Econ 528 Exam 1

Refer to Figure 12-10. Identify the short-run shut down point for the firm. A - a B - b C - c D - d

B

Refer to Figure 3-1. An increase in population would be represented by a movement from A - D2 to D1 B - A to B C - B to A D - D1 to D2

D1 to D2

Which of the following statements about the price elasticity of demand is correct? A - the elasticity of demand for a good in general is equal to the elasticity of demand for a specific brand of the good B - the absolute value of the elasticity of demand ranges from zero to one. C - demand is more elastic in the long run than it is in the short run D - demand is more elastic the smaller the percentage of the consumer's budget the item takes up

Demand is more elastic in the long run than it is in the short run

Charging a different price for tickets to movies at twilight than after 6 o'clock is an example of bundling. True or False

False There are not grouped units

In the short run, a firm cannot change the amount of capital it uses. Therefore the cost of capital is a A - marginal cost B - productivity cost C - short run cost D - variable cost E - fixed cost

Fixed cost

Academic book publishers hire editors, designers, and production and marketing managers who help prepare books for publication. Because these employees work on several books simultaneously, the number of people the company hires will not go up and down with the quantity of books the company publishes during any particular year. The salaries and benefits of people in these job categories will be included in A - fixed cost and marginal cost but not variable cost. B - fixed cost but not variable cost and total cost C - marginal cost and total cost but not fixed cost D - fixed cost and total cost but not variable cost

Fixed cost and total cost but not variable cost

Fall 2018 Managerial economics : A - helps managers make decisions in the face of scarcity. B - ensures managers always make good decisions. C - describes how pay for managers is set. D - explains which products consumers will buy.

Helps managers make decisions in the face of scarcity.

Managerial economics A - describes how pay for mangers is set. B - ensures mangers always make good decisions C - helps mangers make decisions in the face of scarcity D - explains which products consumers will buy

Helps mangers make decisions in the face of scarcity

If Melissa owns a software company that incurs no fixed costs, then A - her total variable cost is less than her total cost B - she will earn an economic profit C - her total cost equals zero D - her marginal cost must equal zero E - her total cost equals her total variable cost

Her total cost equals her total variable cost

Managerial economics is best defined as the economic study of A - how businesses can decide on the best use of scarce resources B - how businesses can sell the most products C - how businesses can make the most products D - how businesses can operate at the lowest costs

How businesses can decide on the best use of scarce resources

Last year, Sefton purchased 60 pounds of potatoes to feed his family of five when his household income was $30,000. This year, his household income fell to $20,000 and Sefton purchased 80 pounds of potatoes. All else constant, Sefton's income elasticity of demand for potatoes is A - negative, so Sefton considers potatoes to be an inferior good B - negative, so Sefton considers potatoes to be a normal good C - positive, so Sefton considers potatoes to be a normal good and a necessity D - positive, so Sefton, considers potatoes to be an inferior good

Negative, so Sefton considers potatoes to be an inferior good

Refer to Figure 12.1 if the firm is producing 500 units, what is the amount of its profit or loss? A - There is insufficient information to answer the question B - profit equivalent to the area A C - profit of $280 D - loss equivalent to the area A

There is insufficient information to answer the question

Refer to Figure 12.1. If the firm is producing 700 units, what is the amount of its profit or loss? A - loss of $280 B - profit equivalent to the area A C - there is insufficient information to answer the question D - loss equivalent to the area A

There is insufficient information to answer the question

Some electric utilities offer one rate to commercial users and a different rate to residential users. This is an example of: A - universal access pricing B - bundling C - peak load pricing D - third degree price discrimination

Third degree price discrimination

Fall 2018 Selling tickets in the orchestra region of the Metropolitan Opera for $55 and selling tickets in the upper balcony for $28 to listen to Luciano Pavoratti describes which type of price discrimination? A - first-degree price discrimination B - bundling C - third-degree price discrimination D - this is not necessarily price discrimination

Third-degree price discrimination

Fall 2018 How many pounds of apples should Margie sell to maximize her profit? Table 12-2 A - 400 pounds B - this cannot be determined without knowing Margie's total or marginal production costs C - 300 pounds D - This can be determined only when all the values for market price, total revenue, average revenue and marginal revenue are given

This cannot be determined without knowing Margie's total or marginal production costs

A sale on men's slacks at T.J. Max, where you buy the first pair at full price, you can buy the second pair at half price, is an example of differential pricing True or False

True

A sale on men's slacks at T.J. Maxx, where if you buy the first pair at full price, you can buy the second pair at half price, is an example of differential pricing. A - False B - the validity of the statement cannot be determined based on the given information C - true D - the statement can be either true or false

True

Accounting costs exclude implicit cost. True or False

True

For a price discriminating airline, if the demand for business travelers were to expand, a proactive price discriminator would expand the number of seat assignments to business travelers and likely raise business traveler ticket prices. A - it is neither false nor true B - it could be true or false C - True D - False

