ECO 365 Week 3 Knowledge Check

1. in a monopolistically competitive market,
• firms produce differentiated products
• there are barriers to entry
• firms produce homogeneous products
• the demand for any firm's product is perfectly elastic

2. Strategic decision making is most important in
• competitive markets
• monopolistically competitive markets
• oligopolistic markets
• monopolistic markets

3. The general monitoring problem implies that
• profit maximization should always be considered to be a firm's goal
• there is a cost of supervising employees so that they work toward the owner's goals rather than their own
• government must intervene to protect national goals
• competition will ensure common goals among the owners and managers of a firm

4. Lazy monopolists are characterized by the tendency to
• maximize profits at the cost of losing market share
• pay too much to protect their monopoly positions
• earn enough profits to keep their shareholders happy without trying too hard to hold costs down
• minimize losses so that the dividends of shareholders are maximized

5. Judgment by performance means that the competitiveness of a market is determined
• the actual behavior of firms in the market
• the structure of the industry
• the number of firms in the market
• technological considerations

6. Consumers tend to accept the market restrictions imposed by suppliers because
• governments prevent them from organizing
• they see themselves as laborers and therefore benefit from restrictions
• their costs of organizing are higher than the cost of collusion by the suppliers
• when combined, their losses are small for the group as a whole

7. The fact that U.S. managers' salaries are about four times higher than those of comparable managers in Japan, where banks control firms more closely, is probably
• an example of the monitoring problem in the United States
• an example of X-inefficiency in Japan
• due to the fact that the U.S. economy is much less competitive
• due to the fact that there are more natural monopolies in the United States