1-36 mcq solved with 100%
When there is no Equilibrium (or no Nash Equilibrium), we expect that:
Answer
the firms end up in the cooperative strategy.
a firm will follow a randomized strategy.
a firm will not care what it does.
a firm will very likely have a dominant strategy.
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
Answer
establishing a bond forfeited by violating the commitment
investing in a non-redeployable reputational asset tied to the promise or threat
interrupting the communication of negotiated compromises
offering a warranty
delivering a hostage (e.g., a patent license triggered by violating the promise)
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.
Answer
Prestige pricing
Price lining
Skimming
Incremental pricing
Third-degree price discrimination exists whenever:
Answer
the seller knows exactly how much each potential customer is willing to pay and will charge accordingly.
different prices are charged by blocks of services.
the seller can separate markets by geography, income, age, etc., and charge different prices to these different groups.
the seller will bargain with buyers in each of the markets to obtain the best possible price.
Which of the statements about price discrimination is (are) false?
Answer
It must be possible to segment the market.
It must be difficult to transfer the seller’s product from one market segment to another.
Public utilities practice first-degree price discrimination.
There must be differences in the elasticity of demand from one segment to another.
The following are possible examples of price discrimination, EXCEPT:
Answer
prices in export markets are lower than for identical products in the domestic market.
senior citizens pay lower fares on public transportation than younger people at the same time.
a product sells at a higher price at location A than at location B, because transportation costs are higher from the factory to A.
subscription prices for a professional journal are higher when bought by a library than when bought by an individual
Which of the following is not among the functions of contract?
Answer
to provide incentives for efficient reliance
to reduce transaction costs
to discourage the development of asymmetric information
to provide risk allocation mechanisms
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
Answer
complain to regulatory authorities
withdraw their loan applications
offer more collateral in exchange for lower interest charges
divulge still more information on their loan applications
hope for a pooling equilibrium
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
Answer
breach of contractual obligations
denial of good guarantee
loss of reputation
moral hazard
Which of the following are not approaches to resolving the principal-agent problem?
Answer
ex ante incentive alignment
deferred stock options
ex post governance mechanism
straight salary contracts
monitoring by independent outside directors
The lower the barriers to entry and exit, the more nearly a market structure fits the ____ market model.
Answer
monopolistic competition
perfectly contestable
oligopoly
monopoly
Industry A has market shares of 50, 30, and 20. Industry B has market shares of 45, 40, and 15. Hint: HHI = S (si2), where si is the market shares of the i-th firm in the industry.
Answer
The Herfindahl index for A is 100.
The Herfindahl index for A is 3,800.
The Herfindahl index for B is 3,600
The Herfindahl index for A is greater than for B.
The Herfindahl index is for B is 4,000.
____ 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.
Answer
Pecuniary benefits and costs
Externalities
Intangibles
Monopoly costs and benefits
____ yields the same results as the theory of perfect competition, but requires substantially fewer assumptions than the perfectly competitive model.
Answer
Baumol’s sales maximization hypothesis
The Pareto optimality condition
The Cournot model
The theory of contestable markets
Which of the following would not be classified as a capital expenditure for decision-making purposes?
Answer
purchase of a building
investment in a new milling machine
purchase of 90-day Treasury Bills
investment in a management training program
Capital expenditures:
Answer
are easily reversible
are forms of operating expenditures
Affect long-run future profitability
Involve only money, not machinery
The ____ method assumes that the cash flows over the life of the project are reinvested at the ____.
Answer
net present value; computed internal rate of return
internal rate of return; firm’s cost of capital
net present value; firm’s cost of capital
net present value; risk-free rate of return
The weights used in calculating the firm’s weighted-average cost of capital are equal to the proportion of debt and equity ____.
Answer
used to finance the project
used to finance the projects undertaken last year
in the industry average capital structure
in the firm’s target capital structure
MN
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