True

Suppose a used-care salesman asks you the most you would be able to pay for a car and, unthinkingly, you answer truthfully, $4,800 is exactly the price for the car that you are presently examining. Then the used-car salesman has effectively used perfect price discrimination on you. True or False

True

Suppose a used-care salesman asks you the most you would be able to pay for a car and, unthinkingly, you answer truthfully, $4,800. Suppose, amazingly, that $4,800 is exactly the price for the car that you are presently examining. Then, the used-car salesman has effectively used perfect price discrimination on you. A - true B - the validity of the statement cannot be determined based on the given info C - false D - the statement is neither true nor false

True

Because the amount of labor a firm employs can be changed, the cost of labor is known as A - maximum cost B - an unavoidable cost C - fixed cost D - variable cost E - minimum cost

Variable cost

A factor of production that can be easily changed in the relevant time period is called a A - fixed input B - variable input C - temporary input D - substitute input

Variable input

Which of the following is an example of a long run adjustment? A - Your university offers Saturday morning classes next fall B - Ford Motor company lays off 2,000 assembly line workers C - A soybean farmer turns on the irrigation system after a month long dry spell D - Walmart builds another Supercenter

Walmart builds another Supercenter

Managerial economics

helps managers make decisions in the face of scarcity

Refer to Table 12 -1. What is the fixed cost of production? A - $0 B - $500 C - $1,000 D - It cannot be determined

$1,000

Refer to Table 11 - 7. What is the variable cost of production when the firm produces 115 lanterns? A - $10.05 B - $1,157 C - $956 D - $1,556

$1,157

Sally quit her job as an auto mechanic earning $50,000 per year to start her own business. To save money she operates her business out of a small building she owns which, until she started her own business, she had rented out for $10,000 per year. She also invested her $20,000 savings (which earned a market interest rate of 5% per year) in her business. You are given the following information about the first year of her operations. Total revenue $120,000 Cost of labor 40,000 Cost of materials 15,000 Equipment rental 5,000 Calculate her economic costs.

$121,000 = 40,000 (labor) + 15,000 (materials) + 5,000 (equipment)+ 10,000 (opportunity cost of building) + 1,000 (5% of 20,000, the opportunity cost of her savings) + 50,000 (opportunity cost of Sally's labor)

Refer to Table 11-7. What is the average total cost of production when the firm produces 120 lanterns? A- $14 B - $12.3 C - $1,680 D - $72

$14

Refer to Table 12.1. The firm will not produce in the short run if the output price falls below A - $8 B - $4 C - $3.20 D - $2.80

$2.80 The question is asking about the shutdown point for the firm. The shutdown condition of the firm is P = Minimum AVC. From the table, it is evident that minimum AVX is 2.8. Hence the firm will not produce if price falls below 2.8 because the firm cannot even cover their variable cost.

Refer to Table 12-1 (short run). If the market price of each camera is $8, what is the firm's total revenue? A - $2,400 B - $3,200 C - $4,000 D - $4,800

$3,200 Profit maximization requires satisfying the following condition: MR = MC To find the output where the condition is satisfied, we must expand the table as follows: From the table, profit is maximized at the output level of 400 where MR = MC = P condition is satisfied Also, at the profit maximizing out put level, TR = P x Q = 8x400 = 3,200

Refer to Table 12-1. If the market price of each camera case is $8, what is the firm's total revenue? A - $2,400 B - $3,200 C - $4,000 D - $4,800

$3,200 The profit maximizing output is 400. If each camera costs $8, total revenue = P x Q = 8 x 400=3,200

Refer to Table 11-7. What is the marginal cost per unit of production when the firm produces 100 lanterns? A - $8.1 B - $11.1 C - $420 D - $32

$32

Golda Rush quit her job as a manager for Home Depot to start her own hair dressing salon, Goldilocks. She gave up a salary of $40,000 per year, invested her savings of $30,000 (which was earning 5 percent interest) and borrowed $10,000 from a close friend, agreeing to pay 5 percent interest per year. In her first year, Golda spent $18,000 to rent a salon, hired a part-time assistant for $12,000 and incurred another $15,000 on equipment and hairdressing material. Based on this information, what is the amount of her implicit costs? A - $70,000 B - $80,000 C - $41,500 D - $42,000

$41,500

Golda Rush quit her job as a manager for Home Depot to start her own hair dressing salon, Goldilocks. She gave up a salary of $40,000 per year, invested her savings of $30,000 (which was earning 5 percent interest) and borrowed $10,000 from a close friend, agreeing to pay 5 percent interest per year. In her first year, Golda spent $18,000 to rent a salon, hired a part-time assistant for $12,000 and incurred another $15,000 on equipment and hairdressing material. Based on this information, what is the amount of her explicit costs? A - $45,000 B - $45,500 C - $47,000 D - $87,000

$45,500 Explicit Cost = Out of Pocket cost = Actual Money spent = Rent + Wage for the assistant + material cost + Interest paid on the borrowing 18,000 + 12,000 + 15,000 + (10,000 x 0.05) = 45,500

