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Business Econ

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Imperial Quiz on Business Econ, created by Barbara Wallin Heden on 08/12/2016.
Barbara Wallin Heden
Quiz by Barbara Wallin Heden, updated more than 1 year ago
Barbara Wallin Heden
Created by Barbara Wallin Heden over 7 years ago
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Resource summary

Question 1

Question
Suppose that Albania can produce 1 unit of machinery using 3 hours of labour and 1 unit of cloth using 9 hours of labour. It follows that the opportunity cost of producing 1 unit of cloth in Albania is:
Answer
  • 27 units of machinery
  • 3 units of machinery
  • 9 units of machinery
  • 1 unit of machinery

Question 2

Question
If market supply is perfectly inelastic with respect to price, we would expect an increase in market demand to generate:
Answer
  • a fall in the market price
  • a fall in the market price and an increase in market output
  • a rise in the market price
  • a rise in the market price and a fall in output
  • a rise in output with no change in market price

Question 3

Question
Price elasticity of demand is calculated as:
Answer
  • (dQ/Q) / (dP/P)
  • (dQ/dP) × (Q/P)
  • (dQ/Q) / (P/Q)
  • (dQ/Q) × (Q/P)

Question 4

Question
Suppose you observe that the demand for product X rises by 10% in response to a 20% fall in household incomes. From this information we can deduce that:
Answer
  • X is a luxury good
  • the income elasticity of demand for X is 2
  • X is a necessity
  • the income elasticity of demand for X is 20
  • X is an inferior good

Question 5

Question
A firm is considering whether to increase price. It estimates that the price elasticity of demand for its product is approximately -0.87. If this estimate is accurate, the increase in price will generate:
Answer
  • higher sales, but lower total revenue
  • higher sales and higher total revenue
  • lower sales, but higher total revenue
  • lower sales and lower total revenue
  • lower sales, but no change in total revenue

Question 6

Question
A perfectly elastic demand curve is represented by:
Answer
  • a shallowly sloped demand curve
  • a vertical demand curve
  • a steeply sloped demand curve
  • a horizontal demand curve
  • a rectangular hyperbola

Question 7

Question
Suppose that conditions in the market for wheat are such that consumers wish to buy 140 tons of wheat per period and 165 tons are actually supplied by farmers. From this information, we can deduce that:
Answer
  • the market price is currently above its equilibrium level
  • farmers are incurring losses
  • the market price is currently below its equilibrium level
  • farmers are earning above normal profits
  • the market price is fixed

Question 8

Question
Suppose you observe a fall in the price of apples relative to the prices of other competing fruits. Which of the following would cause an unambiguous decrease in the relative price of apples?
Answer
  • a shift to the right in the supply curve for apples and a shift to the right in the demand curve for apples
  • a shift to the right in the supply curve for apples and a shift to the left in the
  • a shift to the left in the supply curve for apples and a shift to the right in the demand curve for apples
  • a shift to the left in the supply curve for apples and a shift to the left in the demand curve for apples

Question 9

Question
A rightward shift in the economy’s production possibility frontier occurs when the economy experiences
Answer
  • rising opportunity costs in production
  • a fall in resource utilization
  • falling opportunity costs in production
  • economic growth
  • a misallocation of productive resources

Question 10

Question
If two goods are substitutes, the cross-price elasticity of demand must be:
Answer
  • negative
  • positive
  • zero
  • infinite
  • one (unity)

Question 11

Question
The slope of an indifference curve shows:
Answer
  • the transitivity of consumer preferences
  • the marginal rate of substitution between one good and another
  • the ratio of market prices
  • all of the above

Question 12

Question
If a consumer prefers bundle A to bundle B, and bundle B to bundle C, then we can conclude that bundle A is preferred to bundle C. This conclusion relies on the assumption that:
Answer
  • consumer preferences are transitive
  • the consumer’s indifference curve is convex to the origin
  • consumers prefer more goods to fewer goods
  • consumer equilibrium is reached at the point where utility is maximised
  • all of the above

Question 13

Question
The consumer’s budget line shows :
Answer
  • the marginal benefit derived from the consumption of an additional unit of output when household incomes and prices are given
  • the structure of consumer preferences when budgets are constrained
  • the combinations of output that the consumer can purchase at current prices
  • the cost-benefit ratio of each additional unit of output consumed
  • none of the above

Question 14

Question
Suppose the total cost (TC) of producing Q units of output is given as: TC = 100 + 6Q. It follows that average variable cost is:
Answer
  • 100/Q + 6Q
  • 106/Q
  • 106
  • 100
  • 6

Question 15

Question
Consumer surplus is measured as:
Answer
  • the difference between the maximum amount that consumers would be prepared to pay to obtain units of output and the amount they actually pay
  • the total money value of all units of output consumed
  • the difference between the marginal cost of producing units of output and the marginal benefit obtained from their consumption
  • the surplus value of the last unit purchased at the margin of consumption
  • all of the above

