1. In the long run, the most helpful action that a monopolistically competitive firm can take to maintain its economic profit is to

• continue its efforts to differentiate its product.
• raise its price.
• lower its price.
• do nothing, because it will inevitably experience a decline in profits

2. The four-firm concentration ratio

• indicates the total profitability among the top four firms in an industry
• is an indicator of the degree of monopolistic competition.
• indicates the presence and intensity of an oligopoly market.
• is used by the government as a basis for anti-trust cases.

3. Which of the following industries is most likely to represent the monopolistic competition market structure?

• automobiles
• tobacco products
• restaurants
• farm equipment

4. Mutual interdependence occurs when

• all firms in an industry are affected by the same macro economic conditions, such as a recession, inflation, interest rates, exchange rates, etc.
• the actions of firms are independent of each other.
• the actions of one firm in an industry are easily recognized and perhaps copied by others.
• monopolists recognize that they must face eventual competition in the long run.

5. Firms in monopolistic competition would

• persistently realize economic profits in both the short and long run.
• may realize economic profits in the long run and normal profits in the short run.
• tend to incur persistent losses in both the short and long run.
• tend to realize economic profits in the short run and normal profits in the long run.

6. Transfer pricing is a method used to

• determine whether a firm should make or buy a component product.
• determine the correct value of a product as it moves from one stage of production to another.
• minimize a multinational firm's tax liabilities.
• All of these

7. Dominant price leadership exists when

• one firm drives the others out of the market.
• the dominant firm decides how much each of its competitors can sell.
• the dominant firm establishes the price at the quantity where its MR = MC, and permits all other firms to sell all they want to sell at that price.
• the dominant firm charges the lowest price in the industry.

8. In order for price discrimination to exist

• markets must be capable of being separated.
• markets must be interdependent.
• different demand price elasticities must exist in different markets.
• demand price elasticities must be identical in all markets.
• Both markets must be capable of being separated and different demand price elasticities must exist in different markets

9. Prices under an ideal cartel situation will be equal to

• monopoly prices.
• competitive prices.
• prices under monopolistic competition.
• marginal cost.

10. All of the following are conditions which are favorable to the formation of cartels except

• the existence of a small number of firms.
• geographic proximity of firms.
• homogeneity of the product.
• easy entry into the industry.

11. Market signaling

• is a way of conveying information to other parties in a transaction where asymmetric information exists.
• represents a dominant strategy in a multi-player game.
• results in an optimum solution to a beach kiosk scenario.
• None of these

12. In a zero-sum game

• the gains of one player are less than the gains of the other player.
• the gains of one player are greater than the gains of the other player.
• the gains of one player directly reflect the losses of another player.
• the gains and losses of players are all expressed in zeros.

13. Moral hazard is the

• outcome of a Prisoner's Dilemma.
• result of market signaling.
• risk associated with a Dutch auction.
• risk that one party to a contract may alter its post-contract behavior to the detriment of another party.

14. If banks face a problem in loan markets when bad credit risks are the ones most likely to seek bank loans, it is described as

• moral hazard.
• moral suasion.
• adverse selection.
• fraud.

15. Asymmetric information represents a market situation in which

• all parties to a transaction possess less than full information.
• one party in a transaction has more information than the other party.
• some information possessed by the parties in a transaction may be false.
• a zero-sum game exists.

16. In order to maximize profits, multinationals typically use transfer pricing by showing ________ profits in the high-tax country and by showing ________ profits in the low-tax country.

• high; low
• low; high
• economic; normal
• above-normal; accounting

17. Globalization has depressed wages in western industrialized countries, particularly those for

• highly skilled workers.
• highly educated workers.
• semi-skilled workers.
• low skilled workers.

18. Transfer pricing is a method used to

• determine whether a firm should make or buy a component product.
• determine the correct value of a product as it moves from one stage of production to another.
• minimize a multinational firm's tax liabilities.
• All of these

19. Which of the following would be an example of FDI?

• A Brazilian investor buys German government bond.
• An American buys a new Swedish car.
• An Italian firm builds a plant in Nebraska.
• A Canadian investor buys a French equity.

20. Which of the following represents a way in which multinational corporations can protect themselves from exchange rate risks?

• forward markets
• futures markets
• currency options
• All of these

21. When cost externalities exist, an optimal equilibrium can be attained if the government restricts production.

• levies a tax for the difference between private costs and social costs.
• prohibits production.
• All three of these
• Both restricts production and levies a tax for the difference between private costs and social costs

22. The supply for products that exhibit cost externalities is generally ________ the supply for products that do not.

• greater than
• less than
• the same as
• greater or less (depending on the market) than

23. Which of the following is an example of a government action to internalize a cost externality?

• a fine imposed on a company that pollutes a stream
• the closing of a public library
• a sales tax on jewelry
• the increase on bridge tolls

24. An example of a cost externality occurs when a mining company

• dumps waste in river upstream from a popular fishing spot.
• produces coal that is not in demand in a recession.
• underpays its employees.
• overwork its employees.

25. The demand for products that provide benefit externalities is generally ________ the demand for products that do not.

• greater than
• less than
• the same as
• greater or less (depending on the market) than