BUS615 - Assignment Essays

question

An individual's value for a good or service is

a. the amount of money he or she used to pay for a good.
b. the amount of money he or she is willing to pay for it.
c. the amount of money he or she has to spend on goods.
d. None of the above.

answer

b. the amount of money he or she is willing to pay for it.

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A buyer willingly buys if the price of a good is:
a. Above his value
b. Below his value
c. At his value
d. Less than he expected

answer

b. Below his value

question

The zero sum fallacy is:
a. The idea that when total revenue equals total cost, no profit is made.
b. Often used to justify limits on profitability
c. Means that if one person is making money, someone else is losing money
d. Both b and c

answer

d. Both b and c

question

If people behave rationally, optimally, and self-interestedly, a bad decision occurs for which of these reason(s)?
a. The decision-maker did not have enough information to make a good decision.
b. The decision-maker did not take the necessary time to make a good decision.
c. The decision-maker did not have the incentive to make a good decision.
d. both a and c

answer

d. both a and c

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The one thing that unites all economists is their use of:

answer

b. the rational-actor paradigm.

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A price ceiling

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b. is an implicit tax on producers and an implicit subsidy to consumers.

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Did they have enough information to make a good decision?

answer

c. MAYBE

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A consumer values a car at $20,000 and it costs a producer $15,000 to make the same car. If the transaction is completed at $18,000, the transaction will generate

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c. $2,000 worth of buyer surplus and $3,000 of seller surplus.

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Wealth-creating transactions are more likely to occur
a. with private property rights.
b. with strong contract enforcement.
c. with black markets.
d. All of the above.

answer

d. All of the above.

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There are three levers one can push to correct bad decision-making. Which of the following is NOT such a lever?
a. Change the current decision makers' incentives.
b. Give more information to the current decision-maker.
c. Let someone else who has no relationship to the problem make the decision.
d. Let someone else who has better information or incentives make the decision.

answer

c. Let someone else who has no relationship to the problem make the decision.

question

A company invested $400,000 in a technology that reduced the overall costs of production by reducing their cost per unit from $2 to $1.85. Later, a manager has an opportunity to outsource production to another company at a cost per unit of $1.75. If you are the manager, you

a.
should consider the $400,000 as a sunk cost, not relevant to the decision.
b.
should reduce his effort by ignoring any new developments and letting the production run as it is.
c.
should ignore the $400,000 fixed cost.
d.
Both A & C

answer

d.
Both A & C

question

If a firm produces 10 units, TC=$100. When the firm increase its output to 15 units, TC= $150. The firm's AVC equal to

answer

b.
$10

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Marginal cost is ____________.

answer

a.
The cost of producing an additional unit of output

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Managers undertake an investment only if

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c.
Marginal revenue is greater than marginal costs

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Use the following table to answer questions 44 - 50:

# Units Produced, Total Revenue, Total Costs
0 0 200
1 600 660
2 780 720
3 840 780
4 890 870
5 910 980
What is the marginal cost of producing the third unit?

answer

a. 60

question

Harvey's Hardware is thinking about starting a line of lawnmowers to serve its customer base in the summer. The lawnmowers would be priced at $100 and Harvey the manager believes that they would sell 3 units. They have the following estimated costs. Use this information for questions 55-58

Units Produced Labor Cost Total cost
0 0 100
1 50 150
2 100 200
3 200 300
4 350 450
How many units should Harvey's Housewares produce?

answer

question

Firm X is producing 1000 units, selling them at $15 each. Variable costs are $3 per unit and the firm is making an accounting profit of $3000. What is the firm's total variable costs?

answer

3000

question

Total costs equal

answer

d.
Fixed costs plus variable costs

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A business owner makes 50 items a day. He spends 8 hours in producing those items. If hired elsewhere he could have earned $10 an hour. The item sells for $10 each. Production occurs seven days a week. If the explicit costs total $10,000 a month, the accounting profit for the month equals:

answer

d.
$5,000

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The opportunity cost of an action:

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c.
is equal to the cost of the next best alternative forgone

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What is consumer surplus?

answer

c.
The difference between how much an individual is willing to pay for a product and how much he ends up paying

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Jim saw a decrease in the quantity demanded for his firm's product from 8000 to 6000 units a week when he raised the price of the product from $200 to $250. What is Jim's own price elasticity of demand?

answer

a.
1.29

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If the current margin is greater than the desired margin, the firm should

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b.
Decrease price

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If cars are normal goods, a fall in income will

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b.
Decrease the demand for cars

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A price elasticity of demand of -0.67 implies

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a.
Demand is inelastic

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If the annual interest rate is 10%, the net present value of receiving $550 in the next year is:

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a.
$550

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Projects with a positive NPV create

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a.
economic profits since they earn a return higher than the company's cost of capital

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Which of the following defines a sunk cost?

answer

c.
An asset with no scrap value

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A cloth manufacturing firm is deciding whether or not to invest in new machinery. The machinery costs $45,000 and is expected to increase cash flows in the first year by $25,000 and in the second year by $30,000. The firm's current fixed costs are $9,000 and current marginal cost are $15. The firm currently charges $18 per unit.

What's the firm's current contribution margin?

answer

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A firm sells 1000 units per week. It charges $15 per unit, the average variable costs are $10, and the average costs are $25. In the long run, the firm should

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b.
Shut-down as price is lower than average cost

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Changes in the price of a product can cause

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a.
A movement along the demand curve

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How does an increase in income affect the market for bus rides (inferior good)?

answer

b.
The demand curve for bus rides to shift to the left

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Holding other factors constant, if bad weather destroys the annual crop for carrots, it causes the supply curve for carrots to

answer

a.
Shift to the left, causing the prices of carrots to rise

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People like consuming peanut butter and jelly together. The price of peanuts increases. At the same time, we see the price for Jelly rise. How does this affect the market for peanut butter?

answer

a.
The demand curve will shift to the left; the supply curve will shift to the left

question

The law of supply states that, holding other factors constant, as price increases

answer

a.
Quantity supplied increases

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All the factors below are causes of diminishing marginal returns, except

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c.
Specialization and division of Labor

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A falling average cost implies that

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b.
marginal cost is below average cost

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Economies of scale are also known as

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a.
Increasing returns to scale

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What is a synergy or cost complementarity?

answer

b.
the cost of producing different products offered by separate companies is higher than when produced by one company

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What are diseconomies of scope?

answer

a.
the cost of producing two products jointly by one firm is more than the cost of producing them separately

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The indifference principle states that
a.
If an asset is mobile, then in the long run, it will be indifferent about where it is used
b.
In the long run, a mobile asset will make the same profit, no matter where it goes
c.
If an asset is mobile, then in the long run, it would stay with the first user
d.
Only A&B

answer

d.
Only A&B

question

Monopoly firms manage to earn positive profits, even in the long run because
a.
they have no close substitutes
b.
there are high barriers of entry to the market
c.
they have a cost advantage difficult to duplicate
d.
all of the above

answer

d.
all of the above

question

Intense market competition is ________ for consumers, since it_______.

answer

d.
Good; decreases the price level in the market

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Supplier power tends to be high when

a.
your firm purchases critical inputs from the supplier
b.
your input choices are highly differentiated
c.
Both A&B
d.
None of the above

answer

C. Both A&B

question

The industrial organization or (IO) perspective predicts
a.
firm's profitability differs only if they are in different industries
b.
firms within an industry are equally profitable
c.
firm's profitability within industries varies widely
d.
Only A&B

answer

d.
Only A&B

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In the long-run, a perfectly competitive firm will achieve

answer

a.
An average rate of return

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A sudden rise in the market demand in a competitive industry leads to

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c.
Entry of new firms into the market

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In a competitive industry

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a.
firms have no cost advantages

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The concept that explains the firm's ability to produce output with differing bundles of resources is called

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a.
Resource heterogeneity

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All of these allow a firm to differentiate its product, except

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b.
Reducing quality

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In a multi-product firm, cannibalization is

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d.
An increase in one of the brand's sales due to the decrease in sales of the other.

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The general rule to increase profits when two close complementary brands are jointly owned is

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b.
Decrease prices for both brands

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Firms that face capacity constraints can increase output only up to the capacity, but no further. Therefore, firms

answer

a.
Should price to capacity as long as MR > MC

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A parking lot in a busy downtown district is experimenting with its pricing strategy to figure out where it should price its spaces. Which of the following strategies should it implement?

answer

c.
If the lot fills up right around 9am the price is right

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An online shoe retailer wants to introduce handling charges for purchases less than $50. How should the retailer pose the charges to its customers to improve its chances of being well-received?

answer

c.
Introduce it as free above $50

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The term to describe one currency in terms of another is called

answer

d.
The exchange rate

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In the market for Canadian dollars measured in US dollars, if the price of a Canadian dollar is 0.90 cents US, a US dollar is

answer

c.
1.11 Canadian dollars

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For foreigners, the intersection of the demand for US dollars and the supply of US dollar is known as the

answer

b.
Exchange rate

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A weaker peso, relative to the US dollar, causes the demand for US exports to ______ and the demand of Mexican imports to______

answer

d.
Decrease; Decrease

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An increase in the US demand for British pounds causes
a.
An appreciation of the pound
b.
Depreciation of the dollar
c.
None of the above
d.
Both a and b

answer

d.
Both a and b

question

Which of the following is an example of price discrimination?

