1. When there is an Equilibrium (or a Nash Equilibrium), we expect that:

once the firm’s get there, no one will change their strategy.

firms will tend to select a randomized strategy.

neither firm will care what it does.

this is always a dominated strategy.

2. In adopting mixed Nash equilibrium strategy, a player is attempting to

randomize his or her own behavior

make the opponent favor a course of action preferred by the first player

randomize the outcome of actions

make the opponent indifferent between one action and another

none of the above

3. Credible promises and hostage mechanisms can support a continuous stream of cooperative exchanges except when

the promisor is better off fulfilling than ignoring his promise

neither party has a prior dominant strategy

the hostage can be revoked for just causes

the hostage is more valuable than any given exchange

the hostage is difficult to replace

4. A dominant strategy differs from a Nash equilibrium strategy in that

Nash equilibrium strategy does not assume best reply responses

dominant strategy assumes best reply responses

only Nash strategy applies to simultaneous games

one dominant strategy is sufficient to predict behavior in a multi-person game

Nash strategy is often unique

5. Cooperation in repeated prisoner’s dilemma situations seems to be enhanced by all of the following except.

limited punishment schemes

clarity of conditional rewards

grim trigger strategy

provocabilityi.e., credible threats of punishment

tit for tat strategy

6. Electricity pricing that varies in its billing expense throughout the day is called

full pricing

marginal cost pricing

dynamic pricing

variable pricing

full cost pricing

7. Vacation tours to Europe invariably package visits to disparate regions: cities, mountains, and the seaside. Bundling, a type of second degree price discrimination, is most profitable when:

The preference rankings of vacationers travelling together are negatively correlated

A preference of cities is always higher than preferences for mountain vistas.

preference rankings of vacationers travelling together are positively correlated.

preference for the seaside is always higher than preferences for city excursions.

no one wants to take a European vacation package to cities, mountains, and the seaside.

8. Which of the following pricing policies best identifies when a product should be expanded, maintained, or discontinued?

full-cost pricing policy

target-pricing policy

marginal-pricing policy

market-share pricing policy

markup pricing policy

9. To maximize profits, a monopolist that engages in price discrimination must allocate output in such a way as to make identical the ____ in all markets.

Ratio of price to marginal cost

Ratio of marginal cost to marginal utility

Ratio of price to elasticity

Marginal revenue

None of the above

10. ____ is the price at which an intermediate good or service is transferred from the selling to the buying division within the same firm.

Incremental price

Marginal price

Full-cost price

Transfer price

None of the above

11. When retail bicycle dealers advertise and perform warranty repairs but do not deliver the personal selling message that Schwinn has designed as part of the marketing plan but cannot observe at less than prohibitive cost, the manufacturer has encountered a problem of ____.

Reliance relationship


Moral hazard

Creative ingenuity

Insurance reliance

12. When borrowers who do not intend to repay are able to hide their bad credit histories, a lender’s well-intentioned borrowers should

Complain to regulatory authorities

Withdraw their loan applications

Offer more collateral in exchange for lower interest charges

Divulge still more information on their loan applications

Hope for a pooling equilibrium

13. To accomplish its purpose a linear profit-sharing contract must

Induce the employee to moonlight

Communicate a code of conduct that will be monitored and enforced

Meet either the participation or the incentive compatibility constraint

Establish a separation equilibrium

Not realign incentives

14. To accomplish its purpose a linear profit-sharing contract must

15. When someone contracts to do a task but fails to put full effort into the performance of an agreement, yet the lack of effort is not independently verifiable, this lack of effort constitutes a

Breach of contractual obligations

Denial of good guarantee

Loss of reputation

Moral hazard

16. The Herfindahl-Hirschman index (also shortened to just the Herfindahl index) is a measure of ____.

Market concentration

Income distribution

Technological progressiveness

Price discrimination

None of the above

17. The antitrust laws regulate all of the following business decisions except ____.



Monopolistic practices

Price discrimination

Wage levels

18. The lower the barriers to entry and exit, the more nearly a market structure fits the ____ market model.

Monopolistic competition

Perfectly contestable



None of the above

19. ____ yields the same results as the theory of perfect competition, but requires substantially fewer assumptions than the perfectly competitive model.

Baumol’s sales maximization hypothesis

The Pareto optimality condition

The Cournot model

The theory of contestable markets

None of the above

20. ____ occurs whenever a third party receives or bears costs arising from an economic transaction in which the individual (or group) is not a direct participant.

Pecuniary benefits and costs



Monopoly costs and benefits

None of the above

21. Cost-benefit analysis is the public sector counterpart to ____ used in private, profit-oriented firms.

ratio analysis

break-even analysis

capital budgeting techniques

economic forecasting

none of the above

22. The weights used in calculating the firm’s weighted-average cost of capital are equal to the proportion of debt and equity ____.

used to finance the project

used to finance the projects undertaken last year

in the industry average capital structure

in the firm’s target capital structure

none of the above

23. In order to help assure that all relevant factors will be considered, the capital-expenditure selection process should include the following steps except:

generating alternative capital-investment project proposals

estimating cash flows for the project proposals

reviewing the investment projects after they have been implemented

allocate manpower to the various divisions within the firm

a and d

24. The social rate of discount is best approximated by:

the cost of government borrowing

the opportunity cost of resources taken from the private sector

3 percent

30 percent

none of the above

25. In the constant-growth dividend valuation model, the required rate of return on common stock (i.e., cost of equity capital) can be shown to be equal to the sum of the dividend yield plus the ____.


present value yield

risk-free rate

dividend growth rate

none of the above

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