When a firm is operating at its minimum efficient scale, its short-run average total cost of production is minimized.
a. True
b. False
QUESTION 2The theory that changes in the exchange rate reflect only changes in the price levels of two countries is called
a. the floating exchange rate theory
b. the fixed exchange rate theory
c. the flexible exchange rate theory
d. purchasing power parity
e. the managed exchange rate theory
QUESTION 3Vertical integration has no effect on the internal organization of a firm; it only affects the outside markets.
a. True
b. False
QUESTION 4The purchasing power parity theory
a. is more a predictor of a long-run tendency than of the day-to-day relationship between changes in the price level and the exchange rate
b. predicts that exchange rates between two currencies will adjust in the long run to reflect the price level difference between two countries
c. is more a predictor of a short-run phenomenon than of a long-run relationship between the price level and the exchange rate between two countries
d. is helpful in explaining long-run trends, even though trade barriers and central bank intervention may hinder the usefulness of the theory
e. tells us that a country's currency generally will appreciate if its inflation rate is lower than that of the rest of the world
QUESTION 5The simpler a production process is,
a. the greater the cost of production
b. the greater the transaction cost of using markets
c. the more likely a firm will use the market to organize production
d. the more likely a firm will used centralized control to organize production
e. the more likely that transaction costs increase by using centralized control of production
QUESTION 6According to the purchasing power parity theory, in the long run
a. the exchange rate between any two currencies should be equal all over the world
b. the value of the dollar should equal the value of the pound which should equal the value of the yen
c. inflation rates should equalize around the world
d. interest rates should equalize around the world
e. the exchange rate between the Canadian dollar and the British pound should reflect differences in price levels between Canada and Britain
QUESTION 7The more complicated a production process is,
a. the lower the transactions cost of using markets
b. the lower the cost of production
c. the more likely the market will be used to organize production
d. the more likely that transaction costs decrease through centralized control of production
e. the more likely that transaction costs decrease through use of markets