Economics of Network Industries Solved MCQs

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.
Answer» B. a cost or benefit caused by a producer that is not financially incurred or received by that producer.
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
Answer» B. the market may be to
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
Answer» 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
Answer» A. the Sunshine
5.

A common resource is

A. nonrival and nonexclud
B. nonrival and excludabl
C. rival and nonexcludable.
D. regulated and exclu
Answer» C. rival and nonexcludable.
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.
Answer» B. nonrival.
7.

A natural monopoly is

A. nonrival and excludable
B. rival and nonexcludable.
C. nonrival and nonexcl
D. regulated and exclu
Answer» A. nonrival and excludable
8.

A good that is rival and nonexcludable is a

A. common resource.
B. private good.
C. public good.
D. government good
Answer» A. common resource.
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.
Answer» 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.
Answer» 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
Answer» C. Network Externalities
12.

Network industries does not include                       _

A. Telephone
B. Airlines
C. Banking
D. Treasury Bonds
Answer» 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
Answer» C. Welfare Economics
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
Answer» A. large fixed costs and/or 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
Answer» B. Indirect (or cross-grou
16.

Network scales faster as it                                   _

A. lowers its customer acquistion cost.
B. higher its customer ac
C. cost of acquisition remains constant.
Answer» A. lowers its customer acquistion cost.
17.

Which of the following started as a De facto standard?

A. ISO
B. HTTP
C. IEEE
D. ANSI
Answer» B. HTTP
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.
Answer» B. Monopolies have no barriers to entry or exit.
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.
Answer» A. The firm can supply the entire market at a lower cost than could two or more firms.
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.
Answer» 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.
Answer» A. prices and profit levels decline with an increase in consumers’ preference toward 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
Answer» 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.
Answer» B. both machines are compatible.
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
Answer» C. a higher profit, a hig
25.

Production of software exhibits sharp                             _.

A. economies of scope
B. economic welfare
C. economic sustainabil
D. economies of scale
Answer» D. economies of scale
26.

The price charged by a monopoly hardware firm .

A. increases with consumers’ love for software variety parameter, α; consumers’ income, ω; and the number of consumers buying this machine, η
B. decrease with consumers’ love for software variety parameter, α; consumers’ income, ω; and the number of consumers buying this machine, η
C. increases with consumers’ love for software variety parameter, α; consumers’ income, ω; and decrease in the number of consumers buying this machine, η
D. increases with consumers’ love for software variety parameter, α; decrease in consumers’ income, ω; and the number of consumers buying this machine, η
Answer» A. increases with consumers’ love for software variety parameter, α; consumers’ income, ω; and the number of consumers buying this machine, η
27.

An increase in consumers’ preference for variety of software .

A. increases both hardware prices and profits.
B. decreases both hardware prices and profits.
C. increase hardware prices and decrease profits.
D. decrease hardware prices and increase profits.
Answer» B. decreases both hardware prices and profits.
28.

Equilibrium duopoly hardware prices and profits are higher when the machines are compatible than when they are incompatible.

A. TRUE
B. FALSE
Answer» A. TRUE
29.

When there are two software industries, each producing brand-specific software, an increase in the degree of compatibility of the A- machine with the software written for the B- machine,

A. will reduce the variety of software specifically written for the A machine
B. will increase the variety of software specifically written for the A machine
C. will reduce the variety of software specifically written for the B machine
D. none of the above.
Answer» A. will reduce the variety of software specifically written for the A machine
30.

Support-oriented consumers would prefer buying software over pirating software                                 .

A. if p > σq; i.e., if the price of the software package exceeds the value of service provided by the software firm to its legal users.
B. if software is not copy protected.
C. if service provided by software firm is not available.
D. if p ≤ σq; i.e., if the price of the software package does not exceed the value of service provided by the software firm to its legal users.
Answer» D. if p ≤ σq; i.e., if the price of the software package does not exceed the value of service provided by the software firm to its legal users.
31.

                            _ occurs when a new technology replaces an old technology, but the old technology yields a higher utility (or profit) to both users than the new technology.

A. Excess momentum
B. Excess inertia
C. Excess immobility
D. Excess retreat
Answer» A. Excess momentum
32.

The duration of each technology, Δ,

A. decreases with the population size of each generation, η, and decreases with the technology-growth parameter, λ.
B. increases with the population size of each generation, η, and the technology-growth parameter, λ.
C. increases with the population size of each generation, η, and decreases with the technology-growth parameter, λ.
D. decreases with the population size of each generation, η, and increases with the technology- growth parameter, λ.
Answer» C. increases with the population size of each generation, η, and decreases with the technology-growth parameter, λ.
33.

