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ECO MCQ Test 2 - 2015: Market Structures, Incentives, and Profit Maximization

A fully solved multiple-choice test covering key economic concepts, including market structures and profit strategies.

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    ECO MCQ TEST 2 2015 Report this Question as Inappropriate 1. Which of the following forms of payment is not an incentive plan? A. Commission plans for salesman B. Flat salary for a plant manager C. Bounses for managers that increase as profits increase D. None of the above 2. When relationship - specific exchange occurs in complex contractural environments, the best way to purchase inputs is through: A. Spot markets B. Vertical integration C. Short - term agency agreements D. Long - term contracts 3. Suppose compensation is given by W = 512,000 + 217X(Profits)+ 10.08S, where W = total compensation of the CEO, X = company profits (in millions) = $200, and S = Sales (in millions) = $400. How much will this CEO be compensated? A. $812,431 B. $43,400 C. $555,400 D. $559,432 4. Long - term contracts are not efficient if: A. A firm engages in relationship - specific exchange B. Specialized investments are unimportant C. The contractural environment is simple D. A and C, only 5. The solutions to the principal - agent problem ensures that the firm is operating A. On the production function B. Above the production function C. Below the production function D. Above the isoquant curve 6. Spot exchange typically involves

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    A. No transaction costs B. Some transaction costs C. Extremely high transaction costs D. Long - term contracts 7. Given that the income of franchise restaurant managers is directly tied to profits and the income of the manager of the company owned restaurant is paid a flat fee, we might expect profits to be A. Higher in company - owned restaurants B. Lower in company - owned restaurants C. Equal in both types of restaurants D. None of the above 8. Which of the following is not a benefit associated with producing inputs within a firm? A. Reductions in transaction costs B. Reductions in opportunism C. Gains of specializing D. Mitigation of hold - up problems 9. A firm=s average cost is $20 and it charges a price of $20. The Lerner index for this firm is: A. .20 B. .50 C. .33 D. Insufficient information 10. The concentration and Herfindahl indices computed by the US Bureau of Census must be interpreted with caution because: A. They overstate the actual level of concentration in markets served by foreign firms. B. They undersate the degree of concentration in local markets, such as the gas market. C. All of the above. D. None of the above. 11. Suppose that there are 2 industries, A and B. There are five firms in industry A with sales at $5 million, $2 million, $1 million, $ 1 million, and $1 million, respectively. There are 4 - firms in industry B with equal sales of $2.5 million for each firm. The firm concentration ratio for industry A is:

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