APECON1000 - Chapter 10

Refer to Table 10.2.1. If the price of labour is $10 per unit and the price of capital is $20 per unit, which method is economically efficient? A) 1 only B) 2 only C) 3 only D) all of the above E) 1 and 3 only

B

Team production is A) a production process with decreasing costs per unit as production increases. B) a production process with individuals specializing in mutually supportive tasks. C) the production that results from market activity. D) the cost of organizing an assembly line. E) the lower costs resulting from organizing a firm versus using the market to coordinate production.

B

The Herfindahl-Hirschman Index (HHI) is the square of the percentage market share of each firm summed over the ________ firms in a market. A) largest 60 B) largest 50 C) smallest 50 D) largest 75 E) smallest 60

B

The Herfindahl-Hirschman Index is calculated as A) the cube of the percentage market share of each firm summed over the largest 100 firms. B) the square of the percentage market share of each firm summed over the largest 50 firms or summed over all the firms if there are fewer than 50. C) the square of the percentage market share of each firm summed over the largest 20 firms. D) double the market share of the five largest firms. E) none of the above.

B

The North American economy is ________ and is becoming ________ competitive. A) uncompetitive; less B) competitive; more C) competitive; less D) uncompetitive; more E) currently an oligopolistic market; more

B

The four-firm concentration ratio in an industry is 75 percent. Total sales in the industry are $800 million and total economic profit in the industry is $500 million. Normal profit for each firm is zero. From this information we know that A) economic profit of any four firms is at least $667 million. B) total sales from the four largest firms is $600 million. C) economic profit of the four largest firms is $375 million. D) total sales from any four firms is at least $1,067 million. E) economic profit of the four largest firms is $500 million.

B

The four-firm concentration ratio measures the share of the largest four firms in total industry A) profit. B) sales. C) cost. D) capital. E) loss.

B

The possibility that an employee may not work hard is an example of the A) limited liability problem. B) principal-agent problem. C) transactions cost problem. D) technological efficiency problem. E) partnership problem.

B

To produce a unit of output, Alphaworks uses 10 hours of labour and 5 kilograms of material. Betaworks uses 5 hours of labour and 10 kilograms of material, and Gammaworks uses 10 hours of labour and 10 kilograms of material. If labour costs $10 per hour and material costs $5 per kilogram, which firm is economically efficient? A) Alphaworks only B) Betaworks only C) Gammaworks only D) Alphaworks and Betaworks E) Alphaworks and Gammaworks

B

What is a disadvantage of a corporation relative to a sole proprietorship or partnership? A) Owners have unlimited liability. B) Profits are taxed twice; as corporate profits and as dividend income and capital gains to stockholders. C) high cost of capital D) perpetual life E) None of the above.

B

Which one of the following statements about the implicit rental rate of capital is true? A) It is the market value of capital. B) It is the opportunity cost to a firm of using its own capital. C) It includes normal profit. D) It is the amount paid for the use of land or buildings. E) It is the depreciated value of capital.

B

Which one of the following statements is true? A) All technologically efficient methods are also economically efficient. B) All economically efficient methods are also technologically efficient. C) Technological efficiency changes with changes in relative input prices. D) Technologically efficient firms will be more likely to survive than economically efficient firms. E) none of the above

B

A firm with a lower unit cost from producing a wider range of goods and services has economies of A) transactions costs. B) scale. C) scope. D) team production. E) market coordination.

C

A firm's goal is to A) maximize revenue. B) maximize cost while minimizing revenue. C) maximize profit. D) minimize costs. E) minimize risk.

C

A four-firm concentration ratio of less than 60 percent indicates A) a monopoly. B) a market that is dominated by a few firms. C) a competitive market. D) an oligopoly. E) an absence of competition.

C

A group of business people are having coffee. Which of the following quotations describes economies of scale? A) "The new production process we've installed uses less capital and labour than the old one." B) "The new assembly line has higher capital costs, but the fall in workers' hours has lowered overall costs." C) "The costs of per-unit production have fallen dramatically as we have increased the length of the production runs." D) "Despite the higher costs of negotiating the contracts, hiring the cleaning firm is much cheaper than using our own staff." E) "The computer servicing people we have hired work very well as an integrated problem-solving group."

