Homework Assignment #1 (Chapters 1, 2 and 3)

b. rise and the market output to rise, fall, or remain unchanged depending on the magnitude of the changes.

A "puppy boom" and an increase in the price of horse meat would cause the market price of dog food to a. rise, fall, or remain unchanged depending on the magnitude of the changes, and the market output to rise. b. rise and the market output to rise, fall, or remain unchanged depending on the magnitude of the changes. c. rise and the market output to rise . d. fall and the market output to rise, fall, or remain unchanged depending on the magnitude of the changes.

$200

A Blue Ribbon Committee has decided that acid rain should be reduced and is trying to determine the optimal level of reduction. There are benefits from reducing acid rain (more wildlife and forests, better health, etc.), but there are also costs. The committee estimates that the marginal benefit of each unit of reduction is $1,400 - 5R, where R is units of reduction, and the marginal cost is 2R. If the committee wants to maximize the net benefit from reducing acid rain, what is marginal cost at the optimal level of reduction?

30

A dentist's office, which wants to serve the maximum number of patients given a fixed payroll, currently has two dentists and four dental hygienists. Dentists earn $60,000 a year and hygienists earn $15,000 a year. If the office is hiring the optimal combination of dentists and hygienists, and the last dentist hired served 120 additional patients, how many patients will the last hygienist hired add?

3

A government agency is having problems with personal telephone calls made during working hours. Because each minute of a personal call costs the agency $0.50 in wasted wages, it has decided to hire operators to monitor calls. The agency wants to hire the number of operators that will minimize the total cost of personal calls. Based on the above information, if operators receive $300 a week, how many operators should the agency hire?

628

A local charity has decided to solicit donations door-to-door. The table below shows estimated donations for each hour a volunteer spends in the city, in the suburbs, and on campus. Given the above information, with 10 hours of soliciting, the maximum possible amount of donations is

d. both b and c

A manager who does not see his or her goal as the maximization of profit a. may nevertheless maximize the value of the firm. b. represents a principle-agent problem. c. will likely be replaced either by shareholders or by a takeover of the firm. d. both b and c

2

A metal refining plant emits sulfur dioxide into the air and has decided to install air scrubbers to reduce the amount of pollution. Each scrubber costs $180,000 and the Environmental Protection Agency (EPA) fines the plant $5,000 for every part of pollution emitted per million. Based on the information above, how many air scrubbers should the plant install in order to minimize the total cost of pollution?

b. can lower the price of its product and sell more units.

A price-setting firm a. possesses little market power. b. can lower the price of its product and sell more units. c. can raise the price of its product and sell the same number of units. d. sells a product that is not differentiated from the product sold by its rivals or sells in a limited geographic market area with only one or a few sellers.

a. the firm's individual production is insignificant relative to total production in the industry.

A price-taking firm can exert no control over price because a. the firm's individual production is insignificant relative to total production in the industry. b. the firm's demand curve is downward sloping. c. no other firms make a product that is nearly identical to its product. d. of a lack of substitutes for the product.

b. a measure calculated to reflect the riskiness of future profits.

A risk premium is a. an additional compensation paid to the workers of a business enterprise. b. a measure calculated to reflect the riskiness of future profits. c. subtracted from the discount rate when calculating the present value of a future stream of profits. d. lower the more risky the future stream of profits.

5

A toy manufacturer is experiencing quality problems on its assembly line. Every defective toy that leaves the factory costs the firm $20. The firm has decided to hire quality inspectors to catch defective toys before they leave the factory. Given the above information, if the cost of each defective toy rises to $50, while inspectors are paid $150 a day, how many inspectors should the firm hire?

$255

An agency is having problems with personal phone calls made during working hours. Each minute of a personal call costs the agency $0.50 in wasted wages. The agency hires operators to monitor calls in order to attain the optimal number of personal calls (minimize total cost of personal calls). Based on the above information, if operators receive $25 an hour, what is the minimum possible total cost of personal calls (per hour)?

3, 2

Based on the above information, a manager with an annual budget of $160,000, should allocate this budget by hiring ___ engineers and ___ market researchers, in order to maximize the number of new products developed. The annual salary of an engineer is $40,000, while a market researcher receives $20,000.

a. is negative when total costs exceed total revenues.

