Deck 14: Transaction Costs, asymmetric Information, and Behavioral Economics

Question 1

For the average homeowner,which of the following tasks is most likely to be contracted?

A)fixing a shelf
B)hanging a painting
C)moving furniture
D)rewiring the kitchen lighting
E)repainting a bedroom

Answer 1

D

Question 2

If the production of a sofa requires the purchase of 3 types of inputs and the production of a harp requires the purchase of 30 types of inputs,______

A)the harp-producing firm will buy the sofa-producing firm.
B)the sofa-producing firm will buy the harp-producing firm.
C)harp production will more likely be done through the hierarchy of firms.
D)sofa production will more likely be done through the hierarchy of firms.
E)both harp and sofa production will rely on market exchange because there is more than one input involved in each.

Answer 2

C

Question 3

The more complicated the process used to produce a good,_____

A)the greater the transaction costs of organizing production through markets.
B)the lower the transaction costs of organizing production through markets.
C)the less likely a firm will use administrative controls to organize the production process.
D)the more likely a firm will use the market to organize the production process.
E)the more likely that consumers will choose to purchase the good over other alternatives in the market.

Answer 3

A

Question 4

In his article "The Nature of the Firm," Ronald Coase argues that _____

A)market exchange is less costly than hierarchical exchange.
B)markets are more efficient than hierarchies in producing goods that have few substitutes.
C)firms are formed to take advantage of situations in which hierarchies are more efficient than markets.
D)the primary role of an entrepreneur is to take orders from a central authority.
E)markets tend to become less competitive over time.

Question 5

A "do-it-yourself" approach to production is more likely when ___

A)the technology used in production is complex.
B)inputs are difficult to identify.
C)resources cannot be measured easily.
D)prices of inputs are known.
E)contracts with resource suppliers are complex.

Question 6

The firm becomes the dominant organization type when _____

A)production involves a few resource suppliers.
B)production requires unskilled labor resources.
C)the cost of identifying appropriate inputs is negligible.
D)the cost of negotiating agreements with suppliers is low.
E)the production process is complicated.

Question 7

Production through firms is often more cost-effective than market exchange when _____

A)market exchange involves multiple transactions among many resource owners.
B)market exchange involves the exchange of one good or service for other goods or services.
C)the cost of transacting business through market relations is less than the cost of undertaking the same activity within firms.
D)inputs are easily identified, measured, priced, and hired.
E)the costs of determining inputs and negotiating contracts are low.

Question 8

According to Coase,the optimal allocation of resources is guided by _____

A)the decisions of a firm's managers if the good or service is produced in a perfectly competitive environment.
B)market prices when market transaction costs are greater than the firm's internal organization costs.
C)the decisions of a firm's managers when market transaction costs are greater than the firm's internal organization costs.
D)the decisions of a firm's managers when market transaction costs are less than the firm's internal organization costs.
E)entrepreneurs when the costs of negotiating contracts with resource suppliers are low.

Question 9

By integrating vertically,_____

A)firms trade with one another through markets.
B)firms trade with one another through government intermediation.
C)firms coordinate with market processes to produce a good or service most efficiently.
D)firms expand into stages of production that take place earlier or later than those in which they specialize.
E)firms parcel out the various procedures involved in producing a good among various contractors.

Question 10

An average consumer's decision to purchase a good from a firm or hire resources directly in the market will _____

A)depend only on his production skills and not on his contract negotiation skills.
B)depend only on the opportunity cost of his time but not on his skills.
C)not depend on the cost of identifying, measuring, and pricing inputs.
D)not depend on the cost of negotiating contracts.
E)depend, in part, on both his skills and the opportunity cost of his time.

Question 11

According to Ronald Coase,firms emerge when _____

A)transaction costs in the market are less than the cost of hierarchical control.
B)transaction costs in the market are more than the cost of hierarchical control.
C)prices in a market are less than the cost of hierarchical control.
D)prices in a market are more than the cost of hierarchical control.
E)resources required for production are low-priced and can be easily identified.

