Question 1
Which compensation method helps to explain the large difference between the salaries of top-level managers and mid-level managers in a firm?
A. Tournaments
B. Backloaded compensation
C. New blood
D. Piece rate
3 points
Question 2
Please consider the information provided under Question 19 in Chapter 3 (page 54). Based on the stated information, the optimal number of bees kept if the externality is ignored by Yung is 5,000. Is the socially optimal number of bees higher or lower than 5,000?
A. We do not have enough information to answer this question
B. Higher
C. Same
D. Lower
Question 3
Which of the following factors contribute to the existence of firms?
- Incomplete contracts
B. All of these factors contribute to firm existence
C. Risks associated with specialization
D. Willingness of some people to take on risk in exchange for residual income
Question 4
Public goods are often subject to free-rider problems because these goods are:
A. Non-rival and excludable
B. Rival and non-excludable
C. Non-rival and non-excludable
D. Rival and excludable
Question 5
Which of the following is the most efficient mechanism for allocating scarce goods?
A. Government allocation system
B. First-come-first-served system
C. Random allocation system
D. Market system
Question 6
Many years ago, most of the major Hollywood movie studios also owned chains of local movie theaters across the US. Today, most of the local movie theaters are owned by other companies. What has happened to the degree of integration in the movie industry over time?
A. Less vertically integrated
B. Less horizontally integrated
C. More horizontally integrated
D. More vertically integrated
Question 7
Your firm produces replacement parts for the nuclear submarines operated by the US Navy. Which one of Porter’s Five Forces will be most prominent in determining your strategies and profitability?
A. Threat of New Entrants
B. Threat of Substitutes
C. Bargaining Power of Suppliers
D. Bargaining Power of Customers
Question 8
Which of the following statements is NOT true?
A. The government allocation mechanism provides no incentive for the economy to grow.
B. Markets are always the most efficient way to allocate goods, even if the market is not perfectly competitive.
C. The random allocation mechanism provides no incentives at all.
D. The market mechanism for allocating resources is most efficient due to the incentives it creates.
Question 9
Suppose a firm’s cost structure exhibits economies of scope. Which of the following actions is compatible with this cost structure?
A. Diversify into other product lines
B. Focus on core competencies and reduce production
C. Focus on core competencies and expand production
D. Focus on core competencies and maintain constant production
Question 10
Please refer to Table 8.3 on page 132 in the book. Suppose we change the payoffs in the “low price, low price” cell to 0, 25 from 0, 0. Does this change the Nash equilibrium for the game, and is the game still a Prisoner’s Dilemma?
A. Equilibrium changes, still a Prisoner’s Dilemma
B. Equilibrium changes, no longer a Prisoner’s Dilemma
C. Same equilibrium, still a Prisoner’s Dilemma
D. Same equilibrium, no longer a Prisoner’s Dilemma
Question 11
Which of the following statements about restricting entry to markets is NOT true?
A. Branded products tend to have more elastic demand, which makes it more difficult for entrants to charge high prices and they must stay out of the market.
B. Brand identity and logos are expensive to establish, and entrants may find it very expensive to establish comparable position in the market.
C. Predatory pricing is illegal but very difficult to prove in court
D. A low-quality seller cannot effectively use a warranty program to keep other firms out of its market
Question 12
Your firm earns $2 million per quarter in total revenue, and your accounting profits are $100,000 per quarter. You do not charge the firm for the use of an old building that you own because it is 50 years old and fully depreciated. However, another firm has offered you $200,000 per quarter to use the facility, and this is the market rental rate for similar facilities. In this case, we know that your:
A. Opportunity costs and economic profits are negative
B. Opportunity costs are positive and economic profits are negative
C. Opportunity costs are negative and economic profits are positive
D. Opportunity costs and economic profits are positive
Question 13
Please refer to Question 13 in Chapter 1 (page 17). What is the marginal cost of reducing global warming by 0.017 degrees?
A. MC = 60
B. MC = 50
C. We do not have enough information to answer this question
D. MC = 5
Question 14
In Chapter 6, Boyes focuses on negative externalities such as the various types of pollution. However, as we discussed during our online session, we can also observe positive externalities in which external benefits are generated for people. Which of the following is NOT an example of a positive externality?
A. Workers can form carpools and use other means to reduce commuting costs
B. All of these cases are examples of positive externalities
C. Workers can help one another to “cover the phones” and make sure that someone is always available to help clients
D. Workers can provide ideas to one another about how to solve problems
Question 15
Common property resources are:
A. Rival and non-excludable
B. Non-rival and excludable
C. Non-rival and non-excludable
D. Rival and excludable
Question 16
The free-rider problem arises in markets for common property resources.
A. False
B. True
Question 17
Firms that set their product price below the actual cost of production may be engaging in:
A. Dollar-cost averaging
B. Predatory pricing
C. Moral hazard
D. Monopoly pricing
Question 18
Under a cap-and-trade mechanism to control air pollution, what happens to the price of pollution rights if the supply of righs is reduced (i.e., the supply of rights is reduced)?
A. Decreases
B. No change
C. Increases
Question 19
The key method for a manufacturing firm to avoid hold-up problems is to have another source of inputs.
A. True
B. False
Question 20
Your firm sells luxury autos, and you have asked the marketing department to develop and stronger brand identity through a new ad campaign. After the campaign has run for 6 months, you hire an economic consultant to study the impact of the campaign on the demand for your autos. The consultant reports that the demand for your cars is now more elastic than it was 6 months ago. Was the new ad campaign successful?
A. Yes
B. No
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