The document is a 30 question multiple choice quiz on economics topics including perfect competition, market structures, game theory, and probability. It covers concepts like price discrimination, barriers to entry, external costs, unitization contracts, risk preferences, and opportunity cost. Sample questions test understanding of key terms and ideas in each economic subfield.

1. ECO 550 Week 11 Final Quiz
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86/eco-550-week-11-final-quiz/
Economics - General Economics
Question 1
1.
If two small perfectly competitive firms merge, the merged firm will be:
Answer
a price-taker.
a market leader.
a price-discriminator.
an oligopoly.
10 points
Question 2
1.
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

2. increase; transaction cost
increase; sunk cost
decrease; transaction cost
10 points
Question 3
1.
Which of the following industries can create barriers to the entry of new firms due to size and
specificity?
Answer
A hydroelectric power plant
A garment manufacturer exporting apparels
An owner of a retail chain
An automobile manufacturing company
10 points
Question 4
1.
Which of the following activities can create an external cost?
Answer

3. Honking continuously while driving past a hospital.
Reducing the use of plastic carry bags while shopping.
Burying garbage under the soil and planting trees on it.
Using smog controls on private cars.
10 points
Question 5
1.
Which of the following is an aim of a price-fixing agreement?
Answer
Reducing entry barriers
Increasing profit
Reducing price
Increasing demand
10 points
Question 6
1.
If the costs of negotiating and enforcing contracts are _____ relative to the benefits, buyers
and sellers have incentives to make economically efficient arrangements that _____ value.
Answer

4. high; increase
low; increase
high, decrease
low; decrease
10 points
Question 7
1.
Refer to Table 10-1. What would be the combined gain of the two if both breach the unitization
contract?
The matrix given below represents the payoffs to oil well owners Mike and Frasel if they enter into a
unitization contract. Each of the owners know the exact amount of oil in the pool and the market price
of oil.
Table 10-1
Answer
$22
$20
$28
$32
10 points

5. Question 8
1.
Which of the following exemplifies specific performance that a court might order from the party in
breach of a contract?
Answer
A seller ordered to pay back the price of the commodity to the customer having failed to deliver it on-
time.
A popular singer requested to forgo the fee for her performance at a social fund raising program.
The owner of a polluting factory ordered to convert his private plot into a public garden.
A movie director ordered to work with an actress he had previously contracted with, instead of one he
later found was available for a lower price.
10 points
Question 9
1.
Parties to the contract prefer to keep the actual agreement incomplete when:
Answer
they have conflicting terms and conditions.
they are large in count.
the economic value of the contract is low.

6. the cost of negotiation is high.
10 points
Question 10
1.
Which of the following theories states that people who are highly risk-averse are less likely to engage
in high-risk activities?
Answer
The theory of moral hazard
The theory of adverse selection
The propitious selection theory
The death spiral theory
10 points
Question 11
1.
Which of the following situations can lead to a winner’s curse?
Answer
A bid which is won by multiple bidders but fails to cover the expectations of the seller.
A win which makes a player over-enthusiastic about further gambles.
An overoptimistic bid which helps the bidder to win but fails to cover his costs.

7. A win which makes the player risk-averse toward future gambles.
10 points
Question 12
1.
An individual will be considered risk neutral if:
Answer
he is indifferent between taking and not taking up the gamble.
he pays someone to take away the gamble from him.
he pays someone to allow him to take the gamble.
he takes up the gamble under any situation.
10 points
Question 13
1.
Independent workers using specialized capital save the costs of contracting but risk:
Answer
generalization.
opportunism.

