Managerial Economics 8th Edition

When the marginal product of a variable input is zero, it implies that the firm is at the point where the total product is: a) increasing at an increasing rate. b) also equal to zero. c) at its maximum. d) decreasing at an increasing rate. e) increasing at a decreasing rate. Answer: c Answer: c Answer: c Which of

Liza is a manager of a leading soft drink manufacturing firm. Liza uses 10 months data and estimates the following demand equation: Q = 10 ' .5P + 1.5Y + .25PR (2) (.17) (.75) (.50) where P is the price of the soft drink manufactured by Liza's firm, Y refers

Amanda invests $500,000 in a new business venture. Which of the following correctly identifies the relevant opportunity cost that she faces? a) The potential profits from the business b) The discounted present value of future profits from the business c) The rate of interest that could have been earned on an a comparably

In a perfectly competitive market, industry demand is: P = 850 ' 2Q, and industry supply is: P = 250 + 4Q (Supply is the sum of the marginal cost curves of the firms in the industry). (a) Determine price and output under perfect competition. (b) Now suppose that all the firms

A manufacturer of nutritional products is formulating a new liquid vitamin supplement. A bottle of the new product must contain at least 30 units of vitamin B and 50 units of vitamin C. A unit of vegetable extract (V) contains 1.2 units of vitamin B and .8 units of vitamin C.

Provide an example of a competitive situation where there is a second-mover advantage. Answer: Suppose duopolists compete by setting prices and have identical demand and cost structures. Firm A sets its prices first, Firm B second. Clearly, Firm B has a potential second-mover advantage. It can always match Firm A's price

Predatory pricing: a) occurs when a large company sets price below cost to drive smaller firms out of business. b) is the practice of selling the same good at different prices to different consumers. c) means setting a very high price for a product to signal high product quality. d) occurs when firms in

A convenient way to represent decisions, chance events, and possible outcomes in choices under risk and uncertainty is known as a: a) probability distribution. b) decision table. c) decision tree. d) expected outcome tree. e) risk table. Answer: c Answer: c Answer: c Moral hazard occurs when: a) the principal purposely misleads the agent to obtain higher profits. b) limited information

(a) You are offered a choice between two lotteries, K and L: Lottery K: You win $1,000 with complete certainty. Lottery L: You win: $5,000 with probability .10 $1,000 with probability .75 $0 with probability .15 Compute the expected value of both lotteries, and indicate which you would choose. Explain your choice, using the concept

A price cut would increase the firm's profits by $2 million if demand is weak but would decrease profit by $3 million if demand proves to be strong. The firm's best assessment is a .3 probability that demand will be weak. The expected value of perfect information from market research

A firm will maximize profits and revenues at the same price when: a) the marginal cost is negligible or zero. b) the fixed costs are zero. c) the marginal revenue is zero. d) the demand for the good is unit elastic. e) the demand for the good is highly elastic. Answer: a Answer: a Answer: a An investor estimates

A monopolist maximizes profit by producing: a) on the inelastic portion of the demand curve b) at the level where average cost is minimized c) at the point where the cost of producing the last unit of output equals price. d) at the output level where marginal revenue equals marginal cost e) at the level

Demand in a market dominated by two firms (a Cournot duopoly) is determined according to: P = 300 ' 4(Q1 + Q2), where P is the market price, Q1 is the quantity demanded by Firm 1, and Q2 is the quantity demanded by Firm 2. The marginal cost for each firm

Firm X is currently selling a consumer good at a standard price, but is also considering cutting its price. The main risk facing the firm concerns the course of the economy in the near-term: whether the economy will grow at a steady pace (G) or whether it will experience a

In evaluating public programs, benefit-cost analysis: a) takes into account only the benefits that society gains from public programs. b) states that a program should be undertaken only if it generates revenue. c) states that a program should be undertaken only if total benefits exceed total costs. d) takes into account only the direct

The following figure shows the domestic demand and supply curves for a good. With free trade, the price of the good in the domestic market is P3. The government introduces a 5% tariff in the market which raises the domestic price to P2. Figure 7-1 Refer to Figure 7-1. If the government

How can the quality of a product serve as an entry barrier in a market? Answer: In some industries, the quality of the product serves as an entry barrier. New firms cannot expect to match the existing quality of the product and therefore cannot profitably enter themarket. Note that these differences

Which of the following auctions are strategically equivalent for bidders holding private values? a) The English and Dutch auctions. b) The sealed-bid and second-price auctions. c) The English and Vickrey auctions. d) The Vickrey and Dutch auctions. e) The Vickrey and sealed-bid auctions. Answer: c Answer: c Answer: c The following table lists the payoffs for Firm 1 and

An individual is uncertain whether to bet on a football game. He believes that the probability of his team winning is 40%. If his team wins, he will receive $180. If his team loses, he'll pay $120. If the decision is based on the expected value criterion, then the individual

Carefully explain why adjusted R2is always less than R2. Answer: Mathematically, the formula for adjusted R2is such that for a finite number of observationsN, the adjusted R2will always be less than R2. The adjustment corrects for the fact that adding explanatory variables necessarily increases the proportion of explained variation in the

