KSU Managerial ECON HW 1&2

A) comparing external transactions costs with internal operating cost.

Firms are organized to keep their costs as low as possible by

B) noneconomic

Goals which are concerned with creating and maintaining employee and customer satisfaction and social responsibility are referred to as ________ objectives

Firms must choose WHAT goods and services to produce, HOW to produce them (through appropriate choice of resources and technology), and FOR WHOM they will be provided (what segment of the market on which to focus).

How do the three basic economic questions relate to the firm

B) total time in which sellers already in the market respond to changes in demand and equilibrium price

How long is the "short-run" time period in the economic analysis of the market?

relatively inelastic.

If OPEC increases its price of oil, and still the demand for oil decreases by a very small amount, we can conclude that the demand for oil is

P = D/k = 20/.05 = $400

If a stock is expected to pay an annual dividend of $20 forever, what is the approximate present value of the stock, given that the discount rate is 5%?

P = 20/.08 = $250

If a stock is expected to pay an annual dividend of $20 forever, what is the approximate present value of the stock, given that the discount rate is 8%?

P = D1/(k - g) = 20/(.08 - .02) = $333.33

If a stock is expected to pay an annual dividend of $20 this year, what is the approximate present value of the stock, given that the discount rate is 8% and dividends are expected to grow at a rate of 2% per year?

B) relatively elastic.

If an item has several good substitutes, the demand curve for that item is likely to be

C) perfectly inelastic.

If the consumption of sugar does not change at all following a price increase from 50 cents per pound to 65 cents per pound, the demand for sugar is considered to be

less than one.

If the demand for a product is said to be relatively inelastic, the "absolute" value of the elasticity coefficient will be

In the long run, the higher price of oranges will signal more firms to enter the orange market, as it will seem more profitable than some other markets. As firms enter, supply increases, causing the price to fall relative to the short-run price, and quantity to increase further. The higher short-run price has guided more resources into the market.

Suppose that the demand for oranges increases. Explain the long-run effects of the guiding function of price in this scenario.

B) -0.75.

Suppose the price of beans rises from $1.00 a pound to $2.00 a pound, quantity demanded falls from 10 units to 6 units, the coefficient of elasticity of demand for beans using the arc

B) relatively inelastic.

Suppose the price of beans rises from $1.00 a pound to $2.00 a pound, quantity demanded falls from 10 units to 6 units. In this example, the demand for beans is said to be

a fall in price will increase quantity demanded.

The "law" of demand can be best described by

how choices are made under conditions of scarcity

The best definition of economics is

D) increasing shareholder wealth.

The best example of an economic goal of a firm is

A) greater than zero

The cross-price elasticity of demand for coffee and tea is likely to be

he larger the number of substitute products available.

The elasticity of demand for a product is likely to be greater

C) complementary

Two goods are ________ if the quantity consumed of one increases when the price of the other decreases.

Answer: Changes in supply and demand conditions, changes in technology, increased competition, changes in interest rates and inflation rates, exchange rate changes, and political risk are typical types of risk faced by firms.

What are the typical types of risk faced by a firm

Such factors as market structure, supply and demand conditions, technology, government regulations, international factors, expectations about the future, and the macroeconomy are economic factors that play a role in managerial decision making

What economic conditions are relevant in managerial decision making

B) an increase in price caused by a shift in supply

Which of the following could cause a long-run shift in demand as part of the "guiding function of price"?

Price is rising.

Which of the following indicates that there is a shortage in the market?

B) future expectations

Which of the following is a common determinant of both supply and demand?

money

Which of the following is not considered as a factor of production

the use of additional workers versus the use of machines in the production of goods

Which of the following is the best example of "how goods and services should be produced?

the production of SUVs versus the production of sub-compact cars

Which of the following is the best example of "what goods and services should be produced

C) a change in the price of the product

Which of the following will not cause a short-run shift in the supply curve

C) The price of chicken decreases.

Which of the following would cause a decrease in the demand for fish?

B) an increase in the price of a complementary good

Which of the following would cause a leftward shift in the demand curve for a good?

C) technology.

All of the following are non-price determinants of demand except

a. Arc elasticity = [(500 - 400)/ (0.9 - 1)]*[(0.9 + 1 )/2]/[ (500 + 400)/2] =. -2.11 b. Elastic

3) The initial price of a cup of coffee is $1, and at that price, 400 cups are demanded. If the price falls to $0.90, the quantity demanded will increase to 500.a. Calculate the (arc) price elasticity of demand for coffee.b. Based on your answer, is the demand for coffee elastic or inelastic?

C) total costs of transactions and internal operations combined.

A company will strive to minimize

D) a substitute good.

A good that is similar to another, and can be consumed in place of it, is called

he quantity supplied is equal to the quantity demanded.

A market is in equilibrium when

C) can be represented by a line parallel to the horizontal axis.

A perfectly elastic demand curve

B) the demand for Coke increases when the price of Pepsi rises.

Coke and Pepsi are substitutes if

A) the comparison of equilibrium points before and after changes in the market have occurred.

Comparative statics analysis in economics is best illustrated as

Demand decreases; equilibrium price and quantity fall.

Consumer incomes fall, and the good is normal.

Demand increases (now); equilibrium price and quantity increase.

Consumers expect that the price of the good will be higher in the future.

B) may be a negative number.

MVA (Market Value Added)

how businesses can decide on the best use of scarce resources

Managerial economics is best defined as the economic study of

A) the timing of cash flows. B) the time-value of money concept. C) the riskiness of cash flows. =All of the above

One of the weaknesses in pursuing the objective of profit maximization is that it ignores

B) the amount given up when choosing one activity over the next best alternative

Opportunity cost is best defined as

resources are not able to meet the entire demand for a product

Scarcity is a condition that exists when

land, labor, capital, entrepreneurship

Select the group that best represents the basic factors of production

A) the responsiveness of the quantity demanded to price changes.

The price elasticity of demand is a measure of

Demand increases; equilibrium price and quantity increase.

The price of a substitute good rises.

A) cross-elasticity.

The sensitivity of the change in quantity consumed of one good to a change in the price of a related good is called

A) costs of negotiating contracts with other firms. B) cost of enforcing contracts. C) the existence of asset-specificity. =All of the above

Transaction costs include