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Title: In a market characterized by many sellers, assume that transaction costs for both buyers and sellers are both costlessly

Question Details
Q:

Question 1

Which of the following activities undertaken by a competitive firm can improve its public relations?

Answer

   

Investing in assets that cannot easily be redeployed to other uses or locations.

   

Donating a portion of its annual profit to hurricane affected families

   

Providing good quality products at a high price.

   

Investing in in-house research

2 points

Question 2

The difference between opportunity cost of the sellers and the valuation of the buyers is known as:

Answer

   

social cost.

   

economic value.

   

deadweight loss.

   

consumer surplus.

2 points

Question 3

Which of the following is considered per se illegal under the U.S. antitrust law?

Answer

   

An agreement to fix prices of commodities.

   

An agreement to maintain certain technical standards.

   

An agreement to operate only in specific regions.

   

An agreement to follow identical production technique.

2 points

Question 4

Wal-Mart’s store managers have the authority to stock items and price them to satisfy localized demand. Which of the following properties of this retail store is illustrated here?

Answer

   

Relationship with employees

   

Regional relationships

   

Centralized decision making

   

Decentralized decision making

2 points

Question 5

In a market characterized by many buyers and one seller, investment in informative advertising by a seller can ____ the price of a commodity to customers and lower their _____ cost of acquiring information.

Answer

   

decrease; sunk cost

   

increase; transaction cost

   

increase; sunk cost

   

decrease; transaction cost

2 points

Question 6

Which of the following factors affect vertical integration of firms?

Answer

   

The demand for the final product in the market.

   

The market power of each firm in an industry.

   

The number of firms in an industry.

   

The transaction cost at each stage of production.

2 points

Question 7

Which of the following is an example of a one-time investment made by a seller to reduce the transaction cost on all units of output?

Answer

   

Providing customers a wide range of products

   

Hiring a distribution agency

   

Merging with its rival brand

   

Creating a brand name which signals quality

2 points

Question 8

Which of the following is a reason behind Wal-Mart’s success?

Answer

   

Absence of unionization and encouragement of merit-based promotions.

   

Complete control over the market price.

   

Presence of regional managers in the field rather than at headquarters.

   

Centralized control and inspection over the functioning of store managers.

2 points

Question 9

Which of the following contracts contain vertical restrictions that limit the transacting parties’ choices but create economic value?

Answer

   

An agreement between firms to jointly invest in research and development.

   

A franchise contract specifying exclusive territory of operation.

   

A contract amongst competitive firms on an uniform pricing strategy.

   

A collusion between two oligopoly firms specifying individual production.

2 points

Question 10

In a market characterized by many sellers, assume that transaction costs for both buyers and sellers are both costlessly cut to zero. What will happen to total economic value?

Answer

   

Economic value will remain unchanged because the decrease in consumer surplus will offset the increase in producer surplus.

   

Economic value will remain unchanged because the decrease in producer surplus will offset the increase in consumer surplus.

   

Economic value will certainly increase but its magnitude will depend on the initial transaction costs of the market participants.

   

Economic value will certainly decrease but its magnitude will depend on the initial transaction costs of the market participants.

2 points

Question 11

In a market characterized by many sellers, if an outsider devises a way to reduce transaction costs it will:

Answer

   

benefit both buyers and sellers.

   

cause both buyers and sellers to lose.

   

benefit the buyers but cause the sellers to lose.

   

benefit the sellers but cause the buyers to lose.

2 points

Question 12

Which of the following is an example of a durable strategy undertaken by firms to prevent competition?

Answer

   

Purchasing the latest technology available in the market

   

A firm spending huge sums on advertisements.

   

Selecting a unique location for carrying out operation

   

Identifying a competent sales force

2 points

Question 13

A firm’s resource at a given point in time can be defined as:

Answer

   

those investments made by it in profitable organizations.

   

those tangible and intangible assets attached to it semi permanently.

   

its ability to control the market price.

   

its lobbying ability built over years of experience.

2 points

Question 14

Temporary discounts offered to customers by competitive retailers usually reflect:

Answer

   

output rationing.

   

a rise in market demand.

   

price discrimination.

   

a fall in input prices.

2 points

Question 15

Under which of the following situations would a seller prefer to incur the cost of improving the product quality?

Answer

   

If the increase in buyer’s valuation for the improved product is higher than the cost of improving it.

   

If the increase in the seller’s opportunity cost of improving the product is higher than the price of the product.

   

If the product improvement lowers the producer surplus.

   

If the product improvement allows the seller to a break even.

 


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Title: In a market characterized by many sellers, assume that transaction costs for both buyers and sellers are both costlessly

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