Consumer surveys indicate that 40% of newspaper readers read automobile ads and 5% of those who read the ads actually purchase automobiles. On the other hand, 50% of magazine readers read automobile ads but only 3% of those who read the ads actually buy a car. Among those who do

What are the assumptions of the kinked demand curve model? What is its main conclusion about oligopoly behavior? How realistic is the model? Answer: The kinked demand curve model presumes that the firm determines its price behavior based on a prediction about its rivals' reactions to potential price changes. The firm

Most people believe that monopolies always have excessive profits, yet some unregulated monopolies might have very low earnings. (a) Why might a monopoly have little or no economic value? Explain. (b) If you were given a chance to enter a perfectly competitive industry, or a monopolistic industry, which would you choose? Explain Answer:

Use economic reasoning to comment on the following statement: 'In a market where products appear to be similar but significant quality and performance differences exist, lack of information about product quality by some proportion of customers justifies government intervention.' Answer: Decisions about government intervention in such markets involve value judgments. The

Which of the following is true of a decision tree? a) It's the basis for making logical decisions in the absence of uncertainty. b) It represents decisions, chance events, and possible outcomes in choices under risk and uncertainty. c) It's use to show the sequential moves and countermoves of strategic rivals. d) It calculates

The minimum price that a seller is willing to accept for his product and the maximum price a buyer is willing to pay for the product are referred to as their: a) bid prices. b) reservation prices. c) offer prices. d) aspiration prices. e) take it or leave it offers. Answer: b Answer: b Answer: b A regression analysis

Carefully explain how short-run equilibrium and long-run equilibrium in monopolistic competition differ. Use graphs to illustrate your answer. Answer: The short-run equilibrium for the monopolistic competitor is akin to that of monopoly. Thefirm can expect to earn positive economic profit, as shown by P* and Q* in the first graph.However, in

Given that digital music players are used to play music downloaded from the Internet, a fall in the price of digital music players will lead to: a) an increase in the price of a song download. b) an increase in the demand for downloaded songs. c) an increase in the price of broadband plans. d)

A faulty gasket on a piece of machinery supplied by Firm Z caused a fluid leak that damaged equipment in Factory X. Determine the range of out-of-court settlements when the expected value of litigation for the two firms is $65,000 in favor of Factory X. The court costs for Firm Z

Which of the following statements is true regarding the efficiency of using pollution fees versus quantity standards to regulate pollution? a) Quantity standards are more efficient fees because they can be used even in the presence of incomplete information. b) Pollution fees are more efficient because they ensure that all firms pay

George Stigler, a Nobel laureate in economics, suggested that one reason why oligopolies have prices higher than competitive industries is that tacit coordination concerning output and price is much easier when there are only a few competing firms. In addition, it is easier to detect cheating on some agreed-upon price

One of the major steps in decision-making is to explore the alternatives. Do most managerial decisions have a few, limited number of options? Explain. Illustrate your answer with an appropriate example. Answer: Most decisions have several (often many) competing options. Even when the choices are limited, there are often more alternatives

The use of intuitive prediction in forecasting: a) puts the wrong weights on different kinds of information. b) provides approximately correct decisions most of the time. c) is objective and reliable. d) likely to produce inaccurate and biased results. e) is consistent with probabilistic prediction. Answer: d Answer: d Answer: d In an infinitely repeated prisoner's dilemma (such as

Suppose that demand for and supply of a commodity in a market are shown on a graph with price on the vertical axis and quantity on the horizontal axis. The y-intercept of the demand curve is equal to $30. The equilibrium price and quantity are $20 and 300 units respectively. What

The following figure shows the demand curve ES, the average cost curve AC, the marginal cost curve MC, and the marginal revenue curve MR for a firm. Figure 8-1 Refer to Figure 8-1. If the firm operates as a monopoly in an unregulated market, its profit-maximizing price and output would be _____, respectively. a)

The production of a good with positive externalities will increase when: a) the government provides a subsidy for the good. b) the marginal internal cost of the good is higher than the marginal total cost. c) there is a price ceiling of zero in the market. d) the producer sells the good for a

What does the law of diminishing marginal returns state? a) When all inputs to production are increased in equal proportions, output will eventually decrease. b) When one input is increased, with all other inputs unchanged, the marginal product of the input will eventually decline. c) When one input is held constant, and all

The following payoff table depicts a zero-sum game: Table 10-4 Refer to Table 10-4. The equilibrium of the zero-sum game is: a) R1 versus C1. b) R1 versus C2. c) R2 versus C2. d) R3 versus C3. e) R2 versus C3. Answer: d Answer: d Answer: d The Juice Shop sells iced soft drinks. Management has found that demand is

Refer to Figure 11-1. The external cost associated with producing the good is: a) $5. b) $7. c) $8. d) $12. e) $2. Answer: e Answer: e Answer: e In each case below, find the profit-maximizing level of output. Verify that each output level is a maximum by checking the second derivative. (a) = '50 + 200Q ' 10Q2 (b)