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ECON2410 Semester One End-of-semester Examination 2022 - PART A

QUESTION 1

A firm successfully implementing a diff erentiation strategy would expect ______________________.

to charge premium prices

customers to be sensitive to price increases

to automatically have high levels of power over suppliers

customers to perceive the product as standard

QUESTION 2

A product requires 14 hours to complete the first unit. Managerial experience has estimated the learning rate at 75%. How much cumulative average time should be required to produce the fifth item?

Between 12 and 14 hours.

Between 35 and 37 hours.

Between 5 and 7 hours.

Between 7 and 9 hours.

QUESTION 3

Assume firm 1, but not firm 2, is contemplating on making a strategic commitment. Fundenberg and Tirole, call it __________ if the tactical variables are ________ and the commitment makes firm 1 __________.

top-dog; strategic substitutes; soft

lean and hungry look; strategic complements; soft

fat-cat eff ect; strategic complements; tough

puppy-dog ploy; strategic complements; tough

QUESTION 4

If own-price elasticity of demand equals 0.25 in absolute value, then what percentage change in price will result in a 6% decrease in quantity demanded?

76%

8%

1.5%

24%

QUESTION 5

If the price Richard pays for a particular product is equal to his willingness to pay (for that particular product), then _________________.

his consumer surplus is zero

he places little value on that particular good

his willingness to pay for that particular product is less than his consumer surplus

his consumer surplus is negative

QUESTION 6

In his report, the manager of company XY writes that company XY's revenues just cover all its opportunity costs. This means that company XY's ________________.

economic profi t is zero

total evenues equal its implicit costs

normal profi t is zero

total revenues equal its explicit costs

QUESTION 7

Let's say Robert has insured his cell phone. As a result, Robert doesn't bother to buy a protective case for his cell phone. After all, if it drops on the floor and breaks, the insurer will pay. This is an example of _____________.

fraud

moral hazard

adverse selection

asymmetric information

QUESTION 8

On a supply and demand diagram, producer surplus is the area _____________.

below the supply curve and, above the equilbrium price

above the supply curve, and below the equilibrium price

above the demand curve, below the equilibrium price

below the demand curve, and above the equilibrium price

QUESTION 9

Suppose that a firm produces 100 units a month and sells them all for $5 each. The explict costs of production are $200 and the implicit costs of production are $250. Based on this information, the firm has an accounting profi t of ___________ and an economic profi t of ___________.

$300; $50

$450; $300

$50; $300

$300; $450

QUESTION 10

Suppose that a perfectly competitive firm, operating in the short-run and producing 200 units of output, has ATC = $12 and AFC = $4. The market price is $6 and is equal to MC. In order to maximize profi t (or minimize losses), this firm should ________.

shut down and produce zero units of output

do nothing, the firm is already maximizing profi ts.

reduce output, but continue to produce a positive amount of output

increase output

QUESTION 11

What is the diff erence between perfect  competition and monopolistic competition?

In perfect competition, firms produce identical goods, while in monopolistic competition, firms produce slightly diff erent goods.

Perfect competition has barriers to entry, while monopolistic competition does not.

Perfect competition has no barriers to entry, while monopolistic competition does.

Perfect competition has a large number of small firms, while monopolistic competition does not.

QUESTION 12

What type of products are made using the principle of allocative effi ciency?

Those that are large in size.

Those not wanted by society.

Those demanded by society.

Those the company thinks are best for society.

QUESTION 13

Which of the following statements is correct?

Disruptive innovations make previously expensive products cheaper for large population to have access.

Disruptive technologies are technologies that improve product performance.

Disruptive innovations are breakthrough innovations.

Both (a) and (c) are correct.

QUESTION 14

Which of the following statements is correct?

In a strategic alliance, the two or more parties agree to terms and can "seal the deal" with no more than a handshake, whereas a joint venture is formed by a binding contract.

In a joint venture, the two or more companies remain separate entities, whereas in a strategic alliance, a new entity is formed.

A joint venture is usually managed by representatives of both companies, whereas for a strategic alliance new management is usually found.

Both (b) and (c) are correct.

QUESTION 15

Which of the following statements is incorrect?

The curve showing the diff erences in technical effi ciency declines with greater asset specifi city.

The curve showing the diff erences in technical effi ciency is positive at any level of asset specifi city.

The curve showing the diff erences in technical effi ciency indicates that the production costs from market exchange always exceed the production costs from vertical integration.

The curve showing the diff erences in technical effi ciency represents the minimum cost of production under vertical integration minus the minimum cost of production under arm's-length market exchange.

QUESTION 16

Please use this space if you believe there is missing or incorrect information that impacted your ability to answer any question. Please state which questions this is related to.

PART B

ANSWER ALL SIX (6) QUESTIONS

Show your workings. Partial credit may be awarded if a substantial part of the answer is provided. Marks as indicated

(Total marks of Part B: 45)

PART C

ANSWER ALL FOUR (4) QUESTIONS

Marks as indicated

(Total marks of Part C: 20)

Question 1 [5 marks]

Building a competitive advantage based on superior benefit position is likely to be attractive when three conditions are met. Explain in detail the three conditions.

Question 2 [5 marks]

Explain what would happen to the “agency efficiency” line as the scale of transactions decreases. A clearly labelled diagram should be used to answer the question.

Question 3 [5 marks]

Explain in detail the two mistakes (fallacies) that commonly appear during the SSNIP (Small but Significant Nontransitory Increase in Price) test application.

Question 4 [5 marks]

The theory of the firm assumes that the firm's ultimate objective is to make as large a profit as possible. Ideally, for any given amount of output the firm might want to sell, it would prefer to set price as high as it could, however, the firm's demand curve limits what the price could be. How, then, is the optimal output determined? Answer the question using the concepts of marginal revenue (MR) and marginal cost (MC).

Question 5 [0 marks] Specify any assumptions you have made in completing the exam and to which questions those assumptions relate. You may also include queries you may have made with respect to a particular question, should you have been able to ‘raise your hand’ in an examination room.