Eco 550 entire course

ECO 550 Entire Course: Strayer University
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ECO 550 Week 1 DQ1
Week 1 DQ1

From the e-Activity, explain the most important information you would require on which to base
sound economic judgments. Explain your rationale.Assess the various forms of organizing and
processing information to determine which is the most difficult to get correct. Explain your
rationale

ECO 550 Week 1 DQ2
Week 1 DQ2

Analyze the characteristics that make any transaction possible and justify the importance of each
of the characteristics.

Evaluate the role institutions play in transactions and discuss the likely economic impact if
institutions did not exist. Provide specific examples to support your response.

ECO 550 Week 1 Chapter Questions
Week 1 Chapter 1 Question 17

People join tennis clubs for a fixed fee per year, which entitles them to play as much as they
want without charge. Because people who pay these fees play more tennis than others (who can
use free public courts), this means sunk costs matter for decisions. Right?


When discussing the maximization of utility, regardless of whether you chose to work more
hours or fewer when offered a higher hourly wage, you could not be worse off than you were at a
lower hourly wage. Can you show this?


How does the existence of money reduce the costs of making transactions, relative to a society
based entirely on barter? English is becoming the usual language for international transactions,
even if the language of neither country is English. How does this reduce the costs of transacting?

ECO 550 Week 2 DQ1
Week 2 DQ1

Analyze how markets work and make recommendations for or against any form of price control.
Explain your rationale

ECO 550 Week 2 DQ2
Week 2 DQ2

Make at least one recommendation concerning U.S. government regulation that would make the
economy stronger


Advertising can inform buyers, but sellers must incur cost to advertise. If so, advertising can
result in higher prices to consumers. Does this mean advertising is economically inefficient? If
not, explain how it can simultaneously create value and increase market prices.


Following are observations on the market price and the quantity of good X produced and
consumed in three different years: $10 and 100 units, $4 and 57 units, and $8 and 88 units. Can
we conclude that the market demand for X slopes upward?


A firm in a perfectly competitive market invents a new method of production that lowers
its marginal costs. What happens to its output? What happens to the price it charges?

a. The firm has an employee who threatens to tell all other firms in the industry about
how to implement this new technique. Will it be possible to bribe the employee not to do this?
Explain why or why not.

b. Why should this employee probably choose to tell only some of the other firms rather than all
of them?

c. What factors will determine the best number of firms to sell the secret to? (Assume that those
who get the information keep the secret instead of selling it to still others.)

ECO 550 Week 2 Quiz 1
Economics - General Economics

Question 1

1. When multiple facts about a sample set are known, a(n) _____ heuristic makes the choice on
the basis of the first category of facts in which the samples differ.

elimination

representative

recognition

availability

Question 2

1. Which of the following products can be sold through mass advertising?

A new electrocardiogram machine to be used by medical examiners

A mainframe computer installation

A new health insurance policy

A new brand of baby diapers

Question 3

1. A model of choice in economics starts by assuming that:

people try to minimize their losses.

people try to maximize their consumption.

people try to minimize their costs.

people try to maximize their utility.

Question 4

1. _____ is an online venue where businesses and individuals can hedge their uncertainty about
whether legislation that affects them will be enacted.

The American Civics Exchange

Tradesports

The Iowa Electronic Markets

The Gallup and Roper surveys

Question 5

1. _____ have the ability to recognize constraints and may choose to incur the costs of altering
them.

Economists

Rational people

Entrepreneurs

Research groups

Question 6

1. Assume that a cargo ship carrying the merchandise of a cloth merchant has been wrecked.
Such a setback will be accounted as the merchant’s:

sunk cost.

deadweight loss.

marginal cost.

opportunity cost.

Question 7

1. Publicly available data on production costs and box office revenues reflect that:

R-rated movies on an average collect higher revenues than G-rated movies.

revenue collected by PG-rated movies donot cover the production and distribution costs.

G-rates movies help investors to make artistic or polictical statements.

family-rated movies are on average profitable.

Question 8

1. The different methods by which the sellers inform their potential buyers about the product is
called:

knowledge transfer.

advertising.

product offering.

information dissemination.

Question 9

1. The math and graphics used in economics help us better understand the logic of:

verbal reasoning.

rational choice.

hypothesis testing.

business forecasting.

Question 10

1. The assumption of rationality in economics implies that:

people perfectly understand their own preferences.

people can overcome economic obstacles in the best possible way.

people can make accurate calculations and they have a perfect foresight.

people make choices with an eye toward attaining objectives they have chosen.

Question 11

1. Which of the following is a root cause behind competition inherent in every society?

Unlimited wants of the people

People’s desire to acquire goods and services for free

Scarcity of goods and services

Genetic makeup of people

Question 12

1. The costs which can be avoided if we alter our decisions or choices are referred to as:

average costs.

opportunity costs.

marginal costs.

sunk costs.

Question 13

1. When a researcher evaluates the probability of an event by looking at how representative the
sample is of the population of interest instead of the entire population, he is using:

an elimination heuristic.

an availability heuristic.

a representative heuristic.

a recognition heuristic.

Question 14

1. Utility is a(n) _____ measure of wellbeing of a person.

objective

subjective

ordinal

cardinal

Question 15

1. Since people’s incomes are limited and their abilities to borrow differ they face _____
constraints.

psychological

financial

societal

contractual

Question 16

2. Which of the following is an example of market governance?

A firm vertically integrating backward to own the necessary inputs

A firm entering into a contract with input suppliers.

A school recruiting a part-time teacher to cover for a permanent employee who falls very ill.

A school requesting its permanent employees to cover for a teacher who suddenly falls ill.

Question 17

2. The economic value which can be created by a transaction between two people, Ed (seller)
and Luis (buyer), is $50 as Ed’s opportunity cost of selling is $135 and Luis’ valuation of the
good is $185. If each gains $25 from this transaction, which of the following conclusions can be
drawn?

Transaction costs are zero.

Luis has higher bargaining power than Ed.

Ed has higher bargaining power than Luis.

Transaction costs are positive.

Question 18

2. In the example of Ireland described in the text, the country’s production set shifted outward
over time because:

of technological advancements which improved its potato cultivation and overall agricultural
production.

it gained new resources over time which enabled it to specialize and gain comparative advantage
in software trade with the U.S. and Europe.

of new resources which allowed it to gain absolute advantage over many of its trading partners.

of reduction in trade barriers with the European Union.

Question 19

2. When the slope of a country’s production set declines, it implies:Answer

the production set has shrunk.

the marginal cost of producing the good measured on the Y-axis has fallen.

the marginal cost of producing the good measured on the Y-axis has increased.

the marginal cost of producing the good measured on the X-axis has fallen.

Question 20

2. _____ determine the efficient pattern of specialization in production.Answer

Total costs

Opportunity costs

Marginal costs

Sunk costs

Question 21

2. Megan, an analyst in Ronald’s team called in sick on a day when 4 projects were due for
completion. Ronald divided Megan’s work between the remaining six team-members. Which
form of governance is being used here?

Etiquette

Hierarchy

Contract

Market

Question 22

2. Prices play a smaller role in _____, in contrast to other modes of governance like _____ and
_____.

hierarchies; markets; contracts

contracts; hierarchies; markets

markets; hierarchies; contracts

etiquette; markets; contracts

Question 23

2. If the production of 2,000 cars and 500 tons of corn during a year is economically efficient for
a country which produces only these two products, which of the following conclusions can be
drawn?

It satisfies domestic demand completely.

The production of cars cannot be increased without reducing the production of corn.

The reallocation of resources to change the production level must reduce production of both
goods.

It is possible to increase the production of both if resources can be reallocated.

Question 24

2. If the transaction between you and the seller takes place at a price that equals your valuation
of the product, then:

you realize all the gains from this transaction.

the gains from this transaction are equally divided between the two of you.

the entire economic value created by the transaction goes to the seller.

the economic value created by this transaction is sub-optimal.

Question 25

2. The main reason Sears Roebuck became the largest retailer in the United States during the
late nineteenth century was that:

it reduced a host of transaction costs which allowed higher profits to shareholders and lower
prices to customers.

the railroad network improved substantially and charged higher rates for transporting goods.

the lack of competition lowered the cost of advertising and increased profits for shareholders.

his organization only interacted with the best wholesalers, distributors, and shippers in the
business.

Question 26

2. Trade between two parties is beneficial because:

it ensures that the standard of living in the poorer country matches its trading partner eventually.

it enables each to consume a bundle of goods that it cannot produced domestically.

it has an immediate effect on an economy by increasing its production set.

it allows the economy of both trading partners to grow equally.

Question 27

2. The function of economic institutions is to:

determine the profit margin of producers.

determine how much an economy benefits from trade.

define the environment in which we can trade.

define the terms of trade between nations.

Question 28

2. Fiona and Alicia divide their time equally between ironing shirts and cooking meals. Fiona
can iron 5 shirts and cook 2 meals in an hour. Alicia can iron 6 shirts and cook 1 meal in an hour.
If they have to iron 15 shirts and cook 5 meals, who should specialize in which activity?

Fiona should do all the work.

Alicia should do all the work.

Fiona should specialize in cooking meals and Alicia should specialize in ironing shirts.

Alicia should specialize in cooking meals and Fiona should specialize in ironing shirts.