Refer to Table 11-7. What is the average variable cost per unit of production when the firm produces 90 lanterns? A - $490 B - $7.67 C - $33.67 D - $5.44

$5.44

Lauren runs a chili restaurant in San Francisco. Her total revenue last year was $110,000. The rent on her restaurant was $48,000, her labor costs were $42,000, and her materials, food and other variable costs were $20,000. Lauren could have worked as a biologist and earned $50,000 per year. An economist calculates her implicit costs as A - $63,000 B - $110,000 C - $150,000 D - $0 because Lauren did not work as a biologist E - $50,000

$50,000

Sally quit her job as an auto mechanic earning $50,000 per year to start her own business. To save money she operates her business out of a small building she owns which, until she started her own business, she had rented out for $10,000 per year. She also invested her $20,000 savings (which earned a market interest rate of 5% per year) in her business. You are given the following information about the first year of her operations. Total revenue $120,000 Cost of labor 40,000 Cost of materials 15,000 Equipment rental 5,000 Calculate her accounting costs.

$60,000 = 40,000 (labor) + 15,000 (materials) + 5,000 (equipment)

In September 2012, the average price of gasoline in the United States was $3.91 per gallon and consumers bought 5 percent less gasoline than they had during September 2011, when the average price was $3.66 per gallon. Based on these numbers, what was the arc price elasticity of demand for gasoline from Sept 2011 to Sept 2012 using the Midpoint Formula? A - -0.33 B - -0.76 C - -2.96 D - -6.75

% change in quantity demanded between 2011 and 2012 = -5% % change in price between 2011 and 2012 (using the midpoint formula) = (3.91-3.66)/((3.91+3.66)/2)*100 = (0.25/3.785)*100 = 6.60 Using midpoint formula, the price elasticity od demand between 2011 and 2012 = -5/6.60 = -0.7575 = -0.76 The answer is B

Fall 2018 In September 2012, the average price of gasoline in the United States was $3.91 per gallon and consumers bought 5 % less gasoline than they had during September 2011, when the average price was $3.66 per gallon. Based on these numbers, what was the arc price elasticity of demand (midpoint formula) for gasoline from September 2011 to September 2012? A - (2.96) B - (0.76) C - (6.75) D - (0.33)

(.76)

Fall 2018 The law of diminishing marginal returns states that increases in the variable input reduce the total product. True or False

False

The price elasticity of demand for Stork ice cream is -4. Suppose you're told that following a price increase, quantity demanded fell by 10 percent. What was the percentage change in price that brought about this change in quantity demanded? A - 0.4 percent B - 2.5 percent C - 40 percent D - 25 percent

2.5 percent

Refer to Table 12-1 (short run). If the market price of each camera case is $8, what is the profit-maximizing quantity? A - 300 units B - 400 units C - 500 units D - 600 units

400 units

Refer to Table 12-1. If the market price of each camera case is $8, what is the profit-maximizing quantity? A - 300 units B - 400 units C - 500 units D - 600 units

400 units The profit maximizing equilibrium output is found where the following condition is satisfied: MR = MC In perfect competition, P=MR=$8 In the table, we see that at output level 400, P=MR=MC=8 Therefore, this is the profit maximizing output.

Suppose the value of the price elasticity of demand is -3. What does this mean? A - a 1 % increase in the price of the good causes quantity demanded to increase by 3 % B - a 1 % increase in the price of the good causes quantity demanded to decrease by 3 % C - a 3 % increase in the price of the good causes quantity demanded to decrease by 1 % D - a $1 increase in price causes quantity demanded to fall by 3 units.

A 1 % increase in the price of the good causes quantity demanded to decrease by 3 %

Suppose the cross-price elasticity of demand between grapefruit juice and orange juice is approximately 6. What does this mean? A - a 1 % decrease in the price of grapefruit juice leads to a 6 % increase in orange juice consumption B - a 6 % increase in the price of grapefruit juice leads to a 1 % increase in orange juice consumption C - If the price of grapefruit juice rises by $1, 6 more cartons of orange juice will be purchased D - the demand for orange juice is 6 times more than the demand for grapefruit juice

A 1% decrease in the price of grapefruit juice leads to a 6% increase in orange juice consumption

Consider the following pairs of items: a. Shampoo and conditioner b. iPhones and earbuds c. A laptop computer and a desktop computer d. beef and pork e. Air-travel and weed killer Which of the pairs listed will have a negative cross-price elasticity? A - a, b and c only B - a and b only C - c and d only D - e only

A and B only

Which of the following is a factor of production that generally is fixed in the short run? A - raw materials B - labor C - a factory building D - water

A factory building

If a 5 percent increase in income leads to a 10 percent increase in quantity demanded for airline travel, then airline travel is A - a luxury B - an inferior good C - a necessity D - a substitute for another good

A luxury

If an increase in income leads to an increase in the demand for peanut butter, then peanut butter is A - a neutral good B - a normal good C - a necessity D - a complement

