Question 1

All of the following statements are correct except

Accepted Answer

A) firms coordinate economic activity when they can perform a task more efficiently than markets can. 
B) Nobel Laureate Ronald Coase stated that firms cannot be more efficient than markets. 
C) markets can coordinate production. 
D) firms are often more efficient than markets as coordinators of economic activity because they can achieve lower transactions costs, economies of scale, economies of scope, and economies of team production. 
E) outsourcing is an example of market coordination. 
A) firms coordinate economic activity when they can perform a task more efficiently than markets can. 
B) Nobel Laureate Ronald Coase stated that firms cannot be more efficient than markets. 
C) markets can coordinate production. 
D) firms are often more efficient than markets as coordinators of economic activity because they can achieve lower transactions costs, economies of scale, economies of scope, and economies of team production. 
E) outsourcing is an example of market coordination.

Question 2

A sole proprietorship

Accepted Answer

A) dies with the owner. 
B) is the same as a partnership. 
C) always bring a higher return to its owner than a corporation brings to its owners. 
D) is a not-for-profit firm. 
E) has a complex management structure. 
A) dies with the owner. 
B) is the same as a partnership. 
C) always bring a higher return to its owner than a corporation brings to its owners. 
D) is a not-for-profit firm. 
E) has a complex management structure.

Question 3

A golf club manufacturer pays its workers based on the number of sets of clubs they produce. This firm

Accepted Answer

A) organizes production based on a command system. 
B) does not have a principal-agent problem. 
C) is a sole proprietorship. 
D) organizes production based on an incentive system. 
E) is a corporation. 
A) organizes production based on a command system. 
B) does not have a principal-agent problem. 
C) is a sole proprietorship. 
D) organizes production based on an incentive system. 
E) is a corporation.

Question 4

One difference between perfect competition and monopolistic competition is

Accepted Answer

A) firms in a perfectly competitive market produce similar but slightly different products. 
B) in perfect competition, the product produced has no close substitutes. 
C) monopolistic competition has barriers to entry, whereas perfect competition has none. 
D) firms in monopolistic competition have some degree of market power. 
E) a small number of firms compete in a monopolistically competitive market and a large number of firms compete in a perfectly competitive market. 
A) firms in a perfectly competitive market produce similar but slightly different products. 
B) in perfect competition, the product produced has no close substitutes. 
C) monopolistic competition has barriers to entry, whereas perfect competition has none. 
D) firms in monopolistic competition have some degree of market power. 
E) a small number of firms compete in a monopolistically competitive market and a large number of firms compete in a perfectly competitive market.

Question 5

Which one of the following is an advantage of a corporation relative to a proprietorship or partnership?

Accepted Answer

A) Owners have limited liability. 
B) Profits are taxed once. 
C) difficult to raise money 
D) no principal-agent problems 
E) simple management structure 
A) Owners have limited liability. 
B) Profits are taxed once. 
C) difficult to raise money 
D) no principal-agent problems 
E) simple management structure

Question 6

A firm with one or more owners of limited liability is

Accepted Answer

A) a sole proprietorship. 
B) a partnership. 
C) a conglomerate. 
D) a corporation. 
E) a public company. 
A) a sole proprietorship. 
B) a partnership. 
C) a conglomerate. 
D) a corporation. 
E) a public company.

Question 7

What is a disadvantage of a corporation relative to a sole proprietorship or partnership?

Accepted Answer

A) Owners have unlimited liability. 
B) Profits are taxed twice: as corporate profits and as dividend income and capital gains to stockholders. 
C) high cost of capital 
D) perpetual life 
E) dies with the owner 
A) Owners have unlimited liability. 
B) Profits are taxed twice: as corporate profits and as dividend income and capital gains to stockholders. 
C) high cost of capital 
D) perpetual life 
E) dies with the owner

Question 8

The principal-agent problem exists when

Accepted Answer

A) there is no command system in place. 
B) firms operate as sole proprietorships. 
C) agents do not act in the best interest of principals. 
D) principals do not act in the best interest of agents. 
E) the future value of money is more than its current value. 
A) there is no command system in place. 
B) firms operate as sole proprietorships. 
C) agents do not act in the best interest of principals. 
D) principals do not act in the best interest of agents. 
E) the future value of money is more than its current value.

Question 9

Which one of the following is not generally a transactions cost?

