By raising capital at lower cost, bonds lower risk for shareholders. Indicate whether the statement is true or false ANSWER F Bondholders have first claim on earnings, which means that shareholders will bear more risk when bonds are outstanding.
Date: September 9th, 2020
Most agree that ______________ is the degree to which the overall quality of one’s life is judged as favorable. The General Social Surveys (GSS) of the United States asks questions about this. a. Happiness b. Fortitude c. Effectiveness d. Decision making ANSWER A
Date: September 9th, 2020
An efficiency-wage premium serves the same function as a bond because, just as with a bond, the premium represents A) the amount the employee loses if caught shirking. B) the expected value of the amount the employee loses if he shirks. C) the cost of monitoring the employee. D) the gain to the employee if […]
Date: September 9th, 2020
The unregulated profit maximizing monopolist prefers to operate where demand is inelastic. Indicate whether the statement is true or false ANSWER F Where demand is inelastic, marginal revenue is negative and the monopolist could maximize profit there only if marginal cost was also negative, which is most unlikely.
Date: September 9th, 2020
A market could function under competition in the situation of Figure 3.1 if demand is at the level of DD. Indicate whether the statement is true or false ANSWER F Only two firms can operate in such a market, and scale economies are so great that entry is not likely, so true competition cannot […]
Date: September 9th, 2020
An unchallenged monopoly in a product market has a tendency to be lazy, but that tendency can be limited by the capital market. Indicate whether the statement is true or false ANSWER T A firm that is not achieving the profit that it might can be taken over by a “raider,” who may sack […]
Date: September 9th, 2020
It is possible that a multi-product monopolist will reduce the quality of a product below what its users prefer in order to make more profit. Indicate whether the statement is true or false ANSWER T If the products are substitutes and buyers of a high-quality one will pay a high price for it, the […]
Date: September 9th, 2020
In the presence of asymmetric information, A) all contracts are efficient. B) efficiency in risk bearing cannot be achieved. C) a trade-off exists between risk-bearing efficiency and production efficiency. D) no contracting will take place. ANSWER C
Date: September 9th, 2020
A monopoly will always sell rather than rent its product. Indicate whether the statement is true or false ANSWER F If the product is durable, consumers may fear the monopolist who sells it will keep lowering the price, causing the value of their purchase to decline. So they may refuse to buy. If the […]
Date: September 9th, 2020
Suppose a plaintiff hires a lawyer to represent her in a court case. She agrees to pay the lawyer a wage per hour. She knows precisely what the lawyer should do and how long each activity should take, and she can verify that the lawyer has correctly completed each activity. She can terminate the contract […]
Date: September 9th, 2020