A normal good

Which of the following would be categorized as an opportunity cost? A) not being able to spend your $10,000 savings if you sink the money in your business B) the cost of purchasing supplies for your house-cleaning business C) the cost of purchasing auto insurance for your dry-cleaning delivery business A - a only B - a and c only C - b and c only D - all of the above

A only

A firm earns a normal profit when its total revenues just offset both the ________ cost and ________ cost. A - explicit; accounting B - accounting; replacement C - accounting; opportunity D - historical; replacement

Accounting; opportunity

A firm's managers are constrained by A - consumers B - workers C - government D - all of the above

All of the above

Microeconomics are used to A - make predictions B - explain real-life phenomena C - evaluate production alternatives D - all of the above

All of the above

Economists estimated that the price elasticity of beer is -0.30 and the income elasticity of beer is 0.09. This means that A - an increase in the price of beer will increase the quantity demanded of beer and beer is a normal good B - an increase in the price of beer will lead to an increase in revenue for beer sellers and beer is a normal good C - a decrease in the price of beer will lead to an increase in revenue for beer sellers and beer is an inferior good D - an increase in the price of beer will lead to a decrease in the quantity demanded of beer and beer is a necessity

An increase in the price of beer will lead to an increase in revenue for beer sellers and beer is a normal good

Economists estimated that the price elasticity of beer is -0.30 and the income elasticity of beer is 0.09. This means that A - an increase in the price of beer will increase the quantity demanded of beer and beer is a normal good. B - an increase in the price of beer will lead to an increase in revenue for beer sellers and beer is a normal good C - a decrease in the price of beer will lead to an increase in revenue for beer sellers and beer is an inferior good D - an increase in the price of beer will lead to a decrease in the quantity demanded of beer and beer is a necessity.

An increase in the price of beer will lead to an increase in revenue for beer sellers and beer is a normal good

If an increase in income leads to a decrease in demand for popcorn, then popcorn is A - a neutral good B - a normal good C - an inferior good D - a necessity

An inferior good

Accounting cost A - are replacement costs B - are historical costs C - usually include implicit costs D - usually include normal profits

Are historical costs

Fall 2018 Figure 12-9 shows cost and demand curves facing a profit-maximizing, perfectly competitive firm. Identify the short-run shut down point for the firm. Select one: A - a B - b C - c D - d

B

Linesha, a college student working part-time receives a wage increase. An avid movie buff, she increased her purchases of Blu-ray discs and reduced her purchases of DVDs. Based on this information A - DVDs and Blu-ray Discs are normal goods B - DVDs and Blu-ray Discs are substitutes C - Blu-ray Discs are normal goods and DVDs are inferior goods D - the cross-price elasticity between DVDs and Blu-ray Discs is negative

Blu-ray Discs are normal goods and DVDs are inferior goods

A restaurant in an isolated spot on the coast of Maine sells only complete meals at a fixed price (called price fixe), with the opportunity to select a la crate choices. Which type of price discrimination is being practiced? A - universal access B - bundling C - two part tariffs D - first - degree price discrimination

Bundling

If the price of steel increases drastically, the quantity of steel demanded by the building industry will fall significantly over the long run because A - buyers of steel are less sensitive to a price change if they have more time to adjust to the price change. B - buyers of steel are less sensitive to a price change if they have more time to adjust to the price change. C - sales revenue in the building industry will fall sharply D - profits will fall by a greater amount in the long run than in the short run

Buyers of steel are less sensitive to a price change if they have more time to adjust to the price change

If the price of steel increase drastically, the quantity of steel demanded by the building industry will fall significantly over the long run because A - buyers of steel are more sensitive to a price change if they have more time to adjust to the price change B - profits will fall by a greater amount in the long run than in the short run C - sales revenue in the building industry will fall sharply D - buyers of steel are less sensitive to a price change if they have more time to adjust to the price change

Buyers of steel are more sensitive to a price change if they have more time to adjust to the price change

If an economist says that firm practices price discrimination, that firm is: A - Making great efforts to keep its costs as low as possible B - Exploiting the poor C - Producing two products, one with decreasing returns to scale and the other with increasing returns D - Charging different prices for the same good or service

Charging different prices for the same good or service

Microeconomics includes the study of the A - reasons why the government changes interest rates B - nationwide unemployment rate C - choices made by individuals and businesses D - recessions and inflation in the global economy E - aggregate effects on the national economy

Choices made by individuals and businesses

If the cross-price elasticity of demand for computers and software is negative, this means the two goods are A - substitutes B - complements C - inferior D - normal

Complements

Elvira decreases her consumption of bananas when the price of peanut butter increased. For Elvira, peanut butter and bananas are A - substitutes in consumption B - both inferior goods C - complements in consumption D - both luxury goods

Complements in consumption

For a firm that can effectively price discriminate, who will be charged a lower price? A - customers who have an elastic demand for the product B - customers who have an inelastic demand for the product C - buyers that are members of the largest market segment D - buyers that are members of the smallest market segment

Customers who have an elastic demand for the product

Fall 2018 A firm that can effectively price discriminate will charge a higher price to A - customers who have the more inelastic demand for the product B - buyers who belong to the largest market segment C - buyers who are members of the smallest market segment D - customers who have the more elastic demand for the product

Customers who have the more INELASTIC demand for the product

Fall 2018 Which of the following statements about the price elasticity of demand is correct? A - demand is more elastic in the long run than it is in the short run. B - demand is more elastic the smaller the percentage of the consumer's budget the item takes up C - the absolute value of the elasticity of demand ranges from zero to one D - the elasticity of demand for a good in general is equal to the elasticity of demand for a specific brand of the good

Demand is more elastic in the long run than it is in the short run.

