Economics Quiz 4
A firm that is technologically efficient
is not always economically efficient, but a firm that is economically efficient must always be technologically efficient
Which of the following statements does NOT correctly characterize normal profit?
it is equal to a firm's total revenue minus its opportunity cost
The limited liability enjoyed by Jitters Coffee Company Corporation, is a benefit that protects
its stockholders
An example of the principal-agent problem is when
managers devise incentives that encourage employees to act in the owner's behalf
Dell uses outsourcing, that is, Dell buys the components of the computers it produces from other firms. This is an example of
market coordination
The most important goal of the firm is to
maximize its profits
A command system is a
method of organizing production that uses a managerial hierarchy
An incentive system is a
method of organizing production that uses a market-like mechanism inside the firm
According to Nobel laureate Ronald Coase, firms exist in order to
minimize transaction costs
Which market type has characteristics as follows: large number of firms, differentiated product?
monopolistic competition
A market structure in which one firm produces a good or service that has no close substitutes is called
monopoly
The average return for supplying entrepreneurial ability is the entrepreneur's
normal profit
if economic profits are equal to zero then
normal profits are being earned
An economic profit is
not the same as the company's normal profit
A market structure in which a small number of firms compete is called
oligopoly
A normal profit for a self−employed entrepreneur is I. an opportunity cost. II. part of the implicit rental rate of the funds invested in the business.
only I
The legal responsibility for losses incurred by a proprietorship falls upon the
owner
A major disadvantage of a proprietorship is that the ________.
owner's entire wealth is at risk
A market structure in which many firms are selling an identical product is called
perfect competition
Which of the following pairs of market types are both characterized by having a large number of firms?
perfect competition and monopolistic competition
A firm has achieved technological efficiency whenever it has
produced the given output using the fewest inputs
The owner of a proprietorship has ________ liability and ________ required to use all of his or her entire wealth to pay for the firm's losses.
unlimitied; might be
The largest share of the U.S. private economy is
competitive or monopolistically competitive
The main disadvantage to organizing a business as a proprietorship is
unlimited liability
Owners of a proprietorship have ________ liability and stockholders in a corporation have ________.
unlimited;limited
Proprietorships, partnerships, and corporations are the primary forms of
business organization
A firm's market constraints include the conditions under which it can
buy its inputs and sell its outputs
A method that is technologically inefficient
can never be economically efficient
Wanda takes $3,000 from her savings account that pays 5 percent interest per year and uses the funds to purchase a computer for $3,000 for her business. At the end of the year the computer is worth $2,000. Wanda pays an implicit rental rate of ________ a year.
$1,150
An electrician quits her current job, which pays $40,000 per year. She can take a job with another firm for $45,000 per year or work for herself. The opportunity cost of working for herself is
$45,000
Tara, a pharmacist, is planning on opening her own pharmacy. Tara currently earns $50,000 a year at her job. She has calculated that it will cost her $6,000 in rent and utilities and $25,000 for an assistant per year to run her pharmacy. What is the amount of opportunity cost that Tara incurs in running her own pharmacy?
$81,000
If an industry were perfectly competitive, the four−firm concentration ratio would be close to ________ and the Herfindahl−Hirschman index would be close to ________.
0;0
If an industry is monopolized by one firm, the four−firm concentration ratio equals
100 percent
For monopoly
All of the above answers are correct
Techniques that produce 100 sweaters...(table)... In the above table, the techniques that is not technologically efficient is
C
Techniques that produce 100 sweaters..... (Table)..... in the above table, the technique that is never economically efficient is
C
Which types of firms have limited liability?
Corporations
________ coordinate economic activity in which there are substantial ________.
Firms; economies of scale
Which of the following are characteristics of a proprietorship? I. Single owner II. Limited liability
I only
Which of the following are types of economic markets? I. perfectly competitive. II. oligopoly III. monopoly. IV. multilateral.
I, II and III
Which of the following constrain (that is, limit) a firm's profits? I. its technology II. its information III. the market in which it operates
I, II and III
Which of the following are part of a firm's opportunity costs? I. costs for resources bought in markets II. costs for resources the firm owns III. costs for resources supplied by the owner
I, II, and III
Which of the following can lead to a single firm being more efficient than a market? A firm can have I. economies of scale. II. economies of scope. III. lower transactions costs.
I,II and III
Which of the following statements is true? I. A firm that is not economically efficient does not maximize profit. II. Technological efficiency depends only on what is possible. III. Economic efficiency depends on the relative costs of resources. IV. A technological efficient firm is also economically efficient.
I,II,III only
Which of the following is true?
None of the above statements are correct
Which of the following is true?