Question 29

2. Reducing _____ the benefits available to the buyer and seller and might also enable them to
make exchanges that were previously impossible.

transaction costs decreases

transaction costs increases

marginal costs decreases

marginal costs increases

Question 30

2. The shares of the economic value of a particular transaction that accrues to the seller and the
buyer depend on:

the buyer’s opportunity cost.

the relative bargaining powers of the two parties.

the cost of production incurred by the seller while producing the good.

the lobbying techniques adopted by the two parties.

ECO 550 Week 3 Assignment 1 Operations
Decision
Assignment 1: Operations Decision

Assume you have been hired as a managing consultant by a company to offer some advice that
will help it make a decision as to whether it should shut down completely or continue its
operations. It currently uses 100 workers to produce 6,000 units of output per month (working 20
days / month). The daily wage (per worker) is $70, and the price of the firm's output is $32. The
cost of other variable inputs is $2,000 per day. You are told that the firm's fixed cost is “high
enough” so that the firm's total costs exceed its total revenue. The marginal cost of the last unit is
$30.

This assignment allows you to determine the specific details about this fictitious company in
order to conduct an environmental scan of this company.

Write a three to four (3-4) page paper in which you:

Briefly describe the details of the fictitious business that you created for this assignment. Assess
the current environmental scan factors. Determine the factors that will have the greatest impact
on plant operations and management’s decision to continue or discontinue operations. Evaluate
the financial performance of the company using the information provided in the scenario.
Consider all the key drivers of performance, such as company profit or loss for both the short
term and long term. Be sure to show the calculations that helped you reach your conclusions.
Recommend how the company can improve its profitability. Then, develop a brief plan to
implement the recommendations. Assess the circumstances in which the company should
discontinue operations. Provide a rationale with your response. Use at least three (3) high-quality
academic resources in this assignment. Note: Wikipedia and other Websites do not qualify as
academic resources.

Your assignment must follow these formatting requirements:

Be typed, double-spaced, using Times New Roman font (size 12), with one-inch margins on all
sides; citations and references must follow APA or school-specific format. Check with your
professor for any additional instructions. Include a cover page containing the title of the
assignment, the student’s name, the professor’s name, the course title, and the date. The cover
page and the reference page are not included in the required assignment page length.

The specific course learning outcomes associated with this assignment are:

Apply the concepts of supply and demand to determine the impact of changes in market
conditions in the short run and long run, and the economic impact on a company’s operations.
Examine the factors that affect short-term and long-term production decisions. Use short-run and
long-run firm production and cost functions to evaluate the impact on industries. Use technology
and information resources to research issues in managerial economics and globalization. Write
clearly and concisely about managerial economics and globalization using proper writing
mechanics.

ECO 550 Week 3 DQ1
Week 3 DQ1

From the e-Activity, discuss how the company you selected should increase its competitive
stance in the marketplace. Provide specific examples to support your response.

Determine how a perfectly competitive firm can maximize its profit by producing the output at
which average cost is minimized.

ECO 550 Week 3 DQ2
Week 3 DQ2

Imagine monopolizing a service or product of your choice. Discuss how you would go about
setting prices for your product or service.

Select a non-monopolized product or service with which you are familiar and determine how the
consumption of that product or service would differ if it were controlled by a monopoly.


10. [Requires calculus] A perfectly competitive firm faces a market price of $10 for its output X.
It owns two plants, A and B, whose total costs are

+ 2X + :25X2

+ :4X + :1X2.

How many units should each plant produce to maximize profit at that price?


5. Give a numerical example to show that a monopolist’ s marginal revenue can be upward-
sloping over part of its range. Hint: The price on the demand curve is the producer’s
average revenue. Think of the graphic in Chapter 4 that showed the possibility of
declining average costs while marginal costs were increasing.


14. A monopolist has two types of customers. There are 100 of Type A, who will each pay
up to $10 for a single unit of the good, and 50 of Type B, who will each pay up to $8. Neither is
willing to purchase additional units at any price. If it must charge a uniform price, find that price.


1. For an inferior good:

the income elasticity is positive.

the income elasticity if negative.

the income elasticity is zero.

the income elasticity is unity.

Question 2

1. If cheese spreads and butter are substitutes, an increase in the price of butter will:

shift the demand curve for cheese spreads upward.

shift the demand curve for cheese spreads downward.

shift the demand curve for butter upwards.

shift the demand curve for butter downward.

Question 3

1. As observed in China’s steel appliance market, the rise in the price of refrigerators resulted:

solely from an increase in the demand for refrigerators.

from an increase in the demand for steel from all appliance industries.

from a shortage of steel in the world markets.

from an increase in the price of steel that was the result of increased demand for refrigerators.

Question 4

1. Bankers supported the Federal Reserve Board’s Regulation Q because:

it allowed them to charge lower interest rates on loans.

it protected them from money market volatilities.

it increased the demand for loanable funds in the market.

it allowed them to borrow at a low rate of interest and lend out at a high rate of interest.

Question 5

1. The own-price elasticity of demand is defined as:

the ratio of a change in quantity demanded and the change in price.

the ratio of the percentage change in quantity demanded to the percentage change in price.

the ratio of the percentage change in quantity demanded to the percentage change in input prices.

the ratio of a change in output and the change in input usage.

Question 6

1. A tradesman who purchases diamonds in a country where the price is low and sells them in
another country where the price is high, can be said to be practicing:

arbitrage.

speculation.

derivatives trading.

forecasting.

Question 7

1. An affordable housing law will affect a city’s housing prices only if:

the demand for houses in the city is downward sloping.

the demand for houses in the city is almost horizontal.

the demand for houses in the city is almost vertical.

the demand for houses in the city is backward bending.

Question 8

1. The area above the supply curve and below the market price represents:

the consumer surplus

the producer surplus.

the deadweight loss of the producer.

the deadweight loss of the consumer.

Question 9

1. A perfectly elastic demand curve will:

be a vertical straight line.

be a downward sloping straight line.

be a horizontal straight line.

be an upward sloping straight line.

Question 10

1. The contact points where the terms of forward contracts are set are known as:

the underlying markets.

the derivative markets.

the over-the-counter markets.

the futures exchange.

Question 11

1. Suppose a commodity market is initially in equilibrium. An increase in the nation’s skilled
labor force then lowers the marginal cost of producing each unit of output. Which of the
following changes will be observed?

The demand curve will shift upward

The supply curve will shift downward

The demand curve will shift downward

The supply curve will shift upward

Question 12

1. An increase in the price of sodium carbonate, a chemical compound used in detergents, will:

increase the quantity of detergents demanded.

decrease the quantity of detergents demanded.

decrease the demand for detergents.

increase the demand for detergents.

Question 13

1. Which of the following commodities can be considered as an inferior good?

Dwelling in a small apartment located in a suburb

Washing clothes in a washer at home

Eating out at an upscale restaurant

Spending vacations at exotic locations

Question 14

1. A demand curve is said to be inelastic if:

ED = 1

ED = 0

ED> 1

ED< 1

Question 15

1. An increase in the supply of oranges in a town drives down its price by 5 percent. Which of
the following changes will be observed in the market?

The demand for oranges will decrease.

The demand for oranges will increase.

The quantity of oranges demanded will increase.

The quantity of oranges demanded will decrease.

Question 16

2. Refer to Figure 4-2. The area EFGH is:

Figure 4-2
The following figure shows the cost curves of a firm producing good X.

Answer

the loss incurred by the firm when market price is $3.5.

the profit earned by the firm when the market price is $3.5.

the loss incurred by the firm when the market price is $5.

the revenue earned by the firm when the market price is $5.

Question 17

2. The greater the curvature of the isoquant:

the greater the degree of substitutability between the inputs.

the lower the possibility of substitution between inputs.

the higher the impact of a change in relative prices of inputs.

the lower the prices of inputs.

Question 18

2. Investments with _____ risk usually carry a _____ return.

higher; lower

lower; higher

zero; high

higher; higher

2 points

Question 19

2. The introduction of new technology and changes in organization are:

likely to shift the LRAC curve.

unlikely to help in the short-run.

likely to shift the SRAC upward.

unlikely to affect a firm’s cost curves in the long-run.

Question 20

2. You decide that it is time to buy a big family car. The opportunity cost you consider is:

the cost of the car.

the increase in comfort for your family while traveling.

the return this money would have earned if it was invested otherwise.

the inconvenience you and your family are bearing on account of your old car.

Question 21

2. Let the marginal product of capital (MPK ) be 6; the marginal product of labor (MPL) be 2;
the price of labor is given by $10. What will be the price of capital such that the isocost and the
isoquant are tangent to each other?

$30

$3

$60

$6

Question 22

2. _____ is the locus of the minimum points of various short-run average cost curves depicting
different plant sizes.

Long-run marginal cost

Expansion path

Long-run average cost

Isocost

Question 23

2. A manufacturer of towels finds that his returns to scale are constant. Which of the following
conclusions can be drawn?

The long-run total cost curve is horizontal.

The long-run average cost curve is horizontal.

The long-run total cost curve is downward sloping.

The long-run average cost curve is downward sloping.

Question 24

2. The production function shows:

the total cost incurred to produce a certain level of output.

the changes in cost incurred as output level varies.

the relationship between inputs used and output produced.

the impact of a change in production on the firm’s revenues.

Question 25

2. A firm uses two inputs, labor (L) and capital (K) in the production of umbrellas. It can invest
$50,000 in the purchase of the two inputs annually. The firm hires 5 units of capital at $1,000 per
unit. If the going annual wage rate is $4,500, calculate the number of workers employed by the
firm. (Assume that the firm spends the entire budget on K and L.)

