Economics of Network Industries solved MCQs

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1. An externality is defined as

a. an additional cost imposed by the government on producers.

B. a cost or benefit caused by a producer that is not financially incurred or received by that producer.

c. an additional gain received by consumers from decisions made by the government.

d. the additional amount consumers have to pay to consume an additional amount of a good or service.

2. Which of the following is NOT an issue involving network externalities?

a. the market may be too small

B. the market may be to

c. problem of monopol

d. None of the above

3. Which of the following is a general policy issue surrounding the issue of network externalities?

a. Issues of private property rights and intellectual property issues

B. Issues of monopoly re

c. None of the Above

d. Both A & B

4. Which one of the following goods is nonexcludable?

a. the Sunshine

B. a Cab

c. an art gallary

d. a toll bridge

5. A common resource is

a. nonrival and nonexclud

B. nonrival and excludabl

c. rival and nonexcludable.

d. regulated and exclu

6. Cable television and air-traffic control are similar to each other because both of them are

a. nonexcludable.

B. nonrival.

c. excludable.

d. rival.

7. A natural monopoly is

a. nonrival and excludable

B. rival and nonexcludable.

c. nonrival and nonexcl

d. regulated and exclu

8. A good that is rival and nonexcludable is a

a. common resource.

B. private good.

c. public good.

d. government good

9. Supply-side economies of scale arise:

a. when a buyer's willingness to pay for a product increases.

B. when the demand for a firm's product keeps fluctuating.

c. when the number of buyers for a firm's product decreases.

d. when a firm manufactures products in high volumes.

10. Public goods are provided by government because

a. governments are more efficient than private firms at producing public goods.

B. people value national defence very highly.

c. private firms will make an economic profit.

d. free-rider problems result in underproduction by private markets.

11. Network effects also known as                             _

a. Network goods

B. Network Management

c. Network Externalities

d. Network Diagnosis

12. Network industries does not include                       _

a. Telephone

B. Airlines

c. Banking

d. Treasury Bonds

13. The second theorem of _ states that any Pareto optimum can be supported as a competitive equilibrium for some initial set of endowments.

a. Public Choice

B. Social Interest

c. Welfare Economics

d. Keynesian Economi

14. Economies of scale result from                          

a. large fixed costs and/or weakly increasing variable costs

B. low fixed costs and/or strongly decreasing variable costs

c. large fixed costs and decreasing variable costs

d. low fixed costs and weakly increasing variable costs

15.                             _ network effects arise when there are "at least two different customer groups that are interdependent, and the utility of at least one group grows as the other group(s) grow".

a. Direct

B. Indirect (or cross-grou

c. Two-sided

d. Local

16. Network scales faster as it                                   _

a. lowers its customer acquistion cost.

B. higher its customer ac

c. cost of acquisition remains constant.

17. Which of the following started as a De facto standard?

a. ISO




18. Which of the following statements about a monopoly is FALSE?

a. A monopoly is the only supplier of the good.

B. Monopolies have no barriers to entry or exit.

c. The good produced by a monopoly has no close substitutes.

d. None of the above; that is, all of the above answers are true statements about a monopoly.

19. Which of the following is true of a natural monopoly?

a. The firm can supply the entire market at a lower cost than could two or more firms.

B. Its average total cost curve slopes upward as it intersects the demand curve.

c. The firm is not protected by any barrier to entry.

d. Economies of scale exist to only a very low level of output.

20. When consumers are not identical, a market failure may occur when

a. a monopoly producer provides compatibility.

B. a monopoly producer does not provide compatibility and compatibility is not socially preferred.

c. a monopoly provides compatibility and compatibility is socially preferred.

d. a monopoly producer does not provide compatibility but compatibility is socially preferred to incompatibility.

21. When users’ preferences exhibit network externalities, and if computer brands are differentiated and incompatible, then                       _

a. prices and profit levels decline with an increase in consumers’ preference toward the network size.

B. prices and profit levels increases with an increase in consumers' preference towards the network size.

c. price increases and profit level decreases with an increase in consumers' preference toward the network size.

d. price declines while profit level increase with an increase in consumers' preference towards the network size.

22. When users’ preferences exhibit network externalities,                                

a. computer producers charge higher prices and earn higher profits when they make their machines compatible;

B. consumers are worse off when firms sell compatible machines.

c. consumers are well off when firms sell compatible machines

d. Both A & B

23. In Duopoly, Social welfare is maximized when                             _

a. there is one-way compatibility.

B. both machines are compatible.

c. both machines are incompatible to each other.

d. none of the above.

24. The firm with the higher market share under incompatibility earns _ under incompatibility whereas the firm with the smaller market share under incompatibility earns _ under compatibility.

a. a higher profit, a lower

B. a lower profit, a lower

c. a higher profit, a hig

d. hB) a lower profit, a hig

25. Production of software exhibits sharp                             _.

a. economies of scope

B. economic welfare

c. economic sustainabil

d. economies of scale


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