Industrial
Organization Test Bank
Course Introduction
Industrial Organization explores the structure, behavior, and performance of firms and markets within various industries. The course examines how companies compete, the nature of market power, pricing strategies, barriers to entry, and the role of government regulation. Drawing on both theoretical models and real-world case studies, students will analyze issues such as monopolies, oligopolies, mergers, and antitrust policies, gaining insight into how industries function and how economic policies can influence market outcomes.
Recommended Textbook
Microeconomics 5th Edition by Glenn
Hubbard
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Chapter 1: Economics: Foundations and Models
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Sample Questions
Q1) Which of the following statements is true about scarcity?
A) Scarcity refers to the situation in which unlimited wants exceed limited resources.
B) Scarcity is not a problem for the wealthy.
C) Scarcity is only a problem when a country has too large a population.
D) Scarcity arises when there is a wide disparity in income distribution.
Answer: A
Q2) In economics,choices must be made because we live in a world of A) unemployment.
B) scarcity.
C) greed.
D) unlimited resources.
Answer: B
Q3) Refer to Table 1-1.What is Lydia's marginal benefit if she decides to stay open for two hours instead of one hour?
A) $25
B) $50
C) $75
D) $125
Answer: A
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Chapter 2: Trade-Offs, comparative Advantage, and the Market System
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Sample Questions
Q1) Refer to Figure 2-11.One segment of the circular flow diagram in the figure shows the flow of labor services from market K to economic agents J.What is market K and who are economic agents J?
A) K = factor markets; J = households
B) K = product markets; J = households
C) K = factor markets; J = firms
D) K = product markets; J = firms
Answer: C
Q2) If a country is producing efficiently and is on the production possibilities frontier,the only way to produce more of one good is to produce less of the other.
A)True
B)False
Answer: True
Q3) A production possibilities frontier with a bowed outward shape indicates
A) the possibility of inefficient production.
B) constant opportunity costs as more and more of one good is produced.
C) increasing opportunity costs as more and more of one good is produced.
D) decreasing opportunity costs as more and more of one good is produced.
Answer: C
Page 4
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Chapter 3: Where Prices Come From: the Interaction of
Demand and Supply
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Sample Questions
Q1) What is the law of supply? What does this law imply about the shape of the supply curve?
Answer: The law of supply states that,holding everything else constant,an increase in price causes an increase in quantity supplied.The positive relationship between price and quantity supplied gives rise to an upward-sloping supply curve.
Q2) By drawing a demand curve with ________ on the vertical axis and ________ on the horizontal axis,economists assume that the most important determinant of the demand for a good is the ________ of the good.
A) quantity; price; quantity
B) price; quantity; quantity
C) price; quantity; price
D) quantity; price; price
Answer: C
Q3) In 2004,hurricanes destroyed a large portion of Florida's grapefruit crop.How did this affect the market price and market quantity of grapefruit?
Answer: The supply curve for grapefruit shifted to the left resulting in a higher equilibrium price and lower equilibrium quantity.
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Chapter 4: Economic Efficiency, government Price Setting, and Taxes
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Sample Questions
Q1) Refer to Table 4-6.The equations above describe the demand and supply for Chef Ernie's Sushi-on-a-Stick.The equilibrium price and quantity for Chef Ernie's sushi are $60 and 20 thousand units.What is the value of economic surplus in this market?
A) $300 thousand
B) $600 thousand
C) $1,200 thousand
D) $1,600 thousand
Q2) Refer to the Article Summary.The minimum price of $10.50 per pack of cigarettes being proposed by mayor Bloomberg would have which of the following effects on the market for cigarettes?
A) Consumer surplus will increase.
B) Producer surplus will increase.
C) Deadweight loss will increase.
D) Market efficiency will increase.
Q3) The total amount of producer surplus in a market is equal to the area below the supply curve.
A)True
B)False
Q4) What is economic surplus? When is economic surplus at a maximum?
Page 6
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Chapter 5: Externalities, environmental Policy, and Public Goods
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Sample Questions
Q1) An important difference between the demand for a private good and the demand for a public good is that
A) individuals reveal their preferences for a public good but they do not have to reveal their preferences a private good.