C

Economic depreciation is A) the same as depreciation calculated by an accountant. B) equal to economic profit minus normal profit. C) the change in the market value of capital over a given period. D) the deterioration of the physical appearance of a capital. E) paid in cash.

C

Economic profit equals total revenue minus A) the cost of resources bought in the market. B) the implicit rental rate. C) the opportunity cost of production. D) the cost of resources supplied by the owner. E) the cost of resources owned by the firm.

C

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. A) economically B) economically and technologically C) technologically D) not E) capital and labour

C

Federal Express enters into contracts with independent truck operators who offer FedEx service and who are rewarded by the volume (cubic feet) of packages they carry. FedEx does not hire more independent drivers because A) it is concerned about a possible downturn in the economy and the effects of overexpansion. B) it cannot afford more trucks and more drivers. C) of the principal-agent problem. D) it is a corporation, so it wants to have a limited number of independent truck owners operating as proprietorships. E) trucks are not a technologically efficient method of transporting parcels.

C

Firms organize production by using A) command systems only. B) incentive systems only. C) command and incentive systems. D) market systems only. E) principal-agent systems only.

C

In general, (1) opportunity cost is greater than accounting cost. (2) opportunity cost is less than accounting cost. (3) economic profit is greater than accounting profit. (4) economic profit is less than accounting profit. A) 1 only B) 1 and 3 C) 1 and 4 D) 2 and 3 E) 2 and 4

C

In the relationship between the owner of a bakery and the baker, the owner is A) an agent, as is the baker. B) an agent and the baker is a principal. C) a principal and the baker is an agent. D) a principal, as is the baker. E) neither a principal nor an agent, but the baker is an agent.

C

Marc bought a new car last year for $10,000. He can now sell the car for $8,500. To buy this year's model he would have to pay $11,000. Marc also had to take out a $9,000 loan to buy the car, which had to be paid back in yearly installments of $3,300 per year over three years. What is the implicit rental rate of the first year's use of the car? A) $2,800 B) $1,300 C) $1,800 D) $13,300 E) $4,800

C

Most establishments in Canada A) employ between 5 and 99 people. B) employ more than 100 people. C) employ fewer than 5 people. D) employ more than 500 people. E) are partnerships.

C

Mr. Brown opens his restaurant as a sole proprietorship. After a year of disastrous reviews, he has gone deeply into debt. His liability is A) zero; he has already lost all his money. B) the amount of his original investment. C) limited only by his entire wealth. D) limited to assets owned by the restaurant. E) depends upon how much money he has in his savings account.

C

Refer to Table 10.4.1. The four-firm concentration ratio for the pizza sellers is A) 40 percent. B) 100 percent. C) 80 percent. D) 33 percent. E) 12.5 percent.

C

Susan invests $1,000 to buy shares of TooNew stock. The company declares bankruptcy, leaving many debts unpaid, including Susan's $1,000 investment. Susan has a personal net worth of $50,000. What will be Susan's final net worth if TooNew has total unpaid debts of $30,000? A) $19,000 B) $21,000 C) $49,000 D) $51,000 E) $20,000

C

The legal responsibility for debts incurred by a sole proprietorship falls upon A) the shareholders. B) the partners of the sole proprietorship. C) the owner. D) the creditors. E) the managers.

C

The principal-agent problem exists when A) there is no command system in place. B) firms operate as sole proprietorships. C) agents do not act in the best interest of principals. D) principals do not act in the best interest of agents. E) the future value of money is more than its current value.

C

Where the Herfindahl-Hirschman Index is less than 1,000, the market is regarded as A) a monopoly. B) an oligopoly. C) competitive. D) regulated. E) none of the above.

C

Which of the following industries in Canada has the lowest four-firm concentration ratio? A) tires B) soft drinks and ice C) textiles D) sugar E) wooden windows and doors

C

Which of the following pairs of market types are both characterized by having a large number of firms? A) oligopoly and monopolistic competition B) monopoly and oligopoly C) perfect competition and monopolistic competition D) monopoly and monopolistic competition E) perfect competition and oligopoly

C

Which one of the following statements describes a market that is monopolistically competitive? A) The presence of significant barriers to entry. B) The products produced by the firms are identical. C) Many firms compete by making similar but slightly different products. D) There is a small number of large firms. E) The product produced by one firm has no close substitutes.

