EC 515 Managerial Economics Module 1, EC 515 Managerial Economics Module 2, EC 515 Managerial Economics Module 3

To determine whether investments are profitable, follow these steps: a. Discount and add up the future benefits of an investment b. Compare the future benefits of an investment to the current cost of the investment c. If the difference is positive, then the investment is profitable d. All of these statements are correct

All of these statements are correct

What are some of the solutions for a hold-up problem? a. Mergers b. Contracts c. Exchange of 'hostages' d. All the above

All the above

The most important factor in business success is: a. luck b. market share c. being the first mover d. having a dynamic CEO e. Not really known if there is such a thing

not really known if there is such a thing

A decision to consume more of one good necessarily involves a decision to consume less of another good. The benefits of the highest-valued good foregone represent: a. Full price b. Opportunity cost c. Marginal benefit d. Scarcity

opportunity cost

A well-designed organization is one in which employee incentives are aligned with: a. organizational design b. the relation-actor paradigm c. corporate incentives d. organizational goals

organizational goals

If economies of scope exist across two products, we would expect that firms will likely ________. a. be specialized in the first product to produce as much as possible b. be specialized in the second product to produce as much as possible c. be indifferent to its product mix d. produce and sell both products

produce and sell both products

If Marginal Cost (MC) is higher than Average Cost (AC), average cost is a. falling b. rising c. constant d. none of the above

rising

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.

substitutes

Costs must be paid before even one unit of output is produced are called: a. Mandatory costs b. Fixed costs c. Sunk costs d. Operating costs

sunk costs

Costs that cannot be recovered in the short run, even if a firm shuts down, are called: a. Opportunity costs b. Sunk costs c. Monetary costs d. Explicit costs

sunk costs

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.

that more information is needed to determine accounting profits

Diseconomies of scale imply that a. the firm should continue to produce similar quantities. b. the firm should consider a reduction in production. c. the firms should consider increasing the level of production. d. the firm should increase its inputs.

the firm should consider a reduction in production

If hiring the 7th worker increases total product by 5 units and the price of each unit is $2, a) the firm should not hire the 7th worker as MB<MC b) marginal revenue equals $2 c) the firm should hire the 7th worker as MB>MC d) the firm should not hire the 7th worker as MB<TC

the firm should not hire the 7th worker as MB<MC

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.

the incremental benefit expected from the second factory to the cost of the second factory.

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

the marginal benefit of the sixth banana exceeds the price

The higher the interest rates a. the more value individuals place on future dollars b. the more value individuals place on current dollars c.less investments will take place d. does not affect the investment strategy

the more value individuals place on current dollars

The higher the discount rates 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

the more value individuals place on current dollars.

The one thing that unites all economists is their use of: a. organizational design b. the rational-actor paradigm c. incentives d. organizational history

the rational-actor paradigm

A publisher is deciding whether or not to invest in a new printer. The printer would cost $900, and would increase the cash flows in year 1 by $500 and in year 3 by $800. Cash flows do not change in year 2. If the interest rate is 12% Is the investment in the new printer feasible? a) Yes because the NPV>0 b) No because the NPV<0 c) No since the present value of the cash flows is lesser than zero d) Yes since the present value of the cash flows is greater than zero

yes since NPV>0 What is the net present value of the investment? -NPV = -900 +500/1.12 +0/(1.12)^2 + 800/(1.12)^3 = $115.852.

Its lunch time, you are hungry and 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

you would pay more for your first slice of pizza than your second

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.

Demand would fall, and Budweiser would reduce price.

Microsoft found that instead of producing a DVD player and a gaming system separate, it is cheaper to incorporate DVD playing capabilities in their 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

Economies of Scope

Which of the following is NOT true if a firm shuts down and produces zero output in the short run? a. Variable costs will be zero. b. Losses will be incurred. c. Fixed costs will be greater than zero. d. Fixed costs will be less than zero.

Fixed costs will be less than zero.

Consider the following policy: To make sure that poor people receive emergency treatment the U.S. government forces emergency rooms to offer free care to poor patients. Which of the following is a consequence of this policy? a. More hospitals are likely to open emergency care facilities in poor neighborhoods because of increased demand b. The wait time in emergency rooms will fall c. Hospitals in poor neighborhoods are likely to close their emergency rooms because of the high cost of providing free treatment to poor patients d. Hospitals will have to offer higher salaries to doctors and nurses to induce them to work in poor neighborhoods

Hospitals in poor neighborhoods are likely to close their emergency rooms because of the high cost of providing free treatment to poor patients

Which of the following is an example of an extent decision? Should your company implement a different bonus structure for managers? Should your company test new products using focus groups? How many units of output should be produced? Should your company develop new software?

How many units of output should be produced?

Which of the following statements is correct? a. Sunk costs can be avoided with planning b. If cost includes all your costs, including your opportunity cost of capital, you are earning zero profit when P=AC c. Post-investment hold-up is unavoidable d. Before investing, look back and reason ahead

If cost includes all your costs, including your opportunity cost of capital, you are earning zero profit when P=AC

33) Price gouging a. Outlaw trade at prices above a certain price level b. Outlaw trade at prices below a certain price level c. Is an act of charging a high price to take advantage of shortages created by natural disasters d. None of the above

Is an act of charging a high price to take advantage of shortages created by natural disasters

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

Items from Dollar stores

If a firm's average cost is rising then a. Marginal cost is less than average cost. b. Marginal cost is rising. c. Marginal cost is greater than average cost d. The firm is making an economic profit

Marginal cost is greater than average cost

Which of the following would result in higher price elasticity of demand (in absolute value)? More substitutes for a good Shorter periods of time considered The good is more of a necessity A low share of income absorbed by the good

More substitutes for a good

Efficiency implies opportunity, a. Always b. Never c. Only if accompanied by secure property rights d. None of the above

Never

An inferior good is defined as: A good of poor quality One for which demand decreases as income increases One that is produced using cheap inputs One for which demand decreases as income decreases

One for which demand decreases as income increases

Which of the following make demand more elastic? a. Products with close substitutes have less elastic demand b. Demand for an individual brand is less elastic than industry aggregate demand c. Products with many complements have less elastic demand d. In the long run, demand curves become less elastic

Products with many complements have less elastic demand

Which of the following is not likely to cause the production possibility frontier to shift out? a. An increase in specialization which allows people to develop higher levels of skill at their chosen profession b. An increase in the quantity of innovations c. Relying only on governments to allocate resources d. Developing markets where self-interested individuals can interact

Relying only on governments to allocate resources

Which one of the following is true? a. Nike has a more inelastic demand curve than shoes b. The demand curve for gas is more elastic in the short-run than in the long-run c. Cigarettes has a more elastic demands than televisions d. Salt has a more inelastic demand than meat

Salt has a more inelastic demand than meat

A company is producing 15,000 units. At this output level, marginal revenue is $22 and the marginal cost 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

The company needs to increase production

A company is producing 15,000 units. At this output level, marginal revenue is $22, and the marginal cost 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.

The company needs to increase production Need to compare MR to MC. In this case, MR = $22 > MC = $18. As such, the company should consider expanding production

Marginal revenue is ________. a. the cost of producing an additional unit of output b. none of the above c. The revenue from selling an additional unit of output d. The total revenue gained from production

The revenue from selling an additional unit of output

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

There are zero profits

Markets excel at wealth creation because: a. They use the government to transfer resources from those who use resources less productively to those who use it more productively b. They provide incentives for self-interested individuals to take socially beneficial actions c. People in market economies tend to be less self-interested and search for more creative ways to serve the common good d. Market economies have managed to coerce wealth from non-market nations, making the market economies better off at the expense of the other countries

They provide incentives for self-interested individuals to take socially beneficial actions

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 costs $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

Total variable cost is $17,000; total fixed cost is $2,250; total cost is $19,250

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 break down? 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.

Total variable cost is $17,000; total fixed cost is $2,250; total cost is $19,250.

In 2008, the Labour Party in Britain promised that patients would have to wait for no more than four hours to be seen in an emergency room. True or False: This policy incentivizes hospitals to make patients wait outside before allowing them to enter the emergency room upon their arrival at the hospital.

True

Students doing poorly in courses often consider dropping the courses. Many universities will offer a refund if the student drops a course before a deadline. True or False: After the deadline, students should not take this refund option into account when deciding to drop the course.

True

The personality of the CEO is one of many factors that might contribute to business success.