Fall 2018 If production displays economies of scale, the long-run average cost curve is: A - upward sloping B - above the short-run average total cost curve C - downward-sloping D - above the long-run marginal cost curve

Downward-sloping

Fall 2018 Economic costs of production differ from accounting costs in that A - economic costs include expenditures for hired resources while accounting costs do not. B - accounting costs are always larger than economic cost C - economic costs add the opportunity costs of a firm using its own resources while accounting costs do not D - accounting costs include expenditures for hired resources while economic costs do not.

Economic costs add the opportunity costs of a firm using its own resources while accounting costs do not

Suppose Jill Johnson quits her $30,000 a year job to start a pizza store. She uses $50,000 of her savings to buy equipment - furniture, etc. - and takes out a loan as well. The items in pink/red are explicit costs. The items in blue are implicit costs: her foregone salary, the interest the money could have earned... Pizza ingredients $20,000 Wages $48,000 Interest payments $10,000 Electricity $6,000 Lease pymt $24,000 Foregone salary $30,000 Foregone interest $3,000 Total $141,000

Explicit cost = 20,000 + 48,000 + 10,000 + 6,000 + 24,000 = 108,00 Implicit cost = 30,000 + 3,000 = 33,000

According to the profit-maximization goal, the firm should attempt to maximize short-run profits since there is too much uncertainty associated with long-run profits True or False

False

Charging a different price for tickets to movies at twilight than after 6 o'clock is an example of bundling. A - true B - it is impossible to determine the validity of the statement based on the given information C - it can be true or false D - False

False

Economic costs include implicit costs but not explicit costs True or False

False

Fall 2018 Over time, more experienced workers will demand higher wage and therefore, will lead to an increase in the cost of production for the producers True or False

False

Fall 2018 We should use relatively more labor if we learn that the marginal product per dollar of labor expenditures is less than a marginal product per dollar of capital expenditures. True or False

False

Fall 2018 Sally quit her job as an auto mechanic earning $50,000 per year to start her own business. To save money she operates her business out of a small business she owns which, until she started her own business, she had rented out for $10,000 per year. She also invested her $20,000 savings (which earned a market interest rate of 5% per year) in her business. You are given the following information about the first year of her operations. Total revenue: $120,000 Cost of labor: $40,000 Equipment rental: $5,000 Foregone Salary: $50,000 Forgone interest: $1,000 Opportunity cost of building: $10,000 Which one is the correct answer? A - In the first year, economic profit is -$1,000 and accounting profit is $60,000 B - In the first year, economic profit is $60,000 C - In the first year, economic profit is $70,000 and accounting profit is $60,000 D - In the first year, economic profit is $60,000 and accounting profit is $60,000.

In the first year, economic profit is -$1,000 and accounting profit is $60,000

Fall 2018 If the Apple iPhone and the Samsung Galaxy are considered substitutes, then, other things equal, an increase in price of the iPhone will A - increase the quantity demanded for the iPhone B - increase the quantity demanded for the Galaxy C - increase the demand for the Galaxy D - decrease the demand for the iPhone

Increase the demand for the Galaxy

The demand for gasoline in the short run is A - unit-elastic because people tend to consume a stable amount of gasoline per period B - inelastic because there are no good substitutes for gasoline C - perfectly inelastic because people have no choice but to buy gasoline D - elastic because people can easily switch to public transportation

Inelastic because there is no good substitutes for gasoline

Price discrimination A - is the practice of charging different prices to different customers based on a seller's personal preferences and prejudices B - is the practice of charging different prices to different customers based on the different costs of supplying the product to different customers C - is the practice of charging different prices to different customers when the price differences cannot be attributed to variations in cost. D - is the practice of giving preferential treatment to certain groups of customers based on their long-standing relationship to the producer

Is the practice of charging different prices to different customers when the price differences cannot be attributed to variations in cost

A managerial decision is not profitable if A - in decreases some cost more than it increases others B - it increase some revenues more than it decreases others C - it increases costs more than revenue D - it increases revenue more than costs

It increases costs more than revenue

Which of the following statements best describes the economic short run? A - It is a period of one year of less B - It is a period during which firms are free to vary all of their inputs. C - It is a period during which at least one of the firm's inputs is fixed D - It is a period during which fixed inputs become variable inputs because of deprectiation