Question 12

If the minimum efficient scale in toaster production is 500,000 units per year,_____

A)the average cost of producing 300,000 toasters is greater than the average cost of producing 500,000 toasters.
B)the average cost of producing 200,000 toasters is less than the average cost of producing 500,000 toasters.
C)the average cost of producing 300,000 toasters is less than the average cost of producing 500,000 toasters.
D)the average cost of producing 300,000 toasters is the same as the average cost of producing 500,000 toasters.
E)the average cost of producing 500,000 toasters is zero.

Question 13

In his article "The Nature of the Firm," Ronald Coase _____

A)suggests that monopolies may be more innovative than competitive firms.
B)argues that the economy should be organized into one large firm.
C)provides an answer to the question "Why do firms exist?"
D)focuses on the concept of adverse selection.
E)analyzes market concentration in some U.S. industries.

Question 14

Which of the following is true of vertical integration?

A)It occurs when firms internalize certain stages of production that were previously contracted to suppliers.
B)It occurs when a firm adds more layers of management to increase transparency in the accounting system.
C)It occurs when firms try to buy up their competitors and corner the market.
D)It has no effect on the internal organization of a firm.
E)It occurs when a firm buys another firm in a completely unrelated market.

Question 15

Which of the following statements about resource allocation is correct?

A)Within a firm, resources are allocated by prices; in a market, resources are allocated by the decisions of managers.
B)Resources are allocated by prices both in a market and within a firm.
C)Within a firm, resources are allocated by the decisions of managers; in a market, resources are allocated by prices.
D)Resources are allocated by the decisions of managers both within a firm and in a market.
E)In a market, resources are allocated either by prices or by the decisions of managers; within a firm, resources are allocated by prices.

Question 16

The simpler a production process,_____

A)the greater the cost of production.
B)the greater the transaction cost of using markets.
C)the more likely a client is to use a market to organize production.
D)the more likely a client is to use centralized control to organize production.
E)the higher the cost of hierarchal control and supervision.

Question 17

Wendy's restaurants must decide whether to grow their own potatoes for French fries or buy them.If they buy rather than grow,then they have opted to _____

A)integrate horizontally.
B)internalize the production of inputs.
C)integrate vertically.
D)allow hierarchical control to guide resource allocation.
E)form an authority relation.

Question 18

Amazing Sprockets,Inc.usually pays $1,000 for a million flanges,which it uses as inputs in the manufacture of sprockets.It also spends an average of $20 per million flanges looking for manufacturers and negotiating contracts.The firm can make its own flanges at a cost of $980 per million.Given these costs,we can conclude that the firm should _____

A)continue to contract out for flanges.
B)start to manufacture its own flanges.
C)increase the use of flanges in the production of sprockets.
D)stop paying the additional $20 to find and negotiate contracts and just buy the flanges outright for $1,000 per million flanges.
E)decrease the price it charges for sprockets.

Question 19

If perfect competition existed everywhere,along with frictionless exchange,perfect information,and constant returns to scale,______

A)consumers would carry out transactions directly with resource suppliers.
B)firms would not have the information necessary to calculate the marginal productivities of resources.
C)entrepreneurs would be needed to collect information about prices.
D)consumers would produce output and then engage in barter.
E)the economy would be organized into one large firm.

Question 20

Don's Pasture Apple Cider Company buys four inputs when producing apple cider: apples,glass bottles,apple presses,and computers for record keeping.If the company decides to vertically integrate backward,it is most likely to _____

A)start growing apples next.
B)start making apple cider vinegar next.
C)start making apple pies next.
D)start making apple-flavored energy drinks next.
E)internalize the production of all these inputs at the same time.

Question 21

When a firm is operating at its minimum efficient scale,its _____

A)short-run average total cost of production is minimized.
B)long-run marginal cost of production is minimized.
C)long-run average cost of production is minimized.
D)marginal revenue is less than its marginal cost.
E)total revenue is just equal to its total cost.

