCorp. LightCo is only interested in price while BodyWorks hires a law firm to negotiate its contracts with AutoCorp because: A)LightCo and BodyWorks both have significant alternatives in the marketplace. B)LightCo has market alternatives while BodyWorks does not. C)BodyWorkshas market alternatives while LightCo does not. D)neither LightCo nor BodyWorks have market alternatives.

LightCo has market alternatives while BodyWorks does not.

For any company operating in a marketplace, the firm attempts to maximize the value of the company's worth by setting the output where A)costs are lowest. B)P < AVC. C)MR = MC. D)AR = MC.

MR = MC.

Which one of the following is a source of conflict between owners and managers? A)Managers and owners have a very short time horizon. B)Managers and owners worry about the entire future cash flows. C)Managers have short time horizons, while owners have to worry about future cash flows. D)Owners have short time horizons, while managers have to worry about future cash flows.

Managers have short time horizons, while owners have to worry about future cash flows.

An independent trucker has to choose one of the four possible combinations of inputs listed below. The two inputs are drivers and machinery. If he buys expensive machinery, then he can hire fewer drivers to deliver the same output. The input combinations areMethod 1: 20 drivers, 10 machines;Method 2: 50 drivers, 2 machines;Method 3: 100 drivers, 0 machines;Method 4: 10 drivers, 12 machines.Hiring a driver costs $10. Each machine costs $100. Which method should he use? A)Method 1 B)Method 2 C)Method 3 D)Method 4

Method 2

Currently, a monopolist's MR = $5 and its MC = $10 and it serves 10 consumers. An 11th consumer walks in. Should the company provide service to the additional customer? A)Yes, MC is equal to the number of customers, so it should provide service to the additional customer. B)Yes, MR < MC, so it should provide service to the additional customer. C)No, MR is less than the number of customers, so it should not provide service to the additional customer. D)No, MR < MC, so it should not provide service to the additional customer.

No, MR < MC, so it should not provide service to the additional customer.

Assume that Pyrotex Inc. estimates the demand for its fireworks to be linear. If the current price charged by Pyrotex is such that the elasticity of demand is equal to 2.5, which of the following statements is true? A)Pyrotex will surely increase its profits by decreasing the price of fireworks. B)Pyrotex will surely increase its profits by increasing the price of fireworks. C)Pyrotex cannot increase its profits by changing the price of fireworks. D)Not enough information is provided to determine whether Pyrotex is currently maximizing its profits.

Not enough information is provided to determine whether Pyrotex is currently maximizing its profits.

Under what market structure do we have strategic play? A)Perfect Competition B)Monopoly C)Monopolistic Competition D)Oligopoly

Oligopoly

Implementation of a pricing strategy is complicated. Which of the following is a possible reason? A)Optimal pricing policies can change over time. B)Firms change the technique of production over time. C)Companies follow the recommendations of the Robinson-Patman Act. D)Firms often do not differentiate their products.

Optimal pricing policies can change over time.

For a perfectly or purely competitive firm, profit maximization occurs at an output level where A)P = MC. B)MC = ATC. C)P = AVC. D)P < AVC.

P = MC.

Let Qd = 10 - 2P and Qs = 3P be the demand and supply curves for Beer. The equilibrium combination (P* and Q*) in the market is ______. A)P* = 2; Q* = 5 B)P* = 5; Q* = 0 C)P* = 2; Q* = 6 D)P* = 6; Q* = 2

P* = 2; Q* = 6

Under which market structure is a firm's MR curve horizontal? A)Perfect Competition B)Monopoly C)Monopolistic Competition D)Oligopoly

Perfect Competition

Edt = - 5. This means that if A)Pt increases by 5 percent, then Qdt will decrease by 1 percent. B)Qdt increases by 5 percent, Pt will decrease by 1 percent. C)Pt increases by 1 percent, Qdt will decrease by 5 percent. D)Pt decreases by $1, Qdt will decrease by 5 units.

Pt increases by 1 percent, Qdt will decrease by 5 percent.

Assume Pyrotex Inc. estimates the demand for its fireworks to be linear. If the current price charged by Pyrotex is such that the elasticity of demand is equal to 2.5, which of the following statements is true? A)Pyrotex will increase its revenues by decreasing the price of fireworks. B)Pyrotex will increase its revenues by increasing the price of fireworks. C)Pyrotex cannot increase its revenues by changing the price of fireworks. D)Not enough information is provided to determine whether or not Pyrotex is currently maximizing its revenues.

Pyrotex will increase its revenues by decreasing the price of fireworks.

We have two players A and B, where A can go L or R, and B can go T, B, or R. The payoffs are decided after this. Which of the following is a characteristic of such games? A)Dominant strategies B)Simultaneous moves C)Sequential moves D)Backward induction

Simultaneous moves

Which of the following describes the difference between the demand faced by a firm and the demand faced by an industry? A)The demand facing individual firms tend to be more price-elastic than those for the entire industry. B)The elasticity of demand for a firm and for an industry is the same. C)The demand facing individual firms tend to be less price-elastic than those for the entire industry. D)The income elasticity of demand faced by a firm is higher than the income elasticity of demand faced by an industry.

