Managerial Economics Exam 1-3

A monopoly producing a chip at a marginal cost of $6 per unit faces a demand elasticity of −2.5. Which price should it charge to optimize its profits?

$10 per unit

Suppose P = 20 − 2Q is the market demand function for a local monopoly. The marginal cost is 2Q. The local monopoly tries to maximize its profits by equating MC = MR and charging a uniform price. What will be the equilibrium price and output?

$13.33, 3.33 units

You are the manager of a gas station and your goal is to maximize profits. Based on your past experience, the elasticity of demand by Texans for a car wash is −4, while the elasticity of demand by non-Texans for a car wash is −6. If you charge Texans $20 for a car wash, how much should you charge a man with Oklahoma license plates for a car wash?

$18.00

YOU USED THIS INFO FOR THE LAST QUESTION AND WILL ALSO USE IT FOR THE NEXT QUESTION Your firm operates in a monopolistically competitive market. The demand for your firm's product is: QDEMANDED = 70 - (1/2)*P Assume your ATC = MC and this never changes; ATC = MC = 96, for ANY level of output (Q). Based on the correct answer to Question 24, what is this firms profit-per-unit OR loss-per-unit?

$22

A monopoly produces widgets at a marginal cost of $10 per unit and zero fixed costs. It faces an inverse demand function given by P = 50 − Q. The monopoly price is:

$30.

Which market structure is characterized by a small number of firm (more than one but less than 12) where it is difficult to enter the market as a seller?

Oligopoly

You own a vegan bakery where you sell zucchini muffins and gluten-free carrot cake. Last week your muffins sold for $5.50 each and you sold 120 per week; this week you lowered the price to $5.00 and sold 136 per week. Last week your carrot cake sold $7 and you sold 90; this week you lowered the price to $6 and you sold 100. Which is correct?

Only the demand for muffins is elastic

Using the correct answer to Question 5, and the market demand function from Question 2, what is the quantity that will be demanded in the market when you charge that limit price?

Q = 57

As was done in the videos, you are given these two Price/Quantity combinations. Price Quantity 136 14 100 32 Which of the following is the demand function produced by these combinations (NOT the demand curve, the demand function).

Q = 82 - (1/2)*P

YOU USED THIS INFO FOR THE LAST TWO QUESTIONS, THIS QUESTION AND THE FOLLOWING QUESTION You are a monopolist serving a single market but you have 2 different factories. The market demand for your product is: Q = 264 - 6*P And the two factories have the following marginal cost functions: MCA = 20 + 2Q and MCB = 20 + Q Using the procedure we used in the video to answer the following question. HINT: This will be MUCH easier if you use fractions, not decimals!!! How will the correct QTotal from Question 19 be distributed across the two factories?

Q in Factory A is 8; Q in Factory B is 16

You are the manager of a Mom and Pop store that can buy milk from a supplier at $3.00 per gallon. If you believe the elasticity of demand for milk by customers at your store is −4, then your profit-maximizing price is:

$4.00.

You will use this info to answer this question plus the next 2 question. Assume there are exactly 6 firms in your market BUT (despite this) the market is perfectly competitive. The market demand function is Q = 110 - P. The market supply function is Q = 10 + P. All firms have the same ATC curve, and it is this: ATC = 54 - .1Q + .004Q2 Based on the correct answer to the previous question (Question 13) and knowing that there are exactly 6 firms in this market, and knowing that each firm has the same ATC curve and each firm is producing the same quantity, which of the following is the current value of ATC for each firm in this market?

$53.40

Now, using the correct answer to Question 3, plug that "Q" into the ATC function to get a dollar amount. As described in the video, that dollar amount is TWO THINGS. First, it's the value of ATC when you are producing that "Q" and second, it's the "P" on the residual demand curve at that same Q. What is that dollar amount?

$76

A local video store estimates its average customer's demand per year is Q = 7 − 2P, and it knows the marginal cost of each rental is $0.5. How much should the store charge for an annual membership in order to extract the entire consumer surplus via an optimal two-part pricing strategy?

$9

You are working for the Department of Justice, reviewing a proposed merger between two firms. As discussed in the videos, what is the "magic number" that the Herfindahl Index must be less than in order for this merger to sail through automatically without being challenged?

1500

Consider the following market. This is the entire market for cruises and the passengers, per cruise line, per year. Cruise Line Passengers Per Year (Millions) Carnival 25 Royal Caribbean 17 Norwegian 12 MSC Cruises 5 Disney Cruises 4 TUI Cruises, Inc. 2 Which of the following comes closest to the Herfindahl Index for this market?