10

5

15

9

Question 26

2. An isocost line depicts:

the minimum cost required to produce a certain level of output, given input prices.

the input combination to produce a certain level of output.

the input combinations that satisfy a budget constraint, given input prices.

the maximum output that can be produced by a firm given its budget constraint.

2 points

Question 27

2. The gap between average total cost and average variable cost:

is constant at all ranges of output.

is high at high levels of production.

declines as output expands.

depends on the production technology.

Question 28

2. Jeff owns a garage and has 3 mechanics to help him. With the tools used being fixed in the
short run, his production function is given by 5 + , where L is the number of mechanics and Y is
the number of cars they can fix. If Jeff hires a fourth mechanic, what will be the marginal
product of the new mechanic hired?

11

13

2

7

Question 29

2. At outputs less than the minimum of average variable cost:

marginal cost is greater than average variable cost.

marginal cost is less than average variable cost.

marginal cost is equal to average variable cost.

marginal cost is parallel to average variable cost.

Question 30

2. In an industry characterized by a natural monopoly, which of the following characteristics
will be observed?

The long-run average cost curve will be upward sloping.

The market price of the product will be very low.

Competition is both impossible and inefficient.

Number of producers operating in this market will be low.

ECO 550 Week 4 Assignment 2 Market
Model Patterns of Change
Choose and research an industry where there has been a pattern of change in a particular market
model (monopoly, oligopoly, etc.).

Describe the industry and explain the general pattern of change of the particular market model.
Hypothesize the basic short-run and long-run behaviors of the model in the industry you have
chosen in a “market economy.” Analyze at least three (3) possible areas for the industry that
could lead to transaction costs, and explain each in detail. Speculate about the behavior that
could result from these transactions and propose at least two (2) strategies for dealing with them.
Collect costs, revenue data, or other data from the industry that you deem relevant. Explain how
you would modify the data in order to make it relevant to decisions a manager must make.
Explain the major factors that affect the degree of competitiveness in your industry. Use the data
to develop at least three (3) measures (e.g., productivity measures) to show how the industry is
evolving. Use at least three (3) high-quality academic resources in this assignment. Note:
Wikipedia and other Websites do not qualify as academic resources

ECO 550 Week 4 DQ1
Week 4 DQ1

Describe an oligopoly company and explain what makes it so.

ECO 550 Week 4 DQ2
Week 4 DQ2

Assume that a very competitive start-up enters the market in direct competition with the
oligopoly you describe initially gaining a 12% market share. Discuss the steps the oligopoly
should take to address this new competition.

ECO 550 Week 4 DQ3
Week 4 DQ3

Discuss a scenario where price fixing is beneficial to all parties involved – including
consumers. Provide specific examples to support your response.

ECO 550 Week 4 DQ4
Week 4 DQ4

Analyze the models of oligopoly and create at least one recommendation for improvement.
Explain your rationale.



1. In the model of a dominant firm, assume that the fringe supply curve is given by +0.2 P,
where P is market price and Q is output. Demand is given by – P.

What will price and output be if there is no dominant firm? Now assume there is a
dominant firm, whose marginal cost is constant at $6. Derive the residual demand curve
that it faces and calculate its profit-maximizing output and price.


A selfless person approaches Jones and Smith with a $100 bill and offers to sell it to the
highest bidder, but both the winning and losing bidders must pay her their bids. So if Jones
bids $2 and Smith $1 they pay a total of $3, but Jones get the money, leaving him with a net
gain of $98 and Smith with -$1. If both bid the same amount, the $100 is split evenly
between them. Assume that each of them has only two $1 bills on hand, leaving three
possible bids: $0,$1,$2. Write out the payoff matrix for this game, and then find its Nash
equilibrium.


Question 1

1. Assume that the world price of Good A is $8 per unit while its domestic price is $6, and the
marginal cost incurred by domestic producers for producing one unit of Good A is $5. If the

government imposes a tax of $3 per unit on domestic producers, which of the following
situations will be observed?

The tax will increase the price of Good A in the domestic market.

The tax will increase the world price of Good A.

The tax will decrease the profit earned by domestic producers.

The tax will decrease the price of Good A in the domestic market.

Question 2

1. The long-run supply curve of a perfectly competitive market is a:

an upward rising step function.

a downward sloping step function.

a vertical line at the market price.

a horizontal line at the market price.

Question 3

1. When the existing firms in a competitive industry have different operating costs:

the highest-cost firm in operation breaks even, while the low cost firms will earn profit.

the highest-cost firm in operation breaks even, while the low cost firms leave the industry.

the low cost firms earn a larger profit than the high-cost firms.

the highest-cost firms will incur a deadweight loss.

Question 4

1. Which of the following conditions define a perfectly competitive market?

The transaction costs are very high.

Information is available to participants at a high cost.

The product is homogenous.

There are limited number of buyers and sellers.

Question 5

1. If there are only a few producers of substitutes for Good X, a merger between producers of
Good X and any one of them could significantly _____ for Good X.

decrease the elasticity of demand.

increase the elasticity of supply.

decrease the elasticity of supply.

increase the elasticity of demand.

Question 6

1. Refer to Table 5-1. Suppose initially 3,200 units are demanded at a price of $3 per unit. What
will be the quantity of output supplied by each type of firm in the market?

The following table gives the average cost of production for three different categories of firms
producing the same product.
Table 5-1

Type of firms

No. of firms

Average Cost per unit

Equilibrium output

A

350

$3

10 units

B

400

$6

10 units

C

550

$10

10 units

Type A and Type B will jointly supply 3,000 units while Type C will supply 200 units.

Type A firms will supply 3,000 units, while the remaining 200 units will be supplied by Type B.

Type A firms will supply the entire 3,200 units, while Type B and Type C firms will not enter
the market.

Type A and Type B will each supply 1,600 units, Type C will not enter the market.

Question 7

1. If the long-run market supply curve is perfectly elastic, a decrease in variable cost will:

shift the supply curve upward to a higher market-clearing price level.

shift the supply curve downward to a lower market-clearing price level.

shift the supply curve to the right to a higher market-clearing output.

shift the supply curve to the left to a lower market-clearing output.

Question 8

1. Which of the following conditions define the short-run for any industry?

Firms do not incur a fixed cost.

Firms incur both fixed as well as variable costs.

Firms can easily enter and leave the market.

Firms can enter but cannot leave the market.

Question 9

1. Suppose beer producers in Munich became aware of the low price of one barrel of beer in the
domestic market relative to that in the United States. What will be the impact of this price
difference?

Beer production in Munich will decline.

Price of beer in the domestic market will increase.

Beer production in the U.S. will increase.

Beer consumption in the domestic market will increase.

Question 10

1. In a perfectly competitive market, the demand curve faced by each firm is:Answer

highly inelastic.

perfectly elastic.

perfectly inelastic.

less elastic.

Question 11

1. Assume that the government of a nation rations the crude oil available to car owners each
month which reduces the overall demand for petroleum. However, the nation continues to import
oil from the world market. Which of the following will be observed in the oil market?

The world price of petroleum would decline.

The domestic price of petroleum would decline.

The domestic price of petroleum would increase.

The world price of petroleum will remain unaffected.

Question 12

1. Suppose the cost of raw materials used by the cotton industry rises to a larger extent
compared to the increase in demand in the market. Which of the following situations will arise?

The incidence of the higher cost will fall completely on the consumers.

The incidence of the higher cost will fall completely on the high cost firms.

The incidence of the higher cost will fall completely on the low cost firms.

The incidence of the higher cost will fall partially on the consumers and partially on the sellers.

Question 13

1. Which of the following situations resulted from the North American Free Trade Agreement
(NAFTA)?

The cost of tortillas in Mexico decreased.

Corn export to the U.S. from Mexico declined.

Corn export to the U.S. from Mexico increased.

The cost of tortillas in the U.S. increased.

Question 14

1. Refer to Figure 5-3. What will be the shape of the long-run supply curve of land suitable for
corn farming?

In the figure given below, D1 and D2 represent the demand curves for land before and after the
ethanol program respectively. SRS is the short-run supply curve of land.
Figure 5-3
Answer

The long-run supply curve of land suitable for corn farming will be perfectly inelastic.

The long-run supply curve of land suitable for corn farming will be perfectly elastic.

The long-run supply curve of land suitable for corn farming will be less elastic than the short-run
supply curve.

The long-run supply curve of land suitable for corn farming will be more elastic than the short-
run supply curve.

Question 15

1. The short-run supply curve of a perfectly competitive industry with firms having identical
costs is:

a horizontal line at the market price.

a vertical line at the equilibrium output.

an upward rising curve.

a downward sloping step function.

Question 16

2. The demand curve faced by a perfectly competitive firm is:

downward sloping.

the same as the market demand curve.

horizontal.

perfectly inelastic.

Question 17

2. Refer to Table 6-2. Assume that the monopolist sells only health drinks to Group 1 and only
fruit juices to Group 2. What profit will the monopolist earn?

The following table gives the valuations of fruit juices and health drinks by two groups of
consumers in the city of Vanilla. A single producer of both products controls the entire market
for beverages in this city and is considering strategies to bundle one bottle of health drink with
one bottle of fruit juice. Assume that the marginal cost of supplying both varieties is $2 each.
Table 6-2

$35

$10

$31

$14

Question 18

2. A monopolist can:

produce as much or as little as it wants without affecting price.

decide the price that will be charged in the market.

provide discounts below market price to attract more customers.

price its products by considering the possible reactions of future competitors
or firms that produce close substitutes for its output.

