Question 1

Which of the following compensation schemes can be explained as an attempt to solve a principal-agent problem?

Accepted Answer

A)  Real estate agents are paid on a strict commission basis; if they don't sell a client's listed property they don't get paid. 
B)  Personal injury lawyers often work on a contingency basis. If the lawyer wins the case they receive a significant share of the award; if the lawyer doesn't win the case the lawyer doesn't get paid. 
C)  Traveling sales people, who are costly and difficult to monitor, generally receive a significant share of their compensation in the form of commissions or bonuses for meeting sales targets. 
D)  All of the above compensation schemes attempt to solve a principal-agent problem. 
A)  Real estate agents are paid on a strict commission basis; if they don't sell a client's listed property they don't get paid. 
B)  Personal injury lawyers often work on a contingency basis. If the lawyer wins the case they receive a significant share of the award; if the lawyer doesn't win the case the lawyer doesn't get paid. 
C)  Traveling sales people, who are costly and difficult to monitor, generally receive a significant share of their compensation in the form of commissions or bonuses for meeting sales targets. 
D)  All of the above compensation schemes attempt to solve a principal-agent problem.

Question 2

-The above table shows the market shares for all the landscaping services in a suburban area. The four-firm concentration ratio equals

Accepted Answer

A)  30 percent. 
B)  60 percent. 
C)  65 percent. 
D)  100 percent. 
A)  30 percent. 
B)  60 percent. 
C)  65 percent. 
D)  100 percent.

Question 3

When the cost of producing a unit of a good decreases as its output rate increases, there are economies of

Accepted Answer

A)  scale. 
B)  scope. 
C)  production. 
D)  size. 
A)  scale. 
B)  scope. 
C)  production. 
D)  size.

Question 4

The national concentration ratio

Accepted Answer

A)  underestimates concentration for both the newspaper and the automobile industries. 
B)  overestimates concentration for both the newspaper and the automobile industries. 
C)  underestimates concentration for the newspaper industry and overestimates it for the automobile industry. 
D)  overestimates concentration for the newspaper industry and underestimates it for the automobile industry. 
A)  underestimates concentration for both the newspaper and the automobile industries. 
B)  overestimates concentration for both the newspaper and the automobile industries. 
C)  underestimates concentration for the newspaper industry and overestimates it for the automobile industry. 
D)  overestimates concentration for the newspaper industry and underestimates it for the automobile industry.

Question 5

The most important goal of the firm is to

Accepted Answer

A)  maximize its revenues. 
B)  maximize its sales volume. 
C)  maximize its profits. 
D)  minimize its costs. 
A)  maximize its revenues. 
B)  maximize its sales volume. 
C)  maximize its profits. 
D)  minimize its costs.

Question 6

Which of the following statements pertains to the four-firm concentration ratio? I. It is the percentage of the value of sales accounted for by the four largest firms in an industry.
II) A high concentration ratio is indicative of a high degree of competition.
III) The ratio is used to measure product differentiation.

Accepted Answer

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

Question 7

In the principal-agent relationship between a bank manager and a bank teller, the manager is

Accepted Answer

A)  an agent, as is the teller. 
B)  an agent and the teller is a principal. 
C)  a principal and the teller is an agent. 
D)  a principal, as is the teller. 
A)  an agent, as is the teller. 
B)  an agent and the teller is a principal. 
C)  a principal and the teller is an agent. 
D)  a principal, as is the teller.

Question 8

Firms are often more efficient than markets as coordinators of economic activity because

Accepted Answer

A)  firms can achieve lower transaction costs. 
B)  markets cannot coordinate production. 
C)  firms don't rely on economies of scale while markets do. 
D)  firm coordination is always more economically efficient than market coordination. 
A)  firms can achieve lower transaction costs. 
B)  markets cannot coordinate production. 
C)  firms don't rely on economies of scale while markets do. 
D)  firm coordination is always more economically efficient than market coordination.

Question 9

Tudor's Deli and Catering could have sold their delivery van on December 31, 2010 for $16,000. If they could sell the same van on December 31, 2011, for $13,000, then the economic depreciation in 2011 for this van

Accepted Answer

A)  is $13,000. 
B)  is $16,000. 
C)  is $29,000. 
D)  is $3,000. 
A)  is $13,000. 
B)  is $16,000. 
C)  is $29,000. 
D)  is $3,000.

Question 10

If Quick Auto Service increases the size of its shop, enabling it to purchase cost-saving capital equipment so that the cost of servicing a car falls, this would be an example of

Accepted Answer

A)  economies of scope. 
B)  economies of scale. 
C)  monitoring. 
D)  increasing transactions costs. 
A)  economies of scope. 
B)  economies of scale. 
C)  monitoring. 
D)  increasing transactions costs.

Question 11

-The table above lists the market shares of the twenty makers of personal computers. The four-firm concentration equals

Accepted Answer

A)  5 percent. 
B)  20 percent. 
C)  25 percent. 
D)  100 percent. 
A)  5 percent. 
B)  20 percent. 
C)  25 percent. 
D)  100 percent.

