Economics Final

Using Excel, Tough Scrubbers estimates the quarterly demand for their kitchen sponges to be Qd = 5,600 - (25 × P). If the actual demand for their kitchen sponges is 5,400 when a price of $5 per sponge is charge, what is the estimated residual?

-75

Suppose the price of movies seen at a theater rises from $12 per couple to $20 per couple. The theater manager observes that the rise in price causes attendance at a given movie to fall from 300 persons to 200 persons. What is the arc price elasticity of demand for movies?

0.8

Use the following general linear supply function: Qs = 40 + 6P - 8PI + 10F where Qs is the quantity supplied of the good, P is the price of the good, PI is the price of an input, and F is the number of firms producing the good. Now suppose PI = $40 and F = 50, what is the largest amount of the good that firms will supply when the price of the good is $20?

340 units

If the price elasticity of demand for football tickets is estimated to be 4.5, then a 10 percent increase in football ticket prices would be expected to cause a:

45 percent decrease in quantity demanded.

Which of the following pairs of goods would be expected to have a positive cross-price elasticity of demand?

coffee and tea.

The range of values in which we can be confident that the true regression coefficient lies within a given degree of probability is called a:

confidence interval.

For a nonlinear demand function of the form , Q = aPbMcPRd , the estimated cross-price elasticity of demand is

d.

The situation in which a firm is able to charge the maximum price consumers are willing to pay for each unit of output the firm sells is referred to as:

first-degree price discrimination.

Rank the following goods from least to most elastic: gasoline, Unocal gasoline, gasoline at Murph's Unocal Station.

gasoline, Unocal gasoline, gasoline at Murph's Unocal Station

If the quantity of gidgets demanded increases when the price of gadgets decreases

gidgets and gadgets are complements.

If the government removes the surplus that results from an agricultural price floor, all producers receive a ____________ price and all consumers pay a _____________ price than the equilibrium price.

higher; higher

If the demand for umbrellas is price inelastic,

if more umbrellas are sold as the result of a price decrease, total expenditures by consumers on umbrellas will decrease.

Fill in the blank: Other things constant, the introduction of generic (non-brand name) drugs on the market tends to ________ the price elasticity of demand for brand name drugs.

increase

A firm with market power is producing a level of output at which price is $8, marginal revenue is $5, average variable cost is $6, and marginal cost is $10. In order to maximize profit, the firm should

increase price.

If a firm is experiencing decreasing marginal returns to labor, the firm's production function is ________ at a(n) ________ rate.

increasing; decreasing

If an increase in the price of a product from $1 to $2 per unit leads to a decrease in the quantity demanded from 100 to 80 units, then demand is:

inelastic.

A seller who continues to earn the same gross revenue from sales whether she raises or lowers her prices faces a demand curve that

is unit elastic.

Consider the statement: "When the British government tripled university fees for foreign students in Great Britain, about one-half of them left to study in other countries." The implied price elasticity of demand by foreigners for a British education is (in absolute value)

less than 1.

You read a story in the newspaper about the "economies of mass production." This means that

long-run average cost is less at larger levels of production.

As a result of a technology advance in the production of your firm's product, you should anticipate a ____________ price for your product than the current equilibrium price and a __________ equilibrium quantity than the current equilibrium quantity.

lower; higher

If the R2 is large, you are ________ confident in the regression results because the predicted values are ________ the actual values

more; close to

Suppose that the firm's only variable input is labor. When 50 workers are used, the average product of labor is 50 and the marginal product of labor is 75. The wage rate is $80 and the total cost of the fixed input is $500.What is the marginal cost?

none of the above

When marginal costs are greater than average total costs, then:

Average total costs are rising

If marginal costs are increasing, then:

Average variable costs may be increasing or decreasing

Use the following general linear demand relation: Qd = 100 - 5P + 0.004M - 5PR where P is the price of good X, M is income, and PR is the price of a related good, R. Income is $100,000, the price of the related good is $20, and the supply function is Qs = 150 + 5P. What is the equilibrium price?

$25

If marginal revenue exceeds marginal cost:

A firm increases its profit by producing more

Which of the following would be classified as a short-run decision?

A firm's decision to decrease the amount of electricity used in day-to-day operations by encouraging employees to adopt conservation strategies, e.g., shut off lights when leaving a room.

Which of the following is false about a monopoly?

A monopoly cannot lose money

A technological advancement in the production of LED light bulbs will result in _________________.

A rightward shift of the supply curve.

Economies of scope in the production of goods G and W exist if

All three choices are correct.

Suppose that you're on a jury in a murder case. In such a situation, the presumption of "innocent until proven guilty" implies that: H0: The defendant is innocent. HA: The defendant is guilty. What would a Type II Error be?

Freeing a guilty defendant.

Big City Java is a local coffee bar. Using Excel, the manager of Big City Java estimates the weekly demand function for their grand mocha coffees to be Qd = 650 - (15.25 × P). The estimated regression equation suggests which of the following is true?

If a price of $5 is charged, the predicted weekly demand of grand mocha coffees is 573.75.

Which of the following would indicate a relatively large amount of market power?

Low cross-price elasticity with other products

Using the following general linear demand relation: Qd= 680 - 9P + 0.006M - 4Pr where M is income and Pr is the price of related good, R. If M=$15,000 and Pr=$20 and the supply function is Qs=30+3P, equilibrium price and quantity are, respectively,

P= $55 and Q= 195

Assume the costs of production in the U.S. auto industry are rising and, at the same time, the prices of Japanese-made autos are decreasing. What would reasonably be expected to happen to the equilibrium price and quantity of U.S.-made autos?

Quantity will decrease; price cannot be determined.

