ECON FINAL PEPP - Assignment Essays

question

Why might performance compensation caps be bad?

A. Different pay rates promote dissent.
B.) Compensation caps can discourage employees from being productive after the cap.
C.) Compensation caps can discourage employees from being productive before the cap.
D. Both b and c

answer

B.) Compensation caps can discourage employees from being productive after the cap.

question

Why might it be bad for hotels to not charge higher prices when rooms are in higher demand?

A.) Arbitrageurs might establish a black market by reserving rooms and then selling the reservations to customers.
B.) Rooms may be rationed.
C.) Without the profit from these high demand times, hotels would have less of an incentive to build or expand, making the long-run scarcity problem even worse.
D.)All of the above

answer

D.) All of the above

question

What might happen if a car dealership is awarded a bonus by the manufac- turer for selling a certain number of its cars monthly, but the dealership is just short of that quota near the end of the month?

A. It may sell the remaining cars at huge discounts to hit the quota.
B. It creates an incentive to sell cars from different manufacturers.
C. It would ruin the relationship between dealer and manufacturer.

answer

A.) It may sell the remaining cars at huge discounts to hit the quota.

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

Government regulation
A. provides incentives to conduct business in an illegal black market
B. plays no role in generating wealth. C. is the best way to eliminate poverty.
D. does not enforce property rights.

answer

A.) provides incentives to conduct business in an illegal black market

question

Efficiency implies opportunity,
A. always.
B. never.
C. only if accompanied by secure property rights.
D. none of the above.

answer

B). never.

question

Christine has purchased five bananas and is considering the purchase of a sixth. It is likely she will purchase the sixth banana if
A.) the marginal value she gets from the sixth banana is lower than its price.
B.) the marginal benefit of the sixth banana exceeds the price.
C.) the average value of the sixth banana exceeds the price.
D.) the total personal value of six bananas exceeds the total expenditure to pur- chase six bananas.

answer

B.) the marginal benefit of the sixth banana exceeds the price.

question

Which of the following is the reason for the existence of consumer surplus?
A.) Consumers can purchase goods that they "want" in addition to what they "need."
B.) Consumers can occasionally purchase products for less than their production cost.
C.) Some consumers receive temporary discounts that result in below-market prices.
D.) Some consumers are willing to pay more than the price.

answer

D.) Some consumers are willing to pay more than the price.

question

If the market for a certain product experiences an increase in supply and a decrease in demand, which of the following results is expected to occur?
A.) Both the equilibrium price and the equilibrium quantity could rise or fall.
B.) The equilibrium price would rise, and the equilibrium quantity could rise or fall.
C.) The equilibrium price would fall, and the equilibrium quantity could rise or fall.
D.) The equilibrium price would fall, and the equilibrium quantity would fall.

answer

C.) The equilibrium price would fall, and the equilibrium quantity could rise or fall.

question

Recall our discussion of Wells Fargo's fraudulent-account scandal. Why did the sales associates make bad decisions? (NB: If you don't remember, Wells Fargo opened millions of accounts for people that didn't ask for them).
A.) They had bad incentives: they were likely told to open extra accounts to keep their jobs.
B.) They had bad incentives: they were paid more if customers were happy with all their new accounts.
C.) They had bad information: they didn't know how to correctly open an ac- count.
D.) They had bad information: they didn't have access to consumer's credit scores.

answer

A.) They had bad incentives: they were likely told to open extra accounts to keep their jobs.

question

An advantage of capitalism is that?
A. It allows the market to self-regulate and clear itself
B. It allows a person to follow his or her own self interest
C. It allows voluntary transactions, which create wealth
D. All of the above

answer

D.) All of the above

question

Government can?
A. Create wealth by not interfering in the markets in any way what so ever
B. Not affect wealth in the markets
C. Create wealth by enforcing property rights and contracts
D. Create wealth by making choice decisions for the market

answer

C.) Create wealth by enforcing property rights and contracts

question

Subsidies can destroy wealth because?
A. subsidies move assets from lower- to higher- valued uses
B. subsidies move assets from higher- to lower- valued uses
C. subsidies help producers only
D. subsidies help consumers only

answer

B.) subsidies move assets from higher- to lower- valued uses

question

Its lunch time, you are hungry and would like to have some pizza. By the law of diminishing marginal value,
A.) you would pay more for your first slice of pizza than your second
B.) you would pay more for your second slice of pizza than your first
C.) you would pay an equal amount of money for both the slices since they are identical
D.) none of the above

answer

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

question

The difference between the value you place on a product and its market price is called

A.) Consumer surplus
B.) Quantity demanded
C.) Demand
D.) None of the above

answer

A.) Consumer surplus

question

Changes in the price of a product can cause
A.) A movement along the demand curve
B.) A shift of the demand curve
C.) A shift of the supply curve
D.) All of the above

answer

A.) A movement along the demand curve

question

Which of the following would shift the supply of Florida Oranges to the left?
A.) hurricane in Florida destroying a major part of the crop
B.) an increase in the price of water per unit, a major input, used to irrigate the orange trees
C). one of the orange groves shuts down
D.) all of the above

answer

D.) all of the above

question

A recent medical study reports new benefits of cycling. Simultaneously, the price of the parts needed to make bikes falls. The demand curve would _________ and the supply curve would__________
A.) Shift to the right, shift to the left
B.) shift to the left, shift to the right
C.) shift to the left, shift to the left
D.) shift to the right, shift to the right

answer

D.) shift to the right, shift to the right

question

Excess supply of a product exerts ___________pressure on prices
A.) Zero
B.) No
C.) Upward
D.) Downward

answer

D.) Downward

question

An increase in the price of laptop memory chips causes the price for laptops _____________ and the quantity supplied for laptops ____________.
A.) Increase; increase
B.) Increase; decrease
C.) Decrease; increase
D.) Decrease, decrease

answer

B.) Increase; decrease

question

An attack on an oil field in Saudi Arabia would have what impact on the global market for crude oil?
A.) Increase in price due to an increase in Demand
B.) Increase in price due to an decrease in Demand
C.) Decrease in price due to an decrease in Demand
D.) Decrease in price due to an increase in Supply
E.) Increase in price due to an decrease in Supply

answer

E.) Increase in price due to an decrease in Supply

question

The quantity of bottled water sold in the past decade has increased signifi- cantly despite very little change in price. What best explains this?
A.) Increase in Demand and decrease in Supply
B.) Increase in Demand and no change in Supply
C.) Decrease in Demand and increase in Supply
D.) Increase in Demand and increase in Supply

answer

D.) Increase in Demand and increase in Supply

question

Which is MOST likely to happen in the market for picture frames if there is an INCREASE in the price of glass and a DECREASE in the price of consumer photo- printing services? NB: Think of shocks to Supply and/or Demand first.
A.) Increase in price, decrease in quantity
B.) Decrease in price, Uncertain change in quantity
C.) Increase in price, Uncertain change in quantity
D.) Uncertain change in price, Decrease in quantity
E. Decrease in price, Decrease in quantity

answer

C.) Increase in price, Uncertain change in quantity

question

The difference between the maximum price the consumer is willing to pay and the price the consumer actually pays for a product is referred to as:
A.) market surplus.
B.) market shortage.
C.) consumer surplus.
D.) producer surplus.

answer

C.) consumer surplus.

question

You are sick and tired of your old wardrobe. You decide to donate it to a charity of your choice. Your action
A.) Creates wealth by moving the clothes from lower value use to higher value use
B.) Destroys wealth since you lose your clothes
C.) Creates wealth by making you feel richer
D.) All of the above

answer

A.) Creates wealth by moving the clothes from lower value use to higher value use

question

A consumer values a car at $35,000 and it costs a producer $20,000 to make the same car. If the transaction is completed at $29,000, the transaction will generate
A.) $29,000 of total surplus.
B.) $15,000 worth of seller surplus and no buyer surplus.
C.) $6,000 worth of buyer surplus and $9,000 of seller surplus.
D.) $9,000 worth of buyer surplus and $6,000 of seller surplus.

answer

C.) $6,000 worth of buyer surplus and $9,000 of seller surplus.

question

When taxes are levied on transactions, irrespective of the party they are levied on,
A.) The government can absorb all the consumer surplus from the transactions as revenue
B.) The government can absorb all the producer surplus from the transactions as revenue
C.) The government can absorb some of the surplus, but also creates a social loss since some of the wealth creating transactions are discouraged
D.) The government can absorb all of the surplus (producer and consumer)

answer

C.) The government can absorb some of the surplus, but also creates a social loss since some of the wealth creating transactions are discouraged

question

The price of flat screen TVs has continually decreased over the past decade while more sales have been made. What best explains this?
A.) Increase in Demand and increase in Supply
B.) Little change in Demand and increase in Supply
C.) Decrease in Demand and increase in Supply
D.) Increase in Demand and decrease in Supply

answer

B.) Little change in Demand and increase in Supply

question

Why do demand curves slope downwards?
A.) Those with the highest willingness to pay will buy first.
B.) Individuals get less incremental utility/happiness from each additional unit.
C.) Both A and B.
D.) Neither A nor B.

answer

C.) Both A and B.

question

If movie theatres decided to increase the price for the movie tickets, holding other factors constant, what would happen to the demand for popcorn in the theatres?

A.) the demand for popcorn would shift to the left because popcorn and movies are substitute goods.
B.) the demand for popcorn would shift to the left because popcorn and movies are complementary goods.
C.) the demand for popcorn would shift to the right because popcorn and movies are substitute goods.
D.) the demand for popcorn would shift to the right because popcorn and movies are complementary goods.

answer

B.) the demand for popcorn would shift to the left because popcorn and movies are complementary goods.

question

Which is MOST likely to happen in the market for picture frames if there is an increase in the price of glass AND an increase in the price of printing services?
A.) Increase in price, decrease in quantity
B.) Decrease in price, little change in quantity
C.) Increase in price, little change in quantity
D.) Little change in price, decrease in quantity
E.) Decrease in price, decrease in quantity

answer

D.) Little change in price, decrease in quantity

question

Suppose there are nine sellers and nine buyers, each willing to buy or sell one unit of a good, with values {$10, $9, $8, $7, $6, $5, $4, $3, $2}. If the government imposes a price floor at $9 (i.e., price must be $9 or higher), how many goods will be traded?
A. Five
B. Four
C. Three
D. Two

answer

D. Two

question

If a firm is earning negative economic profits, it implies
A.) that the firm's accounting profits are zero.
B.) that the firm's accounting profits are positive.
C.) that the firm's accounting profits are negative.
D.) that more information is needed to determine accounting profits

answer

D.) that more information is needed to determine accounting profits

question

Opportunity costs arise due to
A.) resource scarcity.
B.) interest rates
C.) limited wants.
D.) unlimited scarcity.

answer

A.) resource scarcity.

question

All the following are examples of variable costs, except
A.) labor costs.
B.) cost of raw materials.
C.) accounting fees.
D.) electricity cost.

