MC questions chapter 1-10

A business owner makes 1000 items a day. Each day she contributes eight hours to produce those items. If hired elsewhere, she could have earned $250 an hour. The item sells for $15 each. Production does not stop during weekends. If the explicit costs total $150,000 for 30 days, the firm's accounting profit for the month equals: a. $300,000 b. $60,000 c. $450,000 d. $240,000

A

A company faces the following costs at the respective production level in addition to its fixed costs of $50,000, how would you describe the returns to scale for this company? Quantity Marginal Cost Sale Price Marginal Return 1 $10,000 $20,000 $10,000 2 $11,000 $20,000 $9,000 3 $12,000 $20,000 $8,000 4 $13,000 $20,000 $7,000 5 $14,000 $20,000 $6,000 a. Increasing b. Decreasing c. Constant d. Marginal

A

A consumer values a car at $525,000 and a seller values the same car at $485,000. If sales tax is 8% and is levied on the seller, then the seller's bottom line price is (rounded to the nearest thousand) a. $527,000 b. $524,000 c. $525,000 d. $500,000

A

A firm produces 500 units per week. It hires 20 full-time workers (40 hours/week) at an hourly wage of $15. Raw materials are ordered weekly, and they cost $10 for every unit produced. The weekly cost of the rent payment for the factory is $2,250. How do the overall costs breakdown? a. Total variable cost is $17,000; total fixed cost is $2,250; total cost is $19,250 b. Total variable cost is $12,000; total fixed cost is $7,250; total cost is $19,250 c. Total variable cost is $5,000; total fixed cost is $14,250; total cost is $19.250 d. Total variable cost is $5,000; total fixed cost is $2,250; total cost is $7,250

A

A sudden increase in the market demand in a competitive industry leads to a. above average profits in the short-run and average profits in the long-run b. losses in the short-run and average profits in the long-run c. firms looking to exit the industry d. demand creating supply

A

Attractive industries have all the following, except a. high rivalry b. low buyer power c. high entry barriers d. low supplier power

A

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

A

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

A

Holding other factors constant, an increase in the tax for producing coffee causes a. the supply curve to shift to the left, causing the prices of coffee to rise b. the supply curve to shift to the right, causing the prices of coffee to rise c. the supply curve to shift to the left, causing the prices of coffee to fall d. the supply curve to shift to the right, causing the prices of coffee to fall

A

It's lunch time, you are hungry, and you 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

A

Mr. D's Barbeque of Pickwick, TN, produces 10,000 dry-rubbed rib slabs per year. Annually Mr. D's fixed costs are $50,000. The average variable cost per slab is a constant $2. The average total cost per slab then is a. $7. b. $2. c. $5. d. Impossible to determine.

A

Once marginal cost rises above average cost, a. Average costs will increase b. Average costs are unaffected c. Average costs will decrease d. None of the above

A

Opportunity costs arise due to a. Resource scarcity b. Lack of alternatives c. Limited wants d. Abundance of resources

A

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

A

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.

A

Teshi recently graduated from college. Her income increased tremendously from $5,000 a year to $60,000 a year. Teshi decided that instead of renting she will buy a house. This implies that a. houses are normal goods for Teshi b. houses are inferior goods for Teshi c. renting and owning are complementary for Teshi d. we need information on the price of houses.

A

The concept that describes firms possessing different bundles of resources is a. resource heterogeneity b. resource immobility c. barriers to entry d. imitability

A

The price of peanuts increases. At the same time, we see the price of jelly (which is often consumed with peanut butter) rise. How does this affect the market for peanut butter? a. The demand curve will shift to the left; the supply curve will shift to the left b. The demand curve will shift to the left; the supply curve will shift to the right c. The demand curve will shift to the right; the supply curve will shift to the left d. The demand curve will shift to the right; the supply curve will shift to the right

A

The problem-solving principles analyze firm problems, a. from the organization's point of view. b. from the manager's point of view. c. from the worker's point of view. d. from society's point of view.

