ECO 550 NEW MIDTERM PART 2 (2016)
1. When there is an Equilibrium (or a Nash Equilibrium), we expect that:
once the firm’s get there, no one will change their strategy.
firms will tend to select a randomized strategy.
neither firm will care what it does.
this is always a dominated strategy.
2. In adopting mixed Nash equilibrium strategy, a player is attempting to
randomize his or her own behavior
make the opponent favor a course of action preferred by the first player
randomize the outcome of actions
make the opponent indifferent between one action and another
none of the above
3. Credible promises and hostage mechanisms can support a continuous stream of cooperative exchanges except when
the promisor is better off fulfilling than ignoring his promise
neither party has a prior dominant strategy
the hostage can be revoked for just causes
the hostage is more valuable than any given exchange
the hostage is difficult to replace
4. A dominant strategy differs from a Nash equilibrium strategy in that
Nash equilibrium strategy does not assume best reply responses
dominant strategy assumes best reply responses
only Nash strategy applies to simultaneous games
one dominant strategy is sufficient to predict behavior in a multi-person game
Nash strategy is often unique
5. Cooperation in repeated prisoner’s dilemma situations seems to be enhanced by all of the following except.
limited punishment schemes
clarity of conditional rewards
grim trigger strategy
provocabilityi.e., credible threats of punishment
tit for tat strategy
6. Electricity pricing that varies in its billing expense throughout the day is called
full pricing
marginal cost pricing
dynamic pricing
variable pricing
full cost pricing
7. Vacation tours to Europe invariably package visits to disparate regions: cities, mountains, and the seaside. Bundling, a type of second degree price discrimination, is most profitable when:
The preference rankings of vacationers travelling together are negatively correlated
A preference of cities is always higher than preferences for mountain vistas.
preference rankings of vacationers travelling together are positively correlated.
preference for the seaside is always higher than preferences for city excursions.
no one wants to take a European vacation package to cities, mountains, and the seaside.
8. Which of the following pricing policies best identifies when a product should be expanded, maintained, or discontinued?
full-cost pricing policy
target-pricing policy
marginal-pricing policy
market-share pricing policy
markup pricing policy
9. To maximize profits, a monopolist that engages in price discrimination must allocate output in such a way as to make identical the ____ in all markets.
Ratio of price to marginal cost
Ratio of marginal cost to marginal utility
Ratio of price to elasticity
Marginal revenue
None of the above
10. ____ is the price at which an intermediate good or service is transferred from the selling to the buying division within the same firm.
Incremental price
Marginal price
Full-cost price
Transfer price
None of the above
11. When retail bicycle dealers advertise and perform warranty repairs but do not deliver the personal selling message that Schwinn has designed as part of the marketing plan but cannot observe at less than prohibitive cost, the manufacturer has encountered a problem of ____.
Reliance relationship
Uncertainty
Moral hazard
Creative ingenuity
Insurance reliance
12. When borrowers who do not intend to repay are able to hide their bad credit histories, a lender’s well-intentioned borrowers should
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
13. To accomplish its purpose a linear profit-sharing contract must
Induce the employee to moonlight
Communicate a code of conduct that will be monitored and enforced
Meet either the participation or the incentive compatibility constraint
Establish a separation equilibrium
Not realign incentives
14. To accomplish its purpose a linear profit-sharing contract must
15. 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
Breach of contractual obligations
Denial of good guarantee
Loss of reputation
Moral hazard
16. The Herfindahl-Hirschman index (also shortened to just the Herfindahl index) is a measure of ____.
Market concentration
Income distribution
Technological progressiveness
Price discrimination
None of the above
17. The antitrust laws regulate all of the following business decisions except ____.
Collusion
Mergers
Monopolistic practices
Price discrimination
Wage levels
18. The lower the barriers to entry and exit, the more nearly a market structure fits the ____ market model.
Monopolistic competition
Perfectly contestable
Oligopoly
Monopoly
None of the above
19. ____ yields the same results as the theory of perfect competition, but requires substantially fewer assumptions than the perfectly competitive model.
Baumol’s sales maximization hypothesis
The Pareto optimality condition
The Cournot model
The theory of contestable markets
None of the above
20. ____ 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.
Pecuniary benefits and costs
Externalities
Intangibles
Monopoly costs and benefits
None of the above
21. Cost-benefit analysis is the public sector counterpart to ____ used in private, profit-oriented firms.
ratio analysis
break-even analysis
capital budgeting techniques
economic forecasting
none of the above
22. The weights used in calculating the firm’s weighted-average cost of capital are equal to the proportion of debt and equity ____.
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
none of the above
23. In order to help assure that all relevant factors will be considered, the capital-expenditure selection process should include the following steps except:
generating alternative capital-investment project proposals
estimating cash flows for the project proposals
reviewing the investment projects after they have been implemented
allocate manpower to the various divisions within the firm
a and d
24. The social rate of discount is best approximated by:
the cost of government borrowing
the opportunity cost of resources taken from the private sector
3 percent
30 percent
none of the above
25. In the constant-growth dividend valuation model, the required rate of return on common stock (i.e., cost of equity capital) can be shown to be equal to the sum of the dividend yield plus the ____.
yield-to-maturity
present value yield
risk-free rate
dividend growth rate
none of the above
