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1. The Lerner index equals


1. (MC – P)/MC


2. (P – MC)/P


3. P/(MC – P)


4. MC/(MC – P)


2. An alternative way of calculating the Lerner index is


1. 1/e


2. e


3. e – 1


4. 1 – e


3. The Lerner index for a firm increases when


1. the number of substitutes for the firm’s product increases


2. better substitutes for the firm’s product are introduced


3. more competitors enter the market


4. the price elasticity of demand for the firm’s product decreases


4. The smallest value that the Herfindahl index can assume is


1. 10,000


2. 1000


3. 100


4. smaller than 100


5. An industry for which the Herfindahl index is 1000 or less is


1. oligopolistic


2. monopolistic


3. highly concentrated


4. relatively unconcentrated


6. According to the theory of contestable markets, perfect competition can occur


1. only if there are a large number of firms in the industry


2. if entry into the industry is absolutely free and exit from the industry is entirely costless


3. only in the absence of government regulation


4. only in the presence of foreign competition


7. Peak-load pricing refers to the charging of


1. different prices for different customers in different markets


2. different prices for different quantities of a commodity


3. a higher price during periods of peak demand and a lower price during periods of off-peak demand


4. a lower price during periods of peak demand and a higher price during periods of off-peak demand


8. Which of the following is true with regard to peak-load pricing?


1. It is applicable only for electrical public utilities


2. It leads to some substitution in consumption from the period of peak demand to the period of low demand


3. It leads to a reduction in customer welfare


4. All of the above


9. Cost-plus pricing


1. is used when firms do not have knowledge of MR and SMC


2. is fairly common in oligopolistic industries


3. is usually consistent with profit maximization


4. all of the above


10. Transfer pricing refers to the price


1. that a firm pays for the intermediate products of another firm


2. that a foreign firm pays for the final products of a domestic firm


3. of the intermediate products sold by one semiautonomous division of a firm to another semiautonomous division of the same enterprise


4. of the final products sold by one semiautonomous division of a firm to another semiautonomous division of the same enterprise


11. When there is no external market for an intermediate product and one unit of the intermediate product is required to produce a unit of the final product of the firm, the appropriate transfer price of the inter-mediate product is the


1. marginal cost of production of the intermediate product


2. marginal cost of production of the final product


3. price of the final product


4. marginal revenue of the final product


12. Appropriate transfer pricing is essential in determining


1. the optimal output of each division of the firm


2. the optimal output of the firm


3. evaluating divisional performance


4. all of the above