BE 301: Managerial Economics Chapters 1-7 - Custom Scholars
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BE 301: Managerial Economics Chapters 1-7

question
An individual's value for a good or service is the
a. The amount of money he or she used to pay for a good
b. The amount of money he or she is willing to pay for it
c. The amount of money he or she has to spend on goods
d. None of the above
answer
B
question
The biggest advantage of capitalism is
a. Generates wealth with the help of government intervention
b. That prices assists in moving assets from high valued to low value uses
c. It forces involuntary exchanges
d. Creates wealth by letting a person follow his or her own self-interest
answer
D
question
Wealth creating transactions are more likely to occur
a. With private property rights
b. With contract enforcement
c. With black markets
d. a and b
answer
D
question
Government regulation
a. provides incentives to conduct business in an illegal black market
b. plays no role in generating wealth
c. is the best way to eliminate poverty
d. does not enforce property rights
answer
A
question
An example of price floor is
a. Minimum wages
b. Rent controls in New York
c. Both a and b
d. None of the above
answer
A
question
A price ceiling:
a. Is a government-set price above market equilibrium price.
b. Is the equivalent of an implicit tax on producers and an implicit subsidy to
consumers.
c. Will create a surplus.
d. Causes an increase in consumer and producer surplus.
answer
B
question
Taxes:
a. Impede the movement of assets to higher valued uses
b. Reduce incentives to work
c. Decreases the number of wealth creating transactions
d. All the above
answer
D
question
A consumer values a car at $30,000 and a producer values the same car at $20,000. If the
transaction is completed at $24,000, the transaction will generate:
a. No surplus
b. $4,000 worth of seller surplus and unknown amount of buyer surplus
c. $6,000 worth of buyer surplus and $4,000 of seller surplus
d. $6,000 worth of buyer surplus and unknown amount of seller surplus
answer
C
question
A consumer values a car at $525,000 and a producer values the same car at $485,000. If sales
tax is 8% and is levied on the seller, then the sellers bottom line price is
a. $527,000
b. $523,800
c. $525,000
d. $500,000
answer
B
question
Efficiency implies opportunity,
a. Always
b. Never
c. Only if accompanied by secure property rights
d. None of the above
answer
B
question
A business owner makes 1000 items a day. Each day he or she contributes 8 hours to
produce those items. If hired, elsewhere he/she could have earned $250 an hour. The item
sells for $15 each. Production does not stop during weekends. If the explicit costs total
$150,000 for 30 days, the firm's accounting profit for the month equals:
a. $300,000
b. $60,000
c. $450,000
d. $240,000
answer
A
question
A business owner makes 1000 items a day. Each day he/she contributes 8 hours to produce
those items. If hired, elsewhere he/she could have earned $250 an hour. The item sells for
$15 each. Production does not stop during weekends. If the explicit costs total $150,000 for
30 days, the economic profit for the month equals:
a. $300,000
b. $60,000
c. $450,000
d. $240,000
answer
D
question
If a firm is earning negative economic profits, it implies
a. That the firm's accounting profits are zero
b. That the firm's accounting profits are positive
c. That the firm's accounting profits are negative
d. More information is needed to conclude about accounting profits
answer
D
question
Opportunity costs arise due to
a. Resource scarcity
b. Interest rates
c. Limited wants
d. Unlimited scarcity
answer
A
question
After graduating from college, Jim had three choices, listed in order of preference: (1) Move
to Florida from Philadelphia, (2) work in a car dealership in Philadelphia, or (3) play soccer
for a minor league in Philadelphia. His opportunity cost of moving to Florida includes
a. The benefits he could have received from playing soccer
b. The income he could have earned at the car dealership
c. Both a and b
d. Cannot be determined from the given information
answer
B
question
Economic Value Added helps firms to avoid the hidden-cost fallacy
a. by ignoring the opportunity costs to using a capital
b. by differentiating between sunk and fixed costs
c. by taking all capital costs into account including the cost of equity
d. none of the above
answer
C
question
The fixed-cost fallacy occurs when
a. A firm considers irrelevant costs
b. A firm ignores relevant costs
c. A firm considers overhead or depreciation costs to make short-run decisions
d. Both a and c
answer
D
question
Mr. D's Barbeque of Pickwick, TN produces 10,000 dry-rubbed rib slabs per year. Annually
Mr. D's fixed costs are $50,000. The average variable cost per slab is a constant $2. The
average total cost per slab then is
a. $7.
