ECN412 - Midterm #2

What are influence costs? a) The cost of activities aimed at affecting the distribution of benefits in an organization b) Costs related to the negotiation of external contracts c) Costs of recruiting ("buying") outside employees with a particular skill set d) The costs of advertising to customers

a) The cost of activities aimed at affecting the distribution of benefits in an organization

Under what circumstance would it be logical to leave contracts vague and open-ended? a) When performance may be ambiguous or difficult to measure. b) If there are many other firms that can provide the same service or product c) When the cost of writing the contract is too high d) If the smaller of the two contracting firms is the upstream firm

a) When performance may be ambiguous or difficult to measure.

In the long run, the imposition of an excise tax in a constant-cost competitive industry will cause price to: a. rise by the amount of the tax. b. fall by the amount of the tax. c. rise by less than the amount of the tax. d. fall by more than the amount of the tax.

a. rise by the amount of the tax.

What problem preventing complete contracts refers to the limits on the capacity of individuals to process information, deal with complexity and pursue rational aims? a) Agency costs b) Bounded rationality c) Performance measurement difficulties d) Asymmetric information

b) Bounded rationality

Which of the following asset specificity forms describes why glass container production requires molds custom tailored to particular container shapes and glass making machines? a) Site specificity b) Physical asset specificity c) Dedicated assets d) Human asset specificity

b) Physical asset specificity

What is the minimum efficient scale (MES) of production? a) The point on an average cost curve where the cost per unit begins to decline more rapidly b) The minimum point on a U-shaped average cost curve c) The minimum level of production at a plant for it to be considered profitable d) The threshold at which capacity is constraining for a firm's production

b) The minimum point on a U-shaped average cost curve

Which of the following is a reason for a firm to Buy rather than make? a) To eliminate competition among upstream suppliers b) Upstream firms aggregate the demands of many buyers and provide economies of scale. c) To prevent downstream competitors from reducing their prices d) Tax advantages for purchasing upstream rather than making internally

b) Upstream firms aggregate the demands of many buyers and provide economies of scale.

Why might a large firm actually be at an advantage over a smaller firm with respect to labor? a) Large generally pay a compensating differential to attract workers b) Worker turnover is generally lower c) Large firms enjoy better scale economies when negotiating with health insurance companies for health benefits d) Large firms are generally less attractive to qualified, upward mobile workers

b) Worker turnover is generally lower

Consider two increasing cost competitive industries A and B having identical demand curves. However, the supply curve faced by industry A is more inelastic than the supply curve of industry B. Which of the following is true if a per-unit excise tax is levied on the output of both the industries? a. The consumers of industry A's product will bear a greater burden of the tax than the producers. b. The consumers of industry A's product will bear a smaller burden of the tax than the producers. c

b. The consumers of industry A's product will bear a smaller burden of the tax than the producers.

The demand for corn has increased over the past few decades to satisfy the increasing demand from the food and ethanol industries. The primary beneficiaries of an expansion in the output of corn are owners of farmland suitable for corn production. What can you conclude about the nature of the corn industry? a. The corn industry is not competitive. b. The corn industry is an increasing-cost industry. c. The long-run corn supply curve is horizontal. d. There are barriers to entry in the corn indu

b. The corn industry is an increasing-cost industry.

During the 1970s, oil prices reached historical highs, causing many competitive industries to reduce the supply of goods and services. Which of the following is the most likely explanation for this reduction in supply? a. The total fixed cost of the firms would have increased due to the higher price of oil. b. The marginal cost curves of the firms most likely shifted upward. c. The supply curves of firms may have shifted downward.d. The average total cost of these firms mostly likely shifted dow

b. The marginal cost curves of the firms most likely shifted upward.

Presently, the United States produces as well as imports crude oil. Suppose the government imposes a $10 per barrel excise tax on imported oil. What will happen? a. The price of oil will rise by $10; less oil will be consumed but sales of foreign producers will rise at the expense of domestic producers. b. The price of oil will rise; less oil will be consumed but sales of domestic producers will rise at the expense of the foreign oil producers. c. The price of oil will decline and more U.S.-prod

b. The price of oil will rise; less oil will be consumed but sales of domestic producers will rise at the expense of the foreign oil producers.

Following a significant decrease in the price of a variable input, at the initial output level: a. marginal revenue is higher than average revenue. b. marginal cost is higher than marginal revenue. c. marginal cost is lower than average revenue. d. marginal cost is still equal to marginal revenue.

b. marginal cost is higher than marginal revenue.

An excise tax levied on firms in a constant-cost competitive industry will: a. increase output more in the short run than in the long run. b. reduce output more in the long run than in the short run. c. benefit consumers in the short run but harm them in the long run. d. increase the product price more in the short run than in the long run.

b. reduce output more in the long run than in the short run.

