QUESTION 1 A principal-agent problems occur when managerial decisions are not co

Question

QUESTION 1

A principal-agent problems occur when managerial decisions are not consistent with the firm's shareholders' interests.

True

False

2 points   

QUESTION 2

A firm making more than a normal profit may still be experiencing an economic loss.

True

False

2 points   

QUESTION 3

An inferior good is a good whose demand decreases as its prices decreases.

True

False

2 points   

QUESTION 4

Assuming that crude oil is an input to automobile tires as well as to gasoline, a reduction in the tariff on imported crude oil would likely result in an increase in the number of tires sold but tire prices may increase or decrease.

True

False

2 points   

QUESTION 5

Other things remaining unchanged, advertisement would likely make demand for a good more price elastic.

True

False

2 points   

QUESTION 6

The cross price elasticity demand for a good with respect to the price of a complementary good is negative.

True

False

2 points   

QUESTION 7

When the marginal product of labor is smaller than its average product, marginal cost will be smaller than average variable cost.

True

False

2 points   

QUESTION 8

With capital measured along the vertical axis and labor along the horizontal axis the slope of an isoquant is equal to the ratio between the price of capital over the price of labor.

True

False

2 points   

QUESTION 9

If the ratio between the price of labor and the price of capital (w/r) is smaller than the ration between the marginal product of labor and the marginal product of capital, the firm should hire more capital.

True

False

2 points   

QUESTION 10

Normally the ratio between the price of a variable input and the marginal product of that input is equal to marginal cost.

True

False

2 points   

QUESTION 11

When labor is a variable input the product of wage and marginal product of labor is equal to the profit-maximizing price.

True

False

2 points   

QUESTION 12

If the price falls below the average total cost the firm may not shut down in the short run.

True

False

2 points   

QUESTION 13

When a perfectly competitive firm is producing at its profit maximizing level of output, its MR is equal to price and its MC while it may or may not be making an economic profit.

True

False

2 points   

QUESTION 14

The price a profit maximizing monopoly charges is always greater than its marginal cost as well as it MR while it may not be greater than its ATC.

True

False

2 points   

QUESTION 15

As new firms enter a monopolistically competitive market, the demand faced by each competing firm becomes more inelastic.

True

False

2 points   

QUESTION 16

The long-run equilibrium of a monopoly is characterized by its price being equal to its MR but always greater than its ATC.

True

False

2 points   

QUESTION 17

A monopolistically competitive firm sets its price equal to its MR, while keeping it above MC.

True

False

2 points   

QUESTION 18

We say that the long-run equilibrium of a monopolistically competitive firm reflects excess capacity because its MC is not equal to its ATC.

True

False

2 points   

QUESTION 19

In a duopoly with a zero marginal cost, according to the Cournot model, at equilibrium the sum of the two firms' output would be more than 50 percent of the market demand at a zero price.

True

False

2 points   

QUESTION 20

In the kinked demand curve model it is assumed that the demand faced by an oligopoly is less elastic when it lowers the price but more elastic when it raises the price.

True

False

2 points   

QUESTION 21

A distinguishing characteristic of monopolistically competitive market is price discrimination.

True

False

2 points   

QUESTION 22

The general explanation for the relative price stability in an oligopolistic market is the existence of some degree of decision interdependency among the firms in the market.

True

False

Explanation / Answer

A principal-agent problems occur when managerial decisions are not consistent with the firm's shareholders' interests.

True

When one person is able to take decisions on behalf of another person. In this case the principal is the shareholders and the agent is the manager. The problem occurs when manager who needs to act on advice of the principal do not act that way.

QUESTION 2

A firm making more than a normal profit may still be experiencing an economic loss.

False

A firm experiencing normal profit means that it is able to cover all the factor costs of production including the profit of the entrepreneur.

QUESTION 3

An inferior good is a good whose demand decreases as its prices decreases.

False

Inferior good is one whose demand decreases with increase in the income of the buyer.

QUESTION 4

Assuming that crude oil is an input to automobile tires as well as to gasoline, a reduction in the tariff on imported crude oil would likely result in an increase in the number of tires sold but tire prices may increase or decrease.

True. As an input the reduction in tariff of crude oil as an input will increase the margin for tire company and therefore will try to increase the supply of the tires in the market.

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