b. $2.
c. $5.
d. impossible to determine.
answer
A
question
All the following are examples of variable costs, except
a. Labor costs
b. Cost of raw materials
c. Accounting fees
d. Electricity costs
answer
C
question
The U.S. Government bought 112,000 acres of land in southeastern Colorado in 1968 for
$17,500,000. The cost of using this land today exclusively for the reintroduction of the blacktailed
prairie dog
a. is zero, because they already own the land.
b. is zero, because the land represents a sunk cost.
c. is equal to the market value of the land.
d. is equal to the total dollar value the land would yield if used for farming and
ranching.
e. depends on the value to society of black-tailed prairie dogs.
answer
C
question
When economists speak of "marginal", they mean
a. Opportunity
b. Scarcity
c. Incremental
d. Unimportant
answer
C
question
Managers undertake an investment only if
a. Marginal benefits of the investment are greater than zero
b. Marginal costs of the investment are greater than marginal benefits of the
investment
c. Marginal benefits are greater than marginal costs
d. Investment decisions do not depend on marginal analysis
answer
C
question
A firm produces 500 units per week. It hires 20 full-time workers (40 hours/week) at an
hourly wage of $15. Raw materials are ordered weekly and they costs $10 for every unit
produced. The weekly cost of the rent payment for the factory is $2,250. How do the overall
costs breakdown?
a. Total variable cost is $17,000; total fixed cost is $2,250; total cost is $19,250
b. Total variable cost is $12,000; total fixed cost is $7,250; total cost is $19,250
c. Total variable cost is $5,000; total fixed cost is $14,250; total cost is $19.250
d. Total variable cost is $5,000; total fixed cost is $2,250; total cost is $7,250
answer
A
question
Total costs increase from $1500 to $1800 when a firm increases output from 40 to 50 units.
Which of the following are true?
a. FC = $100
b. FC = $200
c. FC = $300
d. FC = $400
answer
C
question
A manager of a clothing firm is deciding whether to add another factory in addition to one
already in production. The manager would compare
a. The total benefits gained from the two factories to the total costs of running the two
factories.
b. The incremental benefit expected from the second factory to the total costs of
running the two factories.
c. The incremental benefit expected from the second factory to the cost of the second
factory
d. The total benefits gained from the two factories to the incremental costs of running
the two factories.
answer
C
question
A firm is thinking of hiring an additional worker to their organization who they believe can
increase total productivity by 100 units a week. The cost of hiring him or her is $1500 per
week. If the price of each unit is $12,
a. The MR of hiring the worker is $1500
b. The MC of hiring the worker is $1200
c. The firm should not hire the worker since MB<MC
d. All the above
answer
C
question
A retailer has to pay $9 per hour to hire 13 workers. If the retailer only needs to hire twelve
workers, a wage rate of $7 per hour is sufficient. What is the marginal cost of the 13th
worker?
a. $117.
b. $9.
c. $33.
d. $84.
answer
C
question
If a firm's average cost is rising then
a. Marginal cost is less than average cost.
b. Marginal cost is rising.
c. Marginal cost is greater than average cost
d. The firm is making an economic profit
answer
C
question
After the first week of his MBA Managerial Economics class, one of your pharmaceutical
sales representatives accuses you of committing the sunk cost fallacy by refusing to allow
him to reduce price to make what he considers to be a really tough sale. Which of the
following suggest the sales representative may be right?
a. Most of the costs of drug development are sunk, not fixed.
b. Sales representatives are paid a sales commission on revenue, so they want to price
where MR>0 instead of where MR>MC.
c. Sales representatives don't worry that a low price today may make it more difficult
for the company's other sales representatives to charge higher prices to their
customers.
d. Sales representatives forget that P>MC does NOT imply that MR>MC.
answer
A
question
A company is producing 15,000 units. At this output level, marginal revenue is $22 and the
marginal cost is $18. The firm sells each unit for $48 and average total cost is $40. What can
we conclude from this information?