It is a period during which at least one of the firm's inputs is fixed

Refer to Figure 12.1 if the firm is charging a price of $12 per unit A - it is not selling any output B - it is making a profit C - it is selling 700 units D - it breaks even

It is not selling any output

Refer to Figure 12.1. If the firm is producing 700 units A - it is making a loss B - it should increase its output to maximize profit C - it should cut back its output to maximize profit D - it is making a profit

It should cut back its output to maximize profit

Refer to Figure 12.1. If the firm is producing 200 units A - it is making a loss B - it should cut back its output to maximize profit C - it should increase its output to maximize profit D - it breaks even

It should increase its output to maximize profit

Refer to Figure 12.1. If the firm is producing 500 units A - it is making a profit B - it should increase its output to maximize profit C - it is making a loss D - it should maintain its output to maximize profit

It should maintain its output to maximize profit

Refer to Table 12.1. Suppose the fixed cost of production rises by $500 and the price per unit is still $8. What happens to the firm's profit-maximizing output level? A - It must fall B - It must rise to offset the increase cost C - It will remain the same D - The firm will shut down

It will remain the same. When fixed cost increases, total cost increases but MC remains the same. As a result the profit maximizing out (found by equating MC with MR) does not change.

Why can Managerial Economics be applied to any business decision making process, regardless of the industry?

Managerial economics is relevant to nonprofit organizations and government agencies as well as conventional, for-profit businesses. Although the underlying objective may change based on the type of organization, all these organizational types exist for the purpose of creating goods or services for persons or other organizations.

CEOs should focus on: A - beating their competitors B - minimizing costs C - maximizing firm profits D - getting the best pay package for the senior management team

Maximizing firm profits

The form of economics most relevant to managerial decision-making within the firm is: A - microeconomics B - free-enterprise economics C - macroeconomics D - welfare economics

Microeconomics

Sally quit her job as an auto mechanic earning $50,000 per year to start her own business. To save money she operates her business out of a small building she owns which, until she started her own business, she had rented out for $10,000 per year. She also invested her $20,000 savings (which earned a market interest rate of 5% per year) in her business. You are given the following information about the first year of her operations. Total revenue $120,000 Cost of labor 40,000 Cost of materials 15,000 Equipment rental 5,000 Sally tells you that she would really like to move to a location closer to town but she decided against it because "right now I don't pay any rent and it will cost me $10,000 a year to rent near town." Do you agree with her reasoning?

No. Although she does not incur a monetary cost for her garage space now, it is an opportunity cost and part of the economic cost of doing business. Sally could just as well rent her space out now, collect the rent and move closer to town

When an economist uses the term "cost" referring to a firm, the economist refers to the A - explicit cost of producing a good or service but not the implicit cost of producing a good or service B - implicit cost of production a good or service but not the explicit cost of producing a good or service C - opportunity cost of producing a good or service, which includes both implicit and explicit cost D - price of the good to the consumer E - cost that can be actually verified and measured

Opportunity cost of producing a good or service, which includes both implicit and explicit cost

A change in which variable will change the market demand for a product? A - the price of the product B - population C - technology D - the prices of the substitutes in population

Population

Managerial economics generally refers to the integration of economic theory with business A - Management B - Practice C - Ethics D - All of the above

Practice

Refer to Table 12-1. If the market price of each camera case is $8 and the firm maximized profit, what is the amount of the firm's profit or loss? A - $0 (it breaks even) B - loss of $1,000 C - profit of $440 D - loss of $440

Profit of $440 Profit = Total revenue - total cost - TR-TC = 3,200 - 2,760 (TC at output of 400) = $440

Managerial economics as a specialized branch of Economics A - provide ready-made solutions to business problems B - provide logic and methodology to find solutions to business problems C - provide alternative answers to specific business problems D - provide theoretical background to analyze business problem

Provide logic and methodology to find solutions to business problems

Which of the statements about price discrimination is (are) false? A - public utilities practice first-degree price discrimination B - it must be possible to segment the market C - it must be difficult to transfer the seller's product from one market segment to another D - there must be differences in the elasticity of demand from one segment to another

Public utilities practice first-degree price discrimination

Unlike an accountant, an economist measures costs on a(n) ______________ basis. A - explicit B - replacement C - conservative D - historical

Replacement

Microeconomics studies the allocation of A - decision makers B - scarce resources C - models D - unlimited resources

Scarce resources

Fall 2018 If a firm charges customers $200 per unit of the first unit purchased, and $160 per unit for each additional unit purchased in excess of one unit. Then, what is the economic term of this strategy? A - third-degree price discrimination B - first-degree price discrimination C - Profit maximization pricing D - second-degree price discrimination

Second-degree price discrimination

If a firm charges customers $200 per unit of the first unit purchased, and $160 per unit for each additional unity purchased in excess of one unit. Then, what is the economic term of this strategy? A - Second-degree price discrimination B - Third-degree price discrimination C - First-degree price discrimination D - Profit maximization pricing

Second-degree price discrimination

If, for a given output level, a perfectly competitive firm's price is less than its average variable cost, the firm A - is earning a profit B - should shut down C - should increase output D - should increase price

Should shut down

If total variable cost exceeds total revenue at all output levels, a perfectly competitive firm A - should produce in the short run B - is making short-run profits C - should shut down in the short run D - has covered its fixed cost

Should shut down in the short run

Why is it useful to study Managerial Economics?