True

When might an effort-based incentive scheme not work? a. When effort is important in their daily work b. When effort is tied to costs/benefits that are out of the worker's control c. When there is little intrinsic value in performing the job d. When social status can be improved by making more money

When effort is tied to costs/benefits that are out of the worker's control

The below table describes the productivity of workers at a sub shop (say during a 10 minute period). # of workers Sandwiches produced 1 2 2 5 3 9 4 12 5 14 At what point does marginal productivity begin to decline? a. With the first worker b. With the second worker c. With the third worker d. With the fourth worker

With the fourth worker

Daikin, Possner and Zoe are discussing what it means to say that people respond to incentives. Here is an excerpt from their conversation. Daikin: It means that people are required to behave in a cooperative fashion so that the citizens of a nation can coexist peacefully. Possner: It means that people act in ways that society approves. No rational person will do business with immoral characters. Zoe: It means that people undertake certain actions if they know that doing so will result in some form of material reward that they will not otherwise receive. Whose view accords with the economic way of thinking? a. All three of their views exhibit the economic way of thinking b. Only the views of Daikin and Zoe exhibit the economic way of thinking c. Zoe's view is the only one that exhibits the economic way of thinking d. Possner's view is the only one that exhibits the economic way of thinking

Zoe's view is the only one that exhibits the economic way of thinking

All of these could be sources of economies of scale except a. Investment in more efficient technology b. Specialization c. A bottleneck procedure d. Discounts on bulk purchase of inputs

a bottleneck procedure

The rational-actor paradigm is: a. a tool for problem-solving b. a tool giving advice on how to live your life. c. a tool for analyzing behavior d. a tool for evaluating options for action

a tool for analyzing behavior

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.

all of the above

Two similar surgeries, breast reconstruction and breast augmentation, have different prices. Breast augmentation is cosmetic surgery not covered by health insurance. Patients who want the surgery must pay for it themselves. Breast reconstruction following breast removal due to cancer is covered by insurance. The price of one of the surgeries has increased by about 10% each year since 1995, whereas the price of the other has increased by only 2% per year. Breast ______ surgery likely has the lower rate of inflation, since insurance coverage offers a stronger incentive to undergo breast _______ , driving up prices.

augmentation reconstruction

Learning curves describe a relationship between a. total cost and the technology adoption curve. b. average variable cost and the number of units produced in a specific time period. c. average variable cost and the cumulative number of units produced. d. average variable cost and the rate of increase in inputs.

average variable cost and the cumulative number of units produced.

A firewood supplier has a very seasonal demand for its product. Its transport trucks lay idle during the warmer parts of the year. It can exploit economies of scope if a. It merges with a manufacturer of wooden Christmas ornaments b. It turns into a rental trucking company during the warmer months for other seasonal producers such as ice-cream makers c. It starts producing other seasonal products that would sell mostly during the warmer months such as rustic lawn chairs d. B and C

b and c

if people behave rationally, optimally, and self-interestedly, a bad decision occurs for which of these reason(s)? a. the decision-maker did not have enough information to make a good decision. b. the decision maker-did not take the necessary time to make a good decision. c. the decision-maker did not have the incentive to make a good decision. d. both a and c

both a and c

A price ceiling can often be viewed as: a. the government setting price above market equilibrium price. b. an implicit tax on producers and an implicit subsidy to consumers. c. the government setting price below market equilibrium price. d. Both b and c.

both b and c

Economic Value Added helps firms to avoid the hidden-cost fallacy a. by ignoring the opportunity costs to using a 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

by taking all capital costs into account including the cost of equity

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.

by taking all capital costs into account, including the cost of equity.

In economic analysis: a. costs are viewed in terms of alternatives given up b. business managers are assumed to have all the needed data c. popular management jargon assumes an important role d. business resources are seen to be unlimited

costs are viewed in terms of alternatives given up

Increasing complexity of management and challenges of coordination as firms produce more of the same product can be a source of a. economies of scale. b. learning curves. c. diseconomies of scale. d. increasing marginal productivity.

diseconomies of scale.

Suppose an individual is selling a car and has a "bottom line" of $22,000. Also suppose that another individual is looking to purchase a car, with a "top dollar" of $25,000. A wealth-creating transaction is possible, since the seller's bottom line is _______ the buyer's top dollar. The total surplus from such a purchase would be $_____ Suppose the government imposes a tax of $6,000 on the purchase of a car. With this tax, the wealth-creating sale of the car between these two buyers will_______ take place.

less than $3000.00 No longer

There are three levers one can push to correct bad decision-making. Which of the following is NOT such a lever? a. change the current decision makers' incentives b. give more information to the current decision maker. c. let someone else who has no relationship to the problem make the decision. d. let someone else who has better information or incentives make the decision.

let someone else who has better information or incentives make the decision.

Economic analysis: a. has little use in business decision making b. makes managers consider alternatives c. does not consider the costs of decisions d. is based on the idea that business resources are unlimited.

makes managers consider alternatives

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

marginal benefits are greater than marginal costs.

If a firm's average cost is rising, then a. marginal cost is less than average cost. b. marginal cost is rising. c. marginal cost is greater than average cost. d. the firm is making an economic profit.

marginal cost is greater than average cost.

The law of diminishing marginal returns refers to the general tendency for __________to eventually diminish. a. average total cost b. marginal productivity c. marginal cost d. average revenue

marginal productivity

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

$11.57

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

$11.57

A retailer has to pay $9 per hour to hire 13 workers. If the retailer only needs to hire 12 workers, a wage rate of $7 per hour is sufficient. What is the marginal cost of the 13th worker? a. $117 b. $9 c. $33 d. $84

$33

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

24

A change in demand can result from: A change in price A change in consumer expectations A change in quantity demanded A change in supply

A change in consumer expectations

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. A increase in price level

A decrease in the price level

What might you reasonably expect of an industry in which firms tend to have economies of scale? a. Exceptional competition among firms b. A large number of firms c. Highly diversified firms d. A small number of firms

A small number of firms

It costs a firm $80 per unit to produce product A and $50 per unit to produce B individually. If the firm can produce both products together at $140 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

Diseconomies of Scope

Average costs curves initially fall a. Due to declined average fixed costs b. Due to rising average fixed costs c. Due to declining marginal costs d. Due to rising marginal costs

Due to declined average fixed costs

If an 8 percent change in price changes quantity demanded by 14 percent, demand is: Elastic Inelastic Unit elastic Perfectly elastic

Elastic

Economics deal with: a. Human behavior b. Choosing between alternatives c. Market analysis d. A way to think about problems

all the above

Consider a football game. You buy a ticket for $20, but at game time, scalpers are selling tickets for $50 because your team is playing its cross-state rivals who have legions of fans willing to pay over $50 to go to the game. Even though you do not value the tickets at $50 (indeed - you value them for much less!), you go anyway because, you say, "These tickets cost me only $20." In this case, you should: a. Go to the game because the tickets cost only $20. b. Go to the game if the benefit of going to the game is more than $20. c. Go to the game if the benefit of going to the game is bigger than $50. d. Stay home because it's only $20.

Go to the game if the benefit of going to the game is bigger than $50.

What is the most likely effect of the development of XBOX with DVD capabilities on the DVD player industry? a. Increased price elasticity of demand for the DVD player industry because XBOX are complements b. decreased price elasticity of demand for the DVD player industry because XBOX are complements c. Increased price elasticity of demand for the DVD player industry because XBOX are substitutes d. decreased price elasticity of demand for the DVD player industry because XBOX are substitutes

Increased price elasticity of demand for the DVD player industry because XBOX are substitutes

A firm will shut down in the long-run if a) P>AVC b) P<ATC c) P=ATC d) P>ATC

P<ATC

Which of the following best explains why a bar might offer free peanuts to its customers? Peanuts and beer are complements, so offering free peanuts should increase the demand for beer. Peanuts and beer are substitutes, so offering free peanuts should increase the demand for beer. Peanuts and beer are substitutes, so offering free peanuts should decrease the demand for beer. Peanuts and beer are complements, so offering free peanuts should decrease the demand for beer.

Peanuts and beer are complements, so offering free peanuts should increase the demand for beer.

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.

all of the above

Food Fanatics caters meals where their cost of producing an extra meal is $25. Each of their meals is standard and sells for $20. At this rate what should the company do? a. Produce more meals and increase their profit b. Produce fewer meals and increase their profit c. Not change production d. There is not enough information to make a recommendation

Produce fewer meals and increase their profit

According to the Net Present Value (NPV) rule, managers choose to invest if a) The NPV of the project is less than zero b) The NPV of the project is greater than zero c) The NPV of the project is equal to zero d) The NPV of the project is equal to the cost of capital

The NPV of the project is greater than zero

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.