a.
Seniors paying a lower price for tickets at movie theatres
b.
Students paying discounted rates on travel
c.
Tourists paying higher prices on local attractions than locals
d.
All of the above

answer

d.
All of the above

question

Amusement parks often offer discounts to locals with IDs. This is an example of

answer

a.
A direct discrimination scheme

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When deciding what price to charge customers, a firm may choose to charge different prices based on customers'
a.
Age
b.
Willingness to pay
c.
Location
d.
All of the above

answer

d.
all of the above

question

Advance-purchase discounts offered by airlines are an example of

a.
Direct price discrimination
b.
Indirect price discrimination
c.
All of the above
d.
None of the above

answer

b.
Indirect price discrimination

question

Consumers demand different features from cough medications taken for daytime use versus nighttime use. Drug companies conveniently package both medications together. This strategy is designed to

a.
Allow consumers to buy the two together
b.
Stop consumers from buying each medicine separately
c.
Make the consumers more homogenous so that maximum consumer surplus can be extracted with a single price
d.
None of the above

answer

c.
Make the consumers more homogenous so that maximum consumer surplus can be extracted with a single price

question

Price discrimination is

answer

a.
The practice of charging different prices to different individual buyers or customer groups

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For a firm to maximize total profits through price discrimination, it should

answer

a.
Charge a high price to consumers with an inelastic demand and low price to consumers with an elastic demand

question

Charging prices closer to what consumers are willing to pay for a good

a.
Reduces consumers surplus
b.
Increases producer surplus
c.
Both a and b
d.
None of the above

answer

c.
Both a and b

question

Advance-purchase discounts offered by airlines are an example of
a.
Direct price discrimination
b.
Indirect price discrimination
c.
All of the above
d.
None of the above

answer

b.
Indirect price discrimination

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The "damaged goods" strategy refers to

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c.
Incurring additional costs to make the cheaper goods unattractive to high-value users

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The rational-actor paradigm is:

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c. A tool for analyzing behavior.

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The absence of property rights contributes to:

answer

poverty

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Money-making opportunities result from:

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b. Assets in lower-valued uses

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Determining whether a policy is good or bad requires that we look:
a. At those who benefit from the policy
b. Those who lose because of the policy
c. A profit and loss spreadsheet recording the effects of the policy
d. Both a and b

answer

d. Both a and b

question

The biggest advantage of capitalism is that
a. it allows the market to self-regulate.
b. it allows a person to follow his self interest.
c. it allows voluntary transactions, which create wealth.
d. All of the above.

answer

d. All of the above.

question

Which of these actions creates value?
a. buying a struggling firm and selling off its assets for more than the purchase price
b. baseball slugger drawing paying fans into the ballpark
c. student increasing his decision making ability with an MBA
d. all of the above

answer

d. all of the above

question

Which of the following are examples of a price floor?

answer

a. Minimum wages.

question

Taxes
a. impede the movement of assets to higher-valued uses.
b. reduce incentives to work.
c. decrease the number of wealth-creating transactions.
d. All of the above.

answer

d. All of the above.

question

A consumer values a car at $525,000 and a producer values the same car at $485,000. If sales tax is 8% and is levied on the seller, then the seller's bottom-line price is (rounded to the nearest thousand)

answer

a. $527,000.

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Wealth generating activities always:

answer

d. increase total surplus

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Who made the bad decision?

answer

plant manager

question

Did he have the incentive to make a good decision?

answer

a. No, because he was evaluated and rewarded based on the average cost of electricity produced.

question

Calculate the correct figure for the blank cell below in the Variable/3,000 cell.. Which of the following statements is correct?Table 3.1 Candy Factory Costs
Output Fixed Variable Total
0 1,000,000 0 1,000,000
1,000 1,000,000 500,500 1,500,500
2,000 1,000,000 1,001,000 2,001,000
3,000 1,000,000_________ 2,501,500
4,000 1,000,000 2,002,000 3,002,000
5,000 1,000,000 2,502,500 3,502,500

answer

b. $1,501,500

question

To test your understanding of the distinction between fixed and variable costs, designate which of the following statements is true.
a. Payments to your accountants to prepare your tax returns are fixed
b. Electricity to run the candy-making machines are variable.
c. Fees to design the packaging of your candy bar are variable
d. Both a and b are correct

answer

d. Both a and b are correct

question

Regarding accounting profit and economic profit, which of the following statements is/are true?Cost of capital= (4 billion Pounds*(1+green cell)- 4 billion Pounds

answer

c. A firm may have a negative economic profit and a positive accounting profit simultaneously.

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Consider a football game. You buy a ticket for $20, but at game time, scalpers are selling tickets for $50 because your team is playing its cross-state rivals who have legions of fans willing to pay over $50 to go to the game. Even though you do not value the tickets at $50 (indeed - you value them for much less!), you go anyway because, you say, "These tickets cost me only $20." In this case, you should:

answer

c. Go to the game if the benefit of going to the game is bigger than $50.

question

A business owner makes 1,000 items a day. Each day she contributes eight hours to produce those items. If hired, elsewhere she could have earned $250 an hour. The item sells for $15 each. Production does not stop during weekends. If the explicit costs total $150,000 for 30 days, the firm's accounting profit for the month equals

answer

a. $300,000.

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If a firm is earning negative economic profits, it implies

answer

d. that more information is needed to determine accounting profits.

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Opportunity costs arise due to

answer

a. resource scarcity.

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After graduating from college, Jim had three choices, listed in order of preference: (1) move to Florida from Philadelphia, (2) work in a car dealership in Philadelphia, or (3) play soccer for a minor league in Philadelphia. His opportunity cost of moving to Florida includes

answer

b. the income he could have earned at the car dealership.

question

Economic Value Added helps firms avoid the hidden-cost fallacy

answer

c. by taking all capital costs into account, including the cost of equity.

question

The fixed-cost fallacy occurs when
a. a firm considers irrelevant costs.
b. a firm ignores relevant costs.
c. a firm considers overhead or depreciation costs to make short-run decisions.
d. Both a and c.

answer

d. Both a and c.

question

Mr. D's Barbeque of Pickwick, TN, produces 10,000 dry-rubbed rib slabs per year. Annually Mr. D's fixed costs are $50,000. The average variable cost per slab is a constant $2. The average total cost per slab then is

answer

question

All the following are examples of variable costs, except

answer

c. accounting fees.

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The U.S. government bought 112,000 acres of land in southeastern Colorado in 1968 for $17,500,000. The cost of using this land today exclusively for the reintroduction of the black-tailed prairie dog

answer

c. is equal to the market value of the land.

question

When a firm ignores the opportunity cost of capital when making investment or shutdown decisions, this is a case of

answer

c. Hidden-cost fallacy

question

Memorial Hospital's CEO conducted performance reviews of the hospital's departments and discovered that the average cost of deliveries ($5,000) was above their average revenue, and that the hospital was losing $700 on each delivery. From the information on how much the hospital is losing on deliveries, what is the change in profit for each extra delivery?

answer

b. $1,300.00

question

Georgetown Public Media is trying to determine the optimum amount for its advertising budget. Calculating the marginal revenue of adding another listener can be computed as the probability of becoming a member times the revenue expected from each member. This is a crude estimate, but it is the only information we have. Using the following spreadsheet, calculate the optimal level of advertising. What is it?
Advertising MR MC Listeners Profit
$10,000 $21 $5.00 2000 $32,000
$20,000 $21 $10.00 3386 $51,112
_______ $21 $0.00 #NUM! #NUM!
_______ $21 $0.00 #NUM! #NUM!
_______ $21 $0.00 #NUM! #NUM!
At this level, the marginal cost of acquiring a customer is $21, equal to the marginal revenue of acquiring a customer. Note also that as the advertising level increases its effectiveness drops. This is reflected in the increasing marginal cost of acquiring another customer and is typical of many extent decisions. You pick the low hanging fruit first, and then you move to the more costly, higher hanging fruit.

answer

c. about $42,000

question

Managers often have to decide between two competing strategies to achieve the same end. Which of the following statements is true?

answer

a. The manager can use marginal analysis to compare the marginal cost of alternatives.

question

When might an effort-based incentive scheme not work?

answer

b. When effort is tied to costs/benefits that are out of the worker's control

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What company would a rational actor rather work for?

answer

c. A company who gives raises/bonuses based on a clear effort scale

question

When economists speak of "marginal," they mean

answer

incremental

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Managers undertake an investment only if

answer

c. marginal benefits are greater than marginal costs.

question

A firm produces 500 units per week. It hires 20 full-time workers (40 hours/week) at an hourly wage of $15. Raw materials are ordered weekly, and they cost $10 for every unit produced. The weekly cost of the rent payment for the factory is $2,250. How do the overall costs break down?

answer

a. Total variable cost is $17,000; total fixed cost is $2,250; total cost is $19,250.

question

Total costs increase from $1,500 to $1,800 when a firm increases output from 40 to 50 units. Which of the following is true if MC is constant?

answer

c. FC = $300

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A manager of a clothing firm is deciding whether to add another factory in addition to one already in production. The manager would compare

answer

c. the incremental benefit expected from the second factory to the cost of the second factory.

