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Title: Week 1-7 DETR1

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Week 1

_____ have the ability to recognize constraints and may choose to incur the costs of altering them.

When an economyís limited resources are moved into the production of one commodity, the production of a valuable alternative has to be foregone. This most valuable alternative lost is referred to as:

Decision makers who try their best for rationality but are constrained by limited information and processing abilities are referred to as:

It has been observed that people surveyed shortly after major air crashes estimate higher probabilities that a given flight will crash than people surveyed during intervals without any. The error in reasoning observed in this experiment results from

Which of the following products can be sold through mass advertising?

Publicly available data on production costs and box office revenues reflect that

The different methods by which the sellers inform their potential buyers about the product is called

The law which prohibits embezzlement of funds by employees or income tax evasion acts as a(n)

A car owner who has agreed to sell his old car to a buyer at a contracted price will be unable to accept the price offered by other prospective buyers due to the _____ constraint

Which of the following is a root cause behind competition inherent in every society?

When a researcher evaluates the probability of an event by looking at how representative the sample is of the population of interest instead of the entire population, he is using

_____ is an online venue where businesses and individuals can hedge their uncertainty about whether legislation that affects them will be enacted

The assumption of rationality in economics implies that

_____ constraints refer to your limited ability to process valuable information

Since peopleís incomes are limited and their abilities to borrow differ they face _____ constraints

The production of 1,000 shirts leaves an apparel manufacturer with a capacity to produce no more than 1,100 trousers during a month. This implies

_____ are an institution where the protocols may determine a _____ and the expected revenue of the seller

In the example of Ireland described in the text, the countryís production set shifted outward over time because

The function of economic institutions is to

Suppose Zia spends her time picking berries and apples. Her production set is described by the equation IMAGE is the number of berries and y
the number of apples. Which of the following statements will be true?

If the production of 2,000 cars and 500 tons of corn during a year is economically efficient for a country which produces only these two products, which of the following conclusions can be drawn?

Megan, an analyst in Ronaldís team called in sick on a day when 4 projects were due for completion. Ronald divided Meganís work between the remaining six team-members. Which form of governance is being used here?

If you have a comparative advantage in producing a good, it implies

The main reason Sears Roebuck became the largest retailer in the United States during the late nineteenth century was that

With cheaper communication technology and easy flow of information between countries

Reducing _____ the benefits available to the buyer and seller and might also enable them to make exchanges that were previously impossible

The economic value which can be created by a transaction between two people, Ed (seller) and Luis (buyer), is $50 as Edís opportunity cost of selling is $135 and Luisí valuation of the good is $185. If each gains $25 from this transaction, which of the following conclusions can be drawn?

The shares of the economic value of a particular transaction that accrues to the seller and the buyer depend on

An exchange will take place between two parties as long as

What matters in Economics is


Week 2

In a ďpure exchangeĒ market
An affordable housing law will affect a cityís housing prices only if
Starting from a pure exchange equilibrium, an increase in the demand for a commodity will result in:
If two commodities are complements then
The contact points where the terms of forward contracts are set are known as
A demand curve is said to be inelastic if
The supply curve of a producer, whose costs vary continuously with output will be
The demand for a commodity is said to perfectly inelastic when
Suppose the adoption of a new software reduces the marginal cost of publishing books. For a given demand curve for books, this will be represented by
A surplus can exist in the market only if there is
The own-price elasticity of demand is defined as
Bankers supported the Federal Reserve Boardís Regulation Q because
Which of the following commodities can be considered as an inferior good?
An increase in the supply of oranges in a town drives down its price by 5 percent. Which of the following changes will be observed in the market?
Suppose a commodity market is initially in equilibrium. An increase in the nationís skilled labor force then lowers the marginal cost of producing each unit of output. Which of the following changes will be observed?
The introduction of new technology and changes in organization are
Refer to Figure 4-2. What does the area ABCD signify?
Figure 4-2
The following figure shows the cost curves of a firm producing good X
Investments with _____ risk usually carry a _____ return
A manufacturer of towels finds that his returns to scale are constant. Which of the following conclusions can be drawn?
Refer to Figure 4-1. If the firm produces 2,000 dolls per month when the market price is $4:

Figure 4-1
The following figure shows the marginal cost curve (MC) for a firm producing fancy dolls for children. The market price for a doll is $4 per unit
You decide that it is time to buy a big family car. The opportunity cost you consider is
In an industry, when the cost curve of a firm is upward sloping at low levels of output relative to the market, it implies
At outputs less than the minimum of average variable cost
If the slope of the rays from the origin to the total variable cost curve declines along the curve, it implies
A firm uses two inputs, labor (L) and capital (K) in the production of umbrellas. It can invest $50,000 in the purchase of the two inputs annually. The firm hires 5 units of capital at $1,000 per unit. If the going annual wage rate is $4,500, calculate the number of workers employed by the firm. (Assume that the firm spends the entire budget on K and L.)
Isoquants reflect the fact that in the long run
An isocost line depicts
The gap between average total cost and average variable cost
_____ gives the slope of an isocost line where labor (L) and capital (K) are the two inputs measured on the X and Y axes respectively
Refer to Figure 4-3. Identify the least-cost combinations of fertilizers A and B for producing 200 tons of corn.