B) the resources used to provide public goods are common resources or government owned; the resources used to produce private goods are all privately owned.
C) individuals reveal their preferences for a private good but they do not have to reveal their preferences for a public good.
D) the demand for a private good produces consumption externalities; the demand for a public good produces production externalities.
Q2) A quasi-public good is similar to a public good in that one person's consumption of the quasi-public good does not reduce the amount available for everyone else.
A)True
B)False
Q3) An externality is an example of a market failure.
A)True
B)False
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Chapter 6: Elasticity: The Responsiveness of Demand and Supply
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Sample Questions
Q1) We should never assume that an inelastic demand curve is a perfectly inelastic demand curve because
A) there has never been evidence of a perfectly inelastic demand curve.
B) an inelastic demand curve may be perfectly inelastic at some times but not others.
C) perfectly inelastic demand curves are rare.
D) an inelastic demand curve may be elastic at high prices.
Q2) Suppose the demand curve for hybrid cars shifts to the right.This will cause a relatively small increase in the price of hybrid cars if
A) demand is elastic and supply is inelastic.
B) demand is inelastic and supply is elastic.
C) both demand and supply are inelastic.
D) both demand and supply are elastic.
Q3) The absolute value of the price elasticity of demand for telescopes is 1.5.Therefore,telescopes can be classified as a luxury.
A)True
B)False
Q4) Explain the economic concept of price elasticity of supply.How is price elasticity of supply calculated?
Page 8
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Chapter 7: The Economics of Health Care
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Sample Questions
Q1) Briefly describe the most important differences between the market for health care and the market for other goods and services.
Q2) Suppose you see a 2006 Scion xB Sport Wagon advertised in the local newspaper for $8,500.If you knew the car was reliable,you would be willing to pay $10,000 for it.If you knew the car was unreliable,you would only be willing to pay $5,500 for it.Under what circumstances should you buy the car?
Q3) If a state requires all drivers to buy health insurance,the problem of adverse selection is eliminated.
A)True
B)False
Q4) Which of the following parties is likely to have the most information about the health of an individual who is trying to purchase a health insurance policy?
A) the company that issues the health insurance policy
B) the individual who is applying for the health insurance policy
C) the employer of the individual who is trying to purchase the health insurance policy
D) All parties in the health insurance market have access to the same level of information.
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Chapter 8: Firms, the Stock Market, and Corporate Governance
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Sample Questions
Q1) Mortgages issued to borrowers who fail to document that their incomes are high enough to afford their mortgage payments are known as ________ mortgages.
A) subprime
B) Alt-A
C) gray market
D) reciprocal
Q2) When a business is set up as partnership,the owner of the business faces unlimited liability.
A)True
B)False
Q3) When an investor buys a corporate bond
A) the investor becomes part owner of the corporation.
B) the principal of the bond is a loan to the corporation.
C) the interest made on the bond represents the bondholder's limited liability in the company.
D) the face value of the bond is equal to what the investor paid for the bond.
Q4) What role do well functioning financial markets play in a market economy?
Q5) What is the difference between retained earnings and dividends?
Q6) Briefly describe the Sarbanes-Oxley Act and explain why it was passed.
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Chapter 9: Comparative Advantage and the Gains From International Trade
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Sample Questions
Q1) Trade only occurs if there are only winners,and no losers,as a result of the trade.
A)True
B)False
Q2) The process of countries becoming more open to foreign trade and investment is known as outsourcing.
A)True
B)False
Q3) Refer to Figure 9-2.Without the tariff in place,the United States produces
A) 9 million pounds of rice.
B) 15 million pounds of rice.
C) 31 million pounds of rice.
D) 42 million pounds of rice.
Q4) Refer to Table 9-6.If the actual terms of trade are 1 hat for 1.8 clocks and 150 hats are traded,how many hats will Belize gain compared to the "without trade" numbers?