Some consumers are willing to pay more than the price.

Why are property rights so important in creating wealth?

With individual ownership of property, owners keep the value they create by moving assets to higher-valued uses thereby creating an incentive to engage in such transactions.

Suppose an initial investment of $50 will return $35/year for three years (assume the $35 is received each year at the end of the year). At a discount rate of 20%, this investment _______ profitable.

Yes, the project has a positive NPV, so it is profitable NPV = -$50 + 35/1.2 + 35/1.2^2 + 35/1.2^3 = $23.73

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

all of the above

To compute price, we need: a. MR b. MC c. to know whether MR is greater than MC, in which case, we increase prices d. a and b

a and b

All the following are examples of variable costs, except a. hourly labor costs. b. cost of raw materials. c. accounting fees. d. electricity cost.

accounting fees

If mortgages and houses are complements in consumption and interest rates decrease, we would expect to see a. An increase in demand for houses b. An decrease in demand for houses c. An increase in the quantity of houses demanded d. An decrease in the quantity of houses demanded

an increase in demand for houses

Money-making opportunities result from: a. A lack of efficiency b. assets in lower-valued uses c. assets in higher-valued uses d. a failure to consider the longer-term

assets in lower-valued uses

A buyer willingly buys if the price of a good is: a. above his value b. below his value c. at his value d. less than he expected

below his value

Determining whether a policy is good or bad requires that we look: a. At those who benefit from the policy b. Those who lose because of the policy c. A profit and loss spreadsheet recording the effects of the policy. d. Both a and b

both a and b

Price ceilings are primarily intended to help a. no one b. government c. producers d. consumers

consumers

If MR<MC, then the firm should a. increase production b. decrease production c. keep the prices constant d. keep the production level constant

decrease production

According to the law of diminishing marginal returns, marginal returns: a. diminish always prior to increasing. b. diminish always. c. diminish sometimes. d. diminish eventually.

diminish eventually.

In 2009, when Kraft bid $16.7 billion for Cadbury, Cadbury's market value rose. However, Kraft's market value fell by more. The market believes that Kraft's bid was _________ the present value of the expected future profits from Cadbury.

greater than

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

hidden-cost fallacy

Wealth generating activities always: a. produce positive externalities to society b. produce gains for one party c. increase wealth for everyone d. increase total surplus

increase total surplus

The owners of a small manufacturing company have hired a vice president to run the company with the expectation that he will buy the company after five years. In this initial contract, compensation of the new vice president is a flat salary plus 75% of the first $150,000 profit, then 10% of profit over $150,000. The goal of the owners of the firm is to maximize profits. A contract that allowed the vice president to keep 4% of profits above $150,000 would make the incentives of the vice president _______ aligned with the goals of the firm, as compared to the original contract.

less

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.

minimum wages

John Deere's choice of competing technologies teaches us that: a. The correct way to choose between competing technologies is to choose the one with lowest fixed costs b. The correct way to choose between competing technologies is to choose the one with lowest marginal costs c. The correct way to make the decision is to use break-even analysis to justify higher prices or greater output d. None of these is correct

none of these is correct

The absence of property rights contributes to: a. wealth b. poverty c. an equal playing field d. none of these

poverty

Government regulation a. provides incentives to conduct business in an illegal black market b. plays no role in generating wealth c. is the best way to eliminate poverty d. does not enforce property rights

provides incentives to conduct business in an illegal black market

Opportunity costs arise due to a. resource scarcity. b. lack of alternatives. c. limited wants. d. abundance of resources.

resource scarcity

Under decreasing returns to scale, average cost _________ as the quantity produced increases. Over this range of output, the marginal cost curve is __________ the average cost curve.

rises higher than

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 dartboards for $100 each, what is your break-even quantity? a. 1,000 b. 3,500 c. 4,375 d. 17,500

$17,500

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.

$2,000 worth of buyer surplus and $3,000 of seller surplus.

A firm sells 1,000 units per week. Suppose the average variable cost is $30, and the average cost is $65. In the short run, the break-even price is $____________ . In the long run, the break-even price is $____________ . Suppose the firm charges a price of $20 per unit.

$30.00 short-run $65.00 long-run Short RUN: Shut Down Long RUN: Shut Down

A business owner makes 1000 items a day. Each day he or she contributes 8 hours to produce those items. If hired, elsewhere he/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

$300,000

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 marginal cost of the 13th worker? a. $117. b. $9. c. $33. d. $84.

$33.

if the firm hires 5 workers, total fixed costs equals $1200 $200 $50 $250

$50

A consumer values a car at $525,000 and a producer 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.

$527,000

A consumer values a car at $30,000 and a producer values the same car at $20,000. If the transaction is completed at $24,000, the transaction will generate: a. No surplus b. $4,000 worth of seller surplus and unknown amount of buyer surplus c. $6,000 worth of buyer surplus and $4,000 of seller surplus d. $6,000 worth of buyer surplus and unknown amount of seller surplus

$6,000 worth of buyer surplus and $4,000 of seller surplus

You expect to sell 500 cell phones a month, which have a marginal cost 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

$60

You expect to sell 500 cell phones a month, which have a marginal cost 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

$60

If a firm produces 8 units of output with average fixed cost=$40 and average variable cost=$25, what is its average cost?​ $20 $32 $65 $100

$65 average fixed cost + Average variable cost = average cost = 40 + 25 =65

James used $200,000 from his savings account that paid an annual interest of 10% to purchase a hardware store. After one year, James sold the business for 300,000. An Economist calculated his profit to be: a) $300,000 b) $100,000 c) $80,000 d) $20,000

$80,000

George has been selling 8,000 T-shirts per month for $8.00. When he increased the price to $9.00, he sold only 7,000 T-shirts. Which of the following best approximates the price elasticity of demand? -1.1333 -1.2467 -1.02 -0.5667 Suppose George's marginal cost is $3 per shirt. Before the price change, George's initial price markup over marginal cost was approximately ______ . George's desired markup is ________ . Since George's initial markup, or actual margin, was _______ than his desired margin, raising the price was ________ .

-1.1333 Price Elasticity of Demand 0.625 Initial Price Markup 0.8824 Desired markup less/profitable (8000-7000) (8.00+9.00) --------------- * = -1.1333 (8000+7000) (8.00-9.00) (8.00-3) / 8.00 = 0.625 1/1.1333 = -0.88237889

Suppose you have a production technology that can be characterized by a learning curve. Every time you increase production by one unit, your marginal cost decreases by $6. There are no fixed costs, and the first unit costs you $66 to produce. Suppose you receive a request for proposal (RFP) on a project for two units. Your break-even price for two units is __________ Suppose that if you get the contract, you estimate that you can win another project for two more units. The break-even price for those next two units alone is __________

66 66 66 60 126 63 54 180 60 48 228 57 42 270 54 36 306 51 63 $54+$48=$102 (marginal cost) 102/2 = 51

A bakery currently sells chocolate chip cookies at a price of $16 per dozen. The marginal cost per dozen is $8. 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%

66.6%

Regarding accounting profit and economic profit, which of the following statements is/are true? Cost of capital= (4 billion Pounds*(1+green cell)- 4 billion Pounds a. Economic profit equals total revenue minus total costs b. Accounting profit equals total revenue minus explicit and implicit costs c. A firm may have a negative economic profit and a positive accounting profit simultaneously. d. An economic profit of zero means that the firm has reached its total production

A firm may have a negative economic profit and a positive accounting profit simultaneously.

A consumer values a car at $30,000 and a producer values the same car at $20,000. If a tax is levied on the seller, what level of tax will result in unconsummated transaction? a. 40% b. 25% c. 20% d. 0%

40%

The biggest advantage of capitalism is: a. Generates wealth with the help of government intervention b. That prices assists in moving assets from high valued to low value uses c. It forces involuntary exchanges d. Creates wealth by letting a person follow his or her own self-interest

Creates wealth by letting a person follow his or her own self-interest

Opportunity costs arise due to a. Resource scarcity b. Interest rates c. Limited wants d. Unlimited scarcity

Resource scarcity

When economists say the demand for a product has decreased, they mean that: The demand curve has shifted to the left Product price has increased and as a consequence consumers are buying less of the product Consumers are now willing and able to buy more of this product at each possible price Consumers no longer value the product

The demand curve has shifted to the left

Another word for alternative is cost

True

Being a "first mover" does not always guarantee that a business will succeed

True

Suppose you're trying to compare the year-to-year performance of one of your regional salespeople over a period during which income grew by 3%. If demand for your products has an income elasticity of 2, how would you measure the salesperson's performance? a. You would expect quantity to increase by 4% b. You would expect quantity to increase by 6% c. You would expect quantity to increase by 8% d. You would expect quantity to increase by 2%

You would expect quantity to increase by 6%

A firm experiencing constant economies of scale will have a long-run average cost curve that is: a) upward sloping b) vertical c) downward sloping d) horizontal

horizontal

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

lower tax revenue in the short run but raise tax revenue in the long run.

