Exam Econ Study ch.4 - ch.7
Given that income is $750 and PX = $32 and PY = $8, what is the market rate of substitution between goods X and Y?
-PX/PY=-32/8=-4
Suppose that Linda receives a fixed payment of $50 and consumes 14 hours of leisure. If her total earnings for the entire day is $300, we know her hourly wage rate must be (there are 24 hours in a day)
300-50=250 24hrs - 14hrs = 10hrs 250/10=10hrs $25
If a consumer is given a $10 gift certificate good for items in store X and all items in store X are inferior goods, then the consumer desires to consume
fewer goods in store X.
Most workers view leisure and income as
goods
The short run is defined as the time frame
in which there are fixed factors of production
A price decrease causes a consumer's "real" income to
increase.
Spot checks are typically a solution to the
manager-worker, principal-agent problem
If a consumer is given a $10 gift certificate good only for items in store X and all items in store X are normal goods, then the consumer desires to consume
more goods in store X.
The production function for good X exhibited in the table below is for the Production Function for Good X
short run, since L is the fixed input.
Which combination of the following properties rules out indifference curves that intersect one another?
transitivity and more-is-better
Suppose that three consumers are in the market for good X. Consumer 1's (inverse) demand is PX = 20 − QX; Consumer 2's (inverse) demand is PX = 60 − 2QX; and Consumer 3's (inverse) demand is PX = 40 − 3QX. When PX = $10, the market will demand for good X will be
x = 10 units + 25 Units + 10 Units =45 Units
Which of the following profit functions exhibits a Cobb-Douglas production function?
π = P × K0.75L0.50 − 20L − 35K.
Oligopoly
•Few, large firms tend to dominate market. •Price/marketing strategies are mutually interdependent with other firms in the industry.
Monopolistic competition
•Many, small firms and consumers relative to market. •Firms produce slightly different products. •Limited market power.
Perfect competition
•Many, small firms and consumers relative to market. •Firms produce very similar products. •No market power (P = MC).
Monopoly
•Sole producer of good or service. •Market power (P > MC).
Suppose compensation is given by W = 400,000 + 500π + 50S, where W = total compensation of the CEO, π = company profits (in millions) = $200, and S = sales (in millions) = $400. How much will this CEO be compensated?
$520,000
Suppose earnings are given by E = $60 + $7(24 − L), where E is earnings and L is the hours of leisure. What is the price to the worker of consuming an additional hour of leisure?
$7
If the production function is Q = K.5L.5 and capital is fixed at 1 unit, then the average product of labor when L = 36 is
((36)^.5)/36= .167= 1/6
The production function for a competitive firm is Q = K.5L.5. The firm sells its output at a price of $10 and can hire labor at a wage of $5. Capital is fixed at one unit. The profit-maximizing quantity of labor is
1
If the price of good X is $10 and the price of good Y is $5, how much of good X can the consumer purchase if her income is $15 and she spends it entirely on purchasing good X?
1.5
Suppose compensation is given by W = 100,000 + 500π + 50S, where W = total compensation of the CEO, π = company profits (in millions) = $340, and S = sales (in millions) = $700. What percentage of the CEO's total earnings is tied to sales of the firm?
11.5%
An incentive for managers to maximize profits is all of the following except
A Fixed annual salary
If widgets and gidgets are complements and both are normal goods, then an increase in the demand for widgets will result from
A decrease in the price of gidgets
person who monitors the production process and evaluates the productivity of workers is
A manager
When there are economies of scope between two products that are separately produced by two firms, merging into a single firm can
Accomplish a reduction in costs
Suppose a new contracting environment with an economic environment that looks more uncertain is considered. This new contract will result in
An increase in the marginal cost and a shorter optimal contract
For a cost function C = 100 + 10Q + Q^2, the marginal cost of producing 10 units of output is
C = 100 + 10Q + Q^2 MC = dC(Q)/dQ= 10+2(Q) MC = 10 + 2*(10) = 30 Marginal cost of producing the 10th unit of output is 30
For the cost function C(Q) = 100 + 2Q + 3Q2, the marginal cost of producing 2 units of output is
C(Q)=100+2Q+3Q2 converted into Marginal Cost MC = 2+6Q 2+6*2=2+12=$14
Economies of scope exist when
C(Q1)+C(Q2)>C(Q1,Q2)
Suppose that three consumers are in the market for good X. Consumer 1's (inverse) demand is PX = 40 − 5QX; Consumer 2's (inverse) demand is PX = 10 − QX; and Consumer 3's (inverse) demand is PX = 30 − 2QX. When PX = $5, the market will demand
Consumer 1 demand Px=40-5Q 5=40-5Q Q=7 Consumer 2's demand P=10-Q 5=10-Q Q=5 Consumer 3's demand P=30-2Q 5=30-2Q Q=12.5 5+7+12.5=24.5 units
Suppose that the marginal benefit of writing a contract is $100 and the marginal cost of that contract is $100. Based on this information, the optimal contract length should be
Held constant at the contract length where MB = 100 and MC = 100
The most commonly practiced negative incentive used by firms is
Dismissal
Suppose the cost function is C(Q) = 50 + Q − 10Q2 + 2Q3. What is the variable cost of producing 10 units?
