Study Questions For The Final Exam
ECON 361
These questions are not designed to take the place of studying your notes and the reading assignments. Do not e-mail me and ask me to answer all or some of these questions for you. If you have missed class, it is your responsibility to get the notes from another student. Once you have answered these questions yourself, if you are unsure of any of your answers, let me know and I will tell you if you are correct or not. Don't be afraid to ask me questions, I just want you to try to answer the questions yourself second.
MAKE SURE - you use your notes, the in-class exercises and the homework when you study -- some problems on the exam will be very similar.
TOPIC: Costs and the Firm
Calculate accounting and economic profit and know the difference.
What does a zero economic profit or normal rate of return mean?
Be able to determine marginal product and average product from total product and input information.
Be able to draw both a marginal product and marginal cost curve and explain why they are shaped the way they are.
What are variable and fixed costs?
Be able to determine total cost, marginal cost, average fixed, variable and total costs from total fixed and total variable cost information.
What does the total cost curve look like and why?
What does the total variable cost curve look like? Total fixed cost curve?
How would one find the marginal cost from the total cost curve?
Be able to explain the short run shut down decision.
What would shift the cost curve and which way would they shift? Explain.
Be able to both graph and explain in words where a firm will operate to maximize profit or minimize loss.
Be able to both graph and explain in words when a firm is making a zero economic profit, economic profit, economic loss.
What will happen if the firms in an industry are making an economic loss? Profit? How will that change the firm's profit.
Graph and explain the relationship between the industry supply and demand curves and the firms costs and revenue curves.
Why is the long run average total cost curve a "planning" curve.
Be able to draw a long run average total cost curve from short run average total cost curves.
What is economies of scale and why does it happen?
What is diseconomies of scale and why does it happen?
What is constant returns to scale and why does it happen?
What is the minimum efficient scale or size and how do you find it?
What is economies of scope? What are cost complementarities? How are these related?
How might a manager decrease costs? We discussed several ways - make sure you can explain them and give an example.
TOPIC: Pricing Strategies - Price Discrimination
What two things should a manager understand in deciding on a pricing strategy?
What is price discrimination?
What is the difference between the three degrees of price discrimination. Graph all three.
First degree price discrimination - what is it and why is it profitable?
Is first degree price discrimination very feasible for most businesses? Why or why not?
Give an example of first degree price discrimination.
Second degree price discrimination - what is it and why is it profitable?
Is second degree price discrimination very feasible for most businesses? Why or why not?
Give an example of second degree price discrimination.
Be able to do a block-booking or bundling problem. Understand when it is profitable to bundle goods.
Third degree price discrimination - what is it and why is it profitable?
How might customers be separated or segmented for third degree price discrimination? Give examples of each.
Is third degree price discrimination very feasible for most businesses? Why or why not?
What two requirements are necessary for a firm to practice third degree price discrimination?
Give an example of third degree price discrimination.
Make sure you know what the other classifications of price discrimination we discussed are and be able to give examples of each.
TOPIC: Pricing Strategies - Other Pricing Strategies
What are products with interdependent demands?
How does a substitute vs. a complement relate to interdependent demands?
Be able to determine the best output and price for products that have interdependent demands.
What are joint products or complements in production? Example?
Be able to find the best output -- and then prices for the two joint products.
How do you check to make sure each product is producing at a positive MR?
If one joint product is not producing at a positive MR -- what options does the firm have?
What are common costs?
What is fully distributed cost pricing? Example?
Why is fully distributed cost pricing not always profitable?
Be able to compare a decision using distributed cost vs. marginal cost.
What are intermediate products?
What is transfer pricing?
Relate transfer pricing to profit centers.
What transfer price should be charged if there is an external market for the intermediary good? Why?
What transfer price should be charged is there is not an external market for the intermediary good (at least theoretically)? Graph.
What is cost-plus pricing?
What are the two steps used in cost-plus pricing?
What are the advantages and disadvantages of cost-plus pricing?
What incentives does cost-plus pricing create in a government granted monopoly? Explain.
TOPIC: Structuring Employment Agreements (we probably won't cover this - we will see how far we get)
What is (typically) the manager's goal when structuring employment contracts?
What two things should a manager look for when structuring employment schemes and why?
What is the principal - agent relationship? Example?
What is the agency problem?
What are some ways employees shirk?
Paying on the basis of productivity can reduce shirking - why?
Why not always pay entirely on the basis of productivity?
What about a quota system for workers? What might this do to their motivation? Graph.
Monitoring is often used to decrease shirking - but how is the monitor monitored? Explain a few ways.
Explain how a "contest" for compensation might increase productivity and decrease shirking.
What are some problems that could arise with a contest?
If it is difficult or costly to fire workers -- how might this change the compensation scheme?