C

) If a market is shared equally by 100 firms, the Herfindahl-Hirschman Index is A) 1/100. B) 1/50. C) 1. D) 50. E) 100.

D

A firm with one or more owners of limited liability is A) a sole proprietorship. B) a partnership. C) a conglomerate. D) a corporation. E) a public company.

D

A four-firm concentration ratio that exceeds 60 percent indicates A) a perfectly competitive market. B) a monopolistically competitive market. C) a monopoly. D) an oligopoly. E) a competitive market.

D

A golf club manufacturer pays its workers based on the number of sets of clubs they produce. This firm A) organizes production based on a command system. B) does not have a principal-agent problem. C) is a sole proprietorship. D) organizes production based on an incentive system. E) is a corporation.

D

A group of business people are having coffee. Which of the following quotations describes transactions costs? A) "The new production process we've installed uses less capital and labour than the old one." B) "The new assembly line has higher capital costs, but the fall in workers' hours has lowered overall costs." C) "The costs of per-unit production have fallen dramatically as we have increased the length of the production runs." D) "Despite the higher costs of negotiating the contracts, hiring the cleaning firm is much cheaper than using our own staff." E) "The computer servicing people we have hired work very well as an integrated problem-solving group."

D

A market in which the Herfindahl-Hirschman Index (HHI) lies between 1,000 and 1,800 is regarded as being A) a monopoly. B) an oligopoly. C) a perfectly competitive market. D) a moderately competitive market. E) a potential matter of concern for regulators.

D

A market structure where a small number of firms compete occurs in A) perfect competition. B) monopolistic competition. C) the worldwide market for wheat, corn, and rice. D) oligopoly. E) monopoly.

D

Consider the following three methods of preparing your tax return. Method A uses a personal computer (cost equal to $1,000) and 1 hour of your time. Method B uses a calculator (cost equal to $30) and 12 hours of your time. Method C uses pen and paper (cost equal to $1) and 2 days (16 hours) of your time. Consider Fact 10.2.1. Choose the best statement. A) When your wage rate is $5 per hour, the economically efficient method is method C. B) When your wage rate is $50 per hour, the economically efficient method is method B. C) When your wage rate is $500 per hour, the economically efficient method is method A. D) all of the above E) B and C only

D

Firm A can produce a unit of output with 10 hours of labour and 5 units of capital. Firm B can produce a unit of output with 5 hours of labour and 10 units of capital. Firm C can produce a unit of output with 10 hours of labour and 10 units of capital. If the prices of labour and material are $10 and $5, respectively which firm is technologically efficient? A) A only B) B only C) C only D) A and B E) A and C

D

In a partnership, each partner is legally liable for A) all the debts of the partnership. B) the fraction of the debts corresponding to the fraction of ownership. C) 50 percent of the debt. D) all debts of the partnership limited by the personal wealth of the partner. E) an amount of debt limited to the amount of the partner's investment in the partnership.

D

One difference between oligopoly and monopolistic competition is A) there is a smaller number of firms in a monopolistically competitive market than in an oligopoly. B) in oligopolies firms make slightly different products whereas in monopolistic competition the products are identical. C) monopolistic competition has barriers to entry, whereas oligopoly has none. D) fewer firms compete in an oligopoly than in a monopolistically competitive market. E) in oligopolies, firms are typically smaller in size.

D

One difference between perfect competition and monopolistic competition is A) firms in a perfectly competitive market produce similar but slightly different products. B) in perfect competition, the product produced has no close substitutes. C) monopolistic competition has barriers to entry, whereas perfect competition has none. D) firms in monopolistic competition have some degree of market power. E) a small number of firms compete in a monopolistically competitive market and a large number of firms compete in a perfectly competitive market.

D

Refer to Table 10.2.1, which shows three methods for making photon torpedoes. Which method is technologically efficient? A) 1 only B) 2 only C) 3 only D) all of the methods E) 1 and 3 only

D

Refer to Table 10.4.1. The four-firm concentration ratio for taco stands is A) 15 percent. B) 100 percent. C) 80 percent. D) 33 percent. E) 30 percent.