a. The company is making a loss
b. The company needs to cut production
c. The company needs to increase production
d. Not enough information is provided
answer
C
question
Which of the following will increase the break-even quantity?
a. A decrease in overall fixed costs
b. A decrease in the marginal costs
c. A decrease in the price level
d. A increase in price level
answer
C
question
The higher the interest rates
a. the more value individuals place on future dollars
b. the more value individuals place on current dollars
c. less investments will take place
d. does not affect the investment strategy
answer
B
question
Assume a firm has the following cost and revenue characteristics at its current level of
output: price=$10.00, average variable cost=$8.00 and average fixed cost =$4.00. This firm
is
a. incurring a loss of $2.00 per unit and should shut down.
b. realizing only a normal profit.
c. realizing an economic profit of $2.00 per unit.
d. incurring a loss per unit of $2.00, but should continue to operate in the short run.
answer
D
question
Sarah's Machinery Company is deciding to dump their current technology A for a new
technology B with small fixed costs but big marginal costs. The current technology has fixed
costs of $500 and marginal costs of $50 whereas the new technology has fixed costs of $250
and marginal costs of $100At what quantity is Sarah Machinery indifferent between two
technologies?
a. 5
b. 6
c. 7
d. 8
answer
A
question
What is the net present value of a project that requires a $100 investment today and returns
$50 at the end of the first year and $80 at the end of the second year? Assume a discount
rate of 10%.
a. $10.52
b. $11.57
c. $18.18
d. $30.00
answer
B
question
You expect to sell 500 cell phones a month, which have a marginal cost of $50. If your fixed
costs are $5,000 per month, what is the break-even price?
a. $10
b. $50
c. $60
d. $100
answer
C
question
You are considering opening a new business to sell dartboards. You estimate that your
manufacturing equipment will cost $100,000, facility updates will cost $250,000, and on
average it will cost you $80 (in labor and material) to produce a board. If you can sell dart
boards for $100 each, what is your breakeven quantity?
a. 1,000
b. 3,500
c. 4,375
d. 17,500
answer
D
question
Which of the following is NOT true if a firm shuts down and produces zero output in the
short run?
a. Variable costs will be zero.
b. Losses will be incurred.
c. Fixed costs will be greater than zero.
d. Fixed costs will be less than zero.
answer
D
question
What are some of the solutions for a hold-up problem?
a. Mergers
b. Contracts
c. Exchange of 'hostages'
d. All the above
answer
D
question
Which of the following is classified as a sunk cost?
a. Cost of the next best alternative
b. Additional cost of producing an additional unit
c. Research costs to determine the implementation of a technology
d. Total cost of producing a product
answer
C
question
Jim has estimated elasticity of demand for gasoline to be -0.7 in the short-run and -1.8 in the
long run. A decrease in taxes on gasoline would:
a. lower tax revenue in both the short and long run.
b. raise tax revenue in both the short and long run.
c. raise tax revenue in the short run but lower tax revenue in the long run.
d. lower tax revenue in the short run but raise tax revenue in the long run.
answer
D
question
Which one of the following is true?
a. Nike has a more inelastic demand curve than shoes
b. The demand curve for gas is more elastic in the short-run than in the long-run
c. Cigarettes has a more elastic demands than televisions
d. Salt has a more inelastic demand than meat
answer
D
question
Jim recently graduated from college. His income increased tremendously from earning
$5000 a year to $60,000 a year. Jim decided that instead of renting he will buy a house. This
implies that
a. Houses are normal goods for Jim
b. Houses are inferior goods for Jim
c. Renting and Owning are complementary for Jim
d. Need information on the price of houses
answer
A
question
Which of the following goods have a negative income elasticity of demand?
a. Cars
b. Items from Dollar stores
c. Shoes
d. Bread
answer
B
question
An economist estimated the cross-price elasticity for peanut butter and jelly to be +1.5.