Question 22

Exhibit 14.1

Refer to Exhibit 14.1,which shows the long-run average cost curve for a tire manufacturer and the long-run average cost curve for a rubber producer.Which of the following can be concluded from the information provided?

A)The cost of producing rubber is much lower than the cost of producing tires.
B)The total cost of producing 100,000 tires is lower than the total cost of producing 200,000 tires.
C)The minimum efficient scale of producing rubber is 4 million pounds.
D)The minimum efficient scale of producing tires is lower than 200,000 tires.
E)The marginal cost of producing the 200,000th tire must exceed the average cost of 200,000 tires.

Question 23

In order to organize and carry out transactions efficiently,firms alternate between _____

A)profit and revenue maximization.
B)vertical and horizontal integration.
C)economies of scale and economies of scope.
D)internal production and market purchase.
E)skill development and training.

Question 24

Apple Computers is more likely to continue to use input markets rather than manufacture its own inputs internally when _____

A)the quality of inputs is difficult to determine.
B)switching among input suppliers is easy.
C)there are very few firms producing the inputs.
D)the inputs are difficult to identify and define.
E)transaction costs go up.

Question 25

In order to focus on its area of core competency,a firm relies on _____

A)government intervention and the bounded rationality of its managers.
B)the market price and the minimum efficient scale of production.
C)economies of scope.
D)the division of labor and the law of comparative advantage.
E)the vertical integration of its production process.

Question 26

If the quality of an input is easily determined at the time of purchase,then it is likely to _____

A)result in high transaction costs of using markets.
B)encourage horizontal integration of the production process.
C)encourage supplier firms to produce low-quality inputs.
D)be produced internally by a firm.
E)be purchased in the market.

Question 27

One reason many people make their own pickles rather than buy them is that _____

A)they can maintain control over the quality of pickles.
B)the total cost of ingredients is the same as the price of store-bought pickles.
C)firms are unaware of the technique and expertise required to preserve and store pickles over time.
D)people place a high value on their time.
E)firms do not produce goods that can be made at home.

Question 28

When several resources are combined in the production of a good,_____

A)the marginal product of each resource can be easily determined.
B)the marginal contribution of each resource cannot be easily observed.
C)allocating revenue among the various resources is easy.
D)there is minimum competition among the resource suppliers.
E)the quality of the resources is usually uniform across suppliers.

Question 29

If the minimum efficient scale in microwave oven production is 100,000 units per year,it implies that _____

A)the average cost of producing 50,000 microwave ovens is greater than the average cost of producing 100,000 microwave ovens.
B)the average cost of producing 50,000 microwave ovens is equal to the average cost of producing 100,000 microwave ovens.
C)the total cost of producing 50,000 microwave ovens is greater than the total cost of producing 100,000 microwave ovens.
D)the firm should not produce more than 50,000 microwave ovens.
E)marginal cost exceeds average cost at 100,000 microwave ovens.

Question 30

Exhibit 14.1

Refer to Exhibit 14.1,which shows the long-run average cost curve for a tire manufacturer and the long-run average cost curve for a rubber producer.If ten pounds of rubber is required for producing one tire,which of the following is true?

A)The tire manufacturer should integrate backward into producing rubber.
B)The tire manufacturer should produce more than 200,000 tires.
C)The tire manufacturer should buy rubber rather than produce it.
D)The rubber producer must be a monopolist.
E)The minimum efficient scale of rubber production is 2 million pounds.

Question 31

An ideal example of a vertically integrated firm would be _____

A)Sylvania, which produces light bulbs, notebooks, and camcorders.
B)Kinko's, which has a photocopy store near many colleges and universities.
C)American Apparel, which controls the dyeing, finishing, designing, sewing, cutting, marketing and distribution of its product from a single building in downtown Los Angeles.
D)Intel, which makes computer chips for most computer manufacturers.
E)Hertz Car Rentals, which has offices that help people rent a car in one city and drop it off in another city.