The vice president has the option to purchase the company after five years. The purchase price for the company is set at 4 times earnings (profit), computed as average annual profitability over the next five years. In five years, the company is expected to be worth $10 million. On the following graph, use the green points (triangle symbols) to plot the vice president's expected profit from buying the company, for average annual profitability levels of $0, $500,000, $1,000,000, $1,500,000, and $2,000,000.

$0____________ $0_____________________________________ $10 mil $500,000__ $2,000,000__________________________ $8 mil ________________($500,000 X 4)________ ($10 mil - $2 mil) $1,000,000___ $4,000,000________________________ $6 mil $1,500,000____$6,000,000_______________________ $4 mil $2,000,000___$8,000,000________________________$2 mil

The vice president has the option to purchase the company after five years. The purchase price for the company is set at 4 times earnings (profit), computed as average annual profitability over the next five years. In five years, the company is expected to be worth $5 million. On the following graph, use the green points (triangle symbols) to plot the vice president's expected profit from buying the company, for average annual profitability levels of $0, $250,000, $500,000, $750,000, and $1,000,000.

$0____________ $0_____________________________________ $5 mil $250,000__ $1,000,000__________________________ $4 mil ________________($250,000 X 4)________ ($5 mil - $1 mil) $500,000___ $2,000,000________________________ $3 mil $750,000____ $3,000,000_______________________ $2 mil $1,000,000___$4,000,000________________________$1 mil Since the vice president's expected profit from the purchase decreases as average annual company profit goes up, this contract does not align the incentives of the vice president with the profitability goals of the company.

An end-of-aisle price promotion changes the price elasticity of a good from −2 to −3. Suppose the normal price is $16, which equates marginal revenue with marginal cost at the initial elasticity of -2. What should the promotional price be when the elasticity changes to -3? (Hint: In other words, what price will equate marginal revenue and marginal cost?) $12.00 $14.40 $8.40 $16.80

$12.00 $16 * (1 - 1/2) = $8.00 8 / 1 - 1/3 = $12.00

George's T-Shirt Shop produces 3,000 custom-printed T-shirts per month. George's fixed costs are $9,000 per month. The marginal cost per T-shirt is a constant $10. George's break-even price is $________ per shirt. Suppose George sells 50% more T-shirts per month. At this quantity of shirts, George's break-even price is $_________per shirt.

$13 $12 The breakeven price is the average unit cost which equals $9,000/3,000 + $10 = $13. If George sold 50% more he would sell 4,500 units and the breakeven price would be $9,000/4,5000 + $10 = $12

Memorial Hospital's CEO conducted performance reviews of the hospital's departments and discovered that the average cost of deliveries ($5,000) was above their average revenue, and that the hospital was losing $700 on each delivery. From the information on how much the hospital is losing on deliveries, what is the change in profit for each extra delivery? a. $700.00 b. $1,300.00 c. $3,000.00 d. $5,000.00

$1300.00

An end-of-aisle price promotion changes the price elasticity of a good from −3 to −4. Suppose the normal price is $18, which equates marginal revenue with marginal cost at the initial elasticity of -3. What should the promotional price be when the elasticity changes to -4? (Hint: In other words, what price will equate marginal revenue and marginal cost?) $20.80 $16.00 $9.60 $12.80

$16.00 The relationship between marginal revenue and elasticity is MR=P×(1−1/|e|) . At the initial price and elasticity, which equated marginal revenue and marginal cost, you know that MC=MR=$18×(1−1/3) . This yields a marginal cost of MC=$12.00 . Assuming the promotion changes the elasticity of demand to -4, the price that equates marginal revenue and marginal cost satisfies MC=MR=P×(1−1/|e|) . Plugging in the marginal cost, and the elasticity yields the following: MC = P×(1−1/|e|) $12.00 = P×(1−1/4) $12.00/1−1/4 = P $16.00 = P

In early 2008, you purchased and remodeled a 120-room hotel to handle the increased number of conventions coming to town. By mid-2008, it became apparent that the recession would kill the demand for conventions. Now, you forecast that you will be able to sell only 10,000 room-nights, which cost $50 per room per night to service. You spent $25.00 million on the hotel in 2008, and your cost of capital is 20%. The current going price to sell the hotel is $20 million. If the estimated demand is 10,000 room-nights, the break-even price is $__________ per room, per night. (Hint: Remember that the cost of capital is the opportunity cost, or true cost, of making an investment.)

$20,000,000×20% -------------------- +$50 per unit=$450.00 10,000 room-nights

Suppose you have won a free ticket to see a Bruce Springsteen concert. This ticket has no resale value. Also suppose that U2 has a concert the same night. The U2 concert represents your next-best alternative activity to the Springsteen concert. Tickets to the U2 concert cost $89, and on any particular day, you would be willing to pay up to $112 to see U2. Assume that there are no additional costs of seeing either show. Based on the information presented here, the opportunity cost of seeing Bruce Springsteen is $_____________________ .

$23.00 $112−$89=$23

A business incurs the following costs: • Labor: $195/unit • Materials: $35/unit • Rent: $400,000/month Assume the firm produces 1 million units per month. The total variable cost, per month, is $ million. The total fixed cost, per month, is $ million. The total cost is $ million.

$230,000,000 Total Variable Cost (1 million units×$195unit)+(1 million units×$35unit)=$195 million+$35 million=$230 million $0.40 million Total Fixed Cost $400,000/$1,000,000=$0.40 million $230.40 million Total Cost $230 million+$0.40 million=$230.40 million

A business owner makes 1000 items a day. Each day he/she contributes 8 hours to produce those items. If hired, elsewhere he/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 economic profit for the month equals: a. $300,000 b. $60,000 c. $450,000 d. $240,000

$240,000

A university spent $1.9 million to install solar panels atop a parking garage. These panels will have a capacity of 700 kilowatts (kW) and have a life expectancy of 20 years. Suppose that the discount rate is 30%, that electricity can be purchased at $0.30 per kilowatt-hour (kWh), and that the marginal cost of electricity production using the solar panels is zero. Hint: It may be easier to think of the present value of operating the solar panels for 1 hour per year first. Approximately how many hours per year will the solar panels need to operate to enable this project to break even? 2,728.63 4,092.95 1,091.45 If the solar panels can operate only for 2,456 hours a year at maximum, the project ________ break even. Continue to assume that the solar panels can operate only for 2,456 hours a year at maximum. In order for the project to be worthwhile (i.e., at least break even), the university would need a grant of at least _____________

$2728.63 would not break even $189838.08 210/(1+.30) + 210/(1+.30)^2 + ............. 210/(1+.30)^20 =$696.32 1900000/696.32=2728.63 696.32*2456 = 1710161.92 1900000-1710161.92 = 189838.08

A business owner makes 1,000 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.

$300,000

A firm sells 300,000 units per week. It charges $ 35 per unit, the average variable costs are $ 40, and the average costs are $ 55. At what price does the firm consider shutting down in the long run? $55 $95 $40 $45

$40.00

Last year, a toy manufacturer introduced a new toy truck that was a huge success. The company invested $7.50 million in a plastic injection molding machine (which can be sold for $7 million immediately) and $200,000 in plastic injection molds specifically for the toy (not valuable to anyone else). The cost of labor and materials necessary to make each truck runs about $5. This year, a competitor has developed a similar toy, significantly reducing demand for the toy truck. Now, the original manufacturer is deciding whether it should continue production of the toy truck. If the estimated demand is 200,000 trucks, the break-even price is $_______ per truck.

$40.00 $7,000,000/200,000 units+$5 per unit=$40.00 per unit

A buyer values a house at $525,000 and a seller values the same house at $485,000. If sales tax is 8% and is levied on the buyer, then, what would be the highest price that the buyer would be willing to pay? a. $525,000 b. $485,000 c. $486,111 d. $523,800

$486,111

The owners of a small manufacturing concern have hired a vice president to run the company with the expectation that she will buy the company after five years. For the first $150,000 of profit, the vice president's compensation is a flat annual salary of $50,000 plus 50% of company profits. Beyond the first $150,000 in profits, the vice president's compensation is the salary she receives at $150,000 profit plus 20% of company profits in excess of $150,000. On the following graph, use the purple points (diamond symbols) to plot the vice president's salary as a function of annual profit, for the profits levels of $0, $50,000, $100,000, $150,000, $200,000, $250,000, and $300,000.

