University of the Cumberlands MBA 531 Assignment Six Chapter 9 MARKET AND INDUSTRY CHANGES MULTIPLE CHOICE 1)All of these are characteristics of a competitive industry, except: a

University of the Cumberlands

MBA 531

Assignment Six

Chapter 9 MARKET AND INDUSTRY CHANGES

MULTIPLE CHOICE

1)All of these are characteristics of a competitive industry, except:

a.            Many substitutes

b.            No barriers to entry

c.             Homogenous product

d.            Little or no information on rivals’ products

2.            Which of the following markets are closest to perfectly competitive

a.            The market for smart phones

b.            The market for generic pharmaceuticals

c.             The market for sport shoes

d.            The market for fast food

3.            A firm in a            faces a  demand curve.

a.            perfectly competitive market; perfectly inelastic b. perfectly competitive market; perfectly elastic

c. monopoly market; perfectly elastic

d. monopoly market; horizontal

4.            In a perfectly competitive market industry, firm’s prices are equal to

a.            Average revenue

b.            Marginal revenue c. Both a and b

d. None of the above

5.            A perfectly competitive firm has

a.            A perfectly elastic demand for its products

b.            A perfectly inelastic demand for its products

c.             A downward sloping demand for its products

d.            None of the above

6.            If a firm in a perfectly competitive industry is experiencing higher than normal returns, in the long-run

a.            Some firms will leave the industry and price will rise

b.            Some firms will enter the industry and price will rise

c.             Some firms will leave the industry and price will fall d. Some firms will enter the industry and price will fall

7.            A sudden rise in the market demand in a competitive industry leads to

a.            A short run market equilibrium price higher than the original equilibrium

b.            A market equilibrium higher than the short run price

c.             Some firms exiting the market

d.            All of the above

8.            In a competitive industry

a.            firms produce a product or service with very close substitutes

b.            the firms products have a very elastic demand

c.             the firms have many rivals d. all of the above

9.            In a competitive industry

a.            firms have no cost advantages

b.            some firms have cost advantages, while others do not

c.             all the firms have highly differentiated products

d.            Consumers have strong preferences across brands

10.          In a competitive industry

a.            the industry has high barriers to entry

b.            the industry has high barriers to exit

c.             the industry has high barriers to entry and exit d. the industry has no barriers to entry or exit

11.          The main reason(s) firms in a competitive market cannot earn positive profits in the long run is(are)

a.            assets can quickly move in and out of the industry when demand fluctuates

b.            an increase in demand leads to entry of firms which absorb the extra demand

c.             a decrease in demand leads to exit of firms from the market such that there is no surplus d. all of the above

12.          The main reason(s) monopolies can earn positive profits for a while is(are)

a.            assets cannot quickly move in and out of the industry when demand fluctuates

b.            an increase in demand does not lead to entry of firms to absorb the extra demand c. both A&B

d. none of the above

13.          Two cities face identical prices for their housing. City A decided to be a pollution free city “Clean town” and all the factories would locate in city B “Smogville”, we expect the prices of housing in city A “Clean town” to

a.            increase

b.            decrease

c.             stay the same

d.            none of the above

14.          The concept of mean reversion is defined by

a.            the tendency of profits to revert to zero

b.            the tendency of costs to revert to zero

c.             the tendency of economic profits to revert to zero

d.            the tendency of profits to revert to negative

15.          Firemen generally are paid higher wages because

a.            they are usually highly educated

b.            they are usually working under riskier conditions

c.             they are working long and uncertain hours d. both B&C

16.          Critical care surgeons get paid higher salaries than family doctors because

a.            they usually work under highly stressful conditions

b.            they usually have to get longer training

c.             they usually work uncertain hours d. all of the above

17.          In equilibrium, high risk stocks would typically be accompanied by

a.            low returns

b.            no returns c. high returns

d. no sales-no one would buy risky stocks

18.          Low risk stocks are usually accompanied by a. low returns

b.            no returns

c.             high returns

d.            no sales-no one would buy low risk stocks

19.          A risk premium is

a.            the difference between the earnings of a low risk asset and a high risk asset

b.            premium paid to a security holder to compensate him for bearing a higher risk c. both A&B

d. none of the above

20.          A compensating wage differential is

a.            the difference between the wage of an individual working in favorable conditions and the wage of an individual working in unfavorable conditions

b.            compensation paid to an individual for working in a less desirable environment

c.             premium paid to a security holder to compensate him for bearing a higher risk d. Only A&B

21.          An investor has to choose between stocks A&B, each selling for $10. Stock A, can either increase in price to $12, with a 50% probability or stay at $10 with a 50% probability. Stock B can either increase in price to $15 with a 50% probability or go down to $7 with a 50% probability. Which of the stocks would the investor choose

a.            Stock A

b.            Stock B

c.             None of the stocks

d.            The investor would exit the market

22.          Jim has a choice between two jobs. Job A would pay him $15 an hour with certainty, and the job B is commission based where he could earn $12, with a 50% probability and $18 with a 50% probability. Which job would he choose?

a.            Job A

b.            Job B

c.             Neither of the jobs

d.            He would choose to exit the labor market

23.          A monopoly firm is a       and faces a         sloping demand curve.

a.            Price taker; horizontal

b.            Price maker; horizontal c. Price maker; downward

d. Price taker; downward

24.          Lipitor, a heart medication with few substitutes, should have an own-price elasticity of demand that is:

a.            Relative elastic

b.            Relatively inelastic

c.             Perfectly inelastic

d.            Perfectly elastic

25.          Monopoly firms manage to earn positive profits, even in the long run because

a.            they have no close substitutes

b.            there are high barriers of entry to the market

c.             they have a cost advantage difficult to duplicate d. all of the above