Managerial Economics part 2

By selecting a bundle where MRS = MRT the consumer is saying A. "I value my last unit of each good equally." B. "I will equate the amounts spent on all goods consumed." C. "I am willing to trade one good for the other at the same rate that I am required to do so." D. All of the above.

"I am willing to trade one good for the other at the same rate that I am required to do so."

A small business owner earns $75000 in revenue annually. The explicit annual costs equal $40000. The owner could work for someone else and earn $20000 annually. The owner's accounting profit is ________ and owner's economic profit is ________. A. $10000 $55000 B. $35000 $10000 C. $35000 $55000 D. $10000 $10000

$35000 $10000

Manisha could work for another firm making $10000 per month but she decides to open her own gourmet cheese store and pay herself $2000 per month. In her first month of operations she spends $6000 on cheese $1000 on other items and $2500 on rent. She had a great opening month and brought in revenues of $14500. What are Manisha's economic profits? A. -$5000 B. $3000 C. -$6000 D. $4000

-$5000

The rate at which a consumer must give up y to get one more x is equal to A. MUy/MUx. B. -Py/Px. C. -MUx/MUy. D. -Px/Py.

-P x/P y.

Suppose that for each firm in the competitive market for potatoes long-run average cost is minimized at $0.20 per pound when 500 pounds are grown. The demand for potatoes is Q = 10

000/p. If the long-run supply curve is horizontal then how much will consumers spend in total on potatoes? A. $500 B. $0 C. $10000 D. $50000, $10000

Suppose the market supply curve is p = 5Q. At a price of 10 producer surplus equals A. 12.50. B. 25. C. 50. D. 10.

10

Given the production function q = 4LK what is the marginal product of labor when capital is fixed at 25? A. 100 B. 100K C. 4K D. 100L

100

Joe's income is $500 the price of food (F y-axis) is $2 and the price of shelter (S x-axis) is $100. Which of the following bundles is in Joe's opportunity set? A. 100 units of food 1 unit of shelter B. 150 units of food 3 units of shelter C. 200 units of food 2 units of shelter D. 50 units of food 5 units of shelter

100 units of food 1 unit of shelter

Joe's income is $500 the price of food (F y-axis) is $2 per unit and the price of shelter (S x-axis) is $100. Which of the following represents his budget constraint? A. 500 = 2F + 100S B. 500 = 100F + 2S C. S = 500 - 2F D. All of the above.

500 = 2F + 100S

A common incentive owners offer managers is A. stock options. B. profit sharing. C. the year-end bonus. D. All of the above.

All of the above.

Assuming a horizontal long-run market supply curve which of the following statements is (are) TRUE about competitive firms in the long run? A. p = MC B. profit = 0 C. p = AC D. All of the above.

All of the above.

Which of the following products would be sold in a competitive market? A. smartphones B. motorcycles C. Brent crude oil D. shoes

Brent crude oil

The indifference curves for left shoes and right shoes would most likely be A. downward sloping and convex to the origin. B. L-shaped. C. downward sloping and straight lines. D. upward sloping and concave to the origin.

L-shaped.

Thomas Malthus' prediction of mass starvation resulting from diminishing marginal returns has NOT been fulfilled because A. relative to Malthus' day a larger percentage of today's labor force works in the agricultural sector. B. the law of diminishing marginal returns did not hold in this case. C. Malthus ignored other factors like technological change. D. All of the above.

Malthus ignored other factors like technological change.

If the price of one good increases while the price of the other good and the consumer's income remain unchanged. what will happen to the budget line? A. The budget line rotates outward from the intercept on the axis of the good that did not change in price. B. The budget line shifts outward without a change in slope. C. The budget line rotates inward from the intercept on the axis of the good that did not change in price. D. The budget line shifts inward without a change in slope

The budget line rotates inward from the intercept on the axis of the good that did not change in price.

