mba 642 midterm

The demand schedule for your product is: (P=$8, Q=1); (P=$7, Q=2); (P=$6, Q=3); (P=$5, Q=4); (P=$4, Q=5); (P=$3, Q=6); (P=$2, Q=7); (P=$1, Q=8). The marginal revenue from selling the 5th unit is $4. -$2. $2. $0.

$0

When a firm increases output from 90 to 100 units, total costs increase from $7,600 to $8,300. If marginal cost is constant, fixed costs equal $1,300. $700. $7,000. $83.

$1300

A publisher is deciding whether to buy a new printer for $2,000 that will increase cash flows by $1,200 in each of the next two years. If the discount rate is 8%, the NPV of the investment in the new printer is $67. $140. $400. $112.

$140

Each day over a 30-day month, a business owner works 10 hours and makes 500 items which sell for $20 each. Alternatively, she could have worked for a large company earning $100 an hour. If her explicit costs are $100,000 per month, her economic profits for the month are -$200,000. -$170,000. -$30,000. -$230,000.

$170,000.

Each day over a 30-day month, a business owner works 10 hours and makes 500 items which sell for $20 each. Alternatively, she could have worked for a large company earning $100 an hour. If her explicit costs are $100,000 per month, her accounting profits for the month are -$200,000. -$230,000. -$30,000. -$170,000.

$200,000

A retailer has to pay a wage of $11 per hour to hire 13 workers, but only $10 per hour to hire 12 workers. The marginal cost of the 13th worker is $11. $10. $143. $23.

$23

A firm produces 600 units per week. It hires 10 full-time workers (40 hours/week) at an hourly wage of $20. Raw materials cost $30 for every unit produced. The weekly rent for its factory is $5,000. Total variable cost equals $26,000. $8,000. $5,000. $31,000.

$26,000.

Dr. D's Barbeque of Colleyville, TX, produces 20,000 dry-rubbed rib slabs per year. Annually Dr. D's fixed costs are $40,000. The average variable cost per slab is a constant $1. The average total cost per slab is -$2. -$1. -impossible to determine. -$3.

$3

A firm produces 600 units per week. It hires 10 full-time workers (40 hours/week) at an hourly wage of $20. Raw materials cost $30 for every unit produced. The weekly rent for its factory is $5,000. Total cost equals $31,000. $26,000. $5,000. $18,000.

$31,000.

A firm with fixed costs of $200 produces 100 units of a good for which it charges a price of $12 per unit, and faces a marginal cost of $8 per unit. The firm's contribution margin is $6. $10. $2. $4.

$4

To purchase a hardware store, James withdrew $200,000 from a mutual fund account that increased in value by 10% over the next year. After one year, James sold the hardware store for $250,000. His accounting profits from buying and selling the store were $30,000. $50,000. $70,000. $20,000.

$50,000.

For your new business producing UAB green & gold dartboards, equipment & facility rental are $20,000/month, and on average it will cost you $40 to produce a board. If you expect to sell 1,000 boards/month, your break-even price is $40. $60. $50. $80.

$60

If you are willing to sell your landscaping business for $620,000 and someone offers you $680,000 for it, this transaction will generate -no seller or buyer surplus. -$60,000 of buyer surplus and $60,000 of seller surplus. -$60,000 of seller surplus and an unknown amount of buyer surplus. -$60,000 of buyer surplus and unknown amount of seller surplus.

$60,000 of seller surplus and an unknown amount of buyer surplus.

You are running a game day shuttle service for UAB football games. Your costs for different customer loads are 1: $27, 2: $29, 3: $32, 4: $36, 5: $41, 6: $48, 7: $57, and 8: $68. The marginal cost of the 6th customer is $48. $8. $21. $7.

$7

For your business producing UAB green & gold dartboards, your current production process has fixed costs of $20,000 and marginal costs of $40, whereas an alternative process has fixed costs of $5,000 and marginal costs of $50. You are indifferent between the two production processes at a quantity of 500. 1,500. 2,000. 100.

