Review for Eco Management

Suppose the growth rate of the firm's profit is 5 percent, the interest rate is 6 percent, and the current profits of the firm are $80 million. What is the value of the firm?

$8,480 million

Suppose that three consumers are in the market for good X. Consumer 1's (inverse) demand is P X = 40 − Q X; Consumer 2's (inverse) demand is PX = 50 − 2QX; and Consumer 3's (inverse) demand is P X = 70 − 4QX. When PX = $20, the market will demand:

47.5 units.

Given that income is $200 and the price of good Y is $40, what is the vertical intercept of the budget line?

5

If the interest rate is 12.5 percent, what is the present value of $200 received in one year?

$177.78

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:

$2,562

If the interest rate is 5 percent, what is the present value of $10 received one year from now?

$9.52

If marginal costs exceed marginal benefits, then:

The firm should decrease its production level.

PXX + PYY = M is called:

a budget line

The firm manager with indifference curves which are convex from the origin (output on the horizontal axis and profit on the vertical axis) views:

both profits and outputs to be "goods."

Suppose that a consumer's preferences are well behaved in that properties 4-1 to 4-4 are satisfied and the initial equilibrium consumption bundle consists of 100 units of X and 50 units of Y. If P X decreases such that the new equilibrium consumption bundle is 150 units of X and 75 units of Y, then goods X and Y are:

complements

If money income triples and the price of all goods doubles, then the:

consumer will buy more of normal goods.

The elasticity which shows the responsiveness of the demand for a good due to changes in the price of a related good is the:

cross-price elasticity.

When marginal revenue is negative for a linear (inverse) demand function, increases in output will cause total revenues to:

decrease

Suppose the own price elasticity of demand for good X is −0.5, and the price of good X increases by 10 percent. We would expect the quantity demanded of good X to:

decrease by 5 percent.

A firm derives revenue from two sources: goods X and Y. Annual revenues from good X and Y are $10,000 and $20,000, respectively. If the price elasticity of demand for good X is −4.0 and the cross-price elasticity of demand between Y and X is 2.0, then a 2 percent decrease in the price of X will:

decrease total revenues from X and Y by $200.

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:

decrease.

If the price of a good rises, then the equilibrium consumption of that good:

decreases if it is a normal good

When a demand curve is linear:

demand is inelastic at low prices.

As more firms enter an industry:

economic profits decrease

If the demand function for a particular good is Q = 50 − 4P, then demand at a price of $10 is:

elastic

The rate at which a consumer is willing to substitute one good for another, while still maintaining a given level of satisfaction, is called the

marginal rate of substitution.

Suppose the equilibrium price in the market is $10 and the price elasticity of demand for the linear demand function at the market equilibrium is −1.25. Then we know that:

marginal revenue is $2.

Suppose the equilibrium price in the market is $24 and the price elasticity of demand for the linear demand function at the market equilibrium is −1.5. Then we know that:

marginal revenue is $8.

To an economist, maximizing profit is:

maximizing the value of the firm

Demand tends to be

more inelastic in the short term than in the long term

Diminishing marginal rate of substitution implies that indifference curves are:

onvex from the origin.

The value of the firm is the:

present discounted value of all future profits

"Our marginal revenue is greater than our marginal cost at the current production level." This statement indicates that the firm:

should increase the quantity produced to increase profits.

The substitution effect isolates the change in the consumption of a good caused by:

the change in the market rate of substitution.

Suppose earnings are given by E = $60 + $7(24 − L), where E is earnings and L is the hours of leisure. What is the maximum this worker can earn in three (3) days?

519

Suppose a consumer with an income of $100 is faced with Px = 1 and Py = 1/2. What is the market rate of substitution between good X (horizontal axis) and good Y (vertical axis)?

-2.0

Given that income is $750 and P X = $32 and PY = $8, what is the market rate of substitution between goods X and Y?

-4

Suppose demand is given by Qxd = 50 − 4Px + 6Py + Ax, where Px = $4, Py = $2, and Ax = $50. What is the advertising elasticity of demand for good x?

0.52

The demand for good X is estimated to be Qxd = 10, 000 − 4PX + 5PY + 2M + AX, where PX is the price of X, PY is the price of good Y, M is income, and AX is the amount of advertising on X. Suppose the present price of good X is $50, PY = $100, M = $25,000, and AX = 1,000 units. Based on this information, the income elasticity of good X is:

0.82.

If a price increase from $8 to $10 causes quantity demanded to fall from 500 to 400, what is the absolute value of the (arc) own-price elasticity?

1.00.

Given the cost function C(Y) = 6Y2, what is the marginal cost?

12Y

Suppose total benefits and total costs are given by B(Y) = 600Y − 12Y2and C(Y) = 20Y2. What is the maximum level of net benefits?

2,812.5

Suppose Qxd = 10,000 − 2Px + 3 Py − 4.5M, where Px = $100, Py = $50, and M = $2,000. How much of good X is consumed?

950 units

If the price of good X is $10 and the price of good Y is $5, how much of good X will the consumer purchase if her income is $15?