2610

Based on the correct answer to the previous question, now assume that the price of Good B drops from $36 to $24. The price of Good A does not change, and the budget does not change. What is the combination that the customer is purchasing now as they seek to maximize their utility subject to their budget constraint? (Same graph as previous)

8 of Good A and 6 of Good B

You own a vegan bakery and you have paid a marketing firm to estimate the demand for your banana muffins. They have produced this demand function: QDemanded = 240 - 4*P - .8*M + 2*PR where P is the price of your muffins, M is income and it is $150,000 (but just enters as "150") and PR is the price your competitor charges for their muffins which is $4. You are currently charging a price of $5 for your muffins. Determine the quantity demanded and then use that to identify the Income Elasticity of Demand for your muffins. NOW, having done that, use that Income elasticity to answer this question: What will be the percent change in the quantity demanded of your muffins if incomes increase by 10%.

A decrease in quantity demanded of approximately 11%

Which is correct regarding predatory pricing?

A key part of the definition of predatory pricing is that the company must increase its price after the competitor has left the market

Consider the following short run production function (similar to many we looked at in the videos) where labor is your only input: Q = (-.01)*L3 + (2)*L2 What is the quantity of labor where Average Product (AP) is maximized?

AP is maximized where L = 100

This is the same production function you saw in the previous question: Q = (-.01)*L3 + (2)*L2 When you are hiring 80 workers what is your average product (AP)?

AP when you're hiring 80 workers is 96

You have this short run production function, which you saw many times in the videos, where labor is your only variable input. Q = -.02*L3 + 1.2*L2 What is the average product of labor when you hire 20 workers?

APLabor = 16

You own a pizza restaurant where your fixed inputs are two ovens, and the costs associated with these ovens are $500 for each oven. You hire workers to work in the kitchen, which means labor is your variable input, and the wage paid to each worker is $100. When you hire 5 workers your total pizzas (total output) is 40. What is your average total cost when you're producing Q = 40?

ATC = $37.50

NATURAL MONOPOLY. YOU WILL USE THIS ANSWER PLUS THE ANSWER TO QUESTION 5 TO ANSWER THE NEXT QUESTION This question follows Question 5. Below you have the ATC function for your firm. ATC = 90 - .15*Q + .004*Q2 What is the "Q" associated with minimum ATC and what is ATC at that "Q"?

ATC is minimized at Q = 18.75 and when Q = 18.75, ATC = approximately 89

Consider the following information regarding your firm's output and total costs (ignore any cell with "----" in it): Output (Q) Total Costs Average Total Cost (ATC) 0 500 ----- 16 600 34 700 44 800 52 900 58 1000 62 1100 Which of the following is correct reagrding the level of output (Q) where ATC is minimized?

ATC is minimized when Q = 58

This is the same table you saw in the previous question. It is similar to what you saw in your sample questions and in the textbook. As always, ignore any cell with "----" in it. Your fixed costs (not shown) are $200, your variable costs are your labor and you pay each worker $50. At what level of output (Q) is ATC minimized?

ATC is minimized when Q = 68

This is a Total Cost function: TC = 200*Q - 2*Q2 + (.01)*Q3 What is the value of Average Total Cost (ATC) when you are producing output = 40?

ATC40 = 136

Based on the videos, which of the following is CORRECT?

Actually all three of the above ARE correct as discussed in the videos

Consider these 3 statements: I. Market is served by a large number of firms II. It is easy to enter this market as a seller III. Firms sell products that are substitutes but not identical; there is product differentiation Which is correct?

Actually both I and II describe both perfect competition and monopolistic competition

Which of the following is correct? a) If McDonalds and Burger King merged that would be an example of a vertical merger b) If McDonalds and Burger King merged that would be an example of a horizonal merger c) If McDonalds merged with a cattle ranch that raised cattle for beef, to be used in McDonald's hamburgers, that would be an example of a vertical merger

Actually both b) and c) are correct but not a)

Consider the following supply function: QSupplied = -30 + 2*P - .8*PInput Where "P" is the price of the product you sell and "PInput" is (what a surprise) the price of an input such as labor. Based on the videos you watched, which of the following is most accurate?

Actually there is nothing really wrong with this supply function

Which is the most accurate description of diminishing marginal productivity?

As firms employ more and more units of an input (like labor) the amount that output (Q) increases with each worker gets smaller as more workers are hired

NATURAL MONOPOLY. USE YOUR ANSWERS TO QUESTION 5 AND QUESTION 6 TO ANSWER THIS QUESTION. Based on your answers to Question 5 and question 6, which of the following is correct?

At the Q that minimizes ATC, P < ATC. Therefore this market IS a natrual monopoly.

You run a dog walking service and this is your demand function: QD = 40 - 1.5*P + .8*M + .5*PR where M is income and it is $100,000 (which just enters as "100") and PR is the price your competitor charges and it is $40. You are currently charging a price fo $50. Calculate the point elasticity of demand for your service at your current price, and then answer this question: Which of the following is correct?