1500

For your new business producing UAB green & gold dartboards, equipment & facility rental are $20,000/month, and on average it will cost you $40 to produce a board that you can sell for $50. Your break-even monthly quantity is 2,000. 500. 4,000. 1,000.

2000

You are running a game day shuttle service for UAB football games. Your costs for different customer loads are 1: $27, 2: $29, 3: $32, 4: $36, 5: $41, 6: $48, 7: $57, and 8: $68. If the market price for a ride is $10/customer, you would maximize your profit with a customer load of 8. 7. 3. at least 9.

7

A price ceiling -increases market efficiency. -is binding only when set above the equilibrium price. -is equivalent to a tax on producers and a subsidy to consumers. -increases producer surplus.

is equivalent to a tax on producers and a subsidy to consumers

A strategy by an auto repair shop to recommend unnecessary repairs -will backfire if this becomes public knowledge. -usually is the result of insufficient information on the part of the mechanics. -is unlikely to occur, based on the amount of relevant information known by car owners compared with mechanics. -will not occur, because repair shops lack the incentive to pursue this strategy.

will backfire if this becomes public knowledge.

Which of the following is an example of an incentive at work? -You earn a grade of "A" by answering quiz and test questions correctly. -You allow your child play time if they clean up their room. -You earn a rebate on your car insurance for a safe driving record. -You receive a hefty parking ticket fine for parking in a handicap parking space without a handicap parking permit. -All of these choices are examples of incentives.

All of these choices are examples of incentives

A second powerful assumption underpinning economics, according the Charles Wheelan, is the following: -Firms must decide what to produce, how and where to produce it, how much to produce, and at what price to sell what they produce. -Firms attempt to maximize profits. -Firms take inputs -- land, labor, physical capital -- and combine them in a way that adds value -All of these options are correct.

All of these options are correct

Which of the following statements is true? -Markets are usually a good mechanism to allocate scarce goods and resources. -Government regulation can sometimes improve on market outcomes. -Incentives matter because they help economists explain how decisions are made -Trade off exist when a decision maker has to choose a course of action -All of these options are true

All of these options are true

Examples of free riding behavior include -listening to public radio without contributing to their fundraising campaigns. -tax evaders visiting public parks and driving on public highways. -earning a grade of "A" on a group project without contributing to the project. -going hunting or fishing without purchasing the proper license or permit. -All of these options involve free-riding.

All of these options involve free-riding

Which is true? -As the technology of home movie entertainment has changed from tapes and discs to digital files, home viewing of movies has changed from rival to nonrival. -At some restaurants and grocery stores, you can buy bison burgers made from farm-raised bison. This is bad news if we want more bison around. -Consider these three choices: space tourism, mail delivery, and a large fireworks display. Of these three, space tourism has the largest free-rider problem.

As the technology of home movie entertainment has changed from tapes and discs to digital files, home viewing of movies has changed from rival to nonrival

Which of the following statements are false? -Barriers to entry prevent new firms from competing with already existing firms. -The basic idea of network effects is that the value of some goods rises with the number of other people using them. -Barriers to entry create a market that is more competitive than it otherwise would be. -Examples of barriers to entry include patents, unique talents, or sole access to an important input.

Barriers to entry create a market that is more competitive than it otherwise would be

Which of the following statements is FALSE? -Taxes necessarily distort economic decision-making. -'Sin' taxes and 'green' taxes are designed to limit certain activities that are detrimental to society. -In general, economists favor taxes that are simple, fair, and broad. -Higher tax rates disincentivize individuals to participate in the 'underground' economy.

Higher tax rates disincentivize individuals to participate in the 'underground' economy

Economics starts with one very important assumption: -Individuals act to make themselves as well off as possible. -Maximizing utility is synonymous with acting selfishly. =Individuals share the same preferences. -It is good economics to impose our preferences on individuals whose lives are much different than our own.

Individuals act to make themselves as well off as possible.

Asking each of the following questions is useful for isolating the source of managerial problems, except: -Does the decision-maker have enough information to make a good decision? -Who is making the decision? -Does the decision-maker have the incentive to make a good decision? -Is the organization profitable?

Is the organization profitable?

