exam 2 managerial econ
If quantity demanded for sneakers falls by 6 percent when price increases 20 percent, we know that the absolute value of the own price elasticity of sneakers is
0.3.
By the property of "more is better," the consumer views the products under consideration as
goods.
The manager can be 95 percent confident that the true value of the underlying parameters in a regression is not zero if the absolute value of the t-statistic is
greater than 2.
As long as marginal product is increasing, marginal product is
greater than average product.
If you are in the business of selling chicken and the price of chicken and the price of beef both were to drop dramatically, what should you do with your inventory level of chicken?
increase the inventory
Suppose the demand function is given by Qxd = 4Px-0.5 Py-0.45 M0.2 H. Then good X is
is a complement for good Y.
The marginal rate of technical substitution
is the absolute value of the slope of the isoquant.
Suppose the equilibrium price in the market is $24 and the price elasticity of demand for the linear demand function at the market equilibrium is −1.5. Then we know that the
marginal revenue is $8.
When there are economies of scope between products, selling off an unprofitable subsidiary could lead to
only a minor reduction in costs.
The creation of a new product is referred to as
product innovation.
Normally, owners of firms should try to induce their managers to care
solely about profits.
We can expect breakfast foods to have a relatively inelastic demand compared to cornflakes because
the market for breakfast foods is broadly defined compared to market for corn flakes.
If an increase in the price of good X leads to a decrease in the consumption of good Y, then goods X and Y are called
complements.
The demand for food (a broad group) is more
inelastic than the demand for beef (specific commodity).
Demand is perfectly elastic when the absolute value of the own price elasticity of demand is
infinite.
Suppose the marginal product of labor is 10 and the marginal product of capital is 8. If the wage rate is $5 and the price of capital is $2, then in order to minimize costs, the firm should use
more capital and less labor.
If a consumer is given a $10 gift certificate good only for items in store X and all items in store X are normal goods, then the consumer desires to consume
more goods in store X.
Each week Bill buys exactly 7 bottles of cola regardless of its price. Bill's own price elasticity of demand for cola in absolute value is
zero.
Which of the following profit functions exhibits a linear production function?
π = P × (3K + 4L) − 20L − 35K.
Suppose the equilibrium price in the market is $100 and the marginal revenue associated with the linear (inverse) demand function is $50. Then we know that the own price elasticity of demand is
−2.
Which of the following cost functions exhibits cost complementarity?
−4Q1Q2 + 8Q1
Suppose the demand function is given by Qxd = 8Px-0.5 Py0.25 M0.12 H. Then the cross-price elasticity between goods x and y is
0.25.
Suppose the production function is given by Q = 3K + 4L. What is the average product of capital when 5 units of capital and 10 units of labor are employed?
11
According to the table below, what is the average variable cost of producing 50 units of output?
14
Suppose the production function is given by Q = 2K + 6L. What is the average product of capital when 2 units of capital and 4 units of labor are employed?
14
What is the maximum amount of good X that can be purchased if X and Y are the only two goods available for purchase and Px = $10, Py = $20, Y = 5, and M = 400?
30
The production function for good X in the table below exhibits increasing marginal returns to capital over what output range?
between 0 and 1,524
Consider a two-good world, with commodities X and Y. If X is an inferior good, then an increase in consumer income cannot
decrease the demand for Y.
It is profitable to hire units of labor as long as the value of marginal product
exceeds wage.
Suppose the cost function is C(Q) = 50 + Q − 10Q2 + 2Q3. What is the variable cost of producing 10 units?
$1,010
What is the value marginal product of labor if P = $10, MPL = $25, and APL = 40?
$250
If the price of good X decreases, what will happen to the budget line?
It will become flatter.
Suppose earnings are given by E = $60 + $7(24 − L), where E is earnings and L is the hours of leisure. What is the maximum this worker can earn in 3 days?
$684
Suppose that production for good X is characterized by the following production function, Q = 4K0.5L0.5, where K is the fixed input in the short run. If the per-unit rental rate of capital, r, is $12 and the per-unit wage, w, is $20, then the average total cost of using 25 units of capital and 49 units of labor is
$9.14.
If the production function is Q = KL and capital is fixed at 1 unit, then the marginal product of labor when L = 25 is
1
When the price of peanut oil falls from $5 to $4 per gallon, quantity demanded increases from 8 to 10 gallons per month. Based on this information, the absolute value of the price elasticity of demand using the midpoint method is
1.0 and demand is unit elastic.
If a price increase from $5 to $7 causes quantity demanded to fall from 150 to 100, what is the absolute value of the own price elasticity at a price of $7 using the arc formula?
1.2
What is the maximum amount of good Y that can be purchased if X and Y are the only two goods available for purchase and Px = $10, Py = $20, X = 20, and M = 400?