Technological efficiency occurs if the maximum feasible amount of output is achieved from a given quantity of inputs
Over the years the U.S. economy has become increasingly
competitive
A low concentration ratio indicates
a high degree of competition
Kansas Power and Light, the only supplier of electricity in Kansas, is an example of a firm in what type of market?
a monopoly market
A firm with two or more owners who have unlimited liability is known as
a partnership
An advantage of a partnership over a corporation is that
a partnership's profits are taxed only once, while retained profits of a corporation are taxed twice
In the principal−agent relationship between a bank manager and a bank teller, the manager is
a principal and the teller is an agent
An economic profit for a self−employed entrepreneur is
a profit over and above opportunity cost
A proprietorship is a firm with
a single owner who has unlimited liability
The principal−agent problem is the issue of inducing
agents to act in the best interests of principles
A large part of the principal − agent problem stems from the desire of
agents to avoid working
As owner of a one−third share of a partnership, Josh is legally liable for
all of its debts
Which of the following is a reason why firms may be more efficient than markets as coordinators of economic activity?
all of the above
Greg and Todd form a partnership and start a business in which each has a 50 percent share of the profit. After a year, the firm goes bankrupt and has debts of $20,000. Greg has no money, but Todd has $25,000 in the bank. Todd must pay ________ of debt.
all, or $20,000
A high four-firm concentration ratio implies
an absence of competition
Giving managers an ownership stake in a company is an example of
an incentive system
If worker output is not measurable in physical units, and employees are hard to monitor, it would be best to organize the firm using
an incentive system
When a firm links its employees' compensation to the performance of the firm, the firm is using
an incentive system
Coca Cola and Pepsi, which together account for about 85 percent of the soft drink market, are best described as being in
an oligopolistic market
The air travel market, which is dominated by a few large firms, is an example of
an oligopolistic market
If instead of working on his own as a consultant making $25,000, Joe takes a job at a bank, the $25,000 is
an opportunity cost
The implicit rental rate for capital is
an opportunity cost
Economies of scale exist when the ________ a unit of a good ________.
average cost of producing; falls as its output rate increases
During the twentieth century, the market structure of the U.S. economy has
become more competitive
A manager in a corporation is likely to be
both a principal and an agent
Where large amounts of capital are used, the dominant form of business organization is the
corporation
The vast majority of all business sales are accounted for by
corporations
Which of the following forms of business organization is likely to suffer most from the principal agent problem between the owners and managers of the business?
corporations
Economies of scale exist when the
cost of producing a unit of a good falls as its output increases
The principal-agent problem refers to the fact that firms must
devise incentives to get employees to work in the best interest of the firms owners
Firms that survive in the long run are usually those that
earn the largest possible profit
________ is the change in market value of capital over a given period.
economic depreciation
Which of the following are two components of the opportunity cost of using capital already owned by the firm?
economic depreciation and forgone interest
A company needs to know the price of each resource it employs if it wants to determine whether or not it is achieving
economic efficiency
"When the cost of producing a unit of a good falls as its output rate increases" is the definition of
economies of scale
Which of the following is a reason why firms can be more efficient than markets as coordinators of economic activity?
economies of scale and scope
If an industry has a four−firm concentration ratio equal to one hundred percent, then it is definitely the case that the industry is
either a monopoly or an oligopoly
Economic profit is
equal to the firm's total revenue minus its opportunity costs
Firms are often more efficient than markets as coordinators of economic activity because
firms can achieve lower transaction costs
The ________ the Herfindahl−Hirschman Index (HHI), the ________ the industry.
higher; less competitive
Tudor's Deli and Catering could have sold their delivery van on December 31, 2010 for $16,000. If they could sell the same van on December 31, 2011 for $13,000, then the economic depreciation in 2011 for this van
is $3,000.
A firm that is maximizing its profits
is economically efficient and technologically efficient
Owners of ________ have unlimited liability.
proprietorships and partnerships
The Herfindahl − Hirschman Index measures an industry's concentration of
sales
The four−firm concentration ratio equals the percentage of the value of ________ accounted for by the four ________ firms in the industry.
sales; largest
A corporation is a firm owned by
stockholders who have limited liability
The profits of a partnership are
taxed as personal income
The profits of a proprietorship are
taxed at the same rate as the owner's other personal income
Emma owns a firm that produces umbrellas. Currently, Emma produces 2,500 umbrellas a day. Emma cannot produce more umbrellas in a day unless she purchases another machine or else hires more workers. Emma is ________ efficient.
technologically
If a firm chooses to produce 100 units of output for $150 with 10 units of labor and 12 units of capital, when they could produce the same 100 units for $120 with 10 units of labor and 8 units of capital, the firm is
technologically and economically inefficient
Costs as measured by accountants generally does not include
the economic depreciation of the firm's equipment
Industry concentration measures the extent to which
the market is dominated by a small number of firms
If the four−firm concentration ratio is a very small number, then
there is a high degree of competition in the market
Kris wants to purchase a house. She buys newspapers to read the classified advertisements and spends her evenings with realtors looking at houses. Kris has incurred the ________ costs of making a purchase.
transactions
Costs to the firm arising from reaching agreements on input prices with suppliers and then ensuring that terms of agreements are fulfilled, are called
transactions costs