D

Some firms use large amounts of capital and small amounts of labour, while others use small amounts of capital and large amounts of labour to A) use surpluses of labour and capital and eliminate unemployment of these resources. B) use the best available technology. C) use the resources that are most readily available. D) maximize profit. E) maximize production.

D

The Herfindahl-Hirschman Index (HHI) for a local water supplier is A) less than 100. B) between 101 and 999. C) more than 1,000 but less than 2,000. D) 10,000. E) between 2,000 and 5,000.

D

The correct ranking of the four basic market structures from low HHI (Herfindahl-Hirschaman Index) to high HHI is A) monopolistic competition, perfect competition, oligopoly, monopoly. B) perfect competition, oligopoly, monopolistic competition, monopoly. C) monopoly, oligopoly, monopolistic competition, perfect competition. D) perfect competition, monopolistic competition, oligopoly, monopoly. E) monopoly, monopolistic competition, oligopoly, perfect competition.

D

The four-firm concentration ratio tells us the percentage of ________ for the four largest firms in an industry. A) employment B) accounting profit C) economic profit D) the value of sales E) physical output

D

The implicit rental rate A) is the firm's opportunity cost of using the capital it owns. B) is paid with cash. C) has two components: economic depreciation and foregone interest. D) both A and C are correct. E) both B and C are correct.

D

The purpose of calculating the concentration ratio is A) to obtain the firm's total profit. B) to obtain the firm's production cost. C) to measure the losses the firm incurred. D) to measure the extent to which the market is dominated by a small number of firms. E) to distinguish between the firm's total profit and production cost.

D

What is the maximum value of the Herfindahl-Hirschman Index? A) 1 B) 1,000,000 C) 100,000 D) 10,000 E) 1,000

D

Which one of the following is not generally a transactions cost? A) the fee to a broker for buying stocks B) the cost of a lawyer who drafts a contract C) the cost of hiring someone to find you a supplier of raw materials D) the cost of the owner's time in a sole proprietorship E) the cost of phone calls made to find a buyer

D

Which one of the following would not likely be a firm with economies of scale? A) an electrical production plant B) a steel mill C) a telephone company D) a firm that produces handmade cabinetry E) a multi-store dry-cleaning firm

D

A firm that is technologically efficient A) always makes an economic profit. B) must be economically efficient, but a firm that is economically efficient is not always technologically efficient. C) must be economically efficient, and a firm that is economically efficient must always be technologically efficient. D) is not always economically efficient, and a firm that is economically efficient is not always technologically efficient. E) is not always economically efficient, but a firm that is economically efficient must always be technologically efficient.

E

A firm's total opportunity cost of production is the sum of the cost of using resources A) bought in the market. B) owned by the firm. C) supplied by the firm's owner. D) bought in the market and supplied by the firm's owner. E) bought in the market, owned by the firm, and supplied by the firm's owner.

E

A profit-maximizing firm is constrained by A) demand for its product. B) limited resources. C) available technology. D) limited information. E) all of the above.

E

An example of the principal-agent problem occurs when A) an agent is more motivated than the principle to provide a high-quality good or service. B) managers try to cope with employees that are inefficient. C) sole proprietors don't receive any money payment for their entrepreneurial skills. D) managers devise penalties that eliminate employee waste. E) managers devise incentives that encourage employees to act in the owner's behalf.

E

Consider the following three methods of preparing your tax return. Method A uses a personal computer (cost equal to $1,000) and 1 hour of your time. Method B uses a calculator (cost equal to $30) and 12 hours of your time. Method C uses pen and paper (cost equal to $1) and 2 days (16 hours) of your time. Consider Fact 10.2.1. Which production method is technologically inefficient? A) A B) B C) C D) all of the above E) none of the above

E

Firms coordinate economic activity more efficiently than markets when firms have A) lower transactions costs. B) economies of scale. C) economies of scope. D) economies of team production. E) all of the above.

E

If a market is shared equally by four firms, the Herfindahl-Hirschman Index is A) 1/4. B) 4. C) 25. D) 100. E) 2,500.