$50+(50%×$0)=$50.00 $50+(50%×$50)=$75.00 $50+(50%×$100)=$100.00 $50+(50%×$150)=$125.00 $125.00+20%×($200−$150)=$135.00 $125.00+20%×($250−$150)=$145.00 $125.00+20%×($300−$150)=$155.00

You purchased two tickets to an upcoming concert for $60 apiece when the concert was first announced three months ago. Recently, you found that similar seats were selling for $289 apiece when purchased on QuickTickets, a website where people can resell their tickets to others. Based on the information presented here, the cost of attending the concert (for two persons) is $____________ .

$578.00 2 tickets×$289 per ticket=$578

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.

$7

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.

$7

16) As the price of video games is raised from $20 to $25, their quantity demanded fell from 1.5 million copies to 1 million copies. The elasticity of demand of video games is: a) -1.8 b) -1.33 c) -2.08 d) -0.55

-1.8 =((1-1.5)/((1+1.5)/2))/((25-20)/((20+25)/2))

The owners of a small manufacturing concern have hired a vice president to run the company with the expectation that he will buy the company after five years. For the first $150,000 of profit, the vice president's compensation is a flat annual salary of $50,000 plus 80% of company profits. Beyond the first $150,000 in profits, the vice president's compensation is the salary he receives at $150,000 profit plus 30% of company profits in excess of $150,000. On the following graph, use the purple points (diamond symbols) to plot the vice president's salary as a function of annual profit, for the profits levels of $0, $50,000, $100,000, $150,000, $200,000, $250,000, and $300,000.

0/50 $50+(80%×$0)=$50.00 50/90 $50+(80%×$50)=$90.00 100/130 $50+(80%×$100)=$130.00 150/170 $50+(80%×$150)=$170.00 200/185 $170.00+30%×($200−$150)=$185.00 250/200 $170.00+30%×($250−$150)=$200.00 300/215 $170.00+30%×($300−$150)=$215.00

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 breakeven quantity? a. 1,000 b. 3,500 c. 4,375 d. 17,500

17,500

Suppose the price of a banana is $0.50, the price of a can of soda is $1.00 and the price of a power bar is $1.50. What is the opportunity cost of a power bar? a. 1/2 of a can of soda b. 1/3 of a banana c. 3 bananas or 1-1/2 cans of soda d. 2/3 of a can of soda

3 bananas or 1-1/2 cans of soda

Sarah's Machinery Company is deciding to dump its 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 marginal costs of $100. At what quantity is Sarah's Machinery Company indifferent between two technologies? a. 5 b. 6 c. 7 d. 8

5

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

5

A consumer values a house at $525,000 and a producer values the same house at $485,000. If the transaction is completed at $510,000, what level of tax rate will result in unconsummated transaction? a. 3% b. 1% c. 5% d. 2%

5%

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

5% lower

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. 50, 75, 120 b. 50, 75, 125 c. 50, 75, 130 d. All of the above

50, 75, 120

The expression "5/10, net 45" means that the customers receive a 5% discount if they pay within 10 days; otherwise, they must pay in full within 45 days. What would the seller's cost of capital have to be in order for the discount to be cost justified? 55.1429% 52.1429% 56.1429% 51.1429%

52.1429% 5 x (365 days a year/35 days) you have to subtract 10 days from 45 days = 35 days

What company would a rational actor rather work for? a. A company who gives equal raises to everyone annually b. A company who gives bonuses on objects not directly tied to work c. A company who gives raises/bonuses based on a clear effort scale d. A company who gives raises based on title, not effort

A company who gives raises/bonuses based on a clear effort scale

A product can be classified to be an inferior good if an increase in the income of buyers causes a) A decrease in quantity demanded b) A decrease in demand c) An increase in demand d) An increase in quantity demanded.

A decrease in quantity demanded

Planes frequently push back from the gate on time, but then wait 2 feet away from the gate until it is time to queue up for takeoff. This increases fuel consumption and increases the time that passengers must sit in a cramped plane awaiting takeoff. Which of the following performance metrics would, if emphasized in evaluations, not incentivize airlines to remedy these issues? Check all that apply. a. A performance metric that gives positive marks for minimizing fuel consumption b. A performance metric that measures timeliness of the flight, where a flight is considered "on time" as long as the plane takes off by the scheduled departure time c. A performance metric that measures timeliness of the flight, where a flight is considered "on time" as long as the flight is boarded and away from the gate by the scheduled departure time

A performance metric that measures timeliness of the flight, where a flight is considered "on time" as long as the flight is boarded and away from the gate by the scheduled departure time

lanes frequently push back from the gate on time but then wait 2 feet from the gate until it is time to queue up for takeoff. This increases fuel consumption and increases the time that passengers must sit in a cramped plane awaiting takeoff. Which of the following performance metrics would, if emphasized in evaluations, incentivize airlines to engage in such practices? a. A performance metric that measures timeliness of the flight, where a flight is considered "on time" as long as the flight is boarded and away from the gate by the scheduled departure time b. A performance metric that measures customer satisfaction, based on customer comfort while on the plane c. A performance metric that measures timeliness of the flight, where a flight is considered "on time" as long as the plane takes off by the scheduled departure time.

A performance metric that measures timeliness of the flight, where a flight is considered "on time" as long as the flight is boarded and away from the gate by the scheduled departure time

In early 2010, many New York City teachers lost their jobs due to school closures. By late 2010, 1,800 had not yet applied for another teaching job, despite the fact that there were 1,200 openings. Which of the following types of programs would incentivize this behavior from unemployed teachers? a. A program that pays unemployed teachers a salary approximately equal to the salary of a fully employed teacher b. A program that assists unemployed teachers in finding and applying for vacant teaching positions in New York City c. A program that assists unemployed teachers with professional development, résumé creation, and networking

A program that pays unemployed teachers a salary approximately equal to the salary of a fully employed teacher

A local coffee shop is hoping to make use of its excess restaurant capacity in the evenings by experimenting with selling beer and wine. It speculates that the only additional costs are hiring more of the same sort of workers to cover the additional hours and costs of the new line of beverages. Which of the following are examples of hidden costs that are likely to emerge from this decision? Check all that apply. a. Increased insurance premiums due to the presence of alcohol at the coffee shop b. Training costs for new and existing employees on beer and wine serving procedures c. The costs involved with the increased usage of utilities, such as electricity and gas, during evening hours d. The wages of new employees e. The cost of purchasing wine and beer to serve to customers

A, B, & C

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

Accounting fees

An advantage of capitalism is that a. It allows the market to self-regulate and clear itself b. It allows a person to follow his or her own self interest c. It allows voluntary transactions, which create wealth d. All of the above

All of the above

Rank these three goods in terms of the elasticity of the demand for them at any given price, from most elastic to least elastic: meat, beef and Angus grass-fed beef. These three goods cannot be ranked by elasticity because they are all some type of the same product: meat Angus grass-fed beef, beef, meat Meat, beef, Angus grass-fed beef Beef, Angus grass-fed beef, meat

Angus grass-fed beef, beef, meat

All of the following demonstrate the presence of economies of scale except: General Electric faces lower costs raising financial capital to fund its expansion compared to small appliance manufacturer, Friedman's Appliances, because the former, a large well-established company is deemed more credit-worthy Agricultural giant Con-Agra is able to buy fertilizer in bulk at a volume discount, unlike small farmers in Watsonville, California Small scale manufacturers of specialty beverages are unable to afford large scale advertising campaigns on radio and national billboards unlike the Coca-Cola and Pepsi-Cola companies As developers create more software to run with Microsoft products, fewer people are likely to switch and the demand for Microsoft's products increase

As developers create more software to run with Microsoft products, fewer people are likely to switch and the demand for Microsoft's products increase

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

Average costs will increase

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

Both a and c

Re Break-even analysis, which of the following statements is false? a. Break-even analysis can give you the wrong answer because it ignores the time value of money. b. Break-even analysis asks the question whether entry into an industry is profitable c. The break-even quantity of production is the quantity that will lead to zero profit d. Both b and c are false

Break-even analysis asks the question whether entry into an industry is profitable

When using economic analysis, all choices involve a. profit guarantees b. only benefits c. accounting principles d. costs and benefits

Costs and benefits

According to the economic way of thinking, a. The value of a good is determined by the cost of the resources used to produce that good b. Costs are incurred when scarce resources are used to produce goods c. Innovation makes it possible to produce a good without giving up the production of another good d. A nation's wealth can be increased by shifting the production possibilities frontier inward

Costs are incurred when scarce resources are used to produce goods

In a 2015 National Bureau of Economic Research (NBER) working paper, researchers found that decreases in unemployment benefits lead to higher employment. Which of the following arguments best explains the findings of this paper? a. decreasing unemployment benefits reduces incentives to remain unemployed. b. Decreasing unemployment decreases the costs of remaining unemployed. c. Decreasing unemployment benefits increases incentives to remain unemployed.