Which of the following statements is false? -Every market transaction makes all parties better off. -Behavioral economics combines the disciplines of economics and psychology to offer a more sophisticated insight into how humans make decisions -Conventional economics assumes that individuals behave rationally when making decisions. -It is never possible to make rational individuals better off by denying them some option.

It is never possible to make rational individuals better off by denying them some option.

Why might a 'bonus cap' for executives be a bad policy? -It isn't, because executives should be paid a lower salary to reduce inequity across employees. -It creates disincentives to work until the cap is reached. -It might discourage work effort once the cap is reached. -It would sow discontent among lower-level salaried employees.

It might discourage work effort once the cap is reached

Which of the following statements is false? -The trade off of an action is the sacrifice of the next best alternative. -The things that give us utility do not have to be material goods. -The real cost of something is what you must give up in order to get it, which is almost always more than just cash. -Many social issues, such as birth rate trends, do not involve the concept of economic trade offs.

Many social issues, such as birth rate trends, do not involve the concept of economic trade offs

Which of the following statements is concerned with efficiency rather than equity? -Sales taxes on food are regressive and should be dismantled. -Income taxes should be raised on low-income families so that everyone pays. -The U.S. should implement a wealth tax on upper-income households. -Taxes cause distortions in markets and reduce social welfare. -The overall tax system in the U.S. should be more progressive.

Taxes cause distortions in markets and reduce social welfare

Which statement is FALSE? -In The Wealth of Nations, Adam Smith developed the concept of division of labor and expounded upon how rational self-interest and competition can lead to economic prosperity. -Joseph Schumpeter's idea of 'creative destruction' is considered a necessary condition for a economic growth. -The The EITC (Earned Income Tax Credit), in using the tax system to subsidize low-wage workers, provides an perverse disincentive to work. - All of these options are true

The The EITC (Earned Income Tax Credit), in using the tax system to subsidize low-wage workers, provides an perverse disincentive to work

Which of these actions creates value? -a student paying $100,000 to obtain a B.A. in English, and then following the exact same career path as he would have without that degree -paying a major league baseball player $30 million when his value-added to the team is $3 million -a corporate raider buying a struggling firm for $50 million and selling off its assets for $100 million -all of these actions create value

a corporate raider buying a struggling firm for $50 million and selling off its assets for $100 million

Which good has well-defined property rights? -wild animals -the ocean -a country club golf course -a street performance

a country club golf course

The rational-actor paradigm is useful for -analyzing behavior that has already occurred. -designing organizations that are less susceptible to opportunistic behavior. -teaching us to anticipate opportunistic behavior. -all of these choices.

all of these choices

The break-even quantity increases when all of these raise the break-even quantity. the price level decreases. marginal costs increase. fixed costs increase.

all of these raise the break-even quantity.

Subjects related to managerial economics that have come up on actual job interview questions (according to the end of chapter 1) include -sunk costs. -transfer pricing. -all of these subjects. -signaling in compensation offers.

all of these subjects

When considering the organizational design implications of a mistaken decision, the goal is to -alter the decision-making process to avoid similar mistakes in the future. -learn how to identify similar mistakes in the future after they occur. -simply reverse bad decisions. -identify bad decisions simply as the presence or absence of a specific behavior or system.

alter the decision-making process to avoid similar mistakes in the future

Your neighbor likes to mow her grass on Sunday morning at 7:00 a.m. and the noise invariably wakes you up. This is an example of: -a free rider problem. -an adverse selection problem. -a prisoner's dilemma problem. -an externality problem

an externality problem

Common resources -are the same thing as private resources. -are owned by private individuals. -are not owned by individuals, thus are subject to over exploitation or overuse. -are excludable and rival in consumption

are not owned by individuals, thus are subject to over exploitation or overuse

The invisible hand -argues that prices guide economic decisions. -results in an inefficient allocation of resources because market participants act in their self-interests. -is not described by any of these choices. -assists in moving assets from higher- to lower-valued uses.