Figure 4-3
The following figure shows two isocost lines (IMAGE) and two isoquants for the production of 200 and 350 tons of corn. The axes show the quantities of the two types of fertilizers used in corn production

Week 3

Assume that the world price of Good A is $8 per unit while its domestic price is $6, and the marginal cost incurred by domestic producers for producing one unit of Good A is $5. If the government imposes a tax of $3 per unit on domestic producers, which of the following situations will be observed?
Refer to Figure 5-1. Which of the following points represents the long-run equilibrium price-output combination?

In the figure given below MC denotes the marginal cost and AC denotes the average cost of a firm under perfect competition.
Figure 5-1
If the long-run market supply curve is perfectly elastic, a decrease in variable cost will
Refer to Figure 5-3. What will be the shape of the long-run supply curve of land suitable for corn farming?

In the figure given below, D1 and D2 represent the demand curves for land before and after the ethanol program respectively. SRS is the short-run supply curve of land.
Figure 5-3
Assume that the government of a nation prohibits producers from extracting crude oil from some domestic oil fields. Which of the following will be witnessed in the market for crude oil?
Which of the following conditions define a perfectly competitive market?
Which of the following is true in a perfectly competitive market?
A set of producers is competitive if
Economists consider the model of perfect competition useful because
Refer to Figure 5-3. What will be the shape of the long-run supply curve of land suitable for corn farming?

In the figure given below, D1 and D2 represent the demand curves for land before and after the ethanol program respectively. SRS is the short-run supply curve of land.
Figure 5-3
The long-run supply curve of land suitable for corn farming will be more elastic than the short-run supply curve Suppose beer producers in Munich became aware of the low price of one barrel of beer in the domestic market relative to that in the United States. What will be the impact of this price difference?
The economists of the Federal Trade Commission suggested rejection of Cokeís merger with Dr. Pepper as it could
Which of the following conditions define the short-run for any industry?
If there are only a few producers of substitutes for Good X, a merger between producers of Good X and any one of them could significantly _____ for Good X
In a perfectly competitive market, the demand curve faced by each firm is
You and your friend go out shopping for television sets for your respective apartments. You find the one you want to buy and pay extra money to have it delivered during the weekend. Your friend is unwilling to pay extra and will wait for the television to be delivered as per the storeís usual practice. Which of the following conclusions can be drawn from this information?
Refer to Figure 6-4. What price will the monopolist charge when its marginal cost shifts from C to Cí?

The following figure depicts the demand, marginal revenue (MR), and marginal cost (MC) for a monopolist.
Figure 6-4
In the small country of Talisman, the liquor industry is monopolized by a single producer Best Drinks Inc. Best Drinks charges high-end customers like 5-star hotels a much higher price than it charges local pubs. This discrimination is possible only if
_____ is the practice of using extra resources to compete for obtaining monopoly, and leads to _____.
Refer to Figure 6-2. What is the consumer surplus under monopoly?

A group of firms in competitive market produced 20 units of a good when the market price was $2. They incurred no marginal cost. Eventually they realized the benefits they could get by teaming up and acting as a monopolist. The following figure shows the demand curve and marginal revenue curve for this profit maximizing monopolist.
Figure 6-2
Bundling of products becomes _____, if the valuations of different customer groups are _____.
Refer to Figure 6-3. What is the monopolistís revenue when he incurs a marginal cost of $2 per unit?

The following figure shows the demand curve and marginal revenue curve for a monopolist who incurs a marginal cost of $2 per unit.
Figure 6-3
The peak of the total revenue curve is achieved at the point where
The total revenue curve of a monopolist is
Refer to Figure 6-5. If the profit maximizing monopolist does not practice discrimination, what uniform price will he charge and how much profit will he earn?

The following figure shows the demand and marginal revenue for a monopolist, who has many buyers with different valuations of the good. Each buyer demands only one unit of the good, and only two are willing to pay $6.5 for it. The valuation decreases for each additional buyer as shown in the figure. The marginal cost of production is $3 per unit.
Figure 6-5
Which of the following is a possible explanation for the fall in prices after an industry is monopolized by combining a group of competitors?
Refer to Figure 6-1. Which of the following conclusions can be drawn from this figure?