Accepted Answer

A) the fee to a broker for buying stocks 
B) the cost of a lawyer who drafts a contract 
C) the cost of hiring someone to find you a supplier of raw materials 
D) the cost of the owner's time in a sole proprietorship 
E) the cost of phone calls made to find a buyer 
A) the fee to a broker for buying stocks 
B) the cost of a lawyer who drafts a contract 
C) the cost of hiring someone to find you a supplier of raw materials 
D) the cost of the owner's time in a sole proprietorship 
E) the cost of phone calls made to find a buyer

Question 10

Use the information below to answer the following questions.
Fact 10.4.1 GameStop Racks Up the Points
No retailer has more cachet among gamers than GameStop. For now, only Wal-Mart has a larger market share-21.3% last year. GameStop's share was 21.1% last year, and may well overtake Wal-Mart this year. But if new women gamers prefer shopping at Target to GameStop, Wal-Mart and Target might erode GameStop's market share.
Source: Fortune, June 9, 2008
-Refer to Fact 10.4.1. The four-firm concentration ratio for the game market in the United States ________. The HHI for the game market in the United States ________.

Accepted Answer

A) equals 100; equals 10,000 
B) exceeds 60; is less than 1,000 
C) is less than 60; is less than 1,000 
D) ranges from approximately 40 percent to 85 percent; ranges from approximately 900 to 2,025 
E) is close to zero; is close to zero 
A) equals 100; equals 10,000 
B) exceeds 60; is less than 1,000 
C) is less than 60; is less than 1,000 
D) ranges from approximately 40 percent to 85 percent; ranges from approximately 900 to 2,025 
E) is close to zero; is close to zero

Question 11

Firms cope with uncertainty and incomplete information by using

Accepted Answer

A) sole proprietorship, limited liability, and market coordination. 
B) ownership, incentive pay, and long-term contracts. 
C) team production, economies of scale, and transactions costs. 
D) the market, the firm, and internal organization. 
E) team production, economies of scale, and transaction costs. 
A) sole proprietorship, limited liability, and market coordination. 
B) ownership, incentive pay, and long-term contracts. 
C) team production, economies of scale, and transactions costs. 
D) the market, the firm, and internal organization. 
E) team production, economies of scale, and transaction costs.

Question 12

A market structure where a small number of firms compete occurs in

Accepted Answer

A) perfect competition. 
B) monopolistic competition. 
C) the worldwide market for wheat, corn, and rice. 
D) oligopoly. 
E) monopoly. 
A) perfect competition. 
B) monopolistic competition. 
C) the worldwide market for wheat, corn, and rice. 
D) oligopoly. 
E) monopoly.

Question 13

Product differentiation is always a feature in

Accepted Answer

A) perfect competition. 
B) monopolistic competition. 
C) oligopoly. 
D) monopoly. 
E) all of the above 
A) perfect competition. 
B) monopolistic competition. 
C) oligopoly. 
D) monopoly. 
E) all of the above

Question 14

Flora's Flowers bought a new van last year for $10,000. It can now sell the van for $8,500. To buy this year's model of the same van it would have to pay $11,000. What is the one-year amount of economic depreciation?

Accepted Answer

A) $2,500 
B) $1,500 
C) $1,000 
D) $10,000 
E) $3,500 
A) $2,500 
B) $1,500 
C) $1,000 
D) $10,000 
E) $3,500

Question 15

Which one of the following statements describes a market that is monopolistically competitive?

Accepted Answer

A) There are significant barriers to entry. 
B) The products produced by the firms are identical. 
C) Many firms compete by making similar but slightly different products. 
D) There is a small number of large firms. 
E) The product produced by one firm has no close substitutes. 
A) There are significant barriers to entry. 
B) The products produced by the firms are identical. 
C) Many firms compete by making similar but slightly different products. 
D) There is a small number of large firms. 
E) The product produced by one firm has no close substitutes.