Eliminate the 50 to find variable cost input Variable cost= 10 - 10(10)^2 + 2(10)^3 = $1,010
Which of the following is not a type of specialized investment?
Financial Capital
According to the table below, what is the average variable cost of producing 50 units of output?
From given table, variable cost of producing 50 units of output is 700. VC/Q=700/50=14 Average variable cost of producing of producing 50 units of output is 14.
As firms increase in size, they initially tend to experience
Gains from Specialization
A negative side of a revenue-sharing plan is that it
Gives no incentives for workers to minimize costs
If the price of good X increases, what will happen to the budget line?
It will become more steeper
If the price of good X increases, what will happen to the budget line?
It will become steeper
An in-kind gift causes the budget line to
Not Change
Which of the following is Not a means of avoiding opportunism?
Spot Exchange
Which of the following is not an incentive scheme to ensure that workers do a good job?
Straight hourly wages for dock workers
Suppose that consumers' preferences are well behaved in that properties 4-1 to 4-4 (completeness, more is better, diminishing marginal rate of substitution, and transitivity) are satisfied. Furthermore, assume that both X and Y are normal goods and that the price of good Y decreases. Then, which of the following effects is known with certainty?
The income and substitution effects will reinforce one another, leading to an overall increase in the consumption of good Y.
Suppose that Puffy Lube has average total costs of $10 when it produces 20 oil changes/day. What are Puffy Lube's total cost of 20 oil changes?
Total cost = Average total cost * Quantity = $10 * 20 = $200
The property that rules out indifference curves that cross is
Transitivity
Shirking can take the form of all of the following except
Using the internet to do job-related research
Costs that change as output changes are
Variable costs
The costs of production include
accounting costs and opportunity costs
Suppose the production function is given by Q = 2K + L. If w = $4 and r = $4. How many units of K and L will be utilized in the production process?
all K and no L
Increasing returns to scale in production are represented by isoquants that
are consecutively farther from each other indicating doubling inputs more than doubles output
Instructor A works at a community college on a temporary basis, being informed about employment two weeks before the start of each semester. Under what circumstances would Instructor A be enthusiastic about investing time to convert all her paper lecture notes into an online format?
by working as an instructor with a three-year contract
What is/are the important things that must be developed when characterizing consumer behavior?
consumer preferences and consumer opportunities
Suppose you are a manager of a factory. You purchase five (5) new machines at one million dollars each. If you can resell two of the machines for $500,000 and three of the machines for $200,000, what are the sunk costs of purchasing the machines?
cost that has already been incurred and cannot be recovered 1,000,000-2*500,000-3*200,000=3.4 million
If a firm's production function is Leontief and the price of capital goes down, the
cost-minimizing combination of capital and labor does not change
Suppose that consumers' preferences are well behaved in that properties 4-1 to 4-4 (completeness, more is better, diminishing marginal rate of substitution, and transitivity) are satisfied. Furthermore, assume goods X and Y are normal goods and the price of good X decreases. Then the substitution effect will lead consumers to consume
more of good X and less of good Y.
Shirking can take the form of all of the following except
putting forth the maximum effort
Changes in the price of an input cause
slope changes in the isocost line
Suppose a consumer with an income of $800 is faced with Px = $10 and Py = $3. What is the market rate of substitution between good X (horizontal axis) and good Y (vertical axis)?
−3.33 -PX/PY=-10/3=-3.33
Which of the following cost functions exhibits cost complementarity?
−5Q1Q2 + 7Q1 As Q2 increases, MC decreases. So, it shows cost complementarity.