ECON 528 – Midterm

Managerial economics:

a. Ensures managers always make good decisions.
b. Helps managers make decisions in the face of scarcity.
c. Explains which products consumers will buy.
d. Describes how pay for managers is set.

Economic costs of production differ from accounting costs in that

a. Accounting costs are always larger than economic cost.
b. Economic costs include expenditures for hired resources while accounting costs do not.
c. Economic costs add the opportunity costs of a firm using its own resources while accounting costs do not.
d. Accounting costs include expenditures for hired resources while economic costs do not.

Sally quit her job as an auto mechanic earning $50,000 per year to start her own business. To save money she operates her business out of a small building she owns which, until she started her own business, she had rented out for $10,000 per year. She also invested her $20,000 savings (which earned a market interest rate of 5% per year) in her business. You are given the following information about the first year of her operations.

Total revenue: $120,000
Cost of labor: $40,000
Cost of materials: $15,000
Equipment rental: $5,000
Foregone Salary: $50,000
Foregone Interest: $1,000
Opportunity cost of Building: 10,000

Which one is the correct answer?

a. In the first year, economic profit is $60,000 and accounting profit is $60,000
b. In the first year, economic profit is $70,000 and accounting profit is $60,000
c. In the first year, economic profit is -$1,000 and accounting profit is $60,000
d. In the first year, economic profit is $120,000 and accounting profit is $61,000

A firm that can effectively price discriminate will charge a higher price to

a. Customers who have the more elastic demand for the product.
b. Buyers who are members of the smallest market segment.
c. Buyers who belong to the largest market segment.
d. Customers who have the more inelastic demand for the product.

Selling tickets in the orchestra region of the Metropolitan Opera for $55 and selling tickets in the upper balcony for $28 to listen to Luciano Pavoratti describes which type of price discrimination?

a. First-degree price discrimination
b. Bundling
c. Third-degree price discrimination
d. This is not necessarily price discrimination.

If a firm charges customers $ 200 per unit of the first unit purchased, and $160 per unit for each additional unit purchased in excess of one unit. Then, what is the economic term of this strategy?

a. Profit maximization pricing
b. First-degree price discrimination
c. Third-degree price discrimination
d. Second-degree price discrimination

If the Apple iPhone and the Samsung Galaxy are considered substitutes, then, other things equal, an increase in the price of the iPhone will

a. Increase the quantity demanded for the Galaxy.
b. Increase the demand for the Galaxy.
c. Increase the quantity demanded for the iPhone.
d. Decrease the demand for the iPhone.

If the price of automobiles was to increase, then

a. The supply of gasoline would increase.
b. The demand for gasoline would decrease.
c. The demand for gasoline would increase.
d. The quantity demanded of gasoline would decrease.

Studies have shown links between calcium consumption and a reduction in osteoporosis. How does this affect the market for calcium?

a. The calcium demand curve shifts to the right because of a change in tastes in favor of calcium.
b. The calcium demand curve shifts to the left because this new information will increase the price of calcium.
c. The calcium supply curve shifts to the left because this new information will increase the price of calcium.
d. The calcium supply curve shifts to the right because of a change in tastes in favor of calcium.

Buyers rush to purchase stocks in California vineyards following a forecast of a 30 percent decline in this year's grape harvest. What happens in the California wine market as a result of this announcement?

a. The supply curve for California wine shifts to the left in anticipation of lower quantities in the future.
b. The supply curve for California wine shifts to the right in anticipation of higher prices in the future.
c. The demand curve for California wine shifts to the right in anticipation of higher prices in the future.
d. The demand curve for California wine shifts to the left in anticipation of higher prices in the future.

If the cross-price elasticity of demand for two goods is 1.25, then

a. One of the goods is normal and the other good is inferior.
b. The demand for one of the goods conforms to the law of demand, but the demand for the other good violates the law of demand.
c. The two goods are luxuries.
d. The two goods are substitutes.

Assume that a 4 percent decrease in income results in a 6 percent increase in the quantity demanded of a good. The income elasticity of demand for the good is

a. Negative, and the good is a normal good.
b. Positive, and the good is an inferior good.
c. Positive, and the good is a normal good.
d. Negative, and the good is an inferior good.

In September 2012, the average price of gasoline in the United States was $3.91 per gallon and consumers bought 5 percent less gasoline than they had during September 2011, when the average price was $3.66 per gallon. Based on these numbers, what was the arc price elasticity of demand (midpoint formula) for gasoline from September 2011 to September 2012?

a.-2.96
b.-0.33
c.-0.76
d.-6.75

Which of the following statements about the price elasticity of demand is correct?

a. The absolute value of the elasticity of demand ranges from zero to one.
b. Demand is more elastic the smaller the percentage of the consumer's budget the item takes up.
c. The elasticity of demand for a good in general is equal to the elasticity of demand for a specific brand of the good.
d. Demand is more elastic in the long run than it is in the short run.

Golda Rush quit her job as a manager for Home Depot to start her own hair dressing salon, Goldilocks. She gave up a salary of $40,000 per year, invested her savings of $30,000 (which was earning 5 percent interest) and borrowed $10,000 from a close friend, agreeing to pay 5 percent interest per year. In her first year, Golda spent $18,000 to rent a salon, hired a part-time assistant for $12,000 and incurred another $15,000 on equipment and hairdressing material. Based on this information, what is the amount of her explicit costs?

a. $47,000
b. $87,000
c. $45,000
d. $45,500

Today, Walt Disney World charges different customers different prices for admission. This pricing strategy is called

a. Odd pricing.
b. Arbitrage.
c. Cost-price pricing.
d. Price discrimination.

First (Perfect) degree price discrimination means that a firm charge:

a. The maximum amount that buyers are willing to pay for each unit.
b. Different prices to people of different racial or ethnic backgrounds.
c. Different prices to different groups of buyers.
d. One single price—the maximum possible—to all of its buyers.