Because the demand for my dog-walking is elastic, I should decrease my price if I want to increase my revenues

You are looking at a graph of an indifference curve and a budget constraint (budget line). Pizza is on the vertical axis. Beer is on the horizontal axis. Something happens, and the budget line gets steeper. What happened?

Beer got more expensive.

In a monopolistically competitive market, which of the following is correct? After all firms have entered and/or exited... a) Firms will charge a P = ATC b) Firms will change a P > MC c) Firms will still be able to earn excess profits d) Both a) and b) are correct but not c)

Both a) and b) are correct but not c)

Which of the following is correct with regard to limit pricing AND predatory pricing?

Both limit pricing and predatory pricing involve charging a price below the profit-maximizing price

Which fills in the blanks most accurately? In a normal demand function, the coefficient in fromt of "Price of a Related Good" ____________ ; in a normal supply function, the coefficient in front of "Price of Inputs" ____________.

Can be either positive or negative; is always negative

Choose the answer below that fills in the blanks most accurately: Marginal cost is ______ divided by _______, but marginal product is ______ divided by _______.

Change in total costs; change in output; change in output; change in inputs

Homework Questions

Chapter 11

Homework Questions

Chapter 13

Exam 1

Chapters 1-3

Exam 2

Chapters 3-5

Exam 3

Chapters 7-8

You own a lawn-mowing and trimming business, and you are looking at a graph of the demand and supply for your services. You have heard that all your competitors are lowering their prices; in other words, the price of a demand substitute is decreasing. What will happen on the graph you're looking at (the supply and demand of your service)?

Demand will shift left, producing a lower equilibrium quantity

Which of the following comes closest to the value of consumer surplus in this market? (Graph P=24+Q ,, P=360-3*Q)

Consumer Surplus = $10,584

The attached graph shows the demand and supply curves for your product before AND after a $9 per unit tax is placed on the seller (exactly as we discussed in the videos). Use the information on the graph to answer this question: We know that applying a tax is shown by shifting a certain curve. We also know that when curves shift, consumer and producer surplus change. Which of the following comes CLOSEST to the change in consumer surplus caused by this tax? (Notice I am not asking what consumer surplus is or was, I am asking which comes closest to how much it changed.) (Same graph as above)

Consumer surplus decreased $67.50 as a result of the tax

An auction on eBay was an example of _________, as discussed in the Chapter 1 videos.

Consumer-consumer rivalry

Limiting or restricting the supply of your product, as we discussed in the Chapter 1 videos, is a way to cause...

Consumer-consumer rivalry

Which of the following is correct? a) Economies of scale is an example of a strategic barrier to entry b) Economies of scale is an example of a structural barrier to antry c) Economies of scale are associated with the portion of an ATC curve that is upward-sloping d) Actually all three of the above are correct

Economies of scale is an example of a structural barrier to antry

Based on the correct answers to the 2 previous questions, which of the following comes closest to the arc elasticity of demand for Good B (remembering that normal price elasticity is always negative)? (Same graph as previous)

Elasticity = -0.45

Which of the following is correct regarding both monopolies and monopolistically competitive firms?

For both monopolies and monopolistically competitive firms, the individual firm's demand curve is downward-sloping, not horizontal

Based on the correct answers to the three previous questions, which of the following do we know? Based on the combinations purchased by our customers...

Good A and Good B are demand complements (i.e. hot dogs and hot dog buns)

Consider these three statements: I. Firms can earn profits in the short run and also in the long run II. In the long run P will equal ATC III. Demand curve for an individual firm is downward-sloping Which is most correct?

II and III describe monopolistic competition but I does not

Assume that Product X and Product Z are complements in a demand function. Here is the demand function: QDemanded_of_Product_X = 340 - 2*P - .8*PProduct_Z where "P" is the price of product X and "PProduct_Z" is (duh) the price of product Z. Which of the following is correct?

If the price of Product Z increases the quantity demanded of Product X will decrease

In the videos we discussed how taking the data and running a regression on it is the way that companies obtain demand functions. Based on our discussions which is correct?

If you're running a regression to produce a demand function, "Quantity" is the dependent variable and the dependent variable is always "Y"

Your product is Product Z. You have estimated the cross price elasticity between your product (Product Z) and another product, Product Y. The cross-price elasticity is 1.1 (that's a positive number). You have a choice of entering a new market. Which is correct?

In terms of the demand for your product, you would be better off entering a market where the price of Product Y is higher.

You have this short run production function where labor is your variable input: Q = (-.05)*L3 + (3)*L2 What is the marginal product produced by the 20th worker?

