Exam Econ Study ch.4 - ch.7

Given that income is $750 and PX = $32 and PY = $8, what is the market rate of substitution between goods X and Y?

-PX/PY=-32/8=-4

Suppose that Linda receives a fixed payment of $50 and consumes 14 hours of leisure. If her total earnings for the entire day is $300, we know her hourly wage rate must be (there are 24 hours in a day)

300-50=250 24hrs - 14hrs = 10hrs 250/10=10hrs $25

If a consumer is given a $10 gift certificate good for items in store X and all items in store X are inferior goods, then the consumer desires to consume

fewer goods in store X.

Most workers view leisure and income as

goods

The short run is defined as the time frame

in which there are fixed factors of production

A price decrease causes a consumer's "real" income to

increase.

Spot checks are typically a solution to the

manager-worker, principal-agent problem

If a consumer is given a $10 gift certificate good only for items in store X and all items in store X are normal goods, then the consumer desires to consume

more goods in store X.

The production function for good X exhibited in the table below is for the Production Function for Good X

short run, since L is the fixed input.

Which combination of the following properties rules out indifference curves that intersect one another?

transitivity and more-is-better

Suppose that three consumers are in the market for good X. Consumer 1's (inverse) demand is PX = 20 − QX; Consumer 2's (inverse) demand is PX = 60 − 2QX; and Consumer 3's (inverse) demand is PX = 40 − 3QX. When PX = $10, the market will demand for good X will be

x = 10 units + 25 Units + 10 Units =45 Units

Which of the following profit functions exhibits a Cobb-Douglas production function?

π = P × K0.75L0.50 − 20L − 35K.

Oligopoly

•Few, large firms tend to dominate market. •Price/marketing strategies are mutually interdependent with other firms in the industry.

Monopolistic competition

•Many, small firms and consumers relative to market. •Firms produce slightly different products. •Limited market power.

Perfect competition

•Many, small firms and consumers relative to market. •Firms produce very similar products. •No market power (P = MC).

Monopoly

•Sole producer of good or service. •Market power (P > MC).

Suppose compensation is given by W = 400,000 + 500π + 50S, where W = total compensation of the CEO, π = company profits (in millions) = $200, and S = sales (in millions) = $400. How much will this CEO be compensated?

$520,000

Suppose earnings are given by E = $60 + $7(24 − L), where E is earnings and L is the hours of leisure. What is the price to the worker of consuming an additional hour of leisure?

$7

If the production function is Q = K.5L.5 and capital is fixed at 1 unit, then the average product of labor when L = 36 is

((36)^.5)/36= .167= 1/6

The production function for a competitive firm is Q = K.5L.5. The firm sells its output at a price of $10 and can hire labor at a wage of $5. Capital is fixed at one unit. The profit-maximizing quantity of labor is

1

If the price of good X is $10 and the price of good Y is $5, how much of good X can the consumer purchase if her income is $15 and she spends it entirely on purchasing good X?

1.5

Suppose compensation is given by W = 100,000 + 500π + 50S, where W = total compensation of the CEO, π = company profits (in millions) = $340, and S = sales (in millions) = $700. What percentage of the CEO's total earnings is tied to sales of the firm?

11.5%

An incentive for managers to maximize profits is all of the following except

A Fixed annual salary

If widgets and gidgets are complements and both are normal goods, then an increase in the demand for widgets will result from

A decrease in the price of gidgets

person who monitors the production process and evaluates the productivity of workers is

A manager

When there are economies of scope between two products that are separately produced by two firms, merging into a single firm can

Accomplish a reduction in costs

Suppose a new contracting environment with an economic environment that looks more uncertain is considered. This new contract will result in

An increase in the marginal cost and a shorter optimal contract

For a cost function C = 100 + 10Q + Q^2, the marginal cost of producing 10 units of output is

C = 100 + 10Q + Q^2 MC = dC(Q)/dQ= 10+2(Q) MC = 10 + 2*(10) = 30 Marginal cost of producing the 10th unit of output is 30

For the cost function C(Q) = 100 + 2Q + 3Q2, the marginal cost of producing 2 units of output is

C(Q)=100+2Q+3Q2 converted into Marginal Cost MC = 2+6Q 2+6*2=2+12=$14

Economies of scope exist when

C(Q1)+C(Q2)>C(Q1,Q2)