The demand facing individual firms tend to be more price-elastic than those for the entire industry.

Which of the following is true in a regulatory environment? A)The number of consumers is large, and their individual payoffs from successful lobbying are also large. B)The number of consumers is large, and their individual payoffs from successful lobbying are small. C)The demand for regulation is perfectly inelastic. D)The supply of regulation is usually tied to another industry's success.

The number of consumers is large, and their individual payoffs from successful lobbying are small.

Which of the following is a limitation of demand estimation through price experimentation? A)Consumers have incentives to be less truthful in their reaction to price changes, which will provide flawed data. B)Direct market tests like price experimentation are controlled experiments and will not reflect the effects of other changes in the market. C)This approach is comparatively <<AU: Change OK?>> more expensive than the other approaches of demand estimation. D)There is no uniform result as the demand will differ, depending on whether customers anticipate that a price change is permanent or temporary.

There is no uniform result as the demand will differ, depending on whether customers anticipate that a price change is permanent or temporary.

Which of these contract terms reduce transfer pricing problems? A)Double markups and two-part pricing B)Quotas and double markups C)Exclusive territories and two-part pricing D)Two-part pricing and quotas

Two-part pricing and quotas

As GMB moves to select a new passive restraint safety system for its buses, it finds that its competitor, VolgaBus, opposes the move with an alternative technology. GMB must now evaluate its strategy and determine whether A)VolgaBus's alternative is credible. B)GMB used the circle technique to arrive at its decision. C)the secure strategy is the best alternative. D)VolgaBus should really be the first mover.

VolgaBus's alternative is credible.

Which of the following is a difference between a pure strategy and a mixed strategy? A)When a player chooses a specific action in a game, it is a pure strategy, while in a mixed strategy players randomize. B)When a player assigns a probability to an action, it is a pure strategy, while in a mixed strategy players choose their actions sequentially. C)A pure strategy has an element of surprise, while a mixed strategy can be easily predicted by rivals. D)A pure strategy involves all players making their moves simultaneously, while a mixed strategy minimizes the losses of players.

When a player chooses a specific action in a game, it is a pure strategy, while in a mixed strategy players randomize.

Which of the following is an example of positive externalities? A)Your neighbor's garden is always well taken care of. B)Your neighbor's barbecue smoke comes through your window. C)Your neighbor always listens to music at an unbearable volume. D)You allow weeds to grow on your yard.

Your neighbor's garden is always well taken care of.

Which of the following regulatory procedures transfers wealth from the initial landowners whose property is restricted to those landowners whose land has no restrictions? A)Tax on agricultural income B)Import quota C)Zoning restrictions D)Price ceiling

Zoning restrictions

In the Battle of the Sexes game, Man likes to go to watch football, while Woman likes to go to the mall. Both of them would rather go together than go alone. They decide to show up to one of these places without contacting each other. A game like this will have A)a dominant strategy for Man and none for Women. B)one dominant strategy for both the players. C)no Nash equilibrium strategies. D)a Nash equilibrium in mixed strategies.

a Nash equilibrium in mixed strategies.

An iron and steel manufacturing plant was facing a power crisis on a daily basis. The unit had to stall production for about two hours on an average per day. In order to minimize the loss, the owner decided to invest in a cogeneration unit that would produce enough power to facilitate production during the peak load hours. This action of the manufacturer exemplifies: A)a monopoly-pricing strategy. B)a forward or downstream integration. C)a dual-pricing strategy. D)a backward or upstream integration.

a backward or upstream integration.

Related diversification occurs when A)a business serves itself first before serving others. B)a business serves others first before serving itself. C)a business serves itself and allows others to serve it. D)a business serves itself and many other common businesses.

a business serves itself and many other common businesses.

If a manager who does not own a company is allowed to make decisions for the company, then A)the decisions will usually be effective. B)inappropriate decisions will be taken. C)a control system of rewards and evaluation must be set up. D)the manager usually assumes the same position as the owner.

a control system of rewards and evaluation must be set up.

Agri-Tech makes machinery for chicken slaughterhouses. Agri-Tech has developed a de-boning technique specifically for Tasty Chicken. It is likely that Agri-Tech will desire: A)a detailed long-term contract with Tasty Chicken. B)an open market arrangement with Tasty Chicken. C)a patent that excludes use by Tasty Chicken. D)a contract without any price guarantees.

a detailed long-term contract with Tasty Chicken.

The firm or corporation is the focal point for A)a set of contracts. B)the interaction of demand and supply. C)dealing with asymmetric information. D)value minimization.

a set of contracts.

Many college basketball programs require alumni to join a booster club before they can buy season tickets. This is an example of A)a two-part tariff. B)first-degree price discrimination. C)block pricing. D)cost-plus pricing

a two-part tariff.

Marginal utility is the

additional utility obtained by consuming one additional unit of a good.

The movement of goods and resources within a corporation is done on the basis of A)market allocation. B)administrative decisions. C)technological innovation. D)government regulation.

administrative decisions.

A person buys a used 1998 Honda Civic and finds that there is a problem in the drive train so that the whole set of axles must be replaced. However, the state has a law that protects the buyer from these kinds of discoveries for 30 days post purchase. These lemon laws attempt to correct the problem of: A)monopoly power. B)adverse selection. C)resource over-utilization. D)arbitrage.

adverse selection.