If the consumer's income increases while the prices of both goods remain unchanged. what will happen to the budget line? A. The budget line rotates inward from the intercept on the horizontal axis. B. The budget line shifts outward without a change in slope. C. The budget line rotates outward from the intercept on the vertical axis. D. The budget line shifts inward without a change in slope.

The budget line shifts outward without a change in slope.

The Marginal Product of Labor is A. equal to the marginal product of labor when the average product is increasing. B. the amount of output that can be produced by a given amount of labor. C. The change in total product resulting from an extra unit of labor holding other factors constant. D. the ratio of output to the number of workers used to produce that output.

The change in total product resulting from an extra unit of labor holding other factors constant.

Which of the following is NOT a property of isoquants? A. They are "thin." B. They have a downward slope. C. The closer they are to the origin the higher the level of output. D. They do not cross.

The closer they are to the origin the higher the level of output.

Which of the following are NOT characteristics of a competitive market? A. Buyers and sellers have complete information. B. There are only one or two sellers. C. There is freedom of entry and exit. D. There are zero transaction costs.

There are only one or two sellers.

Why do many people choose NOT to read the manuals included with their new computer? A. They perceive that learning by doing is more enjoyable than learning by reading. B. They perceive that learning by doing decreases costs faster than learning by reading. C. They perceive that learning by reading is not sophisticated. D. They believe that the manuals are not accurate.

They perceive that learning by doing decreases costs faster than learning by reading.

Clifford lives by the motto "Eat drink and be merry today for tomorrow doesn't matter." If today's consumption is represented by "x" and tomorrow's consumption is represented by "y" then which of the following best represents Clifford's utility function? A. U = x - y B. U = y C. U = x D. U = x/y

U = x

Let the production function be q=AL aK b. The function exhibits increasing returns to scale if A. a + b < 1. B. a + b = 1. C. a + b > 1. D. Cannot be determined with the information given.

a + b > 1.

An increase in the price of a good causes A. an increase in the consumption of that good. B. a rightward shift of the demand curve for that good. C. a parallel rightward shift of the budget line. D. a change in the slope of the budget line.

a change in the slope of the budget line.

Learning by doing is represented by A. no change in the average total cost curve. B. an increase in the average total cost curve and a decrease in the marginal cost curve. C. a decrease in the average total cost curve. D. an increase in the average total cost curve.

a decrease in the average total cost curve

Which situation is most likely to exhibit diminishing marginal returns to labor? A. a factory that hires more workers and never increases the amount of machinery B. a factory that obtains a new machine for every new worker hired C. a factory that increases the amount of machinery and holds the number of workers constant D. None of these situations will result in diminishing marginal returns to labor.

a factory that hires more workers and never increases the amount of machinery

Learning by doing which leads to lower costs in the long run is often A. a function of cumulative output that is producing more of the good or service. B. improved through better use of computers in the production process. C. increased when new machinery is brought into the production process. D. not very important to most firms.

a function of cumulative output that is producing more of the good or service.

Which of the following is least likely to be considered a capital input? A. a sewing machine B. a ten dollar bill C. a tractor D. a telephone

a ten dollar bill

Returns to scale refers to the change in output when A. labor increases holding all other inputs fixed. B. specialization improves. C. capital equipment is doubled. D. all inputs increase proportionately.

all inputs increase proportionately.

Which of the following is most likely to have increasing opportunity costs? A. a pizza oven B. a riding lawnmower C. an office building in Tokyo D. a large copy machine

an office building in Tokyo

Isoquants that are downward-sloping straight lines imply that the inputs A. are perfect substitutes. B. are imperfect substitutes. C. must be used together in varying proportions. D. cannot be used together.

are perfect substitutes.

According to economists competitive firms A. are price takers. B. compete for the same customers. C. are able to change output and affect the market price. D. differentiate their products.

are price takers.

Economists define a market to be competitive when the firms A. watch each other's behavior closely. B. spend large amounts of money on advertising to lure customers away from the competition. C. are price takers. D. All of the above.

are price takers.