answer

C.) accounting fees.

question

After the first week of his MBA Managerial Economics class, one of your pharmaceutical sales representatives accuses you of committing the sunk-cost fallacy by refusing to allow him to reduce price to make what he considers to be a really tough sale. Which of the following suggests the sales representative may be right?
A.) Most of the costs of drug development are sunk, not fixed.
B.) Sales representatives are paid a sales commission on revenue, so they don't care about the costs of drug development.
C.) Sales representatives don't worry that a low price today may make it more difficult for the company's other sales representatives to charge higher prices to their customers tomorrow.
D.) Sales representatives think only about one thing, sales.

answer

A.) Most of the costs of drug development are sunk, not fixed.

question

Microsoft found that instead of producing a DVD player and a gaming system separately, it is cheaper to incorporate DVD playing capabilities in its new version of the gaming system. Microsoft is taking advantage of
A.) economies of scale.
B.) learning curve.
C.) economies of scope
D.) decreasing marginal costs.

answer

C.) economies of scope

question

As a golf club production company produces more clubs, the average total cost of each club produced decreases. This is because
A.) total fixed costs are decreasing as more clubs are produced
B). average variable cost is decreasing as more clubs are produced.
C.) there are scale economies
D.) total variable cost is decreasing as more clubs are produced.

answer

C.) there are scale economies

question

Average costs curves initially fall
A. due to declining average fixed costs.
B. due to rising average fixed costs.
C. due to declining accounting costs. D. due to rising marginal costs.

answer

A. due to declining average fixed costs.

question

A security system company's total production costs depend on the number of systems produced according to the following equation: TC = $20, 000, 000 + $4, 000 × Q. Given these data, which of the following is a FALSE statement?
A.) There are economies of scale.
B.) There are fixed costs associated with this business.
C.) There are diseconomies of scale.
D.) A firm that produces a larger output has a cost advantage over a smaller firm.

answer

C.) There are diseconomies of scale.

question

Once marginal cost rises above the average cost
A. average costs will increase.
B. average costs are unaffected.
C. average costs will decrease.
D. None of the above.

answer

A. average costs will increase.

question

Consider the following for your one-person sandwich shop :your rent is$1,000/month; your materials (meat, cheese, bread, etc) cost $4/sandwich. Each month you sell about 1000 sandwiches. What are your monthly fixed costs from the information given?
A. $1,000
B. $1,004
C. $4,000
D. $5,000

answer

A. $1,000

The only fixed cost here is the rent. All the materials are variable costs.

question

At the current point in production, the cost to make one more pair of sun- glasses is larger than the average cost to make all the other ones. Thus, with respect to production decisions,
A. Average costs are rising.
B. Fixed costs are rising.
C. Total variable costs are falling
D. None of the above.

answer

A. Average costs are rising.

question

Bob the builder is in both the residential and commercial construction busi- ness in the Greater LA area. An established firm from Las Vegas decides to enter into the COMMERICAL construction business in LA. As a result, Bob's prices have to fall. This price decrease:
A.) increases the opportunity cost of building residential real estate.
B.) reduces the opportunity cost of building residential real estate.
C.) is an example of a price ceiling.
D.) is an example of a price floor.

answer

B.) reduces the opportunity cost of building residential real estate.

question

Bob the builder is in both the residential and commercial construction business in the Greater LA area. An established firm in L.A. decides to move to the Las Vegas market and thus exits the RESIDENTIAL construction business in LA. As a result, Bob's prices can go up. This price increase:
A.) reduces the opportunity cost of building commercial real estate.
B.) increases the opportunity cost of building commercial real estate.
C.) is an example of a price ceiling.
D.) is an example of a price floor.

answer

B.) increases the opportunity cost of building commercial real estate.

question

Your firm just finished developing a new line of eyeglass frames, a process which took $2M of R&D. However, a month after you finished this development, a new team of experts approach you and say they can develop it for $1.5M. What do you do?
A.) Nothing; it's a sunk cost and cannot be recovered.
B.) Hire the new team since they're cheaper.
C.) Exit the industry.

answer

A.) Nothing; it's a sunk cost and cannot be recovered.

question

Which of the following is a sunk cost when deciding to close down a business or not?
A.) Monthly lease
B.) Wages of temporary workers
C.) Manager salaries
D.) None of the above

answer

D.) None of the above

question

The law of diminishing marginal productivity states that
A.) As you expand output, your marginal productivity eventually increases
B.) As you expand output, your marginal productivity eventually declines
C.) As you expand output, the total product eventually increases
D.) None of the above

answer

B.) As you expand output, your marginal productivity eventually declines

question

When a firm is experiencing increasing marginal costs, it implies
A.) A constant marginal productivity
B.) decreasing average costs
C.) decreasing marginal productivity D.) increasing marginal productivity

answer

C.) decreasing marginal productivity

question

Diminishing marginal productivity can occur due to the following reason(s) A.) the difficulty of monitoring and motivating larger workforces
B.) the increasing complexity of larger systems
C.) the "fixity" or permanence of some factor of production
D.) all of the above

answer

D.) all of the above

question

"If long run average costs are constant with respect to output, you have
A. Increasing returns to scale
B. Decreasing returns to scale
C. Constant returns to scale
D. None of the above

answer

C. Constant returns to scale

question

What are economies of scale?
A.) decreasing average costs as production increases
B.) increasing average costs as production increases
C.) increasing fixed costs as production increases
D.) none of the above

answer

A.) decreasing average costs as production increases

question

What is a synergy or cost complementarity?

A.) the cost of producing different products offered by separate companies would be more expensive when produced by one company
B.) the cost of producing different products offered by separate companies is higher than when produced by one company
C.) the cost of producing different products offered by separate companies is equal to when the products are produced by one company
D.) None of the above

answer

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

question

A food company trying to increase its profits by expanding into the soft drinks business is an example of
A. Economies of scale
B. Economies of Scope
C. Diseconomies of Scale D. Diseconomies of Scope

answer

B. Economies of Scope

question

A food truck operator originally produced hamburgers and hotdogs. To serve the tastes of their various customers, the hot dog vendor decides to start producing turkey dogs and ham sandwiches as well. Since the new products were introduced, average costs rose dramatically. The vendor is experiencing
A. Economies of scale
B. Economies of scope
C. Diseconomies of scale
D. Diseconomies of scope

answer

D. Diseconomies of scope

question

As firms get bigger, long-run average costs fall when returns to scale are:
A. increasing
B. decreasing
C. constant
D. 7

answer

A. increasing

question

Which of the following is classified as a sunk cost?
A. Cost of the next-best alternative
B. Additional cost of producing an additional unit
C. Research costs to determine the implementation of a technology
D. Total cost of producing a product

answer

C. Research costs to determine the implementation of a technology

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
A. is zero, because they already own the land.
B. is zero, because the land represents a sunk cost.
C. is equal to the market value of the land.
D. is equal to the total dollar value the land would yield if used for farming and ranching.
E. choice depends on the value to society of black-tailed prairie dogs

answer

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

question

Average costs curves initially fall
A. due to declining average fixed costs.
B. due to rising average fixed costs.
C. due to declining accounting costs.
D. due to rising marginal costs.

answer

A. due to declining average fixed costs.

question

If a firm produces 8 units of output with average fixed cost=$40 and average variable cost=$25, what is its average cost?
A. 100
B. 20
C. 65
D. 32

answer

C. 65

question

It costs a firm $200 per unit to produce product A and $350 per unit to produce product B individually. If the firm can produce both products together at $500 per unit of product A and B, this exhibits signs of
A. diseconomies of scale.
B. diseconomies of scope.
C. economies of scale.
D. economies of scope.

answer

D. economies of scope.

question

answer

D. Diseconomies of scope

question

Following are the costs to produce Product A, Product B, and Products A and B together. Which of the following exhibits economies of scope?
A. 100, 150, 240
B. 100, 150, 250
C. 100, 150, 260
D. All of the above

answer

A. 100, 150, 240

question

When economists speak of "marginal," they mean
A. opportunity.
B. scarcity.
C. incremental.
D. unimportant.

answer

C. incremental.

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

A.) the total benefits gained from the two factories to the total costs of running the two factories
.
B.) the incremental benefit expected from the second factory to the total costs of running the two factories.

C.) the incremental benefit expected from the second factory to the cost of the second factory.

D.) the total benefits gained from the two factories to the incremental costs of running the two factories.

answer

C.) the incremental benefit expected from the second factory to the cost of the second factory.

question

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,
A.) the MR of hiring the worker is $1,500.
B.) the MC of hiring the worker is $1,200.
C.) the firm should not hire the worker since MR less than MC.
D.) All the above

answer

C.) the firm should not hire the worker since MR less than MC.

question

The higher the discount rates
A. the more value individuals place on future dollars.
B. the more value individuals place on current dollars.
C. the more investments will take place.
D. does not affect the investment strategy

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

A.) incurring a loss of $2.00 per unit and should shut down right now.
B.) realizing only a normal profit.
C.) realizing an economic profit of $2.00 per unit.
D.) incurring a loss per unit of $2.00 but should continue to operate in the short run.

answer

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

question

You are considering opening a new business to sell dartboards. You esti- mate 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?
A. 1,000
B. 3,500
C. 4,375
D. 17,500

answer

D. 17,500

Q = FC(P − MC) = 350, 000/20 = 17, 500

question

An airline's flight is about to take off. It has a few empty seats left aboard. If it lowers its prices, it can fill the remaining seats and fly at full capacity. What should be done?
A. Sell the additional stand by seats at a discount since the marginal costs of the additional passenger are almost zero and fly at full capacity
b.) Sell the additional standby seats without a discount
c.) Don't offer the additional seats for any price
d.) None of the above

answer

A. Sell the additional stand by seats at a discount since the marginal costs of the additional passenger are almost zero and fly at full capacity

question

Cruise liners offer last minute deals because
A.) The marginal cost is higher than the marginal revenue since fixed costs are sunk
B.)The marginal costs of an additional passenger are low at that point and companies gain by lowering prices since all the other guests already paid
C.) The average cost of an additional passenger is low at that point and companies gain by lowering prices since all the other guests already paid
D.) All of the above

answer

B.)The marginal costs of an additional passenger are low at that point and companies gain by lowering prices since all the other guests already paid

question

Marginal cost typically ____ and marginal revenue typically ____ with increasing output.
A. rises falls
B. falls; rises
C. rises; rises
D. falls; falls

answer

A. rises falls

question

A firm's fixed costs are $10 million. It sets the price at $1800 per unit and has marginal costs of $1,000. What is the firm's contribution margin?
A. 1800
B. 800
C. 1000
D. 300

answer

B. 800
Contribution margin is just P − MC (or P − AVC): 1800-1000=800

question

A cloth manufacturing firm is deciding whether or not to invest in new ma- chinery. 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?
A. 15
B. 18
C. 3
D. 4

answer

C. 3
Price is 18, MC is 15, so contribution margin is 15

question

Government intervention

answer

can provide incentives to conduct business in an illegal black market

question

Price ceilings cause

answer

-Some suppliers to drop out of the market
- A decrease in the total production in the market
-The creation of black markets

question

What criteria do consumers apply when deciding whether or not to consume

answer

The consumer would consume only if the price is lower than his highest willingness to pay and The consumer would only consume if his surplus is greater than zero

question

Which of the following would shift the supply of Florida Oranges to the left

answer

A. a hurricane in Florida destroying a major part of the crop
B. an increase in the price of water per unit, a major input, used to irrigate the orange trees
C. one of the orange grooves shuts down

question

answer

Two

question

Suppose a recent and widely circulated medical article has reported new benefits of cycling for exercise. Simultaneously, the price of the parts needed to make bikes falls. If the change in supply is greater than the change in demand, the price will ____ and the quantity will ____.