Independent distributors of soda can free ride on the brand name of the company manufacturing soda. Two solutions to this problem are: A)creating joint asset ownership and entering into long-term contracts. B)encouraging open market transactions and distributing production secrets. C)advertising and granting exclusive territories. D)encouraging open market transactions and granting exclusive territories.

advertising and granting exclusive territories.

AutoCorp is a dealership that has a contract that prevents the main company from opening another dealership within a 30-mile radius. This is an example of: A)a local monopoly. B)branding. C)an exclusive territory right. D)a double markup.

an exclusive territory right.

Public goods: A)are goods for a few, by a few, and of a few. B)are goods whose consumption imposes a deadweight loss on the entire society. C)are goods whose consumption by one reduces the amount available to others. D)are goods whose consumption by one does not diminish the amount available to others.

are goods whose consumption by one does not diminish the amount available to others.

Marginal costs

are the incremental costs associated with making a decision.

Adverse selection in bargaining arises from A)signaling private information to other parties. B)self-selection based on private information. C)implicit contracts between the principal and the agent. D)asymmetric information held by the principal or the agent.

asymmetric information held by the principal or the agent.

A firm that produces its own output is engaging in ______ integration, while a firm that markets its own good is engaging in ______ integration. A)vertical; horizontal B)downstream; upstream C)forward; backward D)backward; forward

backward; forward

Joan Petty, a human resource manager, offers Billy Self $2,750 per month as an inventory manager. She is willing to offer $750 more per month, but Billy does not have that information and walks away from the job offer. This is an example of a A)market at work. B)bargaining success. C)bargaining failure. D)market in transition.

bargaining failure.

Precontractual informational asymmetries that generate contracting costs can lead to A)bargaining failures and adverse selection. B)implicit contracts and reputational concerns. C)explicit contracts and credibility issues. D)perquisite taking and differential risk exposure.

bargaining failures and adverse selection.

If a corporation compares its compensation and performance-evaluation systems to its competitors' systems, it has engaged in A)plagiarism. B)patent infringement. C)benchmarking. D)specific knowledge enhancement.

benchmarking.

Externalities exist when the actions of one agent A)benefit or hurt another agent who is not part of the exchange relationship. B)hurt the agent committing the action. C)benefit the agent committing the action. D)benefit or hurt another agent who is a part of the exchange relationship.

benefit or hurt another agent who is not part of the exchange relationship.

A company might charge a customer different prices per unit, depending upon the number of units purchased. This is called A)bundling. B)two-part tariff. C)price discrimination. D)block pricing.

block pricing.

Finding a way to create and capture value is part of A)business strategy. B)cost control systems. C)management control, but not general management. D)organizational structure.

business strategy.

Successful invention and innovation in the marketplace A)can create value and are easy to capture. B)cannot create value and are difficult to capture. C)can create value but are often difficult to capture. D)are not important to most company strategies.

can create value but are often difficult to capture.

Independent distributors of a brand name product: A)can commit to provide aftersales service to bulk purchasers. B)can announce discounts on the product price to improve sales. C)can increase its marked price to meet shortage of stock. D)can free-ride on the product's reputation and produce suboptimal sales.

can free-ride on the product's reputation and produce suboptimal sales.

Many people believe that the supply and demand for regulation in an industry often results in the creation of a powerful coalition group controlling the regulatory body. That powerful group often comprises of executives from the same industry that is supposed to be regulated. This is called: A)capturing. B)adverse selection. C)internalization of externalities. D)free-riding.

capturing.

A risk-averse agent

cares about expected payoff as well as the variability of a payoff.

Information asymmetries between producers or consumers along with the problems of externalities can: A)cause market failure. B)always be solved by alternative dispute resolution (ADR) mechanisms. C)improve free trade. D)restrict the use of property rights in a market economy.

cause market failure.

If a strategic move is credible, it is likely to A)be the dominant strategy of all the players in the game. B)change the actions of rivals. C)result in repeated, sequential interactions. D)result in self-enforcing outcomes.

change the actions of rivals.

Repeated market interaction, particularly when there is no end to the interaction in sight, can A)change the dominant strategic equilibrium. B)not change the dominant strategic equilibrium. C)only change the equilibrium if the first mover changes. D)result in a mixed, secure strategy.

change the dominant strategic equilibrium.

Marginal analysis refers to the

comparison of benefits and costs of choosing a little more or a little less of a good.

Putting together two goods—shaving cream and razors—to increase value is using the power of A)complementary goods. B)substitute goods. C)unrelated goods. D)technologically advanced goods.

complementary goods.

W. Edwards Deming, the quality expert, has hinted that incentive pay is actually counterproductive. Economic analysis indicates that enhancing corporate culture and incentive rewards plans are A)substitutes for each other. B)complements for each other. C)the sources of all inefficiencies in modern businesses. D)convex functions of the technology principle.

complements for each other.

The difference between what a consumer is willing to pay for a product and what she actually pays when buying it is known as A)consumer surplus. B)the exchange rate. C)the inflation rate. D)price discrimination.

consumer surplus.

