BUSS 235 Final, Fall 2002

veg bis rk AMERICAN UNIVERSITY OF BEIRUT School of Business wy, MERICAN BNTVER, = LIB ARY Nawe: . OF Lemp BUSS 305 Time: 1:45hr "5. 9° 34 FINAL EXAM ” January 2003 / ay Answer questions { : the and th then choose 2 of the remaining 3 questions: I- 30 points) Multiple Choice: Circle the Right Answer . Lone All of the following are mechanisms which reduce adverse selection troblem except : a) warranties from established enterprises with non-redeployable assets ‘ high interest rates ¢) large collateral requirements d) brand names and product-specific promotions and retail displays e) higher prices in repeat customer transactions 2- In the case of pure monopoly: ; , a) ong firm is the sole producer of a good or service which has no lose substitutes e firm’s profit is maximized at the price and out put combination where marginal cost equals marginal revenue the demand curve is always elastic a and b only e) ab, andc 3- The practice by telephone companies of charging lower-long- distance rates“at night than during the day is an example of: ipverted block pricing econd-degree price discrimination peak-load pricing u) first-dé any firm in an industry always the largest firm ¢) always the smallest firm d) always the second largest firm €) always the oldest firm 5- Which of the following is an example of an oligopolistic market structure?“ ~ ublic utilities air transport industry c) liquor retailers d) wheat farmers e) none of the above largest problem faced in cartel pricing agreements such as detecting violations and quota barriers by cartel participants )) arriving at a profit maximizing price c) attracting participants in the cartel d) none of the above enting of customers into several small groups such as institutional , commercial, and industrial users, and first-degree price discrimination market penetration third-degree discrimination d) second-degree price discrimination e) none of the above 8- Joint products are: MAT = Mc a) - products which are technically independent in the production : process exemplified by beef and hide from cattle ¢) products whose production processes are interdependent d) aandb e bandc is a new product pricing strategy which results initial product price . This price is reduced over time as at the higher price is satisfied. Prestige pricing Price lining Skimming d) Incremental pricing e) None of the above 10- To shaximize profits, a monopolist that engages in price discrimingtion must allocate output in such a way as to make identical the in all markets. a) /ratio of price to marginal cost ratio of marginal cost to marginal utility ' ratio of price to elasticity : i) marginal revenue e) none of the above ERICAN OWIVERS! , LIBRARY OF EIROF nos CIF >a Bka \ (lt «) 14- The relationship between NPV and IRR’is such that: a) both approaches al cle lways provide the Same ranking of alternatives (88) b) the IRR ofa Project is equa! to the firm’s cost of capital when o) the NPV of a project is $0 ifthe NPV of a Project is negative, then the IRR must be Sreater than the cost of Capital d) all of the above ©) Mone of the above aged f tye Y . ; epee wert 2 a) Imports of automobiles from Germany will decline bY American inflation will increase @ German exports of all traded good will decline be American exports to Germany will decrease ‘ 318 €) Sales by American manufactures for the export markets wil] 100 ~ 1%0 increase {Oo \MERICAN ENIVER'! LIBiARY OF BEIRUT JI- Label each statement as T or F and defend your answer . 1. In Economics a theory is not judged by its simplicity or complexity of its assumptions but rather by its ability to explain and predict certain economic phenomena. 2. Ifa country can produce two commodities cheaper than one of its trading partners then it should specialize in the production of both commodities. ccording to purchasing power parity theory if the dollar to the Yen is 120 yens/dollar and if average inflation rate over a decade is 8% in Japan and 4% in U.S.A then we expect the yen to be 110 yens/dollar now. 4. Full cost pricing is the best pricing practice under all economic conditions since it covers fixed costs + variable cost and a mark-up profit. nH 5. According to Herfindah! Index if the market consists of three firms A,B,and C with 45% , 40% and 15% respectively then HH index is 7000. 6. As matters stand now there is fig Single theory of oligopoly . Instead there are various models with various degrees of empirical validity @. project evaluation if gas stations and restaurants on a newly constructed highway realize higher revenues then this indirect benefit should be included in the study. 8. Regulated monopoly masaeely is defended on the grounds that it allows one firm to capture economies of scale and provide the service to community atlowcost ,_ 9. Ifthe interdependence quotient TRA is negative then the two goods A and B are complementary. -3QB 10. If Geni coefficient of the Lorenz curve is 0.90 of country X then the distribution of income is equitable . III- (20 points) The Lebanese Ministry of Petroleum is studying the possibility of constructing a few dil refinery other than Tripoli and Zahrani with a capacity oft 600,000 Bs els per day. You are commissioned to conduct the feasibility study. ¢ Formulate an outline of the proposed feasibility study for the refinery ( 10 points) e Which criteria will you use to select the optimal location of the new refinery? (5 points). e In the light of the different schools of though which one is more . relevant in choosing the correct social rate of discount given the po sy current éeficit a the state budget in Lebanon and a ing that f. the refinery will be-financed partly by issue of Treasury Bills ae and partly by wasat from the Saudi Government? ( 5 points). eS 4 Choose 2 of the following 3 questions . IV-(15 points) Explain how a Lemons market is generated in markets AN PNTVER LIBRaRy fa “OF BEIRUT characterized by asymmetric information with the help of a diagram and a matrix 4) V- (15 points) A Japanese firm sells an electronic device in France and United ow % States. Demand for product in the two markets are as follows: a 4 P, = 10 -Q US. P2=6-Q. France Total cost function is C= 4+ 2(Q1+Q) A) (10 points)calculate Qu, Qa, Pi, Pe and total profit earned in the two markets B) (5 points) what are the conditions of successful discrimination as a pricing technique. VI- (10 points) a) what are the determinants of exchange rate in the long-run? (5 points ) b) how do you measure the deficit or surplus in the balance of payments of a certain country?