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A firm is thinking of hiring an additional worker to their organization who can increase total productivity by 100 units a week. The cost of hiring him is $1,500 per week. If the price of each unit is $12,

answer

c. the firm should not hire the worker since MR<MC.

question

A retailer has to pay $9 per hour to hire 13 workers. If the retailer only needs to hire 12 workers, a wage rate of $7 per hour is sufficient. What is the marginal cost of the 13th worker?

answer

question

If a firm's average cost is rising, then

answer

c. marginal cost is greater than average cost.

question

A company is producing 15,000 units. At this output level, marginal revenue is $22, and the marginal cost is $18. The firm sells each unit for $48 and average total cost is $40. What can we conclude from this information?

answer

c. The company needs to increase production.

question

Food Fanatics caters meals where their cost of producing an extra meal is $25. Each of their meals is standard and sells for $20. At this rate what should the company do?

answer

b. Produce fewer meals and increase their profit

question

Regarding compounding, discounting and the rule of 72, which of the following statements is incorrect?

answer

c. The rule of 72 is used to calculate compounding, but not discounting

question

Regarding compounding and discounting, which of the following statements is/are true?
a. All investment decisions involve a trade-off between future sacrifice and current gain.
b. Compounding utilizes the rule of 72.
c. Both of these statements are true.
d. None of these statements is true.

answer

d. None of these statements is true.

question

To determine whether investments are profitable, follow these steps:
a. Discount and add up the future benefits of an investment
b. Compare the future benefits of an investment to the current cost of the investment
c. If the difference is positive, then the investment is profitable
d. All of these statements are correct

answer

d. All of these statements are correct

question

Re Break-even analysis, which of the following statements is false?
a. Break-even analysis can give you the wrong answer because it ignores the time value of money.
b. Break-even analysis asks the question whether entry into an industry is profitable
c. The break-even quantity of production is the quantity that will lead to zero profit
d. Both b and c are false

answer

b. Break-even analysis asks the question whether entry into an industry is profitable

question

John Deere's choice of competing technologies teaches us that:
a. The correct way to choose between competing technologies is to choose the one with lowest fixed costs
b. The correct way to choose between competing technologies is to choose the one with lowest marginal costs
c. The correct way to make the decision is to use break-even analysis to justify higher prices or greater output
d. None of these is correct

answer

d. None of these is correct

question

Which of the following statements is correct?
a. Sunk costs can be avoided with planning
b. If cost includes all your costs, including your opportunity cost of capital, you are earning zero profit when P=AC
c. Post-investment hold-up is unavoidable
d. Before investing, look back and reason ahead

answer

b. If cost includes all your costs, including your opportunity cost of capital, you are earning zero profit when P=AC

question

Suppose you are advising a regional commercial printer, who is negotiating with a national magazine. For them, using a regional printer reduces shipping costs, but to take on the work, the regional printer must purchase a $12 million rotogravure printing press, which has no resale value. Assume $8 is the average cost of printing one million copies per year over a two year period. Now suppose that the magazine accepts your offer, and immediately hands you a purchase order for $8,000,000, for the first-year production. Do you accept the purchase order?

answer

question

If you suspect that the magazine may try to hold you up during the second year of the contract, how much should you ask for in the first year?

answer

b. $14 cost per million copies

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Which of the following will increase the break-even Which of the following will increase the break-even quantity?

answer

c. A decrease in the price level

question

The higher the discount rates

answer

b. the more value individuals place on current dollars.

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Assume a firm has the following cost and revenue characteristics at its current level of output: price = $10.00, average variable cost = $8.00, and average fixed cost = $4.00. This firm is

answer

d. incurring a loss per unit of $2.00 but should continue to operate in the short run.

question

Sarah's Machinery Company is deciding to dump its current technology A for a new technology B with smaller fixed costs but bigger MCs. The current technology has fixed costs of $500 and MCs of $50 whereas the new technology has fixed costs of $250 and marginal costs of $100. At what quantity is Sarah's Machinery Company indifferent between two technologies?

answer

question

What is the net present value of a project that requires a $100 investment today and returns $50 at the end of the first year and $80 at the end of the second year? Assume a discount rate of 10%.

answer

b. $11.57

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You expect to sell 500 cell phones a month, which have a marginal cost of $50. If your fixed costs are $5,000 per month, what is the break-even price?

answer

question

You are considering opening a new business to sell dartboards. You estimate that your manufacturing equipment will cost $100,000, facility updates will cost $250,000, and on average it will cost you $80 (in labor and material) to produce a board. If you can sell dartboards for $100 each, what is your break-even quantity?

answer

d. 17,500

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If GDP is expected to increase at a steady rate of 3% per year, how many years would it take for living standards to double?

answer

question

Break-even quantity is a point where

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d. There are zero profits

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In the short-run, a firm's decision to shut-down should not take into consideration

answer

c. Fixed costs

question

To compute price, we need:
a. MR
b. MC
c. to know whether MR is greater than MC, in which case, we increase prices
d. a and b

answer

d. a and b

question

Which of the following make demand more elastic?

answer

c. Products with many complements have less elastic demand

question

Suppose you're trying to compare the year-to-year performance of one of your regional salespeople over a period during which income grew by 3%. If demand for your products has an income elasticity of 2, how would you measure the salesperson's performance?

answer

b. You would expect quantity to increase by 6%

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Jim has estimated elasticity of demand for gasoline to be −0.7 in the short run and −1.8 in the long run. A decrease in taxes on gasoline would

answer

d. lower total revenue in the short run but raise total revenue in the long run.

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Its lunch time, you are hungry and would like to have some pizza. By the law of diminishing marginal value,

answer

a. you would pay more for your first slice of pizza than your second

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Jim recently graduated from college. His income increased tremendously from $5,000 a year to $60,000 a year. Jim decided that instead of renting he will buy a house. This implies that

answer

a. houses are normal goods for Jim.

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Which of the following goods has a negative income elasticity of demand?

answer

b. Items from Dollar stores

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An economist estimated the cross-price elasticity for peanut butter and jelly to be 1.5. Based on this information, we know the goods are

answer

d. substitutes.

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Christine has purchased five bananas and is considering the purchase of a sixth. It is likely she will purchase the sixth banana if

answer

b. the marginal benefit of the sixth banana exceeds the price.

question

Buyers consider Marlboro cigarettes and Budweiser beer to be complements. If Marlboro just increased its prices, what would you expect to occur in the Budweiser market?

answer

b. Demand would fall, and Budweiser would reduce price.

question

Which of the following is the reason for the existence of consumer surplus?

answer

d. Some consumers are willing to pay more than the price.

question

A bakery currently sells chocolate chip cookies at a price of $16 per dozen. The marginal cost per dozen is $8. The cookies are becoming more popular with customers, and so the bakery owner is considering raising the price to $20/dozen. What percentage of customers must be retained to ensure that the price increase is profitable?

answer

66.6%

question

Suppose your firm adopts a technology that allows you to increase your output by 15%. If the elasticity of demand is −3, how should you adjust price if you want to sell all of your output?

answer

a. 5% lower

question

The below table describes the productivity of workers at a sub shop (say during a 10 minute period).
# of workers Sandwiches produced
1 2
2 5
3 9
4 12
5 14
At what point does marginal productivity begin to decline?

answer

d. With the fourth worker

question

The below table reports the costs of producing Products A and B separately last year.
Units Production Cost Marketing Cost
Total Cost ATC
Product A
100 5000 250 5250 52.5
Product B
200 16000 800 16800 84
Here is a table of projected costs of producing the two products together in the coming year. Is there any evidence of economies of scope in producing these two products together? If so, which cost indicates this?
Units
Production Cost
Marketing Cost
Total Cost
ATC
Product A
150
6000
300
6300
42
Product B
200
16000
640
16640
83.2

answer

d. Product B marketing cost

question

Calculate per-unit costs and compare to last year. Are the reduced unit costs for Product A due to scale or scope?
Units
Production Cost
Marketing Cost
Product A last year
100
50
2.5
Product B last year
200
80
4
Units
Production Cost
Marketing Cost
Product A coming year
150
40
2
Product B coming year
200
80
3.2

answer

c. We cannot be certain whether the reduced per unit costs for product A are due to scale or scope.

question

The law of diminishing marginal returns refers to the general tendency for __________to eventually diminish.

answer

b. marginal productivity

question

Which of the following helps explain why marginal cost eventually increases as output increases?

answer

b. The law of diminishing returns

question

If a firm doubles its inputs and output more than doubles, its production process exhibits

answer

a. economies of scale.

question

Increasing complexity of management and challenges of coordination as firms produce more of the same product can be a source of

answer

c. diseconomies of scale.

question

Constant returns to scale means that as all inputs are increased,

answer

a. total output increases in the same proportion as do the inputs.

question

Learning curves describe a relationship between

answer

c. average variable cost and the cumulative number of units produced.

question

Diseconomies of scale imply that

answer

b. the firm should consider a reduction in production.

question

Economies of scope exist when

answer

b. changing the mix of products produced reduces average cost.

question

If economies of scope exist across two products, we would expect that firms will likely ________.

answer

d. produce and sell both products

question

Increasing complexity of management and challenges of coordination as firms produce a wider variety of products can be a source of

answer

a. diseconomies of scope.

question

In 2009, the US Cash for Clunkers program resulted in which of the following results? (See Chapter 8 video.)
a. Drove up the price of used cars
b. Drove down the price of used cars
c. Drove up the price of new cars
d. Both a and c are correct

answer

d. Both a and c are correct

question

Which of the following would NOT shift the demand curve for a good or service?

answer

a. A change in the price of the good

question

The price of hops, which is used in making beer, increases. In the market for beer you would expect that:

answer

b. the supply of beer would decrease and the price of beer would increase.