Decreasing unemployment benefits reduces incentives to remain unemployed.

Total costs increase from $1,500 to $1,800 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

FC = $300

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

FC = $300

Your insurance firm processes claims through its two facilities: facility A and facility B. Each month, facility A handles 6,000 claims and incurs in $120,000 fixed costs and $108,000 in variable costs. Each month, facility B handles 8,000 and incurs $41,000 in fixed costs and $80,000 in variable costs. Hint: Be careful not to commit the sunk-cost fallacy in your analysis. If you anticipate a moderate decrease in the number of claims, you should lay off workers in facility A Correct in order to decrease costs.

Facility A A $108,000 6,000 $108,000/6,000=18 B $80,000 8,000 $80,000/8,000=10

Economics is simply the study of how economies try to maximize GDP

False

In 2008, the Labour Party in Britain promised that patients would have to wait for no more than four hours to be seen in an emergency room. True or False: This policy incentivizes hospitals to bring patients immediately into the emergency room upon their arrival at the hospital.

False

Perhaps the most important kind of capital is human capital. For example, most lawyers spend years learning to practice law. Lawyers are willing to make large investments in their human capital because they expect to be compensated for doing so when they begin work. Suppose the government nationalizes the market for legal services, resulting in lower compensation for lawyers. Assume lawyers cannot easily move to other countries. True or False: The investment in human capital for lawyers is not subject to post-investment hold-up.

False

Successful firms have large market shares. Their size assures their success.

False

The owners of a small manufacturing concern have hired a vice president to run the company with the expectation that he will buy the company after five years. After the five-year time period, the purchase price for the company is set at 4.5 times earnings (profit), computed as average annual profitability over the next five years. Assume the company will be worth $10 million in five years. The goal of the owners of the firm is to maximize profits. True or False: This contract aligns the incentives of the new vice president with the profitability goals of the firm's owners.

False

The owners of a small manufacturing concern have hired a vice president to run the company with the expectation that he will buy the company after five years. Compensation of the new vice president is a flat salary plus 75% of the first $150,000 profit, then 10% of profit over $150,000. The goal of the owners of the firm is to maximize profits. True or False: This contract aligns the incentives of the new vice president with the profitability goals of the firm's owners.

False

business resources are often unlimited due to easy stock market access. This promotes the avoidance of costs.

False

You pay $15 for a movie ticket. Halfway through the movie, you believe that the movie is awful and will only get worse in the second half of the film. In order to get your money's worth, you decide to stay for the remainder of the movie. True or False: This is not an example of the sunk-cost fallacy.

False (The fixed-cost fallacy, also known as the sunk-cost fallacy, occurs when one considers irrelevant costs and benefits in making a decision. The price of the movie ticket is a sunk cost and does not vary with the decision to stay for the remainder of the movie. Taking such fixed, sunk, or other irrelevant costs into consideration when making decisions is an example of the fixed-cost fallacy (also known as the sunk-cost fallacy).

Which of the following is an example of an extent decision? Should workers earn commission? How many workers should be hired? Should workers receive overtime pay? Should workers receive equity compensation?

How many workers should be hired?

Which of the following is an example of an extent decision? How much of a discount should be given on products during the upcoming holiday sale? Should the advertising budget be changed for the upcoming year? Should your company expand an existing product into a new region? Should you develop a new product for an existing product line?

How much of a discount should be given on products during the upcoming holiday sale?

When economists speak of "marginal", they mean a. Opportunity b. Scarcity c. Incremental d. Unimportant

Incremental

Marginal cost a) Is the additional cost incurred by producing and selling one more unit b) Is the total cost incurred by producing and selling one more unit c) Is the additional fixed cost incurred by producing and selling one more unit d) None of the above

Is the additional cost incurred by producing and selling one more unit

A seller who continues to earn the same gross revenue from sales whether she raises or lowers her prices faces a demand curve that: Violates the law of demand Is horizontal Is vertical Is unit elastic

Is unit elastic

A demand curve shows the relationship between price and quantity demanded, ceteris paribus. What does "ceteris paribus" mean? It means that there are many other factors besides the price that affect demand It means there are many other factors other than price and quantity that affect demand It means all other factors that affect demand other than price are held constant It is the Latin phrase for "over a given time period"

It means all other factors that affect demand other than price are held constant

What does the term "quantity demanded" refer to? It refers to the number of a good available for purchase at a specified price It refers to the amount of a good that consumers want to purchase at a specified price It refers to the demand for a good over a specified time period It refers to both the amount of a good that consumers want to buy at a specified price and the amount that suppliers want to sell at that specified price

It refers to the amount of a good that consumers want to purchase at a specified price

The owners of a small manufacturing concern have hired a vice president to run the company with the expectation that she will buy the company after five years. In this initial contract, compensation of the new vice president is a flat salary plus 75% of the first $150,000 profit, then 10% of profit over $150,000. The initial contract also stipulates that, after a five-year period, the purchase price of the company will be 4.5 times earnings (profit), computed as average annual profitability over the next five years. Assume the company will be worth $10 million in five years. The goal of the owners of the firm is to maximize profits. A contract that fixes the purchase price of the firm after five years at $2 million would make the incentives of the vice president more aligned with the goals of the firm, compared with the original contract.

MORE

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

Marginal benefits are greater than marginal costs

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. More information is needed to conclude about accounting profits

More information is needed to conclude about accounting profits

After the first week of his MBA Managerial Economics class, one of your pharmaceutical sales representatives accuses you of committing the sunk cost fallacy by refusing to allow him to reduce price to make what he considers to be a really tough sale. Which of the following suggest the sales representative may be right? a. Most of the costs of drug development are sunk, not fixed. b. Sales representatives are paid a sales commission on revenue, so they want to price where MR>0 instead of where MR>MC. c. Sales representatives don't worry that a low price today may make it more difficult for the company's other sales representatives to charge higher prices to their customers. d. Sales representatives forget that P>MC does NOT imply that MR>MC.

Most of the costs of drug development are sunk, not fixed.

A good policy __________ and a bad policy _______________________. a. concentrates on government intervention; refrains from government intervention. b. Moves an asset to higher value use; moves an asset to lower value use c. Moves an asset to lower value use; moves an asset to higher value use d. refrains from any government intervention; concentrates on government intervention

Moves an asset to higher value use; moves an asset to lower value use

Which of the following is classified as a sunk cost? a. Cost of the next best alternative b. Additional cost of producing an additional unit c. Research costs to determine the implementation of a technology d. Total cost of producing a product

Research costs to determine the implementation of a technology

Which of the following best exemplifies the Law of Demand? Health conscious consumers are purchasing more and more organic produce AT&T Wireless Services laid off 70% of its IT staff as it outsourced some of its information technology work to lower-cost operations overseas High gasoline prices have increased the demand for public transportation Steep discounts in the price of digital cameras have contributed to increased sales

Steep discounts in the price of digital cameras have contributed to increased sales

If an increase in the price of rice causes an increase in demand for pinto beans, then rice and pinto beans are: Substitute goods Complementary goods Normal goods Inferior goods

Substitute goods

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.

The amount of money he or she is willing to pay for it.

A production possibility frontier shows: a. The various combinations of two goods that a country can purchase with its money supply b. The combination of two goods that consumers value most c. The combination of two goods that a country can produce if it uses all its productive resources efficiently d. The combination of two goods that a country can produce if it is not constrained by limited resources

The combination of two goods that a country can produce if it uses all its productive resources efficiently

Suppose Nike's managers were considering expanding into producing sports beverages. Why might the company decide to do this under the Nike brand name? The cost of producing sports beverages under a new brand is greater than producing the sports beverages under the Nike brand, given the current products being produced by Nike. The cost of producing sports beverages under a new brand is less than producing the sports beverages under the Nike brand, given the current products being produced by Nike.