Question 19

2. In the small country of Talisman, the liquor industry is monopolized by a single producer
Best Drinks Inc. Best Drinks charges high end customers like 5-star hotels a much higher price
than it charges local pubs. Identify the correct statement from the following.

Best Drinks is aware of the variations in the valuation of its products by different consumer
segments.

Best Drinks minimizes cost by charging different consumers different prices.

Charging different prices for different consumers increases consumer surplus.

Best Drinks charges different prices because its sole objective is sales maximization.

Question 20

2. Which of the following statements is true regarding the difference between a monopolist and
a perfectly competitive firm?

Competitive price is higher than the price charged by a monopolist.

Supply of output is higher in case of a monopoly than if the market is competitive.

A monopoly can choose its price while a competitive firm is a price taker.

A market characterized by competition has a higher deadweight loss.

Question 21

2. Which of the following is a possible explanation for the fall in prices after an industry is
monopolized by combining a group of competitors?

A monopolist faces a downward sloping demand curve. Hence, output expansion leads to lower
prices.

A reduction in price increases producer surplus. Hence a monopolist may reduce the price of his
product.

A monopolist may reduce prices to make it difficult for other firms to compete.

A monopolist can increase profits by reducing price when its cost of production declines due to
increased size of the new firm. The fall in price is less than the decline in cost.

Question 22

2. The practice of charging different prices on the basis of varying customer preferences is
known as:

arbitrage.

discounting.

price discrimination.

rationing.

Question 23

2. Tying products can be a profitable strategy for facilitating price discrimination only when:

the demands for the goods are unrelated.

the supply of one of the tied products is low.

the demands for the goods are related.

the market for one of the goods is competitive.

Question 24

2. The peak of the total revenue curve is achieved at the point where:Answer

marginal revenue is the highest.

price is the highest.

marginal revenue is zero.

marginal cost is zero.

Question 25

2. Refer to Figure 6-4. What price will the monopolist charge when its marginal cost shifts from
C to C’?

The following figure depicts the demand, marginal revenue (MR), and marginal cost (MC) for a
monopolist.
Figure 6-4

$20

$16

$15

$9

Question 26

2. Refer to Figure 6-1. Which of the following conclusions can be drawn from this figure?

The following figure shows the demand, marginal revenue, and marginal cost curves for a profit
maximizing monopolist.
Figure 6-1

The monopolist produces at the point where marginal cost is zero.

The monopolist incurs a fixed marginal cost of OC’.

The monopolist charges a price of OP’ and total revenue is OP’D’Q’.

The consumer surplus enjoyed by customers is PC’D”.

Question 27

2. Refer to Figure 6-2. What is the consumer surplus under monopoly?

A group of firms in competitive market produced 20 units of a good when the market price was
$2. They incurred no marginal cost. Eventually they realized the benefits they could get by
teaming up and acting as a monopolist. The following figure shows the demand curve and
marginal revenue curve for this profit maximizing monopolist.
Figure 6-2

$96

$48

$36

$72

ANS: B PTS: 1 DIF: Easy NAT: Analytic

Question 28

2. Monopolies exist for each of the following reasons, EXCEPT:

competitors are legally unable to challenge them.

they have control over resources with very few good substitutes.

it is sometimes inefficient to have competition in certain markets.

it increases both producer and consumer surplus.

Question 29

2. X-inefficiency implies:

the practice of using less than the optimal amount of inputs for production.

the practice of using the lowest quantity of input to produce maximum output.

always producing less than the optimal amount of output.

excessive use of inputs relative to best-practice methods.

Question 30

2. When a monopolist’s marginal cost of production is zero:

the deadweight loss is reduced.

production is lower than if marginal cost were positive.

the price charged is higher than if marginal cost were positive.

maximizing profit is same as maximizing revenue.

ECO 550 Week 5 DQ1

Week 5 DQ1

From the e-Activity, explicate the five competitive forces that shape strategy. Then,
determine which of the five competitive forces has the most significant impact on strategy
in general. Support your response with evidence or examples.

ECO 550 Week 5 DQ2

Week 5 DQ2

With the same small business from the first discussion in mind, describe the best possible
merger or agreement to grow your company and maximize profits. Explain your rationale.

Again, with the same company in mind, discuss the most effective way to sustain and
extend a competitive advantage. Provide specific examples to support your response.



2. Like supermarkets, full-service department stores like Macy’s are generally in decline. What
factors might these types of stores have in common behind their declines? How would you
determine which were important and which were not?


For Figure 8-9, demand with zero transaction costs is and supply to 7 + 2p. a.Verify all of
the prices and quantities calculated in the discussion b. Now assume that intermediaries
come from a competitive market with an equilibrium price of $8 per unit for their services,
that is, any buyer or seller who wants an intermediary’s services must pay $8 for them.
What is the maximum per unit that sellers are willing to pay intermediaries if hiring them
saves buyers $8 in transaction costs? c. Does your answer to Question 16a change if buyers
pay $8 per unit to the intermediary but sellers offer to rebate part of that expense to
buyers?

ECO 550 Week 5 Midterm Quiz
The different methods by which the sellers inform their potential buyers about the product is
called Jane regularly sends funds to organizations seeking to save endangered animal species.
This is an example of: Carla had received very low annual return from her investment portfolio
comprising of stocks of five companies for two years. Her decision to continue holding the same
portfolio of assets will be an example of In the example of Ireland described in the text, the
country’s production set shifted outward over time because Suppose Zia spends her time picking
berries and apples. Her production set is described by the equation , where is the number of
berries and y
the number of apples. Which of the following statements will be true? When the slope of a
country’s production set declines, it implies: Bankers supported the Federal Reserve Board’s

Regulation Q because Suppose the adoption of a new software reduces the marginal cost of
publishing books. For a given demand curve for books, this will be represented by Starting from
a pure exchange equilibrium, an increase in the demand for a commodity will result in Let the
marginal product of capital (MPK ) be 6; the marginal product of labor (MPL) be 2; the price of
labor is given by $10. What will be the price of capital such that the isocost and the isoquant are
tangent to each other Which of the following is a property of an isoquant? Refer to Figure 4-1. If
the firm produces 2,000 dolls per month when the market price is $4:

Figure 4-1
The following figure shows the marginal cost curve (MC) for a firm producing fancy dolls for
children. The market price for a doll is $4 per unit. Refer to Figure 5-1. Which of the following
points represents the long-run equilibrium price-output combination?

In the figure given below MC denotes the marginal cost and AC denotes the average cost of a
firm under perfect competition.
Figure 5-1 Which of the following conditions define the short-run for any industry Suppose beer
producers in Munich became aware of the low price of one barrel of beer in the domestic market
relative to that in the United States. What will be the impact of this price difference? Refer to
Figure 6-2. What would be the consumer surplus if this remained a perfectly competitive
market?

A group of firms in competitive market produced 20 units of a good when the market price was
$2. They incurred no marginal cost. Eventually they realized the benefits they could get by
teaming up and acting as a monopolist. The following figure shows the demand curve and
marginal revenue curve for this profit maximizing monopolist.
Figure 6-2 Refer to Figure 6-4. Calculate the profit earned by the monopolist when the marginal
cost of production is $15 per unit.

The following figure depicts the demand, marginal revenue (MR), and marginal cost (MC) for a
monopolist.
Figure 6-4 Which of the following is a possible explanation for the fall in prices after an industry
is monopolized by combining a group of competitors Refer to Figure 4-2. Identify the supply
curve of the firm.

Figure 4-2
The following figure shows the cost curves of a firm producing good X. High barriers to entry
protect the market power of existing firms and discourage the formation of firms which The
principle of backward induction proves that in price-fixing oligopoly games Refer to Figure 7-1.
What will be the dominant firm’s profit maximizing output?

The figure given below represents the total output and price produced in an oligopoly market
characterized by a dominant firm and a fringe. SF represents the supply curve of the fringe, D is
the market demand curve, DRES represents the residual demand curve of the dominant firm,
MRRES represents the residual marginal revenue curve of the dominant firm, and MCD
represents the marginal cost of the dominant firm.
Figure 7-1 In a mixed strategy situation, like the “heads or tails” game, the players can maximize

their income by randomly choosing head or tail each with a probability of: Refer to Table 7-3.
What will be the Nash equilibrium if there is no interaction between the two students?

The following matrix represents the payoffs to two students who have been caught cheating in a
class. Which of the following games will have a solution in mixed strategies

ECO 550 Week 6 DQ1

Week 6 DQ 1

"The Economics of Contracts"

Please respond to the following:

From the e-Activity, discuss ways that one party or the other could leverage a specific
“opportunism.” Provide specific examples to support your response.

Discuss a situation in which both parties entering into a contract could benefit from slightly
ambiguous language contained in the contract. Provide specific examples to support your
response.

ECO 550 Week 6 DQ2

Week 6 DQ 2

"Property and Contracts"


Analyze the various ways in which property rights encourage economic development and
make at least one recommendation for improving current laws. Explain your rationale.

Based on the possible beneficial externalities from college education, argue for whether or
not a case exists for public funding of college education. Explain your rationale.



Week 6 chapter 9 question 6

What are the highest and lowest payments from the writer that the beekeeper–

farmer team will accept for the sixth day? Assuming that the farmer can dispose of

$7 from the writer as she wishes, what range of payments will the beekeeper

accept? Assuming that the beekeeper gets that amount, what range of payments

will the farmer accept? (Remember that negative payments are also possible.)


