Business Economics - Midterm - ML50

Set A

Score: 90% (36/40)

Question 1/40
The own price elasticity of demand is equal = -3 means that:
A. When price increase 1%, quantity demanded decrease 3%
B. When price increase 3%, quantity demanded decrease 3%
C. When price increase 1 unit, quantity demanded decrease 3 units
D. When price decrease 1%, quantity demanded decrease 3%
Score: 1/1p.

Question 2/40
A market has 5 firms. One of them has a market share of 50%, a second 20%, and the other three 10% each.
Which of the following statements is true?
A. The 3-firm concentration ratio is 70%
B. The 4-firm concentration ratio is 80%
C. The market has a Herfindahl-Hirschman Index (measured from 1 to 10,000) of 3,200
D. The Herfindahl-Hirschman Index of the market is lower than in a market with 5 firms with a market
share of 20% each.
Score: 1/1p.

Question 3/40
A product X has a demand function as: QD = 100 - 2P. In order to maximize the revenue, the price should be
equal:
A. 20
B. 25
C. 30
D. 50
Score: 1/1p.

Question 4/40
Under perfect price discrimination:
A. consumers’ surplus is zero.
B. the monopolist makes zero profit
C. there is excess demand
D. there is a positive deadweight loss
Score: 1/1p.

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 Business Economics - Midterm - ML50
Set A

Question 5/40
A firm has a demand function: QD = 100 - 2P. At the price of $40, in order to increase the revenue, the firm
should:
A. Decrease price, decrease quantity
B. Increase price, decrease quantity
C. Decrease price, increase quantity
D. Increase price, increase quantity
Score: 1/1p.

Question 6/40
The slope of the Iso-cost line is determined by
A. Prices of the two factors
B. Degree of substitutability of two factors
C. Productivity of the two factors
D. None of these
Score: 1/1p.

Question 7/40
Which of the following forms of payment is NOT an incentive plan?
A. Commission plans for salesmen
B. Flat salary for a plant manager
C. Bonuses for managers that increase as profits increase
D. None of the statements is correct
Score: 1/1p.

Question 8/40
Which of the following equations illustrates the optimal combination between 2 inputs A and B:
A. MPA/A = MPB/B
B. MPA = MPB
C. MPA/PA = MPB/PB
D. Both B and C
Score: 1/1p.

Question 9/40
Which of the following is the best example of a perfectly competitive market?
A. diamonds
B. athletic shoes
C. soft drinks
D. farming
Score: 1/1p.

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 Business Economics - Midterm - ML50
Set A

Question 10/40
Under ordinary price discrimination, the monopolist charges a higher price in the market with:
A. rich consumers
B. unit elasticity of demand.
C. lower elasticity of demand.
D. higher elasticity of demand.
Score: 1/1p.

Question 11/40
Economies of scale will happen when:
A. Long-run average cost increases as output increases
B. Long-run average cost decreases as output increase
C. Average fix cost decreases
D. Average fix cost remain constant
Score: 1/1p.

Question 12/40
When a relationship-specific exchange occurs in complex contractual environments, the best way to purchase
input is through:
A. Spot markets
B. Vertical integration
C. Short-term agency agreement
D. Long-term contracts
Score: 1/1p.

Question 13/40
Under the resettlement agreement, Mary received $1 million. She decided to use this amount of money to
establish a business in LA, America. If Mary had invested in bonds, she would have earned $100,000 annually.
She also quit at Lucky.Com Inc., spent all her time in the business, and her salary at the company was $75,000
per year. At the end of the first year of her business, the accountant announced the company's accounting profit
was $150,000. How much was the business’s economic profit?
A. Loss $25,000
B. Loss $50,000
C. Profit $25,000
D. Profit $150,000
Score: 1/1p.

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 Business Economics - Midterm - ML50
Set A

Question 14/40
The break-even point for a perfectly competitive firm occurs at that level of output:
A. Total revenue is equal to total variable costs.
B. Positive economic profits
C. The firm is experiencing a loss
D. The average total cost is minimum
Score: 1/1p.

Question 15/40
A relationship-specific exchange occurs when:
A. A partnership is dissolved
B. Specialized investments are important
C. A partnership is initiated
D. Shareholders receive dividends
Score: 1/1p.

Question 16/40
Which of the following is NOT a mean of avoiding opportunism?
A. Contracts
B. Spot exchange
C. Vertical Integration
D. A. Long-term contract
Score: 1/1p.

Question 17/40
Which of the following is true:
A. Perfectly competitive firms are price setters, monopolists are price takers
B. Perfectly competitive firms are price takers, monopolists are price setters
C. Both perfectly competitive firms and monopolists are price takers
D. Both perfectly competitive firms and monopolists are price setters
Score: 1/1p.

Question 18/40
An electricity firm offering electricity at 9.62 cents per kWh for the first 1000 kWh/month, and 5.10 cents per
kWh for each kWh beyond 1000 kWh/month is using:
A. Second-degree price discrimination
B. First-degree price discrimination
C. Two-part pricing
D. Commodity bundling.
E. Block pricing.
Score: 1/1p.

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 Business Economics - Midterm - ML50
Set A

Question 19/40
In general, most of the production functions measure
A. The economies of scale
B. The relation between the factors of production
C. The productivity of factors of production
D. The relations between change in physical inputs and physical output
Score: 1/1p.

Question 20/40
In the short run, the firm will shut down when:
A. Price is lower than average variable costs
B. The firm has no profit
C. The firm is experiencing a loss
D. None of the above
Score: 0/1p.

