question
The higher the interest rate
answer
the smaller the present value of a future amount
question
Accounting profits are
answer
total revenue minus total cost
question
Economic profits are
answer
total revenue minus total opportunity cost
question
Which of the following is an implicit cost to a firm that produces a good or service?
labor costs, costs of operating production machinery, foregone profits of producing a different good or service, costs of renting or buying land for a production site
labor costs, costs of operating production machinery, foregone profits of producing a different good or service, costs of renting or buying land for a production site
answer
foregone profits of producing a different good or service
question
Which of the following is an implicit cost to a firm that produces a good or service?
labor costs, costs of operating production machinery, foregone salary of working in the other job, costs of renting or buying land for a production site
labor costs, costs of operating production machinery, foregone salary of working in the other job, costs of renting or buying land for a production site
answer
foregone salary of working in the other job
question
Which of the following is an implicit cost of going to college?
tuition, cost of books and supplies, room and board, foregone wages
tuition, cost of books and supplies, room and board, foregone wages
answer
foregone wages
question
The opportunity cost of receiving $10 in the future as opposed to getting that $10 today is
answer
the foregone interest that could be earned if you had the money today
question
The additional benefits that arise by using an additional unit of the managerial control variable is defined as the
answer
marginal benefit
question
The additional cost incurred by using an additional unit of the managerial control variable is defined as the
answer
marginal cost
question
The change in net benefits that arises from a one-unit change in quantity is the
answer
marginal net benefits
question
The difference between marginal benefits and marginal costs is the
answer
marginal net benefits
question
In order to maximize net benefits, firms should produce where
answer
marginal benefits equal marginal costs
question
Economics
answer
exists because of scarcity
question
Managerial economics
has little to say about day-to-day decisions,
is valuable to the coordinator of a shelter for the homeless,
is not relevant for managers of not-for-profit groups,
is the study of how to get rich in the stock market.
has little to say about day-to-day decisions,
is valuable to the coordinator of a shelter for the homeless,
is not relevant for managers of not-for-profit groups,
is the study of how to get rich in the stock market.
answer
is valuable to the coordinator of a shelter for the homeless
question
Which of the following is the main goal of a continuing company?
to maximize the value of the firm,
to minimize costs,
to improve product quality,
to enhance service to its customers
to maximize the value of the firm,
to minimize costs,
to improve product quality,
to enhance service to its customers
answer
to maximize the value of the firm
question
Which of the following is true?
Accounting costs generally understate economic costs,
Accounting profits generally understate economic profits,
In the absence of any opportunity costs, accounting profits are less than economic profits,
Accounting costs generally overstate economic costs
Accounting costs generally understate economic costs,
Accounting profits generally understate economic profits,
In the absence of any opportunity costs, accounting profits are less than economic profits,
Accounting costs generally overstate economic costs
answer
Accounting costs generally understate economic costs
question
Which of the following is incorrect?
Accounting profits generally overstate economic profits,
Accounting profits do not take opportunity cost into account,
Economic costs include not only the accounting costs but also the opportunity costs of the resources used in production,
Managers should only be interested in accounting profits
Accounting profits generally overstate economic profits,
Accounting profits do not take opportunity cost into account,
Economic costs include not only the accounting costs but also the opportunity costs of the resources used in production,
Managers should only be interested in accounting profits
answer
Managers should only be interested in accounting profits
question
What is the main role of economic profits?
answer
to signal where resources are most highly valued
question
To an economist, maximizing profit is
answer
maximizing the value of the firm
question
The value of the firm is the
answer
present discounted value of all future profits
question
Marginal benefits are the
answer
incremental benefits of a decision
question
The optimal amount of studying is determined by comparing
answer
marginal benefit and the marginal cost of studying
question
If marginal benefits exceed marginal costs, it is profitable to
answer
increase Q (quantity, output produced)
question
If marginal costs exceed marginal benefits, then
answer
the firm should decrease its production level
question
In order to maximize net benefits, the managerial control variable should be used up to the point where
answer
net marginal benefits equal zero
question
Marginal benefit refers to
answer
the additional benefits that arise by using an additional unit of the managerial control variables
question
Generally when calculating profits as total revenue minus total costs, accounting profits are larger than economic profits because economists take into account
answer
both explicit and implicit costs
question
Suppose the firm achieves total revenue of $1,000 by selling 150 units, while facing total costs of $900. If the firm produces and sells 151 units, their total revenue is $1,005 and their total costs is $950. Should the firm produce and sell the extra unit?
