Adverse selection is a situation in which one party, as a result of a contract, has an incentive to alter their behavior in a way that harms the other party to the contract.
a. True
b. False
QUESTION 2Commodity products are
a. rare and expensive
b. patented and licensed
c. highly differentiated
d. uniform or standardized
e. ones without impurities
QUESTION 3For a monopolist, P < MR at all quantities.
a. True
b. False
QUESTION 4In order to avoid principal-agent problems, McDonald's uses all but one of the following franchising tactics. Which is the exception?
a. It does not advertise for franchisees.
b. Franchisees must put up 40 percent of the investment themselves.
c. Franchisees must undergo a preliminary training period, followed by a 12- to 18-month training program.
d. Franchisees must already have another fast-food restaurant franchise.
e. Franchisees are required to work full-time daily in their restaurant.
QUESTION 5The demand curve faced by a perfectly competitive firm
a. is the market demand curve
b. slopes downward
c. is perfectly elastic
d. is vertical
e. rises when market supply rises
QUESTION 6A monopolist's demand curve is
a. its marginal cost curve
b. its marginal revenue curve
c. identical to the market demand curve
d. the same as the demand curve of a firm in perfect competition
e. nonexistent
QUESTION 7McDonald's requires that franchisees provide at least 40 percent of the cost of the franchise with their own funds and work full-time daily in the restaurant. It does this in order to avoid
a. signaling and screening
b. moral hazard
c. the winner's curse
d. adverse selection
e. symmetrical information
QUESTION 8In Connecticut, the apple market is perfectly competitive. Suppose that consumer tastes change so that the market demand for apples increases. In that case, the demand curves faced by individual firms will
a. not change
b. become less elastic
c. shift upward
d. shift leftward
e. shift downward
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