Managerial Economics NGU Gregory FA-1-17

Ch 1-18 If the market price of a good is $150 and the supply price of the good is $70, what is the producer surplus if any?

$0 $70 *$80 $150 $220

Ch 2/8 If the market price of a good is $150 and the supply price is $70, what is the producer surplus if any?

$0 $70 *$80 $150 $220

Ch 1-17 Suppose an individual buyer values a pound of butter at $10. If the market price of butter is $8, what is the consumer surplus for this buyer?

$0 *$2 $3 $4 $5

Ch 2.1 Complement

Two goods are complements if an increase (decrease) in the price of one of the goods causes consumers to demand less (more) of the other goods, all other things held constant.

Ch 1-4 Which of the following is a common mistake managers make?

Using marginal analysis to make output decisions Maximizing the value of the firm instead of maximizing the firm's profits *Reducing price to increase the firm's share of the total market sales Treating implicit opportunity costs as part of the total costs of using resources all of the above

Ch 2/11 Refer to the graph below. The graph shows marginal benefits and marginal cost of Activity A: If the decision maker is choosing 300 units of Activity A:

if the activity is increased by one unit, net benefits will increase by $10 *this level maximizes net benefits if the activity is increased by one unit, the net benefits will increase by $20 if the activity is decreased by one unit net benefits will decrease by $20

Ch 1-10 Scientists have developed a bacterium they believe will lower the freezing point of agricultural products. This innovation could save farmers $1Billion 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 decrease price will decrease, quantity will increase price will increase, quantity will decrease price will increase, quantity will increase The change in equilibrium price and quantity is indeterminate

MC Qu. 05 If the price elasticity of tablet... If the price elasticity of tablet computers is -1.5 and price decreases 20%, what happens to the quantity of tablet computers demanded?

quantity increases by 7.5% quantity decreases by 13% *quantity increases by 30% quantity decreases by 1.5%

Ch 1-9 Use the following demand and supply functions: Demand: Qd=50-4P Supply: Qs= 20+2P If the price is $2, there is a

surplus of 10 units shortage of 10 units surplus of 30 units *shortage of 18 units none of the above Why? Find supply, find demand. Demand- supply. Negative number= shortage, Positive # = surplus.

Ch 2/16 Use the following demand and supply functions to answer the next question: Demand Qd=600-30P Supply: Qs=-300 + 120 P Equilibrium price and output are

P=$6 and Q=780 P=$2 and Q=540 P=$6 and Q=420 P=$10 and Q=300

Ch 1-11 In the figure, the equilibrium price and quantity are See pic

P=6 and Q= 800 P=$4 and Q=300 P=$4 and Q=400 *P=$6 and Q=300 P=$7 and Q=800 Why: In equilibrium look for intersect

Ch 2/19 Refer to the graph below The consumers income is $1,000. What are the prices of goods for X and Y?

PX=200 Y=$160 X=$10 Y=8.25 *X=5 Y=6.25 X=$8.25 Y=10 X=6.25 Y=5

CH 1.2 Owner-supplied resources

Resources owned and used by a firm

Ch 1.2 Market supplied resources

Resources owned by others and hired, rented or leased in resource markets

MC Q52: Demand is (more elastic/less elastic) in the short run than in the long run

(less elastic) because consumers have less time to adapt to a price change in the short run than in the long run.

In the figure above, what is the point price elasticity of demand when price is $40? pic #8

*-0.50 -0.75 -1.00 -1.50 -2.00

Refer to the following table showing a demand schedule: Price: Quantity Demanded: $250 1500 $200 2100 $150 2700 If price falls from $250 to $200, what is the elasticity of demand over this range?

-1.5

Ch 2/3 If the market price of a good is $150 and the supply price of the good is $70, what is the producer surplus if any?

0 $70 *$80 $150 $220

Ch 2/15 A radio manufacturer is experiencing theft problems at its wharehouse and has decided to hire security guards to reduce the thefts. The firm wants to minimize the net cost of wharehouse thefts. # of SG # of Radio Stolen per week 0 50 1 30 2 20 3 14 4 8 5 6 Given the above info: if each SG is paid $200 a week and the cost of a stolen radio is $50, how many security guards should the firm hire?

1 2 3 *4 5

Ch 2/10 A grocery store hires cashiers and baggers. Cashiers earn $8 hour; baggers earn $4 an hour. The manager, who wants to maximize the numbers of customers served in a given fixed payroll expects the following productivity from cashiers and baggers: Numbers of employees/Cashiers/Baggers 1 240 136 2 440 264 3 600 384 4 712 496 5 776 560 Given the above information, what is the maximum possible number of customers that can be served with a payroll of $32?