Based on this information, we know the goods are
a. inferior goods.
b. complements.
c. inelastic.
d. substitutes.
answer
D
question
Christine has purchased five bananas and is considering the purchase of a sixth. It is likely
she will purchase the sixth banana if
a. the marginal value she gets from the sixth banana is lower than its price.
b. the marginal benefit of the sixth banana exceeds its price.
c. the average value of the sixth bananas exceeds the price.
d. the total personal value of six bananas exceeds the total expenditure to purchase six
bananas.
answer
B
question
Buyers consider Marlboro cigarettes and Budweiser beer to be complements. If Marlboro
just increased its prices, what would you expect to occur in the Budweiser market?
a. Demand would rise, and Budweiser would reduce price.
b. Demand would fall, and Budweiser would reduce price.
c. Demand would fall, and Budweiser would increase price.
d. Demand would rise, and Budweiser would increase supply.
answer
B
question
Which of the following is the reason for the existence of consumer surplus?
a. Consumers can purchase goods that they "want" in addition to what they "need."
b. Consumers can occasionally purchase products for less than their production cost.
c. Some consumers receive temporary discounts that result in below-market prices.
d. Some consumers are willing to pay more than the market price.
answer
D
question
A bakery currently sells chocolate chip cookies at a price of $16 per dozen. The marginal cost
per dozen is $8. The cookies are becoming more popular with customers and so the bakery
owner is considering raising the price to $20/dozen. What percentage of customers must be
maintained to ensure that the price increase is profitable?
a. 28.0%
b. 33.3%
c. 66.6%
d. 72.0%
answer
C
question
A firm adopts a technology that allows you to increase your output by 15%. If the elasticity
of demand in the US is -3, how should you adjust your price if you want to sell all of your
output?
a. 5% lower.
b. 0.5% lower.
c. 15% higher.
d. 15% lower.
answer
A
question
Microsoft found that instead of producing a DVD player and a gaming system separate, it is
cheaper to incorporate DVD playing capabilities in their new version of the gaming system.
Microsoft is taking advantage of
a. Economies of Scale
b. Learning curve
c. Economies of Scope
d. Decreasing marginal costs
answer
C
question
As a golf club production company produces more clubs, the average total cost of each club
produced decreases. This is because:
a. total fixed costs are decreasing as more clubs are produced.
b. average variable cost is decreasing as more clubs are produced.
c. there are scale economies.
d. total variable cost is decreasing as more clubs are produced
answer
C
question
Average costs curves initially fall
a. Due to declined average fixed costs
b. Due to rising average fixed costs
c. Due to declining marginal costs
d. Due to rising marginal costs
answer
A
question
What might you reasonably expect of an industry in which firms tend to have economies of
scale?
a. Exceptional competition among firms
b. A large number of firms
c. Highly diversified firms
d. A small number of firms
answer
D
question
A security system company's total production costs depend on the number of systems
produced according to the following equation: Total Costs = $10,000,000 + $2000*quantity
produced. Given these data, which of the following is a false statement?
a. There are economies of scale.
b. There are fixed costs associated with this business.
c. There are diseconomies of scale.
d. A firm that produces a larger output has a cost advantage over a smaller firm.
answer
C
question
Following are the costs to produce Product A, Product B, and Products A and B together.
Which of the following exhibits economies of scope?
a. 50, 75, 120
b. 50, 75, 125
c. 50, 75, 130
d. All of the above
answer
A
question
According to the law of diminishing marginal returns, marginal returns:
a. diminish always prior to increasing.
b. diminish always.
c. diminish sometimes.
d. diminish eventually.
answer
D
question
It costs a firm $80 per unit to produce product A and $50 per unit to produce B individually.
If the firm can produce both products together at $140 per unit of product A and B, this
exhibits signs of
a. Economies of scale
b. Economies of Scope
c. Diseconomies of Scale
d. Diseconomies of Scope
answer
D
question
Once marginal cost rises above average cost,
a. Average costs will increase
b. Average costs are unaffected
c. Average costs will decrease
d. None of the above
answer
A
question
A company faces the following costs at the respective production level in addition to its fixed
costs of $50,000:
Quantity Marginal Cost Sale Price Marginal Return
1 $10,000 $20,000 $10,000
2 $11,000 $20,000 $9,000
3 $12,000 $20,000 $8,000
4 $13,000 $20,000 $7,000
5 $14,000 $20,000 $6,000
How would you describe the returns to scale for this company?