When consumer preferences exhibit international network externalities, both countries are better off when both countries mutually recognize foreign standards than when both countries do not recognize foreign standards.

A. TRUE
B. FALSE
Answer» A. TRUE
34.

Entry into the telecommunication industry                  the utility of the already connected consumers whereas the utility of newly connected consumers _.

A. increases, also increase
B. decreases, increases
C. increases, remains u
D. decreases, remains
Answer» C. increases, remains u
35.

Suppose that all technologies have the same duration. Then the frequency of technology revolutions (or new-technology adoption), denoted by f is

A. f ≝ 1/Δ(g+λ).
B. f ≝ Δ/ λ
C. f ≝ λ/Δ.
D. f ≝ 1/Δ.
Answer» D. f ≝ 1/Δ.
36.

The duration of each technology, Δ,                              with the population size of each generation, η, and with the technology-growth parameter, λ.

A. increases, decreases
B. increases, increases
C. decreases, increases
D. decreases, decreas
Answer» A. increases, decreases
37.

The at a price (connection fee) p0 is the minimal number of customers needed to ensure that at least this number of consumers will benefit from subscribing to the service at the fee p0.

A. critical weight
B. critical mass
C. critical volumn
D. weight
Answer» B. critical mass
38.

In order to connect each consumer to the network of services, the monopoly has to spend μ units of money, where _ .

A. μ > η
B. μ < η
C. μ = η
D. μ >= η
Answer» B. μ < η
39.

Suppose that the incumbent and the entrant in the long-distance phone call market compete in prices (rates). Then,                                         _.

A. under the ECPR, only entrants with unit cost μE > μI will enter the long- distance phone-call industry.
B. under the ECPR, only entrants with unit cost μE < μI will enter the long-distance phone-call industry.
C. under the ECPR, only entrants with unit cost μE ≤ μI will enter the long-distance phone-call industry.
D. under the ECPR, only entrants with unit cost μE = μI will enter the long- distance phone-call industry.
Answer» C. under the ECPR, only entrants with unit cost μE ≤ μI will enter the long-distance phone-call industry.
40.

The for assigning scarce frequency band is inefficient as there is a strictly positive probability that frequency will be assigned to the less efficient firm.

A. lottery system
B. auction process
C. first-come-first-serve
D. administrative proc
Answer» A. lottery system
41.

In _ the government fails to extract all the rents associated with giving away the frequency band to the private sector.

A. lottery system
B. auction
C. first-come-first-serve
D. administrative proc
Answer» B. auction
42.

In order to ensure that foreclosures will not take place, regulators should allow all service providers to sell the entire variety of telecommunication, broadcasting, and Internet services.

A. TRUE
B. FALSE
Answer» A. TRUE
43.

Information is reproduced if each agent (the provider and each consumer) makes one copy for the benefit of another consumer.

A. Horizontally
B. Vertically
C. Mixed
D. None of the above
Answer» B. Vertically
44.

Section 170 of Copyright Act states: “the fair use of copyrighted work ... for purposes such as criticism, comment, newsreporting, teaching (including multiple copies for classroom use), scholarship, or research, is an infringement of copyright.”

A. TRUE
B. FALSE
Answer» B. FALSE
45.

Under either vertical or horizontal information reproduction, total surplus enjoyed by the η consumers is                                         _.

A. higher when information is printed compared with digital information.
B. higher when information is digital compared with printed information.
C. the same when information is digital or printed.
D. None of the above
Answer» B. higher when information is digital compared with printed information.
46.

The amount of uncaptured consumer surplus when information is digital exceeds the amount of uncaptured surplus when information is printed

A. TRUE
B. FALSE
Answer» A. TRUE
47.

An increase in journal photocopying                       _ library’s value and hence funding, which in turn allows journal publishers to increase subscription fees.

A. decreases
B. increases
C. doesn't impact
D. None of the above
Answer» B. increases
48.

Selling to libraries yields a higher profit to the publisher than selling directly to readers when:

A. books are not costly to produce.
B. there are more libraries relative to the number of readers.
C. readers do not place a high value on owning the book.
D. None of the above
Answer» C. readers do not place a high value on owning the book.
49.

The profit level of a bank declines when it makes its ATMs available for the customers of a competing bank.

A. TRUE
B. FALSE
Answer» A. TRUE
50.

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. oC) problem of monopol
D. None of the above
Answer» B. the market may be to
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