E

In Table 10.2.2, which method of making a medical hologram is technologically efficient? A) 1 only B) 2 only C) 3 only D) all of the above E) 1 and 3 only

E

Marc bought a new car last year for $10,000. He can now sell the car for $8,500. To buy this year's model of the same car he would have to pay $11,000. What is the implicit rental rate using the car for one year at a zero percent interest rate? A) $2,500 B) $3,500 C) $1,000 D) $10,000 E) $1,500

E

The profits of a sole proprietorship are A) taxed twice. B) subject to a corporate tax. C) not taxed. D) exempt from taxation. E) treated as the owner's income.

E

When the Herfindahl-Hirschman Index (HHI) is greater than 1,800, A) the market is very competitive. B) a monopoly exists. C) there are many producers in the market. D) the market is moderately competitive. E) the market is uncompetitive.

E

Which of the following activities is most likely to be coordinated by a firm, instead of a market? A) a large rock concert in Vancouver B) producing paperclips C) running a golf course D) selling groceries E) all of the above except A

E

Which of the following industries in Canada has the highest four-firm concentration ratio? A) audio and video equipment B) clothing C) bakery items D) fabrics E) tobacco products

E

Which of the following is part of a firm's opportunity cost of production? I. wages II. utility costs III. interest on a bank loan IV. interest forgone on funds used to buy capital equipment A) I only B) II only C) III only D) IV only E) I, II, III, and IV

E

Which one of the following statements is true? A) Firms are markets in and of themselves. B) Firms do not organize factors of production to produce goods and services. C) Firms are buyers of consumer goods and services. D) Efficient firms can eliminate scarcity. E) Firms are often more efficient than markets as coordinators of economic activity.

E

A firm that uses the latest technology ________ technologically efficient because ________. A) is not necessarily; the firm might not use the least amount of inputs to produce a given output B) is not necessarily; new technology is more expensive than old technology C) is; efficiency is about costs rather than when the technology was developed D) is; new technology isn't developed unless it is efficient E) is; most consumers want access to the latest technology

A

A firm with a sales department, a production department, and a marketing department is an example of A) team production. B) joint production. C) economies of scale. D) economies of scope. E) transactions costs.

A

A provincial phone company like SaskTel likely has A) a high four-firm concentration ratio in the province, but a low one nationally. B) a low four-firm concentration ratio in the province, but a high one nationally. C) a low four-firm concentration ratio in the province and nationally. D) a high four-firm concentration ratio in the province and nationally. E) a four-firm concentration ratio of zero.

A

A sole proprietorship A) dies with the owner. B) is the same as a partnership. C) always bring a higher return to its owner than a corporation brings to its owners. D) is a not-for-profit firm. E) has a complex management structure.

A

Firm strategies for coping with the principal-agent problem are A) ownership, incentive pay, and long-term contracts. B) sole proprietorship, partnership, and the corporation. C) economies of scale, scope, and team production. D) technology, information, and the market. E) ownership, scope, and the market.

A

Gerald is a freelance writer who could work for a newspaper at $25,000 a year but instead runs his own business making revenue of $40,000 a year. His only business expenses are $1,000 for writing materials and $12,000 for rent. What is Gerald's economic profit from working as a freelance writer? A) $2,000 B) $28,000 C) $15,000 D) $25,000 E) $27,000

A

If economic profit is equal to zero then the firm is making A) a normal profit. B) zero profit as recorded by accountants. C) negative profit as recorded by accountants. D) zero taxable income. E) an amount equal to the implicit rental rate.

A

In a perfectly competitive market, the Herfindahl-Hirschman Index (HHI) A) is small. B) is usually greater than 5,000. C) is greater than 1,000 but less than 2,000. D) lies between 1,200 and 1,500. E) is greater than 10,000.

A

In a perfectly competitive market, the four-firm concentration ratio is A) almost zero. B) 50 percent. C) 100 percent. D) 75 percent. E) 25 percent.