MP20th Worker = 60

You own a pizza restaurant where your cooks (labor) are your variable input. You have 3 cooks working and the total pizzas produced (Q) is 64. You add another cook, a fourth cook, and after adding the fourth cook your average product (AP) is 19. What is the Marginal Product (MP) of your 4th cook?

MPFourth Cook = 12

Your firm is a monopoly. You have run a regression on market research data and obtained the following demand function for your firm's product: QD = 40 - .25*P Which of the following is the equation for the Marginal Revenue curve for your firm?

MR = 160 - 8*Q

Consider the following information regarding your firm's output and total costs (ignore any cell with "----" in it.): Output (Q) Total Costs Marginal Cost 0 500 ----- 16 600 34 700 44 800 52 900 58 1000 62 1100 What is the level of output where Marginal Cost is minimized?

Marginal cost is minimized when Q = 34

As discussed in the videos, most service industries (like child daycare, lawn-mowing services, legal services, etc.) operate in...

Monopolistically competitive markets

Your customer's budget is $432 that can be spent on Good A, Good B, or some of each. The price of Good A is $36. The price of Good B is $72. This means your customer is purchasing at the point marked "A". The price of Good B now drops, the price of Good A does not change, and the budget does not change, and the customer is now purchasing at the point marked "B". As discussed in the videos, the budget line pivoted because the price of Good B dropped. What is the new price of Good B? (Graph [Point A: 4,6] ,, [Point B: 6,8] )

New Price of Good B = $24

YOU USED THIS INFO FOR THE PREVIOUS TWO QUESTIONS Your firm operates in a monopolistically competitive market. The demand for your firm's product is: QDEMANDED = 70 - (1/2)*P Assume your ATC = MC and this never changes; ATC = MC = 96, for ANY level of output (Q). Based on the correct answers to the two previous questions (Question 24 and 25) what will happen next in this market?

New firms will enter the market

YOU WILL USE THIS INFO FOR THIS QUESTION AND THE NEXT TWO QUESTIONS. Your firm operates in a monopolistically competitive market. The demand for your firm's product is: QDEMANDED = 70 - (1/2)*P Assume your ATC = MC and this never changes; ATC = MC = 96, for ANY level of output (Q). What is the quantity of output (Q) your firm will produce as it seeks to maximize profits (or minimize losses)? (Notice I am NOT asking 'Which comes closest". I am asking for the exact answer.) a) Q=10 b) Q=12 c) Q=9 d) None of the above

None of the above

As we discussed in class, which of the following explains exactly what causes you to move from one ATC curve to another? (Graph: Long Run Average Cost Curve, ATC1, ATC2,ATC3)

None of the above is the explanation as to what causes you to move from one ATC curve to another

YOU HAVE USED THIS INFO FOR THE PAST THREE QUESTIONS. You are a monopolist serving a single market but you have 2 different factories. The market demand for your product is: Q = 264 - 6*P And the two factories have the following marginal cost functions: MCA = 20 + 2Q and MCB = 20 + Q Using the procedure you used in the video, answer this question. HINT: This will be MUCH easier if you use fractions, not decimals!!! What will be the price this monopolist charges for his/her product?

P = $40

You are a jewelry maker making custom necklaces that sell in boutiques and high-end stores. Here are the demand function and supply function for your necklaces in your current market: QD = 190 - P QS = 30 + 3*P You have just discovered that the state government is imposing a luxury tax on jewelry, and this will include your necklaces, and it is a tax that is paid by the seller (as we discussed in the videos). In your case, the tax is $20 per unit (that is, for every necklace you sell you hand over $20 to the government.) Use the procedure we went through in the videos to answer this question: What is the price that customers will pay for your necklaces after the tax has been imposed?

P = $55

NATURAL MONOPOLY. YOU WILL USE THIS INFORMATION FOR THIS QUESTION PLUS THE NEXT TWO QUESTIONS. Your company is thinking about entering a new market. You have run a regression on the market demand, and the results are below. Quantity demanded is the dependent variable; price and income are the independent variables. SUMMARY OUTPUT Regression Statistics Multiple R 0.94123 R Square 0.8924844 Adjusted R Square 0.87267 Standard Error 2.34546124 Observations 33 Coefficients Standard Error t Stat P-value Lower 95% Upper 95% Intercept 53.9989 2.0318 3.5745 0.0117 40.6292 216.962 Price -0.50288 0.24733 -2.8958 0.01067 -1.6386 0.2079 Income 0.110694 0.24733 -2.8958 0.01067 -1.6386 0.2079 Round the Intercept to a whole number. Round the coefficients to one decimal place. Assume "Income" is 60,000 and it just enters the function as "60" (as we've been doing all semester). Determine the demand function for this regression AND THEN use it to get the inverse demand function. Which of the following is the inverse demand function?