13. Some fields have large enough quantities of both oil and natural gas that

coordination must be achieved for the production of both, rather than oil alone as in

our examples. Will fields with both oil and gas have greater difficulties in unitization

than fields with oil or gas alone? Explain. (Hint: Look closely at Figure 9-2.)


2. Why might a parent company like McDonalds or Hilton choose to franchise its local
outlets rather than own them and staff them with employees? In many smaller cities all
McDonald’s outlets are owned by the same franchisee. Why is (or isn’t) this fact consistent
with our discussion of specific investments?


11. Every so often, a disgruntled college graduate sues her school on grounds that her
tuition payments did not land her the good job she was expecting when she started there.
Courts invariably throw out cases like hers. They are, however, willing to entertain suits
against trade schools (those that teach skills such as welding and computer repair) by
graduates who make the same claims about inability to qualify for jobs that use the skills
they learned in them. Why the difference?

ECO 550 Week 6 Quiz


Question 1

1. In a market characterized by many sellers, if an outsider devises a way to reduce transaction
costs it will:

benefit both buyers and sellers.

cause both buyers and sellers to lose.

benefit the buyers but cause the sellers to lose.

benefit the sellers but cause the buyers to lose.

Question 2

1. If two small perfectly competitive firms merge, the merged firm will be:

a price-taker.

a market leader.

a price-discriminator.

an oligopoly.

Question 3

1. Refer to Figure 8-2. Suppose the adoption of a new technology lowers the cost of production
while the buyer’s valuation remains unchanged. Which of the following changes will be
observed by the firm?

The figure given below represents a firm in a market characterized by many buyers and one
seller. MC represents the marginal cost, MR the marginal revenue, and D the demand curve of a
firm. The firm is initially in equilibrium producing 6 units of output at a price of $10 per unit.
Figure 8-2

The demand curve for its product will shift to the left.

The marginal cost curve will shift downward.

The equilibrium output of the firm will fall below 6 units.

The marginal revenue curve will shift downward.

Question 4

1. Under which of the following situations would a seller prefer to incur the cost of improving
the product quality?

If the increase in buyer’s valuation for the improved product is higher than the cost of improving
it.

If the increase in the seller’s opportunity cost of improving the product is higher than the price of
the product.

If the product improvement lowers the producer surplus.

If the product improvement allows the seller to a break even.

Question 5

1. A firm’s resource at a given point in time can be defined as:

those investments made by it in profitable organizations.

those tangible and intangible assets attached to it semi permanently.

its ability to control the market price.

its lobbying ability built over years of experience.

Question 6

1. Refer to Figure 8-3. Suppose the seller incurs an additional cost of $1 per unit of output to
reduce the transaction costs of the buyers to zero. How will the profit earned by the seller
change?

The figure given below represents a firm in a market characterized by many buyers and one
seller. MC is the initial marginal cost of the seller. MC' denotes the marginal cost inclusive of the
$1 transaction cost. On the other hand, buyers incur a transaction cost worth $2 represented by
the vertical distance between D and D'. MR and MR' represent the marginal revenue curve
corresponding to the demand curves D and D' respectively.
Figure 8-3

The firm’s profit will increase by $0.62.

The firm’s profit will increase by $2.6.

The firm’s profit will remain unchanged.

The firm’s profit will decrease by $6.2.

Question 7

1. Which of the following activities undertaken by a competitive firm can improve its public
relations?

Investing in assets that cannot easily be redeployed to other uses or locations.

Donating a portion of its annual profit to hurricane affected families

Providing good quality products at a high price.

Investing in in-house research

Question 8

1. Refer to Figure 8-5. Calculate the value of the deadweight loss resulting from the horizontal
merger?

The figure given below represents a perfectly competitive market in long-run equilibrium. LRS
represents the long-run supply curve of this market with demand (D) and price $50. When two
large firms merge, output declines to 400 units and per unit production cost drops to $30.
Figure 8-5

$800

$600

$400

$300

Question 9

1. Suppose the cost of producing cellular phones declines from $25 to $20. If buyers’ valuations
remain fixed at $30, the transaction would create _____ more economic value.

$10

$5

$2

$15

Question 10

1. Which of the following is an example of a one-time investment made by a seller to reduce the
transaction cost on all units of output?

Providing customers a wide range of products

Hiring a distribution agency

Merging with its rival brand

Creating a brand name which signals quality

Question 11

1. Temporary discounts offered to customers by competitive retailers usually reflect:

output rationing.

a rise in market demand.

price discrimination.

a fall in input prices.

Question 12

1. Refer to Figure 8-6. Determine the profit earned by the perfume monopolist if it chooses to
hire a retailer for selling its product.

The figure given below represents a monopoly firm producing perfume with downward sloping
demand and marginal revenue (MR) curves. The products of this firm are sold in the competitive
market by a retailer. Among the horizontal lines in the figure:
A - represents the marginal cost of per unit perfume production
B - represents the marginal cost of an independent perfume retailer
C - represents the sum of A and B
D - represents the marginal cost of the perfume monopolist for retailing its own output
E - represents the sum of A and D.
Figure 8-6

$2.7

$6.5

$5.5

$2.4

Question 13

1. Under a _____, the assets of two firms that operate in the same market are put under a single
ownership.

vertical merger

horizontal merger

vertical acquisition

horizontal acquisition

Question 14

1. Wal-Mart’s store managers have the authority to stock items and price them to satisfy
localized demand. Which of the following properties of this retail store is illustrated here?

Relationship with employees

Regional relationships

Centralized decision making

Decentralized decision making

Question 15

1. Which of the following industries can create barriers to the entry of new firms due to size and
specificity?

A hydroelectric power plant

A garment manufacturer exporting apparels

An owner of a retail chain

An automobile manufacturing company

ECO 550 Week 7 DQ1

Week 7 DQ1

From the e-Activity, propose a methodology for assessing the risk in business contracts

ECO 550 Week 7 DQ2

Week 7 DQ2

Analyze the potential downfalls of any team effort (e.g., free riders) and make at least one
recommendation for minimizing risk. Provide specific examples to support your response.

Describe a company you would like to start and determine which form of ownership would
be most appropriate given your current financial status. Explain your rationale.



1. Why does the assumption of independence of risks matter in the examples of insurance?
What would happen to premiums if the probabilities of houses burning were positively
correlated? Can you think of a situation where they might be negatively correlated?


Small firms can discover the abilities of their workers more quickly than large ones
because they can observe the workers more closely at a variety of tasks. Does it then make
sense for people with high abilities to go to small firms? Give some reasons why and some
reasons why not.


4. In some ways monitoring is easier in a partnership than a corporation, where
shareholders monitor directors. In what ways is monitoring easier? In what ways is it
not?


11. A friend convinces you that she has a great idea for a business, and the two of you
incorporate. You supply her with funds and let her make all of the executive decisions.
Under the agreement you hold 30 percent of the firm’s stock and your friend holds 70

percent. Why should you ever put yourself into a position where your friend’s decision will
carry the day, whether you agree with her or not? What does this tell you about problems
that allegedly stem from separation of ownership and control?

ECO 550 Week 7 Quiz

Question 1

1. Which of the following remedies can be used to prevent the beekeeper and the farmer from
breaking the contract?

Separating the ownership and management of the bees and trees.

Merging the ownership and management of the bees and the trees.

Providing the farmer a larger share of the net benefit received from the contract.

Providing the bee keeper a larger share of the net benefit received from the contract.

Question 2

1. Which of the following exemplifies inefficient legal assignment of rights with high
transaction costs?

Agreement between an orchard farmer and a beekeeper.

LoJack installation in cars to prevent car theft.

The Huntington Beach oil wells.

Installation of smog control in cars.

Question 3

1. Which of the following is an aim of a price-fixing agreement?

Reducing entry barriers

Increasing profit

Reducing price

Increasing demand

Question 4

1. How can the government cut the cost of negotiation among car owners regarding LoJack
installation?

The government can impose a quota on the import of LoJacks.

The government can invite public opinion on LoJacks.

The government can limit the number of companies producing LoJacks.

The government can randomly select cars to install LoJacks.

Question 5

1. Which of the following was an outcome of uncoordinated oil drilling in Huntington Beach,
California? Answer

The entire oil present underground had been extracted within few years.

Underground oil pressure had increased due to excessive drilling leading to an oil spill into the
adjacent sea.

A majority of the oil could not be drilled out as low underground pressure prevented oil from
reaching the surface.

The oil belt suffered frequent earthquakes as excessive drilling had loosened the soil bonding.

Question 6

1. Which of the following is a new law on fishing imposed by the government to increase the
total supply of fish?

Holders of fishing rights are not allowed to resell them to others.

Governments have issued licenses that limit catches and fishing seasons.

Quotas have enforced higher catches in coastal areas.

Governments around the world have reduced their offshore jurisdictions.

Question 7

1. In a society, if negotiation among parties leads to a politically unsatisfactory distribution of
income:

the legislature can enact laws to redistribute this income.

the society can on its own reallocate resources to bring about a politically satisfactory outcome.

the parties will renegotiate until they reach a politically satisfactory outcome.

the parties will refuse to carry out future transactions.

Question 8

1. Government has the power to reduce the _____ associated with air pollution by automobiles
because it can force changes in car design, can impose taxes on drivers, and has the power to
punish those who fail to comply.Answer

private cost

transaction cost

opportunity cost

positive externality

Question 9

1. Assume that the market for executive travel is perfectly competitive. If the availability of
time-sharing reduces transaction costs and the owner’s cost of negotiating for a single trip, which
of the following situations must occur?