question

he following table shows quantities supplied and demanded at various prices. Which of the following statements is consistent with a price of $8.00?
Price Demand Supply
2 5 1
4 4 2
6 3 3
8 2 4
10 1 5

answer

d. There is a surplus and price will fall

question

Given that most people generally prefer to wear a bicycle helmet when riding, an increase in the price of bicycle helmets would tend to

answer

b. reduce demand for bicycles.

question

Higher consumer incomes increase the demand for a particular good. How is this effect generally shown?

answer

a. A rightward shift of the demand curve

question

Which of the following factors would NOT cause a supply curve to shift to the right?

answer

b. Demand increases for the product.

question

Jet fuel prices have recently increased. This will most likely lead to which of the following changes?

answer

d. Supply of airplane trips decrease.

question

When the current price is higher than the equilibrium price,

answer

c. sellers want to produce and sell more than buyers want to purchase.

question

A government agency releases a report warning consumers about the negative health effects of eating beef. Which of the following changes in the beef market is most likely to occur following the release?

answer

b. The demand curve will shift to the left, and price of beef will fall.

question

A new roasting innovation reduces the cost of producing coffee. As a result, the quantity of coffee ___________ and the price of coffee ________________.

answer

c. increases; falls

question

Which of the following will definitely result if there is both a leftward shift in demand and a leftward shift in supply?

answer

d. A decrease in equilibrium quantity.

question

Which of the following combinations would definitely result in an increase in the equilibrium price in a market?

answer

a. A leftward shift in supply and a rightward shift in demand

question

Recently, you observed both an increase in the price and quantity of wheat. These two outcomes could be the result of which of the following?

answer

a. Demand curve for wheat shifting rightward

question

AgCo sells corn in a perfectly competitive market. Say the current market price for a bushel of corn is $4.00. If AgCo prices at $4.10 per bushel for its corn,

answer

b. AgCo will sell no bushels of corn.

question

Imagine you are considering two potential summer jobs to makes some extra spending money - the first is working for a landscaping company and the second involves working for a swimming pool installation company. You are indifferent between the two jobs even though the swimming pool job pays $10 more hour. This must mean that

answer

d. swimming pool construction provides a compensating wage differential of $10.

question

The main reason that a monopoly can earn positive economic profits in the long run while a perfectly competitive firm cannot is

answer

c. there are barriers to entry in a monopoly market.

question

Pat is the owner of United Local Supply, which makes zero economic profit. Pat is

answer

c. making a return equal to his or her opportunity cost.

question

Which of the following characteristics is most consistent with a perfectly competitive market?

answer

c. Firms are able to enter and exit the market freely.

question

If firms in a competitive industry begin to earn profit in the short run, new firms will enter. This will shift the industry

answer

c. supply curve to the right, meaning market price will fall.

question

You have recently been hired to advise the owners of Kenfield Insect Ltd. (KIL), which operates in a perfectly competitive industry. KIL is currently producing at a point where market price equals its marginal cost; KIL's total revenue is less than its total cost but exceeds its total variable cost. What advice should you provide KIL's owners?

answer

d. Continue production in the short run to minimize losses, but exit the industry in the long run.

question

Merrimack Industries sells its output in a perfectly competitive market. Which of the following statements is true about Merrimack?

answer

b. Merrimack will earn zero economic profits in long-run equilibrium.

question

Suppose workers prefer a certain amount of autonomy and flexibility in their job responsibilities. Job A and B are identical in all respects except Job A offers some autonomy and flexibility. Which of the following combinations of annual salaries would you predict?

answer

b. A: $40,000 B: $50,000

question

Which of the following types of firm is most likely to be a monopoly?

answer

b. Local electricity provider

question

Charlton Computer Company has a monopoly over the production of a specialized processor. It will be profitable for Charlton to increase production of its specialized processors as long as marginal cost

answer

a. is less than marginal revenue.

question

National Mfg. Co. (NMC) is a monopoly in the market. Suppose it can sell 4 units of its output at $5.00 per unit and 5 units of its output at $4.90 per unit. NMC will produce and sell the fifth unit if its marginal cost is

answer

c. $4.50 or less.

question

Which of the following statements is true regarding the difference between monopoly prices and quantities compared to perfectly competitive prices and quantities?

answer

c. Monopoly prices are lower than prices in perfect competition but quantities are higher than in perfect competition.

question

In order to calculate consumer surplus, what two amounts would you need?

answer

b. Value and price

question

Which of the following is NOT consistent with greater supplier power?

answer

c. Low switching costs to alternative sources of supply

question

Steps to increase differentiation of the firm's products may improve the firm's industry position because
a. it may reduce buyer power.
b. it may reduce rivalry.
c. it may reduce threat from substitutes.
d. All of the above

answer

d. All of the above

question

E-commerce software, such as that purchased from Oracle, facilitates the online sale of products. Software such as this is unlikely to provide a source of competitive advantage because

answer

b. it is available to all firms that want to purchase it, meaning it is not rare.

question

As customer loyalty to a differentiated brand _______, their sensitivity to increases in price _______.

answer

d. increases; falls

question

What word is used to describe the amount customers are willing and able to pay in exchange for a product or service?

answer

d. Value

question

Porter's Five Forces model is used to

answer

d. assess the attractiveness (profit potential) of an industry.

question

Buyer power is generally higher when

answer

a. differentiation among industry products is low.

question

High levels of industry rivalry are associated with

answer

d. numerous similarly situated competitors and slow industry growth.

question

Barriers to entry are likely to be higher when

answer

c. significant benefits from economies of scale exist.

question

The idea of co-opetition from Brandenburger and Nalebuff refers to

answer

a. behavior that combines competition and cooperation.

question

Which of the following describes one of the main justifications for the development of the resource-based view?

answer

c. Observations that firms in the same industry differed in profitability, suggesting that something other than industry structure mattered.

question

The existence of a temporary competitive advantage through resources is linked to

answer

b. whether the resources are valuable and rare.

question

Which of the following provides an example of how a resource may be valuable?

answer

b. The resource helps the firm achieve lower costs.

question

A _______ strategy is an integrated set of choices designed to deliver products or services that customers perceive as being different in ways that are important to them.

answer

c. differentiation

question

The difficult part of analyzing exchange rates is:

answer

c. Keeping track of your frame of reference. (Correct. The difficult part of analyzing exchange rates is keeping track of your frame of reference, or perspective as to the currency involved.)

question

If the Mexican peso is devalued relative to the U.S. dollar, after devaluation, golf in Mexico :

a. Looks less expensive to U.S. Consumers.
b. Makes golf in the U.S. look more expensive to Mexican consumers.
c. Looks more expensive to U.S. consumers, and less expensive to Mexican consumers.
d. Both a and b are correct.

answer

d. Both a and b are correct.

question

During "the great moderation" people began to expect:

answer

a. That things would continue as they had for so long

question

Which of the following is/are a characteristic of bubbles?

answer

a. Bubbles emerge when investors disagree about the importance of big economic events

question

Why did the real estate bubble pop in 2008?

answer

d. We don't know

question

What is it that would tell us when a currency is overvalued?

answer

a. Purchasing Power Parity

question

The intersection between demand for dollars and the supply of dollars is known as the

answer

b. exchange rate.

question

An individual in the United States wants to buy office equipment from England that costs 2,800 pounds. If the exchange rate is $1.92, how much will it cost in dollar terms?

answer

b. $5,376

question

If the Chinese yuan devalues relative to the U.S. dollar, then

answer

d. U.S. producers will be hurt; Chinese consumers will be hurt.

question

Following a peso appreciation relative to the dollar, which of the following results is expected to occur?

answer

b. Prices in the United States would rise, and prices in Mexico would fall.

question

Following a peso appreciation relative to the dollar, which of the following results is expected to occur?

answer

d. U.S. consumers would be hurt, and Mexican producers would be hurt.

question

Following an increase in Mexican interest rates relative to U.S. interest rates (which causes Mexican investors to borrow abroad to invest domestically), which of the following is expected to occur?

answer

c. The dollar would depreciate relative to the peso, and Mexican prices would increase.

question

Following an increase in Mexican interest rates relative to U.S. interest rates, which caused U.S. investors to invest in Mexican bonds, which of the following would occur?

answer

d. The exchange rate would not be affected, and neither would Mexican prices.

question

In July 2014 the price of a Big Mac was $4.80 in the United States, while in China it was only $2.73 at market exchange rates. So the "raw" Big Mac index says that the yuan was under-valued by 43% at that time. How would domestic inflation in China affect the Big Mac Index?

answer

b. The Big Mac Index would indicate that the Chinese currency is more under-valued.

question

If the U.S. economy strengthens, consumer incomes increase, and consumers buy more imported goods and services. How will this affect exchange rates?

answer

c. The dollar will depreciate relative to the yuan, and U.S. prices will increase.

question

If buyers expect future price increases, they will ____ their purchases to avoid it. Similarly, sellers will ____ selling to take advantage of it.

answer

b. accelerate; delay

question

A top producer of tennis balls has recently started manufacturing tennis rackets, a complementary product to tennis balls. As a result, it should

answer

a. lower the price of its tennis balls.

question

A very profitable, high-margin chain of ice cream shops has acquired its main competitor, a low-margin frozen yogurt chain. It should

answer

c. Raise the price of ice cream, and raise the price of yogurt even more.

question

Long-run marginal cost
a. is the cost of building, maintaining, and using an additional unit of capacity.
b. is likely to be greater than short-run marginal cost.
c. is useful for determining how much capacity to build, but is not useful for setting price.
d. All of the above

answer

d. All of the above

question

Advertising that conveys an image of high product quality makes demand ___________ and should be accompanied with a ____________.