The following figure shows the demand, marginal revenue, and marginal cost curves for a profit maximizing monopolist.
Figure 6-1
Refer to Figure 6-7. What is the maximum cover charge that the amusement park can levy on consumers whose demand curve is D1?

The following figure represents two types of demand curves, of two sets of consumers visiting an amusement park. $3 is the marginal cost of providing the service.
Figure 6-7
The demand curve faced by a perfectly competitive firm is
Refer to Table 6-1. Identify the profit maximizing production level for this monopolist.

The following table shows the price and revenue for a monopolist at different levels of production. The monopolist incurs no marginal cost of production.
Table 6-1

Week 4

Since peopleís incomes are limited and their abilities to borrow differ they face _____ constraints
Which of the following is a root cause behind competition inherent in every society?
Measuring important concepts in economics is difficult and some important economic phenomena are still beyond the understanding of economists. Thus economics is called a(n):
If the transaction between you and the seller takes place at a price that equals your valuation of the product, then
Reducing _____ the benefits available to the buyer and seller and might also enable them to make exchanges that were previously impossible
In the example of Ireland described in the text, the countryís production set shifted outward over time because
For an inferior good
A perfectly elastic demand curve will
A tradesman who purchases diamonds in a country where the price is low and sells them in another country where the price is high, can be said to be practicing
Refer to Figure 4-2. What does the area ABCD signify?

Figure 4-2
The following figure shows the cost curves of a firm producing good X
A firmís cost can decrease for each of the following reasons, EXCEPT
At outputs less than the minimum of average variable cost
Which of the following conditions define the short-run for any industry?
Assume that recent oil exploration coupled with a fall in demand reduced petroleum imports of a nation to zero. We can expect
If the long-run market supply curve is perfectly elastic, a decrease in variable cost will
A monopolist can
Tying products can be a profitable strategy for facilitating price discrimination only when
The total revenue curve of a monopolist is
Refer to Figure 7-2. If the two producers agree to act as a single monopoly firm, what will be the total output produced in the economy?

The figure given below represents the output choices of each of the two oligopolists, given the choices of its competitor. QA and QB are the quantities of output produced by Producer A and Producer B. The marginal cost of production is zero for both producers.
Figure 7-2
Assume that in a price-fixing game, if Player A breaks the agreement in the first year, she earns $11 while Player B earns $5. However, if Player A breaks the agreement once, Player B decides to break the agreement for eternity, leaving each to receive $8 per year for the rest of their lives. If they both keep the agreement each receives $9 per year for the rest of their lives. If the discount rate is 30 percent per period
If the supply curve of the fringe in the oligopoly market is highly elastic
Which of the following is a characteristic of the oligopoly model?
Refer to Figure 7-1. Assume that in the long run new firms enter the market lowering the total cost incurred by the fringe firms below the same incurred by the dominant firm. Which of the following situations will arise?

The figure given below represents the total output and price produced in an oligopoly market characterized by a dominant firm and a fringe. SF represents the supply curve of the fringe, D is the market demand curve, DRES represents the residual demand curve of the dominant firm, MRRES represents the residual marginal revenue curve of the dominant firm, and MCD represents the marginal cost of the dominant firm.
Figure 7-1
Refer to Table 7-1. The matrix shown in this table is known as the:

The following matrix represents the payoffs to two producers, each making a strategic choice either to keep the output at 5 units or at 10 units.
Table 7-1
In an oligopoly market with a dominant firm and a competitive fringe, if market demand is _____, the market price will be low and the _____ profit will be small


Week 5

In a market characterized by a single seller and many buyers, a sellerís investment to reduce transaction costs can lead to which of the following situations?
Refer to Figure 8-5. Calculate the value of the deadweight loss resulting from the horizontal merger?

The figure given below represents a perfectly competitive market in long-run equilibrium. LRS represents the long-run supply curve of this market with demand (D) and price $50. When two large firms merge, output declines to 400 units and per unit production cost drops to $30
Food retailers usually do not compete on which of the following factors?
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?
Under a _____, the assets of two firms that operate in the same market are put under a single ownership
Which of the following is an example of a durable strategy undertaken by firms to prevent competition?
Refer to Figure 8-6. Determine the profit earned by the perfume monopolist if it chooses to hire a retailer for selling its product.

