B5.4

Question 1

In order to sell at the rate of output in markets controlled by monopolists, price is set where:

a. price equals average total cost
b. price equals marginal cost
c. marginal revenue equals marginal cost
d. marginal revenue equals average total cost

Answer 1

C.
No matter which model is representative of the industry in which the firm operates, the firm will maximize profits by producing at MR=MC. In order to sell at the rate of output in markets controlled by monopolists, the price is set where marginal revenue equals marginal cost. the monopolist’s price will be higher than MR resulting in large profits

Question 2

In the long run in a competitive market, a maximum or ceiling price will:

a. result in a decrease in price
b. cause a surplus to be produced
c. have no effect on the market
d. cause a shortage to be created

Answer 2

D - setting a ceiling price below the price dictated by market forces (which is the equilibrium price set by the supply and demand curves) would create excess demand for the product (at its reduced price) and, consequently, a shortage

Question 3

The impact of a government price support program would most likely result in which of the following:

a. not influence the rationing function of prices
b. improve the rationing function of prices
c. lead to surpluses
d. lead to shortages

Answer 3

c. a government price support program acts as a subsidy that will encourage suppliers to increase supply beyond an equilibrium point (the point where the supply and demand curves intersect) this excess of supply over demand will crease surpluses in the market.

Question 4

What is strategic planning?

a. it consists of decisions to use parts of the organizations resources in specified ways
b. it establishes the resources that the plan will require
c. it establishes the budget for the organizaiton
d. it establishes the general direction of the organization

Answer 4

D

Question 5

Which one of the following is NOT a factor contributing to economies of scale?
diminishing returns, labor specialization, utilization of by-products, efficient utilization of capital equipment

Answer 5

Diminishing returns

The theory of economies of scale states that as a production process gets larger, the process becomes more efficient and productivity increases. The theory of diminishing returns is the opposite of economies of scale in that it holdsthat, as more porduct is produces, teh factory gets less productivity out of its workforce and machinery.

Question 6

Which of the following pricing policies results in establishment of a price to external customers higher than the competitive price for a given industry?
Transfer pricing, predatory pricing, collusive pricing, dual pricing

Answer 6

Collusive pricing

Collusive pricing anticipates that competitors will collude or conspire to maintain prices and mutual profitability. Collusive pricing undermines competitive pricing and maintains prices to external customers at levels higher than they would be in a competitive market place.