a. Increasing
b. Decreasing
c. Constant
d. Marginal
answer
A
1 of 60
question
An individual's value for a good or service is the
a. The amount of money he or she used to pay for a good
b. The amount of money he or she is willing to pay for it
c. The amount of money he or she has to spend on goods
d. None of the above
answer
B
question
The biggest advantage of capitalism is
a. Generates wealth with the help of government intervention
b. That prices assists in moving assets from high valued to low value uses
c. It forces involuntary exchanges
d. Creates wealth by letting a person follow his or her own self-interest
answer
D
question
Wealth creating transactions are more likely to occur
a. With private property rights
b. With contract enforcement
c. With black markets
d. a and b
answer
D
question
Government regulation
a. provides incentives to conduct business in an illegal black market
b. plays no role in generating wealth
c. is the best way to eliminate poverty
d. does not enforce property rights
answer
A
question
An example of price floor is
a. Minimum wages
b. Rent controls in New York
c. Both a and b
d. None of the above
answer
A
question
A price ceiling:
a. Is a government-set price above market equilibrium price.
b. Is the equivalent of an implicit tax on producers and an implicit subsidy to
consumers.
c. Will create a surplus.
d. Causes an increase in consumer and producer surplus.
answer
B
question
Taxes:
a. Impede the movement of assets to higher valued uses
b. Reduce incentives to work
c. Decreases the number of wealth creating transactions
d. All the above
answer
D
question
A consumer values a car at $30,000 and a producer values the same car at $20,000. If the
transaction is completed at $24,000, the transaction will generate:
a. No surplus
b. $4,000 worth of seller surplus and unknown amount of buyer surplus
c. $6,000 worth of buyer surplus and $4,000 of seller surplus
d. $6,000 worth of buyer surplus and unknown amount of seller surplus
answer
C
question
A consumer values a car at $525,000 and a producer values the same car at $485,000. If sales
tax is 8% and is levied on the seller, then the sellers bottom line price is
a. $527,000
b. $523,800
c. $525,000
d. $500,000
answer
B
question
Efficiency implies opportunity,
a. Always
b. Never
c. Only if accompanied by secure property rights
d. None of the above
answer
B
question
A business owner makes 1000 items a day. Each day he or she contributes 8 hours to
produce those items. If hired, elsewhere he/she could have earned $250 an hour. The item
sells for $15 each. Production does not stop during weekends. If the explicit costs total
$150,000 for 30 days, the firm's accounting profit for the month equals:
a. $300,000
b. $60,000
c. $450,000
d. $240,000
answer
A
question
A business owner makes 1000 items a day. Each day he/she contributes 8 hours to produce
those items. If hired, elsewhere he/she could have earned $250 an hour. The item sells for
$15 each. Production does not stop during weekends. If the explicit costs total $150,000 for
30 days, the economic profit for the month equals:
a. $300,000
b. $60,000
c. $450,000
d. $240,000
answer
D
question
If a firm is earning negative economic profits, it implies
a. That the firm's accounting profits are zero
b. That the firm's accounting profits are positive
c. That the firm's accounting profits are negative
d. More information is needed to conclude about accounting profits
answer
D
question
Opportunity costs arise due to
a. Resource scarcity
b. Interest rates
c. Limited wants
d. Unlimited scarcity
answer
A
question
After graduating from college, Jim had three choices, listed in order of preference: (1) Move
to Florida from Philadelphia, (2) work in a car dealership in Philadelphia, or (3) play soccer
for a minor league in Philadelphia. His opportunity cost of moving to Florida includes
a. The benefits he could have received from playing soccer
b. The income he could have earned at the car dealership
c. Both a and b
d. Cannot be determined from the given information
answer
B
question
Economic Value Added helps firms to avoid the hidden-cost fallacy
a. by ignoring the opportunity costs to using a capital
b. by differentiating between sunk and fixed costs
c. by taking all capital costs into account including the cost of equity
d. none of the above
answer
C
question
The fixed-cost fallacy occurs when
a. A firm considers irrelevant costs
b. A firm ignores relevant costs
c. A firm considers overhead or depreciation costs to make short-run decisions
d. Both a and c
answer
D
question
Mr. D's Barbeque of Pickwick, TN produces 10,000 dry-rubbed rib slabs per year. Annually
Mr. D's fixed costs are $50,000. The average variable cost per slab is a constant $2. The
average total cost per slab then is
a. $7.