A competitive equilibrium price guarantees that A)consumers who want to buy the product at the market price are satisfied. B)producers can hoard the quantity they want at the current market price. C)gains from trade are maximized only by the producers. D)revenues generated are equal to the cost of production.

consumers who want to buy the product at the market price are satisfied.

Sunk costs refer to

costs that were incurred in the past and cannot be recovered and thus should not affect current decisions.

The transaction costs of writing and enforcing contracts are higher in: A)countries with poorly enforced property rights. B)countries with stringent trade restrictions. C)all countries with good court systems. D)countries without political risks of property confiscation.

countries with poorly enforced property rights.

Fred Powell, the CEO of TruLite, is in a quandary. He wants to bring a new lamp to the market that is based on fuel technology. He just does not understand the technology involved, but he has several engineers who have spent a lot of time investigating the issue. Powell needs to A)decentralize decision making to people with specific knowledge. B)hire outside experts to question his engineers about fuel cells. C)just make a decision so he can beat the competition in the market. D)retire and replace himself with an engineer.

decentralize decision making to people with specific knowledge.

A household-products manufacturing firm was required to examine its organizational architecture in order to survive in the market. The three aspects of its organization that it looked into are A) decision rights, rewards, and technology. B) government regulation, technology, and decision rights. C) government regulation, technology, and markets. D) decision rights, rewards, and evaluation systems.

decision rights, rewards, and evaluation systems.

A production function of the form Q = 40 L.75 K.20exhibits ______ in the long run. A)increasing returns to scale B)decreasing returns to scale C)constant returns to scale D)diminishing returns to the variable input

decreasing returns to scale

Manufacturers of printers and computers set prices independently. This means that they A)use capital-intensive means of production. B)use division of labor and specialization in production. C)do not consider the effect of the prices on the demand for the products. D)do not consider the negative effect that the high prices have on each other's profit.

do not consider the negative effect that the high prices have on each other's profit.

A firm with market power in pricing faces a A)flat demand curve. B)supply curve parallel to the horizontal axis. C)downward-sloping supply curve. D)downward-sloping demand curve.

downward-sloping demand curve.

The omitted-variable problem in statistical analysis occurs when excluded variables are correlated with explanatory variables that are included in the analysis. A)the demand for the product has not been stable over time. B)the price of the product has been relatively unstable over time. C)there is no uniform result because the accounted variables are not D)affected by changes in other variables.

excluded variables are correlated with explanatory variables that are included in the analysis.

The ______ of an uncertain payoff is defined as the weighted average of all possible outcomes, where the probability of each outcome is used as the weights.

expected value

A display of a game in a tree diagram with nodes for every move by the players is a(n) A)part of strategic moves. B)representation of Prisoner's Dilemma. C)simultaneous-move game. D)extensive-form game.

extensive-form game.

Most governments enforce patents, copyrights, and trademarks. While these are clear restrictions on free trade, it is believed that inventors and investors: A)generally oppose these restrictions as they encourage monopolistic competition. B)favor these restrictions since they promote inventive activities. C)prefer high tax rates to patents. D)prefer low prices to patents.

favor these restrictions since they promote inventive activities.

Though Nash games are noncooperative, a cooperative outcome is more likely if A)the long-run gains are smaller than the short-run gains. B)firms can easily monitor the outcomes from cooperation. C)firms expect the market relationship to last only for a short time. D)firms can easily monitor the outcomes from rivals' defection.

firms can easily monitor the outcomes from cooperation.

As GMB and VolgaBus compete, GMB selects a new and superior brake technology. VolgaBus prefers a different brake technology, but feels trapped into selecting the same one used by GMB. This is due to A)adverse selection. B)first-mover advantage. C)secure strategy. D)extension form.

first-mover advantage.

Often people in business work in teams, each using specialized knowledge to get the tasks done. If one member of the team does no work, this is called A)signaling. B)bargaining. C)free-riding. D)costless contracting.

free-riding.

The problem generally associated with public goods is: A)self-selection. B)adverse selection. C)moral hazard. D)free-riding.

free-riding.

In a small numbers environment, ______ is a useful managerial tool for considering rivals' or competitors' responses to decision making. A)game theory B)competitive market theory C)risk sharing theory D)intrafirm strategy

game theory

Organizational architecture varies from firm to firm. The three important external determinants of a firm's administrative structure are A)decision rights, rewards, and technology. B)government regulation, technology, and decision rights. C)government regulation, technology, and markets. D)decision rights, rewards, and evaluation systems.

government regulation, technology, and markets.

Many firms offer substantial rebates by mail or coupons for discounts at the point of sale. The people who use the rebates or coupons have ______ than the people who don't use them. A)greater price sensitivity B)the same price sensitivity C)lesser price sensitivity D)inverted price sensitivity

greater price sensitivity

Bundling of complements to create value strategically usually leads to lower prices for the consumer, ______. A)greater volume sold, and lower profits B)less volume sold, and lower profits C)greater volume sold, and greater profits D)less volume sold, and greater profits

greater volume sold, and greater profits

If a company has significant economies of scale in the long run—assuming a large market —the company will tend to A)grow larger and have a declining average cost curve. B)become smaller and have a declining average cost curve. C)grow larger and have a rising average cost curve. D)become smaller and have a rising average cost curve.

grow larger and have a declining average cost curve.

