Eco 550 final exam part 2 (new)


Question 1

In a game, a dominated strategy is one where:

It is always the best strategy

It is always the worst strategy

It is the strategy that is the best among the group of worst possible strategies.

Is sometimes the best and sometimes the worst strategy

Question 2

To trust a potential cooperator until the first defection and then never cooperate thereafter is

a dominant strategy

an irrational strategy

a grim trigger strategy

a non-cooperative finite game strategy

a subgame imperfect strategy

Question 3

A key to analyzing subgame perfect equilibrium strategy in sequential games is

predictable behavior

an explicit order of play for at least some participants

information sets that are known with certainty

credible threats clearly communicated


Question 4

When there is no Equilibrium (or no Nash Equilibrium), we expect that:

the firms end up in the cooperative strategy.

a firm will follow a randomized strategy.

a firm will not care what it does.

a firm will very likely have a dominant strategy.

Question 5

The Prisoner’s Dilemma involves two spies who are held in separate soundproof rooms.  But even if the two spies could communicate, what makes it difficult for them to achieve the cooperative solution (both not confessing)?

The problem is their lack of information.

The problem is that it is a nonzero sum game.

The problem is that both spies have incentives to double cross each other.

The problem is that all the outcomes are not particularly good for either player.

Question 6

The following are possible examples of price discrimination, EXCEPT:

prices in export markets are lower than for identical products in the domestic market.

senior citizens pay lower fares on public transportation than younger people at the same time.

a product sells at a higher price at location A than at location B, because transportation costs are higher from the factory to A.

subscription prices for a professional journal are higher when bought by a library than when bought by an individual.

Question 7

Third-degree price discrimination exists whenever:

the seller knows exactly how much each potential customer is willing to pay and will charge accordingly.

different prices are charged by blocks of services.

the seller can separate markets by geography, income, age, etc., and charge different prices to these different groups.

the seller will bargain with buyers in each of the markets to obtain the best possible price.

Question 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

Question 9

____ is a new product pricing strategy which results in a high initial product price. This price is reduced over time as demand at the higher price is satisfied.

Prestige pricing

Price lining


Incremental pricing

Question 10

Firms that have a cover charge for their customers and charge for each item they purchase as well are exhibiting

universal access price discrimination

declining block price discrimination.

mixed bundling price discrimination.

two-part price discrimination.

uniform pricing

Question 11

Which of the following is not among the functions of contract?

to provide incentives for efficient reliance

to reduce transaction costs

to discourage the development of asymmetric information

to provide risk allocation mechanisms

Question 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

Question 13

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 relationships


moral hazard

creative ingenuity

insurance reliance

Question. 14

Governance mechanisms are designed

to increase contracting costs

to resolve post-contractual opportunism

to enhance the flexibility of restrictive covenants

to replace insurance

Question 15

When manufacturers and distributors establish credible commitments to one another, they often employ

vertical requirements contracts

third-party monitoring

credible threat mechanisms

non-price tactics

Question 16

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

monopolistic competition

perfectly contestable



Question 17

____ 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

Question 18

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



monopolistic practices

price discrimination

wage levels

Question 19

The sentiment for increased deregulation in the late 1970’s and early 1980’s has been felt most significantly in the price regulation of





electric power generation

Question 20

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

market concentration

income distribution

technological progressiveness

price discrimination

Question 21

Capital expenditures:

are easily reversible

are forms of operating expenditures

Affect long-run future profitability

Involve only money, not machinery

Question 22

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

Question 23

Which of the following would not be classified as a capital expenditure for decision-making purposes?

purchase of a building

investment in a new milling machine

purchase of 90-day Treasury Bills

investment in a management training program

Question 24

Any current outlay that is expected to yield a flow of benefits beyond one year in the future is:

a capital gain

a wealth maximizing factor

a capital expenditure

a cost of capital

a dividend reinvestment

Question 25

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




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