Question 1

A key reason for the existence of firms is that, compared to markets, firms often achieve lower

Accepted Answer

A)  explicit costs. 
B)  transactions costs. 
C)  accounting costs. 
D)  scope of team production. 
A)  explicit costs. 
B)  transactions costs. 
C)  accounting costs. 
D)  scope of team production.

Question 2

Which of the following statements regarding principal-agent relations is correct?

Accepted Answer

A)  Workers are principals for managers. 
B)  Stockholders are agents. 
C)  Managers are both principals and agents. 
D)  All of the above answers are correct. 
A)  Workers are principals for managers. 
B)  Stockholders are agents. 
C)  Managers are both principals and agents. 
D)  All of the above answers are correct.

Question 3

The Roomba 570 is a robotic vacuum cleaner made and sold by iRobot. It can vacuum 4 rooms on a single battery charge and it costs $2 worth of electricity to charge the Roomba. Lynn is a house cleaner and can vacuum 4 rooms in 1 hour with a traditional vacuum. Suppose you want the 4 rooms in your house vacuumed once a week for one year. Ignoring the cost of any electricity Lynn uses, which method is economically efficient if Lynn charges $20 per hour? $30 per hour?

Accepted Answer

A)  Roomba if Lynn charges $20 per hour and Lynn if she charges $30 per hour 
B)  Lynn if she charges $20 or $30 per hour 
C)  Roomba if Lynn charges $20 or $30 per hour 
D)  Lynn if she charges $20 per hour and Roomba if Lynn charges $30 per hour 
A)  Roomba if Lynn charges $20 per hour and Lynn if she charges $30 per hour 
B)  Lynn if she charges $20 or $30 per hour 
C)  Roomba if Lynn charges $20 or $30 per hour 
D)  Lynn if she charges $20 per hour and Roomba if Lynn charges $30 per hour

Question 4

U.S. auto sales took a beating in September 2008 as the nation's worsening economy turned dealer showrooms into ghost towns. Automakers reported a sharp drop-off in sales in the last ten days of the month as news of bank failures and a stock market meltdown increased economic uncertainty. What type of constraint do the automakers face when there is increased economic uncertainty?

Accepted Answer

A)  Information constraint 
B)  Technology constraint 
C)  Market constraint 
D)  Price constraint 
A)  Information constraint 
B)  Technology constraint 
C)  Market constraint 
D)  Price constraint

Question 5

Two university graduates, Bill and Steve, worked for an advertising agency at an annual salary of $40,000 each for 3 years after they graduated. Then, they decided to quit their jobs and start a partnership that designs and builds Web sites. They rented an office for $12,000 a year and bought capital for $30,000. To pay for the equipment, Bill and Steve borrowed money from a bank at an annual interest rate of 6 percent. During their first year of operation, the partners' total revenue was $100,000. The market value of their capital at the end of the year was $20,000. If Bill and Steve do not design Web pages, their best alternatives are to return to their previous job.
a) What is the firm's economic depreciation?
b) What are the partnership's costs?
c) What is the firm's economic profit in the first year of operation?

Accepted Answer

a) The economic depreciation of the firm

Question 6

A golf club manufacturer pays its workers based on the number of sets of clubs they produce. This firm

Accepted Answer

A)  organizes production based on an incentive system. 
B)  organizes production based on a command system. 
C)  does not have any implicit costs. 
D)  does not have explicit costs. 
A)  organizes production based on an incentive system. 
B)  organizes production based on a command system. 
C)  does not have any implicit costs. 
D)  does not have explicit costs.

Question 7

Suppose that there are 10 firms in an industry, each accounting for 10 percent of industry sales. Two of these firms decide to merge. Which of the following statements about the impact of this merger is (are) INCORRECT?

Accepted Answer

A)  The merger causes the four-firm concentration ratio to increase from 40 to 50. 
B)  The merger causes the HHI to increase by 100. 
C)  The merger will not change the HHI unless the industry's sales increase. 
D)  Both answers A and C are incorrect. 
A)  The merger causes the four-firm concentration ratio to increase from 40 to 50. 
B)  The merger causes the HHI to increase by 100. 
C)  The merger will not change the HHI unless the industry's sales increase. 
D)  Both answers A and C are incorrect.

Question 8

Which of the following best defines "economies of scope"?

Accepted Answer

A)  As output expands the cost of producing a good decreases. 
B)  As output expands the cost of producing a unit of a good decreases. 
C)  Because firms use specialized resources to produce a range of goods, as the number of products produced increases, the cost of producing a unit decreases. 
D)  Costs increase as firms seek to find more consumers. 
A)  As output expands the cost of producing a good decreases. 
B)  As output expands the cost of producing a unit of a good decreases. 
C)  Because firms use specialized resources to produce a range of goods, as the number of products produced increases, the cost of producing a unit decreases. 
D)  Costs increase as firms seek to find more consumers.

Question 9

An advantage of the corporate form of organization is that

Accepted Answer

A)  owners have joint unlimited liability. 
B)  owners have limited liability. 
C)  owners have individual unlimited liability. 
D)  creditors have unlimited liability. 
A)  owners have joint unlimited liability. 
B)  owners have limited liability. 
C)  owners have individual unlimited liability. 
D)  creditors have unlimited liability.

Question 10

Techniques for making 100 pizzas  
-Labor costs $20 per worker and capital costs $100 per unit. Then, according to the above table, which of the following options for pizza production is economically efficient?