argues that prices guide economic decisions

You paid $100 for ticket to the show, which your value of attending is $250. the day of the show u sell your ticket for $1,000. doing this, you have -hidden-cost fallacy, by not going to the show even though your value of attending was greater than the price you paid for the ticket. -fixed-cost fallacy, by not going to the show even though your value of attending was greater than the price you paid for the ticket. -hidden-cost fallacy, which would have occurred if you'd attended the show.

avoided committing the hidden-cost fallacy, which would have occurred if you'd attended the show

Economics can be described as the study of -choices under scarcity. -the everyday business of life. -both of these choices. -neither of these choices.

both of these choices

The difference between the price the buyer is willing to pay and actually pays is known as -willingness to pay. -seller (producer) surplus. -willingness to accept. -buyer (consumer) surplus.

buyer (consumer) surplus

Market transactions, particularly in competitive markets, are determined by -sellers -buyers -buyers and sellers

buyers and sellers

The Coase theorem suggest that private parties: -will never be able to negotiate to correct a negative externality. -can always negotiate to correct a negative externality. -can negotiate to correct a negative externality if barriers to negotiation are low. -can negotiate to correct a negative externality if the government passes a law allowing them to do so.

can negotiate to correct a negative externality if barriers to negotiation are low

Taxes -cause market distortions. -increase buyer surplus. -are described by all of these choices. -increase the number of available wealth-creating transactions.

cause market distortions

The possible solutions to managerial problems include all of the following except -changing the current decision maker's work location. -assigning the decision making responsibilities to someone else. -giving more information to the current decision maker. -changing the current decision maker's incentives.

changing the current decision maker's work location

You paid $30 to attend the first UAB football game. At half, you would rather do anything than watch the 2nd half. By staying for the rest of the game because you value the $30 you spent on the ticket, you are -avoiding committing the fixed-cost fallacy, which would have occurred if you'd ignored the $30 you spent on the ticket. -avoiding committing the hidden-cost fallacy, which would have occurred if you'd ignored the $30 you spent on the ticket. -committing the fixed-cost fallacy.

committing the fixed-cost fallacy

When assessing the trade-offs involved in changing organizational design, -costs include having to restructure how business is conducted. -costs include having a better decision-making process. -benefits include having to restructure how business is conducted. -there are only benefits, with no costs.

costs include having to restructure how business is conducted

The rational-actor paradigm does NOT assume that people behave -optimally. -rationally. -selfishly. -creatively.

creatively

An investment is more likely to be profitable when its NPV decreases. discount rate decreases. payoff moves further into the future. none of these increase the profitability of the investment.

discount rate decreases.

The pollution emitted by your car is an example of a(n): -internal cost. -external cost. -production cost. -marginal cost.

external cost

A regressive tax -falls more heavily on poor than on the rich. -falls more heavily on the rich than on the poor. -falls equally on the rich and the poor. -is considered a fair tax.

falls more heavily on poor than on the rich

An investment raises profits whenever its marginal benefits are -positive. -greater than its marginal costs. -none of these, since the investment decision does not depend on its marginal benefits. -exactly equal to its marginal costs.

greater than its marginal costs

Economic Value Added helps firms avoid the -hidden-cost fallacy, by taking all capital costs into account including the cost of equity. -fixed-cost fallacy, by ignoring the opportunity costs of using capital. -fixed-cost fallacy, by taking all capital costs into account including the cost of equity. -hidden-cost fallacy, by ignoring the opportunity costs of using capital.

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

Wealth generating transactions typically -are zero-sum, in that the net gain to the economy is zero. -increase total surplus. -benefit one involved party but harm the other. -benefit third parties but not the participants.

increase total surplus

You have decided to produce green & gold darts instead of dartboards. At your optimal level of output, price is $5, average variable cost is $4 and average fixed cost is $2. Your business is making a profit of $1 per dart. breaking even. incurring a loss of $1 per dart, but should continue to operate in the short run. incurring a loss of $1 per dart, so should shut down in the short run.

incurring a loss of $1 per dart, but should continue to operate in the short run.