Fixed costs A. are sometimes sunk. B. are always sunk. C. sunk in the short run but not in the long run. D. are avoidable.

are sometimes sunk.

In deciding whether to operate in the short run the firm must be concerned with the relationship between price of the output and A. average variable cost. B. total cost. C. total fixed cost. D. the number of buyers.

average variable cost.

Economic costs of an input include A. Correct both implicit and explicit costs. B. only explicit costs. C. only implicit costs. D. whatever management wishes to report to the shareholders.

both implicit and explicit costs.

Suppose the cost of producing two goods x and y can be represented as C = ax + by + cxy. If there are economies of scope then which of the following must be TRUE? A. a + b = -c B. c = 0 C. c > 0 D. c < 0

c < 0

Suppose the cost of producing two goods x and y can be represented as C = ax + by + cxy. If there are diseconomies of scope then which of the following must be TRUE? A. a + b = -c B. c > 0 C. c < 0 D. a = b

c > 0

If a firm makes zero economic profit then the firm A. must have no fixed costs. B. has total revenues greater than its economic costs. C. must shut down. D. can be earning positive business profit.

can be earning positive business profit.

A firm that engages in efficient production A. cannot produce the same output with fewer inputs. B. could produce the same output with fewer inputs if it wanted to. C. uses old technology to minimize costs. D. is not interested in profit maximization.

cannot produce the same output with fewer inputs.

Consumers allocate their budgets among bundles because A. consumers face choices and tradeoffs. B. they want to minimize trips to the store. C. more is not always better. D. bundles are the most efficient way to package goods and services.

consumers face choices and tradeoffs.

A ________ is a governance structure where owners are not personally liable. A. mixed enterprise B. partnership C. sole proprietorship D. corporation

corporation

In which governance form do shareholders own the company? A. non-profit B. state-owned enterprise C. corporation D. public sector

corporation

The short run is A. usually 3 - 6 months. B. dependent on the characteristics of the industry. C. when a firm has to decide whether or not to exit. D. identical to the long run for most firms.

dependent on the characteristics of the industry.

The long run average cost curve may initially slope downward due to A. increasing marginal returns. B. economies of scale. C. decreasing average fixed costs. D. All of the above.

economies of scale.

Which entity produces the greatest proportion of U.S. gross national product? A. universities B. non-profit organizations such as hospitals C. firms D. government

firms

In a monopolistically competitive market A. products are undifferentiated. B. barriers to entry are high. C. firms are price setters. D. firms earn positive economic profit in the long run.

firms are price setters.

In a perfectly competitive market A. firms sell a differentiated product. B. transaction costs are high. C. firms can freely enter and exit. D. All of the above.

firms can freely enter and exit.

A "stair-like" market supply curve is the result of A. firms shutting down in the long run. B. firms having different costs. C. higher cost firms charging a higher price for their products. D. average variable costs that are higher than average fixed costs.

firms having different costs.

Assume baseball player salaries are fully determined before the season starts. From the point of view of the baseball team owner player salaries during the course of the season are then A. variable costs. B. marginal costs. C. average costs. D. fixed costs.

fixed costs.

In the long run profits will equal zero in a competitive market because of A. constant returns to scale. B. free entry and exit. C. identical products being produced by all firms. D. the availability of information.

free entry and exit.

Which of the following is a form of outsourcing? A. changing your own oil B. getting your fruits and vegetables from the farmers' market C. washing your clothes D. studying for your economics exam

getting your fruits and vegetables from the farmers' market

The slope of an isoquant A. shows how output varies while keeping inputs constant. B. shows the firm's returns to scale. C. is independent of the marginal product of capital. D. gives the substitutability of inputs while keeping output constant.

gives the substitutability of inputs while keeping output constant.

If Fred's marginal rate of substitution of salad for pizza equals 5 then A. he would give up 5 pizzas to get the next salad. B. he will eat five times as much pizza as salad. C. he will eat five times as much salad as pizza. D. he would give up 5 salads to get the next pizza.

he would give up 5 salads to get the next pizza.

