BUS 207 FINAL EXAM QUESTIONS WITH
VERIFIED ANSWERS
economies of scope - Answer-the situation in which it is less expensive to produce
goods jointly than separately.
fixed cost - Answer-- a production expense that does not vary with output.
- costs primarily used in the the pizza industry
group price discrimination - Answer-- a situation in which a firm charges each group of
customers a different price.
- third degree price discrimination
isocost line - Answer-all the combinations of inputs that require the same (iso-) total
expenditure (cost).
learning by doing - Answer-the productive skills and knowledge that workers and
managers gain from experience.
learning curve - Answer-the relationship between average cost and cumulative output.
Lerner Index - Answer-the ratio of the difference between price and marginal cost to the
price
marginal cost (MC) - Answer-- The amount by which a firm's cost changes if the firm
produces one more unit of output.
- The derivative of Total Cost
market failure - Answer-a non-optimal allocation of resources such that total surplus in a
market is not maximized.
market power - Answer-the ability of a firm to significantly affect the market price
monopolistic competition - Answer-- a market structure in which firms have market
power, but free entry occurs in the long run until no additional firm can enter and earn a
positive long-run profit.
- Characterized by product differentiation and price-setting firms
monopoly - Answer-the sole supplier of a good that has no close substitute
Nash Equilibrium - Answer-a set of strategies such that, holding the strategies of all
other players constant, no player can obtain a higher pay off by choosing a different
strategy.
, natural monopoly - Answer-the situation in which one firm can produce the total output
of the market at lower cost than two or more firms could.
network externality - Answer-the situation in which one person's demand for a good
depends on the consumption of the good by others.
nonlinear price discrimination - Answer-- a firm charges a different price for large
quantities than for small quantities, with the result that the price paid varies according to
the quantity purchased.
- second-degree price discrimination
nonuniform pricing - Answer-charging consumers different prices for the same product
or charging a single customer a price that depends on the number of units the customer
buys.
oligopoly - Answer-- a market structure with only a few firms and limited entry.
- E.g Big Five Auto Industry, Big Six Banks
opportunity cost - Answer-the value of the best alternative use of a resource
patent - Answer-an exclusive right granted to the inventor of a new and useful product,
process, substance, or design for a specified length of time.
peak-load pricing - Answer-charging higher prices during periods of peak demand than
in other periods.
perfect price discrimination - Answer-- a situation in which a firm sells each unit at the
maximum amount any customer is willing to pay for it.
- first-degree price discrimination
price discrimination - Answer-charging consumers different prices for the same good
based on individual characteristics of consumers, on membership in an identifiable
subgroup of consumers, or on the quantity purchased.
producer surplus - Answer-the difference between the amount for which a good sells for
and the minimum amount necessary for the producers to be willing to produce the good.
snob effect - Answer-the situation in which a person places greater value on a good as
fewer and fewer other people possess it.
sunk cost - Answer-- a past expenditure that cannot be recovered.
- common in the pharmaceutical industry
total surplus - Answer-the sum of consumer surplus and producer surplus
VERIFIED ANSWERS
economies of scope - Answer-the situation in which it is less expensive to produce
goods jointly than separately.
fixed cost - Answer-- a production expense that does not vary with output.
- costs primarily used in the the pizza industry
group price discrimination - Answer-- a situation in which a firm charges each group of
customers a different price.
- third degree price discrimination
isocost line - Answer-all the combinations of inputs that require the same (iso-) total
expenditure (cost).
learning by doing - Answer-the productive skills and knowledge that workers and
managers gain from experience.
learning curve - Answer-the relationship between average cost and cumulative output.
Lerner Index - Answer-the ratio of the difference between price and marginal cost to the
price
marginal cost (MC) - Answer-- The amount by which a firm's cost changes if the firm
produces one more unit of output.
- The derivative of Total Cost
market failure - Answer-a non-optimal allocation of resources such that total surplus in a
market is not maximized.
market power - Answer-the ability of a firm to significantly affect the market price
monopolistic competition - Answer-- a market structure in which firms have market
power, but free entry occurs in the long run until no additional firm can enter and earn a
positive long-run profit.
- Characterized by product differentiation and price-setting firms
monopoly - Answer-the sole supplier of a good that has no close substitute
Nash Equilibrium - Answer-a set of strategies such that, holding the strategies of all
other players constant, no player can obtain a higher pay off by choosing a different
strategy.
, natural monopoly - Answer-the situation in which one firm can produce the total output
of the market at lower cost than two or more firms could.
network externality - Answer-the situation in which one person's demand for a good
depends on the consumption of the good by others.
nonlinear price discrimination - Answer-- a firm charges a different price for large
quantities than for small quantities, with the result that the price paid varies according to
the quantity purchased.
- second-degree price discrimination
nonuniform pricing - Answer-charging consumers different prices for the same product
or charging a single customer a price that depends on the number of units the customer
buys.
oligopoly - Answer-- a market structure with only a few firms and limited entry.
- E.g Big Five Auto Industry, Big Six Banks
opportunity cost - Answer-the value of the best alternative use of a resource
patent - Answer-an exclusive right granted to the inventor of a new and useful product,
process, substance, or design for a specified length of time.
peak-load pricing - Answer-charging higher prices during periods of peak demand than
in other periods.
perfect price discrimination - Answer-- a situation in which a firm sells each unit at the
maximum amount any customer is willing to pay for it.
- first-degree price discrimination
price discrimination - Answer-charging consumers different prices for the same good
based on individual characteristics of consumers, on membership in an identifiable
subgroup of consumers, or on the quantity purchased.
producer surplus - Answer-the difference between the amount for which a good sells for
and the minimum amount necessary for the producers to be willing to produce the good.
snob effect - Answer-the situation in which a person places greater value on a good as
fewer and fewer other people possess it.
sunk cost - Answer-- a past expenditure that cannot be recovered.
- common in the pharmaceutical industry
total surplus - Answer-the sum of consumer surplus and producer surplus