answer

fall, rise

question

An increase in the price of laptop memory chips causes the price for laptops _____________ and the quantity supplied for laptops ____________.

answer

Increase; decrease

question

An attack on an oil field in Saudi Arabia would have what impact on the global market for crude oil?

answer

Decrease in quantity due to an decrease in Supply

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

is equal to the market value of the land.

question

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

the income he could have earned at the car dealership.

question

At the current point in production, the cost to make one more pair of sunglasses is larger than the average cost to make all the other ones. Thus, with respect to production decisions

answer

Average costs are rising.

question

Which of the following is classified as a sunk cost?

answer

Research costs to determine the implementation of a technology

question

What is a synergy or cost complementarity?

answer

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

question

According to the law of diminishing marginal returns, marginal returns

answer

diminish always prior to increasing.

question

answer

Diseconomies of scope

question

A security system company's total production costs depend on the number of systems produced according to the following equation: TC = $20,000,000 + $4,000 times Q. Given these data, which of the following is a FALSE statement?

answer

There are diseconomies of scale.

question

At the current level of production, if the firm's MR>MC, then the firm should

answer

produce more

question

Farmer John can produce as much corn as he wants at the going price of $48 per bushel. At his current production level, the marginal cost is $18. What should the company do

answer

Increase production

question

A student is trying to decide whether to study for the upcoming exam or play video games. The optimal amount of time spent studying is:

answer

where the marginal benefit of studying equals the marginal cost of studyin

question

Which of the following will increase the break-even quantity

answer

decrease in the price level

question

A firm's fixed costs are $10 million. It sets the price at $1800 per unit and has marginal costs of $1,000. The break-even quantity is.

answer

12500

question

Break-even quantity is a point where

answer

There are zero profits

question

The lower the discount rates

answer

the more value individuals place on future dollars.

question

Projects with a positive NPV create

answer

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

question

If the price elasticity of demand is -0.8 and the firm increases price, revenue will

answer

Increase

question

George has been selling 5,000 T-shirts per month for $8.50. He estimates that his elasticity is -1.5. If his marginal cost is $4.50 per shirt, should he increase his price?

answer

Yes, his markup is likely not high enough.

question

A price elasticity of demand of -0.6 implies

answer

Demand is inelastic

question

The price elasticity of demand tells us about

answer

The sensitivity of quantity to price

question

All of the following make demand LESS elastic EXCEPT

answer

none of the above; they all make demand more elastic.

question

The demand for Dell laptops is more price elastic than the demand for laptops as a whole. This can be best explained by the fact that

answer

There are more substitutes for Dell laptops than for laptops as whole

question

Recent start-ups have introduced motorized scooters to many metropolitan areas at very affordable rates. This has caused demand for bicycle rentals to ______ because the two services are ______.

answer

fall; substitutes

question

If cars are normal goods, a fall in income will

answer

Decrease the demand for cars

question

You have two types of buyers for your product. Forty percent of buyers value your product at $10 and sixty percent value it at $6. What price maximizes your expected revenue?

answer

question

You are considering buying a store. The storeowner gives you an estimate of the net profits of the store on a typical day. The owner has most likely given you the figures for the day when

answer

Sales are high, costs are low

question

In a coin toss bet, where both heads and tails are equally likely, you win a $2 on heads but lose $1 on tails. The expected value of the bet is

answer

0.5

question

Alan is offered a gamble on a fair coin: Heads he wins $100, tails he wins $20. If the game costs $60, would he play?

answer

No he would not play since this is a fair bet and he is not being offered any risk premium

question

An individual who is a risk lover

answer

values a lottery at more than its expected value

question

Which of the following is true of uncontrolled market data?

answer

Uncontrolled market data reflects changes in multiple factors at the same time.

question

Which of the following is the best definition of a controlled market study?

answer

A study that varies key economic variables in one or more markets to determine the effects of the changes.

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?
A. $117 B.
B. $9
C. $33
D. $84

answer

C. $33

Costs for 12 workers are 7 ∗ 12 = 84, whereas for 13 workers they are 9 ∗ 13 = 117. Thus, the MC of that last worker is 117-84=33

question

answer

B. the more value individuals place on current dollars.

question

Sarah's Machinery Company is deciding to dump their current technology A for a new technology B with smaller fixed costs but bigger marginal costs. The current technology has fixed costs of $500 and marginal costs of $50 whereas the new technology has fixed costs of $250 and marginal costs of $100. At what quantity is Sarah Machinery indifferent between two technologies?
A. 5
B. 6
C. 7
D. 8

answer

A. 5
500 + 50Q = 250 + 100Q, and thus 250 = 50Q, and Q = 5.

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%.
A. $10.52
B. $11.57
C. $18.18
D. $30.00

answer

B. $11.57

NPV is −100 + 50/(1.1) + 80/(1.12) = −100 + 45.45 + 66.12 = 11.57
Solution: Equate costs for A as a function of quantity to costs for B as a function of quantity: 500 + 50Q = 250 + 100Q, and thus 250 = 50Q, and Q = 5.

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?
A. The company is making a loss.
B. The company needs to cut production.
C. The company needs to increase production.
D. Not enough information is provided.

answer

C. The company needs to increase production.

question

Farmer John can produce as much corn as he wants at the going price of $48 per bushel. At his current production level, the marginal cost is $18. What should the company do?
A. Increase production
B. Decrease production
C. Stay at this level of production
D. None of the above

answer

A. Increase production

question

You own a tract of trees and are deciding whether to harvest them now or next year. If you harvest them now, you can invest the proceeds and get a return of 5% on your investment. What should you do?
A. Let the trees grow as long as their dollar worth increases by more than 5%
B. Let the trees grow
C. Cut down the trees, and sell them
D. Let the trees grow as long as their dollar worth increases by less than 5%

answer

A. Let the trees grow as long as their dollar worth increases by more than 5%

question

A student is trying to decide whether to study for the upcoming exam or play video games. The optimal amount of time spent studying is:
A. where the total benefit of studying is equal to the total cost of studying.
B. where the marginal benefit of studying is equal to the total cost of studying.
C. where the marginal benefit of studying equals the marginal cost of studying.
D. where the total benefit of studying equals the total cost of studying.

answer

C. where the marginal benefit of studying equals the marginal cost of studying.

question

A firm sets its price at $10.00 per unit. It has an average variable cost of $8.00 and an average fixed cost of $4.00 per unit. In the long run, this firm is
A. earning zero profits and hence should shut down.
B. unable to cover all of its fixed cost and hence should shut down.
C. incurring a profit.
D. incurring a loss per unit of $2.00, but since it can still cover its variable costs, should continue to operate.

answer

B. unable to cover all of its fixed cost and hence should shut down.

question

Break-even quantity is a point where
A. the level of profit is maximized
B. the level of cost is minimized
C. Only variable costs are covered
D. There are zero profits

answer

D. There are zero profits

question

A firm sells 1000 units per week. It charges $70 per unit, the average variable costs are $25, and the average costs are $65. In the long run, the firm should
A. Shut down since price is greater than average cost
B. Continue operating price is higher than average cost, its making a profit
C. Continue operating as the firm is covering all the variable costs and some of the fixed costs
D. Shut-down because it is cost effective to pay off the remaining fixed costs

answer

B. Continue operating price is higher than average cost, its making a profit

question

A business produces 4,000 units per month which it sells at $20/unit. Costs include: $10,000 on raw materials, $15,000 in wages for operators and $10,000 in wages to sales people. If the business is just breaking even, what are its fixed costs:
A. 35000
B. 40000
C. 45000
D. 50000

answer

C. 45000

question

Fred has the opportunity to invest $5,000 in a new business venture. Doing so should return $1,000 one year from now and $5,500 three years from now. Should Fred invest in this business if his discount rate is 10%?
A. Yes, because the NPV is negative.
B. Yes, because the NPV is positive.
C. No, because the NPV is negative.
D. No, because the NPV is positive.

answer

B. Yes, because the NPV is positive.

question

You are asked to make an investment of $20,000 into your friend's business. She promises to make you a partner and guarantees that you will earn $2,000 in a year from now, $4,000 two years from now, and a large payday of $18,000 three years from now. If interest rates are 10%, should you invest in her business?
A. Yes, because the NPV is negative.
B. Yes, because the NPV is positive.
C. No, because the NPV is negative.
D. No, because the NPV is positive.

answer

C. No, because the NPV is negative.

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
A. lower tax revenue in both the short and long run.
B. raise tax revenue in both the short and long run.
C. raise tax revenue in the short run but lower tax revenue in the long run.
D. lower tax revenue in the short run but raise tax revenue in the long run

answer

D. lower tax revenue in the short run but raise tax revenue in the long run

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
A. houses are normal goods for Jim.
B. houses are inferior goods for Jim.
C. renting and owning are complementary for Jim.
D. need information on the price of houses.

answer

A. houses are normal goods for Jim.

question

Which of the following goods has a negative income elasticity of demand?
A. Cars
B. Items from Dollar stores
C. Shoes
D. Bread

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
A. inferior goods.
B. complements.
C. inelastic.
D. substitutes.

answer

D. substitutes.

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?
A.) Demand would rise, and Budweiser would reduce price.
B.) Demand would fall, and Budweiser would reduce price.
C.)Demand would fall, and Budweiser would increase price.
D.) Demand would rise, and Budweiser would increase supply.

answer

B.) Demand would fall, and Budweiser would reduce price.

question

Suppose your firm adopts a technology that allows you to increase your out- put by 15%. If the elasticity of demand is -3, how should you adjust price if you want to sell all of your output?
A. 5% lower
B. 0.5% lower
C. 15% higher
D. 15% lower

answer

A. 5% lower

Lower the price: −3 = 15%/%chgP can be re-arranged to show %chgP = 15%/ − 3 = −5%.