1208 *936 864 312 None of the above

If labor is fixed at 5 units, how much does the second unit of capital add to total output? Picture #14 Amount of total output produced from various combinations of labor and capital.

490 390 50 *100 none of the above

Use the following table to answer the question below: The amount of total output produced from various combinations of labor and capital. Picture #12 If the capital stock is fixed at four units and there are three units of labor, what is the average product of labor?

50 140 157.5 170 *none of the above

Ch 1-19 Which of the following would lead to an INCREASE in the demand for golf balls?

A decrease in the price of golf balls An increase in the price of golf clubs A decrease in the cost of producing golf balls *An increase in the average household income when golf balls are a normal good.

2.1 Normal Good

A good or service for which an increase (decrease) in income causes consumers to demand more (less) of the good, holding all other variables in the general demand function constant.

MC Qu. 02 When marginal revenue is positive,... When marginal revenue is positive,

All of these options are correct. increasing price will increase total revenue. *demand is elastic. marginal revenue is greater than price.

MC Qu. 07 Which of the following assumptions is(are)... Which of the following assumptions is(are) NOT made in consumer behavior theory?

Consumers can rank all bundles of goods. *Consumers can measure the utility they get from all bundles of goods. Consumers have complete information. both a and b None of the above are assumptions made in consumer behavior theory.

2.4 Producer Surplus

For each unit supplied, the difference between the market price and the minimum price producers would accept to supply the unit (its supply price).

Ch 2/14 In which of the following cases must price always fall?

Demand increases and supply increases Demand decreases and supply decreases Supply increases and demand remains constant Demand decreases and supply increases *Both C and D

Suppose you operate a sandwich shop and currently have two employees. If you hire a third employee, your output of sandwiches per day rises from 75 to 90. If you hire a fourth employee, output rises to 110 per day. A fifth and sixth employee would cause output to rise to 120 and 125 per day, respectively. Choose the correct statement:

Diminishing returns set in with the hiring of the fifth worker.

Ch 1.2 Explicit costs Implicit costs

Explicit costs deal with outside resources Implicit costs are own resources

Ch 2/9 Refer to the following indifference map for a consumer who has an income of $48 to spend on goods X and Y and the market prices of X and Y are both $4: Now suppose the price of good X increases to $12 while the price of good Y remains $4. Utility will be maximized on which indifference curve?

I II III On an indifference curve below I

Ch 1.2 Economic profit

Is the difference between total revenue and total economic cost

Ch 1-8 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, equilibrium price and quantity are, respectfully,

P=$55 and Q=195 P=$6 and Q=38 P=$12 and Q= 200 P=$50 and Q=170 P=$40 and Q=250 http://econclassroom.com/?p=2549

Ch 1-12 Use the following general linear demand relation: Qd=100-5P+0.004 M-5Pr where P is the price of good X, M is income, and Pr is the price of a related good, R. What is the demand function when M=$50,000 and Pr = $10

Qd= 350+5P Qd= 300-5P Qd=200-5P Qd= 100-5P *None of the above

Ch 2.2 Law of demand

Quantity demanded increases when the price falls, and quantity demanded decreases when price rises, other things held constant

Ms. Birnbaum is buying bottles of beer and bags of pretzels. The marginal utility of the last bottle of beer is 60 and the marginal utility of the last bag of pretzels is 30. The price of beer is $0.30 per bottle and the price of pretzels is $0.20 per bag. Ms. Birnbaum

a: is buying beer and pretzels in utility-maximizing amounts *b:should buy more beer and fewer pretzels c: should buy more pretzels and less beer d: is not spending all her income

Ch 1-15 Use the following general linear demand function below: Qd=a+bP+ cM+ dPr where Qd= quantity demanded, P=the price of the good, M=income, Pr= the price of a good related in consumption. The law of demand requires that

a<0 *b<0 p<0 a<0 and b<0 b<0 and P<0

Ch 1-16 If the market price of eggs rises at the same time as the market quantity of eggs purchased decreases, this could have been caused by

an increase in demand with no change in supply *a decrease in supply with no change in demand an increase in supply and an increase in demand an increase in supply and a decrease in demand

The estimated demand for a good is Q = 25 - 5P + 0.32M + 12PR whereQ 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

an inferior good since the coefficient on PR is positive. a normal good since the coefficient on PR is positive. an inferior good since the coefficient on M is greater than one. *a normal good since the coefficient on M is positive. none of the above