Isoquants A. hold capital constant. B. hold output constant. C. hold utility constant. D. hold labor constant.

hold output constant.

An optimum that occurs as a corner solution A. cannot exhaust the budget constraint. B. cannot be an equilibrium. C. includes only one good. D. includes the exact same amounts of each good.

includes only one good.

Behavioral economics extends traditional economic models by A. admitting that incentives are very important. B. admitting that individuals are irrational. C. modeling behavior rather than prices. D. including insights from psychology and human cognition models.

including insights from psychology and human cognition models.

Returns to specialization can occur when A. the exponents of the Cobb-Douglas production function are greater than 1. B. the average cost curve is above the marginal costs curve. C. a firm doubles its inputs. D. increasing the amount of labor allows workers to specialize.

increasing the amount of labor allows workers to specialize.

Bounded rationality suggests that A. rational decisions can only be made when choices are restricted. B. individuals might make "incorrect" decisions because they are unable to consider all possible options. C. individuals are happier when their choices are restricted or "bounded." D. individuals would rather have less choice to more choice.

individuals might make "incorrect" decisions because they are unable to consider all possible options.

Consumer surplus A. is the difference between what a consumer would willingly pay for a good and the price actually paid. B. is the extra money a consumer pays above the minimum necessary price for the producer to produce it. C. is the difference between what a consumer pays for a good and the producer's cost. D. equals zero in the long run.

is the difference between what a consumer would willingly pay for a good and the price actually paid.

A firm's horizontal dimension refers to A. its size in its primary market. B. the number of stages in the production process that are upstream from the stages the firm undertakes. C. its size in all markets in which is competes. D. the level of supply chain integration the firm undertakes.

its size in its primary market.

Amazon.com purchased Kiva Systems intending to use its robots in warehouses. This is an example of A. economies of scale. B. labor-saving technical change. C. neutral technical change. D. division of labor.

labor-saving technical change.

Learning by doing will result in A. long-run average costs that are lower than short-run average costs. B. a long-run marginal cost that is larger than long-run average cost. C. an upward sloping long-run average cost curve. D. a rotation in the isocost curves.

long-run average costs that are lower than short-run average costs

In behavioral economics the endowment effect refers to the fact that A. most people believe that most wealthy people inherit their wealth. B. many people would be indifferent between being endowed with money or knowledge. C. most people respond to tax incentives to provide an endowment for their children. D. many people place a higher value on what they own than the same item they are considering purchasing

many people place a higher value on what they own than the same item they are considering purchasing.

If average cost is decreasing A. marginal cost exceeds average cost. B. marginal cost equals average cost. C. marginal cost is less than average cost. D. Not enough information is given.

marginal cost is less than average cost.

A firm sets its output where A. marginal revenue minus marginal cost equals zero (MR - MC = 0). B. marginal profit minus marginal cost equals zero (MP - MC = 0). C. marginal revenue minus marginal cost is greater than zero (MR - MC > 0) D. marginal revenue minus marginal profit equals zero (MR - MP = 0).

marginal revenue minus marginal cost equals zero (MR - MC = 0).

Vertical integration A. is always driven by profitability concerns. B. hampers timely delivery of inputs into the production process. C. may be undertaken to avoid government regulations. D. results in lower transaction costs.

may be undertaken to avoid government regulations.

Decreasing returns to scale may occur because increasing the amount of inputs used A. always increases the amount of output produced. B. may cause coordination difficulties. C. increases specialization. D. increases efficiency.

may cause coordination difficulties.