Question 16

Use the information below to answer the following questions.
Fact 10.1.1 The Colvin Interview: Chrysler
The key driver of profitability will be that the focus of the company isn't on profitability. Our focus is on the customer. If we can find a way to give customers what they want better than anybody else, then what can stop us?
Source: Fortune, April 14, 2008
-Refer to Fact 10.1.1. If Chrysler doesn't focus on maximizing profit, but instead focuses their production and pricing decisions to "give customers what they want", Chrysler would

Accepted Answer

A) eventually incur a loss and either leave the market or be taken over by another firm. 
B) force foreign competition out of the North American car market. 
C) eventually force the other North American car producers out of the North American car market. 
D) definitely and permanently increase market share. 
E) lower the prices of their vehicles to the point at which price equals opportunity cost. 
A) eventually incur a loss and either leave the market or be taken over by another firm. 
B) force foreign competition out of the North American car market. 
C) eventually force the other North American car producers out of the North American car market. 
D) definitely and permanently increase market share. 
E) lower the prices of their vehicles to the point at which price equals opportunity cost.

Question 17

The legal responsibility for debts incurred by a sole proprietorship falls upon

Accepted Answer

A) the shareholders. 
B) the partners of the sole proprietorship. 
C) the owner. 
D) the creditors. 
E) the managers. 
A) the shareholders. 
B) the partners of the sole proprietorship. 
C) the owner. 
D) the creditors. 
E) the managers.

Question 18

The Herfindahl-Hirschman Index (HHI)is the square of the percentage market share of each firm summed over the ________ firms in a market.

Accepted Answer

A) largest 60 
B) largest 50 
C) smallest 50 
D) largest 75 
E) smallest 60 
A) largest 60 
B) largest 50 
C) smallest 50 
D) largest 75 
E) smallest 60

Question 19

A firm's opportunity cost includes

Accepted Answer

A) the cost of using resources bought in the market and owned by the firm only. 
B) the cost of using resources bought in the market, owned by the firm, and supplied by the firm's owner. 
C) only costs that are paid in cash or by cheque. 
D) the cost of using resources supplied by the firm's owner only. 
E) economic profit. 
A) the cost of using resources bought in the market and owned by the firm only. 
B) the cost of using resources bought in the market, owned by the firm, and supplied by the firm's owner. 
C) only costs that are paid in cash or by cheque. 
D) the cost of using resources supplied by the firm's owner only. 
E) economic profit.

Question 20

In a perfectly competitive market, the Herfindahl-Hirschman Index (HHI)

Accepted Answer

A) is small. 
B) is usually greater than 5,000. 
C) is greater than 1,000 but less than 2,000. 
D) lies between 1,200 and 1,500. 
E) is greater than 10,000. 
A) is small. 
B) is usually greater than 5,000. 
C) is greater than 1,000 but less than 2,000. 
D) lies between 1,200 and 1,500. 
E) is greater than 10,000.

Exam 10: Organizing Production

All of the following statements are correct except

A sole proprietorship

A golf club manufacturer pays its workers based on the number of sets of clubs they produce. This firm

One difference between perfect competition and monopolistic competition is

Which one of the following is an advantage of a corporation relative to a proprietorship or partnership?

A firm with one or more owners of limited liability is

What is a disadvantage of a corporation relative to a sole proprietorship or partnership?

The principal-agent problem exists when

Which one of the following is not generally a transactions cost?

Firms cope with uncertainty and incomplete information by using

A market structure where a small number of firms compete occurs in

Product differentiation is always a feature in

Flora's Flowers bought a new van last year for $10,000. It can now sell the van for $8,500. To buy this year's model of the same van it would have to pay $11,000. What is the one-year amount of economic depreciation?

Which one of the following statements describes a market that is monopolistically competitive?

The legal responsibility for debts incurred by a sole proprietorship falls upon

The Herfindahl-Hirschman Index (HHI)is the square of the percentage market share of each firm summed over the ________ firms in a market.

A firm's opportunity cost includes

In a perfectly competitive market, the Herfindahl-Hirschman Index (HHI)

What Is Economics

The Economic Problem

Demand and Supply

Elasticity

Efficiency and Equity

Governments Actions in Markets

Global Markets in Action

Utility and Demand

Possibilities, Preferences, and Choices

Output and Costs

Perfect Competition

Monopoly

Monopolistic Competition

Oligopoly

Externalities

Public Goods and Common Resources

Markets for Factors of Production

Economic Inequality

Measuring Gdp and Economic Growth

Monitoring Jobs and Inflation

Economic Growth

Finance, Saving, and Investment

Money, the Price Level, and Inflation

The Exchange Rate and the Balance of Payments

Aggregate Supply and Aggregate Demand

Expenditure Multipliers

The Business Cycle, Inflation, and Deflation

Fiscal Policy

Monetary Policy

Macro Only: International Trade Policy

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