Final Econ

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​Excess demand of a product exerts __________pressure on prices

upward

A risk averse individual

values a lottery at less than its expected value

​An individual who is a risk lover

values a lottery at more than its expected value

​A business produces 5,000 units per month. It spends $12,000 on raw materials. It pays wages of $20,000. Other costs include $50,000 for rent, paid by the month. In order to break even the selling price per unit will have to be:

​$16.4

Adverse selection is caused by​

​Hidden information

​In the IO perspective, it is important to enter an industry with

​High barriers to entry

​In the case where interest rates are higher in Canada, which of the following is an example of a "carry trade"

​Increase borrowing in the US, convert to Canadian dollars and invest in Canada

The IO Economics perspective locates the source of competitive advantage for a firm at the​

​Industry level

​A perfectly elastic demand curve

​Is a horizontal line parallel to the x axis

The reason we study the non-strategic sequential labor negotiation game:

​Is to show the irrelevance of mover position, given that he is able to commit to a position

​The illegality of organ sales from willing donors to willing recipients is ineffective because:

​It discourages wealth creating transactions through the threat of heavy penalty

​All of these are characteristics of a competitive industry, except:

​Little or no information on rivals' products

​Use the following to answer questions 81-84 Consider the following information for a simultaneous move game: Two discount stores (megastore and superstore) are interested in expanding their market share through advertising. The table below depicts the strategic outcomes (profits) of both stores with and without advertising.

​Megastore $95 and Superstore $80

​A good policy ________________ and a bad policy _________________.

​Moves an asset to higher value use; moves an asset to lower value use

​Use the following setup for the next three questions. Pastry Paradise is looking to expand. It decides to take over Sweet Tooth, a competitive firm. The two firms have similar technology but different costs. Pastry Paradise has $1500 fixed costs and $1 marginal cost per unit produced. Sweet Tooth has $500 fixed costs but $5 marginal cost per unit produced. ​If the company plans to produce 5000 units of output, is using the competitor's technology a good idea?

​No

​Use the following case from questions 50-54 Two ice cream trucks A&B are playing a simultaneous pricing game. If one of them prices low, he gets all the customers, a payoff of 12, while other gets zero. If both price high they each get a payoff of 6 and if both price low, they get a payoff of 5. ​Does the Nash equilibrium yield maximum profit?

​No, because they could do better by pricing high

​Scott used $4,000,000 from his savings account that paid an annual interest of 5% and a $60,000 loan at an annual interest rate of 5% to purchase a hardware store. After one year, Scott sold the business for $4,100,000. His economic profits is:

​None. He runs an economic loss of $103,000

​If quantity demanded for rice falls by 4% when price increases 8%, we know that the absolute value of the own-price elasticity of rice is:

.5

​In a coin toss bet, where both heads and tails are equally likely, you win a dollar on heads but lose a dollar on tails. The expected value of the bet is

0

A cloth manufacturing firm is deciding whether or not to invest in new machinery. The machinery costs $45,000 and is expected to increase cash flows in the first year by $25,000 and in the second year by $30,000. The firm's current fixed costs are $9,000 and current marginal cost are $15. The firm currently charges $18 per unit. ​The current break-even quantity is

3000

​Given that the firm wants to sell both the versions, how high can the high-end professional knives be priced?

100

A publisher is deciding whether or not to invest in a new printer. The printer would cost $500, and it would increase cash flows by $600 for the next two years. What is the present value of the cash flows from the investment? You Answered

1100

​Jim is planning on attending a football game. He spent $40 on the ticket. He will have to take the day off losing 8 hours of work. His hourly wage is $10. He estimates it will cost him around $20 for gas and parking at the game. Jim's total economic cost of attending the game equals

140

​Three possibilities have probabilities 0.5, 0.3 and 0.2 and values $10, $20, and $30 respectively. The expected value is:

17

​If AVC=$5 and AFC=15, then AC=

20

​Four possibilities have probabilities 0.4, 0.2, 0.2 and 0.2 and values $80, $30, $0, and -$80 respectively. The expected value is:

22

Half of all your potential customers would pay $10 for your product but the other half would only pay $8. You cannot tell them apart. Your marginal costs are $4. If you set the price at $10, the expected profit is:

3

​Given that the firm wants to sell both the versions, how much surplus does buying the no-name brand give the professional chefs?