The hours of flight available will increase.

The hours of flight available will decrease.

The cost of flying will remain steady.

The cost of flying will increase.

Question 10

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.

high; increase

low; increase

high, decrease

low; decrease

Question 11

1. According to Coasian reasoning, if negotiation is costless:Answer

irrespective of the initial distribution of rights, the efficient outcome will minimize the net
benefit of the group.

the efficient outcome will minimize the net benefit of the individual who has more rights
compared to the others in the group.

irrespective of the initial distribution of rights, the efficient outcome will maximize the net
benefit of the group.

the efficient outcome will maximize the net benefit of the individual who has more rights
compared to the others in a group.

Question 12

1. According to economists, an individual who tries to derive utility from the consumption of a
good without paying for it is called:Answer

a utility maximizer.

a free rider.

an opportunist.

a profit maximizer.

Question 13

1. Inclusive property rights provide an investor:Answer

more options and greater incentives to avoid inefficient choices.

an insight to future earnings and revenue generation.

a definite return on the investment.

cost effective techniques of production leading to economies of scale.

Question 14

1. The cash or concessions present in contract terms that parties agree to in order to share risks
are called: Answer

quid pro quos.

property rights.

flexible takes.

contract prices.

Question 15

1. Which of the following is an example of an obligation associated with a right?Answer

Providing adequate notice period to your tenants to vacate your house.

Allowing your kids to play with other children in the neighborhood.

Allowing neighbors to use your lawn to maintain healthy public relations.

Providing proper education and adequate nutrition to your children.

Top of Form 1

Question 16

2. A travel agency enters into a contract with a hotel chain which gives it priority access to 25
percent of its rooms in major tourist destinations throughout the year. The contract encourages
the hotel chain to increase the number of rooms in each of these hotels. The investment made by
the hotel chain corresponds to which of the following aspects of specificity?

Task specificity

Locational specificity

Dedicated specificity

Human specificity

Question 17

2. If parties to a contract can anticipate the court’s decision in the event of a dispute with some
degree of certainty:

opportunistic behavior will never be detected.

opportunistic behavior will be partially detected.

there will be less room for opportunism.

only one of the parties will be able to act opportunistically.

Question 18

2. 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

$22

$20

$28

$32

Question 19

2. Fixing a payment schedule in an agreement:

allows the seller to easily access loanable funds.

increases the uncertainty associated with the cost of production.

allows the seller to charge a high price for his product.

ensures the delivery of goods at a high price.

Question 20

2. Which of the following can be classified as a highly specific asset?

A country’s soldiers

A wind turbine in an installation that produces "renewable" electricity

A cattle farm

A cruise ship

Question 21

2. Suppose Jonah and Carlos have a contract, which Carlos chooses to breach. Jonah sues, and a
court orders Carlos to pay him the amount he expected to gain at the time they made the contract,
net of any amount he actually did receive after the breach. The form of payment which the court
specifies in this example is called:

a contingent fee.

a specific performance.

a capitation.

expectation damages.

Question 22

2. Which of the following is a legal remedy for a breach of the contract between parties?

Liquidated damages

Imprisonment

Unitization

Specificity

Question 23

2. Refer to Table 10-1. Under expectation damages, Frasel’s breach of the contract would lower
his net payoff to:

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

$6.

$8.

$16.

$10.

Question 24

2. _____ is an example of human specificity which raises the risks associated with opportunism.

Car insurance purchased by an individual for his/her favorite car.

Investment of an employer in company-specific skills.

Purchasing immovable machines for a particular facility.

Investment in research and development

Question 25

2. Escalators present in a contract must state:

at what interval the contract price should automatically change at a fixed rate.

when the price will change and by what formula the new price will be calculated.

when the contract should be terminated and how the cost of termination should be shared.

when the contract should be renewed and the terms governing the renewal.

Question 26

2. Which of the following will be an efficient payment scheme for a defendant’s attorney, who
is experienced in handling similar cases in the past?

Contingency fees

Capitation fees

Hourly billing

Quality based billing

Question 27

2. A payment arrangement between an attorney and a plaintiff, in which the plaintiff agrees to
pay a certain lump-sum amount at the outset and no more in the future, regardless of how the
case develops is called:

contingency fees.

capitation fees.

liquidation.

one-time settlement.

Question 28

2. Which of the following examples can be associated with the task specificity aspect of an
asset?

An employer’s investment in employee skill building.

Purchasing machines which can be used to produce only a particular product.

Building a facility in a low cost locality.

An employer’s investment in office renovation.

Question 29

2. _____ is a contract that specifies actions to be taken if various situations come to prevail.

An insurance policy

Contingency

Unitization

An escalator

Question 30

2. Which of the following may require the parties to renegotiate certain parts of a contract if
market conditions change drastically?Answer

Termination clause

Omnibus clause

Adjustment clause

Reopener clause

Bottom of Form 1

ECO 550 Week 8 Assignment 2 Expansion
and Merger

Assignment 2: Expansion and Merger
Due Week 8 and worth 200 points This paper is a continuation of Assignment 1. Assume that
the industry you wrote about in Assignment 1 wants to expand and that its only option is a
merger. Now the industry is confronted with government regulations to oversee the merger.
Write a four to five (4–5) page paper in which you:

Explain why government regulation is needed, citing the major reasons for government
involvement in a market economy. Justify the rationale for the intervention of government in the
market process in the U.S. Assuming that the merger faces some threats and that the industry
decides on self-expansion as an alternative strategy, describe the additional complexities that
would arise under this new scenario of expansion via capital projects. Analyze how the different
forces will come together to create a convergence between the interests of stockholders and
managers. Speculate about the implications for the goals of the firm as to whether to maximize
the industry’s profits or to create more value for the shareholders. Use at least three (3) high-
quality academic resources in this assignment.
Note: Wikipedia and other Websites do not qualify as academic resources.

ECO 550 Week 8 DQ1

Week 8 DQ1

Discuss how a company could benefit from either centralization or decentralization.
Explain your rationale.

ECO 550 Week 8 DQ2

Week 8 DQ2

Select a large U-form or M-form organization and describe how it would be different if it
switched form (i.e., a U-form organization switching to an M-form, or an M-form
organization switching to a U-form).



Even before the metals and manufacturing companies described earlier, U.S. railroads in
the nineteenth century were M-form organizations based on geography. Why might a large
railroad be better organized as M-form than U-form?


11. Your university is probably an M-form organization. Its president administers schools,
for example, a college of business and a college of liberal arts, the college of business. Each
of these in turn has a dean who is responsible for faculty departments such as economics
and finance. Why is an M-form more likely than a U-form to be an efficient way of
organizing a university and to organize the schools within it?

In most universities faculty with specialized interests will often attempt to break off from
existing departments and form ones devoted to their own specialties. Do you expect that
this will produce an inefficiently large number of departments? Why do you expect that
pressure by employees to form fragmented departments will be a smaller problem in for-
profit corporations than in nonprofit or governmental universities?

Week 8 chapter 14 question 12

12. A small-volume foreign auto maker limits the number of its franchised dealers in the
United States and gives them exclusive territories. There are also non-dealers who have no
official connection with the manufacturer. They buy its cars overseas and sell them in the
United States, a phenomenon sometimes called a “gray market.”& nbsp;If you are a
manufacturer do you necessarily want the gray market to cease to exist? Why or why not?
How about if you are a franchised dealer?

ECO 550 Week 8 Quiz

Question 1

1. People’s abilities to bear risk increases with:

their abilities to understand the market.

their abilities to diversify their asset holdings.

their abilities to invest in risky assets over a large time period.

their abilities to judge the probability of outcomes.

Question 2

1. Which of the following actions can prevent migration of individuals from one health
insurance policy to another?

Lowering the opportunity costs of switching from one policy to another.

Fixing a uniform premium rate for all individuals under one type of policy.

Conducting an interview of the people before placing them under different policies.

Setting up a norm requiring all individuals to purchase the same coverage.

Question 3

1. In a principal/agent relationship, _____ can help to reduce the damage caused by a winner’s
curse, provided both the parties are well-informed.

signals

warranties

disclosure

renegotiation

Question 4

1. Which of following provisions in an insurance policy may be economically efficient if policy
holders can control small claims but not large ones?

Vigilance provision

Non-price exceptions

Co-payment provisions

Liquidated damages

Question 5

1. Which of the following is an example of a moral hazard?

A student committing suicide after failing in an examination.

A housekeeper leaving a house unlocked after insuring it against burglary.

An exporter delivering faulty products after receiving a certain fraction of the total payment.

A person deriving utility from a commodity without paying for it.

Question 6

1. Which of the following is a possible result of adverse selection?

Only lemons remain in the market for used cars.

A store manager shirks his responsibility because his supervisor is not present at all times.

A car mechanic does not bother to properly fix the customers' cars when his work cannot be
monitored.

Many people selling their houses at very low prices expecting prices to decline further.

Question 7

1. Which of the following practices of insurers deter moral hazard?

Setting a uniform premium structure.

Requiring people to purchase the same coverage.

Arranging for reinsurance to cut the risk of unexpectedly large claims.

Conducting security checks without notice and terminating the policy whenever required.

Question 8

1. Which of the following is an example of a non-price provision in an automobile insurance
contract that can reduce moral hazard?

A provision specifying that coverage is limited to 75 percent of the total damages caused by an
accident.

