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1、1 Managerial Economics,7e(Keat)Chapter 14 Government and Industry:Challenges and Opportunities for Todays Manager Multiple-Choice Questions 1)Which of the following is not considered a rationale for the intervention of government in the market process in the United States?A)the redistribution of inc
2、ome B)the reallocation of resources C)the long-run planning of scarce resources D)the short-run stabilization of prices E)All of the above Answer:C Diff:2 2)Which of the following is the best example of a product or service that provides a benefit externality?A)the construction of a private road tha
3、t allows vehicles if a toll is paid B)a public library C)a bookstore that is open to everyone D)All of the above E)None of the above Answer:B Diff:2 3)Which of the following is not an example of a cost externality?A)the dumping of industrial waste into a lake B)unsightly billboards C)a neighbor that
4、 blasts his stereo system D)the building of a new type of jet fighter bomber E)All of the above Answer:D Diff:2 4)The demand for products that provide benefit externalities is generally _ the demand for products that do not.A)greater than B)less than C)the same as D)greater or less(depending on the
5、market)than Answer:B Diff:2 2 5)An example of a cost externality occurs when a mining company A)dumps waste in river upstream from a popular fishing spot.B)produces coal that is not in demand in a recession.C)underpays its employees.D)overwork its employees.Answer:A Diff:2 6)An example of an activit
6、y that is likely to generate benefit(positive)externality is A)a well manicured lawn of your neighbor.B)growing wild flowers on city street islands.C)fireworks on the 4th of July.D)an educated workforce.E)All of the above Answer:E Diff:2 7)The supply for products that exhibit cost externalities is g
7、enerally _ the supply for products that do not.A)greater than B)less than C)the same as D)greater or less(depending on the market)than Answer:A Diff:2 8)Which of the following is an example of a government action to internalize a cost externality?A)a fine imposed on a company that pollutes a stream
8、B)the closing of a public library C)a sales tax on jewelry D)the increase on bridge tolls Answer:A Diff:2 9)When cost externalities exist,an optimal equilibrium can be attained if the government A)restricts production.B)levies a tax for the difference between private costs and social costs.C)prohibi
9、ts production.D)All three above E)Both A and B Answer:E Diff:3 3 10)The Coase theorem states that,in the presence of cost externalities,an optimal equilibrium can be attained A)with government taxation.B)by prohibiting production.C)by correctly defining property rights and through negotiation betwee
10、n the parties.D)None of the above Answer:C Diff:2 11)Tying arrangements that lessen competition were made illegal by A)the Sherman Anti-Trust Act.B)the Clayton Act.C)the Celler-Kefauver Act.D)the Robinson-Patman Act.Answer:B Diff:2 12)One school of anti-trust thought argues that,rather than ensuring
11、 efficiency,anti-trust laws are really aimed at A)protecting small independent firms against large corporations.B)outlawing all monopolies whether they perform bad acts or not.C)price differentiation due to differences in quality and cost.D)restricting interlocking directorates.Answer:A Diff:3 13)Wh
12、ich of the following would not be considered a synergistic benefit from a merger?A)an improvement in distribution systems B)economies of scale in production C)decreased cost of capital D)None of the above Answer:D Diff:3 14)A merger between two companies in unrelated fields of business A)will always
13、 lead to economies of scale.B)will generally increase the value of the unified firm compared to the value of the two companies before the merger because of the benefits of diversification.C)may not have any synergistic effects.D)will necessarily lead to an increase in the market power of the merged
14、company.Answer:C Diff:3 4 15)The delay between when a problem occurs and when it is recognized is referred to as the A)recognition lag.B)action lag.C)effectiveness lag.D)policy lag.Answer:A Diff:1 16)The delay between when a problem is recognized and when policy action is taken is referred to as the
15、 A)recognition lag.B)action lag.C)effectiveness lag.D)policy lag.Answer:B Diff:1 17)The delay between when a policy action is taken and when they affect the economy is referred to as the A)impact lag.B)action lag.C)recognition lag.D)policy lag.Answer:A Diff:1 18)Which of the following is responsible
16、 for controlling the money supply?A)the Congress B)the Supreme Court C)the Federal Reserve D)the president Answer:C Diff:1 5 Analytical Questions 1)What are the five major reasons for government involvement in a market economy?Answer:Provide the legal,monetary and social framework necessary for mark
17、ets to operate.Insure that markets operate in a competitive manner.Redistribute income and wealth in a more desired(equitable)fashion.Guarantee a more efficient use of resources when there are benefit and cost externalities.Stabilize the overall level of economic activity to counteract undesirable l
18、evels of price inflation and unemployment.2)A function of government is to regulate natural monopolies.Explain what is a natural monopoly and why it requires government regulation.Answer:Natural monopolies occur when there are large cost economies of scale such that one producer can operate in the d
19、eclining range of average cost while meeting the entire market demand for a product.In these situations it is more economical to have only one producer of the product,since production costs will be lower and the product can be profitably sold at lower prices than if there were several or more produc
20、ers.Thus,the economy would benefit from having only one producer,but this would permit the producer to earn monopoly profits from lack of competition.Therefore,government should permit only one producer but regulate its operations,including selling prices,so that it doesnt exploit its monopoly posit
21、ion.3)Describe the basic motives for businesses to merge.Answer:Take advantage of synergies in operations:increase overall sales,reduce operating costs,lower costs of capital.Mutual acquisition of skilled managers,as each of the businesses may have skilled personnel that the other doesnt possess.Take advantage of favorable tax consequences.Increase market power so as to enhance economic profits.Diversify to reduce business risk.Increase the compensation of top executives,although this often is at the expense of stockholders and other employees.