ECO 415 / Managerial Economics Final Exam

(Students: Please submit your answers in a Word document in the following format: 1. A 2. B 3. C 4. etc, etc..)

1) Which of the statements below best illustrates the use of the market process in determining the allocation of scarce resources? A) "Let's make this product because this is what we know how to do best." B) "Although we're currently making a profit on the products we make, we should consider shifting to products where we can earn even more money." C) "Everyone is opening video stores, why don't we?" D) "We can't stop making this product. This product gave our company its start." 2) Opportunity cost is best defined as A) the amount given up when choosing one activity over all other alternatives. B) the amount given up when choosing one activity over the next best alternative. C) the opportunity to earn a profit that is greater than the one currently being made. D) the amount that is given up when choosing an activity that is not as good as the next best alternative. 3) Transaction costs include A) costs of negotiating contracts with other firms. B) cost of enforcing contracts. C) the existence of asset-specificity. D) All of the above. 4) Accounting costs A) are historical costs. C) usually include implicit costs.

B) are replacements costs. D) usually include normal profits.

5) Which of the following best applies to the distinction between the "long run" and the "short run"? A) The short run is a period of approximately 1-6 months while the long run is any time frame which is longer. B) In the short run, only new firms may enter, while in the long-run firms may either enter or exit the market. C) The rationing function of price is a short-run phenomenon whereas the guiding function is a long-run phenomenon. D) All of the above statements are correct. 6) In the long-run if there is a shortage in the market for a product, the guiding (allocation) function of price can be expected to cause A) an increasing shift in the demand for the product. B) a decreasing shift in the demand for the product. C) an increasing shift in the supply of the product. D) a decreasing shift in the supply of the product. 7) Coke and Pepsi are substitutes if: A) the demand for Coke increases when the price of Pepsi falls B) the demand for Coke increases when the price of Pepsi rises C) the supply of Coke increases when the price of Pepsi falls D) the demand for Coke and Pepsi rise and fall together 8) The price elasticity of demand is a measure of: A) the responsiveness of the quantity demanded to price changes B) the quantity demanded at a given price C) The shift in the demand curve when price changes D) The demand for a product holding price constant 9) Regression analysis can best be described as: A) a statistical technique for estimating the best relationship between one variable and a set of other selected variables. B) a statistical technique for determining the true values of variables. C) a statistical technique for creating functional relationships among variables. D) None of the above. 10) The term Production Function refers to the: A) Use of machinery and equipment in production B) Relationship between costs and output C) Relationship between inputs and output D) Role of labor unions

11). To an Economist, total costs include: A) Explicit, but not implicit costs B) Implicit, but not explicit costs C) Explicit and implicit costs D) Neither explicit nor implicit costs 12) A feature of Perfect Competition is A) use of non-price competition by firms. C) unique products. B) mutual interdependence among firms. D) standardized products.

13) The main difference between perfect competition and monopolistic competition is: A) the number of sellers in the market. B) the ease of exit from the market. C) the difference in the firm s profits in the long run. D) the degree of product differentiation. 14) A Cartel is defined to be: A) Any oligopolistic industry with fewer than 4 firms B) A form of oligopoly in which firms agree to sell at different prices like in monopolistic competition C) A form of oligopoly in which firms formally agree to establish a common price, in effect acting like a monopoly D) A form of oligopoly in which firms agree to compete with each other on an equal basis. 15) Moral hazard is the A) outcome of a Prisoner's Dilemma. B) result of market signaling. C) risk associated with a Dutch auction. D) risk that one party to a contract may alter its post-contract behavior to the detriment of another party.

***Answers***

1.B 2.B 3.D 4.A 5.C 6.C 7.B 8.A 9.A 10.C 11.C 12.D 13.D 14.C 15.D