8. inefficiency.
over-utilization.
10 points
Question 14
1.
A corporation’s _____ can sometimes influence its decisions without making efforts to replace its
management.
Answer
hierarchy
specialized workforce
small shareholders
block holders
10 points
Question 15
1.
Which of the following properties is common to a partnership business?
Answer
Limited liability
Centralized ownership and management

9. Continuity and unlimited existence of the business
Co-ownership of contributed assets
10 points
Question 16
1.
Which of the following is a disadvantage of the U-form structure?
Answer
In case of multiple products sold in different markets, a U-form structure is difficult to maintain.
A U-form structure requires a larger staff to evaluate top-level decision making than other organization
structures.
A U-form structure necessitates a multiple-level decision-making process.
The amount of information that is considered for decision-making in a U-form structure is less than
other structures.
10 points
Question 17
1.
_____ is the only type of firm where it is possible for a person to hold all of the information that
matters for all types of decisions.
Answer
Corporation

10. A firm where decision-making is centralized
Sole proprietorship
A firm where there is separation of ownership and management
10 points
Question 18
1.
Identify the correct statement about relationships depicted in an organization chart.
Answer
A line that links an individual/division with the same at a lower level depicts informal authority of the
former over the latter.
Equality on the chart for individuals A and B must mean they both have the same authority in practice.
It shows all relations between employees of an organization.
A line that links an individual/division with the same at a lower level depicts formal authority of the
former over the latter.
10 points
Question 19
1.
During the peak season, when demand for pipeline transport of natural gas at the maximum legally
allowable price exceeds the available capacity:
Answer

11. buy-sell transactions take place.
pipeline owners vertically integrate into gas production.
price discrimination becomes prominent.
pipeline owners use discretionary powers to ration capacity to shippers.
10 points
Question 20
1.
Which of the following changes can facilitate the transfer or outsourcing of formerly internal activities
of a firm?
Answer
Changes in technology and market structure
Decline in domestic input prices
Decline in net exports
Rapid pace of industrialization
10 points
Question 21
1.
Successive monopolies face the problem of:

12. Answer
double marginalization.
volumetric interdependence.
opportunism.
predatory pricing.
10 points
Question 22
1.
A competitive firm hires workers as long as:
Answer
marginal product of labor is positive.
value of marginal product of labor is positive.
marginal product of labor is greater than the wage rate.
value of marginal product of labor is greater than the wage rate.
10 points
Question 23
1.

13. The _____ of using the market for corporate control make it important to build incentives into
executive pay packages that can reduce _____ by better aligning the incentives of shareholders and
managers.
Answer
benefits; principal/agent problems
costs and uncertainties; principal/agent problems
benefits; influence costs
costs and uncertainties; influence costs
10 points
Question 24
1.
Over the long run, migration by workers to higher-wage regions:
Answer
allows wages to equalize across regions.
explains why wage differentials may persist.
causes disequilibrium in the labor market.
increases wages further in those regions.
10 points

14. Question 25
1.
If A and B are two disjoint sets, and “Pr” represents the probability, then Pr[A and B] will be:
Answer
negative.
infinity.
unity.
zero.
10 points
Question 26
1.
Two events A and B in a sample space are considered _____ if the probability that A will happen is the
same regardless of whether or not B has happened.
Answer
conditional
correlated
independent
exclusive

15. 10 points
Question 27
1.
If the writer of an option, holds shares of the stock or an actual quantity of the commodity when she
writes the call option on it, her position is said to be:
Answer
protected.
exposed.
covered.
naked.
10 points
Question 28
1.
Alex’s production is worth $60, Harry’s is worth $40, Rob’s is worth $40, and Julia’s is worth $55.
They decide to combine their resources and produce together. For this to be a superadditive game,
which of the following conditions must hold?
Answer
They should be able to produce more in groups of two than what they can produce together.
Their combined production must exceed the total they can individually produce.
Their resources must be perfect substitutes.

16. Their resources must be perfect complements.
10 points
Question 29
1.
Elizabeth’s opportunity cost of selling a widget is $18, while Jess values it at $27. Identify the correct
statement from the following.
Answer
Jess can threaten to go to another seller if the transaction benefits Elizabeth more than her.
The core is of the zone of agreement.
The core consists of prices above $27, which benefits both parties.
Elizabeth can threaten to go to another seller if the transaction benefits Jess more than her.
10 points
Question 30
1.
A characteristic function is:
Answer
one that identifies negotiations which depend on the characteristics of the bargainers.
one that gives the value each possible coalition of a group’s members can create by operating
independently.

17. one that identifies the most beneficial price for the buyer involved in a transaction.
one that identifies the most beneficial price for the seller involved in a transaction.