30

​A business owner makes 1000 items a day. Each day she spends 8 hours producing those items. If hired, elsewhere she could have earned $250 an hour. The item sells for $15 each. Production occurs seven days a week. If the explicit costs total $150,000 per month, what is her economic profit?

300,000

​The government is looking to double the living standards of its population in 18 years, what rate of GDP growth would it need to achieve that?

4%

​A business owner makes 50 items a day. He spends 8 hours in producing those items. If hired elsewhere he could have earned $10 an hour. The item sells for $10 each. Production occurs seven days a week. If the explicit costs total $10,000 a month, the accounting profit for the month equals:

5,000

​Use the following setup for the next seven questions. A firm is deciding between two different sewing machines. Technology A has fixed costs of $500 and marginal costs of $50 whereas Technology B has fixed costs of $250 and marginal costs of $100. ​If the price is $60 per unit, what is the break even amount of units for technology A?

50

​If a firm produces 8 units of output with average fixed cost=$40 and average variable cost=$25, what is its total cost?

520

A buyer values a house at $525,000 and a seller values the same house at $485,000. If sales tax is 8% and is levied on the seller, then what would be the lowest price that the seller would be willing to sell at?​

523,800

​If the bidders at a first-price auction have true values of $78, $72, $66, and $65, the item will sell for

78

Transcendent Technologies is deciding between developing a complicated thought-activated software, or a simple voice-activated software. Since the thought-activated software is complicated, it only has a 30% chance of actually going through to a successful launch, but would generate revenues of $50million if launched. The voice-activated software is simple and hence has a 80% chance of being launched but only generates a revenue of $10million. The complicated technology costs 10million, whereas the simple technology costs 2million. ​What is the expected revenue from developing the simplified software?

8 million

​Given that the firm offers both the products, what is the maximum price it can charge for the high-end wok to have the chefs only buy the high-end wok?

90

​Which of the following is more likely to be able to command a higher price for its products

A& C

Firms maintain their completive edge by​

Being innovative ​Providing a superior product at the same cost as your rival ​Providing a good at lower costs than their rivals Correct! ​All the above

​In a competitive industry

Correct! ​all of the above ​the firms products have a very elastic demand ​the firms have many rivals ​firms produce a product or service with very close substitutes

Individuals with homeowner's insurance tend to be more forgetful about locking their possessions safely before heading out. This is an example of

Moral hazard

​Holding other things constant, if the Japanese Yen, depreciates, it makes the Japanese products

More attractive to US customers

​All of the following costs are included in the calculation of accounting profit, except

Opportunity cost of capital

In sequential games,

Players take turns and observe their rivals choices before they make their choices

​You can either invest in project A or B. Project A could have a value of $100 with a probability of 0.1 or a value of $75 with probability 0.9. Project B could have a value of $110 with probability 0.2 or a value of $70 with a probability of 0.8. Which project should you invest in?

Project B

​A sudden fall in the market demand in a competitive industry leads to

Some firms exiting the market Correct! ​All of the above ​A market equilibrium price higher than the short run price ​A short run market equilibrium price lower than the original equilibrium

​In oral auctions, the price that the winner pays depends on

The highest willingness to pay among the losers

​Rivalry among firms would tend to be high if

There is a large number of firms in the market

​Economists love auctions because

They set the price for the item, avoiding costly negotiations

​A supermarket sells you a pound of coffee on the condition that you buy a gallon of milk. This is an example of

a & b

Use the following case from questions 36-38 A couple gets into an argument deciding where they would go out together. Both like to spend like with each other and have the payoffs as below

a &. b

​Someone who values a lottery at more than the expected value is

a risk lover

​An increase in the US demand for British pounds causes

a'&b

Consider a simultaneous move game between a union and a company. If both the parties bargain hard, each would gain nothing. If only one party bargains hard the accommodating party gets a profit of $1 million while the bargaining party gets a $5 million, while if they both accommodate, they each get $3 million. ​If the firm hires security guards to enforce a lockout, what are they implying?

b&c

​Trades between risk lovers and risk takers

b&c

​Which of the following goods is most likely to have a negative income elasticity of demand?