question

In general, the smaller the price elasticity (in magnitude):
A. the smaller the responsiveness of price to changes in quantity.
B. the smaller the responsiveness of quantity to changes in price.
C. the larger the responsiveness of price to changes in quantity.
D. the larger the responsiveness of quantity to changes in price.

answer

B. the smaller the responsiveness of quantity to changes in price.

question

A perfectly elastic demand curve
A. Is a horizontal line parallel to the x axis
B. Has an elasticity of demand between 0 and 1
C. Is the demand curve of a product that usually has no substitutes D. None of the above

answer

A. Is a horizontal line parallel to the x axis

question

As price increases, demand typically
A. becomes more elastic
B. becomes less elastic
C. does not change
D. elasticity does not change

answer

A. becomes more elastic

question

Phil's filling station gas station operates on a patch on the highway in a patch where there were no gas stations close by. It enjoyed high profits. After a while, Glen's gas another gas station opened up close by. The profits for the first gas station are likely to decrease because
A. it has to lower prices, since its product is now more price elastic B. It has to lower prices since its product is now more price inelastic
C. due to the increased availability of substitutes
D. both A and C

answer

D. both A and C

question

Adidas' share of the athletic shoe market is 30%. The own price elasticity of demand for Puma athletic shoes is -2.5. What would be the own price elasticity of athletic shoes as a whole?
Solution: Profits brought competitors, substitutes makes demand more elastic, thus resulting in a need to LOWER price, ie REDUCE margins.
A. -8.3
B. -0.75
C. -0.54
D. -1.5

answer

B. -0.75

question

A price elasticity of demand of -2.3 implies
A. Demand is inelastic
B. Demand is elastic
C. Demand is unitary elastic
D. Demand is perfectly elastic

answer

B. Demand is elastic

question

In general, the larger the price elasticity:
A. the smaller the responsiveness of price to changes in quantity.
B. the smaller the responsiveness of quantity to changes in price.
C. the larger the responsiveness of price to changes in quantity.
D. the larger the responsiveness of quantity to changes in price.

answer

D. the larger the responsiveness of quantity to changes in price.

question

The demand for Nike shoes is ____ the demand for shoes in general. A. More elastic than
B. Less elastic than
C. Just as elastic as
D. none of the above

answer

A. More elastic than

question

Why is price elasticity of demand negative?
A. Because marginal costs are increasing
B. Because demand is downward-sloping
C. Because MR is greater than MCD.
D.) Because I say so

answer

B. Because demand is downward-sloping

question

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?
A. -1.29
B. -1
C. -0.25
D. -0.78

answer

A. -1.29

-2000/7000=-0.28;50/225=0.22;soweget-0.28/0.22=-
1.29 (rounding).

question

The government decided to reduce taxes on fast-food to increase revenue. The government assumes that fast-food products have
A. An inelastic demand
B. An elastic demand
C. A demand curve that is upward sloping
D. Unitary elastic demand curve

answer

B. An elastic demand

question

If the price elasticity of demand is -0.8 and the firm decreases price, revenue will
A. Increase
B. Decrease
C. Stay constant
D. become zero, they would lose all their customers

answer

B. Decrease

question

If the current margin is greater than the desired margin, the firm should
A. Increase price
B. Decrease price
C. Not change the price
D. Marginal revenue and marginal cost are both zero

answer

B. Decrease price

question

An owneR of a local salon realized that by decreasing the prices that she charges for haircuts, her revenue has increased. This implies that
A. The demand for her haircuts is elastic
B. The demand for her haircuts is inelastic
C. The demand for her haircuts is unitary elastic
D. The demand for her haircuts is perfectly inelastic

answer

A. The demand for her haircuts is elastic

question

Given that the own-price elasticity of demand for a brand of shoes is -2, if the price rises by 8%, what will happen to the quantity of shoes demanded?
A. It will decrease by 16%
B. It will increase by 16%
C. It will decrease by 1.6%
D. It will decrease by 1.6%

answer

A. It will decrease by 16%

question

Price elasticity of demand for you product is about -2, and income elasticity of demand is about 1. Income in your area increases by about 10% at the same time that you raise price by 5%. Quantity demanded for your product will change by about
A. -10%
B. 0%
C. 5%
D. 15%

answer

B. 0%

question

Elasticity for your product is about -1.5. If you increase your price by 15%, your revenue will change by about
A. -22.5%
B. -7.5%
C. 2.5%
D. 7.5%

answer

B. -7.5%

question

What happens to the quantity demanded of fuel when its price (EP = −.32) goes up by 10% AND income (EY = .20) goes down by 10%?
A. Increases by 5.2%
B. Stays the same
C. Decreases by 5.2%
D. Decreases by 2%

answer

C. Decreases by 5.2%

We can remember that we can calc the different impacts on %chgQ and get the total effect: −.32 · (10%) + .20 · (−10%) = −5.2%

question

What happens to the quantity demanded of Netflix when Hulu (EP0 lowers price from $8 to $6 AND income (EY = 1.4) goes up by 7%?
= 0.8)
A. Increases by 11%
B. Increases by 2%
C. Decreases by 4.3%
D. Decreases by 13.4%

answer

D. Decreases by 13.4%

question

George has been selling 5,000 T-shirts per month for $8.50. He estimates that his elasticity is -2. If his marginal cost is $6 per shirt, should he increase his price?
A. Yes, his markup is likely not high enough.
B. No, his markup is likely too high.
C. There is not enough information.

answer

A. Yes, his markup is likely not high enough.

question

Your competitor's firm Bland Land is currently charging $15/meal for their authentic mid-west cuisine. Their costs for each meal are about $10. If they are be- having optimally, what is their price elasticity of demand?
A. -0.33
B. -0.66
C. -1.5
D. -3

answer

D. -3

question

Your monopolistic firm is producing recreational Space Probes at a marginal cost of $10,000 each. Your boss tells you that the current price of $20,000 is too low. Under which of the following scenarios could she be correct?
A. Price elasticity of demand at that price is elastic.
B. The marginal revenue at that point is $11,000
C. Either A or B
D. Neither A nor B

answer

A. Price elasticity of demand at that price is elastic.

question

If income goes up by 2% and ,in response ,the quantity demanded of Wal-mart clothing falls by 3%, then Wal-mart clothing can be considered
A. An inferior good
B. A normal good
C. A luxury good
D. Both B and C

answer

A. An inferior good

EY = −3%/2% = −1.5. Thus, it is an INFERIOR good.

question

Peter's Pizzeria sells both pizzas and wings. It wants to increase the sales of its pizzas. If it decides to increase the price of the wings, it is assuming that
A. the pizza and the wings are substitutes
B. the pizza and the wings are complements
C. the pizza and the wings are unrelated in demands
D. it cannot increase the sales of its pizzas

answer

A. the pizza and the wings are substitutes

question

George has been selling 5,000 T-shirts per month for $8.50. When he increased the price to $9.50, he sold only 4,000 T-shirts. What is the demand elasticity? If his marginal cost is $4 per shirt, what is his desired markup and what is his initial actual markup? Was raising the price profitable?

answer

The elasticity formula is e = (Q1-Q2)/(Q1+Q2) x (P1+P2)/(P1-P2). In this case, we have e = (5,000-4,000)/(5,000+4,000) x (8.50+9.50)/(8.50-9.50) = (1/9) x (18/-1) = -2. The desired markup is -1/e = 0.5 and his initial actual markup was (P-MC)/P = (8.50-4)/8.5 ≈ 0.53. Since his actual margin was already greater than his desired margin, raising his price (and thus margin) would decrease profits. (Can use either elasticity formula)

question

To conduct an experiment, AMC increased movie ticket prices from $9.00 to $10.00 and measured the change in ticket sales. Using the data over the following month, they concluded that the increase was profitable. However, over the subsequent months, they changed their minds and discontinued the experiment. How did the timing af- fect their conclusion about the profitability of increasing prices?

answer

Demand is more elastic in the long run. By the long run, we mean enough time so that all the adjustments that are going to occur will have occurred. In this case, one month is most likely not long enough. Customers who have already come to the theater will likely go through with the transaction. Once they become aware of the price increase, many will seek alternatives for their future entertainment. For some, these future transactions will occur many months later. After just the first month, demand did not fall much due to the price increase. Only after subsequent months did they get a truer view of just how elastic demand is. When it was revealed to be so much more elastic, the decrease in quantity demanded was so great that the fee increase was unprofitable.

question

An end-of-aisle price promotion changes the price elasticity of a good from -2 to -3. If the normal price is $10, what should the promotional price be?

answer

The promotion has made consumers more price sensitive and has made demand more elastic. As demand becomes more elastic, the firm should decrease price. The exact price level will depend on the costs but the desired markup (which should be -1/e) will decrease from 1/2 to 1/3. If the $10 price were optimal at the previous elasticity, then (P-MC)/P=(10-MC)/10=1/2, so MC=5. Therefore, at the new elasticity, (P-5)/P=1/3, so P=7.50.

question

Why do bars offer free peanuts?

answer

Peanuts are complements to the alcohol consumption and socializing that bars offer. By offering peanuts for free, the demand for purchased drinks increases. Bars earn higher profits from this increased demand in excess of the costs of the peanuts. (This is like free parking at retail outlets.)

question

Give an example of a good whose demand is relatively price inelastic and describe three (3) attributes/features that make it so. Fully explain your answers. Don't de- fine elasticity, rephrase elasticity, or describe the law of demand, rather describe the features of the good and how it impacts price elasticity of demand

answer

Salt; National Parks; Clothes as a whole; many products as a whole (Gasoline).
Why? Necessity; Not highly substitutable; Small portion of your income; Not much time to adjust; Industry vs Brand; Significant complements

question

A minor league baseball team is trying to predict ticket sales for the upcoming season and is considering changing ticket prices. Currently, a typical fan pays an average ticket price of $10. However, they also buy $8 of refreshments at the game, and as such each admission generates $18 in total revenue. The price elasticity of demand for TICKETS is -.6. Management is thinking of raising the average ticket price to $11. Would this increase or decrease total revenue? (You can assume 5,000 tickets sold if it helps, though it's not needed.)

answer

question

Buyers consider Marlboro cigarettes and Budweiser beer to be complements. If Marlboro just decreased its prices, what would you expect to occur in the Budweiser market?
A. Demand would rise, and Budweiser would reduce price.
B. Demand would fall, and Budweiser would reduce price.
C. Demand would fall, and Budweiser would increase price.
D. Demand would rise, and Budweiser would increase price.

answer

D. Demand would rise, and Budweiser would increase price.

question

The manager of a gas station noticed that when prices in the convenience store of the gas station decreased, gas sales increased. This could possibly be because the convenience store products are
A. usually complements to the gas sales
B. usually substitutes to the gas sales
C. usually unrelated to the gas sales
D. none of the above

answer

A. usually complements to the gas sales

question

A price elasticity of demand of -0.6 implies
A. Demand is inelastic
B. Demand is elastic
C. Demand is unitary elastic
D. Demand is perfectly elastic

answer

A. Demand is inelastic

question

George has been selling 5,000 T-shirts per month for $8.50. He estimates that his elasticity is -1.5. If his marginal cost is $4.50 per shirt, should he increase his price?
A. Yes, his markup is likely not high enough.
B. No, his markup is likely too high.
C. There is not enough information.