Since the purpose of managerial economics is to apply economics for the improvement of managerial decisions in an organization, most of the subject material in managerial economics has a micro economic focus. However, since managers must consider the state of their environment in making decisions and the environment includes the overall economy, an understanding of how to interpret and forecast macroeconomic measures is useful in making managerial decisions.

Suppose that when the price of strawberries decreases, Simone increases her purchase of whipped cream. To Simone A - strawberries and whipped cream are complements B - strawberries are a normal good and whipped cream is an inferior good C - strawberries and whipped cream and substitutes D - strawberries and whipped cream are normal goods

Strawberries and whipped cream are complements

Tomas increased his consumption of potato chips when the price of pistachios increased. For Tomas, potato chips and pistachios are A - both inferior goods B - complements in consumptions C - substitutes in consumption D - both luxury goods

Substitutes in consumption

Table 12-1 (short run)

Table 12 - 1 shows the short-run cost data of a perfectly competitive firm that produces plastic camera cases. In perfect competition, marginal revenue (MR) is always equal to the market price. Assume that out put can only be increased in batches of 100 units.

Adam spent $10,000 on new equipment for his small business, "Adam's Fitness Studio." Membership at his fitness center is very low and at this rate, Adam needs an additional $12,000 per year to keep his studio open. Which of the following is true? A - the $10,000 Adam spent on equipment is the total cost of starting the business and the $12,000 he'll need to continue operations is a marginal cost B - the fixed cost of running the studio is $22,000 C - the variable cost of running the studio is $22,000 D - the $10,000 Adam spent on equipment is a fixed cost of business and the $12,000 he'll need to continue operations is a variable cost.

The $10,000 Adam spent on equipment is a fixed cost of business and the $12,000 he'll need to continue operations is a variable cost.

Fall 2018 Studies have shown links between calcium consumption and a reduction in osteoporosis. How does this affect the market for calcium? A - the calcium supply curve shifts to the right because of a change in tastes in favor of calcium B - the calcium demand curve shifts to the right because of a change in tastes in favor of calcium C - the calcium supply curve shifts to the left because this new information will increase the price of calcium D - the calcium demand curve shifts to the left because this new information will increase the price of calcium

The calcium demand curve shifts to the right because of a change in tastes in favor of calcium

Marginal cost equals A - the change in total cost that results from a one-unit increase in output B - total cost minus total variable cost C - total fixed cost divided by total output D - the change in fixed cost that results from a one-unit increase in output E - total variable cost divided by total output

The change in total cost that results from a one-unit increase in output

Fall 2018 Buyers rush to purchase stocks in California vineyards following a forecast of a 30 percent decline in the year's grape harvest. What happens in the California wine market as a result of this announcement? A - The supply curve for California wine shifts to the left in anticipation of lower quantities in the future B - the supply curve for California wine shifts to the right in anticipation of higher prices in the future C - the demand curve for California wine shifts to the right in anticipation of higher prices in the future D - the demand curve for California wine shifts to the left in anticipation of higher prices in the future

The demand curve for California wine shifts to the right in anticipation of higher prices in the future

In June, buyers of titanium expect that the price of titanium will fall in July. What happens in the titanium market in June, holding everything else constant? A - the demand curve shifts to the right B - the quantity demanded increases C - the quantity demanded decreases D - the demand curve shifts to the left

The demand curve shifts to the left

If the price of music downloads was to decrease, then A - the supply of the MP3 players would increase B - the quantity demanded of MP3 players would decrease C - the demand for MP3 players would increase D - the demand for MP3 players would decrease

The demand for MP3 players would increase Music downloads and MP3 players are considered complementary goods. If the price of music downloads decreases, there will be an increase in quantity demanded for music and it will lead to an increase in demand for more MP3 players. It should also be mentioned that since these two goods are complementary goods, their cross price of demand is negative, which means a decline in price of one good will increase the demand for the other. This is based on the corrections that was mentioned in one of the announcements

For each pair of item below determine which product would have the higher price elasticity of demand (in absolute value): A Seiko watch or watches in general.

The demand for Seiko watches is more price elastic than demand for watches in general. Narrowly defined markets (such as the Seiko watch market) have many substitutes.

For each pair of item below determine which product would have a higher price elasticity of demand (in absolute value): A new Ford Fusion or a tank of gas for your current car.

The demand for a new car is more price elastic than the demand for a tank of gas for your current car. The Ford Fusion: (a) has many substitutes, including your current car and (b) will consume a relatively large portion of your budget. Gasoline for the car you own is more necessity than luxury.