bargain brand noodles

Which of the following factors would shift the supply curve for ice cream to the right?

both a&c

Moral hazard in a transaction hurts​

both parties

​Variable costs are

costs that vary with output

​If long run average costs rise with output, you have

decreasing returns to scale

​It is illegal for a business to price discriminate when selling goods to other businesses unless Both A & B are true

either ra or rb is true

in a competitive industry

firms sell more if a price is above marginal cost

​In the short-run, a firm's decision to shut-down should not take into consideration

fixed costs

​Looking ahead at how the customer is more likely to react, what price should the shopkeeper charge?

high price

Two siblings, Bratty Brad and Mousey Mike are playing a simultaneous hit and tell game. Bratty Brad can hit Mousey Mike or not and Mousey Mike can tattle on Bratty Brad or not. Relative to no hitting and no tattling, if Bratty Brad hits Mousey Mike, and he tattles they both experience a loss of 10. Not telling, gets Mousey Mike a bruise, a loss of 5 but Bratty Brad gains 5. If he tattles untruthfully, Mousey Mike gets a gain of 5 and Bratty Brad loses 5. If they get along, no one gets anything ​If Mousey Mike does not tattle, what would Bratty Brad's best response be

hit

​While you were an intern you bought 5 packages of hot dogs a month. After acquiring a full-time job with a considerably higher salary, you stopped purchasing hot dogs. For you, hot dogs are a

inferior good

​When interest rates go up, people are

less likely to borrow

​A firm that screens candidates to determine how well they would work with limited supervision is afraid of facing

moral hazard

​When interest rates go down, people are

more likely to borrow

Two siblings, Bratty Brenda and Tattling Tina are playing a simultaneous hit and tell game. Bratty Brenda can hit Tattling Tina or not and Tattling Tina can tattle on Bratty Brenda or not. Relative to no hitting and no tattling, if Bratty Brenda hits Tattling Tina, and she tattles they both experience a loss of 10. Not telling, gets Tattling Tina a bruise, a loss of 5 but Bratty Brenda gains 5. If she tattles untruthfully, Tattling Tina gets a gain of 5 and Bratty Brenda loses 5. If they get along, no one gets anything ​If Tattling Tina tattles, what would Bratty Brenda's best response be

not hit

Which of the following is an example of the "metering" strategy​

only a and b

​What are economies of scope?

the cost of producing two products jointly by one firm is lesser than the cost of producing them separately

​Scatterbrain Samantha often forgets to lock her house. This has caused the probability of a burglary to be 30%. If her house gets broken into, she faces a property loss of $10,000, otherwise she gets to keep her $100,000. What is her expected loss?

​$3000

​A business incurs the following costs per unit: Labor $5/unit; Materials $3/unit and rent $5000/month. If the firm produces 1000 units a month, the total fixed costs equals

​$5,000

​A consumer values a car at $30,000 and a producer values the same car at $20,000. If the transaction is completed at $24,000, the transaction will generate:

​$6,000 worth of buyer surplus and $4,000 of seller surplus

​A Swiss consumer wants to buy an American car. The exchange rate is 1USD=0.89CHF (Swiss Francs). The car costs $10,000. How much would the car cost him in Swiss Francs?

​8,900 Francs

​All of these could be sources of economies of scale except

​A bottleneck procedure

A sudden fall in the market demand in a competitive industry leads to

​A market equilibrium price higher than the short run price

Tax causes

​A reduction in incentives to work ​Market distortions Correct! ​All of the above ​A decrease in wealth creating transactions

​A sudden fall in the market demand in a competitive industry leads to

​A short run market equilibrium price lower than the original equilibrium

A consumer values a house at $525,000 and a producer values the same house at $485,000. If the transaction is completed at $510,000, what amount of tax will result in unconsummated transaction?​

​A tax of $18,000

________is the problem of separating good from bad drivers​

​Adverse selection

In the IO perspective it is important to enter an industry with​

​All of the above ​Small number of competing firms of different sizes ​High barriers to entry ​

​Which of the following defines a sunk cost?