answer

A. Yes, his markup is likely not high enough.

question

If the price elasticity of demand is -0.8 and the firm increases price, revenue will
A. Increase
B. Decrease
C. Stay constant
D. become zero, they would lose all their customers

answer

A. Increase

question

Which one of the following is true?
A. Nike has a less elastic demand curve than shoes.
B. The demand curve for gas is more elastic in the short run than in the long run.
C. Cigarettes have a more elastic demand than televisions.
D. Salt has a less elastic demand than ice cream.

answer

D. Salt has a less elastic demand than ice cream.

question

Elasticity for your product is about -2. If you increase your price by 8%, your REVENUE will change by about
A. -16%
B. -8%
C. 2%
D. 8%

answer

B. -8%

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?
A. 5% lower
B. 0.5% lower
C. 15% higher
D. 15% lower

answer

A. 5% lower

question

If income goes up by 2% and, in response, the quantity demanded of streaming services rises by 3%, then streaming services can be considered
A. An inferior good
B. A normal good
C. A luxury good
D. Both B and C

answer

D. Both B and C

question

What is a normal good?
A. A good whose demand increases when income decreases
B. A good whose demand decreases when income decreases
C. A good whose demand increases when price increases
D. Both B and C

answer

B. A good whose demand decreases when income decreases

question

You are taking a multiple-choice test that awards you one point for a correct answer and penalizes you 0.25 points for an incorrect answer. If you have to make a random guess and there are five possible answers, what is the expected value of guessing?
A. 0.5 points
B. 0.25 points
C. -0.25 points
D. 0 points

answer

D. 0 points

So, ((1/5) ∗ (1)) + ((4/5) ∗ (−0.25)) = 0.2 − 0.2 = 0

question

A franchise restaurant chain is considering a new store in an unserved part of town. Its finance group estimates an NPV of $10 million if the population growth is 10% (40% probability), an NPV of $4 million if the population does not grow (30% probability), and an NPV of -$4 million if the population shrinks 5% (30% probability). What is the expected value of NPV (to the nearest dollar) for the following situation?
A. $3.4 million
B. $4.0 million
C. $4.6 million
D. $5.2 million

answer

B. $4.0 million

question

Your software development company is considering investing in a new mo- bile app. If it goes viral (10% probability), you expect an NPV of $1,000,000; if it is moderately successful (20% probability), you expect an NPV of $200,000; and if it fails (70% probability), you expect an NPV of $-200,000. What is the expected NPV of the product?

A. $0.
B $280,000
C. $333,000
D. None of the above

answer

A. $0.

So, ((0.1)($1,000,000))+((0.2)($200,000))+((0.7)*(-$200,000))= $100,000+$40,000-$140,000 = $0

question

To test the effectiveness soft wo Web advertising agencies, you increase your ad purchase with agency A by 50% without changing your ad purchase through agency B. The referrals to your Web site from agency A increased by 34% but the referrals from agency B fell by 21%. What is the difference-in-difference estimate of the refer- rals per dollar through agency A?
A. 1.2 referrals per dollar
B. 1.1 referrals per dollar
C. 1.0 referrals per dollar
D. 0.9 referrals per dollar

answer

B. 1.1 referrals per dollar

question

Your company has a customer list that includes 3,000 people. Your market research indicates that 90 of them responded to the coupon. If you send a coupon to one customer at random, what's the probability that he or she will use the coupon?
A. 0.03
B. 0.09
C. 0.30
D. 0.90

answer

A. 0.03

The probability of using the coupon is 90/3000=0.03 or 3%

question

You have two types of buyers for your product. Forty percent of buyers value your product at $10 and sixty percent value it at $6. What price maximizes your expected revenue?
A. $10
B. $6
C. $7.60
D. $8

answer

B. $6

At $6, all 100% of buyers will purchase your product for an expected revenue of $6, better than just 40% at $10 for an expected revenue of $4.

question

In a coin toss bet, where both heads and tails are equally likely, you win a dollar on heads but lose a dollar on tails. The expected value of the bet is
A. 0.5
B. -0.5
C. 1
D. 0

answer

D. 0

E(X) = (0.5∗1)+(0.5∗(−1)) = 0

question

You can invest $100,000 into either project A or B. You estimate that A would succeed with a probability of 0.7 in which case it doubles in value. If it fails, its scrap value is $50,000. Project B would succeed with probability 0.6, in which case it would have a value of $150,000. If it fails, project B's scrap value is $30,000. Which project should you invest in?
A. Project A
B. Project B
C. Neither of the projects
D. You cannot tell from the information presented

answer

A. Project A

= (0.6 ∗ $150K) + (0.4 ∗ $30K) = $102K. So we choose Project A since 1) it's better than project B and 2) the payoff is greater than the $100K cost.

question

Three possibilities are equally likely and have payoffs of $3, $6, and $9. The expected value is:
A. 4
B. 5
C. 6
D. 7

answer

C. 6

(3+6+9)/3=6.

question

Five possibilities are equally likely and have payoffs of $2, $4, $6, $8, and $10. The expected value is:
A. 4
B. 5
C. 6
D. 7

answer

C. 6
(2+4+6+8+10)/5=6.

question

Six possibilities are equally likely and have payoffs of $2, $4, $6, $8, $10, and $12. The expected value is:
A. 4
B. 5
C. 6
D. 7

answer

D. 7

(2+4+6+8+10+12)/6=7.

question

If a deal looks too good to be true
A. The seller most likely made a mistake
B. Be cautious. It probably is too good to be true
C. Trust the seller to give you a good deal
D. A good deal is a good deal. Go for it.

answer

B. Be cautious. It probably is too good to be true

question

You are considering buying a store. The storeowner gives you an estimate of the net profits of the store on a typical day. The owner has most likely given you the figures for
A. The best case scenario
B. The worst case scenario
C. Any typical day
D. Any typical year

answer

A. The best case scenario

question

Half of all your potential customers would pay $10 for your product but the other half would only pay $8. You cannot tell them apart. Your marginal costs are $4. If you set the price at $10, the expected profit is:
A. 3
B. 4
C. 5
D. 6

answer

A. 3

question

Alan is offered a gamble on a fair coin: Heads he wins $100, tails he wins $20. If the game costs $60, would he play?
A.) Yes he would play since the expected value is equal to the price of the play
B.) Yes he would play since the expected value of the play is higher than the price of the play
C.) No he would not play since the price of the play is higher than the expected value
D.) No he would not play since this is a fair bet and he is not being offered any risk premium

answer

D.) No he would not play since this is a fair bet and he is not being offered any risk premium

question

A movie producer has to decide to fund a new movie project. For this project, a success would earn $20 million and a failure would cost $60 million in lost profits. At what probability of expected success should he fund the movie?
A. 0.25
B. 0.5
C. 0.75
D. Either B or C

answer

C. 0.75

p >= 60/80 = 3/4. Note that this is the same as C1/(C1+C2)=60/(20+60)=3/4.

question

A manager may over-research the appropriateness of a decision

A.) Because the costs of a false positive are usually larger
B.) Because the costs of a false negative are usually larger
C.) Because it is important to be 100% certain before making a decision
D.) Because managers can face inordinate censure from agreeing to a bad deci- sion

answer

A.) Because the costs of a false positive are usually larger

question

A risk averse individual

A. values a lottery/gamble at more than its expected value
B. values a lottery/gamble at exactly its expected value
C. values a lottery/gamble at less than its expected value
D. tends to play lots of lotteries/gambles

answer

C. values a lottery/gamble at less than its expected value

question

Which of the following is NOT an example of risk aversion?

A.) You don't lock your garage when you have expensive workshop tools
B.) You are more careful when you buy a more expensive car
C.) Individuals tend to gamble more with their money when the future is cer- tain
D.) You only go swimming when the lifeguard is on duty

answer

A.) You don't lock your garage when you have expensive workshop tools

question

You ,arisk-averse office manager, are considering leaving your firm to start off on your own. You estimate your expected revenue will be roughly $200K with $120K in explicit expenses. If your current full-time job provides $80K in total compensation should you leave?

A. Yes, since your revenue is higher than your current salary.
B. You are indifferent, since the economic profit is zero.
C. No, since you are risk averse and prefer the sure thing to the gamble.
D. There is not enough information.

answer

C. No, since you are risk averse and prefer the sure thing to the gamble

question

You, arisk-averse office manager ,are considering leaving your firm to start off on your own. You estimate your expected revenue will be roughly $200K with $120K in explicit expenses. If your current full-time job provides $80K in total compensation should you leave?

A. Yes, since your revenue is higher than your current salary.
B. You are indifferent, since the economic profit is zero.
C. No, since you are risk averse and prefer the sure thing to the gamble.
D. There is not enough information.

answer

C. No, since you are risk averse and prefer the sure thing to the gamble.

question

You raise your product price by $10 in market A but leave it unchanged in market B. Sales in A fall from 840 to 740 units per week while sales in B rise from 770 to 790 units. The Difference-in-difference estimate of the loss of sales due to the price change is
:
A. 80 units
B. 100 units
C. 120 units
D. 140 units

answer

C. 120 units

-100-20=-120.

question

You want to run a difference-in-difference experiment with a price increase for your lawn chairs in Miami, FL. If you are worried about the "representativeness" of your control group, a good comparison city would be
A. Boston, MA
B. San Francisco, CA
C. St. Paul, MN
D. Tampa Bay, FL

answer

D. Tampa Bay, FL

Tampa and Miami are closest to each other and they are also both beach cities in the southern U.S. None of the other cities meet this.

question

A response bias occurs when:

A.) responses do not reflect the true preferences and attitudes of respondents.
B.) insufficient sample size tends to lower the variability of the responses.
C.) the questions do not reflect the true intentions of the surveyor.
different versions of the question are targeted to different segments of respondents.
D.) the large sample size makes it difficult for the surveyor to reconcile the var- ious responses.

answer

A.) responses do not reflect the true preferences and attitudes of respondents.

question

You increase the advertising intensity for your product in Los Angeles but not in San Diego. Sales in LA rise from 1,140 to 1,180 units per week while sales in SD fall from 1,270 to 1,230. What is the Difference-in-difference estimate of the effect of the increased advertising?
A. 0
B. 40
C. 80
D. 120

answer

C. 80

40+40=80.

question

Which of the following is an example of selection bias with regards to fore- casting/estimating demand?

