Free CPA-Business Exam Braindumps (page: 67)

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What is the effect when a foreign competitor's currency becomes weaker compared to the U.S. dollar?

  1. The foreign company will have an advantage in the U.S. market.
  2. The foreign company will be disadvantaged in the U.S. market.
  3. The fluctuation in the foreign currency's exchange rate has no effect on the U.S. company's sales or cost of goods sold.
  4. It is better for the U.S. company when the value of the U.S. dollar strengthens.

Answer(s): A

Explanation:

Choice "a" is correct. As a foreign competitor's currency becomes weaker compared to the U.S. dollar, the product becomes less expensive in U.S. dollars. The less expensive product will have the advantage in the U.S. market.
Choice "b" is incorrect. As a foreign competitor's currency becomes weaker compared to the U.S. dollar, the product becomes less expensive in U.S. dollars. The less expensive product will have the advantage in the U.S. market, not a disadvantage.
Choice "c" is incorrect. Foreign currency exchange rates impact both sales and possibly cost of goods sold of a competing domestic company. Sales within U.S. markets will deteriorate as the currency of foreign competitors deteriorates and makes the domestic company's goods more expensive. As a foreign competitor's currency appreciates, sales within U.S. markets by a domestic company should also increase as goods manufactured in the U.S. become less expensive. Cost of goods sold may fluctuate if foreign suppliers are used.
Choice "d" is incorrect. It is better for a U.S. company when the value of the U.S. dollar weakens, not strengthens. A weak U.S. dollar makes domestic goods relatively less expensive that imported goods.



Compared to firms in a perfectly competitive market, a monopolist tends to:

  1. Produce substantially less but charge a higher price.
  2. Produce substantially more and charge a higher price.
  3. Produce the same output and charge a higher price.
  4. Produce substantially less and charge a lower price.

Answer(s): A

Explanation:

Choice "a" is correct. Compared to firms in a perfectly competitive market, a monopolist tends to produce substantially less but charge a higher price.
Choices "b", "c", and "d" are incorrect, per above Explanation.



Patents are granted in order to encourage firms to invest in the research and development of new products. Patents are an example of:

  1. Market concentration.
  2. Entry barriers.
  3. Exclusionary practices.
  4. Collusion.

Answer(s): B

Explanation:

Choice "b" is correct. Patents are an example of entry barriers. Patents prevent other rival firms (without patents) from entering the market and consequently, are a form of entry barriers. Patents can be "process- related" or "product-related."
Choices "a", "c", and "d" are incorrect, per above Explanation.



An oligopolist faces a "kinked" demand curve. This terminology indicates that:

  1. When an oligopolist lowers its price, the other firms in the oligopoly will match the price reduction, but if the oligopolist raises its price, the other firms will ignore the price change.
  2. An oligopolist faces a non-linear demand for its product, and price changes will have little effect on demand for that product.
  3. An oligopolist can sell its product at any price, but after the "saturation point," another oligopolist will lower its price and, therefore, shift the demand curve to the left.
  4. An oligopolist is similar to a monopolist, and as the quantity demanded for its product increases, the demand curve for that firm shifts to the right.

Answer(s): A

Explanation:

Choice "a" is correct. In an oligopoly, each firm faces a "kinked" demand curve. Others will match price cuts, but ignore price increases. The "kink" is at the prevailing price. Best real world examples of oligopoly are the airline and auto industries.
Choice "b" is incorrect. An oligopolist's demand curve is linear but "kinked." Above the "kink," demand is highly elastic. Below, very inelastic.
Choice "c" is incorrect. An oligopolist cannot sell at any price. There is no "saturation point."
Choice "d" is incorrect. A change in quantity demanded indicates a movement along the demand curve, not a shift in the curve.



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