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Economics Quiz Review Key

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    Q.No. Question Actual Answer Selected Answer Marks obtained 1. The policy of Government Licensing generally results in high price regime. This happens because Potential competition for firms is thwarted Firms control the supply of critical raw material 0 2. Assume that the sales tax for a product is increased. The producer will bear a higher burden of the increased cost when the demand elasticity > the supply elasticity the demand elasticity = supply elasticity 0 3. Patents are designed to reward innovative companies with supernormal profits. Under which of  these conditions it is unlikely for the firm with patent to earn economic profits High cost of  enforcing patents High average costs 0 4. The feature that distinguishes competitive Oligopoly from other market structures is that The firm's demand curve incorporates the rivals' reaction The firm's demand curve incorporates the rivals' reaction 1 5. A monopolist is generally able to earn super normal profits. This happens because All of the above P> MC 0 6. A monopolist exercises market power when P > MC P > MC 1 7. For a discriminating monopolist operating in two market segments (M1 and M2), profits are maximized at the output where CMR = MC. Assuming the price elasticities for M1 and M2 to be -3 and -0.5 respectively, then the price charged in M1 < M2 M1 > M2 0 8. Government subsidy is justified under which of the following situations market price is fixed below marginal cost market price is fixed below marginal cost 1 9. Under competitive market conditions, if the market price is equal to minimum AC then the firm will be earning: Normal profits Super normal profits 0 10. In a kinked demand model of Oligopoly, a firm's price and output policies is based on which of the following Refrain from cutting price independently Price discrimination 0 11. When the cost of supply increase for a Monopolist (i.e., Average cost curve shifts up) then which of the following holds true an increase in price and a decrease in quantity sold an increase in price but same quantity sold 0 12. Which of the following indicates higher supernormal profits for a monopolist All of the above All of the above 1 13. Price discrimination is followed when markets are segmented. The pricing implication of this would be The price elasticities for the market segments would differ The price elasticities for the market segments would differ 1 14. A monopolist is considered as a 'Price Maker'. This would imply that a Monopolist has Discretion in fixing price or quantity Discretion in fixing price and quantity 0 15. In the long run, all firms in a competitive market earn only normal profits. This is because: Both (a) and (b) Either (a) or (b) 0   16. In a competitive market structure, two firms, namely A & B earn varying profits.Assume Firm B earns a profit of US$ 10,000 while that of Firm A is US$30,000. This difference in profits arises because: The average cost of  Firm A is less than that of Firm B The average cost of  Firm A is less than that of Firm B 1 17. In a monopolistic market, a firm exercises limited discretion in setting prices. This happens because Firms practice product differentiation that are imperfect substitutes Firms compete only on price factors 0 18. In Oligopoly, when firms have equal market share and different costs, the preferred price-output strategy would be based on which of the following. Collusion Collusion 1 19. Which of the following represents the characteristics of a competitive market all of the above all of the above 1 20. In a monopolistic market structure, which of the following would increase the ability of the domestic firms to raise prices and profit margins customer recognition of higher  quality and service standards customer recognition of higher  quality and service standards 1 Total Correct Answers 9 Q.No. Question Actual Answer Selected Answer Marks obtained 1. A right ward shift of the supply curve of a firm would mean which of the following fall in the variable costs rise in the variable costs 0 2. A rise in the worker productivity will result in which of the following All of the above All of the above 1 3. Consider a bicycle company that decides to increase the production of bicycles in a given year. The relevant cost for this decision would be which of  the following Incremental cost Total cost 0 4. In the business decision framework, total costs cover which of the following All of the above Cost of all purchased inputs 0 5. A cost function provides quantitative estimates of  costs at different output levels.A typical short run average cost curve is U-shaped.This is because Average variable costs and average productivity are inversely related Marginal costs rise as output increases 0 6. When a firm's production in the short run corresponds to the falling part of the AC curve then the firm is Operating under  excess capacity Operating under  excess capacity 1 7. Assume current market conditions to be that of high demand,say for bicycles.To remain profitable,the All of the above All of the above 1  bicycle manufacturer will increase production even when 8. Economies of scope exist when the cost of joint production is less than the cost of producing products separately.Which of the following is not an example of scope economies Horizontal integration Horizontal integration 1 9. The pricing of loss minimizing firm will correspond to which of the following P > AVC P > MC 0 10. Consider a situation where a firm decides to stop production.Which of the following indicates the cost implications for not being in production Fixed cost Fixed cost 1 11. Consider the following.Suppose people place a value on time spent traveling equal to 25% of their  average wage and are willing to pay a premium of  25% for better quality of travel.Using this information, a bus service company prices its services 40% higher than the other companies by assuring on time and high quality service.The principle used by the company is based on which of  the following Opportunity Cost Marginal Cost 0 12. Assume that strong demand conditions are likely to persist in future as well.Which of the following would be appropriate for a profit maximising firm. Expand plant size Increase production in the rising part of  the marginal cost curve 0 13. An upward sloping supply curve defines the relationship between prices and quantity supplied by the firm.This relationship is defined by which of the following Marginal costs rise as output increases Marginal costs rise as output increases 1 14. To assess the physical limitation on the ability of a company to increase production, say a bicycle company, which of the following cost is relevant Fixed cost Average cost 0 15. When MES is large relative to industry demand then it leads to Monopoly market Monopoly market 1 16. Consider the following LRAC. Under increasing industry demand, which of the following would be a relevant option for the firm Any plant size Small size plant 0   17. MES defines the optimum scale of operation/size for  a firm.This is because the minimum point in LRAC is tangential to the SRAC at the Minimum part of  SRAC curve Falling part of SRAC curve 0 18. When a firm's output is low, unit costs fall as output rises. This happens because of Increasing returns to variable input Decreasing returns to variable input 0 19. When transaction costs (like transportation costs) are high, the MES reduces relative to industry demand. The implications of this for a profit maximizing firm would be Small production facilities closer to market Small production facilities closer to market 1 20. In the short run,cost efficiency in production is achieved when the production corresponds to minimum AC.Under competitive condition,if the market price is equal to minimum AC then the firm will be earning Normal profits Incur losses 0 Total Correct Answers 8 .No. Question Actual Answer Selected Answer Marks obtained 1. Technological improvements can result in higher output and productivity. This is reflected in which of the following: both (a) and (b) upward shift of the TP curve 0 2. In the production function framework, efficiency in production is defined by which of the following: Minimum input requirement for a given level of  output Minimum input requirement for a given level of  output 1 3. In the short run production function, Capital (K) is fixed input and Labour (L) is variable input. Conceptually, fixed input in production activity implies Both (a) and (b) Both (a) and (b) 1 4. In business most feel that CEOs are overpaid. This situation corresponds to which of the following MRP L  < P L  MRP L  < P L  1 5. Most companies offer annual increments to their employees/executives based on a detailed performance appraisal. This practice is based on which of the following economic concept Marginal productivity Marginal productivity 1 6. In small scale operation an employee performs different and diverse tasks. Under this condition, it is difficult for workers to attain high degree of  proficiency. This is reflected in which of the following: Operating below the AP L  curve Operating in the rising part of  AP L curve 0 7. In the long run, all inputs are variable. Conceptually, this would mean that: A firm's output capability is All of the above 0
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