1. Patent laws (Points: 1) reduce incentive to innovate by restricting market entry reduce incentive to innovate by making it difficult to use the patented innovation increase incentive to innovate by restricting entry into a market increase incentive to innovate by giving a firm permanent and exclusive production rights 2. Which of the following is true of marginal revenue for a monopolist that charges a single price? (Points: 1) P = MR because there are no close substitutes for the monopolist's product. P > MR because the monopolist must decrease price on all units sold in order to sell an additional unit. P < MR because the monopolist must decrease price on all units sold in order to sell an additional unit. AR = MR because there are no close substitutes for the monopolist's product. 3. Negative marginal revenue means that (Points: 1) total revenue is decreasing as output increases the firm is maximizing its total revenue the firm is maximizing its economic profit total revenue is increasing at a decreasing rate as output increases 4. A profit-maximizing monopolist produces an output level at which (Points: 1) marginal revenue is the greatest distance from marginal cost price is less than marginal cost the value to society of the last unit produced equals marginal cost marginal revenue equals marginal cost 5. Compared to a perfectly competitive market, a monopoly tends to produce (Points: 1) more output and charge a higher price the same amount of output, but charge a higher price less output and charge a higher price less output and charge the same price 6. Monopolistic competition is best described as (Points: 1) many firms with some control over price, and some product differentiation many firms with no control over price, producing identical products a few firms with some control over price, producing highly differentiated products a few firms with no control over price, producing similar products 7. Which of the following characteristics does perfect competition share with monopolistic competition? (Points: 1) price-taking firms zero long-run economic profit homogeneous product some barriers to entry 8. Monopolistically competitive firms do not achieve productive efficiency because (Points: 1) entry of firms raises production costs in the long run barriers to entry allow profit to be earned in the long run price is greater than marginal cost at the profit maximizing output level profit is maximized at a quantity where average total cost is not minimized 9. There are multiple models of pricing behavior in oligopolistic markets because (Points: 1) it is difficult to predict how rival firms will react to any pricing decision the demand curve slopes upward for these firms firms could earn profit in the long run unlike other markets price has a direct impact on profit for a firm in oligopoly 10. Which of the following is likely to occur when a two-person game can be played repeatedly? (Points: 1) Collusion and cooperation among the players The prisoner's dilemma The industry demand curve will become perfectly elastic The industry demand curve will become perfectly inelastic 1. Specik, Inc. is considering the following alternatives: Alternative 1 Alternative 2 Revenues $120,000 $120,000 Variable costs 60,000 70,000 Fixed costs 35,000 39,000 Which of the following are relevant in choosing between the alternatives? (Points: 2) Variable costs Revenues Fixed costs Variable costs and fixed costs 2. Sorrento Company's plant is operating at less than full capacity. The company just received a one-time opportunity to accept an order at a special price below its usual price. The special price exceeds its variable costs. Therefore, which statement is true? (Points: 2) Fixed costs are relevant. The order will likely be accepted. The order will likely be rejected. Sorrento should expand its plant capacity before accepting the order. 3. Wishnell Toys can make 1,000 toy robots with the following costs: Direct Materials $70,000 Direct Labor 26,000 Variable Overhead 15,000 Fixed Overhead 15,000 The company can purchase the 1,000 robots externally for $120,000. The avoidable fixed costs are $5,000 if the units are purchased externally. What is the cost savings if the company makes the robots? (Points: 2) $1,000 $5,000 $10,000 $4,000 4. Which one of the following is not a disadvantage of buying rather than making a component of a company's product? (Points: 2) Quality control specifications may not be met. The outside supplier could increase prices significantly in the future. Profitable product lines may be dropped. The supplier may not deliver on time. 5. A company has a process that results in 15,000 pounds of Product X that can be sold for $8 per pound. An alternative would be to process Product X further at a cost of $100,000 and then sell it for $14 per pound. Should management sell Product X now or should Product X be processed further and then sold? (Points: 2) Process further, the company will be better off by $10,000. Sell now, the company will be better off by $10,000. Process further, the company will be better off by $90,000. Sell now, the company will be better off by $100,000. 6. Products produced from a common production process and a single raw material are referred to as (Points: 2) separable products. joint products. common products. independent products. 7. In an equipment replacement decision, the cost of the old equipment is a(n) (Points: 2) incremental cost. sunk cost. relevant cost. opportunity cost. 8. Chung Inc. is considering the replacement of a piece of equipment with a newer model. The following data has been collected: Old Equipment New Equipment Purchase price $ 75,000 $125,000 Accumulated depreciation 30,000 - 0 - Annual operating costs 100,000 80,000 If the old equipment is replaced now, it can be sold for $20,000. Both the old equipment's remaining useful life and the new equipment's useful life is 5 years. The net advantage (disadvantage) of replacing the old equipment with the new equipment is (Points: 2) $20,000 $(5,000) $(25,000) $30,000 9. North Division has the following information: Sales $900,000 Variable expenses 480,000 Fixed expenses 465,000 If this division is eliminated, the fixed expenses will be allocated to the company's other divisions. What is the incremental effect on net income if the division is dropped? (Points: 2) $45,000 increase $465,000 decrease $420,000 decrease $435,000 increase 10. A product line should be eliminated whenever (Points: 2) the product line generates a net loss. the unavoidable fixed costs exceed the product line's contribution margin. the product line generates a negative contribution margin. the avoidable costs are less than the product line's contribution marg