Key983f - BUSINESS 702 MANAGERIAL ECONOMICS FINAL EXAM KEY...

Info iconThis preview shows pages 1–3. Sign up to view the full content.

View Full Document Right Arrow Icon
BUSINESS 702 FINAL EXAM KEY FALL 1998 MANAGERIAL ECONOMICS PLEDGE: "On my honor, I have neither given nor received any unauthorized aid on this exam, nor am I aware of anyone giving or receiving any unauthorized aid on this exam." ________________________________________ Signature ________________________________________ Name (Print) SHORT PROBLEMS (40 pts, 10pts each) 1. Market Structure Concepts (P10.1). Indicate whether each of the following statements is true or false, and explain why. A. In long-run equilibrium, every firm in a perfectly competitive industry earns zero profit. Thus, if price falls, none of these firms will be able to survive. B. Perfect competition exists in a market when all firms are price takers as opposed to price makers. C. A natural monopoly results when the profit-maximizing output level occurs at a point where long-run average costs are declining. D. Downward-sloping industry demand curves characterize both perfectly competitive and monopoly markets. E. A decrease in the price elasticity of demand would follow an increase in monopoly power. SOLUTION A. False. In long-run equilibrium, every firm in a perfectly competitive industry earns zero excess profit. Following a decrease in industry prices, high cost producers will be forced
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
2 to exit. However, remaining firms will continue to operate and earn a normal rate of return on investment. B. True. Perfect competition exists in a market when individual firms have no influence over price. Such firms take industry prices as a given. C. False. A natural monopoly occurs in a market when the market clearing price, or price where Demand (Price) = Supply (Marginal Cost), occurs at an output level where long- run average costs are declining. D. True. Downward sloping demand curves follow from the law of diminishing marginal utility and characterize both perfectly competitive and monopoly market structures. E. True. A decrease in the price elasticity of demand would result following an increase in monopoly power. 2 Monopolistically Competitive Demand (P11.2). Would the following factors increase or decrease the ability of domestic auto manufacturers to raise prices and profit margins? Why? A. Decreased import quotas B. Elimination of uniform emission standards C. Increased automobile price advertising D. Increased import tariffs (taxes) E. A rising value of the dollar, which has the effect of lowering import car prices SOLUTION A. Increase. As import quotas are decreased, fewer substitutes for domestic automobiles become available. This will decrease competition in the industry, and ease pressure on profit margins. B. Increase. An elimination of uniform emission standards reduces product homogeneity.
Background image of page 2
Image of page 3
This is the end of the preview. Sign up to access the rest of the document.

This note was uploaded on 07/31/2011 for the course ECON 1201 taught by Professor Smith during the Spring '11 term at Waseda University.

Page1 / 15

Key983f - BUSINESS 702 MANAGERIAL ECONOMICS FINAL EXAM KEY...

This preview shows document pages 1 - 3. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online