“Tying” is a form of price discrimination which involves a buyer
A) agreeing to purchase a product at a fixed price regardless of the amount purchased.
B) paying different prices based on the amounts of a product purchased.
C) required to buy one product in order to purchase some other product.
D) All of the above
In the kinked demand curve model, the demand curve is ________ for price increases
and ________ for price decreases.
A) unit elastic; relatively elastic
B) relatively inelastic; relatively elastic
C) relatively elastic; relatively inelastic
D) perfectly elastic; perfectly inelastic
The following are possible examples of price discrimination except
A) prices in export markets are lower than for identical products in the domestic
market.
B) senior citizens pay lower fares on public transportation than younger people at the
same time.
C) a product sells at a higher price at location A than at location B, because
transportation costs are higher from the factory to A.
D) subscription prices for a professional journal are higher when bought by a library
than when bought by an individual.
The economic concept of “opportunity cost” is most closely associated with which of
the following management considerations?
A) market structure
B) resource scarcity
C) product demand
D) technology
The production period in which at least one input is fixed in quantity is the
A) production run.
B) long run.
C) short run.
D) planning horizon.
The switch to the use of ethanol in gasoline is driven primarily by its relatively lower
price. Assuming a competitive market, what effect would this change have on the
equilibrium price and output for gasoline?
A) Price rises, output falls.
B) Price falls, output rises.
C) Price rises, output rises.
D) Price falls, output falls.
An advantage of using the cross-sectional regression method in estimating production is
that
A) the problem of technological change over time is overcome.
B) there is no need to adjust data, which are in monetary terms for geographical
differences.
C) we can assume that all plants operate at their most efficient input combinations.
D) All of the above
An increase in input prices will cause
A) supply to shift rightward, equilibrium price to rise, and equilibrium quantity to fall.
B) supply to shift leftward, equilibrium price to rise, and equilibrium quantity to fall.
C) supply to shift rightward, equilibrium price to fall, and equilibrium quantity to rise.
D) supply to shift leftward, equilibrium price to fall , and equilibrium quantity to rise.
Economies of scale are created by greater efficiency of capital and by
A) longer chains of command in management.
B) better wages for labor.
C) smaller plant sizes.
D) increased specialization of labor.
If the price elasticity of supply of a good is elastic and the good price increases, then the
increase in the good’s supply should be
A) greater than the increase in price.
B) less than the increase in price.
C) the same as the increase in price.
D) Cannot be determined from this information
The practice by a monopolist of charging each buyer the highest price he/she is willing
to pay is called
A) first-degree discrimination.
B) second-degree discrimination.
C) third-degree discrimination.
D) fourth-degree discrimination.
Which of the following is the best example of how the question of “what goods and
services to produce?” is answered by the command process?
A) government subsidies for windmill energy production
B) laws regarding equal opportunity in employment
C) government allowance for the deduction of interest payments on private mortgages
D) government regulations concerning the dumping of hazardous waste
If the risk adjusted discount rate method and the certainty equivalent methods are to
give the same results, then the certainty equivalent factor (at) must equal (where rf is
the risk-free interest rate, and “k” is the risk adjusted cost of capital)
A) (1 + rf)t times (1 + k)t.
B) (1 + k)t divided by (1 + rf)t.
C) (1 + rf)t divided by (1 + k)t.
D) (1 + k)t minus (1 + rf)t.
Assume a perfectly competitive firm’s short-run cost is TC = 100 + 160Q + 3Q2. If the
market price is $196, what should it do?
A) produce 5 units and continue operating
B) produce 6 units and continue operating
C) produce zero units (i.e., shut down)
D) Cannot be determined from the above information
A critical element of entrepreneurship (as opposed to managerial skills) is
A) leadership skills.
B) risk taking.
C) technology.
D) political skills.
The “Law of Diminishing Returns” states that
A) additional inputs will reduce output.
B) additional inputs will decrease average productivity.
C) the supply of inputs is becoming scarce.
D) additional inputs will lead to less additional output.
Which of the following is not one of the leading indicators?
A) index of consumer expectations, U. of Michigan
B) change in consumer price index for services
C) vendor performance, slower deliveries diffusion index
D) manufacturers’ new orders, nondefense capital goods
Which of the following will result in a decrease in demand for residential housing in the
short run?
A) a decrease in the price of lumber
B) an increase in the wages of carpenters
C) a decrease in real household incomes
D) a decrease in the prices of residential housing
The price elasticity of demand is a measure of
A) the responsiveness of the quantity demanded to price changes.
B) the quantity demanded at a given price.
C) the shift in the demand curve when price changes.