​An asset with no scrap value

​The practice of buying a firm's good in one market at a low price and selling it in another market for a higher price in order to profit from the price difference is known as

​Arbitrage

​Which one of the following is a way to get out of a repeated Prisoner's Dilemma Nash Equilibrium?

​Be forgiving

​Use the following setup for questions 41-48 Both Nadia and Samantha are applying to insure their car against theft. Nadia lives in a secure neighborhood, where the probability of theft is 10%. Samantha lives in a lesser secure neighborhood where the probability of theft is 25%. Both Nadia and Samantha own cars worth $10,000, and are willing to pay $100 over expected loss for insurance. If the insurance company can successfully screen both Nadia and Samantha into appropriate contracts, it would earn​

​Between zero and $200

​Supplier power tends to be low when

​Both A&B

​A manager invests $400,000 in a technology that should reduce the overall costs of production. The company managed to reduce their cost per unit from $2 to $1.85. This affects

​Both a and b Econ and act profits

​In the simultaneous move labor negotiation game:

​Both parties bargain hard in the Nash equilibrium

arbitrage

​Can force a seller to go back to uniform pricing Correct! ​All of the above ​Can offset the benefits of direct price discrimination ​Is the act of to buying low in one market and selling high in another market

​Which of the following is not an example of price discrimination?

​Charging a higher price for ice-cream during the summer and a lower price in the winter

​Which of the following is the foundation for success for a company facing competition

​Create and protect advantages over the competition

​A weaker peso, relative to the US dollar, causes the demand for US exports to ______ and the demand of Mexican imports to______

​Decrease; Decrease

​If the price of a Canadian dollar went from 0.95 US dollars to 0.98 US dollars, we would say that the US dollar has

​Depreciated

Which one of the statements is true?​

​Diminishing returns is a short-run concept while decreasing returns to scale is a long-run concept

​Many bars close to campuses have started offering cheaper beer to consumers with a student IDs. These bars are using

​Direct price discrimination

Average costs curves initially fall​

​Due to declining average fixed costs

​Which of the following statements is true?

​Economic profits include implicit costs.

​A food company trying to increase its profits by expanding in to the soft drinks business is an example of

​Economies of Scope

​Farmers rotate their crops between corn and soybean to increase crop yields. This behavior exhibits

​Economies of scope

​For foreigners, the intersection of the demand for US dollars and the supply of US dollar is known as the

​Exchange rate

​Rivalry among firms would tend to be high if

​Firms are located close to one another

​Jill, a bookkeeper, just received an attractive offer from an outside firm and so she asks for a raise from her current employer. If the management of Jill's company is aware of the offer, she would

​Have a stronger bargaining position

​If a union threatens to strike during a slow demand period, it is more likely to

​Have its conditions rejected

Industries with high barriers to entry​

​Help firms sustain long term profits

Irene's Dairy is deciding whether or not to enter the market for ice cream, currently monopolized by Mattie's Ice-cream. If it enters the market, Mattie's can either accommodate him and share his 10million in profits equally with Irene or fight him and cause a 5million loss for each in a price war.​ ​Given that Mattie could convincingly threatens to always fight, what would be Irene's best response

​Not Enter

​Use the following case from questions 39-44 A shoplifter and a security guard are playing a simultaneous game. If the shoplifter steals and the security guard is vigilant, the shoplifter gets caught she suffers a loss of 20, and the security guard gets a bonus worth 15. If the shoplifter steals and the security guard is not vigilant, she does not get caught and gains 15 and the guard loses 5. If the shoplifter does not steal and the guard is vigilant, the guard loses 3 for the effort, while the shoplifter gains nothing and if the shoplifter does not steal and the guard is not vigilant, neither gain anything ​If the simultaneous game is instead changed into a sequential game where the shoplifter can see whether the security guard is vigilant or not before deciding to steal. What is the Nash equilibrium of the game?