A

Voluntary transactions a. Always produce gains for both parties b. Produce gains for at least one party c. Always increase wealth for everyone d. Are inefficient

A

What might happen if a car dealership is awarded a bonus by the manufacturer 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. Potential buyers will lose buying power at the dealer.

A

Which of the following are examples of a price floor? a. Minimum wages b. Rent controls in New York c. Both a and b d. None of the above.

A

Which of the following is NOT one of the three problem solving principles laid out in Chapter 1? a. Under whose jurisdiction is the problem? b. Who is making the bad decision? c. Does the decision maker have enough information to make a good decision? d. Does the decision maker have the incentive to make a good decision?

A

A competitive firm's profit maximizing price is $18. At MC=MR, the output is 100 units. At this level of production, average total costs are $14. The firm's profits are a. $400 in the short run and long run b. $400 in the short-run and zero in the long run c. $1800 in the short-run and long-run d. $1800 in the short-run and zero in the long run

B

A price ceiling a. Is a government-set maximum price above market equilibrium. b. Is an implicit tax on producers and an implicit subsidy to consumers. c. Will create a surplus. d. Causes an increase in consumer and producer surplus.

B

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 a. The benefits he could have received from playing soccer b. The income he could have earned at the car dealership c. Both a and b d. Cannot be determined from the given information.

B

An individual's value for a good or service is a. The amount of money he or she used to pay for a good. b. The amount of money he or she is willing to pay for it. c. The amount of money he or she has to spend on goods. d. None of the above

B

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.

B

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 its price. c. the average value of the sixth bananas exceeds the price. d. the total personal value of six bananas exceeds the total expenditure to purchase six bananas.

B

Food Fanatics caters meals where its costs of producing an extra meal is $25. Each of its meals sells for $20. At this rate, what should the company do? a. Produce more meals and increase its profit b. Produce fewer meals and increase its profit c. Not change production d. None of the above

B

If a firm successfully adopts a product differentiation strategy, the elasticity of demand for its products should a. increase b. decrease c. become marginal d. be unaffected

B

Suppose there are nine sellers and nine buyers in a competitive market, each willing to buy or sell one unit of a good, with values {$10, $9, $8, $7, $6, $5, $4, $3, $2}. Assuming there are no transactions costs, what is the equilibrium price in this market? a. $5 b. $6 c. $7 d. $8

B

The higher the discount rate 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

B

The rational-actor paradigm assumes the people do NOT a. Act rationally. b. Act randomly. c. Act optimally. d. Act self-interestedly.

B

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

B

Which of the following goods has a negative income elasticity of demand? a. Cars b. Items from Dollar stores c. Shoes d. Bread

B

Which of the following types of firms are guaranteed to make positive economic profit? a. Both a perfectly competitive firm and a monopoly b. Neither a perfectly competitive firm nor a monopoly c. A perfectly competitive firm but not a monopoly d. A monopoly but not a perfectly competitive firm

B

Which of the products below is closest to operating in a perfectly competitive industry? a. Nike shoes b. Cotton c. Perdue Chicken d. Restaurants

B

Why might a supermarket advertise low prices on certain high profile items and sell them at a loss? a. It is a way for companies to be charitable. b. The store will sell other groceries to the same customers, often at a markup. c. They would not. d. This reduces the incentives of trade.

B

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

B

Why might welfare for low income households reduce the propensity to work? a. It will not. b. It reduces the incentive to work. c. It is unfair. d. It encourages jealousy.

B

A bakery currently sells chocolate chip cookies at a price of $16/dozen. The MC is $8/dozen. The cookies are becoming more popular with customers and so the bakery owner is considering raising the price to $20/dozen. What percentage of customers must be retained to ensure that the price increase is profitable? a. 28.0% b. 33.3% c. 66.6% d. 72.0%

C

A company is producing 15,000 units. At this output level, MR is $22 and the MC 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.

C

A consumer values a car at $20,000 and it costs a producer $15,000 to make the same car. If the transaction is completed at $18,000, the transaction will generate a. no surplus b. $5,000 worth of seller surplus and unknown amount of buyer surplus c. $2,000 worth of buyer surplus and $3,000 of seller surplus d. $3,000 worth of buyer surplus and unknown amount of seller surplus.