10
For the cost function C(Q) = 100 + 2Q + 3Q2, the total variable cost of producing 2 units of output is
16
If the demand curve for a particular good is Q = 20 − 8P, then the price elasticity of demand (in absolute value) at a price of $1 is
2/3.
If the price of good X increases, what will happen to the budget line?
It will become steeper.
Given the Leontief production function Q = min{5.5K, 6.7L}, how much output is produced when K = 40 and L = 35?
220
Suppose that three consumers are in the market for good X. Consumer 1's (inverse) demand is PX = 40 − 5QX; Consumer 2's (inverse) demand is PX = 10 − QX; and Consumer 3's (inverse) demand is PX = 30 − 2QX. When PX = $5, the market will demand
24.5 units.
According to the table below, what is the total cost of producing 125 units of output?
2400
The greater the standard error of an estimated coefficient,
the lower the t-value of the estimated coefficient.
Suppose earnings are given by E = $60 + $7(24 − L), where E is earnings and L is the hours of leisure. The fixed payment for this worker is
60
The demand for good X is estimated to be Qxd = 10,000 − 4PX + 5PY + 2M + AX where PX is the price of X, PY is the price of good Y, M is income, and AX is the amount of advertising on X. Suppose the present price of good X is $50, PY = $100, M = $25,000, and AX = 1,000 units. What is the demand curve for good X?
61,500 − 4PX
Suppose Qxd = 10,000 − 2 Px + 3 Py − 4.5M, where Px = $100, Py = $50, and M = $2,000. How much of good X is consumed?
950 units
Isoquants that are convex shaped represent
Cobb Douglas production functions where the inputs can be partly substituted for each other.
Suppose a worker is offered a wage of $8 per hour, plus a fixed payment of $100 per day, and she can use 24 hours per day. What is the equation for the worker's opportunity set? (E is total earnings and L is leisure.)
E = 292 − 8L.
Jenny spends her income entirely on good X (an inferior good) and Good Y (a normal good). What happens to Jenny's consumption of goods X and Y if her income doubles?
Her purchase of good X goes down and purchase of good Y goes down.
Suppose the w = $20 and r = $30. The isocost line for a firm in this industry is
K = 0.033C − 0.66L.
The derivative, dAC(Q)/dQ = (1/Q2) {Q(dC/dQ) − C(Q)}, illustrates that
MC(Q) < AC(Q), that is, the average costs decrease as output increases.
Suppose the production function is given by Q = 2K + L. If w = $4 and r = $4. How many units of K and L will be utilized in the production process?
all K and no L
Suppose that you own a clothing store. You expect food prices to increase 20 percent due to the COVID-19 pandemic. If the cross-price elasticity of demand between food and clothing is −0.18, what will be the resulting impact on sales from your clothing store?
Sales will decrease by 3.6 percent.
Jenny purchased 5 tile boxes during a sale and paid $20 per box. However, she decided not to use those tiles and sold them for $17 per box. What is Jenny's sunk costs of the 5 tile boxes?
Sunk cost = $15.
Suppose that consumers' preferences are well behaved in that properties 4-1 to 4-4 (completeness, more is better, diminishing marginal rate of substitution, and transitivity) are satisfied. Furthermore, assume that X is a normal good, Y is an inferior good, and the price of good Y increases. Then, which of the following effects is known with certainty?
The income and substitution effects will have competing effects, leading to an indeterminate impact on the consumption of good Y.
Suppose that a firm has a fixed budget of $10,000 in producing 500 faucets. The firm incurs only capital and labor costs. If the cost to rent capital is $400 per hour and the wage rate of labor is $50 per hour. Calculate the intercepts of the isocost line with capital represented on the Y axis and labor on the X axis.
X axis = 200; Y axis = 25.
The demand for good X is given by ln Qxd = 120 − 0.9 ln Px + 1.5 ln Py − 0.7 ln M. Which of the following statements is correct?
X has constant income elasticity.
A consumer must divide $600 between the consumption of product X and product Y. The associated market prices are Px = $50 and Py = $40. What is the equation for the consumer's budget line?
Y = 15 − 1.25X.
If widgets and gidgets are complements and both are normal goods, then an increase in the demand for widgets will result from
a decrease in the price of gidgets.
If you sell an inferior good, offering to sell gift certificates to those looking for a gift may result in
a greater quantity sold than if the customer resorts to giving a cash gift.
The demand for good X is estimated to be Qxd = 10,000 − 4PX + 5PY + 2M + AX, where PX is the price of X, PY is the price of good Y, M is income, and AX is the amount of advertising on X. Suppose the present price of good X is $50, PY = $100, M = $25,000, and AX = 1,000 units. Based on this information, good X is
a normal good.