​Not steal, Vigilant

​Having a competitive advantage emanates from

​One or both of the above

​The RBV perspective is based on

​Only A&C

​A firm will shut down in the short-run if

​P<AVC

​Which is a screen against adverse selection

​Prospective secretaries must take a typing test before being hired

​If your long-run costs exhibit increasing returns to scale, securing big orders leads you to

​Reduce average costs

​Lara will agree to a second date with Tom only if, on their first date, Tom is well mannered and well dressed. Lara is using a

​Screening mechanism

Movie theatres offer seniors discounts because

​Seniors have a more elastic demand for movie tickets

​A firm sells 1000 units per week. It charges $15 per unit, the average variable costs are $10, and the average costs are $25. In the long run, the firm should

​Shut-down as price is lower than average cost

In the short-run:

​Some inputs are fixed and some inputs are variable

​Which of the following could potentially capture the value created in a market

​Suppliers ​Industry rivals Correct! ​All of the above ​Buyers

​If the Chinese Yuan devalues against the US dollar, then

​The US importers would benefit while the Chinese importers would be hurt

​In the market for Canadian dollars measured in US dollars, the supply of Canadian dollars is

​The demand for US Dollars

​For direct price discrimination to work

​The firm be able to charge the low-value customers a lower price than the higher-value customers

​You are considering buying a store. The store owner shows you sales figures of the store on a "typical" day. The owner has most likely shown you figures for

​The more productive day

​Price discrimination is

​The practice of charging different prices to different individual buyers or customer groups

​Marginal revenue is_____________.

​The revenue from selling an additional unit of output

​Supplier power tends to be low when

​The supplier provides homogenous inputs

​Average cost of production is

​Total cost divided by total units produced

​Jim is haggling with a car dealer over the sale price of a used car. Which of the following would determine the amount of surplus Jim extracts from the purchase?

​Total difference between the buyer's and seller's valuations of the car Correct! ​All of the above ​The number of sellers trying to make Jim a sale ​The number of customers trying to buy that particular car

​Which of the following is an example of price discrimination?

​Tourists paying higher prices on local attractions than locals Correct! ​All of the above ​Students paying discounted rates on travel ​Seniors paying a lower price for tickets at movie theatres

​Total costs increase from $1,500 to $1,800 when a firm increases output from 40 to 50 units. Which of the following are true?

​VC rise by $300

​A retailer X that is operating at a loss gets bought out by a larger chain of department stores, which shuts down the brand, using its assets for their own brand,

​Wealth is created since the resources were of lesser value under the X brand and are now worth more

​An important lesson about pricing is

​When bargaining with the customer, do not bargain over the unit price, bargain over the bundled price

Under the non-strategic view of bargaining, the terms of agreement are determined by

​Your outside options Correct! ​All of the above ​Your opponents gain from agreement ​Your opponent's outside options

​Which firm is not dealing with adverse selection

​a manufacturer contracts with suppliers regardless of ISO 9000 status

US law was recently changed so that some airplane manufacturers are immune from liability from accidents involving their decades old aircraft, laying all the responsibility on the pilots. As a result

​accident rates fell due to less moral hazard

An increase in demand could arise from which of the following factors

​an increase in income

​Progressive Insurance's 'Tripsense' monitors driving patterns of the people who purchase the related insurance policy. This lowers insurance costs because

​drivers will want to drive more carefully knowing they are being monitored

​A manager invests $400,000 in a technology that should reduce the overall costs of production. The company managed to reduce their cost per unit from $2 to $1.85. All else equal, if the firm continues its production in the same economic environment, the firm's economic profits should

​increase if output is high enough

​An oral auction

​is where bidders submit increasing bids until all but one remains ​is where the sole remaining bidder wins and pays his winning bid ​is also called an English auction Correct! ​all of the above

​When a variable can take on different values

​it is a random variable

​An example of moral hazard is

​people drive less safely with more airbags than without

​Adverse selection in insurance requires that

​potential customers face different levels of risk

​When buying a car from a commission salesman you improve your bargaining position by

​shopping toward the end of the month

​You want to run a difference-in-difference experiment with a price increase for the bacon cheeseburger item on your menu. If you are worried about "leakage" with your control group, a good comparison menu item would be

​soft drink sale

​An rational, optimizing, self interested consumer would consume up to the point where

​the consumer surplus from the last unit is zero

​The higher the interest rates

​the more value individuals place on current dollars

​The first law of demand states that

​the quantity demanded increases as price falls

​Demand and supply analysis is particularly important if

​the success of your firm is closely linked to the profitability of your primary industry

​To keep employees from shirking, invest in greater monitoring

​when employees fail to respond to incentive contracts


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