answer

c. less elastic ; price increase

question

To go along with its new advertising campaign, a company reduced its prices. The advertising likely featured

answer

b. a favourable price comparison to a rival product.

question

Which of the following is likely to be a profitable adjustment to pricing strategy?

answer

b. A pizza restaurant changes from charging a "delivery charge" to offering an "in-store discount."

question

Cannibalization refers to

answer

c. customers switching from one company's product to the same company's substitute product.

question

When two firms, each producing one product, merge, the new entity should _____ prices if the products are complements and ______ prices if the products are substitutes.

answer

b. lower; raise

question

An airline estimates that the potential cost of underpricing is less than the potential lost profit of unfilled seats. The airline should

answer

c. set a price below the "target price" so that expected demand is, on average, above capacity.

question

Which of the following is true about advertising?

answer

d. Advertising can increase or decrease demand elasticity depending on the type of promotion.

question

A consumer in an electronics store expects that an inexpensive computer and an office printer should each cost about $500. However, the store owner is willing to sell both the computer and printer for $1100. According to prospect theory, which of the following combinations of prices totaling $1100 is likely to generate the greatest satisfaction for the consumer.

answer

a. $600 for the computer, $500 for the printer.

question

Price discrimination

answer

c. allows firms to profitably serve some low-value consumers.

question

A local zoo observes the following demand schedule.
Ticket Price
Tickets Sold
$50 300
$40 400
$30 500
$20 550
$10 650
The zoo knows that senior citizens all value tickets at $20 or less, and younger visitors all value tickets at $30 or more. Marginal costs are zero. The optimal prices for full-price tickets and senior citizen tickets are:

answer

b. $40 and $10

question

Successful direct price discrimination requires
a. identifying members of a low-value segment of customers.
b. setting different prices to different segments based on their demand elasticities.
c. preventing arbitrage or resale between segments.
d. All of the above

answer

d. All of the above

question

When selling goods to businesses, which of the following does not run afoul of antitrust laws?

answer

b. Charge different prices to groups of businesses if you have different costs of serving each group.

question

Which of the following can undermine efforts to price discriminate?

answer

b. Consumers may refuse to buy if they discover that others are paying a lower price.

question

Indirect price discrimination requires

answer

b. identifying some potential product feature that is correlated with value.

question

Business travellers value first-class tickets at $2,000 and coach tickets at $1,000. If coach tickets are currently priced at $400, what should be the price of the first-class ticket?

answer

c. $1,399

question

A razor blade manufacturer gives away razors for free but charges a very high price for the razor blades. What must be true for this metering strategy to be profitable?

answer

a. Higher value consumers use more blades than lower value consumers.

question

Which of the following can take advantage of the fact that a coffee shop's customers value each successive cup of coffee less than the previous cups.
a. Offer unlimited coffee for a single price with free refills.
b. Sell a "souvenir cup" with the price of refills equal to the shop's marginal cost.
c. Have a "frequent customer" program with a 10% discount on your second purchase each day,
d. 20% discount on your second purchase, and so on.
e. All of the abov

answer

all of the above

question

Bundling two products is likely to increase profit when

answer

c. customers who highly value one product have a relatively low value for the other product.

question

A car manufacturer is considering selling a "standard" and a "deluxe" version of an automobile. The manufacturer has identified two equally sized consumer segments. Their values are given in the table below. The marginal cost of both versions is $10,000. Which is the most profitable strategy.
Version Segment A Segment B
Standard $25,000 $35,000
Deluxe $28,000 $50,000

answer

c. Price the standard version at $25,000 and the deluxe version at $40,000.

question

A car manufacturer is considering selling a "standard" and a "deluxe" version of an automobile. The manufacturer has identified two equally sized consumer segments. Their values are given in the table below. The marginal cost of both versions is $10,000. Which, priced appropriately, is the most profitable strategy.
Version Segment A Segment B
Standard $25,000 $45,000
Deluxe $30,000 $50,000

answer

b. Sell only a deluxe version.

question

Which of the following is true about selling a standard and a deluxe version of a product targeted to different segments of customers?

answer

a. The price of the deluxe version may need to be reduced when introducing a standard version.

question

Which of the following is an example of indirect price discrimination?

answer

c. An early bird special at a restaurant before 6 pm.

question

Half of a fast food restaurant's consumers value the Signature Sandwich at $3 and the Tater Fries at $2. The other half value the Signature Sandwich at $1 and the Tater Fries at $3. Marginal costs are zero. What are the restaurant's total profits (per customer) without bundling (selling each item separately at its own price) and with bundling (selling both items together for a single price).

answer

c. $4.00 with bundling; $3.50 without

question

Principal-agent relationships are generally characterized by

answer

b. incentive conflicts between principles and agents.

question

Sally runs a chain of neighborhood apple cider stands. She purchases apples from the local grocery store and hires her brothers to staff the stands. Which of the following is true?

answer

d. Sally is the principal and her brothers are the agents.

question

Which of the following is a potential solution to a principal-agent incentive conflict?

answer

c. Transfer information to a central decision maker.

question

A well designed incentive compensation scheme should always

answer

d. anticipate profit-eroding gaming by employees.

question

At some company, the CEO is rewarded based on total company profit while a brand manager is rewarded based on total sales revenue of the brand. Which of the following is likely to be true?

answer

a. The brand manager prefers a lower price than the CEO prefers.

question

When implementing an incentive scheme, a manager should

answer

b. compensate employees for the extra risk.

question

Which of the following is true about costs associated with centralizing or decentralizing decision-making authority?

answer

c. Centralized authority has costs associated with transferring information from agents while decentralized authority has costs associated with incentive schemes.

question

Dunkin' Donuts stores are independently owned by franchisees while Starbucks owns a majority of its stores which are run by salaried store managers. Which of the following does this imply?

answer

d. Starbucks faces a greater adverse selection problem than Dunkin' Donuts.

question

An employee who is gaming an incentive scheme is likely

answer

a. maximizing his or her own pay.

question

Which of the following resolves a principal-agent moral hazard problem?

answer

b. A university offers a bonus to its basketball coach if the team makes the NCAA tournament.

question

Which of the following is NOT one of the advantages of evaluating a division as a profit center?

answer

d. It fosters transfer of information to central decision makers.

question

Evaluating a division as a cost center:

answer

b. may require instituting quality control measures.

question

Which of the following is true about a functionally organized firm?

answer

c. It is more likely to benefit from function-specific economies of scale.

question

Which of the following is an advantage of the multidivisional structure?

answer

b. Product customization is generally easier.

question

Which of the following are potential reasons that explain conflict between divisions?
a. If divisions are evaluated based on division profit, they may not care about the effect of decisions on other divisions.
b. If divisions are evaluated based on division cost, they may not care about the effect of decisions on other divisions.
c. Each division may receive different or unequal rewards for cooperating.
d. All of the above.

answer

d. All of the above.

question

One reason a company would want to evaluate division managers based on division profit is

answer

b. those managers generally have very good information about how to run their divisions.

question

If two divisions of an organization are experiencing conflict leading to bad decisions, which of the following might be a possible solution?
a. Give the decision-making rights to a different decision maker.
b. Adjust the information available to the decision maker.
c. Change the way in which the decision maker is evaluated and rewarded.
d. All of the above

answer

d. All of the above

question

Sources of division conflict include which of the following?
a. Corporate managers have insufficient information to set the correct transfer price.
b. Managers of buying divisions prefer a really low transfer price.
c. Managers of selling divisions prefer an overly high transfer price.
d. All of the above

answer

d. All of the above

question

When an upstream division sells to a downstream division, which of the following is the efficient transfer price?

answer

a. Marginal cost of the upstream division

question

Functional structures help to create

answer

b. workers with specialized skills.

question

An example of a multidivisional (M-form) organizational architecture based on customer type is when divisions are defined as

answer

c. Industrial Users, Home Users, Educational Users

question

Which of the following organizational structures would be more consistent with the needs of a firm facing cost-based competition and customers with little variety in how they use the product?

answer

Functional

question

Once a division manager anticipates that she is likely to meet her annual sales goal,

answer

c. she has an incentive to slow sales down and shift them to the following year.

question

The practice of sending out products toward the end of the year, so they will be recognized as sales, even with the knowledge that the products will be returned later is known as

answer

b. channel stuffing.