Cannot tell based on the above information

Suppose the income elasticity for transportation is 1.8. Which of the following is an INCORRECT statement?

Expenditures on transportation will fall less rapidly than income falls.

Which of the following is an implicit cost to a firm that produces a good or service?

Foregone profits of producing a different good or service

The own price elasticity of demand for apples is −1.2. If the price of apples falls by 5 percent, what will happen to the quantity of apples demanded?

It will increase 6 percent.

The maximum quantity of good X that is affordable is:

M/PX

At any point on an indifference curve, the slope indicates:

None of the statements is correct.

Which of the following statements is INCORRECT?

None of the statements is correct.

If you sell an inferior good, offering to sell gift certificates to those looking for a gift may result in:

a greater quantity sold than if the customer resorts to giving a cash gift

If the absolute value of the own price elasticity of steak is 0.4, a decrease in price will lead to:

a reduction in total revenue.

If an increase in income causes a decrease in the consumption of good Y, we know that good Y is:

an inferior good

A price decrease causes a consumer's "real" income to:

increase

The cross-price elasticity of demand between goods X and Y is −3.5. If the price of X decreases by 7 percent, the quantity demanded of Y will:

increase by 24.5 percent.

If the price of a good Y falls, then the marginal rate of substitution between X and Y:

increases

If there are few close substitutes for a good, demand tends to be relatively:

inelastic

As we move down along a linear demand curve, the price elasticity of demand becomes more:

inelastic.

Demand is perfectly elastic when the absolute value of the own price elasticity of demand is:

infinite.

A firm will maximize the present value of future profits by maximizing current profits when the

interest rate is larger than the growth rate in profits and both are constant.

Managerial economics:

is valuable to the coordinator of a shelter for the homeless.

Maximizing the present value of all future profits is the same as maximizing current profits if the growth rate in profits is:

less than the interest rate.

When the price of one good increases, the associated income effect is represented by a move from one indifference curve to a:

lower indifference curve since real income is now lower.

The difference between marginal benefits and marginal costs is the:

marginal net benefits.

The affordable bundle that yields the greatest satisfaction to the consumer is:

the equilibrium consumption bundle.

The higher the interest rate:

the smaller the present value of a future amount.

Accounting profits are:

total revenue minus total cost.

Economic profits are:

total revenue minus total opportunity cost.

The property that rules out indifference curves that cross is:

transitivity.

Mitchell's money income is $150, the price of X is $2, and the price of Y is $2. Given these prices and income, Mitchell buys 50 units of X and 25 units of Y. Call this combination of X and Y bundle J. At bundle J, Mitchell's MRS is 2. At bundle J, if Mitchell increases consumption of Y by 1 unit, how many units of X can he give up and still reach the same level of utility?

½

If the short-term own price elasticity for transportation is estimated to be −0.6, then long term own price elasticity is expected to be:

−0.6.

Price of Good X (Px) Quantity of Good X (Qx)Own Price Elasticity Total Revenue 0 100 0.00 0 5 90 -0.11 450 A 80 -0.25 800 15 70 -0.43 1050 20 60 -0.67 1200 25 50 C 1250 30 B -1.50 1200 35 30 -2.33 1050 40 20 -4.00 D 45 10 -9.00 450 50 0 -∞ 0 The demand function in the accompanying table is QXd = 100 − 2P X. Based on this information, compute the own price elasticity of demand when P X = $25 (point C).

−1

If the demand function for a particular good is Q = 20 − 8P, then the price elasticity of demand (in absolute value) at a price of $1 is:

2/3

What is the maximum amount of good Y that can be purchased if X and Y are the only two goods available for purchase and P x = $10, P y = $20, X = 0, and M = 400?

20

You are the manager of a popular hat company. You know that the advertising elasticity of demand for your product is 0.25. How much will you have to increase advertising in order to increase demand by 5 percent?

20 percent

If a worker receives a fixed payment of $100 plus $10 for every hour she works, what is the maximum total earnings the worker can receive if she is restricted to a maximum of 12 hours of work per day?

220

When MB = 300 − 12Y and TC = 12Y + 108, the optimal level of Y is:

24

The demand for good X is estimated to be Qxd = 10,000 − 4PX + 5PY + 2M + AX where PX is the price of X, PY is the price of good Y, M is income, and AX is the amount of advertising on X. Suppose the present price of good X is $50, PY = $100, M = $25,000, and AX = 1,000 units. What is the demand curve for good X?

61,500 − 4PX

What is the marginal revenue of producing the third unit? No. units produced Total Revenue Total Costs Version 1 2 0 0 0 1 100 50 2 180 110 3 250 180 4 290 270 5 310 380

70

Suppose that consumers' preferences are well behaved in that properties 4-1 to 4-4 are satisfied. Furthermore, assume that both X and Y are normal goods and that the price of good Y decreases. Then, which of the following effects is known with certainty?

The income and substitution effects will reinforce one another, leading to an overall increase in the consumption of good Y.