P = 120 - 2*Q

When the price of beer was $12 you purchased the combination marked "#1". When the price of beer dropped to $6 you purchased the combination marked "#2". As we did in the videos and homework, use this information to produce a demand curve for beer. Which of the following comes closest to the correct demand curve for beer? (Graph [Point #1: 4,6] [Point #2: 12,3])

P = 15 - (3/4)*Q

LIMIT PRICING. You are going to use this info for this question plus the next 4 questions. As we did in the vidos, assume 2 firms exist, one incumbent (already serving market) and one potential entrant These 2 firms have identical cost structures: ATC = 136 - 4Q + .05Q2 and so MC = 136 - 8Q + .15Q2 AND ALSO ASSUME Market Demand Function is Q = 115 - (.5)*P You are going to follow the procedure we went through in the videos. First, above, you have the market demand function; which of the following is the correct equation for the market demand curve?

P = 230 - 2*Q

You own a shop that sells inexpensive baseball caps with funny sayings on them. You have done market research and you know with certainty that your product is an inferior good. The current demand function for your baseball caps is: QD = 282 - 6*P which of course means the equation for your current demand curve is: P = 47 - (1/6)*Q You are opening a new shop in a new part of town, and you know that incomes in that part of town are much higher than incomes are where your shop is now. Which of the following is most likely the demand curve in your new shop?

P = 42 - (1/6)*Q

You will use this information to answer this question PLUS the next three questions. Assume there are exactly 6 firms in your market BUT (despite this) the market is perfectly competitive. The market demand function is Q = 110 - P. The market supply function is Q = 10 + P. All firms have the same ATC curve, and it is this: ATC = 54 - .1Q + .004Q2 Which of the following are the current market P and market Q in this market?

P = 50 and Q = 60

Based on the correct answers to the 4 previous questions, what is the demand curve that is produced by the 2 price/quantity combinations you have now for Good B?

P = 96 - 12*Q

Which of the following is true for perfect competition but not true for monopolistic competition and monopoly?

P = MC

A monopoly has this demand function: QD = 80 - (1/2)*P And this MC function: MC = 6 + 3*Q What is the profit-maximizing level of output (Q) this monopolist will produce?

Q = 22

You have conducted market research and run a regression on your product. Quantity Demanded is the Dependent Variable. The two independent variables are Price and Income. You have obtained these regression results, similar to what you saw in the videos. SUMMARY OUTPUT Regression Statistics Multiple R 0.81237123 R Square 0.806724844 Adjusted R Square 0.766587267 Standard Error 12.132546124 Observations 60 Coefficients Standard Error t Stat P-value Lower 95% Upper 95% Intercept 46.2179 36.0318 3.5745 0.0117 40.6292 216.962 Price -1.82113 0.24733 -2.8958 0.01067 -1.6386 0.2079 Income 0.21076 0.20739 2.2201 0.01073 -0.1150 0.8998 Rounding your intercept to a whole number, and the coefficients to one decimal place, answer this question: Assume the price you're charging is $20 and incomes in your market are 100,000 (which just enters as "100" as we've been doing all semester.) Calculate the quantity demanded of your product and use that to tell me which of the following comes closest to the point elasticity of demand.

Point price elasticity = -1.20

Which of the following is not usually found in a demand function?

Price of Inputs

Which of the following comes closest to the value of producer surplus in this market? (Graph P=24+Q ,, P=360-3*Q)

Producer Surplus = $3,528

The attached graph shows the demand and supply curves for your product before AND after a $9 per unit tax is placed on the seller (exactly as we discussed in the videos). Use the information on the graph to answer this question:We know that applying a tax is shown by shifting a certain curve. We also know that when curves shift, consumer and producer surplus change. Which of the following comes CLOSEST to the change in producer surplus caused by this tax? (Notice I am not asking what producer surplus is or was, I am asking which comes closest to how much it changed.) (Graph P=17+2*Q ,, P=8+2*Q ,, P=80-Q)

Producer surplus decreased $135 as a result of the tax

You are a jewelry maker making custom necklaces that sell in boutiques and high-end stores. Here are the demand function and supply function for your necklaces in your current market: QD = 190 - P QS = 30 + 3*P You have just discovered that the state government is imposing a luxury tax on jewelry, and this will include your necklaces, and it is a tax that is paid by the seller (as we discussed in the videos). In your case, the tax is $20 per unit (that is, for every necklace you sell you hand over $20 to the government.) Use the procedure we went through in the videos to answer this question: What is the quantity of necklaces that will be bought and sold in the market after the tax has been imposed?

