ECO 550 Final Exam

ECO 550 Final Exam Solutions

The short-run cost function is:

Question 2

In a study of banking by asset size over time, we can find which asset sizes are tending to become more prominent. The size that is becoming more predominant is presumed to be least cost. This is called:

Question 3

Which of the following is not

an assumption of the linear breakeven model:

Question 4

A ____ total cost function implies that marginal costs ____ as output is increased.

Question 5

Long distance telephone service has become a competitive market. The average cost per call is $0.05 a minute, and it’s declining. The likely reason for the declining price for long distance service is:

Question 6

What is the profit maximization point for a firm in a purely competitive environment?

Question 7

The problems of asymmetric information exchange arise ultimately because

Question 8

An “experience good” is one that:

Question 9

Of the following, which is not

an economic rationale for public utility regulation?

Question 10

____ as practiced by public utilities is designed to encourage greater usage and therefore spread the fixed costs of the utility’s plant over a larger number of units of output.

Question 11

In natural monopoly, AC continuously declines due to economies in distribution or in production, which tends to found in industries which face increasing returns to scale. If price were set equal to marginal cost, then:

Question 12

Regulatory agencies engage in all of the following activities except _______.

Question 13

In the Cournot duopoly model, each of the two firms, in determining its profit-maximizing price-output level, assumes that the other firm’s ____ will not change.

Question 14

Barometric price leadership exists when

Question 15

A(n) ____ is characterized by a relatively small number of firms producing a product.

Question 16

Even ideal cartels tend to be unstable because

Question 17

The starting point of many methods for predicting equilibrium strategy in sequential games is

Question 18

Cooperation in repeated prisoner’s dilemma situations seems to be enhanced by all of the following except

Question 19

When there is no Equilibrium (or no Nash Equilibrium), we expect that:

Question 20

In making promises that are not guaranteed by third parties and in imposing penalties that are not enforced by third parties, all of the following are credibility-enhancing mechanisms except

Question 21

____ is a new product pricing strategy which results in a high initial product price. This price is reduced over time as demand at the higher price is satisfied.

Question 22

Third-degree price discrimination exists whenever:

Question 23

Which of the statements about price discrimination is (are) false?

Question 24

The following are possible examples of price discrimination, EXCEPT:

Question 25

Which of the following is not among the functions of contract?

Question 26

When borrowers who do not intend to repay are able to hide their bad credit histories, a lender’s well-intentioned borrowers should

Question 27

When someone contracts to do a task but fails to put full effort into the performance of an agreement, yet the lack of effort is not independently verifiable, this lack of effort constitutes a

Question 28

Which of the following are not approaches to resolving the principal-agent problem?

Question 29

The lower the barriers to entry and exit, the more nearly a market structure fits the ____ market model.

Question 30

Industry A has market shares of 50, 30, and 20. Industry B has market shares of 45, 40, and 15. Hint: HHI = Σ (si2), where si is the market shares of the i-th firm in the industry.

Question 31

____ occurs whenever a third party receives or bears costs arising from an economic transaction in which the individual (or group) is not a direct participant.

Question 32

____ yields the same results as the theory of perfect competition, but requires substantially fewer assumptions than the perfectly competitive model.

Question 33

Which of the following would not be classified as a capital expenditure for decision-making purposes?

Question 34

Capital expenditures:

Question 35

The ____ method assumes that the cash flows over the life of the project are reinvested at the ____.

Question 36

The weights used in calculating the firm’s weighted-average cost of capital are equal to the proportion of debt and equity ____.

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