b. $2.
c. $5.
d. impossible to determine.
answer
A
question
All the following are examples of variable costs, except
a. Labor costs
b. Cost of raw materials
c. Accounting fees
d. Electricity costs
answer
C
question
The U.S. Government bought 112,000 acres of land in southeastern Colorado in 1968 for
$17,500,000. The cost of using this land today exclusively for the reintroduction of the blacktailed
prairie dog
a. is zero, because they already own the land.
b. is zero, because the land represents a sunk cost.
c. is equal to the market value of the land.
d. is equal to the total dollar value the land would yield if used for farming and
ranching.
e. depends on the value to society of black-tailed prairie dogs.
answer
C
question
When economists speak of "marginal", they mean
a. Opportunity
b. Scarcity
c. Incremental
d. Unimportant
answer
C
question
Managers undertake an investment only if
a. Marginal benefits of the investment are greater than zero
b. Marginal costs of the investment are greater than marginal benefits of the
investment
c. Marginal benefits are greater than marginal costs
d. Investment decisions do not depend on marginal analysis
answer
C
question
A firm produces 500 units per week. It hires 20 full-time workers (40 hours/week) at an
hourly wage of $15. Raw materials are ordered weekly and they costs $10 for every unit
produced. The weekly cost of the rent payment for the factory is $2,250. How do the overall
costs breakdown?
a. Total variable cost is $17,000; total fixed cost is $2,250; total cost is $19,250
b. Total variable cost is $12,000; total fixed cost is $7,250; total cost is $19,250
c. Total variable cost is $5,000; total fixed cost is $14,250; total cost is $19.250
d. Total variable cost is $5,000; total fixed cost is $2,250; total cost is $7,250
answer
A
question
Total costs increase from $1500 to $1800 when a firm increases output from 40 to 50 units.
Which of the following are true?
a. FC = $100
b. FC = $200
c. FC = $300
d. FC = $400
answer
C
question
A manager of a clothing firm is deciding whether to add another factory in addition to one
already in production. The manager would compare
a. The total benefits gained from the two factories to the total costs of running the two
factories.
b. The incremental benefit expected from the second factory to the total costs of
running the two factories.
c. The incremental benefit expected from the second factory to the cost of the second
factory
d. The total benefits gained from the two factories to the incremental costs of running
the two factories.
answer
C
question
A firm is thinking of hiring an additional worker to their organization who they believe can
increase total productivity by 100 units a week. The cost of hiring him or her is $1500 per
week. If the price of each unit is $12,
a. The MR of hiring the worker is $1500
b. The MC of hiring the worker is $1200
c. The firm should not hire the worker since MB<MC
d. All the above
answer
C
question
A retailer has to pay $9 per hour to hire 13 workers. If the retailer only needs to hire twelve
workers, a wage rate of $7 per hour is sufficient. What is the marginal cost of the 13th
worker?
a. $117.
b. $9.
c. $33.
d. $84.
answer
C
question
If a firm's average cost is rising then
a. Marginal cost is less than average cost.
b. Marginal cost is rising.
c. Marginal cost is greater than average cost
d. The firm is making an economic profit
answer
C
question
After the first week of his MBA Managerial Economics class, one of your pharmaceutical
sales representatives accuses you of committing the sunk cost fallacy by refusing to allow
him to reduce price to make what he considers to be a really tough sale. Which of the
following suggest the sales representative may be right?
a. Most of the costs of drug development are sunk, not fixed.
b. Sales representatives are paid a sales commission on revenue, so they want to price
where MR>0 instead of where MR>MC.
c. Sales representatives don't worry that a low price today may make it more difficult
for the company's other sales representatives to charge higher prices to their
customers.
d. Sales representatives forget that P>MC does NOT imply that MR>MC.
answer
A
question
A company is producing 15,000 units. At this output level, marginal revenue is $22 and the
marginal cost is $18. The firm sells each unit for $48 and average total cost is $40. What can
we conclude from this information?