Question 32

One reason a computer manufacturer may make its own microchips rather than buy them is that _____

A)it can maintain control over the quality of microchips during production.
B)the total cost of components is the same as the price of microchips purchased from a microchip manufacturer.
C)there are a large number of microchip suppliers in the market.
D)the managers working in computer-manufacturing firms place a high value on their time.
E)all the microchip suppliers offer identical or homogenous products.

Question 33

If the minimum efficient scale in the production of rubber exceeds the quantity of rubber any individual tire producer buys,_____

A)tire producers should pay a low price for rubber.
B)tire producers should increase the usage of rubber in production.
C)tire producers should not integrate backward into rubber production.
D)tire producers should be charged a price that is above the cost of producing rubber.
E)tire companies should switch their resources to fiberglass production.

Question 34

Wendy's restaurant must decide whether to grow its own potatoes for French fries or procure them from suppliers.However,growing potatoes is a very different process from running a fast food restaurant.Based on this information alone,should Wendy's grow its own potatoes?

A)No, because Wendy's managers have bounded rationality.
B)Yes, because Wendy's managers have bounded rationality.
C)No, because there are very few potato suppliers.
D)Yes, because there are a few potato suppliers.
E)No, because potatoes are traded in a perfectly competitive market.

Question 35

The term bounded rationality is used to explain _____

A)the output level at which economies of scale are fully exploited.
B)the competition among rival suppliers that ensures a steady supply of a resource.
C)the cost advantage derived from producing two or more goods in one firm rather than outside.
D)the managerial incompetence that reduces the profitability of certain firms.
E)the limit on the amount of information a manager can comprehend about a firm's operation.

Question 36

Exhibit 14.1

Refer to Exhibit 14.1,which shows the long-run average cost curve for a tire manufacturer and the long-run average cost curve for a rubber producer.Which of the following is indicated?

A)The cost of producing rubber is much lower than the cost of producing tires.
B)The total cost of producing 100,000 tires is equal to the total cost of producing 200,000 tires.
C)The minimum efficient scale of producing tires is 200,000 tires.
D)The minimum efficient scale of producing tires is greater than 200,000 tires.
E)The marginal cost of producing the 200,000th tire must exceed the average cost of 200,000 tires.

Question 37

Which of the following is the best example of a vertically integrated firm?

A)General Electric, which produces light bulbs, jet engines, and washing machines
B)Kinko's, which has a photocopy store near many colleges and universities
C)USX Corporation, which owns ore and coal mines, coke ovens, blast furnaces, mills, and foundries
D)Intel, which makes computer chips for most computer manufacturers
E)Century 21, which has real estate offices that help people sell a house in one city and buy another house in another city

Question 38

Which of the following is likely to limit the extent of a firm's vertical integration?

A)a managers' bounded rationality
B)a small minimum efficient scale of producing inputs relative to the firm's input requirements
C)the fact that the quality of inputs is easily determined at the time of purchase
D)the presence of a large number of suppliers of the firm's inputs
E)a high transaction cost of contracting with resource suppliers

Question 39

If the minimum efficient scale in woodstove production is 200,000 units per year,_____

A)the long-run average cost of producing 50,000 stoves is greater than the average cost of producing 100,000 stoves.
B)the long-run average cost of producing 50,000 stoves is equal to the average cost of producing 100,000 stoves.
C)the long-run total cost of producing 50,000 stoves is greater than the total cost of producing 100,000 stoves.
D)the firm should not produce more than 200,000 woodstoves each year.
E)the short-run marginal cost exceeds the short-run average cost at 200,000 stoves.

Question 40

The term vertical integration is used to describe _____

A)the expansion of a firm into earlier or later stages of production.
B)an attempt by a firm to allow market prices to coordinate more transactions.
C)an attempt by a firm to minimize shirking.
D)an attempt by a firm to minimize the need to coordinate transactions within its boundaries.
E)the mechanisms used by a firm to accumulate information about its competitors.