Question 21/40
If the marginal cost exceeds marginal revenue, the firm:
A. Is gaining maximum profit
B. Should increase its activity to gain larger profit
C. Is experiencing loss
D. May still be profitable
Score: 1/1p.

Question 22/40
The optimal two-part pricing strategy involves:
A. Charging a lower price in the more elastic market.
B. Setting price equal to marginal cost and charging a fee to the less elastic consumers.
C. Allocating output such that marginal cost is equal across all markets.
D. Setting price equal to marginal cost and charging a fee equal to the remaining consumer surplus.
Score: 1/1p.

Question 23/40
What is the difference between perfect competition and monopolistic competition?
A. Perfect competition has a large number of small firms while monopolistic competition does not.
B. In perfect competition, firms produce identical goods, while in monopolistic competition, firms produce
slightly different goods.
C. Perfect competition has no barriers to entry, while monopolistic competition does.
D. Perfect competition has barriers to entry while monopolistic competition does not.
Score: 1/1p.

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 Business Economics - Midterm - ML50
Set A

Question 24/40
When a monopolist sells its products on 2 different markets with demand functions respectively, Market A: QA
= 10 – PA, Market B: QB = 6 – PB. The marginal cost of production is constant and equal to 1. The
monopolist’s optimal prices:
A. PA = PB = 8.5
B. PA = PB = 8
C. PA = 4.5 and PB = 2.5
D. PA = 5.5 and PB = 3.5
Score: 0/1p.

Question 25/40
In a perfectly competitive market, the type of decision a firm has to make is different in the short run than in the
long run. Which of the following is an example of a perfectly competitive firm's short-run decision?
A. What price to charge buyers for the product
B. Whether or not to enter or exit an industry
C. The profit-maximizing level of output
D. How much to spend on advertising and sales promotion
Score: 1/1p.

Question 26/40
A perfectly competitive firm gains a total revenue of $500, the marginal revenue of the firm is $10. Determine
the average revenue, and quantity of products sold.
A. $5 and 100
B. $10 and 50
C. $10 and 100
D. Cannot determine
Score: 1/1p.

Question 27/40
AC equals 6 to produce 100 products. MC always remains constant and is equal 2. So, TC of producing 70
products is:
A. 540
B. 140
C. 450
D. None of the above
Score: 1/1p.

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 Business Economics - Midterm - ML50
Set A

Question 28/40
The sales maximization model assumes that imperfectly competitive firms will produce a level of output where
A. Marginal revenue is equal to zero.
B. Marginal revenue is equal to marginal cost.
C. Marginal revenue is equal to zero if profit is satisfactory.
D. They will break even.
Score: 0/1p.

Question 29/40
If a consumer's demand curve is given by P = 50 - Q, and the marginal cost of a good is 10, a monopolist using
block pricing would charge:
A. 30 per unit for 40 units
B. 30 per unit for 20 units.
C. 40 per unit for 10 units
D. 10 per unit for 40 units.
Score: 1/1p.

Question 30/40
A monopolist sell its products on 2 different markets will:
A. Not base on demand elasticities to set price
B. Set the same price for both markets
C. Set higher price for the market with higher demand elasticity
D. Set higher price for the market with lower demand elasticity
Score: 1/1p.

Question 31/40
Carolina Berries manufactures many varieties of jams and jellies. An increase in the price of their strawberry
jam can be expected to
A. increase the demand for their strawberry jelly because the two are complements.
B. increase the demand for their strawberry jelly because the two are substitutes.
C. decrease the demand for their strawberry jelly because the two are complements.
D. decrease the demand for their strawberry jelly because the two are substitutes.
Score: 1/1p.

Question 32/40
Which of the following four-firm concentration ratios would be the best indication of a perfectly competitive
industry?
A. 100 percent
B. 78 percent
C. 0.25 percent
D. 31 percent
Score: 1/1p.

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 Business Economics - Midterm - ML50
Set A

Question 33/40
As more inputs are used, the marginal product is usually
A. Increase first then start to decrease
B. Decrease first then start to increase
C. Always decrease
D. Always increase
Score: 1/1p.

Question 34/40
Long-term contracts become longer:
A. When specialized investment becomes more important
B. When the exchange environment is more complex
C. When spot markets work well
D. When marginal costs are declining
Score: 1/1p.

Question 35/40
MPx=10; MPy=8; Px=2; Py=1. In order to choose the level of optimal production, the producer should:
A. Decrease the utilization of goods Y
B. Increase the utilization of goods X
C. Increase the utilization of goods Y
D. Cannot determine
Score: 1/1p.

Question 36/40
All of the following price discrimination policies allow a firm to some of the consumer's surplus, except
A. Third-degree price discrimination.
B. Two-part pricing.
C. Second-degree price discrimination
D. Bundle pricing.
Score: 0/1p.

Question 37/40
Total revenue decreases as the price of a good increases if the absolute value of the price elasticity of demand is
A. greater than 1
B. lower than 1
C. equal 1
D. is ∞
Score: 1/1p.

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 Business Economics - Midterm - ML50
Set A

Question 38/40
According to the graph below, the firm's profit-maximizing output level is:

A. 50
B. 60
C. 100
D. 125
Score: 1/1p.

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 Business Economics - Midterm - ML50
Set A

Question 39/40
The price at which the firm will sell the product:

A. $2
B. $3
C. $3,75
D. $5
Score: 1/1p.

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 Business Economics - Midterm - ML50
Set A

Question 40/40
The profit earned by the firm is: (AVC = 2, ATC = 3)

A. $0
B. $75
C. $120
D. 225
Score: 1/1p.

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