The figure given below represents a monopoly firm producing perfume with downward sloping demand and marginal revenue (MR) curves. The products of this firm are sold in the competitive market by a retailer. Among the horizontal lines in the figure:
A - represents the marginal cost of per unit perfume production
B - represents the marginal cost of an independent perfume retailer
C - represents the sum of A and B
D - represents the marginal cost of the perfume monopolist for retailing its own output
E - represents the sum of A and D.
Figure 8-6

Refer to Figure 8-5. What is the net benefit of the merger?

The figure given below represents a perfectly competitive market in long-run equilibrium. LRS represents the long-run supply curve of this market with demand (D) and price $50. When two large firms merge, output declines to 400 units and per unit production cost drops to $30.
Figure 8-5
Temporary discounts offered to customers by competitive retailers usually reflect
Suppose the cost of producing cellular phones declines from $25 to $20. If buyersí valuations remain fixed at $30, the transaction would create _____ more economic value
Refer to Figure 8-3. Suppose the seller incurs an additional cost of $1 per unit of output to reduce the transaction costs of the buyers to zero. How will the profit earned by the seller change?

The figure given below represents a firm in a market characterized by many buyers and one seller. MC is the initial marginal cost of the seller. MC' denotes the marginal cost inclusive of the $1 transaction cost. On the other hand, buyers incur a transaction cost worth $2 represented by the vertical distance between D and D'. MR and MR' represent the marginal revenue curve corresponding to the demand curves D and D' respectively.
Which of the following is a reason behind Wal-Martís success?
A firmís resource at a given point in time can be defined as
Which of the following exemplifies an intangible durable strategy used by firms to prevent competition?
Which of the following factors affect vertical integration of firms?  



Week 6

Under low-cost contracting like that between beekeepers and farmers, the agreement between the two parties is not self-enforcing because
An externality can occur when:
The _____ is both a forum where farmers decide what their dues will purchase, and an organization that informally coerces payments from them
Which of the following is an example of an obligation associated with a right?
Which of the following is an example of a possessory property right?
Farmers can avoid the free rider problem associated with the benefits received from beekeepers by
Assume that the market for executive travel is perfectly competitive. If the availability of time-sharing reduces transaction costs and the ownerís cost of negotiating for a single trip, which of the following situations must occur?
Which of the following was an outcome of uncoordinated oil drilling in Huntington Beach, California?
Inclusive property rights provide an investor:
Suppose an individual discovers the mouth of a previously unknown cave (expected to contain a single large diamond) on his property that extends under land owned by others. To arrive at an economically efficient outcome with low transaction cost, the law will
Which of the following remedies can be used to prevent the beekeeper and the farmer from breaking the contract?
Government has the power to reduce the _____ associated with air pollution by automobiles because it can force changes in car design, can impose taxes on drivers, and has the power to punish those who fail to comply
The _____ gives a hunter ownership rights on a bird killed by him while it was flying over his property
Value-creating contracts require underlying laws that
Lawyer Ayres and economist Levitt considered the net benefits of installing a LoJack from the societyís standpoint positive, because the annual installation and service charges on this equipment was
Which of the following investments can be classified as specific assets?
Which of the following can be classified as a highly specific asset?
Assume that James owns a wheat farm that produces an annual crop of 500 bushels. His only choice is to store it in a nearby grain elevator owned by Martin, whose facility will be empty unless James is using it. Martin contracts with James to provide storage at $5 per bushel every month. In this example James and Martin are in
Fixing a payment schedule in an agreement
Which of the following is a legal remedy for a breach of the contract between parties?
A payment arrangement between an attorney and a plaintiff, in which the plaintiff agrees to pay a certain lump-sum amount at the outset and no more in the future, regardless of how the case develops is called
Which of the following is a problem encountered in a transaction involving a principal/agent relationship?
Which of the following is an example of vertical integration?
In which of these situations is vertical integration most likely?
Parties to the contract prefer to keep the actual agreement incomplete when
Suppose Jonah and Carlos have a contract, which Carlos chooses to breach. Jonah sues, and a court orders Carlos to pay him the amount he expected to gain at the time they made the contract, net of any amount he actually did receive after the breach. The form of payment which the court specifies in this example is called:
Which of the following will be an efficient payment scheme for a defendantís attorney, who is experienced in handling similar cases in the past?
An organization offers training programs for its employees at a subsidized rate to help them use a nascent technology that the organization is adopting. The trained employees later bargain for a higher wage from the management as their probability of finding better paying jobs increase because some other companies are also adopting it. This action of the employees is an example of
Which of the following examples can be associated with the task specificity aspect of an asset?
Which of the following exemplifies specific performance that a court might order from the party in breach of a contract?


