MBA701 Practice Exam 1

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Refer to the accompanying figure. Which of the following movements would illustrate the effect in the market for paper napkins as a result of a "Go Green" advertising campaign encouraging people to use cloth napkins? a.Point A to Point B. b.Point C to Point B. c.Point C to Point D. d.Point A to Point D.

Point C to Point B.

If the interest rate is 10 percent and cash flows are $1,000 at the end of year one and $2,000 at the end of year two, then the present value of these cash flows is ____. [For a stream of future values: PV = FV1/(1+i)1 + FV2/(1+i)2 + ... + FVn/(1+i)n]. a.$2,562 b.$3,200 c.$439 d.$3,000

a.$2,562

Refer to the accompanying figure. The resulting consumer and producer surplus at a price of $25 are, respectively, ____. a.$4,000 and $4,000. b.$9,000 and $4,000. c.$2,000 and $4,000. d.$4,000 and $9,000.

a.$4,000 and $4,000.

Consider luxury weekend hotel packages in Las Vegas. When the price is $250, the quantity demanded is 2,000 packages per week. When the price is $280, the quantity demanded is 1,700 packages per week. Using the midpoint method, the price elasticity of demand is about ____. [Price elasticity of demand = (% Δ Qd)/ (% Δ P). % Δ Qd = (Q2-Q1) / [(Q1+Q2)/2] × 100%. % Δ P= (P2-P1) / [(P1+P2)/2] × 100%]. a.1.43, and an increase in the price will cause hotels' total revenue to decrease b.1.43, and an increase in the price will cause hotels' total revenue to increase c.0.70, and an increase in the price will cause hotels' total revenue to decrease d.0.70, and an increase in the price will cause hotels' total revenue to increase

a.1.43, and an increase in the price will cause hotels' total revenue to decrease

You are the manager of a supermarket, and you know that the income elasticity of peanut butter is exactly -0.7. Due to the economic recession, you expect incomes to drop by 15 percent next year. How should you adjust your purchase of peanut butter? a.Buy 10.5 percent more peanut butter. b.Buy 2.14 percent more peanut butter. c.Buy 6.2 percent less peanut butter. d.Buy 9.8 percent less peanut butter.

a.Buy 10.5 percent more peanut butter.

Suppose buyers of computers and printers regard the two goods as complements. Then an increase in the price of computers will cause a(n) ____. a.decrease in the demand for printers and a decrease in the quantity supplied of printers b.increase in the supply of printers and a decrease in the quantity demanded of printers c.decrease in the equilibrium price of printers and an increase in the equilibrium quantity of printers d.increase in the equilibrium price of printers and a decrease in the equilibrium quantity of printers

a.decrease in the demand for printers and a decrease in the quantity supplied of printers

Refer to the accompanying figure. Assume that the initial equilibrium price and quantity are $10 and 500. If the price increases to $12, then consumer surplus ____. a.falls by $900 b.increases by $900 c.falls by $1,600 d.increases by $2,500

a.falls by $900

Suppose the demand for good X is given by Qdx = 10 + axPx + ayPy + aMM. From the law of demand, we know that ax will be ____. [Px denotes the price of good X]. a.less than zero b.greater than zero c.zero d.infinity

a.less than zero

A farm must decide whether or not to purchase a new tractor. The tractor will reduce costs by $2,000 in the first year, $2,500 in the second, and $3,000 in the third and final year of usefulness. The tractor costs $9,000 today, while the above cost savings will be realized at the end of each year. If the interest rate is 7 percent, what is the net present value of purchasing the tractor? [N(Q) = B(Q) - C(Q)]. a.-$3,467.46 b.-$2,498.35 c.$2,320.12 d.$6,501.65

b.-$2,498.35

Suppose that you own a clothing store. You expect food prices to increase 20 percent due to the COVID-19 pandemic. If the cross-price elasticity of demand between food and clothing is -0.18, what will be the resulting impact on sales from your clothing store? a.Sales will increase by 3.6 percent. b.Sales will decrease by 3.6 percent. c.Sales will increase by 0.9 percent. d.Sales will decrease by 0.9 percent.

b.Sales will decrease by 3.6 percent.