Joey's lawncutting service recently traded in its push mowers for gasoline-powered mowers. Joey still requires one worker per lawnmower. however more grass is now cut in the same amount of time as before. This is an example of A. neutral technical change. B. organizational change. C. labor-saving technical change. D. non-neutral technical change.

neutral technical change

Travel websites such as Travelocity tend to offer reservation services for multiple travel modes. This is because A. the firms have statutory obligations to offer reservations for airlines and railroads for example. B. once the firm has the reservation technology for airlines there are economies of scale in offering the same service for railroads. C. the firms have contractual obligations to offer reservations for airlines and railroads D. once the firm has the reservation technology for airlines there are economies of scope in offering the same service for railroads.

once the firm has the reservation technology for airlines there are economies of scope in offering the same service for

The board of a U.S. corporation usually includes A. non-executive employees of the corporation. B. executives of competitors. C. outside directors. D. All of the above.

outside directors.

In behavioral economics the term salience refers to A. how an experiment is designed. B. people only consider information when it is conveyed in a subtle manner. C. relevance to the problem being investigated. D. people consider information when it is presented in an "eye grabbing" manner.

people consider information when it is presented in an "eye grabbing" manner.

If a firm is a price taker then its marginal revenue will always equal A. price. B. total cost. C. one. D. zero.

price.

Neutral technical progress allows a firm to A. produce the same amount of output with the same inputs. B. use less capital to produce more output. C. use less labor to produce more output. D. produce more output with the same inputs.

produce more output with the same inputs.

A monopoly A. produces the market output. B. doesn't lose any sales when it raises its price. C. must have a patent to protect its products. D. is a price taker.

produces the market output.

If production function q 1 = f(L K) which of the following production functions illustrates neutral technical progress? A. q2 = f(L 1.25K) B. q2 = f(1.25L 1.25K) C. q2 = 1.25 * f(L K) D. q2 = f(1.25L K)

q 2 = 1.25 * f(L K)

Utility is the set of numerical values that A. describes how much more a consumer prefers one bundle to another. B. yields a cardinal ranking of bundles. C. reflects the relative ranking of various bundles of goods. D. yields an absolute level of pleasure from a bundle of goods.

reflects the relative ranking of various bundles of goods

Average fixed cost (AFC) A. rises as output rises. B. rises as output falls. C. is always fixed across all output ranges for the given production function. D. falls as output falls.

rises as output falls.

By shutting down a firm A. avoids its sunk costs as well as its variable costs. B. stops receiving revenue but continues to pay variable costs. C. can avoid paying taxes on its previously earned profits. D. stops receiving revenue and is stuck with its fixed costs.

stops receiving revenue and is stuck with its fixed costs.

Ronald McDonald Houses is an example of A. altruistic corporate social responsibility. B. reduction in shareholder value. C. vertical integration. D. strategic corporate social responsibility.

strategic corporate social responsibility.

Isoquant lines represent ________ whereas isocost lines represent ________. A. input tradeoffs economic tradeoffs B. economic efficiency technical efficiency C. economic efficiency marginal costs D. technical efficiency economic efficiency

technical efficiency economic efficiency

A cost function has economies of scale if A. it is less expensive to produce goods jointly rather than separately. B. average fixed costs fall as production increases. C. the average total cost falls as production increases. D. total costs fall as production increases.

the average total cost falls as production increases.

The assumption of completeness means that A. all preferences conditions are met. B. the consumers can rank all affordable consumption bundles. C. more of a good is always better. D. the consumer can rank all possible consumption bundles.

the consumer can rank all possible consumption bundles.

Economies of scope exist between book publishing and magazine publishing if A. the cost of publishing a book falls over time as the publisher acquires more experience. B. the cost of a publishing a book is not subject to diminishing marginal returns. C. the cost of publishing a magazine is lower for firms that publish many magazines than for firms that publish only one magazine. D. the cost of publishing a magazine is lower for book publishers than for other firms.

the cost of publishing a magazine is lower for book publishers than for other firms.

A firm's vertical dimension refers to A. the size of its headquarters building. B. its ability to grow its profits. C. the downstream stages of production. D. the degree to which it participates in the various stages of producing the products and services it sells.

the degree to which it participates in the various stages of producing the products and services it sells.