1 of 263

question

answer

b. the amount of money he or she is willing to pay for it.

question

A buyer willingly buys if the price of a good is:
a. Above his value
b. Below his value
c. At his value
d. Less than he expected

answer

b. Below his value

question

answer

d. Both b and c

question

answer

d. both a and c

question

The one thing that unites all economists is their use of:

answer

b. the rational-actor paradigm.

question

A price ceiling

answer

b. is an implicit tax on producers and an implicit subsidy to consumers.

question

Did they have enough information to make a good decision?

answer

c. MAYBE

question

A consumer values a car at $20,000 and it costs a producer $15,000 to make the same car. If the transaction is completed at $18,000, the transaction will generate

answer

c. $2,000 worth of buyer surplus and $3,000 of seller surplus.

question

Wealth-creating transactions are more likely to occur
a. with private property rights.
b. with strong contract enforcement.
c. with black markets.
d. All of the above.

answer

d. All of the above.

question

answer

c. Let someone else who has no relationship to the problem make the decision.

question

answer

d.
Both A & C

question

If a firm produces 10 units, TC=$100. When the firm increase its output to 15 units, TC= $150. The firm's AVC equal to

answer

b.
$10

question

Marginal cost is ____________.

answer

a.
The cost of producing an additional unit of output

question

Managers undertake an investment only if

answer

c.
Marginal revenue is greater than marginal costs

question

answer

a. 60

question

answer

question

Firm X is producing 1000 units, selling them at $15 each. Variable costs are $3 per unit and the firm is making an accounting profit of $3000. What is the firm's total variable costs?

answer

3000

question

Total costs equal

answer

d.
Fixed costs plus variable costs

question

answer

d.
$5,000

question

The opportunity cost of an action:

answer

c.
is equal to the cost of the next best alternative forgone

question

What is consumer surplus?

answer

c.
The difference between how much an individual is willing to pay for a product and how much he ends up paying

question

answer

a.
1.29

question

If the current margin is greater than the desired margin, the firm should

answer

b.
Decrease price

question

If cars are normal goods, a fall in income will

answer

b.
Decrease the demand for cars

question

A price elasticity of demand of -0.67 implies

answer

a.
Demand is inelastic

question

If the annual interest rate is 10%, the net present value of receiving $550 in the next year is:

answer

a.
$550

question

Projects with a positive NPV create

answer

a.
economic profits since they earn a return higher than the company's cost of capital

question

Which of the following defines a sunk cost?

answer

c.
An asset with no scrap value

question

answer

question

A firm sells 1000 units per week. It charges $15 per unit, the average variable costs are $10, and the average costs are $25. In the long run, the firm should

answer

b.
Shut-down as price is lower than average cost

question

Changes in the price of a product can cause

answer

a.
A movement along the demand curve

question

How does an increase in income affect the market for bus rides (inferior good)?

answer

b.
The demand curve for bus rides to shift to the left

question

Holding other factors constant, if bad weather destroys the annual crop for carrots, it causes the supply curve for carrots to

answer

a.
Shift to the left, causing the prices of carrots to rise

question

People like consuming peanut butter and jelly together. The price of peanuts increases. At the same time, we see the price for Jelly rise. How does this affect the market for peanut butter?

answer

a.
The demand curve will shift to the left; the supply curve will shift to the left

question

The law of supply states that, holding other factors constant, as price increases

answer

a.
Quantity supplied increases

question

All the factors below are causes of diminishing marginal returns, except

answer

c.
Specialization and division of Labor

question

A falling average cost implies that

answer

b.
marginal cost is below average cost

question

Economies of scale are also known as

answer

a.
Increasing returns to scale

question

What is a synergy or cost complementarity?

answer

b.
the cost of producing different products offered by separate companies is higher than when produced by one company

question

What are diseconomies of scope?

answer

a.
the cost of producing two products jointly by one firm is more than the cost of producing them separately

question

answer

d.
Only A&B

question

answer

d.
all of the above

question

Intense market competition is ________ for consumers, since it_______.

answer

d.
Good; decreases the price level in the market

question

Supplier power tends to be high when

a.
your firm purchases critical inputs from the supplier
b.
your input choices are highly differentiated
c.
Both A&B
d.
None of the above

answer

C. Both A&B

question

answer

d.
Only A&B

question

In the long-run, a perfectly competitive firm will achieve

answer

a.
An average rate of return

question

A sudden rise in the market demand in a competitive industry leads to

answer

c.
Entry of new firms into the market

question

In a competitive industry

answer

a.
firms have no cost advantages

question

The concept that explains the firm's ability to produce output with differing bundles of resources is called

answer

a.
Resource heterogeneity

question

All of these allow a firm to differentiate its product, except

answer

b.
Reducing quality

question

In a multi-product firm, cannibalization is

answer

d.
An increase in one of the brand's sales due to the decrease in sales of the other.

question

The general rule to increase profits when two close complementary brands are jointly owned is

answer

b.
Decrease prices for both brands

question

Firms that face capacity constraints can increase output only up to the capacity, but no further. Therefore, firms

answer

a.
Should price to capacity as long as MR > MC

question

A parking lot in a busy downtown district is experimenting with its pricing strategy to figure out where it should price its spaces. Which of the following strategies should it implement?

answer

c.
If the lot fills up right around 9am the price is right

question

An online shoe retailer wants to introduce handling charges for purchases less than $50. How should the retailer pose the charges to its customers to improve its chances of being well-received?

answer

c.
Introduce it as free above $50

question

The term to describe one currency in terms of another is called

answer

d.
The exchange rate

question

In the market for Canadian dollars measured in US dollars, if the price of a Canadian dollar is 0.90 cents US, a US dollar is

answer

c.
1.11 Canadian dollars

question

For foreigners, the intersection of the demand for US dollars and the supply of US dollar is known as the

answer

b.
Exchange rate

question

A weaker peso, relative to the US dollar, causes the demand for US exports to ______ and the demand of Mexican imports to______

answer

d.
Decrease; Decrease

question

An increase in the US demand for British pounds causes
a.
An appreciation of the pound
b.
Depreciation of the dollar
c.
None of the above
d.
Both a and b

answer

d.
Both a and b

question

answer

d.
All of the above

question

Amusement parks often offer discounts to locals with IDs. This is an example of

answer

a.
A direct discrimination scheme

question

When deciding what price to charge customers, a firm may choose to charge different prices based on customers'
a.
Age
b.
Willingness to pay
c.
Location
d.
All of the above

answer

d.
all of the above

question

Advance-purchase discounts offered by airlines are an example of

a.
Direct price discrimination
b.
Indirect price discrimination
c.
All of the above
d.
None of the above

answer

b.
Indirect price discrimination

question

answer

c.
Make the consumers more homogenous so that maximum consumer surplus can be extracted with a single price

question

Price discrimination is

answer

a.
The practice of charging different prices to different individual buyers or customer groups

question

For a firm to maximize total profits through price discrimination, it should

answer

a.
Charge a high price to consumers with an inelastic demand and low price to consumers with an elastic demand

question

Charging prices closer to what consumers are willing to pay for a good

a.
Reduces consumers surplus
b.
Increases producer surplus
c.
Both a and b
d.
None of the above

answer

c.
Both a and b

question

Advance-purchase discounts offered by airlines are an example of
a.
Direct price discrimination
b.
Indirect price discrimination
c.
All of the above
d.
None of the above

answer

b.
Indirect price discrimination

question

The "damaged goods" strategy refers to

answer

c.
Incurring additional costs to make the cheaper goods unattractive to high-value users

question

The rational-actor paradigm is:

answer

c. A tool for analyzing behavior.

question

The absence of property rights contributes to:

answer

poverty

question

Money-making opportunities result from:

answer

b. Assets in lower-valued uses

question

answer

d. Both a and b

question

answer

d. All of the above.

question

answer

d. all of the above

question

Which of the following are examples of a price floor?

answer

a. Minimum wages.

question

Taxes
a. impede the movement of assets to higher-valued uses.
b. reduce incentives to work.
c. decrease the number of wealth-creating transactions.
d. All of the above.

answer

d. All of the above.

question

answer

a. $527,000.

question

Wealth generating activities always:

answer

d. increase total surplus

question

Who made the bad decision?

answer

plant manager

question

Did he have the incentive to make a good decision?

answer

a. No, because he was evaluated and rewarded based on the average cost of electricity produced.

question

answer

b. $1,501,500

question

answer

d. Both a and b are correct

question

Regarding accounting profit and economic profit, which of the following statements is/are true?Cost of capital= (4 billion Pounds*(1+green cell)- 4 billion Pounds

answer

c. A firm may have a negative economic profit and a positive accounting profit simultaneously.

question

answer

c. Go to the game if the benefit of going to the game is bigger than $50.

question

answer

a. $300,000.

question

If a firm is earning negative economic profits, it implies

answer

d. that more information is needed to determine accounting profits.

question

Opportunity costs arise due to

answer

a. resource scarcity.

question

answer

b. the income he could have earned at the car dealership.

question

Economic Value Added helps firms avoid the hidden-cost fallacy

answer

c. by taking all capital costs into account, including the cost of equity.

question

answer

d. Both a and c.

question

answer

question

All the following are examples of variable costs, except

answer

c. accounting fees.

question

The U.S. government bought 112,000 acres of land in southeastern Colorado in 1968 for $17,500,000. The cost of using this land today exclusively for the reintroduction of the black-tailed prairie dog

answer

c. is equal to the market value of the land.

question

When a firm ignores the opportunity cost of capital when making investment or shutdown decisions, this is a case of

answer

c. Hidden-cost fallacy

question

answer

b. $1,300.00

question

answer

c. about $42,000

question

Managers often have to decide between two competing strategies to achieve the same end. Which of the following statements is true?

answer

a. The manager can use marginal analysis to compare the marginal cost of alternatives.

question

When might an effort-based incentive scheme not work?

answer

b. When effort is tied to costs/benefits that are out of the worker's control

question

What company would a rational actor rather work for?

answer

c. A company who gives raises/bonuses based on a clear effort scale

question

When economists speak of "marginal," they mean

answer

incremental

question

Managers undertake an investment only if

answer

c. marginal benefits are greater than marginal costs.

question

answer

a. Total variable cost is $17,000; total fixed cost is $2,250; total cost is $19,250.

question

Total costs increase from $1,500 to $1,800 when a firm increases output from 40 to 50 units. Which of the following is true if MC is constant?