Week 7


_____ is the price paid by the insured to sell the risk to the insurer, which must cover the expected payout if a disaster occurs
If a purchase contract allows a buyer to accept less than a specified maximum "take" each month, buying a _____ would allow the seller to resell the excess at a _____ price
Which of the following theories states that people who are highly risk-averse are less likely to engage in high-risk activities?
Which of the following is an example of a moral hazard?
Which of the following is an example of a non-price provision in an automobile insurance contract that can reduce moral hazard?
DTC contracts which prohibit buyers from inspecting diamonds in advance help to minimize
The problem of _____ can arise when a seller cannot obtain reliable information from buyers
Which of the following is a possible result of adverse selection?
The effects of asymmetric information in the car market can be weakened by
The _____ clause in an insurance policy relieves the insurer of responsibility to pay for policyholderís losses below a pre-specified amount
According to the theory of propitious selection
An insurance policy is a contract that
Adverse selection can occur if
______ provisions in an insurance policy stipulate that it will pay only a certain percentage of losses claimed by the insured
In a principal/agent relationship, _____ can help to reduce the damage caused by a winnerís curse, provided both the parties are well-informed
A corporationís _____ can sometimes influence its decisions without making efforts to replace its management
Which of the following is an example of an institutional investor?
Which of the following is an advantage of having centralized ownership and responsibility for capital goods?
When a single individual performs all the steps involved in the production process he/she incurs
A _____ generally has less understanding of the firm than a manager and has little knowledge that is likely to improve the quality of the managerís choices
Which of the following could a corporation use to raise its initial operating capital?
In a _____ the outsider buys the shares with debt collateralized by its other assets, and sometimes also by the targetís assets.
Independent workers using specialized capital save the costs of contracting but risk:
_____ is a property which distinguishes corporations from proprietorships and partnerships
If the owners of different types of resources, which are combined to produce an output, agree on organizational relationships that define their responsibilities toward one another they have formed a _____.
Which of the following properties is common to a partnership business?
Assets whose returns have a high positive correlation are considered
An outside organization trying to gain control of a corporation offers a _____ by announcing its intent to purchase up to a certain number of the target's shares at a premium over their market price
A _____ requires workers to comply with orders from a boss, who need not consult them when making decisions, and to be paid for their cooperation
In which of the following areas are partnerships common?


Week 8


Orders can lose accuracy
The late business historian Alfred Chandler blamed Britainís competitive difficulties in the early twentieth century on
Which of the following was a consequence of the financial revolution which drastically changed risk management in the 1970s?
In which of the following cases will centralization of decision making be appropriate?
Which of the following is a function of the headquarters of an M-form organization?
Identify the correct statement about relationships depicted in an organization chart
A firmís ability to process information depends on
When each box in an organization chart contains individuals who specialize in some field, then the activities in the organization are categorized by _____
The _____ keeps decisions at the divisional level that would be sent to headquarters in a _____.
The method of payment that a principal can use to elicit effort from an agent is called
An information is beneficial to the decision-maker only when
Which of the following statements is true about Tyson Foods, Inc.?
General Motors was able to gain advantage over Ford in the 1920s primarily because
Centralization of decision-making in a firm is a good idea when
A matrix form is more likely to be found in organizations which
Suppose a parent company producing sportswear decides take back some formerly franchised outlets and operate them with its own employees. This form of vertical integration will allow the parent company
Iron mining, coal mining, and coke production constitute the _____ steps in steel making
A monopolistic producer supplying raw materials to two industries one with a lower price elasticity of demand and the other with a high price elasticity of demand, practices _____ to prevent its low price elastic consumers (who have more elastic demands) from reselling its products to high price consumers (who have less elastic demands).
_____ improves exchangeability, and reduces the cost of obtaining information about a good and about the parties involved in the transaction
_____ is a monthly payment made by a franchisee to the franchisor usually a certain percentage of the formerís gross revenue
In order to lessen the monitoring problems and opportunistic behavior of a franchisor and a franchisee, franchise contracts
Which of the following changes can facilitate the transfer or outsourcing of formerly internal activities of a firm?
A _____ between a parent company and the operator of a local outlet specifies each partyís duties and the structure of payments that link them, and can turn the combined organization into a stronger competitor.
U.S. Steel considers the iron ore market thin because of
If there is a low degree of uncertainty combined with a low degree of asset specificity, _____ will be efficient
When two _____ monopolists merge, one division of the newly merged company will transfer its output to another division at its actual cost, instead of its profit maximizing price
Successive monopolies face the problem of
The maximum price pipelines can charge for distributing gas
Firms generally prefer not to outsource product design and manufacturing because
The arrival of inexpensive information technology, such as personal computers and inexpensive telecommunications


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Title: Week 1-7 DETR1

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