C

A firm in a perfectly competitive market (a price taker) faces what type of demand curve? a. Unit elastic b. Perfectly inelastic c. Perfectly elastic d. None of the above

C

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 < MC d. All the above

C

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.

C

A retailer has to pay $9 per hour to hire 13 workers. If the retailer only needs to hire twelve workers, a wage rate of $7 per hour is sufficient. What is the MC of the 13th worker? a. $117. b. $9. c. $33. d. $84.

C

A security system company's total production costs depend on the number of systems produced according to the following equation: Total Costs = $20,000,000 + $4000*quantity produced. 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.

C

All the following are examples of variable costs, except a. Hourly labor costs b. Cost of raw materials c. Accounting fees d. Electricity cost

C

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

C

Buyers have higher power when a. their suppliers sell a highly differentiated product. b. they are not a significant purchaser of their supplier's output. c. switching costs are low. d. the buyer industry is highly fragmented (buyers are not concentrated)

C

Economic Value Added helps firms avoid the hidden-cost fallacy a. by ignoring the opportunity costs of using capital b. by differentiating between sunk and fixed costs c. by taking all capital costs into account, including the cost of equity d. None of the above.

C

If GDP is expected to increase at a steady rate of 3% per year, how many years would it take for living standards to double? a. 10 b. 20 c. 24 d. 30

C

If a firm's AC is rising then a. MC is less than AC. b. MC is rising. c. MC is greater than AC. d. the firm is making an economic profit.

C

Imagine that the market for home exercise equipment 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.

C

In the short run, a firm's decision to shut down should not take into consideration a. avoidable costs. b. variable costs. c. fixed costs. d. MCs

C

Managers undertake an investment only if a. Marginal benefits of the investment are greater than zero b. MCs of the investment are greater than marginal benefits of the investment c. Marginal benefits are greater than MCs d. Investment decisions do not depend on marginal analysis

C

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

C

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 _________. a. rise, rise b. rise, fall c. fall, rise d. fall, fall

C

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.

C

Total costs increase from $1500 to $1800 when a firm increases output from 40 to 50 units. Which of the following is true if MC is constant? a. FC = $100 b. FC = $200 c. FC = $300 d. FC = $400

C

What is a possible consequence of a performance compensation reward scheme? a. It creates productive incentives. b. It creates harmful incentives. c. Both a and b d. Neither a nor b

C

What is the main difference between a competitive firm and a monopoly firm? a. The number of customers served by the firm b. Monopoly firms are more efficient and therefore have lower costs. c. Monopoly firms can generally earn positive profits for a longer period of time. d. Monopoly firms enjoy government protection from competition.

C

When a firm ignores the opportunity cost of capital when making investment or shutdown decisions, this is a case of a. Fixed-cost fallacy b. Sunk-cost fallacy c. Hidden-cost fallacy d. None of the above

C

When demand for a product falls, which of the following events would you NOT necessarily expect to occur? a. A decrease in the quantity of the product supplied. b. A decrease in its price. c. A decrease in the supply of the product. d. A leftward shift of the demand curve.

C

When economists speak of "marginal", they mean a. opportunity b. scarcity c. incremental d. unimportant

C

Which of the following is NOT a factor that contributes to higher rivalry in an industry? a. Numerous competitors. b. High fixed costs. c. Fast industry growth. d. Low switching costs for buyers.

C

Which of the following is NOT an example of an entry barrier? a. Government protection through patents or licensing requirements b. Strong brands c. Low capital requirements for entry d. Lower costs driven by economies of scale

C

Which of the following will increase the break-even quantity? a. A decrease in overall fixed costs b. A decrease in the marginal costs c. A decrease in the price level d. An increase in price level

C

Why might a "bonus cap" for executives be a bad policy for the company? a. It isn't. Executives shouldn't make more than a certain amount. b. It would sow discontent. c. It would encourage shirking after the executives reached the cap. d. The cap could be set too high, so execs may work too hard and not reach it.