Q = 135

Based on the correct answer to Question 2, as we did in the videos, take the slope of the market demand curve and the slope of the ATC curve and set them equal to each other and solve for "Q". This is the "Q" where the two curves will just be tangent to each other. What is that "Q"?

Q = 20

You have a business in a college town that bakes cakes for special occasions (like birthdays) and delivers them to college students in their dorms and apartments. It's very popular with parents of out-of-state students who cannot be there to celebrate with their kids. You know for certain that your good is a normal good, not an inferior good. Which of the following is most likely the demand function for your cake-delivery service?

QD = 180 - 2*P + .5*M

You have conducted market research and run a regression on your product. Quantity Demanded is the Dependent Variable. The two independent variables are "Price" and "Price of a Related Good" ("PRelated"). You have obtained these regression results, similar to what you saw in the videos. SUMMARY OUTPUT Regression Statistics Multiple R 0.923123123 R Square 0.921724844 Adjusted R Square 0.905087267 Standard Error 4.342546124 Observations 100 Coefficients Standard Error t Stat P-value Lower 95% Upper 95% Intercept 15.901 36.0318 3.5745 0.0117 40.6292 216.962 Price -.82113 0.24733 -2.8958 0.01067 -1.6386 0.2079 PRelated 0.6023 0.20739 2.2201 0.01073 -0.1150 0.8998 Rounding your intercept to a whole number, and the coefficients to one decimal place, which of the following comes closest to quantity of your product that will be demanded if the price you charge is $7.00 and the price of the realted good is $6.00?

QDemanded = 14

YOU USED THIS INFO FOR THE LAST QUESTION, AND FOR THIS QUESTION AND THE NEXT TWO QUESTIONS. You are a monopolist serving a single market but you have 2 different factories. The market demand for your product is: Q = 264 - 6*P And the two factories have the following marginal cost functions: MCA = 20 + 2Q and MCB = 20 + Q Using the procedure you used in class, answer the following question. (HINT: This will be MUCH easier if you use fractions, not decimals!!!) What is the TOTAL quantity of output this monopolist will produce (following the procedure in the videos, I am asking for QTOTAL)

QTOTAL = 24

You have estimated the price elasticity of demand for your product and you have obtained an elasticity of -1.4. Your current price is $30 and your current quantity is 300. If you reduce your price to $27 what will be the new quantity demanded as a result.

Quantity Demanded will be 342

You have estimated the income elasticity of your product and it is a -0.8. (Yes, that says negative zero point eight). Incomes in your market increase from $120,000 to $150,000. Which of the following comes closest to the change in the quantity demanded that will result from this change in income?

Quantity demanded will decrease by 20%

Cinemas sometimes give senior citizens discounts. What is the possible privately motivated purpose for them to do so?

Senior citizens have a more elastic demand for movies than ordinary citizens.

You will use this information to answer this question PLUS the next question. Assume there are exactly 6 firms in your market BUT (despite this) the market is perfectly competitive. The market demand function is Q = 110 - P. The market supply function is Q = 10 + P. All firms have the same ATC curve, and it is this: ATC = 54 - .1Q + .004Q2 Based on the correct answers to the two previous questions (Question 13 and Question 14) which of the following will we see next in this market?

Since firms are incurring losses several firms will exit the market

In the videos we discussed Stage 2 of production, which was the efficient (lowest cost) stage to produce. Which of the following is correct?

Stage 2 begins where Average Product is maximized

In class we discussed Stage 2 of production, which is the most efficient (lowest cost) stage to produce in. Which of the following is correct?

Stage 2 ends where Marginal Product turns negative (or is zero, same thing)

You own a doggie daycare business, and you employ 8 people. Labor is one of your key inputs to production. You are looking at a graph of the demand and supply for your services. The minimum wage (which you pay your employees) just increased in your city, making your labor now more expensive. What will happen on the graph you're looking at?

Supply will shift left

Same image as previous question.. Which of the following is most likely to be market #1 above?

The market for dry-cleaning in Kansas City

You are a jewelry maker making custom necklaces that sell in boutiques and high-end stores. Here are the demand function and supply function for your necklaces in your current market: QD = 190 - P QS = 30 + 3*P You have just discovered that the state government is imposing a luxury tax on jewelry, and this will include your necklaces, and it is a tax that is paid by the seller (as we discussed in the videos). In your case, the tax is $20 per unit (that is, for every necklace you sell you hand over $20 to the government.) What are the revenues you are earning in this market before the tax is imposed?

TR = $6,000

Following from Question 6, when you produce the "Q" in question 6 and charge the limit price identified in Question 5, what will be your total revenues (TR)?

TR = $6,612

Consider the following market. This is the entire market for cruises and the passengers, per cruise line, per year. Cruise Line Passengers Per Year (Millions) Carnival 25 Royal Caribbean 17 Norwegian 12 MSC Cruises 5 Disney Cruises 4 TUI Cruises, Inc. 2 Which of the following is most accurate?