A provision that disallows medical claims by drunk drivers involved in accidents.

A provision that restricts accident compensation to claims over $1,000.

A provision requiring that the insured car carry certain safety devices like air bags.

Question 9

1. DTC contracts which prohibit buyers from inspecting diamonds in advance help to minimize:

the problem of moral hazard.

the cost of gathering duplicative information.

the problem of adverse selection.

the winner’s curse.

Question 10

1. Which of the following is an example of incomplete information?

A seller losing out on profits because the market price rises above the pre-contracted price.

An insurer refuses to bear the complete cost of a treatment.

An insured car driver driving carelessly on the highway.

A new household appliance starts malfunctioning after two weeks.

Question 11

1. An insured person’s incentive to behave in ways that raise the probability of a claim is known
as:

a moral hazard.

the lemons problem.

the problem of adverse selection.

the problem of advantageous selection.

Question 12

1. The effects of asymmetric information in the car market can be weakened by:

providing a warranty for the product.

purchasing business interruption insurance.

inserting a “buyer beware” clause in the agreement.

buying a “put” option.

Question 13

1. Which of the following risks will always be insured in a business?

Bad debts recorded in the company accounts

Vital inputs required for daily production

High-end technology based products

Inventory stocked up in the storehouses.

Question 14

1. ______ provisions in an insurance policy stipulate that it will pay only a certain percentage of
losses claimed by the insured.

Vigilance

Co-payment

Non-price exception

Deductible

Question 15

1. If a purchase contract allows a buyer to accept less than a specified maximum "take" each
month, buying a _____ would allow the seller to resell the excess at a _____ price.

put option; profitable

put option; predictable

call option; predictable

call option; profitable

Question 16

2. Independent workers using specialized capital save the costs of contracting but risk:

generalization.

opportunism.

inefficiency.

over-utilization.

Question 17

2. A person acting as a supervisor as well as a residual claimant:

attempts to make value-maximizing investment decisions.

aims to maximize a firm’s sales.

facilitates maximum investment in capital goods.

reduces risk of opportunism.

Question 18

2. Which of the following is an example of an institutional investor?

A large pension fund

A person who buys stocks for his portfolio

A company that invests millions in a new product

A dealer who buys a painting expecting huge returns

Question 19

2. If the owners of different types of resources, which are combined to produce an output, agree
on organizational relationships that define their responsibilities toward one another they have
formed a _____.

group

company

distribution network

team

Question 20

2. Assets whose returns have a high positive correlation are considered:

highly risky compared with those whose returns have lower or negative correlations..

completely risk free.

less risky compared to those which have a low positive correlation.

partially risky.

Question 21

2. Directors can make opportunistic choices to advance their personal interest when:

they plan to sell off the corporation stocks at inflated prices.

they hold majority of the stocks in the corporation.

they are aware that the cost of forming a new board of directors is high.

their personal returns from the well being of the corporation is high.

Question 22

2. A sole proprietorship is characterized by:

separation of ownership and management.

mutual agency.

existence of multiple contracts.

unlimited liability.

Question 23

2. In a _____ the outsider buys the shares with debt collateralized by its other assets, and
sometimes also by the target’s assets.

merger

cash tender

proxy fight

leveraged buyout

Question 24

2. Creditors supply loans to sole proprietors at a high rate of interest because of:

their low profit expectancy from this business.

frequent experience of loan default.

their inability to call in their loans or sell them to others.

their general risk-averse nature.

Question 25

2. A _____ requires workers to comply with orders from a boss, who need not consult them
when making decisions, and to be paid for their cooperation.

residual claimant

hierarchy

shareholder

cooperative

Question 26

2. A _____ generally has less understanding of the firm than a manager and has little knowledge
that is likely to improve the quality of the manager’s choices.

specialized residual claimant

diversified residual claimant

diversified hierarchy

specialized hierarchy

Question 27

2. When a large shareholder or a group solicits vote for a slate of directors that it has proposed
as an alternative to candidates endorsed by the current board, a(n) _____ takes place.

acquisition

proxy fight

merger

leveraged buyout

Question 28

2. Which of the following is an advantage of having centralized ownership and responsibility for
capital goods?

It allows firms to avoid the depreciation cost of capital equipment.

It increases the capital per worker ratio.

It spreads the investment risk associated with acquisition of capital goods.

It resolves the problem of continuity.

Question 29

2. Which of the following could a corporation use to raise its initial operating capital?

Government loans with low interest rates

Mortgages from banks

Public offering of stock

Loans from the informal market at a high rate of interest

Question 30

2. A person who performs supervisory activities will also be a _____ if she/he is financially
responsible for investment and other contracted decisions.

residual claimant

director

shareholder

financial advisor



Devise a hypothetical business situation in which buying a lookback call option on a
commodity may be a sound strategy for you. How about a down-and-out call option?


2. How does your VMP change if the employer is a monopolist producer of its output but a
price-taker in the labor market?


19 Most restaurant customer tip according to a percentage rule-between 15 and 25 percent
of the bill. Diners who have dinner and a $20 bottle of wine usually pay the same
percentage of the bottle price as diners who order a $100 bottle. Why, when the same
efforts must be made to uncork and pour both bottles?


Lenders perceive that you are risky, so you must pay 12 percent annual interest to borrow
from one of them. You only receive 6 percent on funds you have deposited in the bank. Do
the opportunity costs of borrowing and using your own funds differ in this example?
Explain why or why not.

ECO 550 Week 9 Quiz

Question 1

1. The following is an organization chart depicting a single row of individuals A, B, and C.
Figure 13-1

Identify the statement which is true of the organization depicted in this figure? Answer

There is a strong linkage between the individuals represented in the chart.

It is a sole proprietorship firm.

The above organization chart depicts a U-form firm.

Team production is unimportant in this organization.

Question 2

1. In which of the following cases will centralization of decision making be appropriate?

When different departments in an organization function separately without much interrelation.

When information necessary for the decision making process originates from a variety of
sources.

When the organization expands in size and its activities become more complex.

When all the information comes from an external source.

Question 3

1. Refer to Figure 13-2. Identify the structure of Z Corp.

The following is the organization chart of Z Corp.
Figure 13-2

U-form

M-form

Mixed organization

Matrix organization

Question 4

1. When each box in an organization chart contains individuals who specialize in some field,
then the activities in the organization are categorized by _____.

divisionalization

functionalization

decentralization

de-integration

Question 5

1. One of the disadvantages of an organization which has a matrix structure is that:

each individual reports to one boss, causing excess flow of information to one individual.

flow of information is difficult when operations are so highly diversified.

each individual has two bosses whose interests may not be aligned.

there are limits to the information a firm’s headquarters can use effectively in making decisions.

Question 6

1. Which of the following was a consequence of the financial revolution which drastically
changed risk management in the 1970s?

Managements created separate categories for handling different types of risks.

A group of specialists were created who handled risk assessment for the entire organization and
reported only to headquarters.

Risk analysis was decentralized by concentrating on risks at the division-level.

It became easier to assess market risk with the introduction of various new tools of financial
management.

Question 7

1. The late business historian Alfred Chandler blamed Britain’s competitive difficulties in the
early twentieth century on:

the structure of the firms.

the removal of trade barriers.

the lack of innovation.

inefficient transfer of information within firms.

Question 8

1. Orders can lose accuracy:

if they are too complicated.

as they are transmitted within the organization.

in organizations where decision-making is decentralized.

unless they are given to the right recipient.

Question 9

1. Joanne can choose to selectively disclose information to her superiors in an attempt to elicit
decisions in her favor if:

the information is easily available to all.

she is the only source of the information concerned.

the information is easily verifiable.

there are other sources of the same information in the firm.

Question 10

1. The information to be gathered for a decision depends on which of the following?

The current market conditions and on the expected costs and benefits of acquiring the
information.

The model that underlies a decision and on the expected costs and benefits of acquiring the
information.

The cost of the information and the current market conditions.

The model that underlies a decision and the amount of information that is internally available.

Question 11

1. Categorization of activities in an organization along product or geographic lines is called:

globalization.

decentralization.

functionalization.

divisionalization.

Question 12

1. Axis Group has a publishing house, operates in the sports gear market, and owns a coffee
plantation. A board of directors is responsible for the overall performance of the group. Identify
the correct statement from the following.

The board will be responsible for all decision-making process.

The board will be in the best position to solve even a minor problem at the coffee plantation.

The sports gear firm’s risk assessment team will also be responsible for assessing market risk for
the group’s other functional areas.

Decisions for the publishing house are likely to be taken by the individuals who head it, rather
than the board of directors heading the entire group.

Question 13

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.

Corporation

A firm where decision-making is centralized

Sole proprietorship

A firm where there is separation of ownership and management

Question 14

1. General Motors was able to gain advantage over Ford in the 1920s primarily because:

the latter failed to adapt its product policy and organization structure to meet the demands of the
changing market.

the former had always been an M-form and better managed organization.

the latter charged higher prices for its cars than General Motors.

the former was vertically integrated with better control over its input production than Ford.

Question 15

1. The method of payment that a principal can use to elicit effort from an agent is called:

a contract.

an order.

an incentive.

garbling.

Question 16

2. _____, uncertainty, and risk of opportunism are the three major reasons due to which U.S.
Steel prefers to own its mines, enrichment facilities, and ore carriers.

