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Managerial Econ Midterm

question
What is the formula for price elasticity of demand?
answer
Change in quantity/change in price * Price/Quantity
question
When Elasticity > 1 ,
answer
Elastic
question
When Elasticity < 1 ,
answer
Inelastic
question
When Elasticity = 1 ,
answer
Unitary Elastic
question
When Elasticity = 0 ,
answer
perfectly inelastic
question
When Elasticity = infinity ,
answer
perfectly elastic
question
what does change in price / change in quantity equal ?
answer
slope
question
what does change in quantity / change in price equal ?
answer
reciprocal of the slope
question
how is Quantity demanded of x affected by a change in price of y?
if E > 0, x and y are ... ?
answer
substitutes
question
how is Quantity demanded of x affected by a change in price of y?
if E < 0, x and y are ... ?
answer
complements
question
Cross price elasticity is (POSITIVE/NEGATIVE) for substitutes
answer
positive
question
Apple juice and orange juice are subs
when the price of orange juice increases ... ?
what happens to both OJ AND AJ?
answer
Quantity demanded of Orange Juice will decrease , thus causing the demand for apple juice to increase
question
Bagels and cream cheese are complements
when the price of bagels increases ... ?
what happens to both bagels and cream cheese?
answer
Quantity demanded of bagels will decrease , thus causing the demand of cream cheese to decrease
question
Cross price elasticity is (POSITIVE/NEGATIVE) for complements
answer
negative
question
what does a manager learn from knowing the elasticity?
if elastic , as prices (increase/decrease), total rev increases ?
answer
decrease
question
what does a manager learn from knowing the elasticity?
if inelastic , as prices (increase/decrease), total rev increases?
answer
increase
question
what does a steep demand function imply?
answer
relatively inelastic, inflexible choice
question
what does a flatter demand function imply?
answer
relatively elastic , have options
question
what affects own-price elasticity ?
answer
- available substitutes
- greater the subs, more elastic
- time
- demand tends to be more elastic in the Short term than the long term
- allows consumers to find subs
-expenditure share
- goods that take up small amount of consumer's budget tend to be more inelastic than goods with larger share
question
does sign matter for cross price elasticity of demand ?
answer
sign does not matter
question
what is the value of marginal product of labor equation? VMPL
(the rev gained for the producer)
answer
VMPL = P * MPL
question
to maximize profits , a manager will hire until ...
answer
VMPL = wages
no losses, yet social welfare is maxed
question
what is the cost function ?
answer
c = wL + rK
wL is labor cost / TVC
rK is cap cost / TFC
question
for every dollar invested in labor , how much output is created ?
answer
MPL / w
question
for every dollar invested in capital , how much output is created ?
answer
MPK / r
question
Each unit of capital creates ...
answer
MPK (marginal productivity of capital) units of output
question
what is the cost minimizing input rate?
answer
MPL / w = MPK / r
question
the flatter the demand curve thru a given point,
answer
the greater price elasticity of demand of that point
question
when does a firm make profit ?
answer
P > ATC
profits = TR - TC = (P - ATC) x Q
question
when does a firm take a economic loss?
answer
P < ATC
question
what is the shutdown condition?
answer
P <= AVC
question
when is there movement along the demand curve?
answer
when there is a price change of the good, all other exogenous changes create a shift of the curve
question
how do you determine where the supply is constrained?
answer
put the price ceiling in for P in Qd to find the quantity at which supply is constrained
question
how do you determine the non-pecuniary price?
answer
substitute the value of the supply constraint for Qd to find the Price full and subtract price full from the ceiling price
question
when should a price ceiling be implemented?
answer
-when prices are lowered and consumer surplus is increased
- although there will be some social welfare lost
question
what is the point of a price floor?
answer
-created for producer, created to increase price of good/service , comes with a surplus as result
-govt backs this w/ purchase guarantee , govt will pay for the surplus
question
what is the cost of the govt purchasing excess supply?
answer
(Qs - Qd) x Price floor (rectangle in graph)
question
for price ceiling to be successful, you want (elastic/inelastic) demand
answer
inelastic
1 of 38
question
What is the formula for price elasticity of demand?