answer

c. FC = $300

question

A manager of a clothing firm is deciding whether to add another factory in addition to one already in production. The manager would compare

answer

c. the incremental benefit expected from the second factory to the cost of the second factory.

question

answer

c. the firm should not hire the worker since MR<MC.

question

A retailer has to pay $9 per hour to hire 13 workers. If the retailer only needs to hire 12 workers, a wage rate of $7 per hour is sufficient. What is the marginal cost of the 13th worker?

answer

question

If a firm's average cost is rising, then

answer

c. marginal cost is greater than average cost.

question

answer

c. The company needs to increase production.

question

Food Fanatics caters meals where their cost of producing an extra meal is $25. Each of their meals is standard and sells for $20. At this rate what should the company do?

answer

b. Produce fewer meals and increase their profit

question

Regarding compounding, discounting and the rule of 72, which of the following statements is incorrect?

answer

c. The rule of 72 is used to calculate compounding, but not discounting

question

answer

d. None of these statements is true.

question

answer

d. All of these statements are correct

question

answer

b. Break-even analysis asks the question whether entry into an industry is profitable

question

answer

d. None of these is correct

question

answer

b. If cost includes all your costs, including your opportunity cost of capital, you are earning zero profit when P=AC

question

answer

question

If you suspect that the magazine may try to hold you up during the second year of the contract, how much should you ask for in the first year?

answer

b. $14 cost per million copies

question

Which of the following will increase the break-even Which of the following will increase the break-even quantity?

answer

c. A decrease in the price level

question

The higher the discount rates

answer

b. the more value individuals place on current dollars.

question

Assume a firm has the following cost and revenue characteristics at its current level of output: price = $10.00, average variable cost = $8.00, and average fixed cost = $4.00. This firm is

answer

d. incurring a loss per unit of $2.00 but should continue to operate in the short run.

question

answer

question

What is the net present value of a project that requires a $100 investment today and returns $50 at the end of the first year and $80 at the end of the second year? Assume a discount rate of 10%.

answer

b. $11.57

question

You expect to sell 500 cell phones a month, which have a marginal cost of $50. If your fixed costs are $5,000 per month, what is the break-even price?

answer

question

answer

d. 17,500

question

If GDP is expected to increase at a steady rate of 3% per year, how many years would it take for living standards to double?

answer

question

Break-even quantity is a point where

answer

d. There are zero profits

question

In the short-run, a firm's decision to shut-down should not take into consideration

answer

c. Fixed costs

question

To compute price, we need:
a. MR
b. MC
c. to know whether MR is greater than MC, in which case, we increase prices
d. a and b

answer

d. a and b

question

Which of the following make demand more elastic?

answer

c. Products with many complements have less elastic demand

question

answer

b. You would expect quantity to increase by 6%

question

Jim has estimated elasticity of demand for gasoline to be −0.7 in the short run and −1.8 in the long run. A decrease in taxes on gasoline would

answer

d. lower total revenue in the short run but raise total revenue in the long run.

question

Its lunch time, you are hungry and would like to have some pizza. By the law of diminishing marginal value,

answer

a. you would pay more for your first slice of pizza than your second

question

Jim recently graduated from college. His income increased tremendously from $5,000 a year to $60,000 a year. Jim decided that instead of renting he will buy a house. This implies that

answer

a. houses are normal goods for Jim.

question

Which of the following goods has a negative income elasticity of demand?

answer

b. Items from Dollar stores

question

An economist estimated the cross-price elasticity for peanut butter and jelly to be 1.5. Based on this information, we know the goods are

answer

d. substitutes.

question

Christine has purchased five bananas and is considering the purchase of a sixth. It is likely she will purchase the sixth banana if

answer

b. the marginal benefit of the sixth banana exceeds the price.

question

Buyers consider Marlboro cigarettes and Budweiser beer to be complements. If Marlboro just increased its prices, what would you expect to occur in the Budweiser market?

answer

b. Demand would fall, and Budweiser would reduce price.

question

Which of the following is the reason for the existence of consumer surplus?

answer

d. Some consumers are willing to pay more than the price.

question

answer

66.6%

question

Suppose your firm adopts a technology that allows you to increase your output by 15%. If the elasticity of demand is −3, how should you adjust price if you want to sell all of your output?

answer

a. 5% lower

question

answer

d. With the fourth worker

question

answer

d. Product B marketing cost

question

answer

c. We cannot be certain whether the reduced per unit costs for product A are due to scale or scope.

question

The law of diminishing marginal returns refers to the general tendency for __________to eventually diminish.

answer

b. marginal productivity

question

Which of the following helps explain why marginal cost eventually increases as output increases?

answer

b. The law of diminishing returns

question

If a firm doubles its inputs and output more than doubles, its production process exhibits

answer

a. economies of scale.

question

Increasing complexity of management and challenges of coordination as firms produce more of the same product can be a source of

answer

c. diseconomies of scale.

question

Constant returns to scale means that as all inputs are increased,

answer

a. total output increases in the same proportion as do the inputs.

question

Learning curves describe a relationship between

answer

c. average variable cost and the cumulative number of units produced.

question

Diseconomies of scale imply that

answer

b. the firm should consider a reduction in production.

question

Economies of scope exist when

answer

b. changing the mix of products produced reduces average cost.

question

If economies of scope exist across two products, we would expect that firms will likely ________.

answer

d. produce and sell both products

question

Increasing complexity of management and challenges of coordination as firms produce a wider variety of products can be a source of

answer

a. diseconomies of scope.

question

answer

d. Both a and c are correct

question

Which of the following would NOT shift the demand curve for a good or service?

answer

a. A change in the price of the good

question

The price of hops, which is used in making beer, increases. In the market for beer you would expect that:

answer

b. the supply of beer would decrease and the price of beer would increase.

question

he following table shows quantities supplied and demanded at various prices. Which of the following statements is consistent with a price of $8.00?
Price Demand Supply
2 5 1
4 4 2
6 3 3
8 2 4
10 1 5

answer

d. There is a surplus and price will fall

question

Given that most people generally prefer to wear a bicycle helmet when riding, an increase in the price of bicycle helmets would tend to

answer

b. reduce demand for bicycles.

question

Higher consumer incomes increase the demand for a particular good. How is this effect generally shown?

answer

a. A rightward shift of the demand curve

question

Which of the following factors would NOT cause a supply curve to shift to the right?

answer

b. Demand increases for the product.

question

Jet fuel prices have recently increased. This will most likely lead to which of the following changes?

answer

d. Supply of airplane trips decrease.

question

When the current price is higher than the equilibrium price,

answer

c. sellers want to produce and sell more than buyers want to purchase.

question

answer

b. The demand curve will shift to the left, and price of beef will fall.

question

A new roasting innovation reduces the cost of producing coffee. As a result, the quantity of coffee ___________ and the price of coffee ________________.

answer

c. increases; falls

question

Which of the following will definitely result if there is both a leftward shift in demand and a leftward shift in supply?

answer

d. A decrease in equilibrium quantity.

question

Which of the following combinations would definitely result in an increase in the equilibrium price in a market?

answer

a. A leftward shift in supply and a rightward shift in demand

question

Recently, you observed both an increase in the price and quantity of wheat. These two outcomes could be the result of which of the following?

answer

a. Demand curve for wheat shifting rightward

question

AgCo sells corn in a perfectly competitive market. Say the current market price for a bushel of corn is $4.00. If AgCo prices at $4.10 per bushel for its corn,

answer

b. AgCo will sell no bushels of corn.

question

answer

d. swimming pool construction provides a compensating wage differential of $10.

question

The main reason that a monopoly can earn positive economic profits in the long run while a perfectly competitive firm cannot is

answer

c. there are barriers to entry in a monopoly market.

question

Pat is the owner of United Local Supply, which makes zero economic profit. Pat is

answer

c. making a return equal to his or her opportunity cost.

question

Which of the following characteristics is most consistent with a perfectly competitive market?

answer

c. Firms are able to enter and exit the market freely.

question

If firms in a competitive industry begin to earn profit in the short run, new firms will enter. This will shift the industry

answer

c. supply curve to the right, meaning market price will fall.

question

answer

d. Continue production in the short run to minimize losses, but exit the industry in the long run.

question

Merrimack Industries sells its output in a perfectly competitive market. Which of the following statements is true about Merrimack?

answer

b. Merrimack will earn zero economic profits in long-run equilibrium.

question

answer

b. A: $40,000 B: $50,000

question

Which of the following types of firm is most likely to be a monopoly?

answer

b. Local electricity provider

question

answer

a. is less than marginal revenue.

question

answer

c. $4.50 or less.

question

Which of the following statements is true regarding the difference between monopoly prices and quantities compared to perfectly competitive prices and quantities?

answer

c. Monopoly prices are lower than prices in perfect competition but quantities are higher than in perfect competition.

question

In order to calculate consumer surplus, what two amounts would you need?

answer

b. Value and price

question

Which of the following is NOT consistent with greater supplier power?

answer

c. Low switching costs to alternative sources of supply

question

answer

d. All of the above

question

E-commerce software, such as that purchased from Oracle, facilitates the online sale of products. Software such as this is unlikely to provide a source of competitive advantage because

answer

b. it is available to all firms that want to purchase it, meaning it is not rare.

question

As customer loyalty to a differentiated brand _______, their sensitivity to increases in price _______.

answer

d. increases; falls

question

What word is used to describe the amount customers are willing and able to pay in exchange for a product or service?