A

Normal profit is the ________. Normal profit ________ part of a firm's opportunity cost because ________. A) return that an entrepreneur can expect to receive on the average; is; it is the cost of a foregone alternative, which is running another firm B) profit used by the Canada Revenue Agency to calculate tax owing; is; part of it must be paid to the government and is no longer available to the entrepreneur C) profit used by the Canada Revenue Agency to calculate tax owing; is; it is paid in cash D) return that an entrepreneur can expect to receive on the average; is not; it is not paid in cash E) profit used by the Canada Revenue Agency to calculate tax owing; is; it includes depreciation

A

Refer to Table 10.2.2. If the price of labour is $20 per unit and the price of capital is $10 per unit, which method is economically efficient? A) 1 only B) 2 only C) 3 only D) 2 and 3 only E) 1 and 3 only

A

The difference in the market value of a new car and the market value of the same car one year later is A) economic depreciation. B) physical depreciation. C) economic deterioration. D) physical deterioration. E) conventional depreciation.

A

The implicit rental rate to a firm of owning a building is A) the sum of economic depreciation and foregone interest. B) economic depreciation only. C) foregone interest only. D) the cost of using an alternative building. E) the rent paid on the building.

A

The major factor determining whether a firm or a market coordinates a particular set of activities is A) cost. B) a sale. C) depreciation. D) the size of the market. E) the number of workers.

A

Typical examples of a partnership would include which one of the following? A) a law firm B) a corner drugstore C) an automobile manufacturer D) a bank E) a freelance writer

A

When the cost of producing a unit of a good falls as its output rate increases, A) economies of scale exist. B) economies of scope exist. C) transactions costs are zero. D) market coordination is unnecessary. E) the firm is a partnership.

A

Which one of the following is an advantage of a corporation relative to a proprietorship or partnership? A) Owners have limited liability. B) Profits are taxed once. C) difficult to raise money D) no principal-agent problems E) None of the above.

A

Which one of the following is included in the implicit rental rate of capital? A) economic depreciation B) the cost of electricity C) the cost of raw materials D) the cost of low-skilled labour E) the cost of heating

A

Which one of the following statements is not true? A) A production process is technologically efficient only if it is producing a given output at the lowest possible cost. B) If a process is economically efficient, it must be technologically efficient as well. C) Economic efficiency depends on the relative price of inputs, while technological efficiency does not. D) Economically efficient firms will be more likely to survive than economically inefficient firms. E) Technologically efficient firms are more likely to survive than technologically inefficient firms.

A

A firm with a single owner who has unlimited liability is A) a corporation. B) a sole proprietorship. C) a limited partnership. D) an unlimited partnership. E) a cooperative.

B

A firm with two or more owners who have unlimited liability is A) a sole proprietorship. B) a partnership. C) a conglomerate. D) a corporation. E) a public company.

B

A firm's opportunity cost includes A) the cost of using resources bought in the market and owned by the firm only. B) the cost of using resources bought in the market, owned by the firm, and supplied by the firm's owner. C) only costs that are paid in cash or by cheque. D) the cost of using resources supplied by the firm's owner only. E) economic profit.

B

An industry with a high four-firm concentration ratio may have little monopoly power if A) its production is geographically concentrated. B) its barriers to entry are low. C) its barriers to entry are high. D) there are no international producers of the product. E) there are no close substitutes for its product.

B

Firms cope with uncertainty and incomplete information by using A) sole proprietorship, limited liability, and market coordination. B) ownership, incentive pay, and long-term contracts. C) team production, economies of scale, and transactions costs. D) the market, the firm, and internal organization. E) team production, economies of scale, and transaction costs.

B

In a monopoly, the four-firm concentration ratio is A) 75 percent. B) 100 percent. C) almost zero. D) 25 percent. E) 50 percent.

B

It is a disadvantage of ________ that retained profits are taxed twice. It is a disadvantage of ________ that bad decisions are not checked by the need for consensus. A) a sole proprietorship; both a partnership and a sole proprietorship B) a corporation; a sole proprietorship C) both a partnership and a sole proprietorship; a partnership D) a corporation; both a partnership and a sole proprietorship E) both a corporation and a partnership; a sole proprietorship

B

Marc bought a new car last year for $10,000. He can now sell the car for $8,500. To buy this year's model of the same car he would have to pay $11,000. What is the one-year amount of economic depreciation? A) $2,500 B) $1,500 C) $1,000 D) $10,000 E) $3,500

B

Product differentiation is always a feature in A) perfect competition. B) monopolistic competition. C) oligopoly. D) monopoly. E) all of the above.

B