Suppose an airline determines that its customers traveling for business have inelastic demand and its customers traveling for vacations have an elastic demand. If the airline's objective is to increase total revenue, it should ____. a.increase the price charged to vacationers and decrease the price charged to business travelers b.decrease the price charged to vacationers and increase the price charged to business travelers c.decrease the price to both groups of customers d.increase the price for both groups of customers

b.decrease the price charged to vacationers and increase the price charged to business travelers

Incentive plans imply ____. a.if managers get highly paid, then they work hard. b.if managers put forth little effort, they receive little pay; if they put forth much effort and hence generate many sales and more profit, they receive a lot of pay. c.managers are not selfish. d.managers should be watched all the time.

b.if managers put forth little effort, they receive little pay; if they put forth much effort and hence generate many sales and more profit, they receive a lot of pay.

Suppose that when income rises, the demand curve for doctor's visits shifts to the right. In this case, we know doctor's visits are ____. a.inferior goods b.normal goods c.perfectly competitive goods d.durable goods

b.normal goods

Lemonade, a good with many close substitutes, should have an own price elasticity that is ____. a.unitary b.relatively elastic c.relatively inelastic d.perfectly inelastic

b.relatively elastic

"Our marginal revenue is greater than our marginal cost at the current production level." This statement indicates that the firm ____. a.is maximizing profits b.should increase the quantity produced to increase profits c.should decrease the quantity produced to increase profits d.manager should retire

b.should increase the quantity produced to increase profits

Jacqui decides to open her own business and earns $50,000 in accounting profit the first year. When deciding to open her own business, she turned down three separate job offers with annual salaries of $30,000, $40,000, and $45,000. What is Jacqui's economic profit from running her own business? [Economic Profit = Total revenue - Total costs (including explicit and implicit costs)]. a.$-55,000 b.$-5,000 c.$5,000 d.$20,000

c.$5,000

Refer to the accompanying table above. What is the total benefit associated with producing four units of the control variable, Q (identify point A in the table)? [MB = DB/DQ]. a.600 b.2,600 c.3,000 d.3,400

c.3,000

Assume that you set the price of your Double Cheeseburger at $3 and the price of your soft drink at $1. How many Double Cheeseburger would you predict to sell, using the estimated regression equation from the above regression results? a.About 8. b.About 25. c.About 20. d.About 4.

c.About 20.

Refer to the accompanying table above. If the price of the product is $110, then who would be willing to purchase the product? a.Calvin. b.Calvin and Sam. c.Calvin, Sam, and Andrew. d.Calvin, Sam, Andrew, and Lori.

c.Calvin, Sam, and Andrew.

Refer to the accompanying figure above. As price falls from Pa to Pb, we could use the three demand curves to calculate three different values of own price elasticity of demand. Which of the three demand curves would produce the smallest own price elasticity (in absolute value)? a.D1 b.D2 c.D3 d.All of the above are equally elastic.

c.D3

Which of the following is an implicit cost to a firm that produces a good or service? a.Labor costs. b.Costs of operating production machinery. c.Foregone interest of using money that could have been kept in a bank. d.Costs of renting or buying land for a production site.

c.Foregone interest of using money that could have been kept in a bank.

If steak is a normal good, what do you suppose would happen to price and quantity during an economic recession? a.Price would increase and quantity decrease. b.Price and quantity would both increase. c.Price and quantity would both decrease. d.Price would decrease and quantity increase.

c.Price and quantity would both decrease.

The market for oranges is in equilibrium. Now suppose that a cold snap hits Florida, 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? a.Price will increase, and quantity will increase. b.Price will decrease, and quantity will increase. c.Price will increase, and effect on quantity is ambiguous. d.Quantity will decrease, and effect on price is ambiguous.

c.Price will increase, and effect on quantity is ambiguous.

Assume you are the manager of a fast-food restaurant. The demand for your Double Cheeseburger is identified by the following linear equation: Q = a + bPx + cPy, where Q is the quantity demanded of your Double Cheeseburger, Px is the price of your Double Cheeseburger, and Py is the price of soft drinks you also sell. Assume the regression results are as follows: Based on the above regression results, the estimated regression equation that predicts the quantity demanded of your Double Cheeseburger is ____. a.Q = 6.41 - 4.21Px- 2.11Py b.Q = 35.2 - 4.21Py- 2.11Px c.Q = 35.2 - 4.21Px- 2.11Py d.Q = 6.41 - 4.21Py- 2.11Px

c.Q = 35.2 - 4.21Px- 2.11Py

Suppose the government wants to encourage Americans to exercise more, so it imposes a binding price ceiling on the market for in-home treadmills. As a result, ____. a.the demand for treadmills will decrease b.the supply of treadmills will increase c.a shortage of treadmills will develop d.All of the above are correct