Economic profit a. is negative when total costs exceed total revenues. b. is generally larger than accounting profit. c. can be calculated by subtracting implicit costs of using owner-supplied resources from the firm's total revenue. d. is a theoretical measure of a firm's performance and has little value in real world decision making.

d. identifies for managers the essential information for making a decision.

Economic theory is a valuable tool for business decision making because it a. provides an easy solution to complex business problems. b. creates a realistic, complex model of the business firm. c. assumes away the problem. d. identifies for managers the essential information for making a decision.

d. all of the above

For a constrained minimization problem, the decision maker a. Is constrained by the specific amount of total benefits b. Seeks to minimize the cost of achieving specific goals c. Is constrained by the choice set of values for the activities d. all of the above

e. both a and c

If a demand curve goes through the point P = $6 and Qd = 400, then a. $6 is the highest price consumers will pay for 400 units. b. $6 is the lowest price consumers can be charged to induce them to buy 400 units. c. 400 units are the most consumers will buy if price is $6. d. consumers will buy more than 400 if price is $6. e. both a and c

decrease

If input prices increase, all else equal, supply will (increase or decrease)

a surplus of 250 units

If price is $16 there is a (surplus or shortage) of ___ units

surplus, fall

If the price is $16, the resulting (surplus or shortage) will lead to a (rise or fall) in price

a shortage of 150 units

If the price is $8, there will be a (surplus or shortage) of ___ units

increase

If the price of a complement for tires decreases, all else equal, demand for tires will (increase, decrease, or remain the same)

a. all firms produce and sell a standardized or undifferentiated product.

In a perfectly competitive market, a. all firms produce and sell a standardized or undifferentiated product. b. it is difficult for new firms to enter the market due to barriers to entry. c. firms are price-setters. d. the output sold by a particular firm may be quite different from the output sold by the other firms in the market.

e. both a and d

Let supply remain constant at S; an increase in the price of a substitute good causes consumers to be willing and able to buy 150 more units of the good at each price in the list than they were when demand was D. Which of the following statements is (are) true? a. At the original equilibrium price there will be a shortage of 150. b. At the original equilibrium price there will be a surplus of 150 c. At the new equilibrium P = $6 and Q = 450. d. At the new equilibrium P = $7 and Q = 400. e. both a and d

e. both b and c

Microeconomics a. is generally too complex and abstract to be of much use in making real-world business decisions. b. contributes to the understanding of ordinary business practices or tactics. c. studies the behavior of individual economic units or segments of the economy. d. all of the above. e. both b and c.

b. is the cause of principal-agent problems.

Moral hazard a. exists when either party to a contract has an incentive to cancel the contract. b. is the cause of principal-agent problems. c. occurs when managers pursue profit maximization without regard to the interests of society in general. d. occurs only rarely in modern corporations.

increased, $10

Refer to the figure below, which shows marginal benefits (MB) and marginal cost (MC) of activity A. If the decision maker is choosing 200 units of activity A, the activity could be (increased or decrease) by one unit and net benefits will increase by $__

decrease

Suppose that the market for engagement rings is in equilibrium. Then political unrest in South Africa shuts down the diamond mines there. South Africa is the world's primary supplier of diamonds. The resulting equilibrium quantity of engagements rings will (increase, decrease, or remain the same)

a. The price of the good

The market demand curve for a given good shifts when there is a change in any of the following factors EXCEPT a. the price of the good. b. the level of consumers' income. c. the prices of goods related in consumption. d. the tastes of consumers.

3

The optimal level of activity is:

d. both a and b

The principal-agent problem arises when a. the principal and the agent have different objectives. b. the principal cannot enforce the contract with the agent or finds it too costly to monitor the agent. c. the principal cannot decide whether the firm should seek to maximize the expected future profits of the firm or maximize the price for which the firm can be sold. d. both a and b

c. smaller the higher is the risk premium used to compute the firm's value.