The Four Firm Concentration Ratio for this market is approximately 91%, which means it is highly concentrated

Consider the following market. This is the entire market for cruises and the passengers, per cruise line, per year. Cruise Line Passengers Per Year (Millions) Carnival 25 Royal Caribbean 17 Norwegian 12 MSC Cruises 5 Disney Cruises 4 TUI Cruises, Inc. 2 Assume now that Norwegian and MSC Cruises want to merge. If this merger goes through, how much will the Herfindahl increase?

The Herfindahl will increase by more than 200

This is the same production function you saw in the two previous questions: Q = (-.01)*L3 + (2)*L2 What is the marginal product (MP) of your 50th worker?

The MP of your 50th worker is 125

Which of the following is NOT a condition for a firm to engage in price discrimination?

The consumers are sincere in revealing their true natures.

You have a business in a college town that bakes cakes for special occasions (like birthdays) and delivers them to college students in their dorms and apartments. It's very popular with parents of out-of-state students who cannot be there to celebrate with their kids. You know for certain that your good is a normal good, not an inferior good. Assume you expand into another college town, where incomes are higher AND tuition is higher which means (on average) the incomes of parents of out-of-state students is ALSO higher, what would be the expected result?

The demand curve for your cake-delivery service would shift right

Consider these 3 items that you purchase: I. A fast-food hamburger or sandwich (like Jimmy John's) II. The water in your house or apartment that flushes your toilets III. A shirt purchased at a store like Urban Outfitter or H&M Which of the following is most accurate?

The demand for II. would be more inelastic than the demand for the other two

Which is the most correct definition of value marginal product?

The dollar value of the output that is produced when you add a unit of an input (like labor)

You have the choice of entering 1 or 2 markets. Demand is the same in each market, it is QD = 160 - 2*P In Market A, the supply function is: QS = 20 + 3*P - (.5)*PInput where PInput is the price of your labor and it is $20. In Market B, the supply function is: QS = 40 + 3*P - (.5)*PInput where PInput is the price of your labor and it is $30 Which of the following is correct?

The equilibrium price is higher in Market A, but the equilibrium quantity is lower

You are a manager in the market of providing doggie daycare. Here are the demand function and supply function in your market: QDemanded = 180 - 2*P + .5*M where M is income in your market and it is $80,000 (but just enters as "80" as you've been doing all semester) QSupplied = 38 + P - (.5)*(PInput) where PInput is the price of your labor in your market and it's $20. Which of the following is correct?

The equilibrium quantity in this market is 92

The correct dollar amount identified in Question 4, along with the correct "Q" identified in Question 3, make up one P/Q combination on the Residual Demand curve. As I did in the video, use this P/Q combination to solve for the intercept term of the Residual Demand Curve. That intercept term IS your limit price. What is the limit price?

The limit price is $116

In the videos you saw a slide like this, where the different market structures were placed along a spectrum (perfect competition at one end, monopoly at the other). We then "placed" real-world markets on the spectrum. Do exactly the same for the next three questions... (Image explained as best I could below from left to right side) Perfect competition (1) Monopolistic Competition [large space in middle of line] (2) Oligopoly (3) Monopoly

The market for electricity in Lawrence

Same image as previous question.. Which is most likely to be Market #2 above?

The market for overnight delivery service (sending a package overnight from Lawrence to New York)

Which of the following is most accurate based on the discussions in the videos regarding market power?

The more elastic demand is the less market power the firm has

Which of the following statements is true?

The more elastic the demand, the lower the profit-maximizing markup.

Which was not one of the "factors affecting profitability" that was discussed in the videos for Chapter 1?

The power of suppliers of financing (ability to affect the prices of debt and equity capital)

You have used this info to answer the three previous questions. Assume there are exactly 6 firms in your market BUT (despite this) the market is perfectly competitive. The market demand function is Q = 110 - P. The market supply function is Q = 10 + P. All firms have the same ATC curve, and it is this: ATC = 54 - .1Q + .004Q2 Based on the correct answers to the three previous questions (Questions 13, 14 and 15) which of the following is correct?

The price in this market will increase compared to the price we saw back in Question 13 (for context: this is question 16 and all questions are in order)

You own a dog-walking business and you have paid a marketing firm to estimate the demand for your services. They have produced this demand function: QDemanded = 82 - 3*P + .5*M + 3*PR where P is the price of your dog-walking, M is income in your market and it is $50,000 (but just enters as "50") and PR is the price your competitor charges for their dog-walking service which is $24. You are currently charging a price of $20 for your service. Determine the quantity demanded and then use that to identify the Cross-Price Elasticity of Demand for your dog-walking service. NOW, having done that, use that Cross-Price elasticity to answer this question: What will be the percent change in the quantity demanded of your service if your competitor increases her prices by 20%.