Producer surplus is equal to A. the firm's profit when fixed costs exist. B. the difference between price and marginal cost for all units sold. C. the difference between price and average cost for all units sold. D. the area under the supply curve.

the difference between price and marginal cost for all units sold.

A horizontal demand curve for a firm implies that A. the firm is a monopoly. B. the firm is selling in a competitive market. C. the products of that firm are very different from other firms' products. D. the market the firm is operating in is not competitive.

the firm is selling in a competitive market.

The agency problem can be avoided if A. the goals of the owner and manager are aligned. B. the firm has positive profits. C. the firm is not subject to regulation by a government agency. D. the manager and owner can manipulate reported profit.

the goals of the owner and manager are aligned.

Suppose that for each firm in the competitive market for potatoes long-run average cost is minimized at $0.20 per pound when 500 pounds are grown. If the long-run supply curve is horizontal then A. the long-run price will be $0.20 per pound. B. the long-run price will be set just above $0.20 per pound. C. some firms will enjoy long-run profits because they operate at minimum average cost. D. each consumer will purchase $100 worth of potatoes.

the long-run price will be $0.20 per pound.

Deadweight loss occurs when A. an inferior good is consumed. B. producer surplus is greater than consumer surplus. C. consumer surplus is reduced. D. the maximum level of total welfare is not achieved.

the maximum level of total welfare is not achieved.

A production function tells the firm A. the average output it can expect to produce with a given mix of inputs. B. the minimum output it can expect to produce with a given mix of inputs. C. the maximum output it can expect to produce with a given mix of inputs. D. the average level of production for other firms in the industry.

the maximum output it can expect to produce with a given mix of inputs

Long-run market supply curves are upward sloping if A. the number of firms is restricted in the long run. B. firms are identical. C. input prices fall as the industry expands. D. All of the above.

the number of firms is restricted in the long run. Mary purchased a stuffed animal toy for $5. After a few weeks, someone offered her $100 for the toy. Mary refused. One can conclude that Mary's consumer surplus from the toy is A. at least $95. B. less than $5. C. at least $100. D. $105., at least $95.

Monitoring a manager can be difficult if A. the board does not have enough outside directors. B. the owner cannot easily observe the manager's actions. C. the manager doesn't have to use a time clock. D. the owner and manager do not have an enforceable contract.

the owner cannot easily observe the manager's actions

The competitive firm's supply curve is equal to A. its marginal cost curve. B. the portion of its marginal cost curve that lies above AFC. C. the portion of its marginal cost curve that lies above AC. D. the portion of its marginal cost curve that lies above AVC.

the portion of its marginal cost curve that lies above AVC.

If a firm buys a building so as to have office space for its workers the monthly opportunity cost of the building is best measured as A. the rent the firm could earn if it rented the building to another firm. zero. B. the monthly mortgage payment the firm must pay. C. the price the firm paid divided by twelve.

the rent the firm could earn if it rented the building to another firm.

Economists assume consumers select a bundle of goods that maximizes their well-being subject to A. their wealth. B. relative prices. C. their budget constraint. D. their marginal rate of substitution.

their budget constraint.

Vertically integrated firms can use transfer pricing A. as a way to compensate managers for transferring among departments in a vertically integrated firm. B. to avoid government price controls. C. to shift profit. D. to avoid paying market prices for inputs.

to shift profit.

Under perfect competition A. transaction costs are low. B. information about prices is hard to obtain. C. if a firm exits the market price will rise. D. there is a maximum number of firms that can enter the market.

transaction costs are low.

A factor of production that can be easily changed in the relevant time period is called a A. temporary input. B. fixed input. C. substitution input. D. variable input.

variable input

An indifference curve represents bundles of goods that a consumer A. ranks from most preferred to least preferred. B. views as equally desirable. C. refers to any other bundle of goods. D. All of the above.

views as equally desirable.