Question 16

Question
Suppose a firm is able to produce 100 units of output per month when 10 workers are employed, 180 units of output per month when 11 workers are employed, and 240 units of output when 12 workers are employed. From this information we can deduce that:
Answer
  • marginal cost is falling as production expands
  • the marginal product of labour is declining as employment rises
  • the marginal product of labour is 240 for the last unit of labour employed
  • profits are maximized when the firm produces 10 units of output
  • all of the above

Question 17

Question
If production conditions for a firm are such that the marginal rate of technical substitution (MRTS) is always constant, we can infer that:
Answer
  • the firm’s isoquant shows that the factor inputs can only be used in fixed proportions
  • the firm’s isoquant is a straight line
  • the firm’s isoquant map exhibits constant returns to scale
  • none of the above

Question 18

Question
The production function exhibits increasing returns to scale when:
Answer
  • a given proportionate increase in output requires a proportionately larger increase in the labour and capital inputs
  • a given proportionate increase in the labour input requires a larger proportionate increase in the capital input to achieve an increase in production
  • a given proportionate increase in the labour and capital inputs yields a proportionately larger increase in output
  • the marginal products of both labour and capital are falling as output rises
  • none of the above

Question 19

Question
Suppose total production costs are described by the cost function: TC = 40 + 7Q2 . Next suppose that the fixed cost component rises from 40 to 90, so that production costs are now TC = 90 + 7Q2. This increase in fixed cost implies:
Answer
  • marginal cost is higher at each level of output
  • marginal cost must be lower at each level of output because fixed cost is higher in relation to variable costs
  • marginal cost is always higher than fixed cost at each output level
  • marginal cost must rise in the same proportion as fixed cost
  • none of the above

Question 20

Question
The short run is usually defined as a period during which:
Answer
  • the firm is not able to change the price at which units of output are sold
  • all inputs into the production process are fixed
  • at least one of the inputs into the production process is fixed
  • the labour input is fixed, but capital and technology can change
  • all of the above

Question 21

Question
Long-run equilibrium in a monopolistically competitive industry is characterised by:
Answer
  • P = MC
  • P = ATC
  • P = MR
  • all of the above

Question 22

Question
Suppose a monopoly firm faces a downward-sloping demand curve described by the equation P = 100 - 2Q. Suppose also that it can produce additional units of output at a constant marginal cost of 40 and that total fixed costs are 1000. Under these demand and cost conditions, the firm maximizes profits by producing:
Answer
  • 10 units of output
  • 15 units of output
  • 40 units of output
  • 50 units of output
  • 20 units of output

Question 23

Question
Using the same information about demand and cost conditions provided in the previous question (question 2), and again assuming that the firm maximizes profits, we can deduce that the firm will set its price at:
Answer
  • 70
  • 20
  • 60
  • 80

Question 24

Question
A perfectively competitive industry is characterized by:
Answer
  • a large number of small firms
  • homogenous (identical) products
  • no significant entry barriers to the industry
  • all of the above

Question 25

Question
If the representative firm in a perfectly competitive market incurs losses, which of the following conditions must hold in the short run:
Answer
  • MC > P
  • MC > AR
  • ATC > P
  • MC > MR

Question 26

Question
The individual demand curve for a perfectly competitive firm is:
Answer
  • upward-sloping with respect to price
  • vertical with respect to price
  • horizontal at the prevailing market price
  • downward-sloping with respect to price
  • equivalent to the market demand curve

Question 27

Question
If a firm faces a downward-sloping demand curve, it maximizes profits by operating at the point where:
Answer
  • MC = P
  • MR = P
  • P = AR
  • all of the above
  • none of the above

Question 28

Question
If a firm is a price-taker and it can earn economic profits (above-normal profits) we can deduce that the firm must be operating at a rate of production for which:
Answer
  • P > MC
  • P > MR
  • P > ATC
  • all of the above

Question 29

Question
For a monopoly firm, a limit pricing strategy is designed to:
Answer
  • limit the price paid for labour and capital inputs
  • deter the entry of new competitors
  • ensure that short-run profits are maximized
  • ration output when conditions of excess demand prevail
  • none of the above

Question 30

Question
For a profit-maximising firm in a perfectly competitive market, the decision to shut down production in the short run is made when:
Answer
  • P < ATC
  • P < AFC
  • P < MC
  • P < AVC
  • none of the above

Question 31

Question
The key difference between the Cournot model of oligopoly and the Stackelberg model is:
Answer
  • the Cournot model assumes the firms compete over price
  • the Stackelberg model assumes the firms compete over price
  • the Cournot model assumes that one of the firms has a first-mover advantage
  • the Stackelberg model assumes that the firms have the same cost conditions
  • none of the above

Question 32

Question
The Cournot model of symmetric duopoly suggests that the market equilibrium position is such that:
Answer
  • one firm is larger than the other in the final equilibrium and the largest firm produces the largest quantity of output
  • economic profits are zero for both firms
  • total industry output is the same as it would have been in a perfectly competitive market
  • all of the above
  • none of the above

Question 33

Question
In game theory, a player has a dominant strategy when:
Answer
  • the pay-off to the player is greater than for any other strategy regardless of what the others are doing
  • the pay-off to the player is dominated by all other strategies
  • each player has full information about the pay-offs for the other players
  • all of the above