Ch 2/18 A restaurant currently has two cooks and ten waiters Cooks earn $10 an hour and waiters earn $5 an hr. The last cook added 40 meals served to total output, while the last waiter added 25 meals served to total output. In order to maximize the numbers of meals served with a fixed budget, the manager should.

continue to use two cooks and ten waiters because output is being maximized should use more cooks and fewer waiters because cooks are more productive than waiters should use more cooks and fewer waiters because productivity per dollar is higher for cooks than for waiters should use more waiters and fewer cooks because waiters are paid less than cooks *should use more waiters and fewer cooks because productivity per dollar is higher for waiters than for cooks

The estimated demand for a good is Q = 3,600 - 12P + 0.6M - 2.5PR 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 coefficient on P

is negative as dictated by the law of demand.

Ch 2/4 Market demand...

is the horizontal summation of the individual demand curves slopes downward shows how market purchases vary with price both a and b all of the above

Ch 2/17 The decision rule for constrained optimization is to select the level for each activity at which

marginal benefit equals marginal cost for each activity total benefit equals total cost for each activity *marginal benefit per dollar of marginal cost is equal across all activities total benefit per dollar of total cost is equal across all activities

Ch 1-1 Consider a firm that employee some resources that are owned by the firm. When accounting profit is zero, economic profit

must also equal zero is sure to be positive *must be negative and shareholder wealth is reduced cannot be computed accurately, but the firm is breaking even nonetheless

Ch 1-6 If the price of a complement for tires decreases, all else equal

quantity demanded for tires will decrease quantity supplied for tires will decrease *demand for tires will increase demand for tires will decrease supply for tires will increase Complements are opposite for price/quantity. If price up, Q down. Price down, Q up (all else equal).

MC Qu. 07 Which of the following will NOT... Which of the following will NOT affect the elasticity of demand for a product?

the number of substitutes how long consumers have to adapt to price changes *the cost of producing the product the percentage of the consumer's budget spent on the product all of the above will affect the elasticity of demand for a product

Ch 1-3 Which of the following is an example of an implicit cost for a firm?

the value of time worked by the owner any wages and salaries paid to employed forgone rent on property owned by firm *both a and c all of the above

Ch 1-5 Until recently you worked as an accountant earning $30,000 annually. Then you inherited a piece of commercial real estate bringing in $12,000 annually. You decided to leave your job and operate a video rental store in the office space you inherited. At the end of the first year, your books showed total revenues of $60,000 and total costs of $30,000 for video purchases, utilities, taxes, and supplies. What is the total cost of operating the video store?

*$72,000 $42,000 $30,000 $12,000 You count implicit costs (-$30,000) and explicit costs ($30,000) plus the rent you could have made but didn't because you are using the space (-$12,000) to get $72,000 total.

1-14 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 220 units 120 units 80 units Why: Plug and chug

Ch 1-13 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 $80,000 and the price of the related good is $40. Also let consumers' tastes change so that consumers now demand 100 more units at each price. When the price of the good is $50, how many units of the good are demanded?

*70 200 220 100 none of the above Why: Plug and chug

To answer the question, refer to the following table showing a demand schedule: Price: Quantity Demanded: $200 1000 $150 1400 $100 1800 If price falls from $150 to $100, what is the elasticity of demand over this range?

*a: -0.625 b: -1.0 c: -1.17 d:-2.5 e: -3.0

MC Qu. 06 If the own-price elasticity of demand... If the own-price elasticity of demand for a good is -0.6 and quantity demanded decreases by 30%, price must have...

*increased by 50%. decreased by 0.6%. increased by 20%. decreased by 18%.

Ch 2/6 Lord Graystroke uses his limited income to purchase fruits and nuts; he is currently buying 10 pounds of fruits at a price of $2 per pound and 5 pounds of nuts and a price of $6 per pound. The last pound of fruits added 10 units to Lord Greystone's total utility, while the last pound of nuts added 30 units. Lord Greystone...

*is making the utility-maximizing choice should buy more fruits and less nuts because the last pound of fruits costs less than the last pound of nuts should buy more fruits and less nuts because the last dollar spent on fruits added more total utility than the last dollar spent on nuts should buy more nuts and less fruits because the last pound of nuts added more to total utility than the last pound of nuts should buy more nuts and less fruits because the last dollar spent on nuts added more total utility than the last dollar spent on fruits why? MPf = 10 MPn = 30 Condition for maximization MPf/MPn = Pf/Pn 10/30 = 2/6 1/3=1/3 Which means that Lord Greystroke is maximizing his utility from current bundle. He is making the utility-maximizing choice.