BaseBall Inc. is a leader in the industry for baseball bats. If new firms enter the industry and BaseBall Inc. experiences a fall in market share, we can say that the product of the company is in the ______ phase. A)decline B)maturity C)growth D)introductory

growth.

The ______ model suggests that that the productivity of employees in a firm will increase if the firm offers lifetime employment and a high salary.

happy-is-productive

AutoCorp is a reputed automobile manufacturer while SUVmart is an independent distributor who buys automobiles from the former. During the current year, SUVmart wants to buy 250 Rhinos from AutoCorp who wants to charge an upfront franchise fee. The franchise fee charged by it: A)can be anything below MC so as to guarantee SUVmart's profits. B)can be anything above MC so as to guarantee some profits for AutoCorp. C)has to be equal to TC so that AutoCorp breaks even on the deal. D)has to be equal to MC.

has to be equal to MC.

Catering, trucking, copying, and mainframe computing are among frequently outsourced services because these activities: A)require assets that are highly firm specific. B)are not specialized. C)have a high level of uncertainty. D)have a relatively low potential for holdup actions.

have a relatively low potential for holdup actions.

Assume Joseph spends his entire income on X and Y, and his indifference curves have the usual convex shape. If Joseph maximizes his utility, then

he spends his entire available income.

A working knowledge of both markets and firms is important for managers to be effective because it A)helps them make appropriate strategic and operational decisions. B)helps them to exploit other executives. C)helps them train their subordinates better. D)helps them earn high bonuses.

helps them make appropriate strategic and operational decisions.

The long-run price elasticity of demand for a product is generally ______ the short-run elasticity for the same product. A)lower than B)equal to C)higher than D)not comparable to

higher than

The shape of a perfectly elastic demand curve is A)horizontal, Ed = infinity. B)horizontal, Ed = 0. C)horizontal, Ed = -1. D)vertical, Ed = 0.

horizontal, Ed = infinity.

The marginal product curve of input Y shows A)how the quantity of output produced changes for each amount of input Y, whether or not all other inputs are held constant. B)how the quantity of output produced changes for each amount of input Y, holding all other inputs constant. C)how the average quantity of output produced varies with input Y, whether or not all other inputs are held constant. D)how the average quantity of output produced varies with input Y, holding all other inputs constant.

how the quantity of output produced changes for each amount of input Y, holding all other inputs constant.

As opposed to corporate strategy, business strategy is focused on A)increasing the elasticity of consumer demand. B)the type of production technique to use. C)the type of industry to produce in. D)how to compete with other firms in the industry.

how to compete with other firms in the industry.

A company can translate its assets into value if it effectively uses them in the marketplace. The three types of assets are tangible assets, intangible assets, and A)preliminary assets. B)current assets. C)human assets. D)fictitious assets.

human assets.

If transaction costs can be reduced in a marketplace, then total producer and consumer surplus will A)increase. B)stay the same. C)decrease. D)increase first and then decrease.

increase.

Disney sold The Little Mermaid for $20 with a $5 mail in rebate. The rebate should have A)reduced overall customer demand. B)stabilized overall customer demand. C)increased overall customer demand. D)inverted overall customer demand.

increased overall customer demand.

A firm's market power decreases if the price elasticity of demand for its product A)stays the same over time. B)decreases. C)equals the income elasticity of demand. D)increases.

increases.

A production function of the form Q = 150L.75 K.50exhibits ______ in the long run. A)increasing returns to scale B)decreasing returns to scale C)constant returns to scale D)diminishing returns to the variable input

increasing returns to scale

The profit earned by an industry is likely to be low if the A)industry has only a few large customers. B)industry has many customers. C)product produced in the industry has only a few substitutes. D)degree of rivalry among industries is low.

industry has only a few large customers.

If employees' activities follow the economists' view of behavior, managers will be most effective if they can

influence the costs and benefits of employee actions.

The components of organizational architecture are ______. A)interdependent on each other B)independent of each other C)likely to lead to incentive problems D)likely to promote corporate culture

interdependent on each other

In developed countries, if property rights are enforced and contracts in trade are legally respected, it is usually assumed that: A)output will begin to fall. B)investment will be encouraged. C)transaction costs will be zero. D)government intervention will be unnecessary.

investment will be encouraged.

In developed countries, the enforcement of contracts and the adjudication of contract disputes through the court system: A)reduces the volume of international trade. B)lowers the comparative advantage enjoyed by producers. C)is an important way to reduce transaction costs. D)weakens the system of property rights.

is an important way to reduce transaction costs.

A significant feature of the price system in a market economy is that the architecture A)is created spontaneously. B)is created by the government. C)promotes skewed distribution of wealth. D)promotes a system of controls on the employees of an organization.

is created spontaneously.

As a firm moves from a competitive industry to a monopoly: A)its profits fall. B)average revenue falls and profits rise. C)marginal costs rise and profits fall. D)its profits rise.

its profits rise.

When a firm establishes a long-term contract with another firm that is characterized by common ownership of a supplier with another firm, it is referred to as a: A)standard supply contract. B)joint venture. C)lease contract. D)franchise agreement.

joint venture.