A.) Customers most responsive to price changes also have the most income changes
B.) Competitor changes their price in response to your price changes
C.) Offer a $20 gift card for responding to a customer survey
D.) All of the above

answer

D.) All of the above

question

In the final round of a TV game show, contestants have a chance to increase their current winnings of $1 million dollars to $2 million dollars. If they are wrong, their prize is decreased to $500,000. The contestant thinks his guess will be right 50% of the time. Should he play? What is the lowest probability of a correct guess that would make playing profitable?

answer

The minimum probability of a guess to make playing still profitable is 33.3%. $1,000,000(x) + (-$500,000)(1-x) = 0 $1,000,000x -$500,000 + $500,000x = 0 $1,500,000x = $500,000 X = ($500,000/$1,500,000) X = 1/3 = 33.3%

question

There is a 50% probability that your new marketing campaign is going to be a failure. Separately, there is a 40% probability that a new entrant will come into your market. Do you think that the probability of your campaign failing and a new entrant coming in your market is (50%)(40%) = 20%? Fully justify your answer.

answer

Must talk about independence: Most likely not. It is very likely that these two events are related one to another, ie NOT independent. A failed cam- paign may encourage a firm to enter, or possibly the firm enters and makes it more likely for the campaign to fail. Either way, they are likely dependent on each other

question

At a "fair" carnival roulette wheel, a player can either win $10, $20, $30, or $80. The staff member says that it costs $20 to play this wheel. Do you think the wheel is fair (ie, even odds)?

answer

A fair wheel would have given equal odds to each outcome: 25%. If that was the case, then the expected payout would be:
10.25 + 20.25 + 30.25 + 80.25 = 35.
Since the price is less than 35, and the carnival doesn't want to lose money, you can be sure that the game is rigged somehow. Perhaps the $80 hardly ever happens (virtually 0%?) and the $10 took all of the $80 odds? Then we would have:
10.5 + 20.25 + 30.25 + 800 = 17.5.
And THAT could be the real odds.
Of course, weighting a roulette wheel to do this would get you in trouble. So that's why they have games that look like they are winnable (ring toss) but are clearly not.

question

answer

change in sales in both areas. Thus, in LA the change was 1180-1140 = 40 and in SD the change was 1230-1270 = -40.
Second diff: change in the change in sales. Since we're interested in LA, we SUB- TRACT the SD CHANGE from the LA CHANGE: 40 - (-40) = 80 (note the subtrac- tion of the negative number, which gave a positive one).

question

Four possibilities are equally likely and have payoffs of $2, $4, $6, and $8. The expected value is:
A. 5
B. 6
C. 7
D. 8

answer

A. 5

question

You've just decided to add a new line to your manufacturing plant. Compute the expected loss/profit from the line addition if you estimate the following: There's a 50% chance that profit will increase by $100,000; There's a 30% chance that profit will remain the same; There's a 20% chance that profit will decrease by $15,000.
A. Gain of $100,000
B. Gain of $70,000
C. Loss of $53,000
D. Gain of $47,000

answer

D. Gain of $47,000

question

You can invest $100,000 into either project A or B. You estimate that A would succeed with a probability of 0.5 in which case it doubles in value. If it fails, its scrap value is $50,000. Project B would succeed with probability 0.8, in which case it would have a value of $150,000. If it fails, project B's scrap value is $30,000. Which project should you invest in?
A. Project A
B. Project B
C. Neither of the projects
D. You cannot tell from the information presented

answer

B. Project B

question

You are considering buying a store. The storeowner gives you an estimate of the net profits of the store on a typical day. The owner has most likely given you the figures for the day when
A. Sales are low, costs are high
B. Sales are very close to costs
C. Sales are high, costs are low
D. All of the above

answer

C. Sales are high, costs are low

question

Alan is offered a gamble on a fair coin: Heads he wins $100, tails he wins $20. If the game costs $60, would he play?

A. Yes he would play since the expected value is equal to the price of the play
B. Yes he would play since the expected value of the play is higher than the price of the play
C. No he would not play since the price of the play is higher than the expected value
D. No he would not play since this is a fair bet and he is not being offered any risk premium

answer

D. No he would not play since this is a fair bet and he is not being offered any risk premium

question

A risk premium is
A. the difference between the earnings of a low risk asset and a high risk asset
B. premium paid to a security holder to compensate him for bearing a higher risk
C. both A and B
D. none of the above

answer

C. both A and B

question

You are trying to determine how important it is to have 12 different designs for your Riverside Ranger t-shirts. To test this, you remove 6 designs from your San Bernardino stores, but keep all 12 in your Riverside stores. Sales in SB fall from 200 units/week to 180 units/week, while sales in Riverside fall from 300 units/week to 260 unit/week. What is the Diff-in-Diff estimate of the impact of removing the designs?
A. -20
B. 0
C. 20
D. 40

answer

C. 20

question

Which of the following is the best definition of a controlled market study?
A. A carefully designed study of a market situation.
B. A study of demand and supply in a single market.
C. A study that varies key economic variables in one or more markets to determine the effects of the changes.
D. A study that assumes differences in sales can be accounted for by unmeasured variables.

answer

C. A study that varies key economic variables in one or more markets to determine the effects of the changes.

question

Which of the following is true of uncontrolled market data?
A. Uncontrolled market data is more reliable than controlled market data.
B. Uncontrolled market data shows how changes in various economic variables affect the outcomes in a single market.
C. Uncontrolled market data has little information value.
D. Uncontrolled market data reflects changes in multiple factors at the same time.

answer

D. Uncontrolled market data reflects changes in multiple factors at the same time.

question

Comparing international trade with trade among the different states of the United States shows that
a.) the logic of international trade is quite different from that of intranational trade.
B.) the basic reasons for trade are equally applicable within a country or among countries.
C.) there is no need to study international trade as a special subject.
D.) All of the above are correct.

answer

a.) the logic of international trade is quite different from that of intranational trade.

question

Are there impediments to international movement of labor and capital?
A.) Yes, but they apply to labor only, capital mobility is almost completely free.
B.) Yes, although these apply to capital, and not to labor.
C.) Yes, there are significant (often prohibitive) restrictions on labor and capital mobility.
D.) No, these have been removed with the passage of recent trade legislation.

answer

C.) Yes, there are significant (often prohibitive) restrictions on labor and capital mobility.

question

Colombia produces coffee with less labor and land than any other country; it therefore surely has

A. an absolute advantage in coffee production.
B. a comparative advantage in coffee production.
C. absolute efficiency in coffee production.
D. a comparatively absolute advantage in coffee production.

answer

A. an absolute advantage in coffee production.

question

In discussing trade, it is ____ that matters rather than ____.

A. absolute advantage: elastic advantage
B. comparative advantage; absolute advantage
C. entire advantage; comparative advantage
D. elastic advantage; entire advantage

answer

B. comparative advantage; absolute advantage

question

If a nation has "cheap labor,"

A. it can still benefit from trade.
B. other nations can still compete with it.
C. it cannot have a comparative advantage in everything.
D. All of the above are true.

answer

D. All of the above are true.

question

Suppose that Captain Canada can produce 100 hockey sticks or 10 gallons of maple syrup in a typical work week, while Captain Germany can produce 90 hockey sticks or 10 gallons of maple syrup in a typical work week. From these numbers, we can conclude
A.) Captain Canada has a comparative advantage in the production of hockey sticks.
B.) Captain Germany has a comparative advantage in the production of maple syrup.
C.) Captain Canada has an absolute advantage in the production of hockey sticks.
D.) All of the above conclusions are correct.

answer

D.) All of the above conclusions are correct.

question

What would be the output combination for two products A and B on the pro- duction possibility frontier, if a country uses its entire resources for producing A?
A. A - Maximum; B - Zero
B. A- Maximum, B - Maximum
C. A - Zero, B - Maximum
D. A - Zero, B - Minimum

answer

A. A - Maximum; B - Zero

question

In the figure,

answer

Great Britain has a comparative advantage in the production of woolens.

question

Why does equilibrium in the market for a traded good not occur where that country's quantity demanded equals quantity supplied?
A.) Because equilibrium occurs where demand equals supply.
B.) Because markets are never in equilibrium.
C.) Because some of the good is imported or exported.
D.) Because there are several demand curves, and the market can't choose be- tween them.

answer

C.) Because some of the good is imported or exported.

question

A tariff is
A. a tax on imports.
B. a tax on exports.
C. a payment by the government to an exporter.
D. a legal limit on the amount of a good that may be imported.

answer

A. a tax on imports.

question

A quota is
A. a tax on exported items.
B. a tax on imported items.
C. a limit on the amount of imports.
D. a subsidy to export.

answer

C. a limit on the amount of imports.

question

A tariff affects imports
A. by limiting quantity and raising price to a higher level.
B. by reducing quantity demanded so that supply falls.
C. by increasing supply, raising price, and reducing demand.
D. by raising price and reducing quantity demanded.

answer

D. by raising price and reducing quantity demanded.

question

The two primary reasons to adopt measures to restrict trade are that

A.) they help keep real wages high in the importing country, and they also per- mit small businesses to compete in international markets. (Note: real wages are wages after accounting for inflation/price changes)
B.) they may help the importing country improve its educational system, and they keep high-technology products from being stolen by foreign competitors.
C.) they may help the importing country get better prices for its goods ,and they protect certain industries from foreign competition.
D.)they may help advance the political goals of the nation, and they encourage productivity in domestic industries.

answer

C.) they may help the importing country get better prices for its goods ,and they protect certain industries from foreign competition.

question

Ideally, a free trade policy should be accompanied by
A. a public education program to make the benefits known.
B. open borders and amnesty for all undocumented workers.
C. programs to ensure no one loses a job as a result of foreign competition.
D. programs to assist workers who lose their jobs to foreign competition.

answer

D. programs to assist workers who lose their jobs to foreign competition.

question

Tariffs and quotas are effective in protecting industry
A. but at very high cost per job saved.
B. and at very low cost per job saved.
C. but have not saved any jobs in the industries.
D. and do not distort the economy in the process.

answer

A. but at very high cost per job saved.

question

The Trade Adjustment Assistance program is intended to help
A.) businesses that seek to expand exports into protected foreign markets.
B.) local governments that are harmed when businesses fail as imports increase.
C.) protected industries obtain improved technology in order to increase pro- ductivity.
D.) workers and businesses that lose markets because of increases in imports.

answer

D.) workers and businesses that lose markets because of increases in imports.

question

The infant industry argument is valid when
A.) a new industry is suffering financial losses.
B.) a new industry is less efficient than foreign competitors.
C.) the industry's prospective gains are sufficient to repay the social losses in- curred while it is being protected.
D.) the industry is not likely to be profitable in the future.

answer

the industry's prospective gains are sufficient to repay the social losses incurred while it is being protected.

question

Is the call for protection on the basis of national defense valid?
A.) No, because protection has no place in national defense.
B.) No, protection is always improper.
C.) Uncertain, economic theory has no answer to this question.
D.) Yes, although it can be overstated and abused.

answer

D.) Yes, although it can be overstated and abused.

question

Suppose that a worker in Greece can produce either 100 Beans or 2 Cars per hour, whereas a worker in Japan can produce either 120 Beans or 6 cars per hour. What could happen?
A. Japan will trade 400 Beans in exchange for 10 Cars from Greece B. Japan will trade 100 Beans in exchange for 10 Cars from Greece
C. Japan will trade 10 Cars in exchange for 40 Beans from Greece D. Japan will trade 10 Cars in exchange for 100 Beans from Greece
E. None of the above are viable trades

answer

E. None of the above are viable trades

question

Which of the following is true about trade restrictions?