answer
Change in quantity/change in price * Price/Quantity
question
When Elasticity > 1 ,
answer
Elastic
question
When Elasticity < 1 ,
answer
Inelastic
question
When Elasticity = 1 ,
answer
Unitary Elastic
question
When Elasticity = 0 ,
answer
perfectly inelastic
question
When Elasticity = infinity ,
answer
perfectly elastic
question
what does change in price / change in quantity equal ?
answer
slope
question
what does change in quantity / change in price equal ?
answer
reciprocal of the slope
question
how is Quantity demanded of x affected by a change in price of y?
if E > 0, x and y are ... ?
answer
substitutes
question
how is Quantity demanded of x affected by a change in price of y?
if E < 0, x and y are ... ?
answer
complements
question
Cross price elasticity is (POSITIVE/NEGATIVE) for substitutes
answer
positive
question
Apple juice and orange juice are subs
when the price of orange juice increases ... ?
what happens to both OJ AND AJ?
answer
Quantity demanded of Orange Juice will decrease , thus causing the demand for apple juice to increase
question
Bagels and cream cheese are complements
when the price of bagels increases ... ?
what happens to both bagels and cream cheese?
answer
Quantity demanded of bagels will decrease , thus causing the demand of cream cheese to decrease
question
Cross price elasticity is (POSITIVE/NEGATIVE) for complements
answer
negative
question
what does a manager learn from knowing the elasticity?
if elastic , as prices (increase/decrease), total rev increases ?
answer
decrease
question
what does a manager learn from knowing the elasticity?
if inelastic , as prices (increase/decrease), total rev increases?
answer
increase
question
what does a steep demand function imply?
answer
relatively inelastic, inflexible choice
question
what does a flatter demand function imply?
answer
relatively elastic , have options
question
what affects own-price elasticity ?
answer
- available substitutes
- greater the subs, more elastic
- time
- demand tends to be more elastic in the Short term than the long term
- allows consumers to find subs
-expenditure share
- goods that take up small amount of consumer's budget tend to be more inelastic than goods with larger share
question
does sign matter for cross price elasticity of demand ?
answer
sign does not matter
question
what is the value of marginal product of labor equation? VMPL
(the rev gained for the producer)
answer
VMPL = P * MPL
question
to maximize profits , a manager will hire until ...
answer
VMPL = wages
no losses, yet social welfare is maxed
question
what is the cost function ?
answer
c = wL + rK
wL is labor cost / TVC
rK is cap cost / TFC
question
for every dollar invested in labor , how much output is created ?
answer
MPL / w
question
for every dollar invested in capital , how much output is created ?
answer
MPK / r
question
Each unit of capital creates ...
answer
MPK (marginal productivity of capital) units of output
question
what is the cost minimizing input rate?
answer
MPL / w = MPK / r
question
the flatter the demand curve thru a given point,
answer
the greater price elasticity of demand of that point
question
when does a firm make profit ?
answer
P > ATC
profits = TR - TC = (P - ATC) x Q
question
when does a firm take a economic loss?
answer
P < ATC
question
what is the shutdown condition?
answer
P <= AVC
question
when is there movement along the demand curve?
answer
when there is a price change of the good, all other exogenous changes create a shift of the curve
question
how do you determine where the supply is constrained?
answer
put the price ceiling in for P in Qd to find the quantity at which supply is constrained
question
how do you determine the non-pecuniary price?
answer
substitute the value of the supply constraint for Qd to find the Price full and subtract price full from the ceiling price
question
when should a price ceiling be implemented?
answer
-when prices are lowered and consumer surplus is increased
- although there will be some social welfare lost
question
what is the point of a price floor?
answer
-created for producer, created to increase price of good/service , comes with a surplus as result
-govt backs this w/ purchase guarantee , govt will pay for the surplus
question
what is the cost of the govt purchasing excess supply?
answer
(Qs - Qd) x Price floor (rectangle in graph)
question
for price ceiling to be successful, you want (elastic/inelastic) demand
answer
inelastic
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