Question 41

Searching for the lowest price for a particular product _____

A)is irrational.
B)is unproductive work.
C)is market work.
D)involves an opportunity cost.
E)involves no cost.

Question 42

A company that produces furniture wax branches out into producing a dusting product called Lemon Dust-Away.This expansion can be called efficient if the company_____

A)benefits from vertical integration.
B)benefits from horizontal integration.
C)experiences economies of scale.
D)experiences economies of scope.
E)incurs zero transaction cost.

Question 43

Exhibit 14.2

Refer to Exhibit 14.2,which shows the marginal cost and the marginal benefit of information curves.Where is the optimal quantity of information?

A)I_p
B)I_f
C)I*
D)greater than I*
E)less than I*

Question 44

Exhibit 14.2

Refer to Exhibit 14.2,which shows the marginal cost and the marginal benefit of information curves.The marginal benefit of information curve reflects that _____

A)additional information yields less marginal benefit.
B)additional information yields more marginal benefit.
C)the cost of gathering information diminishes rapidly.
D)common knowledge alone is enough to decide consumer choice.
E)all information is costly.

Question 45

Exhibit 14.2

Refer to Exhibit 14.2,which shows the marginal cost and the marginal benefit of information curves.Where does the value of additional information reach zero?

A)I_p
B)I_f
C)I*
D)greater than I*
E)less than I*

Question 46

Most consumers consider the process of gathering information on a product or service _____

A)irrational.
B)unproductive work.
C)market work.
D)nonmarket work.
E)costless.

Question 47

If a firm experiences economies of scope,_____

A)its average cost falls as output increases.
B)its average cost rises as output increases.
C)its average total cost falls when it produces more than one kind of product.
D)it gains larger profits through vertical integration.
E)its average total cost rises as it produces more than one kind of product.

Question 48

Reliable information is _____

A)costly to procure for consumers, but not for producers.
B)costly to procure for both producers and consumers.
C)freely available.
D)costly to procure for producers, but not for consumers.
E)not relevant to economic decision making.

Question 49

The promotional brochures for various products,computer publications,and online sites benefit consumers by _____

A)increasing the marginal benefit of information.
B)reducing the marginal benefit of information.
C)reducing the marginal cost of information.
D)increasing the marginal cost of information.
E)increasing the average cost of information.

Question 50

Exhibit 14.2

Refer to Exhibit 14.2,which shows the marginal cost and the marginal benefit of information curves.I* reflects _____

A)that marginal benefit equals marginal cost.
B)that the value of additional information is zero.
C)that the marginal cost is zero.
D)adverse selection.
E)that all information is costly.

Question 51

Consumers generally consider the process of learning about the efficiency and durability of various brands of refrigerators _____

A)irrational.
B)unproductive.
C)a vocation.
D)nonmarket work.
E)costless.

Question 52

Which of the following is correct?

A)For firms, full information involves knowledge about a product's price, quality, and availability.
B)For consumers, full information includes knowledge about the marginal productivity of various resources.
C)For consumers, full information includes knowledge about the appropriate technology for combining various resources.
D)For consumers, full information includes knowledge about the competition.
E)Reliable information is costly to procure for both producers and consumers.

Question 53

Exhibit 14.2

Refer to Exhibit 14.2,which shows the marginal cost and the marginal benefit of information curves.I_f reflects _____

A)that marginal benefit equals the marginal cost.
B)that the value of additional information is zero.
C)that the marginal cost is zero.
D)adverse selection.
E)that all information is costly.

Question 54

A firm that produces mouthwash branches out into producing toothpaste.If this expansion reduces its average cost of production,which of the following can be concluded about this firm?

A)The firm is benefiting from vertical integration.
B)The firm is benefiting from horizontal integration.
C)The firm is experiencing economies of scale.
D)The firm is experiencing economies of scope.
E)The firm is not incurring any transaction cost.