Question 12

Team production is a production process in which

Accepted Answer

A)  pay is based on group output. 
B)  individuals specialize in mutually supportive tasks. 
C)  competing groups perform identical tasks. 
D)  individuals rotate from one task to another. 
A)  pay is based on group output. 
B)  individuals specialize in mutually supportive tasks. 
C)  competing groups perform identical tasks. 
D)  individuals rotate from one task to another.

Question 13

Which of the following is a reason why firms can be more efficient than markets as coordinators of economic activity?

Accepted Answer

A)  economies of scale and scope 
B)  higher transactions charges 
C)  elimination of the principal-agent problem 
D)  all of the above 
A)  economies of scale and scope 
B)  higher transactions charges 
C)  elimination of the principal-agent problem 
D)  all of the above

Question 14

If worker output is not measurable in physical units, and employees are hard to monitor, it would be best to organize the firm using

Accepted Answer

A)  a command system. 
B)  a monitoring system. 
C)  an incentive system. 
D)  None of the above answers is correct. 
A)  a command system. 
B)  a monitoring system. 
C)  an incentive system. 
D)  None of the above answers is correct.

Question 15

What is economic profit?

Accepted Answer

A firm's economic profit is it

Question 16

Which of the following is a reason why firms may be more efficient than markets as coordinators of economic activity?

Accepted Answer

A)  economies of scale and scope 
B)  lower transactions costs 
C)  economies of team production 
D)  all of the above 
A)  economies of scale and scope 
B)  lower transactions costs 
C)  economies of team production 
D)  all of the above

Question 17

Kris wants to purchase a house. She buys newspapers to read the classified advertisements and spends her evenings with realtors looking at houses. Kris has incurred the ________ costs of making a purchase.

Accepted Answer

A)  transactions 
B)  market 
C)  buying 
D)  scale 
A)  transactions 
B)  market 
C)  buying 
D)  scale

Question 18

On a national level, the concentration ratio for grocery stores is very low. But, the "true" market for grocery stores is local in nature. What limitation does the geographic market put on the measure of concentration for grocery stores?

Accepted Answer

A)  On the local level, grocery stores are more concentrated than they appear on the national level. 
B)  On the local level, grocery stores are not as concentrated as they appear on the national level. 
C)  The level of concentration is overestimated when viewing the national level. 
D)  Both answers A and C are correct. 
A)  On the local level, grocery stores are more concentrated than they appear on the national level. 
B)  On the local level, grocery stores are not as concentrated as they appear on the national level. 
C)  The level of concentration is overestimated when viewing the national level. 
D)  Both answers A and C are correct.

Question 19

An advantage of the corporation over other forms of business organization is that

Accepted Answer

A)  the owners have unlimited liability. 
B)  a corporation's profits are taxed only once. 
C)  large-scale, low-cost capital is more readily available. 
D)  the decision-making structure is simple. 
A)  the owners have unlimited liability. 
B)  a corporation's profits are taxed only once. 
C)  large-scale, low-cost capital is more readily available. 
D)  the decision-making structure is simple.

Question 20

Lucinda starts a business consulting company. She makes all the business decisions and bears the risk of running the business. The typical payment for Lucinda's work is ________.

Accepted Answer

A)  all the revenue greater than her opportunity cost 
B)  all the revenue greater than the capital investment 
C)  a normal profit 
D)  an economic profit 
A)  all the revenue greater than her opportunity cost 
B)  all the revenue greater than the capital investment 
C)  a normal profit 
D)  an economic profit

Exam 10: Organizing Production

Which of the following compensation schemes can be explained as an attempt to solve a principal-agent problem?

-The above table shows the market shares for all the landscaping services in a suburban area. The four-firm concentration ratio equals

When the cost of producing a unit of a good decreases as its output rate increases, there are economies of

The national concentration ratio

The most important goal of the firm is to

In the principal-agent relationship between a bank manager and a bank teller, the manager is

Firms are often more efficient than markets as coordinators of economic activity because

Tudor's Deli and Catering could have sold their delivery van on December 31, 2010 for $16,000. If they could sell the same van on December 31, 2011, for $13,000, then the economic depreciation in 2011 for this van

If Quick Auto Service increases the size of its shop, enabling it to purchase cost-saving capital equipment so that the cost of servicing a car falls, this would be an example of

-The table above lists the market shares of the twenty makers of personal computers. The four-firm concentration equals

Team production is a production process in which

Which of the following is a reason why firms can be more efficient than markets as coordinators of economic activity?

If worker output is not measurable in physical units, and employees are hard to monitor, it would be best to organize the firm using

What is economic profit?

Which of the following is a reason why firms may be more efficient than markets as coordinators of economic activity?

Kris wants to purchase a house. She buys newspapers to read the classified advertisements and spends her evenings with realtors looking at houses. Kris has incurred the ________ costs of making a purchase.

On a national level, the concentration ratio for grocery stores is very low. But, the "true" market for grocery stores is local in nature. What limitation does the geographic market put on the measure of concentration for grocery stores?

An advantage of the corporation over other forms of business organization is that

Lucinda starts a business consulting company. She makes all the business decisions and bears the risk of running the business. The typical payment for Lucinda's work is ________.

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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