Ch 2/5 Use the following demand and supply functions: Demand: Qd=50-4P Supply Qs= 20 +2P If the price is $10, there is a

*surplus of 20 units shortage of 30 units surplus of 40 units shortage of 10 units none of the above

Ch 2/12 For an unconstrained maximization problem

*the decision maker seeks to maximize net benefits the decision maker seeks to maximize total benefits the decision maker does not take cost into account because there is not constraint the decision maker does not take the objective function into account because there is no constraint none of the above

MC Qu. 01 Busch Gardens recently announced that it... Busch Gardens recently announced that it will increase the entrance fees at its theme parks in order to increase park revenues. Busch Gardens must believe that...

*the percentage increase in fees will be greater than the percentage decrease in the number of theme park visitors. the demand for theme park attractions is elastic. theme park goers are very responsive to price changes. demand is unitary elastic, and thus the number of visitors will NOT decrease.

Ch 1-2 Economic profit is the difference between

*total revenue and the opportunity cost of all of the resources used in production total revenue and the implicit costs of using owner-supplied resources accounting profit and the opportunity cost of the market-supplied resources used by the firm accounting profit and explicit costs

Refer to the following table showing a demand schedule: Price: Quantity demanded: $250 1500 $200 2100 $150 2700 As output increases from 2,100 to 2,700 what is marginal revenue? $50

-$25

Ch 2/7 Refer to the graph below X graph A floor price of $30 would cause

A shortage of 100 A shortage of 400 a surplus of 100 *a surplus of 400

Ch 2/13 Use the following general linear demand relation to answer the next question: Qd=100-5P+0.004M-5Pr where P is the price of good X, M is income and Pr is the price of related good, R. From the demand function it is apparent that related good R is:

A substitute for good X an inferior good a normal good *a complement for good X

Ch 1.2 Total economic cost

Sum of Opportunity costs of market-supplied resources plus opportunity costs of owner supplied resources

Ch 1-20 Which of the following will cause a change in the quantity supplied?

Technological change A change in input prices *`A change in the market price of a good A change in the number of firms in the market

2.4 Consumer Surplus

The difference between the economic value of a good (its demand price) and the market price the consumer must pay

Ch 2/20 Suppose that the market for salad is in equilibrium. Then the price of lettuce rises. What will happen?

The price of salad dressing will rise The supply of salad dressing will decrease *The demand for salad dressing will decrease The quantity demanded of salad dressing will increase

MC Qu. 02 Which of the following statements is... Which of the following statements is TRUE?

Variable costs and fixed costs are avoidable costs. *Fixed costs are sunk costs. Sunk costs are input costs the firm can recover. Avoidable costs should be ignored for decision-making purposes.

Ch 1.2 Opportunity Cost

What a firm's owners give up to use resources to produce goods or services

CH 2/1 The rate at which the consumer is ABLE to substitute one good for another is determined by

the consumer's income the indifference map *the budget line the marginal rate of substitution

Ch 1-7 When Sonoma Vineyards reduces the price of its Cabernet Sauvignon from $15 a bottle to $12 a bottle, the result is an increase in

the demand for this wine the supply of this wine *the quantity of this wine demanded the quantity of this wine supplied The why: See Law of demand

MC Qu. 06 A short-run production function assumes that... A short-run production function assumes that

the level of output is fixed. *at least one input is a fixed input. all inputs are fixed inputs. both a and b both b and c

CH 2/2 A computer services center has a problem with "malicious" computer usage. The center's director has decided to hire additional personnel to monitor computer usage. In order to minimize the total cost of the malicious usage, the director should hire the number of monitors at which:

the marginal revenue from the last monitor equals the marginal cost of the last monitor *the decrease in the cost of malicious usage from the last monitor hired equals the cost of hiring the last monitor the marginal benefit per dollars is equal across monitors both b and c all of the above

MC Qu. 56 Assume that an individual consumes two... Assume that an individual consumes two goods, X and Y. The total utility (assumed measurable) of each good is independent of the rate of consumption of other goods. The prices of X and Y are, respectively, $5 and $10. Given the above, if the consumer buys the third unit of Y,

the marginal utility of the third unit is 950 units of satisfaction. the marginal utility per dollar spent on Y is 200. *the marginal utility per dollar spent on Y is 20. both a and b.