A monopolist earning economic profit in the short run determines that at its present level of output, marginal revenue is $23 and marginal cost is $30. Which of the following should the firm do to increase profit?

Raise price and lower output.

Which of the following measures is used by the Justice Department to evaluate the competitive effects of proposed mergers?

The Herfindahl-Hirschman Index.

Which of the following is true of the typical relationship between marginal product (MP) and average product (AP)?

The MP curve intersects the AP curve at maximum AP.

In a constant cost industry,

The long-run average cost curve is horizontal

When a binding price ceiling is impose in the market, at the price ceiling price

The quantity demanded exceeds the quantity supplied

Which of the following is not considered to be a determinant of the price elasticity of demand for a particular good?

The quantity of the good that is supplied to the market.

The price elasticity of demand for electricity in the United States is estimated at -0.13. Which of the following could explain why the price elasticity of demand for electricity is so low?

There are few close substitutes for electricity

Assume the demand function for good X can be written as Qd = 80 - 3Px + 2Py + 10I, where Px = the price of X, Py = the price of good Y, and I = Consumer income. According to this equation:

X and Y are substitutes.

You are the manager of a local flower shop and you compete with one other flower shop in your area. You estimate the cross-price elasticity of demand between your flowers and your competitor's flowers to be 2.60. If your competitor decreases the price of her flowers by 2 percent, you should expect which of the following?

a 5.2 percent decrease in the demand for your flowers

If the price elasticity of demand for Clean Sheets laundry detergent is 1.50, a 5 percent decrease in the price will lead to which of the following?

a 7.5 increase in quantity

Economies of scale are illustrated by:

a downward sloping long-run average cost curve.

The estimated demand for a good is Q̂= 25 - 5P + 0.32M + 12PR where Q is the quantity demanded of the good, P is the price of the good, M is income, and PR is the price of related good R. The good is

a normal good since the coefficient on M is positive.

Because there will always be some unpredictable factors of demand that we cannot capture, which of the following is added to the regression equation?

a random error term

A prisoner's dilemma exists when

all parties are worse off than would be the case if theparties could agree to another set of behaviors.

In the market for cell phones, all of the following would cause the supply of cell phones to change except:

an increase in the number of buyers in the market for cell phones.

Suppose the demand for meals at a medium-priced restaurant is elastic. If the management of the restaurant is considering raising prices, it can expect the total revenues the restaurant earns to:

decrease.

If a player has a strategy where one course of action underperforms all others no matter what other players do, that strategy is

dominated.

If Goods X and Y are complements, if the price of Good X decreases, this will cause a movement ____________ the demand curve for Good X and a __________ shift in the demand for Good Y.

down; rightward

If Goods X and Y are substitutes in production, if the price of Good X decreases, this will cause a movement _________ the supply curve for Good X and a _________ shift in the supply curve for Good Y.

down; rightward

Other things constant, if tuition at a private university rises from $40,000 to $45,000 and revenue for the university decreases, the demand for the good must be

elastic.

If a 5 percent increase in consumer incomes leads to a 10 percent increase in the quantity demanded for a good, the good is a(n) ________ good with an income elasticity of ________.

normal; 2.0

A price-setting firm faces the following estimated demand and average variable cost functions: Qd = 800,000 - 2,000P + 0.7M + 4,000PR AVC = 500 - 0.03Q + 0.000001Q2 where Qd is the quantity demanded, P is price, M is income, and PR is the price of a related good. The firm expects income to be $40,000 and PR to be $53. Total fixed cost is $2,600,000. The firm should ______________ because _______________.

operate, P = $510 > AVC = $300

If Sam, the Pizza Man, lowers the price of his pizzas from $6 to $5 and finds that sales increase from 400 to 600 pizzas per week, then the demand for Sam's pizzas in this range is:

price elastic.

Assume there is a simultaneous decrease in the incomes of people in the market for new homes and a decrease in the wages paid to carpenters, plumbers, and electricians. All else constant, we can predict, with certainty, that in the market for new homes the equilibrium:

price of new homes will decrease.

Scientists have developed a bacterium they believe will lower the freezing point of agricultural products. This innovation could save farmers $1 billion a year in crops now lost to frost damage. If this technology becomes widely used, what will happen to the equilibrium price and quantity in, for example, the potato market?

price will decrease, quantity will increase

If the price elasticity of DVD recorders is -0.3 and price increases 20%, what happens to the quantity of DVD recorders demanded?

quantity decreases by 6%

Because there will always be some unpredictable factors the affect demand that cannot be captured, a ________ is added to the regression equation.

random error term

In a regression equation, the ______ captures the effects of factors that might influence the dependent variable but aren't used as explanatory variables.

random error term

The long run is a period of:

sufficient length to allow a firm to alter its plant size and capacity and all other factors of production.

Use the following demand and supply functions: Demand: Qd = 900 - 60P Supply: Qs = -200 + 50P If the price is currently $11, there is a

surplus of 110 units.

To test whether the overall regression equation is statistically significant one uses

the F-statistic.

The term "network externality" refers to a barrier to entry that exists because:

the benefit of a product increases as more consumers buy & use it

Use the following general linear demand relation: Qd = 680 - 9P + 0.006M - 4PR where M is income and PR is the price of a related good, R. If M = $15,000 and PR = $20 and the supply function is Qs = 30 + 3P , then, when the price of the good is $40,

there is a shortage of 180 units of the good

If the price of tea is below equilibrium level, then

there is a shortage of tea

The average product of a variable input is calculated as:

total product divided by the total quantity of the variable input.

A parameter estimate is said to be statistically significant if there is sufficient evidence that the

true value of the parameter does not equal zero