answer

d. Value

question

Porter's Five Forces model is used to

answer

d. assess the attractiveness (profit potential) of an industry.

question

Buyer power is generally higher when

answer

a. differentiation among industry products is low.

question

High levels of industry rivalry are associated with

answer

d. numerous similarly situated competitors and slow industry growth.

question

Barriers to entry are likely to be higher when

answer

c. significant benefits from economies of scale exist.

question

The idea of co-opetition from Brandenburger and Nalebuff refers to

answer

a. behavior that combines competition and cooperation.

question

Which of the following describes one of the main justifications for the development of the resource-based view?

answer

c. Observations that firms in the same industry differed in profitability, suggesting that something other than industry structure mattered.

question

The existence of a temporary competitive advantage through resources is linked to

answer

b. whether the resources are valuable and rare.

question

Which of the following provides an example of how a resource may be valuable?

answer

b. The resource helps the firm achieve lower costs.

question

A _______ strategy is an integrated set of choices designed to deliver products or services that customers perceive as being different in ways that are important to them.

answer

c. differentiation

question

The difficult part of analyzing exchange rates is:

answer

c. Keeping track of your frame of reference. (Correct. The difficult part of analyzing exchange rates is keeping track of your frame of reference, or perspective as to the currency involved.)

question

answer

d. Both a and b are correct.

question

During "the great moderation" people began to expect:

answer

a. That things would continue as they had for so long

question

Which of the following is/are a characteristic of bubbles?

answer

a. Bubbles emerge when investors disagree about the importance of big economic events

question

Why did the real estate bubble pop in 2008?

answer

d. We don't know

question

What is it that would tell us when a currency is overvalued?

answer

a. Purchasing Power Parity

question

The intersection between demand for dollars and the supply of dollars is known as the

answer

b. exchange rate.

question

An individual in the United States wants to buy office equipment from England that costs 2,800 pounds. If the exchange rate is $1.92, how much will it cost in dollar terms?

answer

b. $5,376

question

If the Chinese yuan devalues relative to the U.S. dollar, then

answer

d. U.S. producers will be hurt; Chinese consumers will be hurt.

question

Following a peso appreciation relative to the dollar, which of the following results is expected to occur?

answer

b. Prices in the United States would rise, and prices in Mexico would fall.

question

Following a peso appreciation relative to the dollar, which of the following results is expected to occur?

answer

d. U.S. consumers would be hurt, and Mexican producers would be hurt.

question

Following an increase in Mexican interest rates relative to U.S. interest rates (which causes Mexican investors to borrow abroad to invest domestically), which of the following is expected to occur?

answer

c. The dollar would depreciate relative to the peso, and Mexican prices would increase.

question

Following an increase in Mexican interest rates relative to U.S. interest rates, which caused U.S. investors to invest in Mexican bonds, which of the following would occur?

answer

d. The exchange rate would not be affected, and neither would Mexican prices.

question

answer

b. The Big Mac Index would indicate that the Chinese currency is more under-valued.

question

If the U.S. economy strengthens, consumer incomes increase, and consumers buy more imported goods and services. How will this affect exchange rates?

answer

c. The dollar will depreciate relative to the yuan, and U.S. prices will increase.

question

If buyers expect future price increases, they will ____ their purchases to avoid it. Similarly, sellers will ____ selling to take advantage of it.

answer

b. accelerate; delay

question

A top producer of tennis balls has recently started manufacturing tennis rackets, a complementary product to tennis balls. As a result, it should

answer

a. lower the price of its tennis balls.

question

A very profitable, high-margin chain of ice cream shops has acquired its main competitor, a low-margin frozen yogurt chain. It should

answer

c. Raise the price of ice cream, and raise the price of yogurt even more.

question

answer

d. All of the above

question

Advertising that conveys an image of high product quality makes demand ___________ and should be accompanied with a ____________.

answer

c. less elastic ; price increase

question

To go along with its new advertising campaign, a company reduced its prices. The advertising likely featured

answer

b. a favourable price comparison to a rival product.

question

Which of the following is likely to be a profitable adjustment to pricing strategy?

answer

b. A pizza restaurant changes from charging a "delivery charge" to offering an "in-store discount."

question

Cannibalization refers to

answer

c. customers switching from one company's product to the same company's substitute product.

question

When two firms, each producing one product, merge, the new entity should _____ prices if the products are complements and ______ prices if the products are substitutes.

answer

b. lower; raise

question

An airline estimates that the potential cost of underpricing is less than the potential lost profit of unfilled seats. The airline should

answer

c. set a price below the "target price" so that expected demand is, on average, above capacity.

question

Which of the following is true about advertising?

answer

d. Advertising can increase or decrease demand elasticity depending on the type of promotion.

question

answer

a. $600 for the computer, $500 for the printer.

question

Price discrimination

answer

c. allows firms to profitably serve some low-value consumers.

question

answer

b. $40 and $10

question

answer

d. All of the above

question

When selling goods to businesses, which of the following does not run afoul of antitrust laws?

answer

b. Charge different prices to groups of businesses if you have different costs of serving each group.

question

Which of the following can undermine efforts to price discriminate?

answer

b. Consumers may refuse to buy if they discover that others are paying a lower price.

question

Indirect price discrimination requires

answer

b. identifying some potential product feature that is correlated with value.

question

Business travellers value first-class tickets at $2,000 and coach tickets at $1,000. If coach tickets are currently priced at $400, what should be the price of the first-class ticket?

answer

c. $1,399

question

A razor blade manufacturer gives away razors for free but charges a very high price for the razor blades. What must be true for this metering strategy to be profitable?

answer

a. Higher value consumers use more blades than lower value consumers.

question

answer

all of the above

question

Bundling two products is likely to increase profit when

answer

c. customers who highly value one product have a relatively low value for the other product.

question

answer

c. Price the standard version at $25,000 and the deluxe version at $40,000.

question

A car manufacturer is considering selling a "standard" and a "deluxe" version of an automobile. The manufacturer has identified two equally sized consumer segments. Their values are given in the table below. The marginal cost of both versions is $10,000. Which, priced appropriately, is the most profitable strategy.
Version Segment A Segment B
Standard $25,000 $45,000
Deluxe $30,000 $50,000

answer

b. Sell only a deluxe version.

question

Which of the following is true about selling a standard and a deluxe version of a product targeted to different segments of customers?

answer

a. The price of the deluxe version may need to be reduced when introducing a standard version.

question

Which of the following is an example of indirect price discrimination?

answer

c. An early bird special at a restaurant before 6 pm.

question

answer

c. $4.00 with bundling; $3.50 without

question

Principal-agent relationships are generally characterized by

answer

b. incentive conflicts between principles and agents.

question

Sally runs a chain of neighborhood apple cider stands. She purchases apples from the local grocery store and hires her brothers to staff the stands. Which of the following is true?

answer

d. Sally is the principal and her brothers are the agents.

question

Which of the following is a potential solution to a principal-agent incentive conflict?

answer

c. Transfer information to a central decision maker.

question

A well designed incentive compensation scheme should always

answer

d. anticipate profit-eroding gaming by employees.

question

At some company, the CEO is rewarded based on total company profit while a brand manager is rewarded based on total sales revenue of the brand. Which of the following is likely to be true?

answer

a. The brand manager prefers a lower price than the CEO prefers.

question

When implementing an incentive scheme, a manager should

answer

b. compensate employees for the extra risk.

question

Which of the following is true about costs associated with centralizing or decentralizing decision-making authority?

answer

c. Centralized authority has costs associated with transferring information from agents while decentralized authority has costs associated with incentive schemes.

question

Dunkin' Donuts stores are independently owned by franchisees while Starbucks owns a majority of its stores which are run by salaried store managers. Which of the following does this imply?

answer

d. Starbucks faces a greater adverse selection problem than Dunkin' Donuts.

question

An employee who is gaming an incentive scheme is likely

answer

a. maximizing his or her own pay.

question

Which of the following resolves a principal-agent moral hazard problem?

answer

b. A university offers a bonus to its basketball coach if the team makes the NCAA tournament.

question

Which of the following is NOT one of the advantages of evaluating a division as a profit center?

answer

d. It fosters transfer of information to central decision makers.

question

Evaluating a division as a cost center:

answer

b. may require instituting quality control measures.

question

Which of the following is true about a functionally organized firm?

answer

c. It is more likely to benefit from function-specific economies of scale.

question

Which of the following is an advantage of the multidivisional structure?

answer

b. Product customization is generally easier.

question

answer

d. All of the above.

question

One reason a company would want to evaluate division managers based on division profit is

answer

b. those managers generally have very good information about how to run their divisions.

question

answer

d. All of the above

question

answer

d. All of the above

question

When an upstream division sells to a downstream division, which of the following is the efficient transfer price?

answer

a. Marginal cost of the upstream division

question

Functional structures help to create

answer

b. workers with specialized skills.

question

An example of a multidivisional (M-form) organizational architecture based on customer type is when divisions are defined as

answer

c. Industrial Users, Home Users, Educational Users

question

Which of the following organizational structures would be more consistent with the needs of a firm facing cost-based competition and customers with little variety in how they use the product?

answer

Functional

question

Once a division manager anticipates that she is likely to meet her annual sales goal,

answer

c. she has an incentive to slow sales down and shift them to the following year.

question

The practice of sending out products toward the end of the year, so they will be recognized as sales, even with the knowledge that the products will be returned later is known as

answer

b. channel stuffing.

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