When a firm establishes a long-term contract with another firm whereby it acquires an asset such as a machine or a building through a rental agreement, it is called a: A)standard supply contract. B)joint venture. C)lease contract. D)franchise agreement.

lease contract.

The shutdown condition—the point where the company finds it no longer viable to produce and sell a product—for a competitive firm, in the short run, is where price is A)less than marginal revenue. B)less than short-run average total cost. C)greater than marginal revenue. D)less than average variable cost.

less than average variable cost.

Profits will be A)high, regardless of the degree of rivalry if there are no entry barriers. B)high, when the degree of rivalry is high. C)low, when the degree of rivalry is low. D)low, when the degree of rivalry is high.

low, when the degree of rivalry is high.

In the Cournot equilibrium, the price that each firm accepts is slightly higher than the monopoly price, but lower than the A)competitive price. B)the same as the monopoly price. C)lower than the monopoly price, but higher than the competitive price. D)the same as the competitive price.

lower than the monopoly price, but higher than the competitive price.

A major advantage of long-term contracts over short-term contracts is that they increase the incentives of the contracting parties to: A)practice holdup actions. B)practice arbitrage. C)undertake spot market transactions. D)make firm-specific investment.

make firm-specific investment.

When a firm purchases a part of its supplies from any one of a large number of potential suppliers at the current market price without long-term commitments, it is: A)making a spot market purchase. B)practicing arbitrage. C)integrating upstream. D)integrating downstream.

making a spot market purchase.

Double markups refer to the tendency of the: A)manufacturer and the distributor to increase the product's price above the average cost. B)manufacturer to increase the product's price by more than twice the marginal cost. C)distributor to increase the product's price by more than the manufacturer. D)manufacturer and the distributor to increase the product's price above the marginal cost.

manufacturer and the distributor to increase the product's price above the marginal cost.

The ______ represents the additional revenue that comes from using one more unit of input. A)marginal revenue product B)economic profit C)learning curve D)average revenue product

marginal revenue product

It is in the self-interest of individuals to A)minimize the total contracting costs in any relationship. B)maximize the total contracting costs in any relationship. C)eliminate the total bargaining costs in any relationship. D)reduce value through formal contracting costs.

minimize the total contracting costs in any relationship.

The higher the price elasticity, the A)more sensitive price changes are to quantity demanded. B)less sensitive price changes are to quantity demanded. C)more sensitive quantity demanded is to price changes. D)less sensitive quantity demanded is to price changes.

more sensitive quantity demanded is to price changes.

If a firm operating in a fairly competitive market earns a large economic profit, then, over time, A)old firms will exit and prices will rise. B)old firms will exit and prices will fall. C)new firms will enter and prices will rise. D)new firms will enter and prices will fall.

new firms will enter and prices will fall.

Within corporations, there are _______ systems that motivate individuals and teams to make the most efficient decisions on products sales. A)automatic administrative B)automatic market-driven C)no automatic administrative D)no automatic market-driven

no automatic administrative

Game theory between two firms with two outcomes tends to emphasize A)noncooperative games. B)organizational architecture. C)intrafirm decision making. D)purely competitive outcomes.

noncooperative games.

A monopolist sets prices above the competitive price and output below the competitive output level. Some customers are willing to pay more than marginal cost, yet do not receive the product. Thus: A)not all gains from trade are exhausted. B)all gains from trade are exhausted. C)it is clear that monopolists do not maximize profits. D)it is clear that monopolists experience decreasing returns to scale.

not all gains from trade are exhausted.

You want to hire a law firm to represent you from which you derive benefit. The law firm incurs costs from providing this service. As long as marginal benefits are greater than marginal costs, value is A)minimized. B)not maximized because more hours of services are provided. C)not maximized because fewer hours of services are provided. D)maximized.

not maximized because fewer hours of services are provided.

Actions like entering a new market, pricing a new product, or making a bid to buy another company are all useful Nash-like managerial decisions because they are A)repeated often and the outcome depends on the coordination of decisions with rivals. B)not repeated often and the outcome depends on the coordination of decisions with rivals. C)repeated often and the outcome depends on the simultaneous decisions of rivals. D)not repeated often and the outcome depends on the simultaneous decisions of rivals.

not repeated often and the outcome depends on the simultaneous decisions of rivals.

For decision-making purposes, fixed costs incurred by a firm with market power are A)the same as variable costs. B)not taken into consideration. C)the same as marginal costs. D)the same as opportunity costs of production.

not taken into consideration.

Agri-Tech supplies a patented sweetener to various food processors. It has noticed that the value of the sweetener varies dramatically from one buyer to another, depending on the end-use demand. But its experiments with charging higher prices to some buyers have failed because: A)price discrimination is illegal. B)of market arbitrage. C)the cost of production is always the same. D)outsourcing is compromised by contracting costs.

of market arbitrage.

A market where a few firms produce most of the output is called a(n) A)oligopolistic market. B)monopolistically competitive market. C)perfectly competitive market. D)monopolistic market.

oligopolistic market.

Diminishing marginal returns occur when A)one input is increased and the others are held constant. B)all inputs are increased. C)one input is decreased while the other is increased. D)all inputs are decreased.

one input is increased and the others are held constant.