Question 55

Which of the following is an example of a producer taking advantage of economies of scope?

A)a farmer buying more land so that he can produce more soybeans
B)GM closing a Chevy truck plant in response to a decline in the demand for trucks
C)Disney World staying open later to serve more customers per day
D)a dairy farmer producing cow's milk and butter
E)a mouthwash firm expanding production by improving managerial efficiency

Question 56

Exhibit 14.3

Refer to Exhibit 14.3,which shows the marginal cost and the marginal benefit of information curves.The optimal level of search is shown at _____

A)I₁.
B)I₂.
C)I₃.
D)zero.
E)not shown.

Question 57

Publications such as Consumer Reports _____

A)increase the optimal amount of information gathered.
B)reduce the optimal amount of information gathered.
C)reduce the amount of common knowledge.
D)shift the marginal benefit of information curve downward.
E)make consumers perfectly informed.

Question 58

Exhibit 14.2

Refer to Exhibit 14.2,which shows the marginal cost and the marginal benefit of information curves.Where is knowledge freely available?

A)I_p
B)I_f
C)I*
D)greater than I*
E)less than I*

Question 59

When a multiproduct firm like General Electric (GE)spreads its outlays for research,development,and marketing over different products,per-unit costs decrease.This implies that GE is taking advantage of _____

A)government intervention.
B)vertical integration.
C)economies of scale.
D)economies of scope.
E)market power.

Question 60

Exhibit 14.2

Refer to Exhibit 14.2,which shows the marginal cost and the marginal benefit of information curves.I_p reflects _____

A)that marginal benefit equals the marginal cost.
B)that the value of additional information is zero.
C)that the marginal cost is zero.
D)adverse selection.
E)that all information is costly.

Question 61

According to Stigler's search model,we should expect greater price dispersion for a given good _____

A)if the good is a luxury.
B)if the good is inferior.
C)if there is a lot of common knowledge about the good.
D)during a recession.
E)if a computerized search service is offered.

Question 62

According to Stigler's search model,an e-shopping site is likely to _____

A)increase the marginal cost of information.
B)decrease the marginal benefit of search.
C)increase quality dispersion.
D)reduce quality dispersion.
E)increase price dispersion.

Question 63

Exhibit 14.3

Refer to Exhibit 14.3,which shows the marginal cost and the marginal benefit of information curves.If a consumer gathers an amount of information equal to I₂,it implies that _____

A)she has made the optimal search.
B)she has avoided the cost of acquiring information.
C)she has searched too much.
D)further information will be costless to her.
E)she should increase her search.

Question 64

Identify a good that is most likely to have the maximum marginal benefit of search.

A)a pair of shoes
B)an automobile
C)a jar of honey
D)a loaf of bread
E)a pair of jeans

Question 65

According to Stigler's search model,a computerized used car search service is likely to_____

A)increase the opportunity cost of time.
B)decrease the amount of search.
C)increase price dispersion.
D)decrease price dispersion.
E)lower the marginal benefit of search.

Question 66

According to Stigler's search model,the marginal benefit of acquiring information about a product _____

A)is greater for a doctor than for a nurse.
B)is the same for both high-income and low-income consumers.
C)is greater for expensive items than for cheap items.
D)is greater for cheap items than for expensive items.
E)increases as more information is acquired.

Question 67

According to Stigler's search model,an increase in the earnings of individuals in a growing economy is likely to result in _____

A)a decrease in quality dispersion.
B)a decrease in the opportunity cost of time.
C)an increase in the marginal benefit of search.
D)an increase in the amount of search.
E)an increase in price dispersion.

Question 68

Exhibit 14.3

Refer to Exhibit 14.3,which shows the marginal cost and the marginal benefit of information curves.Which of the following is likely to shift the marginal cost of information curve upward?