a. The company is making a loss
b. The company needs to cut production
c. The company needs to increase production
d. Not enough information is provided
answer
C
question
Which of the following will increase the break-even quantity?
a. A decrease in overall fixed costs
b. A decrease in the marginal costs
c. A decrease in the price level
d. A increase in price level
answer
C
question
The higher the interest rates
a. the more value individuals place on future dollars
b. the more value individuals place on current dollars
c. less investments will take place
d. does not affect the investment strategy
answer
B
question
Assume a firm has the following cost and revenue characteristics at its current level of
output: price=$10.00, average variable cost=$8.00 and average fixed cost =$4.00. This firm
is
a. incurring a loss of $2.00 per unit and should shut down.
b. realizing only a normal profit.
c. realizing an economic profit of $2.00 per unit.
d. incurring a loss per unit of $2.00, but should continue to operate in the short run.
answer
D
question
Sarah's Machinery Company is deciding to dump their current technology A for a new
technology B with small fixed costs but big marginal costs. The current technology has fixed
costs of $500 and marginal costs of $50 whereas the new technology has fixed costs of $250
and marginal costs of $100At what quantity is Sarah Machinery indifferent between two
technologies?
a. 5
b. 6
c. 7
d. 8
answer
A
question
What is the net present value of a project that requires a $100 investment today and returns
$50 at the end of the first year and $80 at the end of the second year? Assume a discount
rate of 10%.
a. $10.52
b. $11.57
c. $18.18
d. $30.00
answer
B
question
You expect to sell 500 cell phones a month, which have a marginal cost of $50. If your fixed
costs are $5,000 per month, what is the break-even price?
a. $10
b. $50
c. $60
d. $100
answer
C
question
You are considering opening a new business to sell dartboards. You estimate that your
manufacturing equipment will cost $100,000, facility updates will cost $250,000, and on
average it will cost you $80 (in labor and material) to produce a board. If you can sell dart
boards for $100 each, what is your breakeven quantity?
a. 1,000
b. 3,500
c. 4,375
d. 17,500
answer
D
question
Which of the following is NOT true if a firm shuts down and produces zero output in the
short run?
a. Variable costs will be zero.
b. Losses will be incurred.
c. Fixed costs will be greater than zero.
d. Fixed costs will be less than zero.
answer
D
question
What are some of the solutions for a hold-up problem?
a. Mergers
b. Contracts
c. Exchange of 'hostages'
d. All the above
answer
D
question
Which of the following is classified as a sunk cost?
a. Cost of the next best alternative
b. Additional cost of producing an additional unit
c. Research costs to determine the implementation of a technology
d. Total cost of producing a product
answer
C
question
Jim has estimated elasticity of demand for gasoline to be -0.7 in the short-run and -1.8 in the
long run. A decrease in taxes on gasoline would:
a. lower tax revenue in both the short and long run.
b. raise tax revenue in both the short and long run.
c. raise tax revenue in the short run but lower tax revenue in the long run.
d. lower tax revenue in the short run but raise tax revenue in the long run.
answer
D
question
Which one of the following is true?
a. Nike has a more inelastic demand curve than shoes
b. The demand curve for gas is more elastic in the short-run than in the long-run
c. Cigarettes has a more elastic demands than televisions
d. Salt has a more inelastic demand than meat
answer
D
question
Jim recently graduated from college. His income increased tremendously from earning
$5000 a year to $60,000 a year. Jim decided that instead of renting he will buy a house. This
implies that
a. Houses are normal goods for Jim
b. Houses are inferior goods for Jim
c. Renting and Owning are complementary for Jim
d. Need information on the price of houses
answer
A
question
Which of the following goods have a negative income elasticity of demand?
a. Cars
b. Items from Dollar stores
c. Shoes
d. Bread
answer
B
question
An economist estimated the cross-price elasticity for peanut butter and jelly to be +1.5.