A) -100
B) 0
C) 150
D) 250
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Chapter 10: Consumer Choice and Behavioral Economics
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Sample Questions
Q1) Refer to Table 10-6.What is Jay's optimal consumption bundle?
A) 1 burger and 2 Pepsis
B) 2 burgers and 3 Pepsis
C) 3 burgers and 1 Pepsi
D) 3 burgers and 2 Pepsis
Q2) Which of the following does not explain why consumers buy products that many other consumers are already buying?
A) technology
B) the satisfaction people derive by being viewed as "fashionable"
C) cost-effective way to gather information about a product
D) differences in tastes and preferences
Q3) The income effect results in consumers increasing the quantity of normal goods demanded when the price falls.
A)True
B)False
Q4) Marginal utility can be
A) negative.
B) zero.
C) positive.
D) positive, negative or zero.
Page 12
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Chapter 11: Technology, production, and Costs
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Sample Questions
Q1) If the marginal product of labor is 45 units of output and the marginal product of capital is 56 units of output while the wage rate is $20 per worker and the cost of capital is $28 per machine,are these two inputs being used in the least cost combination and what should be done if they are not?
Q2) Refer to Table 11-3.The table above refers to the relationship between the quantity of workers employed and the number of cardboard boxes produced per day by Manny's House of Boxes.The capital used to produce the boxes is fixed.The highest value of the average product is labor is ________ when Manny hires ________ workers.
A) 80; 3
B) 100; 3
C) 100; 2
D) 80; 4
Q3) Which of the following is an example of a long run adjustment?
A) Your university offers Saturday morning classes next fall.
B) Ford Motor Company lays off 2,000 assembly line workers.
C) A soybean farmer turns on the irrigation system after a month long dry spell.
D) Wal-Mart builds another Supercenter.
Q4) Describe the difference between technology and positive technological change.
Q5) What are economies of scale? What are diseconomies of scale?
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Chapter 12: Firms in Perfectly Competitive Markets
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Sample Questions
Q1) Refer to Figure 12-11.If this is a constant-cost industry,what is the market price in the long-run equilibrium?
A) $5
B) $14
C) $15
D) $20
Q2) Suppose the equilibrium price in a perfectly competitive industry is $15 and a firm in the industry charges $21.Which of the following will happen?
A) The firm's profits will increase.
B) The firm's revenue will increase.
C) The firm will not sell any output.
D) The firm will sell more output than its competitors.
Q3) At the profit-maximizing level of output for a perfectly competitive firm,price equals marginal cost.Which of the following is also true?
A) The difference between total revenue and total cost is the greatest.
B) Total revenue equals total cost.
C) Average revenue equals average total cost.
D) Marginal profit equals marginal cost.
Q4) What is meant by the term "long-run competitive equilibrium?
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Chapter 13: Monopolistic Competition: the Competitive
Model in a More Realistic Setting
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Sample Questions
Q1) If the demand curve for a firm is downward-sloping,its marginal revenue curve
A) will lie above the demand curve.
B) will lie below the demand curve.
C) is the same as the demand curve.
D) is horizontal.
Q2) If a firm has excess capacity,it means
A) that the firm expends too much of its resources on advertising its product without seeing an appreciable increase in sales.
B) that the firm is not producing its minimum efficient scale of output.
C) that the firm's long-run average cost of producing a given quantity exceeds its short-run cost of producing that same quantity.
D) that the firm's quantity supplied exceeds its quantity demanded.
Q3) The financial situation at Starbucks in the late 2000s illustrates the fact that maintaining long-run profits in a monopolistically competitive market is A) impossible.
B) very difficult.
C) fairly easy.
D) almost always guaranteed.
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Chapter 14: Oligopoly: Firms in Less Competitive Markets
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Sample Questions
Q1) Which government agency publishes four-firm concentration ratios?
A) the Economic Council
B) the Federal Reserve System
C) the U.S. Bureau of the Census
D) the Treasury Department
Q2) For many years the Aluminum Company of America (Alcoa)controlled most of the world's supply of high quality bauxite,the ore needed to produce aluminum.What type of entry barrier was responsible for Alcoa's position in the aluminum industry?