C

You expect to sell 500 cell phones a month, which have an MC of $50. If your fixed costs are $5,000 per month, what is the break-even price? a. $10 b. $50 c. $60 d. $100

C

According to the law of diminishing marginal returns, marginal returns: a. diminish always prior to increasing. b. diminish constantly. c. diminish never. diminish eventually

D

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

D

An industry is defined as a. a group of firms producing the exact same products and services. b. firms producing items that sell through the same distribution channels. c. firms that have the same resources and capabilities. d. a group of firms producing products that are close substitutes.

D

At a startup, many of the employees must perform multiple tasks. Once the firm takes off, more employees are hired, and we expect: a. Each employee to be responsible for fewer tasks. b. The marginal cost to fall due to specialization. c. The average fixed costs to fall. d. All of the above.

D

At the individual firm level, which of the following types of firms faces a downward-sloping demand curve? a. Both a perfectly competitive firm and a monopoly firm b. Neither a perfectly competitive firm nor a monopoly firm c. A perfectly competitive firm but not a monopoly firm d. A monopoly firm but not a perfectly competitive firm

D

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.

D

Changes in prices of a good causes a. movement along the demand curve b. movement along the supply curve c. no movement along either curve d. Both a and b

D

If a firm in a perfectly competitive industry is experiencing average revenues greater than average costs, in the long-run a. some firms will leave the industry and price will rise b. some firms will enter the industry and price will rise c. some firms will leave the industry and price will fall d. some firms will enter the industry and price will fall

D

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

D

If the government imposes a price floor at $9 (i.e., price must be $9 or higher) in the above market, how many goods will be traded? a. Five b. Four c. Three d. Two

D

In the long-run, which of the following outcomes is most likely for a firm? a. Zero accounting profits but positive economic profits b. Zero accounting profits c. Positive accounting profits and positive economic profits d. Zero economic profits but positive accounting profits

D

It costs a firm $90 per unit to produce product A and $70 per unit to produce product B individually. If the firm can produce both products together at $175 per unit of product A and B, this exhibits signs of a. economies of scale b. economies of scope c. diseconomies of scale d. diseconomies of scope

D

Jim has estimated elasticity of demand for gasoline to be -0.7 in the short-run andterm-41 -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.

D

Say the average price of a new home in Haaland City is $260,000. The local government has just passed new licensing requirements for housing contractors. Based on possible shifts in demand or supply and assuming that the licensing changes do not affect the quality of new houses, which of the following is a reasonable prediction for the average price of a new home in the future? a. $240,000 b. $250,000 c. $260,000 d. $270,000

D

Suppose a new employer is also re-locating to Haaland City and will be attracting many new people who will want to buy new houses. Assume that the change in licensing requirements mentioned above occurs at the same time. What do you think will happen to the equilibrium quantity of new homes bought and sold in Haaland City? a. It will decrease substantially b. It will decrease but not by much c. It will increase d. Not enough information

D

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

D

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

D

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

D

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

D

What would happen to revenues if a firm in a perfectly competitive industry raised price? a. They would increase b. They would increase but profit would decrease c. They would increase along with profit d. They would fall to zero

D

When a resource or capability is valuable and rare, a firm may gain a a. sustainable competitive advantage. b. competitive parity. c. cost advantage. d. temporary competitive advantage.

D

Which of the following is critical for a firm adopting a long-term differentiation strategy? a. The firm must also reduce the costs of its product or service. b. The strategy increases prices by at least 10%. c. The strategy is focused on innovation and not customer service. d. The methods of achieving differentiation are difficult to imitate.

D

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.

D

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

D

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/expand, making the long run scarcity problem even worse. d. All of the above.

D

You are considering opening a new business to sell dartboards. You estimate that your manufacturing equipment will cost $100,000, facility updates will cost $250,000, and on average it will cost you $80 (in labor and material) to produce a board. If you can sell dart boards for $100 each, what is your break-even quantity? a. 1,000 b. 3,500 c. 4,375 d. 17,500

D

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. 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.

d