If an increase in income causes a decrease in the consumption of good Y, we know that good Y is
an inferior good.
The idea that a consumer is limited to selecting a bundle of goods that is affordable is captured by the
budget constraint.
Under the buy one, get one free regime, the
budget set expands.
If money income doubles and the prices of all goods triples, then the
consumer is worse off due to inflation.
Diminishing marginal rate of substitution implies that indifference curves are
convex to the origin.
The elasticity that shows the responsiveness of the demand for a good due to changes in the price of a related good is the
cross-price elasticity.
When marginal cost curve is below an average cost curve, average cost is
declining with output.
When marginal revenue is positive for a linear (inverse) demand function, decreases in output will cause total revenues to
decrease
A firm derives revenue from two sources: goods X and Y. Annual revenues from good X and Y are $10,000 and $20,000, respectively. If the price elasticity of demand for good X is −4.0 and the cross-price elasticity of demand between Y and X is 2.0, then a 2 percent decrease in the price of X will
decrease total revenues from X and Y by $200.
Assume that the price elasticity of demand is −2 for a certain firm's product. If the firm raises price, the firm's managers can expect total revenue to
decrease.
When the own price elasticity of good X is −3.5, total revenue can be increased by
decreasing the price.
The property that implies that indifference curves are convex to the origin is
diminishing marginal rate of substitution.
As a general rule of thumb, a manager can be 95 percent confident that the true value of the underlying parameter in the regression is not zero, when the absolute value of the t-statistic is
greater than or equal to 2.
As a rule of thumb, a parameter estimate is statistically different from zero when the absolute value of the t-statistic is
greater than or equal to 2.
Demand is more inelastic in the short term because consumers
have no time to find available substitutes.
A price elasticity of infinity corresponds to a demand curve that is
horizontal.
The short run is defined as the time frame
in which there are fixed factors of production.
If income falls, then the equilibrium consumption of that good
increases if it is an inferior good.
If the short-term own price elasticity for transportation is estimated to be −0.6, then long-term own price elasticity is expected to be
less than −0.6.
The minimum average cost of producing alternate levels of output, allowing for optimal selection of all variables of production, is defined by the
long-run average total cost curve.
Suppose the marginal product of labor is 8 and the marginal product of capital is 2. If the wage rate is $4 and the price of capital is $2, then in order to minimize costs the firm should use
more labor and less capital.
If a firm is operating on the production function, then workers
must be putting forth maximal effort.
Since most consumers spend very little on salt, a small increase in the price of salt will
not reduce quantity demanded by very much.
If a firm offers to pay a worker $10 for each hour of leisure the worker gives up, then the opportunities confronting the worker will be given by a
straight line with a negative slope.
If an increase in the price of good X leads to an increase in the consumption of good Y, then goods X and Y are called
substitutes.
The feasible means of converting raw inputs such as steel, labor, and machinery into an output are summarized by
technology.
Which of the following provides a measure of the overall fit of a regression?
the F-statistic and R-square
The substitution effect isolates the change in the consumption of a good caused by
the change in the relative prices of two goods.
If bundles A, B, and C lie on the same indifference curve, then
the consumer is indifferent between bundles A, B, and C.
If the slope of the budget line is steeper than the slope of the indifference curve and X is on the horizontal axis,
the consumer is willing to give up more of good X to get an additional unit of good Y than is necessary under the current market prices.
The lower the standard error,
the more confident the manager can be that the parameter estimates reflect the true values.
Consumers adjust their purchasing behavior so that
the ratio of prices they pay equals their marginal rate of substitution.
Suppose that your friend owns a coffee shop and seeks your advice on changing the price of coffee to increase revenue. If you know that demand for coffee is relatively elastic, what advice will you give your friend?
to decrease the price
The property that rules out indifference curves that cross is
transitivity.
Costs that change as output changes are
variable costs.
A study has estimated the effect of changes in interest rates and consumer confidence on the demand for money to be ln M = 14.666 + .021 ln C − 0.036 ln r, where M denotes real money balances, C is an index of consumer confidence, and r is the interest rate paid on bank deposits. Based on this study, we know that the interest elasticity is
very inelastic.
Suppose that a consumer's preferences are well behaved in that properties 4-1 to 4-4 (completeness, more is better, diminishing marginal rate of substitution, and transitivity) are satisfied and the initial budget constraint is given by 300 = 2X + 4Y. At the initial budget constraint, this consumer purchases 100 units of good X and 25 units of good Y. Suppose the price of X increases to $4 per unit, resulting in a new consumption bundle consisting of 60 units of X and 15 units of Y. Then, the slope of the inverse demand for good X over this consumption range is
−0.05.