Accepted Answer

A)  Option 1 
B)  Option 3 
C)  Option 4 
D)  Both options 1 and 3 are economically efficient. 
A)  Option 1 
B)  Option 3 
C)  Option 4 
D)  Both options 1 and 3 are economically efficient.

Question 11

Economic efficiency necessarily occurs when the firm

Accepted Answer

A)  produces a given output at least cost. 
B)  produces a given output by using the least inputs. 
C)  earns a normal profit. 
D)  earns an economic profit. 
A)  produces a given output at least cost. 
B)  produces a given output by using the least inputs. 
C)  earns a normal profit. 
D)  earns an economic profit.

Question 12

Which of the following are types of economic markets? I. perfectly competitive
II) oligopoly
III) monopoly
IV) multilateral

Accepted Answer

A)  I and II 
B)  II and III 
C)  I and IV 
D)  I, II and III 
A)  I and II 
B)  II and III 
C)  I and IV 
D)  I, II and III

Question 13

The decision about whether a firm in each particular industry must operate as a proprietorship, partnership, or corporation is made by the Internal Revenue Service.

Accepted Answer

A) True 
 B)False

Question 14

Corporations that offer incentive pay schemes that link pay to meeting profit, production, or sales targets are doing so to cope with the

Accepted Answer

A)  scarcity problem. 
B)  inefficiencies usually found in large firms. 
C)  principal-agent problem. 
D)  problems of unionization. 
A)  scarcity problem. 
B)  inefficiencies usually found in large firms. 
C)  principal-agent problem. 
D)  problems of unionization.

Question 15

What is a normal profit? Is it part of the firm's opportunity costs, total revenue, or neither?

Accepted Answer

The normal profit is

Question 16

Mr. Sweet opened a candy store. He rented a building for $30,000 a year. During the first year of operation, Sweet paid $40,000 to his employees, $10,000 for utilities, and $20,000 for goods he bought from other firms. His total revenue was $135,000. Sweet's best alternative to running this candy store is to work for Wal-Mart as a sales associate for $15,000 a year. What is Sweet's economic profit?

Accepted Answer

A)  $20,000 
B)  -$20,000 
C)  zero 
D)  $35,000 
A)  $20,000 
B)  -$20,000 
C)  zero 
D)  $35,000

Question 17

The legal responsibility for losses incurred by a proprietorship falls upon the

Accepted Answer

A)  stockholders. 
B)  partners. 
C)  owner. 
D)  creditors. 
A)  stockholders. 
B)  partners. 
C)  owner. 
D)  creditors.

Question 18

Economic efficiency definitely occurs whenever

Accepted Answer

A)  a firm cannot increase its output without increasing all its inputs. 
B)  there are no implicit costs. 
C)  the most modern technology is used in the production process. 
D)  the firm produces a given output at the least cost. 
A)  a firm cannot increase its output without increasing all its inputs. 
B)  there are no implicit costs. 
C)  the most modern technology is used in the production process. 
D)  the firm produces a given output at the least cost.

Question 19

What are the four types of markets? Give a brief description of each type.

Accepted Answer

The four types of markets are perfect co

Question 20

Tara, a pharmacist, is planning on opening her own pharmacy. Tara currently earns $50,000 a year at her job. She has calculated that it will cost her $6,000 in rent and utilities and $25,000 for an assistant per year to run her pharmacy. What is the amount of opportunity cost that Tara incurs in running her own pharmacy?

Accepted Answer

A)  $31,000 
B)  $25,000 
C)  $50,000 
D)  $81,000 
A)  $31,000 
B)  $25,000 
C)  $50,000 
D)  $81,000

Exam 10: Organizing Production

A key reason for the existence of firms is that, compared to markets, firms often achieve lower

Which of the following statements regarding principal-agent relations is correct?

A golf club manufacturer pays its workers based on the number of sets of clubs they produce. This firm

Suppose that there are 10 firms in an industry, each accounting for 10 percent of industry sales. Two of these firms decide to merge. Which of the following statements about the impact of this merger is (are) INCORRECT?

Which of the following best defines "economies of scope"?

An advantage of the corporate form of organization is that

Techniques for making 100 pizzas -Labor costs $20 per worker and capital costs $100 per unit. Then, according to the above table, which of the following options for pizza production is economically efficient?

Economic efficiency necessarily occurs when the firm

Which of the following are types of economic markets? I. perfectly competitive II) oligopoly III) monopoly IV) multilateral

The decision about whether a firm in each particular industry must operate as a proprietorship, partnership, or corporation is made by the Internal Revenue Service.

Corporations that offer incentive pay schemes that link pay to meeting profit, production, or sales targets are doing so to cope with the

What is a normal profit? Is it part of the firm's opportunity costs, total revenue, or neither?

The legal responsibility for losses incurred by a proprietorship falls upon the

Economic efficiency definitely occurs whenever

What are the four types of markets? Give a brief description of each type.

What Is Economics

The Economic Problem

Demand and Supply

Elasticity

Efficiency and Equity

Government Actions in Markets

Global Markets in Action

Utility and Demand

Possibilities, Preferences, and Choices

Output and Costs

Perfect Competition

Monopoly

Monopolistic Competition

Oligopoly

Public Choices and Public Goods

Externalities and the Environment

Markets for Factors of Production

Economic Inequality

Uncertainty and Information

Extension A: Review

Extension B: Review

Extension C: Review

Extension D: Review

Extension E: Review

Extension F: Review

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