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Key983f - BUSINESS 702 FINAL EXAM KEY FALL 1998 MANAGERIAL...

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Sheet1 Page 1 BUSINESS 702FINAL EXAM KEYFALL 1998 MANAGERIAL ECONOMICS PLEDGE: ________________________________________ 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 firm 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 decl 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 B.True. Perfect competition exists in a market when individual firms have no influence over price. Such firms take industry pr C.False. A natural monopoly occurs in a market when the market clearing price, or price where Demand (Price) = Supply (Ma D.True. Downward sloping demand curves follow from the law of diminishing marginal utility and characterize both perfectly c E.True. A decrease in the price elasticity of demand would result following an increase in monopoly power. 2Monopolistically Competitive Demand (P11.2). Would the following factors increase or decrease the ability of domestic auto A.Decreased import quotas 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.
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Sheet1 Page 2 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 decreas B.Increase. An elimination of uniform emission standards reduces product homogeneity. As product differentiation rises, som C.Decrease. An increase in automobile price advertising increases price competition in the industry and thereby decrease the D.Increase. An increase in import tariffs (taxes) increases the price of import cars, thus making imports less attractive to car b E.Decrease. A rising value of the dollar that has the effect of lowering import car prices puts downward pressure on the profit 3.Certainty Equivalents (P14.2). The certainty equivalent concept can be widely employed in the analysis of personal and bus A.The appropriate certainty equivalent adjustment factor, à, indicates the minimum price in certain dollars that an individual sh B.An à 1 implies that a certain sum and a risky expected return of different dollar amounts provide equivalent utility to a given C.If previously accepted projects with similar risk have às in a range from à = 0.4 to à = 0.5, an investment with an expected r
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