Total agency costs are A)the monitoring costs plus residual loss. B)the monitoring costs plus out-of-pocket costs. C)out-of-pocket costs plus residual loss. D)out-of-pocket costs minus residual loss.

out-of-pocket costs plus residual loss.

In the Cournot equilibrium, each firm assumes that the other's ______ is/are being held constant. A)price B)costs C)output or sales D)marketing strategy

output or sales

When a firm decides to move away from ownership of a vertically integrated production process and begins to purchase supplies or other services from other businesses, it is said to be: A)integrating downstream. B)integrating upstream. C)franchising. D)outsourcing.

outsourcing.

If consumers find that there are substantial transaction costs to purchasing a product, then A)overall consumer demand is greater at each price. B)overall consumer demand is the same at each price. C)overall consumer demand is less at each price. D)equilibrium price and quantity both fall.

overall consumer demand is less at each price.

While CEO of General Electric, Jack Welch was a very successful corporate manager; he also loaded up his retirement program with numerous unusual benefits such as rented apartments, free airplanes, and numerous club memberships. The owners (stockholders) were generally unaware of these benefits. The source of conflict between owners and managers in this case was A)the choice of effort of Mr. Welch while he was CEO. B)perquisite taking on the part of Mr. Welch. C)differential risk exposure between Mr. Welch and the typical stockholder. D)overinvestment in company offices by Mr. Welch.

perquisite taking on the part of Mr. Welch.

If the demand for product A displays high and positive cross-price elasticity with respect to the price of product B, then A)the demand for product A is likely to have a low price elasticity. B)products A and B are substitutes. C)products A and B are complements. D)the demand for product B is likely to have a low price elasticity.

products A and B are substitutes.

A jury ordered McDonald's to pay $2.7 million to Stella Liebeck, a drive-through customer who burned herself with hot coffee after placing the cup between her legs to remove the top and add cream. She claimed that the coffee was too hot. This tells us that our legal system can: A)promote efficiency by making property rights secure. B)promote efficiency by lowering transaction costs. C)lower costs by creating incentives to litigate frivolous suits. D)raise costs by creating incentives to litigate frivolous suits.

raise costs by creating incentives to litigate frivolous suits.

Setting up a hub-and-spoke distribution towards inventory and retail delivery is an example of A)increased consumer transactions cost. B)increased producer transactions cost. C)reduced consumer transactions cost. D)reduced producer transactions cost.

reduced producer transactions cost.

Competitive markets usually promote the efficient use of resources. This is because A)resource owners bear the wealth effects of their decisions. B)managers always have the proper incentives to make decisions. C)consumers price makers D)markets usually make equitable choices first.

resource owners bear the wealth effects of their decisions.

With the creation of value, there is a A)leftward shift of both the demand and supply curves. B)leftward shift of the supply curve. C)rightward shift of the demand curve. D)leftward shift of the demand curve and a rightward shift of the supply curve.

rightward shift of the demand curve.

Special interest groups, in the theory of regulation, may be defined as: A)public-spirited individuals who will benefit from regulation. B)self-interested individuals who benefit from regulation. C)self-interested individuals who will suffer from regulation. D)public-spirited individuals who will suffer from regulation.

self-interested individuals who benefit from regulation.

In a monopolistically competitive market, the seller maximizes profits by A)setting P = ATC. B)setting MC = ATC. C)setting price where MR = MC. D)setting price where P = MC.

setting price where MR = MC.

Assume that the quantity of X is measured on the horizontal axis, and the quantity of Y is measured on the vertical axis. Assume that the price of X is $3 and the price of Y is $6. If Amanda has $90 to spend on X and Y, then

she can buy, at most, 30 units of good X.

A budget line

shows all the combinations of goods that require the same total expenditure.

Sealed bid construction contracts are examples of market games that are A)simultaneous and nonrepeated. B)simultaneous and repeated. C)sequential and nonrepeated. D)sequential and repeated.

simultaneous and nonrepeated.

Assume the demand function for skin care products is given by Q = 1,000 - 20 P + 5I. If P=$25 and I=$1,000 currently, then A)skin care products are normal goods. B)the elasticity of demand is equal to 11. C)skin care products are inferior goods. D)the elasticity of demand is equal to 10

skin care products are normal goods.

Paul Romer argues that "what underlies this process [economic success] . . . are instructions, formulas, recipes, and methods of doing things." He is referring to A)hardware or tangible assets. B)software or intangible assets. C)wetware. D)hardware or human resources.

software or intangible assets.

The case of the Kodak - IBM outsourcing agreement for payroll software indicates that ______ can cause significant long-term holdup problems. A)competitive markets B)technological change C)specific assets D)quality control issues

specific assets

One of the problems with making all the decisions at the top of a business organization is the costliness of A)specific information. B)general information. C)advanced technology. D)market power.

specific information.

Actions that are taken to influence the beliefs or actions of rivals in favorable ways are A)pure strategies. B)mixed strategies. C)strategic moves. D)secure strategies.

strategic moves.

In a corporation, one important source of value is that the "whole organization" is worth more than the sum of its parts. This is called A)team production capabilities. B)collective cost analysis benefits. C)complementary goods value creation. D)substitute goods value creation.

team production capabilities.

