Cost-reduction generates
a. Increases in long-run profitability
b. Increases in long-run profitability only if the cost reduction is difficult to imitate
c. Decreases in long run profitability
d. No change in profitability
QUESTION 2One of the solutions to the adverse selection problem in insurance is
a. Is to require that only the high risk individuals to buy insurance
b. Is to require that only the low risk individuals buy insurance
c. Is to require everyone to buy insurance
d. Is to completely ban insurance companies
QUESTION 3The biggest advantage of capitalism is that
a. It generates wealth with the help of government intervention
b. Prices hinder in moving assets from high-value to low-value uses
c. It forces involuntary exchanges
d. It creates wealth by letting a person follow his or her own self-interest
QUESTION 4Low cost strategies are usually found in industries where
a. Products are not particularly differentiated
b. Price competition tends to be fierce
c. Both a and b
d. None of the above
QUESTION 5If the insurance company can successfully screen both Nadia and Samantha into appropriate contracts, it would earn
a. Between a zero and 200 loss
b. Between zero and 200
c. 3500 loss
d. 3500 gain
QUESTION 6Total surplus or gains created from trade equal
a. Seller surplus
b. Buyer surplus
c. The summation of seller and buyer surplus
d. Profits earned by a firm
QUESTION 7To stay one step ahead of the forces of competition, a firm can adopt any one of these strategies except
a. Cost reduction
b. Product differentiation
c. Operating where marginal benefits equal marginal costs
d. Develop non-fungible valuable resources
QUESTION 8If the insurance company can correctly anticipate the adverse selection,
a. Only Samantha would buy insurance
b. Only Nadia would buy the insurance
c. Both of them would buy the insurance
d. Neither of them would buy the insurance
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