Managerial Economics: Test 1

Assume that pencils and pens are substitutes. If the price of pencils rises, then we will see: A. A rightward shift in the demand curve for pens. B. A leftward shift in the demand curve for pens. C. An upward movement along the demand curve for pens. D. A downward movement along the demand curve for pens.

A rightward shift in the demand curve for pens.

At its current output level, a firm's marginal profit is positive. Therefore, it should A. Decrease output until marginal profit is zero. B. Increase output because MR < MC. C. Increase both its output and its price. D. Increase output because MR > MC.

Increase output because MR > MC.

The first derivative of total profit with respect to quantity is A. Marginal revenue B. Marginal profit C. Marginal cost D. Slope of marginal profit.

Marginal profit

Total revenue is maximized at the point where A. Marginal revenue equals marginal cost. B. marginal profit equals zero. C. marginal revenue equals zero. D. marginal cost equals zero.

marginal revenue equals zero.

Suppose the income elasticity of demand for U.S. automobiles is 1.0. If the level of income increases by 4 percent, the number of U.S. automobiles sold will, ceteris paribus, ______; the U.S. automobiles is ________ good. A. rise by 0.25 percent; an inferior B. rise by 4.0 percent; a normal C. fall by 0.25 percent; an inferior D. fall by 4.0 percent; a normal

rise by 4.0 percent; a normal

If the demand curve is a downward sloping straight line, the total revenue is at the maximum when price elasticity of demand is: A. elastic B. inelastic C. perfectly elastic D. unitary elastic

unitary elastic

Ceteris paribus, which of the following would generally cause an increase in the demand for automobiles (i.e. shift the demand curve for automobiles to the right)? A. A decrease in the price of automobiles. B. An increase in consumers' income. C. The new models are perceived as ugly compared with old models. D. Consumer expectations that the price of automobiles will be lower next year.

An increase in consumers' income.

Marginal revenue is the A. Price the firm obtains for the last unit sold. B. Change in revenue from a unit increase in price. C. Change in revenue from producing and selling an additional unit of output. D. Amount of additional revenue from an increase in demand.

Change in revenue from producing and selling an additional unit of output.

Maximum profit occurs where A. The slope of the total revenue function equals marginal revenue B. The slope of the total revenue function equals the slope of total cost. C. The slope of total revenue function is maximized. D. Total revenue is maximized.

The slope of the total revenue function equals the slope of total cost.

Given that digital music players are used to play music downloaded from the Internet, a fall in the price of digital music players will lead to: A. an increase in the price of a song download. B. an increase in the demand for downloaded songs. C. an increase in the price of broadband plans. D. a fall in the demand for digital music players. E. an increase in the price of personal laptops.

an increase in the demand for downloaded songs.

If the price elasticity of demand of a good is between 0 and -1, the good is said to have: A. perfectly elastic demand B. unitary elastic demand C. inelastic demand D. perfectly inelastic demand

inelastic demand

Consider the market for automobiles. If a dealer cuts prices 20 percent and finds he sells 10 percent more cars, then demand for autos is ______ and his total revenue will _____. A. elastic; rise B. elastic; fall C. inelastic; rise D. inelastic; fall

inelastic; fall