Involuntary transactions

Transaction costs

Nonspecificity of assets

Trademark and credibility

Question 17

2. If there is a low degree of uncertainty combined with a low degree of asset specificity, _____
will be efficient.

long-term contracts

short-term contracts

market transactions

vertical integration

Question 18

2. Which of the following exemplifies an opportunistic behavior by a franchisor arising out of
incompleteness or ambiguity in a contract?

Providing inferior service in an attempt to cut operating costs.

Terminating a well-operated franchisee and converting the establishment into a profitable
company-owned outlet.

Fixing exorbitant prices for products having relatively elastic demand.

Terminating a franchisee who had been using the company brand name to endorse products that
the agreement says it cannot.

Question 19

2. Firms generally prefer not to outsource product design and manufacturing because:

these activities are common and standardized.

these operations are more or less static.

these operations involve a low investment.

these operations require investment in highly specific assets.

Question 20

2. _____ increases with the variability of outcomes and the underlying degree of randomness in
the environment that can affect a business relationship.

The problem of double marginalization

Asset specificity

Uncertainty

Volumetric interdependence

Question 21

2. The invention of the Bessemer converter in 1856:

increased the cost of continuous and coordinated operations of a steel industry.

motivated downstream integration of the steel industry into coal mining.

increased the efficient scale of steel production.

increased volumetric interdependence between different stages of steel production.

Question 22

2. _____ improves exchangeability, and reduces the cost of obtaining information about a good
and about the parties involved in the transaction.

De-integration

Outsourcing

Vertical integration

Standardization

Question 23

2. During the peak season, when demand for pipeline transport of natural gas at the maximum
legally allowable price exceeds the available capacity:

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.

Question 24

2. Which of the following is an advantage of mini-mills over vertically integrated giant mills?

The small size of mini-mills ensures economies of scale in steel production.

The small furnaces used in mini-mills depend less on coal and more on electricity.

The mini-mills do not require integration of casting and milling activities.

The small furnaces used by mini-mills can be operated as per the producer’s will.

Question 25

2. Identify the reason why U.S. Steel prefers to own iron ore mines.

It helps them to coordinate iron ore transport and furnace operations.

It reduces the company’s raw material costs.

It helps them to inspect the quality of the ore.

It reduces the competition the company faces in the world steel market.

Question 26

2. Which of the following transactions can be categorized as outsourcing?

A U.S. furniture manufacturer buying a lumber facility.

A U.S. firm transferring some of its operations to its new subsidiary in India.

Nike selling its sportswear to customers through its franchisees across the world.

A U.S. cosmetics firm using an advertising agency to market its products.

Question 27

2. In order to lessen the monitoring problems and opportunistic behavior of a franchisor and a
franchisee, franchise contracts:

create provisions for high liquidated damages.

are complete in all respect.

have similar fixed charge and royalty arrangements.

include certain flexible clauses.

Question 28

2. The arrival of inexpensive information technology, such as personal computers and
inexpensive telecommunications:

discouraged de-integration.

increased the optimal size of firms.

shifted the long-run average cost (LRAC) curve of firms downward.

shifted the marginal cost of firms upward.

Question 29

2. Although U.S. Steel is integrated into iron ore mining, it currently does not own any of the
mines that supply its coking coal because:

the company has a high requirement of coking coal which cannot be supplied by a single mine.

the coal prices are highly unpredictable and volatile.

there are a limited number of coal suppliers.

futures and options markets are available for coal.

Question 30

2. Which of the following exemplifies a vertical restraint imposed by a franchisor in a contract?

A clause prohibiting a franchisee from using the company trademark to support a political
candidate.

A clause prohibiting a franchisee from announcing special offers during Christmas to attract
customers.

A clause prohibiting a franchisee from bundling two products of the same company.

A clause stating the target sales to be achieved by the company during an accounting year.

ECO 550 Week 10 Assignment 4 Automotive
Production Levels

For this assignment, choose a major publicly traded automotive producer, such as General
Motors, Ford, Toyota, or Volkswagen. Then, research this company’s production and inventory
levels, and operational cost information, along with price and sales data for the most recent
quarter available.

Write a seven to nine (7-9) page paper in which you:

Create a demand supply analysis based on the data you collected on your chosen company’s
price and sales, which demonstrates the relationship between price and quantity demanded.
Determine the equilibrium price and quantity and explain its meaning to your chosen company.
Indicate how your chosen company’s management should use this information to make sound
strategic decisions. Calculate the elasticity of demand for your chosen company’s automobiles
(or choose a specific make / model). Interpret what the demand tells your chosen company’s
management team. Speculate what may happen to your chosen company’s specifically if the
elasticity of demand calculated above represented a competitor of your choice instead. Provide
support for your response. Create a cost analysis and graph. Include total cost, total variable
cost, marginal cost, and fixed costs, along with any other costs you believe are valuable to the
cost analysis. Create a total revenue schedule, marginal revenue schedule, and a graph
representing both. Interpret what the graph tells your chosen company’s management team.
Determine the profit maximizing level of output by assessing the actions your chosen company
should take if it is to continue to maximize profits. Assume your chosen company wants to
expand its operations which involve capital budget decisions. Recommend two (2) different and
appropriate cost-related tools. Provide support for your recommendation. Now, assume your
chosen company wants to expand its operations globally into a new market. Suggest two (2)
strategies the firm should consider. Provide support for your suggestions. Use at least three (3)
high-quality academic resources in this assignment. Note: Wikipedia and other Websites do not
qualify as academic resources

ECO 550 Week 10 DQ1

Week 10 DQ1

Bargaining Outcomes and Individual Preferences


Bargaining outcomes in a market-related situation are in general indeterminate and not obvious
to the parties in the negotiation. Develop a bargaining situation from which you would conclude
that access to market-related information does in fact affect the outcomes.

Using specific examples, evaluate the difficulty of accurately eliciting people’s preferences for
public goods.

ECO 550 Week 10 DQ2

Week 10 DQ2

Public versus Private Goods


Compare the feasibility and efficiency of producing public goods by tax dollars versus producing
them jointly with private funds. Support your argument with specific examples.

Speculate about why people in higher income groups vote for reasons that are borne out of a
sense of duty rather than from economic interests.



9. Is it possible that elementary education produces a public good but higher education
does not? Explain


12.We said that an uncrowded country club golf course has aspects of a public good. Why?
Is it still a public good if it becomes crowded and people’s games are slowed down?

ECO 550 Week 10 Quiz


1. Which of the following is a cost borne by an employee?

The cost incurred in looking for alternative job opportunities

A fall in overall productivity as a result of hiring the wrong person

The cost of training in the new firm

The cost of extra work done by existing employees due to an unfilled position

Question 2

1. An important distinction between the labor market and the market for commodities is:

that contracts are arrived at more easily in the former.

the individual attributes of the buyer and seller hold far more importance in the former case.

that it is impossible to prevent breach of contract in the labor market.

that the market for commodities is a matching market while the former is not.

Question 3

1. A written contract between an employer and an employee creates value as long as:

the benefits exceed the costs of forming and enforcing it.

the productivity of the employee is equivalent to the wage.

on-the-job learning is unimportant.

the relationship between the employer and the employee is short-term.

Question 4

1. Marginal product of labor is:

the extra output produced by an additional worker, all else unchanged.

the extra wage earned by an additional worker, all else unchanged.

the total output produced when an extra worker is hired.

the total revenue earned when an extra worker is hired.

Question 5

1. In competitive markets, the elasticity of labor supply is:

unrelated to time.

inversely proportional to time elapsed since a wage change.

unity.

directly proportional to time elapsed since a wage change.

Question 6

1. Opportunistic behavior on the part of the employer is possible because:

contracts are often incomplete and leave room for implicit understandings between the two
parties.

employees often reduce their effort level if they are important to the company.

it is difficult to monitor all employees and their performances.

good quality work can be easily measured.

Question 7

1. Which of the following events will cause a downward movement along the value of marginal
product of labor curve?

An increase in wage rate

An increase in price of the product

A decrease in wage rate

A decrease in price of the product

Question 8

1. _____ represents a firm’s demand curve for labor.

The value of marginal product

Marginal product

Marginal revenue curve

The horizontal line at the market wage rate

Question 9

1. Which of the following will have a downward impact on efficiency wages?

Low monitoring costs

Excess supply in the labor market

High equilibrium wage rate

Excess demand in the labor market

Question 10

1. Jason is a salesman who gets 40 percent of the revenue he generates for his company. This is
an example of payment by _____.

piece rent

fixed salary

executive compensation

share contract

Question 11

1. In long-term job attachments, a worker’s wage:

always exceeds his productivity.

always falls below his productivity.

is lower than his productivity at the beginning, then equals it, and then exceeds the same.

is higher than his productivity at the beginning, then equals it, and then falls below the same.

Question 12

1. A competitive firm hires workers as long as:

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.

Question 13

1. Influence cost is a type of _____ incurred while filling positions that have similar
responsibilities but carry different pay.

deadweight loss

opportunity cost

externality

social cost

Question 14

1. Assume that a firm is operating in the short run and all resources are fixed except for labor.
The total product curve for this firm will increase at a decreasing rate because:

value of marginal product of labor is unchanged as more labor is hired.

marginal product of labor will decline as more labor is hired.

value of marginal product of labor will increase as more labor is hired.

marginal product of labor is unchanged as more labor is hired.

Question 15

1. The general health of the population of a country improves as its medical support system
improves. Which of the following is a likely outcome of this?

Marginal product of labor will increase.

Value of marginal product of labor will fall.

The equilibrium wage rate will decline.

There will be excess supply of labor in the market.

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