Based on this information, we know the goods are
a. inferior goods.
b. complements.
c. inelastic.
d. substitutes.
answer
D
question
Christine has purchased five bananas and is considering the purchase of a sixth. It is likely
she will purchase the sixth banana if
a. the marginal value she gets from the sixth banana is lower than its price.
b. the marginal benefit of the sixth banana exceeds its price.
c. the average value of the sixth bananas exceeds the price.
d. the total personal value of six bananas exceeds the total expenditure to purchase six
bananas.
answer
B
question
Buyers consider Marlboro cigarettes and Budweiser beer to be complements. If Marlboro
just increased its prices, what would you expect to occur in the Budweiser market?
a. Demand would rise, and Budweiser would reduce price.
b. Demand would fall, and Budweiser would reduce price.
c. Demand would fall, and Budweiser would increase price.
d. Demand would rise, and Budweiser would increase supply.
answer
B
question
Which of the following is the reason for the existence of consumer surplus?
a. Consumers can purchase goods that they "want" in addition to what they "need."
b. Consumers can occasionally purchase products for less than their production cost.
c. Some consumers receive temporary discounts that result in below-market prices.
d. Some consumers are willing to pay more than the market price.
answer
D
question
A bakery currently sells chocolate chip cookies at a price of $16 per dozen. The marginal cost
per dozen is $8. The cookies are becoming more popular with customers and so the bakery
owner is considering raising the price to $20/dozen. What percentage of customers must be
maintained to ensure that the price increase is profitable?
a. 28.0%
b. 33.3%
c. 66.6%
d. 72.0%
answer
C
question
A firm adopts a technology that allows you to increase your output by 15%. If the elasticity
of demand in the US is -3, how should you adjust your price if you want to sell all of your
output?
a. 5% lower.
b. 0.5% lower.
c. 15% higher.
d. 15% lower.
answer
A
question
Microsoft found that instead of producing a DVD player and a gaming system separate, it is
cheaper to incorporate DVD playing capabilities in their new version of the gaming system.
Microsoft is taking advantage of
a. Economies of Scale
b. Learning curve
c. Economies of Scope
d. Decreasing marginal costs
answer
C
question
As a golf club production company produces more clubs, the average total cost of each club
produced decreases. This is because:
a. total fixed costs are decreasing as more clubs are produced.
b. average variable cost is decreasing as more clubs are produced.
c. there are scale economies.
d. total variable cost is decreasing as more clubs are produced
answer
C
question
Average costs curves initially fall
a. Due to declined average fixed costs
b. Due to rising average fixed costs
c. Due to declining marginal costs
d. Due to rising marginal costs
answer
A
question
What might you reasonably expect of an industry in which firms tend to have economies of
scale?
a. Exceptional competition among firms
b. A large number of firms
c. Highly diversified firms
d. A small number of firms
answer
D
question
A security system company's total production costs depend on the number of systems
produced according to the following equation: Total Costs = $10,000,000 + $2000*quantity
produced. Given these data, which of the following is a false statement?
a. There are economies of scale.
b. There are fixed costs associated with this business.
c. There are diseconomies of scale.
d. A firm that produces a larger output has a cost advantage over a smaller firm.
answer
C
question
Following are the costs to produce Product A, Product B, and Products A and B together.
Which of the following exhibits economies of scope?
a. 50, 75, 120
b. 50, 75, 125
c. 50, 75, 130
d. All of the above
answer
A
question
According to the law of diminishing marginal returns, marginal returns:
a. diminish always prior to increasing.
b. diminish always.
c. diminish sometimes.
d. diminish eventually.
answer
D
question
It costs a firm $80 per unit to produce product A and $50 per unit to produce B individually.
If the firm can produce both products together at $140 per unit of product A and B, this
exhibits signs of
a. Economies of scale
b. Economies of Scope
c. Diseconomies of Scale
d. Diseconomies of Scope
answer
D
question
Once marginal cost rises above average cost,
a. Average costs will increase
b. Average costs are unaffected
c. Average costs will decrease
d. None of the above
answer
A
question
A company faces the following costs at the respective production level in addition to its fixed
costs of $50,000:
Quantity Marginal Cost Sale Price Marginal Return
1 $10,000 $20,000 $10,000
2 $11,000 $20,000 $9,000
3 $12,000 $20,000 $8,000
4 $13,000 $20,000 $7,000
5 $14,000 $20,000 $6,000
How would you describe the returns to scale for this company?
a. Increasing
b. Decreasing
c. Constant
d. Marginal
answer
A
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