MGMT Econ Practice Test 1

The market structure characterized by a small number of large firms that have some market power is called:

Oligopoly

Which of the following is a plausible reason that restaurants offer "Senior Citizen Discounts"?

Senior citizens tend to have relatively more elastic demands for restaurant meals than other consumer groups

If the cross-price elasticity of demand between two goods is positive, we can assume that the two goods in question are:

Substitutes Note: an increase in the price of good Y causes consumers to demand more of good X

the test statistic used to test the hypothesis of whether a regression coefficient is significantly different from zero, holding all other independent variables constant, is called a(n):

T-test

Which of the following approaches to understanding & predicting consumer behavior provides the most insight into how consumers can be expected to respond in an actual market setting?

Test Marketing

For a particular product, a demand elasticity is a quantitative measure that shows:

The % change in quantity demanded relative to the % change in any of the other variables included in the demand function for that product

Which of the following is true of the typical relationship between marginal product (MP) and average product (AP)?

The MP curve intersects the AP curve at maximum AP Note: MP must= AP when AP is @ maximum value

Assume a factory that currently employs 25 workers & owns a factory with 10,000 square feet of floor space is considering doubling the size of its factory. Economists would classify this as:

a long-run decision Note: in the long run, managers can choose to produce goods in larger factories

Gross Domestic Product (GDP) is defined as the market value of:

all final goods & services produced within the boundaries of an economy during the year by domestic & foreign-supplied resources

For a normal good, the income elasticity of demand is:

always positive

Assume the demand for a good is price inelastic (ed<1). This means that if the price decreases by 50%, the quantity demanded will:

decrease by less than 50% Note: % change in quantity demanded is less than % change in price

When demand is inelastic & price decreases:

the effect of the decrease in price on total revenue dominates the effect of the increase in quantity demanded on total revenue; overall total revenue declines

Briefly describe the 3 key points managers must consider when using expert opinion, consumer surveys, test marketing, & price experiments in analyzing consumer behavior.

*Short Answer* 1. whether the participating groups are truly representative of the larger population 2. whether the answers given in these formats represent actual market behavior 3. how to isolate the effects of different variables that influence demand

Distinguish between a change in demand & a change in quantity demanded. What are the causes of each type of change & how do we illustrate them graphically?

*Short answer*

Provide a simply definition of the price elasticity of demand & explain why knowing the price elasticity for her product is useful to the firm's manager.

*Short answer*

Which of the following is a characteristic of a perfectly competitive market?

1. A large number of firms in the market 2. An undifferentiated product 3. Ease of entry into the market 4. Complete information available to all market participants

Determinants of the price elasticity of demand for a particular good

1. available substitutes 2. if the good is a luxury or a necessity 3. the proportion of income spent on the good 4. how much time has passed since the time the price changed

Assume the auto market is initially in equilibrium with imports from Japan taking up significant share of the market. Now assume a quote on imports of Japanese cars is established. What will occur at the initial equilibrium price to signal market participants regarding the change that has taken place?

A shortage is created by an increase in demand

Which of the following statements is true of the relationship among the average cost functions?

AFC=ATC-AVC Note: OG is ATC=AFC+AVC

Data collected on a sample of individuals with different characteristics at a specific point in time are called:

Cross-section data

Assume there is an improvement in the technology used to produce Blu-Ray disc players. What could be expected to happen to the equilibrium price & quantity in the market for Blu-Ray disc players?

Equilibrium price would decrease and equilibrium quantity would increase Note: Change in tech mean in increase in supply resulting in a lower equilibrium price & larger equilibrium quantity

Distinguish between implicit & explicit costs & give examples of each. In addition, explain how explicit & implicit costs affect the distinction between economic profit and accounting profit. What explains the distinction between the two measures of profit.

Implicit costs are costs that are non-visible while explicit costs are visible expenses & out of pock. An example of implicit costs: owning the building you operate your business out of --> you are not paying rent & if you business was not opporating out of there, you could charge rent & earn more An example of an explicit cost: Paying rent every month Accounting profit --> you pay taxes on explicit costs only Economic profit --> you measure total economic costs by adding implicit & explicit costs. this allows you to make decisions regarding your business

If the % change in quantity demanded is less than the % change in price, we would say that over this range, demand is:

Inelastic

In the market for a normal good, what is the ultimate market reaction of suppliers to an increase in the incomes of consumers?

Quantity supplied increases as the equilibrium moves along the supply curve due to a rise in demand

Marginal product equals 0 when:

Total product reaches its maximum value. Note: MP begins to decline & becomes zero when all units of labor have been utilized, or TP is @ maximum (Law of Diminishing Marginal Returns)

A strong Japenese yen:

induced Japanese auto manufacturers to shift their production of cars to the U.S.

the term "fixed input" refers to:

inputs to production, the quantity of which cannot be varied int he short run

Information on the price elasticity of demand is particularly important to managerial decision making because:

it allows one to predict how total revenue will respond (I.e., increase or decrease to a change in price) also--> helps firms develop pricing strategies that will maximize profits

The amount of output produced with an additional unit of variable input is referred to as:

marginal product

Regression analysis that analyzes the relationship between one dependent variable and several independent variables is called:

multiple regression analysis

The assumed goal of the firms that operate in each of the 4 market structures discussed in the text is to maximize:

profits

In a multiple regression problem involving two independent variables, if b1 is computed to be +2.0, it means that:

the estimated value of Y increases by an average of 2 units for each increase of 1 unit of X1, without regard to X2

An implicit cost is defined as:

the opportunity cost of using a resource that is not explicitly paid out by the firm

"Demand" is best defined as the relationship between:

the price of a good & the quantity consumers are willing & able to buy at each price level