Question 34

Question
The final equilibrium position in the Bertrand model of oligopoly pricing is:
Answer
  • a Nash equilibrium, because the participating firms collude to hold price above ATC
  • not a Nash equilibrium because any reduction in price would eventually drive the market price down to the competitive level
  • not a Nash equilibrium because each individual firm has an incentive to cut price to increase profits
  • a Nash equilibrium because price falls to the competitive equilibrium level and no firm then has an incentive to increase the price above the competitive level

Question 35

Question
The analysis of oligopoly suggests that total industry profits will be greatest if:
Answer
  • the competing firms collude
  • fixed costs are low
  • entry barriers can be removed
  • new entrants can achieve costs reductions via learning by doing
  • product differentiation is low

Question 36

Question
The dominant firm model of price leadership assumes:
Answer
  • the follower firms set the market price and the dominant firm adds a mark-up to that price
  • marginal cost is lower for the dominant firm than it is for the follower firms
  • the dominant firm colludes with the follower firms to maximise industry profits
  • the follower firms attempt to undercut the price set by the dominant firm
  • the dominant firm faces a horizontal demand curve

Question 37

Question
The characteristic of a Nash equilibrium is that:
Answer
  • there are no dominant strategies for any of the players in a game
  • all players have access to at least one dominant strategy
  • there is no incentive for any player to deviate from the strategy currently played
  • all of the above

Question 38

Question
The kinked demand curve model of oligopoly pricing assumes:
Answer
  • each firm believes that its competitors will not match a price reduction
  • each firm believes that its competitors will increase price in response to a price reduction
  • each firm believes that its competitors will match any price increase
  • each firm takes the market price as given
  • none of the above

Question 39

Question
An oligopolistic industry is typically characterized by:
Answer
  • the industry contains just a few large firms
  • the industry has low entry barriers
  • the pricing decisions of the firms are independent of each other
  • all of the above

Question 40

Question
During the short run, when the capital stock and technology are fixed, it is usual to suppose that:
Answer
  • the marginal product of labour is constant
  • the marginal product of labour is positive and rising
  • the marginal product of labour is zero
  • the marginal product of labour is negative and falling
  • the marginal product of labour is positive and declining

Question 41

Question
When full employment equilibrium prevails in the aggregate labour market it is usual to suppose that unemployment will be positive in part because:
Answer
  • real wages are normally above their equilibrium level
  • in a dynamic economy there are always some people moving between jobs
  • real wages are sticky in a downward direction
  • interest rates can never be zero

Question 42

Question
From the analysis of the labour market, we would expect an increase in the capital stock to be associated with:
Answer
  • a fall in the level of employment
  • an increase in structural unemployment
  • an increase in voluntary unemployment
  • an increase in the marginal product of labour
  • all of the above

Question 43

Question
The long run is usually defined as a period during which:
Answer
  • the capital stock is fixed, but the labor input is variable
  • the capital stock and technology are fixed, but the labor input is variable
  • the capital stock, technology and the labor input are all fixed
  • the ratio of capital to labour is fixed
  • none of the above

Question 44

Question
In the analysis of public policy decisions, the compensation principle suggests that a policy change should be regarded as leading to an improvement in welfare if:
Answer
  • the poorer sections of society are made better off by the change
  • at least one person can be made better off by the change
  • the gainers from the change can compensate the losers to accept the change and still be left better off
  • the majority of people are made better off by the change
  • all of the above

Question 45

Question
If a negative externality is present in a market, the competitive equilibrium is such that:
Answer
  • marginal private cost is greater than marginal private benefit
  • marginal social cost is equal to the market price
  • marginal private benefit is greater than marginal social cost
  • marginal social cost is greater than marginal private benefit
  • none of the above

Question 46

Question
A comparison of long-run equilibrium under perfect competition and monopolistic competition suggests that:
Answer
  • the perfectly competitive firms operate at P < MR
  • the monopolistically competitive firms operate at P < MR
  • the perfectly competitive firms operate at P > the minimum of ATC
  • the monopolistically competitive firms operate at P > the minimum of ATC

Question 47

Question
In a competitive labour market we would expect firms to hire labour up to the point where:
Answer
  • the marginal revenue product of labour is equal to the prevailing wage rate
  • the marginal revenue product of labour exceeds the prevailing wage rate by the extent of the profit margin
  • the marginal revenue product of labour exceeds the prevailing wage rate by the greatest sustainable amount
  • the marginal revenue product of labour is zero
  • the marginal revenue product of labour begins to fall as employment rises

Question 48

Question
The analysis of monopoly power suggests that a perfectly discriminating monopolist (a monopoly exercising first degree price discrimination) will produce at an output level which is:
Answer
  • below the competitive output level
  • designed to deter the entry of new competitors
  • greater than the competitive output level
  • below the profit-maximizing output level
  • the same as the competitive output level

Question 49

Question
The aggregate production function suggests that the potential sources of output growth for an economy are:
Answer
  • increased labour supply
  • capital accumulation
  • technological progress
  • all of the above
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