The cost of producing sports beverages under a new brand is greater than producing the sports beverages under the Nike brand, given the current products being produced by Nike.

What happens to the demand for laptop computers today if consumers expect the price of laptop computers to fall next month? The demand for laptop computers today increases because consumers may face a shortage next month The supply of laptop computers today increases in anticipation of future demand The demand for laptop computers today decreases in anticipation of lower prices in the future The supply of laptop computers today decreases because of expected lower profits

The demand for laptop computers today decreases in anticipation of lower prices in the future

Consider the market for potato chips. If the price of onion dip (a popular complementary product to chips) falls, which of the following is likely to occur? The demand for potato chips will increase The demand for onion dip will increase The supply of potato chips will increase The supply of onion dip will decrease

The demand for potato chips will increase

The marginal cost of production is: a. The difference between fixed cost and variable cost b. The difference between average total cost and average variable cost c. The extra cost of producing one more unit of the good d. Always increases as more of a good is produced

The extra cost of producing one more unit of the good

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

The firm should not hire the worker since MB < MC MB of hiring the worker (all else equal) = $12 x 100 = $1,200 < MC = $1,500

A firm is thinking of hiring an additional worker to their organization who they believe can increase total productivity by 100 units a week. The cost of hiring him or her is $1500 per week. If the price of each unit is $12, a. The MR of hiring the worker is $1500 b. The MC of hiring the worker is $1200 c. The firm should not hire the worker since MB<MC d. All the above

The firm should not hire the worker since MB<MC

A politician in a small town notices that many citizens in the town cannot find work. In order to assist these individuals in finding work, the politician proposes that all unemployed adults be made eligible for a large monthly cash payment to help them meet basic needs during their job search. Which of the following is true regarding the goal alignment of this program? a. The goals of the politician and the goals are the job seekers would be aligned, since unemployed individuals would have a stronger incentive to remain employed. b. The goals of the politician and the goals of the job seekers would be aligned, since unemployed individuals would have a stronger incentive to look for work. c. The goals of the politician and the goals of the job seekers would not be aligned, since unemployed individuals would have a stronger incentive to remain unemployed.

The goals of the politician and the goals of the job seekers would not be aligned, since unemployed individuals would have a stronger incentive to remain unemployed.

The opportunity cost of an item is: a. The value of all the alternatives that must be given up in order to engage in any economic activity b. The average value of all the alternatives that you forego in order to engage in any economic activity c. The highest-valued alternative that must be given up in order to engage in any economic activity d. The lowest-valued alternative that must be given up in order to engage in any economic activity

The highest-valued alternative that must be given up in order to engage in any economic activity

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

The income he could have earned at the car dealership

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.

The incremental benefit expected from the second factory to the cost of the second factory

Which of the following helps explain why marginal cost eventually increases as output increases? a. Economies of scale b. The law of diminishing returns c. Minimum efficient scale d. Economies of scope

The law of diminishing returns

When a firm's long-run average total cost curve exhibits economies of scale, The long-run average cost curve is horizontal The long-run average cost curve is upward sloping The long-run average cost curve is downward sloping The long-run average cost curve is U-shaped

The long-run average cost curve is downward sloping

Managers often have to decide between two competing strategies to achieve the same end. Which of the following statements is true? a. The manager can use marginal analysis to compare the marginal cost of alternatives. b. Without information about marginal revenue, marginal analysis cannot be used to calculate alternatives. c. The opportunity cost of spending one more dollar on one option has no effect on the other option. d. Both a and c are true

The manager can use marginal analysis to compare the marginal cost of alternatives.

Suppose Apple recently made a bid to acquire Netflix. As a result, the market value of Netflix rose. Furthermore, suppose the market value of Apple fell, but the decrease was smaller in magnitude than the rise in the market value of Netflix. What does this tell you about the value-creating potential of the deal? a. The market thinks that combining these assets will neither create nor destroy value. b. The market thinks that combining these assets will destroy value. c. The market thinks that combining these assets will create value.

The market thinks that combining these assets will create value.

In 2009, when Kraft bid $16.7 billion for Cadbury, Cadbury's market value rose. However, Kraft's market value fell by more. What does this tell you about the value-creating potential of the deal? a. The market thinks that combining these assets will destroy value. b. The market thinks that combining these assets will neither create nor destroy value. c. The market thinks that combining these assets will create value.

The market thinks that combining these assets will destroy value.

Suppose Apple recently made a bid to acquire Netflix. As a result, the market value of Netflix rose. Furthermore, suppose the market value of Apple fell by the same amount, exactly offsetting the rise in the market value of Netflix. What does this tell you about the value-creating potential of the deal? a. The market thinks that combining these assets will create value. b. The market thinks that combining these assets will neither create nor destroy value. c. The market thinks that combining these assets will destroy value.

The market thinks that combining these assets will neither create nor destroy value.

Price elasticity of demand measures: The amount by which quantity demanded falls when price rises The responsiveness of quantity demanded to changes in price The responsiveness of changes in quantity demanded to changes in price The extent to which firms can raise prices with no change in quantity demanded

The responsiveness of quantity demanded to changes in price

Regarding compounding, discounting and the rule of 72, which of the following statements is incorrect? a. The general formula for compounding is (future value, k periods in the future)=(present value)x(l+r)k b. The general formula for discounting is (present value)=(future value, k periods in the future/)x(l+r)k c. The rule of 72 is used to calculate compounding, but not discounting d. Discounting is the inverse of compounding.

The rule of 72 is used to calculate compounding, but not discounting

A security system company's total production costs depend on the number of systems produced according to the following equation: Total Costs = $10,000,000 + $2000*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.

There are diseconomies of scale.

By focusing on a core competency, a manager is giving up other things that a business could do

True

Economic analysis encourages managers to think about alternatives

True

Economic decision making makes people consider the benefits and the costs when examining an alternative

True

Economics is a way to analyze business issues and can be used in decision making

True

Suppose the government is considering penalizing airlines $27,500 per passenger each time passengers are made to remain on the plane on the tarmac for more than three hours before a flight. True or False: The threat of this fine could increase delays by forcing airlines to deplane and reboard more than necessary.

True

Suppose the government is considering penalizing airlines $27,500 per passenger each time passengers are made to remain on the plane on the tarmac for more than three hours before a flight. True or False: The threat of this fine incentivizes airlines to cancel more flights than before.

True

The owners of a small manufacturing concern have hired a vice president to run the company with the expectation that she will buy the company after five years. After the five-year time period, the purchase price for the company is set at 4.5 times earnings (profit), computed as average annual profitability over the next five years. Assume the company will be worth $10 million in five years. The goal of the owners of the firm is to maximize profits. True or False: This contract does not align the incentives of the new vice president with the profitability goals of the firm's owners.

True

The owners of a small manufacturing concern have hired a vice president to run the company with the expectation that she will buy the company after five years. Compensation of the new vice president is a flat salary plus 75% of the first $150,000 profit, then 10% of profit over $150,000. The goal of the owners of the firm is to maximize profits. True or False: This contract does not align the incentives of the new vice president with the profitability goals of the firm's owners.

True

our company is contemplating bidding on an RFP (Request For Proposal) to produce 100,000 units of a specialized part. Suppose, however, that the requesting company really needs only 90,000 units of the part. Also assume that, because the part is specialized, potential suppliers do not yet possess the machines and factories needed to produce it and that overhead expenses involved in production have yet to be incurred. Suppose the average costs of all potential suppliers are as follows: Units Average Total Cost (Dollars Per Unit) 90,000 3 100,000 2 True or False: The requesting company can solicit lower bids by requesting 100,000 units as opposed to 90,000.

True 90,000 x 3 = 270,000 100,000 x 2 = 200,000

Because of the housing bubble, many houses are now selling for much less than their selling price just two to three years ago. There is evidence that homeowners with virtually identical houses tend to ask for more if they paid more for the house. True or False: Homeowners asking for a higher selling price are committing the fixed-cost fallacy.

True The fixed-cost fallacy, also known as the sunk-cost fallacy

The variety of Riverside Ranger logo T-shirts includes 12 different designs. Setup between designs takes one hour (and $21,000), and, after setting up, you can produce 1,000 units of a particular design per hour (at a cost of $12,000). Note: Assume Q denotes the quantity produced of a particular design. Which of the following best represents the average cost function for producing any single design? AC=$21,000+$12/Q AC=$21,000+$12,000 AC=$21,000/Q+$12 AC=$21,000+$12 Based on this information, production in any one single design ________________ economies of scale.

