Econ 426 Exam 1
Which of the following would cause higher concentration (select all that apply)? A larger MES in the production technology Easy entry into the market Smaller number of firms Larger number of firms
A larger MES in the production technology Smaller number of firms
Holdups may lead to (select all that apply) reduced trust. investments in safeguards. floating power plants (maybe not all the time, but under certain conditions). underinvestment in relationship-specific assets
All of the Above
What are the characteristics of relationship-specific investments? (select all that apply) Assets essential for a given transaction Assets that can easily be deployed elsewhere. Assets that are difficult to redeploy without significant cost Assets that one firm creates to be able to do business with another
Assets essential for a given transaction Assets that are difficult to redeploy without significant cost Assets that one firm creates to be able to do business with another
If two firms are competing, and they can easily change the quantity of output, then what model is appropriate?
Bertrand Duopol
Moving along the vertical chain towards the customer is known as
Downstream
What are the three good reasons to take advantage of horizontal integration
Economies of Scope Economies of Scale Economies of learning
When the Average Cost Curve is falling this is called
Economies of scale
True and False? A monopolist's profit function always goes up by increasing the amount of Q produced.
False
True or False? Acquiring firms are often easily able to identify undervalued target firms.
False
True or False? An arm's length transaction is more vertically integrated than a joint venture.
False
True or False? Carrying large inventories can reduce per unit costs for a firm.
False
True or False? Complete Contracts are common in the world of business
False
True or False? Contract litigation is usually the best course of action and is usually easy.
False
True or False? If two goods are in the same Standard Industrial Classification code, then they are always substitutes and therefore are in competition with one another.
False
True or False? LBOs are always good for the target firm.
False
True or False? Market firms achieve scope/scale/learning economies.
False
True or False? Monopolies are always bad for the economy.
False
True or False? Umbrella branding is always useful in reducing advertising and production costs for large firms.
False
True or False? Two goods that share performance characteristics but have different occasions for use are in competition with each other.
Fasle
Select all of the following characteristics of oligopoly markets. Many sellers Few Sellers Firms' decisions affect each other. Firms operate independently of one another.
Few Sellers Firm's decisions affect each other
Higher concentration means that
Fewer companies are servicing the market.
Which of the following are conditions for fierce price competition (select all that apply)? Homogenous product Differentiated product Many sellers Excess capacity
Homogenous product Many sellers Excess capacity
Which shareholders benefit from shareholder diversification when a firm engages in m&a? small shareholders large shareholders bondholders employees
Large Sharholders
Select all of the following GOOD reasons to buy Market firms are likely to exploit learning economies. Market firms are likely to exploit scale economies. Market firms are likely to keep your private information hidden. Market firms are subject to market discipline (the incentives of the market)
Market firms are likely to exploit learning economies. Market firms are likely to keep your private information hidden. Market firms are subject to market discipline (the incentives of the market)
Choose all of the benefits of using the market: Market firms are subject to market discipline. Market firms achieve scope/scale/learning economies. Market firms easily coordinate production flows across industries. Market firms are immune to the problem of transaction costs.
Market firms are subject to market discipline. Market firms achieve scope/scale/learning economies.
In the Cournot Model, total Q is composed of (select all that apply): Q from firm 1 Q from firm 2 Q from the inputs
Q from firm 1 Q from firm 2
Which of the following are true of monopolistic competition as compared to perfect competition? (select all that apply) Q in Monopolistic competition is lower Q in Monopolistic competition is higher P in Monopolistic competition is lower P in Monopolistic competition is higher
Q in Monopolistic competition is lower P in Monopolistic competition is higher
As firms grow in size, labor costs often: go down stay the same rise
Rise
According to Boston Consulting Group, surplus cash from cash cows should be directed to (select all that apply): cash cows rising stars problem children dogs
Rising Stars Problem children
Which of the following are design attributes? (select all that apply) Technical specification fit Color fit Wii fit Capital fit Timing fit
Technical specification fit Color fit Timing fit
What are three sources of economies of scale and scope
The Cube-Square Rule Savings on inventories indivisibility in research and development
When firm #2 steals customers from firm #1, which of the following change (select all that apply)? The HHI measured in decimals. The 4-firm concentration ratio. The HHI measured in percentage form. None of these change
The HHI measured in decimals. The HHI measured in percentage form.
Outside suppliers are more likely to reach MES because
They sell to many different customers.
Which of the following are agency/influence costs? (select all that apply) Time spent explaining to the boss how your subunit needs more funding. Slacking due to lower supervision. Money paid to an advertising agency. Resources used for lobbying and not for production.
Time spent explaining to the boss how your subunit needs more funding. Slacking due to lower supervision. Resources used for lobbying and not for production.
True or False? "Transaction costs" is the general term for the additional monetary and nonmonetary costs that are incurred when conducting a market transaction.
True
True or False? A perfectly competitive firm produces where P=MC.
True
True or False? Firms can often save on transport costs by locating in geographically dense areas.
True
True or False? In a cournot model, firm 1 takes firm 2's output as given.
True
True or False? Specialization can be an important component of economies of scale.
True
What two things are required for long-run economic profit
Unique ideas and Inimibitability
If the activity required for production involves a really incomplete contract, the firm should consider:
Vertically integrating
Performance characteristics describe:
What the product does to/for the customer.
An investment made to improve the ex-post bargaining position (and not to be utilized) is known as
a safe guard
Bounded rationality refers to individuals' inability to
deal with and process complex information
Competition can be (select all that apply) Direct Indirect semi-direct
direct indirect
The key reason that monopolistically competitive firms earn $0 profit in the long run is
entry.
Markets with higher search costs tend to have
greater markup over marginal cost.
What are some sources of diseconomies of scale?
increasing labor costs spreading resources too thinly bureaucracy
Site specificity refers to an asset that
is physically located in an area that is advantageous to both firms
Instead of vertically integrating, a firm could use which of the following strategies to hedge against input price risk (choose all that apply): long-term contracts making the input in-house forward/futures contract maintain a contingency fund
long-term contracts forward/futures contract maintain a contingency fund
An HHI of 0.5 would indicate that the market is
oligopoly
The magnitude of a the holdup problem is known as
quasi-rents
The holdup problem is likely to occur whenever
quasi-rents are large
Which of the following are part of the SSNIP criterion (select all that apply)? Small >5% price increase Large >50% price increase Transitory <1 year Non-transitory >1 year
small >5% price increase Non-transitory >1 year
Which of the following is the term for complementarity in production processes that keeps a firm's product and ideas inimitable? Umbrella Branding research and development strategic fit
strategic fit
When the cross price elasticity of demand is positive, then the goods are:
substitutes
Internal capital markets refers to
the ability of a diversified firm to fund startup projects from surplus cash generated by other units.
When contracts are incomplete, adjudicators (judges/juries) rely on
the contract and contract law embodied in the UCC.
Diversion analysis looks at
the proportion of second choice counts to the total market share of that good.
The Slope of the learning curve measures
the reduction in average total cost that results from increased cumulative production.
Mark all of the good (efficient) reasons for diversification: to allow managers to enhance their compensation. to add social prominence and prestige to managers to benefit from economies of scale and scope
to benefit from economies of scale and scope
True or False? The holdup problem could be prevented with a complete contract.
true
Creating safeguards to prevent the holdup problem is economically
advantageous
Differentiated products allow firms competing in a Bertrand Oligopoly to:
charge markup over marginal cost
Vertical integration is also known as the
"Make" in the "Make or Buy" scenario
A horizontally differentiated product is
better to some and perhaps worse to others, depending on preferences.
