ECON 315: Ch. 1 & 2 Quiz

Jack Roper is a college student. He pays $17,000 per year in tuition and books, $600 per month for rent, $400 per month for food, and $125 per month for on-campus parking. He gave up a job that pays $45,000 per year to attend college. Given this, the implicit cost of his education equals

$45,000

Which of the following describes supply and demand analysis? - A qualitative tool - A forecasting tool - Use to predict pricing trends - Mostly quantitative

- A qualitative tool - A forecasting tool - Use to predict pricing trends

The law of demand analyzes the relationship between price and quantity demanded holding which of the following variables constant?

- Prices of related goods - Income

Which of the following principles are among the seven that comprise effective management?

- Recognize the importance of profits - Identify firm goals and constraints - Use marginal analysis

Which of the following are roles of a firm manager?

- Selects and purchases production inputs - Directs the efforts of others - Establishes product price

Demand Shifters

- income - prices of related goods - advertising & consumer tastes - population - consumer expectations

In general, firm managers face constraints that affect his or her ability to _____.

- increase market share - maximize profits

Profit maximization by firms improves the total welfare of society by

- inducing entry into the market. - signaling where scarce resources are most highly valued.

Which of the following is among the five forces that impact the sustainability of industry profits, according to Michael Porter?

- industry rivalry - entry - power of buyers

Supply Shifters

- input prices - technology/gov regulation - # of firms - substitutes in production - taxes - producer expectations

A strong incentive structure:

- offers bonuses to managers based on firm performance. - aligns worker self-interest with firms' interest.

Successful managers understand how to structure incentives in order to overcome which economic condition? - elasticity - opportunity cost - self-interest

- self-interest

Suppose a firm manager converts 65% of his available factory space in to an indoor playground for neighborhood children. The implicit cost of this decision is - the revenue generated by charging admission. - the value of the next-best alternative for the space. - the cost of the playground equipment.

- the value of the next-best alternative for the space.

Graphically, what area represents producer surplus? The area above the supply curve and above the price. The area below the demand curve and above the price. The area above the supply curve and below the price. The area above the demand curve and above the price.

The area above the supply curve and below the price.

Economic profits equal

Total revenue - (explicit + implicit costs)

The economic cost of producing a good or service is generally _________ the accounting cost. a. > b. = c. <

a. >

Which of the following is true? a. Accounting costs generally understate economic costs b. Accounting profits generally understate economic profits. c. In the absence of any opportunity costs, accounting profits are less than economic profits. d. Accounting costs generally overstate economic costs.

a. Accounting costs generally understate economic costs

Which of the following does NOT comprise effective management? a. Understanding the marginal rate of substitution b. Understanding markets c. Understanding incentives d. Understanding the time value of money

a. Understanding the marginal rate of substitution

Managerial economics provides useful insights into _____ facets of the business and nonbusiness world. a. all b. some, but not all

a. all

The availability of technology and input prices are often considered _________ that interfere with managerial goals. a. constraints b. factors of production c. sunk costs d. opportunity costs

a. constraints

Industry profits tend to be higher when which of the following is present? a. few close substitutes b. many close substitutes c. few complements

a. few close substitutes

What's the main role of economic profits? a. to signal where resources are most highly valued b. to help firms cover their production costs c. to help consumers cover their opportunity cost d. to signal where resources are least-valued

a. to signal where resources are most highly valued

If chicken and pork are substitutes, what happens to the demand for pork if the price of chicken increases substantially? a. Quantity demanded of pork decreases b. Demand for pork increases c. for pork decreases d. Demand for pork does not change

b. Demand for pork increases

Suppose you produce wooden desks, and government legislation protecting the spotted owl has made it more expensive for you to purchase wood. What do you expect to happen to the equilibrium price and quantity of wooden desks? a. Price and quantity will increase. b. Price will increase but quantity will decrease. c. Price and quantity will decrease. d. Price will decrease but quantity will increase

b. Price will increase but quantity will decrease.

Firms that earn the business of scarce customers with a high-quality, lower-price product engage in a. Consumer-consumer rivalry b. Producer-producer rivalry c. Labor-leisure rivalry d. Producer consumer rivalry

b. Producer-producer rivalry

Consumer-consumer rivalry is due in large measure to which of the following? a. Surpluses b. Scarcity c. Taxes d. Monetary policy

b. Scarcity

Which area forms consumer surplus? a. The area above the demand curve and below the price. b. The area below the demand curve and above the price. c. The area below the supply curve and below the price. d. The area above the supply curve and below the price.

b. The area below the demand curve and above the price.

If a product is not perishable and firms expect the market price of the product to increase in the future, then the current supply of the good: a. increases b. decreases

b. decreases

Accounting profits tend to _________ economic profits because they exclude _______. a. fall below; accounting costs b. exceed; implicit costs c. exceed; both explicit and implicit costs d. exceed; explicit costs

b. exceed; implicit costs

In order to make sound decisions, firm managers must have well-defined __________. a. profits b. goals c. utility ratios d. inputs

b. goals

If the price of an input rises, producers are willing to produce a. more output at each given price. b. less output at each given price. c. the same output at each given price. d. an indeterminable output as there is not enough information.

b. less output at each given price.

"Our marginal revenue is greater than our marginal cost at the current production level." This statement indicates that the firm a. is maximizing profits. b. should increase the quantity produced to increase profits c. should decrease the quantity produced to increase profits. d. should retire.

b. should increase the quantity produced to increase profits

If consumers expect future prices to be higher, a. they substitute current purchases for future purchases of perishable products. b. stockpiling will happen when the products are durable in nature c. the position of the demand will not change. td, he demand for automobiles today will not change.

b. stockpiling will happen when the products are durable in nature

Managerial economics is a very _______ discipline that describes methods for analyzing the resource-allocation decisions of __________.

broad; households & firms

In general, a firm manager is most interested in a. maximizing capital contributions. b. minimizing worker contributions. c. maximizing profits. d. decreasing revenues.

c. maximizing profits.

Managerial economics is best defined as a. the general analysis of pricing structures and profits. b. a field that estimates the effect of managerial decisions on households. c. the study of how to allocate scarce resources to achieve managerial goals. d. a branch of economics that studies how firm managers develop new products.

c. the study of how to allocate scarce resources to achieve managerial goals.

Which of the following best characterizes "scarcity"? a. An individual can make choices without constraints. b. With a binding price floor, quantity demanded exceeds quantity supplied. c. Minimum wages create unemployment. d. An individual cannot make a choice without giving up another.

d. An indv cannot make a choice w/o giving up another

Opportunity costs include __________ costs. a. sunk b. only explicit c. only implicit d. explicit & implicit

d. explicit & implicit

Which of the following is least likely to be a constraint facing a hotel with an existing contract for room cleaning services? a. the degree of financing from a bank b. the number of upcoming graduates from a hotel industry training institute c. the number of hours the owner needs to provide childcare at home d. the ability to hire new cleaning staff

d. the ability to hire new cleaning staff

When a shortage exists, there is a tendency for price to ________ in order to equate quantity demanded and quantity supplied. rise fall

rise

The demand function indicates that the quantity of a good consumed depends on the price of inputs the income of buyers the effect of the demand shifters the price of the good

the income of buyers the effect of the demand shifters the price of the good

The following function, Qxs = f (Px, Pr, W, H), shows that the quantity produced in a market depends on the price of the good, Px, and: the value of other variables that affect supply such as taxes. the price of inputs such as labor costs. the number of buyers in the market. the price of technologically related goods.

the value of other variables that affect supply such as taxes. the price of inputs such as labor costs. the price of technologically related goods.