A. Countries can produce more total output if allowed to trade
B. When tariffs are lowered, everyone within a country is made better off
C. There are no strategic reasons to ever put up trade barriers
D. Only A and C

answer

A. Countries can produce more total output if allowed to trade

1 of 232

question

answer

B.) Compensation caps can discourage employees from being productive after the cap.

question

answer

D.) All of the above

question

answer

A.) It may sell the remaining cars at huge discounts to hit the quota.

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

A.) provides incentives to conduct business in an illegal black market

question

Efficiency implies opportunity,
A. always.
B. never.
C. only if accompanied by secure property rights.
D. none of the above.

answer

B). never.

question

answer

B.) the marginal benefit of the sixth banana exceeds the price.

question

answer

D.) Some consumers are willing to pay more than the price.

question

answer

C.) The equilibrium price would fall, and the equilibrium quantity could rise or fall.

question

answer

A.) They had bad incentives: they were likely told to open extra accounts to keep their jobs.

question

answer

D.) All of the above

question

answer

C.) Create wealth by enforcing property rights and contracts

question

answer

B.) subsidies move assets from higher- to lower- valued uses

question

answer

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

question

The difference between the value you place on a product and its market price is called

A.) Consumer surplus
B.) Quantity demanded
C.) Demand
D.) None of the above

answer

A.) Consumer surplus

question

Changes in the price of a product can cause
A.) A movement along the demand curve
B.) A shift of the demand curve
C.) A shift of the supply curve
D.) All of the above

answer

A.) A movement along the demand curve

question

answer

D.) all of the above

question

answer

D.) shift to the right, shift to the right

question

Excess supply of a product exerts ___________pressure on prices
A.) Zero
B.) No
C.) Upward
D.) Downward

answer

D.) Downward

question

answer

B.) Increase; decrease

question

answer

E.) Increase in price due to an decrease in Supply

question

answer

D.) Increase in Demand and increase in Supply

question

answer

C.) Increase in price, Uncertain change in quantity

question

answer

C.) consumer surplus.

question

answer

A.) Creates wealth by moving the clothes from lower value use to higher value use

question

answer

C.) $6,000 worth of buyer surplus and $9,000 of seller surplus.

question

answer

C.) The government can absorb some of the surplus, but also creates a social loss since some of the wealth creating transactions are discouraged

question

answer

B.) Little change in Demand and increase in Supply

question

answer

C.) Both A and B.

question

answer

B.) the demand for popcorn would shift to the left because popcorn and movies are complementary goods.

question

answer

D.) Little change in price, decrease in quantity

question

answer

D. Two

question

answer

D.) that more information is needed to determine accounting profits

question

Opportunity costs arise due to
A.) resource scarcity.
B.) interest rates
C.) limited wants.
D.) unlimited scarcity.

answer

A.) resource scarcity.

question

All the following are examples of variable costs, except
A.) labor costs.
B.) cost of raw materials.
C.) accounting fees.
D.) electricity cost.

answer

C.) accounting fees.

question

answer

A.) Most of the costs of drug development are sunk, not fixed.

question

answer

C.) economies of scope

question

answer

C.) there are scale economies

question

Average costs curves initially fall
A. due to declining average fixed costs.
B. due to rising average fixed costs.
C. due to declining accounting costs. D. due to rising marginal costs.

answer

A. due to declining average fixed costs.

question

answer

C.) There are diseconomies of scale.

question

Once marginal cost rises above the average cost
A. average costs will increase.
B. average costs are unaffected.
C. average costs will decrease.
D. None of the above.

answer

A. average costs will increase.

question

answer

A. $1,000

The only fixed cost here is the rent. All the materials are variable costs.

question

answer

A. Average costs are rising.

question

answer

B.) reduces the opportunity cost of building residential real estate.

question

answer

B.) increases the opportunity cost of building commercial real estate.

question

answer

A.) Nothing; it's a sunk cost and cannot be recovered.

question

Which of the following is a sunk cost when deciding to close down a business or not?
A.) Monthly lease
B.) Wages of temporary workers
C.) Manager salaries
D.) None of the above

answer

D.) None of the above

question

answer

B.) As you expand output, your marginal productivity eventually declines

question

answer

C.) decreasing marginal productivity

question

answer

D.) all of the above

question

"If long run average costs are constant with respect to output, you have
A. Increasing returns to scale
B. Decreasing returns to scale
C. Constant returns to scale
D. None of the above

answer

C. Constant returns to scale

question

answer

A.) decreasing average costs as production increases

question

answer

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

question

A food company trying to increase its profits by expanding into the soft drinks business is an example of
A. Economies of scale
B. Economies of Scope
C. Diseconomies of Scale D. Diseconomies of Scope

answer

B. Economies of Scope

question

answer

D. Diseconomies of scope

question

As firms get bigger, long-run average costs fall when returns to scale are:
A. increasing
B. decreasing
C. constant
D. 7

answer

A. increasing

question

answer

C. Research costs to determine the implementation of a technology

question

answer

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

question

Average costs curves initially fall
A. due to declining average fixed costs.
B. due to rising average fixed costs.
C. due to declining accounting costs.
D. due to rising marginal costs.

answer

A. due to declining average fixed costs.

question

If a firm produces 8 units of output with average fixed cost=$40 and average variable cost=$25, what is its average cost?
A. 100
B. 20
C. 65
D. 32

answer

C. 65

question

answer

D. economies of scope.

question

answer

D. Diseconomies of scope

question

answer

A. 100, 150, 240

question

When economists speak of "marginal," they mean
A. opportunity.
B. scarcity.
C. incremental.
D. unimportant.

answer

C. incremental.

question

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 less than MC.

question

answer

B. the more value individuals place on current dollars.

question

answer

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

question

answer

D. 17,500

Q = FC(P − MC) = 350, 000/20 = 17, 500

question

answer

A. Sell the additional stand by seats at a discount since the marginal costs of the additional passenger are almost zero and fly at full capacity

question

answer

B.)The marginal costs of an additional passenger are low at that point and companies gain by lowering prices since all the other guests already paid

question

Marginal cost typically ____ and marginal revenue typically ____ with increasing output.
A. rises falls
B. falls; rises
C. rises; rises
D. falls; falls

answer

A. rises falls

question

A firm's fixed costs are $10 million. It sets the price at $1800 per unit and has marginal costs of $1,000. What is the firm's contribution margin?
A. 1800
B. 800
C. 1000
D. 300

answer

B. 800
Contribution margin is just P − MC (or P − AVC): 1800-1000=800

question

answer

C. 3
Price is 18, MC is 15, so contribution margin is 15

question

Government intervention

answer

can provide incentives to conduct business in an illegal black market

question

Price ceilings cause

answer

-Some suppliers to drop out of the market
- A decrease in the total production in the market
-The creation of black markets

question

What criteria do consumers apply when deciding whether or not to consume

answer

The consumer would consume only if the price is lower than his highest willingness to pay and The consumer would only consume if his surplus is greater than zero

question

Which of the following would shift the supply of Florida Oranges to the left

answer

A. a hurricane in Florida destroying a major part of the crop
B. an increase in the price of water per unit, a major input, used to irrigate the orange trees
C. one of the orange grooves shuts down

question

answer

Two

question

answer

fall, rise

question

An increase in the price of laptop memory chips causes the price for laptops _____________ and the quantity supplied for laptops ____________.

answer

Increase; decrease

question

An attack on an oil field in Saudi Arabia would have what impact on the global market for crude oil?

answer

Decrease in quantity due to an decrease in Supply

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

is equal to the market value of the land.

question

answer

the income he could have earned at the car dealership.

question

At the current point in production, the cost to make one more pair of sunglasses is larger than the average cost to make all the other ones. Thus, with respect to production decisions

answer

Average costs are rising.

question

Which of the following is classified as a sunk cost?

answer

Research costs to determine the implementation of a technology

question

What is a synergy or cost complementarity?

answer

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

question

According to the law of diminishing marginal returns, marginal returns

answer

diminish always prior to increasing.

question

answer

Diseconomies of scope

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answer

There are diseconomies of scale.

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At the current level of production, if the firm's MR>MC, then the firm should

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produce more

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Farmer John can produce as much corn as he wants at the going price of $48 per bushel. At his current production level, the marginal cost is $18. What should the company do

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Increase production

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A student is trying to decide whether to study for the upcoming exam or play video games. The optimal amount of time spent studying is:

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where the marginal benefit of studying equals the marginal cost of studyin

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Which of the following will increase the break-even quantity

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decrease in the price level

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A firm's fixed costs are $10 million. It sets the price at $1800 per unit and has marginal costs of $1,000. The break-even quantity is.

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12500

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Break-even quantity is a point where

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There are zero profits

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The lower the discount rates

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the more value individuals place on future dollars.

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Projects with a positive NPV create

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

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If the price elasticity of demand is -0.8 and the firm increases price, revenue will

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Increase

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George has been selling 5,000 T-shirts per month for $8.50. He estimates that his elasticity is -1.5. If his marginal cost is $4.50 per shirt, should he increase his price?

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Yes, his markup is likely not high enough.

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A price elasticity of demand of -0.6 implies

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Demand is inelastic

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The price elasticity of demand tells us about

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The sensitivity of quantity to price

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All of the following make demand LESS elastic EXCEPT

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none of the above; they all make demand more elastic.

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The demand for Dell laptops is more price elastic than the demand for laptops as a whole. This can be best explained by the fact that

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There are more substitutes for Dell laptops than for laptops as whole

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Recent start-ups have introduced motorized scooters to many metropolitan areas at very affordable rates. This has caused demand for bicycle rentals to ______ because the two services are ______.

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fall; substitutes

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If cars are normal goods, a fall in income will

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Decrease the demand for cars

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You have two types of buyers for your product. Forty percent of buyers value your product at $10 and sixty percent value it at $6. What price maximizes your expected revenue?

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You are considering buying a store. The storeowner gives you an estimate of the net profits of the store on a typical day. The owner has most likely given you the figures for the day when

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Sales are high, costs are low

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In a coin toss bet, where both heads and tails are equally likely, you win a $2 on heads but lose $1 on tails. The expected value of the bet is

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0.5

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Alan is offered a gamble on a fair coin: Heads he wins $100, tails he wins $20. If the game costs $60, would he play?