answer
no, since marginal profits are declining
question
Which of the following would not shift the demand for good A?
drop in price of good A,
drop in price of good B,
consumer income,
change in the level of advertising of good A
drop in price of good A,
drop in price of good B,
consumer income,
change in the level of advertising of good A
answer
drop in price of good A
question
Changes in the price of good A lead to a change in
answer
the quantity demanded of good A
question
A change in income will not lead to
answer
a movement along the demand curve
question
If good A is an inferior good, an increase in income leads to
answer
a decrease in the demand for good A
question
Which of the following pairs of goods are probably complements?
televisions and roller skates,
frozen yogurt and ice cream,
steak and chicken,
hamburgers and hamburger buns
televisions and roller skates,
frozen yogurt and ice cream,
steak and chicken,
hamburgers and hamburger buns
answer
hamburgers and hamburger buns
question
If A and B are complements, an increase in the price of good A would
answer
lead to a decrease in demand for B
question
Graphically, a decrease in advertising will cause the demand curve to
answer
shift leftward
question
Which of the following can explain an increase in the demand for housing (a normal good)?
a drop in housing prices,
an increase in the population,
a decrease in income,
an improvement in technology
a drop in housing prices,
an increase in the population,
a decrease in income,
an improvement in technology
answer
an increase in the population
question
For a wood furniture manufacturer, an increase in the cost of lumber will cause the supply curve to
answer
shift to the left
question
Demand shifters do not include the
answer
price of the good
question
Good X is an inferior good if a decrease in income leads to
answer
an increase in the demand for good X
question
All else being held constant, as additional firms enter an industry,
answer
more output is available at each given price
question
Other things being held constant, the lower the price of a good,
answer
the greater the consumer surplus, the lower the producer surplus
question
Other things being held constant, the higher the price of a good,
answer
the greater the producer surplus, the lower the consumer surplus
question
If A and B are substitute goods, a decrease in the price of good A would
answer
lead to a decrease in demand for B
question
If A and B are complementary goods, a decrease in the price of good A would
answer
lead to an increase in demand for B
question
If A and B are substitute goods, an increase in the price of good A would
answer
lead to an increase in demand for B
question
What is the effect of an increase in wages paid to workers employed in manufacturing bicycles?
answer
Supply curve for bicycles shifts to the left
question
Which of the following leads to a decrease in demand for mechanical pencils (a normal good)?
an increase in incomes,
a decrease in price of mechanical pencils,
an increase in price of mechanical pencils,
a decrease in price of lead pencils, which is a substitute for mechanical pencils
an increase in incomes,
a decrease in price of mechanical pencils,
an increase in price of mechanical pencils,
a decrease in price of lead pencils, which is a substitute for mechanical pencils
answer
a decrease in price of lead pencils, which is a substitute for mechanical pencils
question
All else being held constant, when number of buyers of soda drinks increase,
answer
the demand curve shifts to the right and more output is demanded at each given price
question
Assume that hot dog and hot dog buns are complementary goods. If the price of hot dogs rises, all else constant, then this will cause
answer
a decrease in the demand for hot dog buns
question
The market for oranges is in equilibrium. Now suppose that weather in Florida increases orange production and at the same time a new research shows that eating oranges reduces risk of heart disease. What will be the effect of these changes on the equilibrium price and quantity in orange market?