Which of the following is not a reason a supplier might seek to sell in bulk? a) Each sale incurs a fixed cost in writing a contract b) The purchaser is likely to switch over a small price due to the gains over the large number of units ordered c) Each sale involves setting up a different production run d) The cost of delivery is a fixed on a per unit basis

c) Each sale involves setting up a different production run

What kind of economies come from reductions in cost due to adoption of technology that has high fixed costs, but lower variable costs? a) Short-run economies of scale b) Short-run economies of scope c) Long-run economies of scale d) Long-run economies of scope

c) Long-run economies of scale

Which of the following is not a result of the holdup problem? a) More difficult contract negotiations and more frequent renegotiations b) Investments to improve ex post bargaining positions c) Reduction in the transaction costs of arm's length market exchanges d) Reduced investment in relationship-specific investments

c) Reduction in the transaction costs of arm's length market exchanges

What is a reason that companies might want to "buy" instead of "make" talent from the market when looking to acquire employees with a particular skill set? a) External training methods are better than internal ones b) Companies are always willing to pay more for external employees c) Scale economies can result in fixed education costs while in house education methods may be more expensive d) Externally trained employees are more likely to become better business leaders

c) Scale economies can result in fixed education costs while in house education methods may be more expensive

Suppose an increasing-cost competitive industry is in equilibrium at a price of $100 and an output of 1,000 units. When a price ceiling of $80 is imposed the quantity traded in the market reduces to 800 units. Which of the following is true? a. Consumer surplus will increase and producer surplus will fall, but total surplus stays the same. b. Consumer surplus will fall and producer surplus will increase, keeping total surplus unchanged. c. Consumer surplus may or may not fall but producer surpl

c. Consumer surplus may or may not fall but producer surplus will fall.

A given per-unit excise tax will increase the short run product price by the highest amount when: a. demand is elastic and supply is inelastic. b. supply is inelastic and demand is elastic. c. demand is inelastic and supply is elastic. d. supply is perfectly inelastic and demand is elastic.

c. demand is inelastic and supply is elastic.

In the short-run, if the price falls, the firm will respond by: a. liquidating its assets and shutting down. b. producing at the output level where average variable cost is equal to marginal revenue. c. reducing output along its marginal cost curve as long as marginal revenue exceeds average variable cost. d. increasing its output in order to sell higher quantities.

c. reducing output along its marginal cost curve as long as marginal revenue exceeds average variable cost.

For an excise tax which causes output in a market to fall to zero: a. the tax revenue and deadweight loss are both zero. b. the tax revenue is positive but there is no deadweight loss. c. the deadweight loss is equal to the total surplus before the tax. d. the deadweight loss is equal to the producer's surplus.

c. the deadweight loss is equal to the total surplus before the tax.

Which of the following is a source of diseconomies of scale at a large firm? a) Labor costs b) Spreading specialized resources too thin c) Incentive processes d) All of the above

d) All of the above

When contracts are incomplete, what must be well defined and enforceable to allow for smooth transactions to occur? a) Contract performance measures b) Contract roles c) Contract triggers d) Contract law

d) Contract law

Long term contracts with suppliers can help a firm with which of the following? a) Manufacture all needed inputs internally b) Acquire upstream firms in the vertical chain c) Acquire downstream firms in the vertical chain d) Counteract raw material price fluctuations and eliminate income risk

d) Counteract raw material price fluctuations and eliminate income risk

Which of the following is a true argument regarding the make-or-buy decision process? a) Firms should make an asset, rather than buy it, if that asset is a source of competitive advantage for the firm b) Firms should buy, rather than make, to avoid the costs of making the product c) Firms should make, rather than buy, to avoid paying a profit margin to independent firms d) Firms should buy, rather than make, in general, because market firms are subject to the discipline of the market and must be

d) Firms should buy, rather than make, in general, because market firms are subject to the discipline of the market and must be efficient and innovative to survive

A per-unit excise tax on a single competitive firm causes: a. all cost curves, except the total fixed cost curve to increase by the amount of the tax. b. all per-unit cost curves to increase by less than the amount of the tax. c. all per-unit cost curves, except the marginal cost curve, to decrease by the amount of the tax. d. all per-unit cost curves and the marginal cost curve to increase by the amount of the tax.

d. all per-unit cost curves and the marginal cost curve to increase by the amount of the tax.

If a commodity has a(n) _____, a greater share of the burden of an excise tax levied on the commodity would be borne by the producers. a. relatively elastic supply curve and a perfectly inelastic demand curve b. perfectly elastic supply curve c. relatively inelastic demand curve and a relatively elastic supply curve d. perfectly elastic demand curve

d. perfectly elastic demand curve

Eggs, which are standardized products, are sold within a city at higher prices than in the suburbs. Given that firms in the city are able to sustain the higher prices but do not make higher profits than firms in the suburbs, this means that: a. the egg industry is a constant-cost industry. b. the egg industry is not competitive as the prices of perfectly substitutable goods are different. c. consumers do not have perfect information which leads to price differentials. d. the convenience of buyi

d. the convenience of buying eggs in the city weakens the homogeneous product assumption.