The quantity demanded of your service will increase 12%

In the videos we discussed how a change in the price of one good (a related good) can affect the supply of another good. You are a farmer and you are currently supplying (growing) corn. You COULD (if you wanted to) supply soybeans instead. Assume you are looking at a graph of the supply curve for corn. If you see online that the price of soybeans increases significantly, which would you see as a result on the graph that you're looking at, knowing that the two are substitutes in production?

The supply curve for corn would shift left

You are given these two price/quantity combinations: Price Quantity 120 200 110 150 Which of the following is correct?

These make up a supply curve, and the equation for the curve is P = 80 + .2*Q

THIS IS A LONG RUN QUESTION; take your calculations to three (3) decimal places. You own a dog-walking business. You have 2 inputs, experienced dog walkers ("Pros") and novice dog walkers ("Newbies"). Your output is "dogs walked". Your "Pros" are able to walk more dogs per day than the Newbies can; the Pros each walk 28 dogs a day, so the MPPros is 28. Newbies each walk 16 dogs a day, so the MPNewbies is 16. The Pros are paid $100 per day and the Newbies are paid $60 per day. You are currently using 3 of each, 3 Pros and 3 Newbies. Which of the following is correct?

This mix of inputs is inefficient, you should be using more Pros.

You own a small house-cleaning service. Normally you charge a price of $90 for medium-sized houses, and on average your quantity demanded is 160 per month. You recently had a sale, $75 instead of $90, and the quantity demanded increased to 200. Calculate the arc elasticity for your service. Based on this, and only this, which is most likely?

Your service is viewed by consumers as having many substitutes

You will use this information to answer this question plus the next three questions. You are a monopolist serving a single market but you have 2 different factories. The market demand for your product is: Q = 264 - 6*P And the two factories have the following marginal cost functions: MCA = 20 + 2Q and MCB = 20 + Q Using the procedure we used in the videos, answer this and the following three questions. HINT: This will be MUCH easier if you use fractions, not decimals!!! What is this monopolist's ultimate goal if he/she wants to maximize profits?

To produce quantities of output so that the marginal costs are equal across factories

Which was the company used as an example in the video of having a history of being accused of predatory pricing?

Wal-Mart

Based on the correct answer to the previous question, assume the price you sell your product for is $3. And assume the wage you must pay your workers is $400. Based on this information, and the correct answer to the previous question, and knowing what we studied in class: that you keep hiring workers as long as VMP >= wage, which is the correct position to take regarding hiring the 50th worker?

You should not hire the 50th worker because VMP < wage

You have the following information regarding the marginal product of your workers: Workers Total Output Marginal Product 0 0 ----- 1 14 14 2 26 12 3 36 10 4 43 7 5 48 5 6 49 1 If the price you sell your product for is $24, and the wage you must pay your workers is $200, which of the following is correct based on what we discussed in the videos?

You will hire the third worker but not the fourth

In limit pricing, when the average cost curve lies above the entrant's residual demand curve, an entrant:

cannot profitably enter the market.

Assume your customers currently have a budget of $288 to spend on Good A, Good B, or some of each. Assume the price of Good A is currently $18 and the price of Good B is currently $36. Assume your customers maximize their utility subject to their budget constraint, as we discussed in the videos. What combination of goods is your customer currently purchasing? (Graph [W 3,4] [X 5,6] [Y 6,8] [Z 6,11] )

of Good A and 5 of Good B

You will use this table for this and the following 2 questions. It is similar to what you saw in your sample questions and in the textbook. As always, ignore any cell with "----" in it. Your fixed costs (not shown) are $200, your variable costs are your labor and you pay each worker $50. Workers Output Marginal Product Total Costs Average Total Costs Marginal Costs 0 0 ---- $200 -------- 1 12 12 $250 20.83 4.17 2 25 $300 12.00 3.85 3 39 $350 8.97 3.57 4 51 $400 4.17 5 61 10 $450 6 68 7 $500 7 72 4 $550 7.64 12.50 8 74 2 $600 8.11 25.00 9 75 1 $650 8.66 50.00 10 75 0 $700 9.33 ---- 11 74 -1 $750 10.14 ---- 12 71 -3 $800 11.27 ---- Which of the following is correct regarding diminishing marginal productivity? We start to see diminishing marginal productivity...

when we go from hiring 3 workers to hiring 4

This is the same table you saw in the two previous questions. As always, ignore any cell with "----" in it. Which of the following is correct based on the table: When you are producing 61 units of output...

your Marginal Cost is less than your ATC