answer
Quantity will increase, and effect on price is ambiguous
question
Consider the market for bicycles (a normal good). All else being constant, when price of an input needed to make bicycles decreases,
answer
the supply curve shifts to the right and more bicycles are available at each given price
question
Other things being held constant, the greater the price of a good
answer
the lower the consumer surplus
question
The law of supply states that, holding all else constant, as the price of a good falls,
answer
quantity supplied falls
question
For a steel factory, a decrease in the cost of electricity to the plant will cause the supply curve to
answer
shift to the right
question
Technological advances will cause the supply curve to
answer
shift to the right
question
If a shortage exists in a market, the natural tendency is for
answer
price to increase
question
The maximum legal price that can be charged in a market is
answer
a price ceiling
question
The minimum legal price that can be charged in a market is
answer
a price floor
question
Good X is a normal good if an increase in income leads to
answer
an increase in the demand for good X
question
Suppose good X is a normal good. Then a decrease in income would lead to
answer
an inward shift of the demand curve
question
An inferior good is a good
answer
that consumers purchase less of when their incomes are higher
question
Suppose that good X is a substitute for good Y. Then an increase in the price of good Y leads to
answer
an increase in the demand of good X
question
Which of the following are least likely to be substitutes?
chicken and beef,
cars and trucks,
automobile and housing,
automobile and gasoline
chicken and beef,
cars and trucks,
automobile and housing,
automobile and gasoline
answer
automobile and gasoline
question
Good Y is a complement to good X if an increase in the price of good Y leads to
answer
a decrease in the demand for good X
question
Which of the following are least likely to be complements?
peanut butter and jelly,
bread and butter,
sports coats and dress slacks,
cars and trucks
peanut butter and jelly,
bread and butter,
sports coats and dress slacks,
cars and trucks
answer
cars and trucks
question
Firms advertise in order to cause the demand for their products to
answer
shift to the right
question
Advertising provides consumers with information about the underlying existence or quality of a product. These types of advertising messages are called
answer
informative advertising
question
Advertising can influence demand by altering tastes of consumers. This type of advertising is known as
answer
persuasive advertising
question
If consumers expect future prices to be higher,
answer
stockpiling will happen when the products are durable in nature
question
Consumer surplus is
answer
the value consumers get from a good but do not pay for
question
If the price of good X becomes lower, then the level of consumer surplus becomes
answer
higher
question
If firms expect prices to be higher in the future and the product is not perishable, then
answer
the current supply curve shifts to the left
question
Assume that the price elasticity of demand is −2 for a certain firm's product. If the firm raises price, the firm's managers can expect total revenue to
answer
decrease
question
As we move down along a linear demand curve, the price elasticity of demand becomes more
answer
inelastic
question
If apples have an own price elasticity of −1.2 we know the demand is
answer
elastic
question
If quantity demanded for sneakers falls by 10 percent when price increases 25 percent, we know that the absolute value of the own price elasticity of sneakers is
answer
0.4
question
The quantity consumed of a good is relatively unresponsive to changes in price whenever demand is
answer
inelastic
question
If the absolute value of the own price elasticity of steak is 0.4, a decrease in price will lead to
answer
a reduction in total revenue
question
Lemonade, a good with many close substitutes, should have an own price elasticity that is
answer
relatively elastic
question
We would expect the demand for jeans to be
answer
more elastic than the demand for clothing
question
Demand is more inelastic in the short term because consumers
answer
have no time to find available substitutes
question
We would expect the own price elasticity of demand for food to be
answer
less elastic than the demand for cereal
question
The elasticity that shows the responsiveness of the demand for a good due to changes in the price of a related good is the
answer
cross-price elasticity
question
If the cross-price elasticity between goods A and B is negative, we know the goods are
answer
complements
question
The elasticity that measures the responsiveness of consumer demand to changes in income is
answer
the income elasticity
question
An income elasticity less than zero tells us that the good is
answer
an inferior good
question
f the absolute value of the own price elasticity of demand is greater than 1, then demand is said to be
answer
elastic
question
The demand for food (a broad group) is more
answer
inelastic than the demand for beef (specific commodity)
question
The demand for women's clothing is, in general,
answer
more elastic than the demand for clothing
question
Demand tends to be
answer
more inelastic in the short term than in the long term
question
Since most consumers spend very little on salt, a small increase in the price of salt will
answer
not reduce quantity demanded by very much
question
Suppose the income elasticity for transportation is 1.8. Which of the following is an incorrect statement?