A) ownership of a key input
B) a government-imposed barrier
C) a patent on the manufacture of aluminum
D) economies of scale
Q3) Explain why member firms of a cartel like OPEC have incentives to agree to a low cartel production level and then produce more than its quota.
Q4) An oligopolist's demand curve is
A) identical to that of a perfect competitive firm.
B) identical to that of a monopolistically competitive firm.
C) vertical on a price quantity diagram.
D) unknown because a response of firms to price changes by rivals is uncertain.
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Chapter 15: Monopoly and Antitrust Policy
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Sample Questions
Q1) Many biologic drug manufacturers are pushing for patent protection to be extended to 12 years before generics are allowed to be introduced to the market.This reflects which of the following barriers to entry?
A) control of a key resource
B) network externalities
C) entry blocked by government action
D) economies of scale creating a natural monopoly
Q2) Refer to Table 15-3.If Comcast maximizes its profits how much profit will it earn?
A) $84
B) $40
C) $4
D) Comcast will break even.
Q3) Suppose that a perfectly competitive industry becomes a monopoly.What effect will this have on consumer surplus,producer surplus,and deadweight loss?
Q4) Refer to Figure 15-13.From the monopoly graph above,identify the area representing the deadweight loss.
Would the deadweight loss be larger if the demand curve was more elastic or less elastic?
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Chapter 16: Pricing Strategy
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Sample Questions
Q1) Which of the following undermines a firm's ability to engage in price discrimination?
A) the seller's market power
B) the inability to prevent resale of the product from one market segment to another
C) buyers having different elasticities of demand for the product
D) the seller's ability to segment the total market
Q2) Refer to Figure 16-5.Suppose the firm represented in the diagram decides to use a two-part pricing strategy such that it charges a fixed fee and a per-unit price equal to the monopoly price.What is the quantity it should produce?
A) 240 units
B) 320 units
C) 480 units
D) 560 units
Q3) Refer to the Article Summary.If Netflix chose to use Shiller's pricing method
A) consumer surplus would be zero.
B) producer surplus would be zero.
C) deadweight loss would be maximized.
D) consumer surplus, producer surplus, and deadweight loss would all be equal.
Q4) Are sellers who practice arbitrage taking advantage of buyers?
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Chapter 17: The Markets for Labor and Other Factors of Production
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Sample Questions
Q1) Worker discrimination occurs when
A) workers refuse to perform risky tasks.
B) workers refuse to work with persons of a different race.
C) customers refuse to buy products produced by a racially diverse workforce.
D) employers pay different employees different wages based on race.
Q2) What is a compensating differential?
Q3) Which of the following is not held constant along a firm's demand curve for labor?
A) the quantity of other inputs used by the firm
B) the wage rate
C) changes in technology
D) the price of the product produced by the firm
Q4) A firm's demand for labor curve is also called its
A) marginal revenue product of labor curve.
B) marginal factor cost of labor curve.
C) marginal valuation curve.
D) marginal benefit of labor curve.
Q5) What is the substitution effect of a wage increase? What is the income effect of a wage increase? Under what conditions will a worker's labor supply curve become downward sloping?
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Chapter 18: Public Choice,taxes,and the Distribution of Income
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Sample Questions
Q1) Economists caution that conventional statistics used to estimate the extent of poverty in the United States fail to account for benefits people receive that,if considered,would reduce the amount of poverty.Which of the following is an example of these benefits?
A) Individuals can use tax credits and the personal exemption to reduce their taxable incomes. This reduces what they owe the government and increases their disposable incomes.
B) The federal income tax system is progressive. As a result, the poor have higher after-tax incomes than they would have if the income tax system was proportional or progressive.
C) Individuals with low incomes receive non-cash benefits such as free school lunches and food stamps.
D) The federal minimum wage forces employers to pay workers with low skills an efficiency wage.
Q2) Unlike the market process,in the political market it is possible for some individuals to receive very large benefits from the political process without any significant impact on their tax bills.
A)True
B)False
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