Fall 2018 If the price of automobiles was to increase, then A - the quantity demanded of gasoline would decrease B - the demand for gasoline would decrease C - the demand for gasoline would increase D - the supply of gasoline would increase

The demand for gasoline would decrease

For each pair of item below determine which product would have the higher price elasticity of demand (in absolute value): blood pressure medicine for someone who has high blood pressure and the purchase of Clairol hair coloring product.

The demand for the hair product is more price elastic (its elasticity has a higher absolute value) than the demand for blood pressure medicine. The latter is more necessity than luxury and has virtually no substitutes. There are substitutes for the Clairol hair coloring product and it is not a necessity.

First (perfect) degree price discrimination means that a firm charge: A - different prices to people of different racial or ethnic backgrounds B - one single price - the maximum possible - to all of its buyers C - the maximum amount that buyers are willing to pay for each unit D - different prices to different groups of buyers

The maximum amount that buyers are willing to pay for each unit

A change in all of the following variables will change the market demand for a product except A - income B - the price of the product C - tastes D - population and demographics

The price of the product

Fill in the columns in the following table and use the values in the table to determine the profit-maximizing level of output.

The profit-maximizing level of output is 5 units

Third-degree price discrimination exists whenever: A - the seller knows exactly how much each potential customer is willing to pay and will charge accordingly B - different prices are charged by blocks of services C - the seller can separate markets by geography income, age, etc, and charge different prices to these different groups D - the seller will bargain with buyers in each of the markets to obtain the best possible price

The seller can separate markets by geography, income, age, etc and charge different prices to these different groups

What are the two effects that explain the Law of Demand? Briefly explain each effect.

The two effects that explain the Law of Demand are the income effect and the substitution effect. The income effect is the change in quantity demanded of a good that results from a change in purchasing power due to a change in the good's price. The substitution effect is the change in quantity demanded of a good that results from the effect of a change in the good's price making the good more or less expensive relative to other goods that are substitutes.

Fall 2018 If the cross-price elasticity of demand for two goods is 1.25 then A - the two goods are substitutes B - the demand for one of the goods conforms to the law of demand, but the demand for the other good violates the law of demand C - one of the goods is normal and the other good is inferior D - the two goods are luxuries

The two goods are substitutes

If firms do not earn economic profits in a competitive equilibrium, why would the firms choose to stay in business?

When firms earn no economic profit but earn a normal profit, they earn precisely as much as they could have earned by investing their time and money elsewhere. In other words, each producer is able to earn sufficient accounting profits to cover the opportunity cost of invested factors (time and money) and to continue operating. The source of the confusion stems from the difference between accounting and economic profits.

If the percentage increase in price is 15 percent and the value of the price elasticity of demand is -3, then quantity demanded A - will decrease by 45 percent B - will decrease by 5 percent C - will increase by 45 percent D - will increase by 5 percent

Will decrease by 45 percent

Refer to Figure 12.4. If the market price is $30, should the firm represented in the diagram continue to stay in business? A - Yes, because it is covering part of its fixed cost B - No, it should shut down because it cannot cover its variable cost C - Yes, because it is making a profit D - No, it should shut down because it is making a loss

Yes, because it is covering part of its fixed cost

Which of the following is the best example of a short run adjustment? A - Toyota builds a new assembly plant in Texas B - Your local Walmart hires two more associates C - Smith University competed negotiations to acquire a large piece of land to build its new library D - A local bakery purchases another commercial oven as part of its capacity expansion

Your local Walmart hires two more associates

Fall 2018 Assume that a 4 % decrease in income results in a 6 % increase in the quantity demanded of a good. The income elasticity of demand for the good is A - negative and the good is a normal good B - positive, and the good is an inferior good C - negative, and the good is an inferior good D - positive, and the good is a normal good

negative, and the good is an inferior good

Assume that a 4 percent increase in income results in a 2 percent increase in the quantity demanded of a good. The income elasticity of demand for the good is A - negative, and the good is an inferior good B - negative, and the good is a normal good C - positive, and the good is a normal good D - positive, and the good is an inferior good

positive, and the good is a normal good

Vacation tours to Europe invariably package visits to disparate regions: cities, mountains, and the seaside. Bundling, a type of second degree price discrimination, is most profitable when: A - preference rankings of vacationers traveling together are positively correlated B - a preference for cities is always higher than preferences for mountain vista. C - the preference rankings of vacationers traveling together are negatively correlated D - preference for the seaside is always higher than preferences for city excursions

the preference rankings of vacationers traveling together are negatively correlated

Some electric utilities offer one rate to commercial users and a different rate to residential users. This is an example of: A - bundling B - third degree price discrimination C - peak load pricing D - universal access pricing

third degree price discrimination

Selling tickets in the orchestra region of the Metropolitan Opera for $55 and selling tickets in the upper balcony for $28 to listen to Luciano Pavoratti describes which type of price discrimination? A - this is not necessarily price discrimination B - bundling C - first-degree price discrimination D - third-degree price discrimination

third-degree price discrimination