While very few markets are "purely competitive" according to the strict economics definition, market analysts often use competition as A)the benchmark from which to judge other market settings. B)the standard of an inefficient market structure. C)an example of a market with poor entry and exit conditions. D)an example of a market with asymmetric information.

the benchmark from which to judge other market settings.

Assume that the quantity of CDs is measured on the horizontal axis, while the quantity of movie tickets is measured on the vertical axis. If available income decreases, then

the budget line will shift inward.

If a company picks an organizational architecture that is inappropriate for its marketplace, then A)the company is unlikely to survive market competition. B)technology is likely to rescue the company from bankruptcy. C)competition is likely to help the company to grow. D)government regulation is likely to cause the company to fail.

the company is unlikely to survive market competition.

The opportunity cost of any business decision is A)accounting cost divided by the level of output. B)the cost per unit of output. C)the cost of the next best alternative. D)the cost of doing business in the future.

the cost of the next best alternative.

Sales of shampoo by CleanHair, Inc., have recently decreased from 1,300 to 1,100 units in response to a price decrease from $7 to $5 by its main competitor. Assuming that everything else is being held constant, we can infer that A)the cross-price ARC-elasticity (midpoints formula) between the two products is -2. B)the cross-price ARC-elasticity (midpoints formula) between the two products is -½. C)the cross-price ARC-elasticity (midpoints formula) between the two products is ½. D)the cross-price ARC-elasticity (midpoints formula) between the two products is 2.

the cross-price ARC-elasticity (midpoints formula) between the two products is ½.

Role models, company folklore, and rituals are A)the key components of corporate culture. B)not parts of most companies' corporate culture. C)not considered in an economic analysis of organizational architecture. D)the key components of a barter economy.

the key components of corporate culture.

Though Nash games are noncooperative, a cooperative outcome is more likely if A)the long-run gains are greater than the short-run gains. B)firms can easily monitor the outcomes from rivals' defection. C)firms expect the market relationship to last only for a short time. D)the long-run gains are smaller than the short-run gains.

the long-run gains are greater than the short-run gains.

In some industries, pollution rights are sold from one company that does not need them to another that does. In recent years, conservation groups have purchased pollution rights so they cannot be exercised. Companies in need of pollution rights will find that: A)the supply of pollution rights has increased. B)the prices of pollution rights have fallen. C)the relative costs of pollution control equipment has gone up. D)the prices of pollution rights have gone up.

the prices of pollution rights have gone up.

Fast food is believed to be an inferior good. This means that A)the quantity of fast food consumed decreases as income increases. B)the income elasticity of demand for fast food is positive. C)the quantity of fast food consumed will always be high. D)the quantity of fast food supplied decreases as income increases.

the quantity of fast food consumed decreases as income increases.

The key to understanding changing organizational architecture is that A)it is costless. B)there are only direct costs. C)there are only indirect costs. D)there are direct and indirect costs.

there are direct and indirect costs.

The production and distribution of goods and services in an economy is said to be Pareto-efficient if A)there exists no alternative that keeps all individuals at least as well off but makes even one person better off. B)there is no alternative that reduces the cost of transportation and distribution of goods in a market. C)the revenue generated from the sale of goods and services is more than the cost of production. D)the quantity of goods demanded in an economy is more than the quantity supplied.

there exists no alternative that keeps all individuals at least as well off but makes even one person better off.

Designing efficient contracts are costly when A)there is perquisite involved. B)there is complete information. C)there is asymmetric information. D)there is an agency relationship.

there is asymmetric information.

In a Nash equilibrium, firms are clearly strategically interdependent, and A)they cooperate with each other to determine market outcomes. B)they determine price in a closed auction bid system. C)they are dependent on differentiated goods. D)they are noncooperative in determining market outcomes.

they are noncooperative in determining market outcomes.

Under monopoly, there are A)unexploited gains from trade. B)many competitors. C)advantages of heterogeneous products. D)problems of easy entry.

unexploited gains from trade.

It is in the interest of all parties to develop efficient solutions to agency problems through ______ so that more wealth can be shared among the contracting parties. A)adverse selection B)value maximization C)contracting until marginal benefit (MB) equals zero D)implicit contracts

value maximization

The shape of a perfectly inelastic demand curve is A)horizontal, Ed = ∞. B)horizontal, Ed = 0. C)horizontal, Ed = -1. D)vertical, Ed = 0.

vertical, Ed = 0.

If an important component of a firm's production process is difficult to specify in a contract and even more difficult to enforce in its production standards, then it probably makes sense to: A)buy the component in the open market. B)use a simple short-term contract. C)vertically integrate upstream to build the component. D)incur information cost.

vertically integrate upstream to build the component.

When asset specificity is very high and there is a lot of market uncertainty, then it is best for a firm to: A)buy in the open market. B)use a long-term contract. C)vertically integrate. D)engage in a joint venture.

vertically integrate.

When a corporation participates in more than one successive stage in a multi-stage production process, it is said to be: A)vertically integrated. B)completely outsourced. C)engaged in preliminary contracts. D)functionally organized.

vertically integrated.