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No he would not play since this is a fair bet and he is not being offered any risk premium

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An individual who is a risk lover

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values a lottery at more than its expected value

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Which of the following is true of uncontrolled market data?

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Uncontrolled market data reflects changes in multiple factors at the same time.

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Which of the following is the best definition of a controlled market study?

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A study that varies key economic variables in one or more markets to determine the effects of the changes.

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C. $33

Costs for 12 workers are 7 ∗ 12 = 84, whereas for 13 workers they are 9 ∗ 13 = 117. Thus, the MC of that last worker is 117-84=33

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B. the more value individuals place on current dollars.

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A. 5
500 + 50Q = 250 + 100Q, and thus 250 = 50Q, and Q = 5.

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answer

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C. The company needs to increase production.

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answer

A. Increase production

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answer

A. Let the trees grow as long as their dollar worth increases by more than 5%

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answer

C. where the marginal benefit of studying equals the marginal cost of studying.

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B. unable to cover all of its fixed cost and hence should shut down.

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Break-even quantity is a point where
A. the level of profit is maximized
B. the level of cost is minimized
C. Only variable costs are covered
D. There are zero profits

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D. There are zero profits

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answer

B. Continue operating price is higher than average cost, its making a profit

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answer

C. 45000

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answer

B. Yes, because the NPV is positive.

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answer

C. No, because the NPV is negative.

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answer

D. lower tax revenue in the short run but raise tax revenue in the long run

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answer

A. houses are normal goods for Jim.

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Which of the following goods has a negative income elasticity of demand?
A. Cars
B. Items from Dollar stores
C. Shoes
D. Bread

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B. Items from Dollar stores

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answer

D. substitutes.

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answer

B.) Demand would fall, and Budweiser would reduce price.

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A. 5% lower

Lower the price: −3 = 15%/%chgP can be re-arranged to show %chgP = 15%/ − 3 = −5%.

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B. the smaller the responsiveness of quantity to changes in price.

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A. Is a horizontal line parallel to the x axis

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As price increases, demand typically
A. becomes more elastic
B. becomes less elastic
C. does not change
D. elasticity does not change

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A. becomes more elastic

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answer

D. both A and C

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answer

B. -0.75

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A price elasticity of demand of -2.3 implies
A. Demand is inelastic
B. Demand is elastic
C. Demand is unitary elastic
D. Demand is perfectly elastic

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B. Demand is elastic

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answer

D. the larger the responsiveness of quantity to changes in price.

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The demand for Nike shoes is ____ the demand for shoes in general. A. More elastic than
B. Less elastic than
C. Just as elastic as
D. none of the above

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A. More elastic than

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Why is price elasticity of demand negative?
A. Because marginal costs are increasing
B. Because demand is downward-sloping
C. Because MR is greater than MCD.
D.) Because I say so

answer

B. Because demand is downward-sloping

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answer

A. -1.29

-2000/7000=-0.28;50/225=0.22;soweget-0.28/0.22=-
1.29 (rounding).

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answer

B. An elastic demand

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If the price elasticity of demand is -0.8 and the firm decreases price, revenue will
A. Increase
B. Decrease
C. Stay constant
D. become zero, they would lose all their customers

answer

B. Decrease

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If the current margin is greater than the desired margin, the firm should
A. Increase price
B. Decrease price
C. Not change the price
D. Marginal revenue and marginal cost are both zero

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B. Decrease price

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answer

A. The demand for her haircuts is elastic

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answer

A. It will decrease by 16%

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answer

B. 0%

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Elasticity for your product is about -1.5. If you increase your price by 15%, your revenue will change by about
A. -22.5%
B. -7.5%
C. 2.5%
D. 7.5%

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B. -7.5%

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answer

C. Decreases by 5.2%

We can remember that we can calc the different impacts on %chgQ and get the total effect: −.32 · (10%) + .20 · (−10%) = −5.2%

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answer

D. Decreases by 13.4%

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answer

A. Yes, his markup is likely not high enough.

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answer

D. -3

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answer

A. Price elasticity of demand at that price is elastic.

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answer

A. An inferior good

EY = −3%/2% = −1.5. Thus, it is an INFERIOR good.

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answer

A. the pizza and the wings are substitutes

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answer

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answer

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An end-of-aisle price promotion changes the price elasticity of a good from -2 to -3. If the normal price is $10, what should the promotional price be?

answer

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Why do bars offer free peanuts?

answer

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answer

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answer

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D. Demand would rise, and Budweiser would increase price.

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answer

A. usually complements to the gas sales

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A price elasticity of demand of -0.6 implies
A. Demand is inelastic
B. Demand is elastic
C. Demand is unitary elastic
D. Demand is perfectly elastic

answer

A. Demand is inelastic

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answer

A. Yes, his markup is likely not high enough.

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If the price elasticity of demand is -0.8 and the firm increases price, revenue will
A. Increase
B. Decrease
C. Stay constant
D. become zero, they would lose all their customers

answer

A. Increase

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answer

D. Salt has a less elastic demand than ice cream.

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Elasticity for your product is about -2. If you increase your price by 8%, your REVENUE will change by about
A. -16%
B. -8%
C. 2%
D. 8%

answer

B. -8%

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answer

A. 5% lower

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answer

D. Both B and C

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answer

B. A good whose demand decreases when income decreases

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answer

D. 0 points

So, ((1/5) ∗ (1)) + ((4/5) ∗ (−0.25)) = 0.2 − 0.2 = 0

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answer

B. $4.0 million

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answer

A. $0.

So, ((0.1)($1,000,000))+((0.2)($200,000))+((0.7)*(-$200,000))= $100,000+$40,000-$140,000 = $0

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answer

B. 1.1 referrals per dollar

question

answer

A. 0.03

The probability of using the coupon is 90/3000=0.03 or 3%

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answer

B. $6

At $6, all 100% of buyers will purchase your product for an expected revenue of $6, better than just 40% at $10 for an expected revenue of $4.

question

In a coin toss bet, where both heads and tails are equally likely, you win a dollar on heads but lose a dollar on tails. The expected value of the bet is
A. 0.5
B. -0.5
C. 1
D. 0

answer

D. 0

E(X) = (0.5∗1)+(0.5∗(−1)) = 0

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answer

A. Project A

= (0.6 ∗ $150K) + (0.4 ∗ $30K) = $102K. So we choose Project A since 1) it's better than project B and 2) the payoff is greater than the $100K cost.

question

Three possibilities are equally likely and have payoffs of $3, $6, and $9. The expected value is:
A. 4
B. 5
C. 6
D. 7

answer

C. 6

(3+6+9)/3=6.

question

Five possibilities are equally likely and have payoffs of $2, $4, $6, $8, and $10. The expected value is:
A. 4
B. 5
C. 6
D. 7

answer

C. 6
(2+4+6+8+10)/5=6.

question

Six possibilities are equally likely and have payoffs of $2, $4, $6, $8, $10, and $12. The expected value is:
A. 4
B. 5
C. 6
D. 7

answer

D. 7

(2+4+6+8+10+12)/6=7.

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answer

B. Be cautious. It probably is too good to be true

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answer

A. The best case scenario

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answer

A. 3

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answer

D.) No he would not play since this is a fair bet and he is not being offered any risk premium

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answer

C. 0.75

p >= 60/80 = 3/4. Note that this is the same as C1/(C1+C2)=60/(20+60)=3/4.

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answer

A.) Because the costs of a false positive are usually larger

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answer

C. values a lottery/gamble at less than its expected value

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answer

A.) You don't lock your garage when you have expensive workshop tools

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answer

C. No, since you are risk averse and prefer the sure thing to the gamble

question

You, arisk-averse office manager ,are considering leaving your firm to start off on your own. You estimate your expected revenue will be roughly $200K with $120K in explicit expenses. If your current full-time job provides $80K in total compensation should you leave?

A. Yes, since your revenue is higher than your current salary.
B. You are indifferent, since the economic profit is zero.
C. No, since you are risk averse and prefer the sure thing to the gamble.
D. There is not enough information.

answer

C. No, since you are risk averse and prefer the sure thing to the gamble.

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answer

C. 120 units

-100-20=-120.

question

answer

D. Tampa Bay, FL

Tampa and Miami are closest to each other and they are also both beach cities in the southern U.S. None of the other cities meet this.

question

answer

A.) responses do not reflect the true preferences and attitudes of respondents.

question

answer

C. 80

40+40=80.

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answer

D.) All of the above

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answer

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answer

question

At a "fair" carnival roulette wheel, a player can either win $10, $20, $30, or $80. The staff member says that it costs $20 to play this wheel. Do you think the wheel is fair (ie, even odds)?

answer

question

answer

question

Four possibilities are equally likely and have payoffs of $2, $4, $6, and $8. The expected value is:
A. 5
B. 6
C. 7
D. 8

answer

A. 5

question

answer

D. Gain of $47,000

question

answer

B. Project B

question

answer

C. Sales are high, costs are low

question

answer

D. No he would not play since this is a fair bet and he is not being offered any risk premium

question

answer

C. both A and B

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answer

C. 20

question

answer

C. A study that varies key economic variables in one or more markets to determine the effects of the changes.

question

answer

D. Uncontrolled market data reflects changes in multiple factors at the same time.

question

answer

a.) the logic of international trade is quite different from that of intranational trade.

question

answer

C.) Yes, there are significant (often prohibitive) restrictions on labor and capital mobility.

question

answer

A. an absolute advantage in coffee production.

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answer

B. comparative advantage; absolute advantage

question

If a nation has "cheap labor,"

A. it can still benefit from trade.
B. other nations can still compete with it.
C. it cannot have a comparative advantage in everything.
D. All of the above are true.

answer

D. All of the above are true.

question

answer

D.) All of the above conclusions are correct.

question

answer

A. A - Maximum; B - Zero

question

In the figure,

answer

Great Britain has a comparative advantage in the production of woolens.

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answer

C.) Because some of the good is imported or exported.

question

A tariff is
A. a tax on imports.
B. a tax on exports.
C. a payment by the government to an exporter.
D. a legal limit on the amount of a good that may be imported.

answer

A. a tax on imports.

question

A quota is
A. a tax on exported items.
B. a tax on imported items.
C. a limit on the amount of imports.
D. a subsidy to export.

answer

C. a limit on the amount of imports.

question

answer

D. by raising price and reducing quantity demanded.

question

answer

C.) they may help the importing country get better prices for its goods ,and they protect certain industries from foreign competition.

question

answer

D. programs to assist workers who lose their jobs to foreign competition.

question

answer

A. but at very high cost per job saved.

question

answer

D.) workers and businesses that lose markets because of increases in imports.

question

answer

the industry's prospective gains are sufficient to repay the social losses incurred while it is being protected.

question

answer

D.) Yes, although it can be overstated and abused.

question

answer

E. None of the above are viable trades

question

answer

A. Countries can produce more total output if allowed to trade

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