Suppose that three consumers are in the market for good X. Consumer 1's (inverse) demand is PX = 40 − 5QX; Consumer 2's (inverse) demand is PX = 10 − QX; and Consumer 3's (inverse) demand is PX = 30 − 2QX. When PX = $5, the market will demand

Consumer 1 demand Px=40-5Q 5=40-5Q Q=7 Consumer 2's demand P=10-Q 5=10-Q Q=5 Consumer 3's demand P=30-2Q 5=30-2Q Q=12.5 5+7+12.5=24.5 units

Suppose that the marginal benefit of writing a contract is $100 and the marginal cost of that contract is $100. Based on this information, the optimal contract length should be

Held constant at the contract length where MB = 100 and MC = 100

The most commonly practiced negative incentive used by firms is

Dismissal

Suppose the cost function is C(Q) = 50 + Q − 10Q2 + 2Q3. What is the variable cost of producing 10 units?

Eliminate the 50 to find variable cost input Variable cost= 10 - 10(10)^2 + 2(10)^3 = $1,010

Which of the following is not a type of specialized investment?

Financial Capital

According to the table below, what is the average variable cost of producing 50 units of output?

From given table, variable cost of producing 50 units of output is 700. VC/Q=700/50=14 Average variable cost of producing of producing 50 units of output is 14.

As firms increase in size, they initially tend to experience

Gains from Specialization

A negative side of a revenue-sharing plan is that it

Gives no incentives for workers to minimize costs

If the price of good X increases, what will happen to the budget line?

It will become more steeper

If the price of good X increases, what will happen to the budget line?

It will become steeper

An in-kind gift causes the budget line to

Not Change

Which of the following is Not a means of avoiding opportunism?

Spot Exchange

Which of the following is not an incentive scheme to ensure that workers do a good job?

Straight hourly wages for dock workers

Suppose that consumers' preferences are well behaved in that properties 4-1 to 4-4 (completeness, more is better, diminishing marginal rate of substitution, and transitivity) are satisfied. Furthermore, assume that both X and Y are normal goods and that the price of good Y decreases. Then, which of the following effects is known with certainty?

The income and substitution effects will reinforce one another, leading to an overall increase in the consumption of good Y.

Suppose that Puffy Lube has average total costs of $10 when it produces 20 oil changes/day. What are Puffy Lube's total cost of 20 oil changes?

Total cost = Average total cost * Quantity = $10 * 20 = $200

The property that rules out indifference curves that cross is

Transitivity

Shirking can take the form of all of the following except

Using the internet to do job-related research

Costs that change as output changes are

Variable costs

The costs of production include

accounting costs and opportunity costs

Suppose the production function is given by Q = 2K + L. If w = $4 and r = $4. How many units of K and L will be utilized in the production process?

all K and no L

Increasing returns to scale in production are represented by isoquants that

are consecutively farther from each other indicating doubling inputs more than doubles output

Instructor A works at a community college on a temporary basis, being informed about employment two weeks before the start of each semester. Under what circumstances would Instructor A be enthusiastic about investing time to convert all her paper lecture notes into an online format?

by working as an instructor with a three-year contract

What is/are the important things that must be developed when characterizing consumer behavior?

consumer preferences and consumer opportunities

Suppose you are a manager of a factory. You purchase five (5) new machines at one million dollars each. If you can resell two of the machines for $500,000 and three of the machines for $200,000, what are the sunk costs of purchasing the machines?

cost that has already been incurred and cannot be recovered 1,000,000-2*500,000-3*200,000=3.4 million

If a firm's production function is Leontief and the price of capital goes down, the

cost-minimizing combination of capital and labor does not change

Suppose that consumers' preferences are well behaved in that properties 4-1 to 4-4 (completeness, more is better, diminishing marginal rate of substitution, and transitivity) are satisfied. Furthermore, assume goods X and Y are normal goods and the price of good X decreases. Then the substitution effect will lead consumers to consume

more of good X and less of good Y.

Shirking can take the form of all of the following except

putting forth the maximum effort

Changes in the price of an input cause

slope changes in the isocost line

Suppose a consumer with an income of $800 is faced with Px = $10 and Py = $3. What is the market rate of substitution between good X (horizontal axis) and good Y (vertical axis)?

−3.33 -PX/PY=-10/3=-3.33

Which of the following cost functions exhibits cost complementarity?

−5Q1Q2 + 7Q1 As Q2 increases, MC decreases. So, it shows cost complementarity.