c.a shortage of treadmills will develop

If Kindle e-readers and Nook e-readers are substitutes, a higher price for Nooks would result in a(n) ____. a.increase in the demand for Nooks b.decrease in the quantity demand for Kindles c.increase in the demand for Kindles d.decrease in the demand for Kindles

c.increase in the demand for Kindles

For a steel factory, a decrease in the cost of electricity to the plant will cause the supply curve to ____, all else equal. a.become flatter b.shift to the left c.shift to the right d.become parallel to the price axis

c.shift to the right

Workers at a bicycle assembly plant currently earn the mandatory minimum wage. If the federal government increases the minimum wage by $1.00 per hour, then it is likely that the ____. a.demand for bicycle assembly workers will increase b.supply of bicycles will shift to the right c.supply of bicycles will shift to the left d.firm must increase output to maintain profit levels

c.supply of bicycles will shift to the left

An excise tax of $1.00 per gallon of gasoline placed on the suppliers of gasoline would shift the supply curve ____. a.down by $1.00 b.down by more than $1.00 c.up by $1.00 d.up by less than $1.00

c.up by $1.00

If the annual interest rate is 0 percent, the present value of receiving $210 in the next year is ____. [PV = FV/(1+i)n]. a.$221 b.$200 c.$201 d.$210

d.$210

If the price of pork chops falls from $8 to $6 and this leads to an increase in demand for apple sauce from 100 to 140 jars, what is the (arc) cross-price elasticity of apple sauce and pork chops? [Cross-price elasticity of demand = % D Qd of good 1 / % D price of good 2. % Δ Qd = (Q2-Q1) / [(Q1+Q2)/2] × 100%; % Δ P= (P2-P1) / [(P1+P2)/2] × 100%]. a.-0.95. b.2.71. c.0.42. d.-1.17.

d.-1.17.

In which of the following situations will total revenue increase? a.Price elasticity of demand is 1.2, and the price of the good decreases. b.Price elasticity of demand is 0.5, and the price of the good increases. c.Price elasticity of demand is 3.0, and the price of the good decreases. d.All of these selections are correct.

d.All of these selections are correct.

If the price of gasoline rises, when is the price elasticity of demand likely to be the highest? a.Immediately after the price increases. b.One month after the price increase. c.Three months after the price increase. d.One year after the price increase.

d.One year after the price increase.

Which of the following leads to a decrease in demand for mechanical pencils (a normal good)? a.an increase in incomes b.a decrease in price of mechanical pencils c.the price of mechanical pencils is expected to increase in the near future d.a decrease in price of lead pencils, which is a substitute for mechanical pencils

d.a decrease in price of lead pencils, which is a substitute for mechanical pencils

When a tax is placed on the sellers of cell phones, the size of the cell phone market ____. a.and the effective price received by sellers both increase b.increases, but the effective price received by sellers decreases c.decreases, but the effective price received by sellers increases d.and the effective price received by sellers both decrease

d.and the effective price received by sellers both decrease

Suppose the demand for good X is given by Qdx = 10 + axPx + ayPy + aMM. If ay is positive, then ____. [Py indicates the price of a related good]. a.goods y and x are complements b.goods y and x are inferior goods c.goods y and x are normal goods d.goods y and x are substitutes

d.goods y and x are substitutes

If the cross-price elasticity between ketchup and hamburgers is -1.2, a 4 percent increase in the price of ketchup will lead to a 4.8 percent ____, and that ketchup and hamburgers are ____. [Cross-price elasticity of demand = % D Qd for good 1 / % D price of good 2]. a.drop in demand for ketchup; complements b.drop in demand for hamburgers; complements c.increase in demand for ketchup; substitutes d.increase in demand for hamburgers; substitutes

drop in demand for hamburgers; complements

In order to maximize net benefits, the managerial control variable should be used up to the point where ____. a.total costs equal total benefits. b.average costs equal marginal benefits. c.average benefits equal marginal costs. d.net marginal benefits equal zero.

net marginal benefits equal zero.

Ford Motor Company announces that next month it will offer $3,000 rebates on new Mustangs. As a result of this information, today's demand curve for Mustangs ____. a.shifts to the right b.shifts to the left c.shifts either to the right or to the left, but we cannot determine the direction of the shift from the given information d.will not shift; rather, the demand curve for Mustangs will shift to the right next month

shifts to the left

If marginal costs of producing an additional unit for a firm exceed marginal benefits, then ____. a.the firm ends up with a net gain. b.the firm's average costs exceed average benefits. c.the firm should decrease its production level. d.the firm should not change its production level.

the firm should decrease its production level.


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