A)introduction of a new technology
B)an increase in unemployment in an economy
C)an increase in the availability of substitute goods
D)an increase in the earnings of an economy
E)improvement in the overall quality of a good

Question 69

Exhibit 14.3

Refer to Exhibit 14.3,which shows the marginal cost and the marginal benefit of information curves.Identify a likely impact of a new technology that requires consumers to spend less time searching for information.

A)a rightward shift of the marginal cost of information curve
B)a rightward shift of the marginal benefit of information curve
C)a leftward shift of the marginal cost of information curve
D)a leftward shift of the marginal benefit of information curve
E)an increase in common knowledge

Question 70

Which of the following would lead a utility-maximizing consumer to search for additional information?

A)an increase in income
B)an increase in the marginal cost of information
C)improved technology (for example, Internet search programs)
D)a reduction in the dispersion of prices
E)a reduction in quality differences across sellers

Question 71

Among the goods and services mentioned below,the marginal benefit of search is likely to be the highest for _____

A)a haircut.
B)a babysitter.
C)a jar of peanut butter.
D)cosmetic surgery.
E)a CFL bulb.

Question 72

Exhibit 14.3

Refer to Exhibit 14.3,which shows the marginal cost and the marginal benefit of information curves.The point I₁ indicates _____

A)the optimal amount of information gathered.
B)common knowledge.
C)the opportunity cost of a consumer's time.
D)adverse selection.
E)that all information is costly.

Question 73

The marginal benefit of acquiring additional information tends to _____

A)be zero if the marginal cost of information is zero.
B)increase and then decrease as additional information is obtained.
C)be very high for goods whose price dispersion is very small.
D)be zero in the case of luxury goods.
E)decrease as additional information is obtained.

Question 74

The statement "It doesn't hurt to get more information" holds true _____

A)especially when the opportunity cost of acquiring the information is high.
B)when information is less than perfect.
C)only if the marginal benefit of information is greater than the marginal cost of information.
D)only if the marginal benefit of information is equal to the marginal cost of information.
E)only if the marginal benefit of information is less than the marginal cost of information.

Question 75

Dating websites are popular because they _____

A)increase the marginal benefit of search.
B)reduce the marginal cost of search.
C)increase the marginal cost of search.
D)reduce the optimal amount of search.
E)increase quality dispersion.

Question 76

For which of the following goods is the marginal benefit of search likely to be greatest?

A)a toaster
B)an apple
C)a radio
D)a tube of toothpaste
E)an LED TV

Question 77

Exhibit 14.3

Refer to Exhibit 14.3,which shows the marginal cost and the marginal benefit of information curves.Which of the following is true of a consumer who has gathered information equal to I₃?

A)The consumer has made an optimal search.
B)The consumer is relying solely on common knowledge.
C)The consumer has acquired all available information that is beneficial to her.
D)Further information will be costless to this consumer.
E)The consumer should increase her search.

Question 78

According to Stigler's search model,the marginal cost of acquiring information about a product _____

A)is greater for a doctor than for a nurse.
B)is the same for high-income consumers as for low-income consumers.
C)is greater for expensive items than for cheap items.
D)is greater for cheap items than for expensive items.
E)diminishes as more information is acquired.

Question 79

Exhibit 14.3

Refer to Exhibit 14.3,which shows the marginal cost and the marginal benefit of information curves.The marginal benefit curve shows that _____

A)as consumers become more familiar with a market, additional information yields less and less marginal utility.
B)the marginal benefit of information increases as a consumer spends more and more time acquiring information.
C)greater and greater distances must be covered to acquire a marginal piece of information.
D)the cost of gathering information diminishes as more of it is gathered.
E)common knowledge alone is enough to decide consumer choice.

Question 80

Which of the following is true of the marginal benefit curve for additional information in Stigler's search model?

A)It is positively sloped.
B)It always lies above the marginal cost curve.
C)It begins on the horizontal axis at a point that represents full information.
D)It slopes downward.
E)It begins on the horizontal axis at a point that represents common knowledge.