The value of a firm is a. larger the higher is the risk premium used to compute the firm's value. b. the price for which the firm can be sold minus the present value of the expected future profits. c. smaller the higher is the risk premium used to compute the firm's value. d. both b and c

P=5 and Q=30

Use the following demand and supply functions: Qd = 50 - 4P Qs = 20 + 2 P Equilibrium price and output are

surplus of 30 units

Use the following demand and supply functions: Qd = 50 - 4P Qs = 20 + 2 P If the price is $10, there is a (surplus or shortage) of ___ units

P=12 and Q=400

Use the following demand and supply functions: Qd = 900 - 60P Qs = -200 + 50 P Let supply remain constant; an increase in income causes consumers to be willing and able to buy 220 more units at each price than they were previously. The new equilibrium price and quantity are

P=12 and Q=400

Use the following demand and supply functions: Qd = 900 - 60P Qs = -200 + 50 P Let supply remain constant; an increase in income causes consumers to be willing and able to buy 220 more units at each price than they were previously. The new equilibrium price and quantity are

e. both a and d

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. From this relation, it is apparent that the good is a. a normal good b. an inferior good c. a substitute for good r d. a compliment for good r e. both a and d f. both b and c

a shortage of 180 units

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, then, when the price of the good is $40, there is a (surplus or shortage) of ___ units of the good

A shortage of 120

Use the following general linear supply relation: 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. Suppose Pi=40, and F=50, and the demand function is Qd = 700 - 6P, then if the government sets a price of $30, there would be a (surplus or shortage) of ___

$30

Use the following general linear supply relation: 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. Suppose Pi=40, and F=50, what is the lowest price that will induce firms to supply 400 units of output?

60 (TB4 - TB3)

What is marginal benefit for the 4th unit of the activity?

30 (TC1-TC0)

What is the marginal cost of the 1st unit of the activity?

225 (TB-TC)

What is the net benefit of the 5th unit of the activity?

d. all of the above

When a firm is a price-taking firm, a. raising the price of the product above the market-determined price will cause sales to fall nearly to zero. b. many other firms produce a product that is identical to the output produced by the rest of the firms in the industry. c. the price of the product it sells is determined by the intersection of the market demand and supply curves for the product. d. all of the above

d. total revenue exceeds total economic cost.

When economic profit is positive, a. the firm's owners experience a decrease in their wealth. b. foreign companies experience loss of market share c. the firm's owners have successfully solved the principle-agent problem. d. total revenue exceeds total economic cost.

d. Both a and b

Which of the following economic forces promotes profitability in the long run? a. Existence of strong barriers to entry. b. A large number of complementary products c. A large number of close substitute products. d. Both a and b e. All of the above

b. There are no barriers to entry.

Which of the following is NOT a characteristic of monopoly market structures? a. The easier consumers can find imperfect substitutes for the firm's product the lower will be the firm's market power. b. There are no barriers to entry. c. No close substitutes for the product are available. d. A single firm produces the entire market output.

d. Reducing price to increase the firm's share of total market sales.

Which of the following is a common mistake managers make? a. Using marginal analysis to make output decisions. b. Maximizing the value of the firm instead of maximizing the firm's profits. c. Treating implicit opportunity costs as part of the total costs of using resources. d. Reducing price to increase the firm's share of total market sales. e. all of the above.

d. both a and c

Which of the following is an example of an implicit cost for a firm? a. forgone rent on property owned by firm. b. any wages and salaries paid to employed. c. the value of time worked by the owner. d. both a and c e. all of the above

b. a change in the market price of the good

Which of the following will cause a change in quantity supplied? a. a change in input prices b. a change in the market price of the good c. technological change d. a change in the number of firms in the market

a. a decrease in the price of pesticides

Which of the following would increase the supply of corn? a. a decrease in the price of pesticides b. a decrease in the demand for corn c. a fall in the price of corn d. a severe drought in the corn belt

1, 4

Your firm sells club soda in both grocery stores and convenience stores. You have a budget of $550 for store displays, and must decide how to allocate this budget between grocery stores and convenience stores to maximize the total number of sales. The following table shows the total number of units that can be sold in grocery stores and convenience stores, according to the number of displays in each type of store. Displays in grocery stores cost $150 each and displays in convenience stores cost $100 each. Given the above information, to maximize the total number of sales, you should choose ___ grocery store display and ___ convenience store displays