Froeb Ch. 1-4 Quiz

When I well functioning market is in equilibrium,

Total surplus is maximized without government intervention

Subjects related to managerial economics that have come up on actual job interview questions (according to the end of chapter 1) include

Transfer pricing, signaling in compensation offers, sunk costs

Strategy by an auto repair shop to recommend a necessary repairs

Will backfire if this becomes public knowledge

The rational actor paradigm does not assume that people behave

creatively

Tips to help solve managerial problems include

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

The rational-actor paradigm is useful for

1.analyzing behavior that has already occurred. 2.teaching us to anticipate opportunistic behavior. 3.designing organizations that are less susceptible to opportunistic behavior

You are running a Gameday shuttle service for UAB football games. You're cost for a different customer loads are 1: $27 2: $29 3: $32 4: $36 5: $41 6: $48 7: $57 8: $68 The market price for a ride is $10 per customer, you would maximize your profit with a customer load of

7

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

$200,000

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

$23

A firm produces 600 units per week. It hires 10 full-time workers (40 per week) at an hourly wage of $20. Raw materials cost $30 for every unit produced. The weekly rent force factory is $5000. Total variable cost equals

$26,000

If a firm is earning positive economic profits, it's accounting profit must be

Positive

Dr. D's barbecue of Colleyville Texas produces 20,000 dry rubbed ribs slabs per year. Annually Dr. D's fixed costs are $40,000 the average variable cost per slab is a constant one dollar. The average total cost per slab is

$3

A firm produces 600 units per week. It hires 10 full-time workers (40 per week) at an hourly wage of $20. Raw materials cost $30 for every unit produced. The weekly rent force factory is $5000. Total cost equals

$31,000

If at hey price taking (I.E.a perfectly competitive) firms current production level, its marginal revenue is $20 and it's marginal cost, which is increasing as output rises, is $25, we can conclude that the firm

Should reduce production

To purchase a hardware store, James with Drew $200,000 from a mutual fund account that increased in value by 10% over the next year. After one year, James said the hardware store for $250,000. His accounting profit from buying and selling the store were

$50,000

If you're willing to sell your landscape business for $620,000 and someone offers you $680,000 for it, this transaction will generate

$60,000 of sellers surplus and an unknown amount of buyer surplus

You are running a Gameday shuttle service for UAB football games. You're cost for a different customer loads are 1: $27 2: $29 3: $32 4: $36 5: $41 6: $48 7: $57 8: $68 The marginal cost of the 6th customer is

$7

Increase in output from 90 to 100 units, total cost increase from $7600-$8300. If marginal cost is constant, fixed cost equal

$1300

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

$170,000

A consumer values a car and $90,000 and it cost Producer $70,000 to make the same car. If the transaction is completed at $85,000, the transaction will generate $20,000 worth of

Total surplus

When considering the organizational design applications of a mistaken decision, the goal is to

Alter the decision making process to avoid similar mistakes in the future

The invisible hand

Argues that prices guide economic decisions

You pay $100 for a ticket to the Broadway show Hamilton, for which your value of attending is $250. In NYC the day of the show, you legally sell your ticket I'm a secondary market for $1000. By doing this, you have

Avoided committing the hidden cost fallacy, which would have a card if you attended the show

The difference between the price the buyer is willing to pay and actually pay is known as

Buyer (consumer) surplus

Taxes

Cause market distortions

Possible solutions to managerial problems include all of the following except Giving more information to the current decision maker Assigning the decision making responsibilities to someone else Changing the current decision makers work location Change in the current decision makers incentives

Changing the current decision makers work location

You paid $30 to attend the first post program resurrection UAB football game. At halftime, UAB is behind 42-0 (clearly unrealistic, but suspend your disbelief), and he would rather do anything than watch the second half. Bye staying for the rest of the game because you value the $30 that you spent on the ticket, you are

Committing the fixed cost fallacy

Which of these actions create value?

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

When assessing the trade-offs involved in changing organizational design

Costs include having to restructure how business is conducted

A price ceiling

Equivalent to a tax on producers and a subsidy to consumers

And investment raises profits whenever its marginal benefits are

Greater than its marginal costs

Economic value added helps firms avoid the

Hidden cost fallacy by taking all capital cost into account including the cost of equity

Wealth generating transactions typically

Increase total surplus

Do US government owns 47% of all land in the west. The economic cost the government incurs by owning this land

Is equal to the market value of the land

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

Is the organization profitable?

Why might a "bonus cap" for executives be a bad policy

It might discourage work effort once the cap is reached

Do US government prohibition on the selling of kidneys (at prices above zero)

Leads to the formation of secondary market for buying and selling kidneys

A firms average total cost is falling, then

Marginal cost is less than average total cost

Do you have calculated that hiring an additional employee to work for you would increase the sales of your product, which is priced at $8 per unit, by 200 units per week, it will cost you $1000 per week. This means that if you make this higher, $1600 per week is the

Marginal revenue

While working at ECU, Mike was offered jobs at UNH and USF. His preference ranking, in order, for his three options were 1. Moving to USF 2. Moving to UNH 3. Staying at ECU Is opportunity cost of moving to USF was his net benefit from

Moving to UNH