Transportation is a normal good,
Expenditures on transportation grow more rapidly than income grows,
Expenditures on transportation will fall less rapidly than income falls,
Whenever the income increases by 1 percent, the expenditure on transportation increases by 1.8 percent
Transportation is a normal good,
Expenditures on transportation grow more rapidly than income grows,
Expenditures on transportation will fall less rapidly than income falls,
Whenever the income increases by 1 percent, the expenditure on transportation increases by 1.8 percent
answer
Expenditures on transportation will fall less rapidly than income falls
question
Non-fed ground beef is an inferior good. In economic booms, grocery managers should
answer
reduce their orders of non-fed ground beef
question
When the own price elasticity of good X is −3.5, total revenue can be increased by
answer
decreasing the price
question
When the price of sugar was "low," U.S. consumers spent a total of $3 billion annually on sugar consumption. When the price doubled, consumer expenditures increased to $5 billion annually. This data indicates that
answer
the demand for sugar is inelastic
question
The demand for which of the following commodities is likely to be most inelastic?
soft drinks,
beverages,
cola drinks,
Pepsi Cola
soft drinks,
beverages,
cola drinks,
Pepsi Cola
answer
beverages
question
Each week Bill buys exactly 7 bottles of cola regardless of its price. Bill's own price elasticity of demand for cola in absolute value is
answer
zero
question
The price elasticity of demand is −2.0 for a certain firm's product. If the firm raises price, the firm manager can expect total revenue to
answer
decrease
question
When the price of sugar was "low," consumers in the United States spent a total of $3 billion annually on its consumption. When the price doubled, consumer purchases actually decreased to $2 billion annually. This indicates that
answer
the demand for sugar is relatively inelastic
question
The demand for which of the following commodities is likely to be most price inelastic?
food,
hamburgers,
Big Macs,
sandwiches
food,
hamburgers,
Big Macs,
sandwiches
answer
food
question
The demand for Cinnamon Toast Crunch brand cereal is
answer
more elastic than the demand for cereal in general
question
Which of the following is an incorrect statement about the own price elasticity of demand?
Demand tends to be more inelastic in the short term than in the long term,
Demand tends to be more elastic as more substitutes are available,
Demand tends to be more inelastic for goods that comprise a smaller share of a consumer's budget,
Demand tends to be more elastic if there are few substitutes available
Demand tends to be more inelastic in the short term than in the long term,
Demand tends to be more elastic as more substitutes are available,
Demand tends to be more inelastic for goods that comprise a smaller share of a consumer's budget,
Demand tends to be more elastic if there are few substitutes available
answer
Demand tends to be more elastic if there are few substitutes available
question
As we move up along a linear demand curve, the price elasticity of demand becomes more
answer
elastic
question
If the cross-price elasticity between goods X and Y is positive, we know the goods are
answer
substitutes
question
Each week Bill buys exactly 10 hot dogs regardless of their price. Bill's own price elasticity of demand for hot dogs in absolute value is
answer
zero
question
When the price of corn was "low," consumers in the United States spent a total of $8 billion annually on its consumption. When the price halved, consumer expenditures actually decreased to $6 billion annually. This indicates that
answer
the demand for corn is inelastic
question
Suppose that your friend owns a coffee shop and seeks your advice on changing the price of coffee to increase total revenue. If you know that demand for coffee is unit elastic what advice will you give your friend?
answer
To keep the price unchanged
question
If chocolate bars have a price elasticity of 0.1, then we can infer the chocolate bar
answer
buyers have short time at hand and sellers should raise price to increase revenue
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