Question

3.The ability of employees to ________ might reduce the possibility or effectiveness of monitoring.

A.

change jobs

B.

telecommute

C.

use the Internet

D.

complain to management

4.Which of the following would be considered a contingent contract?

A.

a

profitminus−sharing

contract

B.

a contact with a bonus

C.

a piece rate contract

D.

All of the above.

5.Producer surplus

A.

determines whether or not a firm will produce in the long run.

B.

represents the opportunity cost of the firm.

C.

is a measure of what a firm gains from trade.

D.

is the minimum amount a firm must receive to engage in trade.

6.If some consumers think that two detergents have differing qualities, such as

brandminus−name

vs. private label detergents, wheres other consumers know that the detergents are identical, then the detergent producer can

A.

avoid moral hazard.

B.

engage in a special type of price discrimination.

C.

reduce its costs.

D.

None of the above.

7.If the government provides universal health insurance, what screening process will the government need?

A.

It won't use screening tests but it will use statistical discrimination.

B.

It will only give health insurance to

nonminus−smokers.

C.

It won't use screening tests but it will use signals.

D.

It won't need a screening test.

8.Which firm provides the better signal when trying to decide which of the firms' stock to buy?

A.

Firm B, which uses an internal group for auditing.

B.

Firm C, which has seen its stock go up by $20 per share in the last week.

C.

Firm A, which uses an independent accounting firm for auditing.

D.

Firm D, which hasn't been under SEC investigation for over 5 years.

9.A firm will exit a competitive market when

A.

costs force the marginal cost curve to shift to the left.

B.

the

longminus−run

profit would be negative.

C.

it can earn only earn a zero

longminus−run

profit.

D.

Both B and C.

10.A consumer's marginal willingness to pay

A.

is the first derivative of the demand curve.

B.

is equal to the marginal value to the consumer of the last unit of output.

C.

changes with price.

D.

is the minimum price a consumer will pay for the last unit of output.

11.Monitoring of employees

A.

can be effective

afterminus−theminus−fact

if the shirking behavior can be detected later and the employee punished.

B.

is only effective while the employees are working, so that payment may be withheld for shirking.

C.

is only effective

afterminus−theminus−fact

when it is possible to fire them for shirking.

D.

None of the above.

12.When a person has health insurance, they often have to pay nothing or very little (called a "copay") to see a doctor. This might result in

A.

a

principalminus−agent

problem.

B.

some moral hazard, since people might overuse the benefit.

C.

their being overly healthy.

D.

an adverse selection problem.

Answer 1

3) Monitoring means to observe and check the progress of the employee. If an employee frequently changes job this monitoring could not help the firm. As monitoring is also costly and so changing the job of employee reduce the profit of a company. Therefore option A is correct.

4) In a Contingent contract, the promisor performs his obligation only when certain conditions are met. Such as insurance company give the insured money only after the things happened for which the people take the insurance. a profit-Sharing contract is the payoff to each person is a fraction of the total profit which is done in a contingent contract. Option A is correct.

5) Producer surplus means a profit of producers by which they determine whether to produce or not in the long run. If producer surplus is greater than zero they produce in the long run or vice versa. Option A is correct.

6) If some consumers can discriminate the qualities of products, sellers can charge a higher price for good quality and lower price for poor quality from them.

Some consumers can not discriminate, sellers can charge a higher price from them. therefore charging different price from two types of customers are the way for profit maximization. The option B is correct.