Personal decisions of consumers and firms are based on -external costs. -social costs. -internal costs. -public-good costs.

internal costs

Congestion charges effectively decrease the number of cars on the road. This is an example of -the law of demand -the law of supply -the free-rider problem. -internalizing an externality.

internalizing an externality

The market economy -is a powerful force for making our lives better. -penalizes scarcity, which has no inherent relation to value. -provides goods that we need,

is a powerful force for making our lives better

The U.S. government owns 47% of all land in the West. The economic cost the government incurs by owning this land -is zero, because the government already owns the land. -depends on the value to the government of the land's current use. -is equal to the market value of the land. -depends on the total value to society of the land's current use.

is equal to the market value of the land.

A 'free rider' -is someone who travels on mass transit for free -is someone who uses a good or service without paying for it -is someone who uses a good or service at a reduced price -enable public goods to be offered by private firms.

is someone who uses a good or service without paying for it

Price discrimination -is the practice of selling different items at the same price to different people -is the practice of selling the same item to different people at different prices -is the practice of selling the same item to different people at the same price -is the practice of selling the same item to different ethnic groups at different prices

is the practice of selling the same item to different people at different prices

A firm has fixed costs if it operates in the short run. If the firm instead shuts down and produces zero output in the short run, it incurs a loss. its fixed costs are zero. its variable costs are positive. it makes a profit.

it incurs a loss.

The U.S. government prohibition on the selling of kidneys (at prices above zero) -results in more healthy kidneys being supplied than are demanded. -increases consumer surplus over what it would be if a market for kidneys was allowed to form. -leads to the formation of secondary markets for buying and selling kidneys. -all of these choices are correct.

leads to the formation of secondary markets for buying and selling kidneys

When a firm's average total cost is falling, then -marginal cost is less than average total cost. -it is impossible to say how marginal cost compares with average total cost without additional information. -marginal cost is greater than average total cost. -marginal cost is equal to average total cost.

marginal cost is less than average total cost

You have calculated that hiring an additional employee to work for you would increase the sales of your product, which is priced at $8 per unit, by 200 units per week, but will cost you $1,000 per week. This means that if you make this hire, $1,600 per week is the decrease in your profits. marginal revenue. marginal cost. increase in your profits.

marginal revenue

While working at ECU, Mike was offered jobs at UNH and USF. His preference ranking, in order, for his 3 options were 1) moving to USF, 2) moving to UNH and 3) staying at ECU. His opportunity cost of moving to USF was his net benefit from -moving to Clemson, with which he had interviewed but which did not offer him a job. -moving to UNH. -both moving to UNH and staying at ECU (the sum of these). -staying at ECU.

moving to UNH.

Which of the following describes best the characteristics of public goods? -rival and excludable -nonrival and nonexcludable -nonrival and excludable -rival and nonexcludable

nonrival and nonexcludable

If a firm is earning positive economic profits, its accounting profits must be -unable to be determined without additional information. -negative. -zero. -positive.

positive.

Incentives always involve -rewards and/or penalties. -monetary compensation. -ignoring intentions. -predicting human behavior.

rewards and/or penalties

If at a price-taking (i.e. a perfectly competitive) firm's current production level, its marginal revenue is $20 and its marginal cost, which is increasing as output rises, is $25, we can conclude that the firm -should increase production. -should reduce production. -is making a profit. -is incurring a loss.

should reduce production

A sunk cost is -the type of cost that can cause post-investment hold-up. -the cost of the next-best alternative. -the incremental cost of producing an additional unit. -any fixed cost.

the type of cost that can cause post-investment hold-up.

Tips to help solve managerial problems include -not worrying if the organization is feeding incorrect information to the decision maker. -not worrying if the goals of the organization and the decision maker are aligned. -thinking about solutions that get the decision maker to further the organization's goals. -considering only the decision maker's point of view.

thinking about solutions that get the decision maker to further the organization's goals

A consumer values a car at $90,000, and it costs a producer $70,000 to make the same car. If the transaction is completed at $85,000, the transaction will generate $20,000 worth of -seller surplus. -total surplus. -none of these choices are correct, because no surplus is created. -buyer surplus.

total surplus

When a well-functioning market is in equilibrium, -total surplus is zero. -total surplus is maximized without government intervention. -government maximizes its total revenue. -none of these choices are correct.

total surplus is maximized without government intervention