D) the demand for a product holding price constant.
Accounting costs
A) are historical costs.
B) are replacements costs.
C) usually include implicit costs.
D) usually include normal profits.
In the estimation of demand, the “identification problem” refers to
A) the problem of selecting the proper level of significance.
B) the problem of deciding whether to use time series or cross-sectional data.
C) the problem of separating out the effects of price on the quantity demanded when
supply cannot be held constant.
D) the problem of having insufficient variation in prices.
Which of the following can result in a decrease in the demand for I-Pods in the short
run?
A) a decrease in the population
B) a decrease in real household incomes
C) a decrease in the price of MP4s
D) All of the above
When the R2 of a regression equation is very high, it indicates that
A) all the coefficients are statistically significant.
B) the intercept term has no economic meaning.
C) a high proportion of the variation in the dependent variable can be accounted for by
the variation in the independent variables.
D) there is a good chance of serial correlation and so the equation must be discarded.
Which of the following refers to a relatively high correlation among the independent
variables of a regression equation?
A) autocorrelation
B) the identification problem
C) statistically insignificant regression coefficients
D) multicollinearity
As a researcher, which aspect of the results would be of greatest concern?
A) the negative value of the constant (i.e., -6,500)
B) the relatively low impact of the competitor’s price
C) the fact that not all of the variables are statistically significant
D) the poor fit of the regression line
Accounting costs
A) are historical costs.
B) are replacements costs.
C) usually include implicit costs.
D) usually include normal profits.
The risk adjusted discount rate
A) is the sum of the risk-free rate and the risk premium.
B) includes risk in the denominator of the present value calculation.
C) includes risk in the numerator of the present value calculation.
D) All of the above
For each of the following changes, show the effect on the supply curve and state what
will happen to market equilibrium price and quantity in the short run.
a. The government requires pollution control filters that raise costs on goods.
b. Wages of workers in this industry fall.
c. There is an improvement in technology.
d. The price of the good falls.
e. Producers expect that the price of the good will fall in the future.
If the price of a good is decreased and total revenue received from the sale of this good
does not change, then the price elasticity of demand for the good is
A) elastic.
B) inelastic.
C) unitary.
D) None of the above
Which of the following distinctions does not help to explain the difference between
relevant and irrelevant cost?
A) historical vs. replacement cost
B) sunk vs. incremental cost
C) variable vs. fixed cost
D) out-of-pocket vs. opportunity cost
E) All help to explain the difference.
Answer the following question(s) based on the following regression equation (Standard
errors in parentheses, n = 150):
QD = 1000 – 50PA + 10PB + .05I, (20) (7) (.04)
where QD= quantity demanded of good A, PA= price of good A, PB= price of a
competing good B, and I = per capita income.
Using the “rule of 2,” which of the following variables can be deemed statistically
significant?
A) PA
B) PB
C) I
D) All of the above
E) None of the above
Cartel agreements tend to break down
A) during economic downturns.
B) because of price “chiseling” by one or more members.
C) when there is overcapacity in the industry.
D) All of the above
Industry supply and demand are given by QD = 1000 – 2P and QS = 3P.
a. What is the equilibrium price and quantity?
b. At a price of $100, will there be a shortage or a surplus, and how large will it be?
c. At a price of $300, will there be a shortage or a surplus, and how large will it be?
A feature of perfect competition is
A) use of non-price competition by firms.
B) mutual interdependence among firms.
C) unique products.
D) standardized products.
In the Baumol model, the total quantity sold will usually be larger than
A) if perfect competition prevailed.
B) if total costs were minimized.
C) if profit were maximized.
D) if companies were interdependent.
What additional sources of risk come from international investments?
What other business disciplines are related to Managerial Economics?
Suppose that the demand for oranges increases. Carefully explain how the rationing
function of price will restore market equilibrium.
Governments impose excise taxes on goods that have inelastic demand, such as
cigarettes, more often than in other cases. Why?
Describe the difference in market structure between monopoly and oligopoly.
The following questions refer to this regression equation, (standard errors in
parentheses.)
Q = 8,400 – 10 P + 5 A + 4 Px + 0.05 I, (1,732) (2.29) (1.36) (1.75) 0.15)
R2 = 0.65
N = 120
F = 35.25
Standard error of estimate = 34.3
Q = Quantity demanded
P = Price = 1,000
A = Advertising expenditures, in thousands = 40
PX = price of competitor’s good = 800
I = average monthly income = 4,000
Calculate t-statistics for each variable and explain what this tells you.
Explain why the “kinked demand curve” model of oligopoly represents a game theory
approach to oligopolistic behavior.