Variable Cost / Q = $12,000 / 1,000 = $12 TC=Fixed Cost+Variable Cost=$21,000+$12×Q AC= TC / Q = $21,000 / Q + $12 Since the average cost function decreases as quantity increases, this production process exhibits economies of scale for any single design.

Which of the following will increase the break-even 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

a decrease in the price level

Learning curves mean a. you learn from experience b. current production decreases future unit costs c. production today leads to lower costs in the future d. All of the above

all of the above

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 create wealth. d. All of the above

all of the above

Planes frequently push back from the gate on time, but then wait 2 feet away from the gate until it is time to queue up for takeoff. This increases fuel consumption, and increases the time that passengers must sit in a cramped plane awaiting takeoff. Which of the following performance metrics would, if emphasized in evaluations, incentivize airlines to remedy these issues? Check all that apply. a. A performance metric that gives positive marks for minimizing fuel consumption b. A performance metric that measures timeliness of the flight, where flights are considered "on time" as long as the plane takes off by the scheduled departure time c. A performance metric that measures timeliness of the flight, where flights are considered "on time" as long as the flight is boarded and away from the gate by scheduled departure time

both a & b

. Phil's filling station gas station operates on a patch on the highway in a patch where there were no gas stations close by. It enjoyed high profits. After a while, Glen's gas another gas station opened up close by. The profits for the first gas station are likely to decrease because a. it has to lower prices, since its product is now more price elastic b. It has to lower prices since its product is now more price inelastic c. due to the increased availability of substitutes d. both A&C

both a & c

To test your understanding of the distinction between fixed and variable costs, designate which of the following statements is true. a. Payments to your accountants to prepare your tax returns are fixed b. Electricity to run the candy-making machines are variable. c. Fees to design the packaging of your candy bar are variable d. Both a and b are correct

both a and b are correct

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.

both a and c

Economies of scope exist when a. increasing returns applies in the short run. b. changing the mix of products produced reduces average cost. c. greater experience in producing the product reduces average cost. d. doubling of inputs leads to more than doubling of output.

changing the mix of products produced reduces average cost.

Increasing complexity of management and challenges of coordination as firms produce a wider variety of products can be a source of a. diseconomies of scope. b. diseconomies of scale. c. economies of scale. d. increasing marginal productivity.

diseconomies of scope

If a firm doubles its inputs and output more than doubles, its production process exhibits a. economies of scale. b. constant returns to scale. c. diseconomies of scale. d. economies of scope.

economies of scale.

If accounting profits are positive in an industry, a. Economic profits must be zero b. Firms will enter or leave the industry, depending on whether or not economic profits are positive c. Economic profits must be negative d. Firms will enter the industry until accounting profits drop to zero

firms will enter or leave the industry, depending on whether or not economic profits are positive

Costs that are the same regardless of output are called: a. Variable costs b. Marginal costs c. Total costs d. Fixed costs

fixed costs

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. Marginal costs

fixed costs

Suppose you recently sold your used car. Assume that no new production was involved in this transaction. Wealth was created because the buyer's willingness to pay was ____________ the value of your willingness to sell. Suppose you sold the car for $24,000. If the minimum price, or "bottom line," you would accept for the car is $10,000 and the most the buyer is willing to pay is $32,000, then the seller surplus is $ and the buyer surplus is $ . The total surplus created by the transaction is $

greater than $14,000 seller surplus ($24,000 - $10,000) $8,000 buyer surplus ($32,000 - $24,000) $22,000 total surplus ($14,000 + $8,000)

Suppose an individual is looking to build a house in a plain that is prone to flooding. Because of the risk of damage due to flooding, the buyer's top dollar for building the house is only $280,000. Suppose the cost of building a house in this area is $330,000. A wealth-creating transaction is not possible since the seller's bottom line (or the cost of building the house) is _____________ the buyer's top dollar. The difference between the cost of building the house minus the buyer's top dollar is $_________________ Suppose the government subsidizes flood insurance for homes in the flood plain. Because of this, the buyer has access to very cheap insurance, worth an expected $70,000. Without such a subsidy, the high likelihood of flood results in extremely high rates for flood insurance. With this subsidy, the individual ________ incentivized to build a house in the flood plain.

greater than $50,000.00 is

In 2013, France's labor unions won a case against Sephora to prevent the retailer from staying open late and forcing its workers to work "antisocial hours." The cosmetic store does about 20 percent of its business after 9 p.m., and the 50 sales staff who work the late shift are paid an hourly rate that is 25 percent higher than the rate paid to workers on the day shift. Many of the late-hour workers are students or part-time workers, who are put out of work by these new laws. Because workers would prefer to work for high wages during late hours rather than being unemployed, this law has caused workers' time to be moved from -valued activities to -valued activities. True or False: In order to profit from this law, an individual could purchase Sephora products during the day and sell them at a higher price after 9 p.m.

higher lower True

In 2013, France's labor unions won a case against Sephora to prevent the retailer from staying open late and forcing its workers to work "antisocial hours." The cosmetic store does about 20 percent of its business after 9 p.m., and the 50 sales staff who work the late shift are paid an hourly rate that is 25 percent higher than the rate paid to workers on the day shift. Many of the late-hour workers are students or part-time workers, who are put out of work by these new laws. Forcing the retailer to close earlier forces the store's assets, such as the building and merchandise, to be moved from _______ -valued activities to _______ -valued activities. True or False: In order to profit from this law, an individual could purchase Sephora products during the day and sell them at a higher price during normal store hours.

higher lower False

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

houses are normal goods for Jim.

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

incremental

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.

incurring a loss per unit of $2.00 but should continue to operate in the short run.

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.

incurring a loss per unit of $2.00, but should continue to operate in the short run.

To conduct an experiment, a movie theater increased movie ticket prices from $9 to $10 and measured the change in ticket sales. The theater then gathered data over the following month to determine whether the price increase was profitable. Assume total costs to the theater are the same, whether the price of a ticket is $9 or $10. In order for the ticket price to have been profitable over the month, the elasticity of demand for movie tickets must be _________ . Demand curves become elastic in the long run. This means that the ticket price increase will likely be ___________ profitable in the long run.

inelastic more less

A price ceiling a. is a government-set maximum price. 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.

is an implicit tax on producers and an implicit subsidy to consumers.

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. e. depends on the value to society of black-tailed prairie dogs.

is equal to the market value of the land.

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.

is equal to the market value of the land.

The opportunity cost of an action: a) is equal to the marginal cost of an action b) is equal to explicit cost c) is equal to the next best alternative forgone d) is the total cost of an action

is equal to the next best alternative forgone

Jim has estimated elasticity of demand for gasoline to be −0.7 in the short run and −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.

lower tax revenue in the short run but raise tax revenue in the long run.

Regarding compounding and discounting, which of the following statements is/are true? a. All investment decisions involve a trade-off between future sacrifice and current gain. b. Compounding utilizes the rule of 72. c. Both of these statements are true. d. None of these statements is true.

none of these statements is true

The difference between the minimum price the producer is willing to accept and the price the producer actually receives for a product is referred to as: a. market surplus. b. market shortage. c. consumer surplus. d. producer surplus.

producer surplus

A copy company wants to expand production. It currently has 20 workers who share eight copiers. Two months ago, the firm added two copiers, and output increased by 200,000 pages per day. One month ago, the firm added five workers, and productivity also increased by 100,000 pages per day. A copier costs about twice as much as a worker. Assume these increases in productivity per worker and productivity per copier are good proxies for future increases in productivity when hiring additional workers or purchasing additional copiers. Based on this information, the copy company should purchase another copier in order to expand output.

purchase another copier

37) 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.

substitutes

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.

the income he could have earned at the car dealership.

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

there are scale economies.

Constant returns to scale means that as all inputs are increased, a. total output increases in the same proportion as do the inputs. b. average total cost increases. c. average total cost increases at the same rate as do the inputs. d. total output remains constant.

total output increases in the same proportion as do the inputs.

Costs that increase as output increases are called: a. Operating costs b. Variable costs c. Sunk costs d. Material cost

variable costs

Children in poor neighborhoods often have bleak outlooks on life and see little gain from studying. In a recent experiment, children in poor neighborhoods were paid $100 for each A they earned during a six-week grade reporting cycle. Suppose a participant in this experiment was expending $0 worth of effort in studying for each class before the experiment. Over the next 6 weeks, the student has a math class and an English class, where getting an A in math would require the student to exert $83 worth of effort, while getting an A in English would require the student to exert $84 worth of effort. In this experiment, the student would increase time studying for math, and the student would increase time studying for English.

would and would because both amounts is less than the $100