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The sensitivity of the change in quantity consumed of one good to a change in the price
of a related good is called
A) cross-elasticity.
B) substitute elasticity.
C) complementary elasticity.
D) price elasticity of demand.
Answer the following questions on the basis of the following regression equation.
(Standard errors in parentheses, n = 200.)
Q = -6,500 - 100PA + 50PB + .3I + .2A; R2 =.12, (2,500) (50) (30) (.1) (.08)
where Q is the quantity demanded of good A; PA= $10, price of good A; PB= $8, price
of good B; I = $12,000, per capita income; and A = $20,000, monthly advertising
expenditures.
Which of the following cannot be determined on the basis of the above regression
results?
A) the degree of price elasticity of good B
B) whether or not good A is "normal"
C) the degree of competition between A and B
D) All of the above can be determined.
The pricing of a product at each stage of production as the product moves through
several stages is called
A) transfer pricing.
B) cost plus pricing.
C) penetration pricing.
D) monopolistic pricing.
If a risky cash flow of $10,000 is equivalent to a riskless cash flow of $9,300, the
certainty equivalent factor is
A) 0.93.
B) 0.07.
C) 1.07.
D) 1.93.
________ functions are very useful in analyzing production functions, which exhibit
both increasing and decreasing marginal products.
A) Cobb-Douglas
B) Straight-line
C) Quadratic
D) Cubic
Decreasing returns to scale
A) indicate that an increase in all inputs by some proportion will result in a decrease in
output.
B) must always occur at some point in the production process.
C) are directly related to the law of diminishing returns.
D) All of the above are true.
E) None of the above is true.
Answer the questions based on the following information.
Number of Workers Units of Output
0 0
1 40
2 90
3 126
4 150
Output (Total Product) is maximized when
A) average productivity is at its maximum.
B) the "law of diminishing returns" sets in.
C) marginal productivity is zero.
D) marginal productivity is at its maximum.
Mars Inc. produces 100,000 boxes of Snickers bars which sell for $4 a box. If variable
costs are $3 per box, and it has $150,000 fixed operating costs, in the short run, it
should
A) shut down as fixed costs are not being covered.
B) keep producing as profits are $50,000.
C) keep producing as variable costs are being met.
D) keep producing as total costs are being recovered.
A merger between two companies in unrelated fields of business
A) will always lead to economies of scale.
B) will generally increase the value of the unified firm compared to the value of the two
companies before the merger because of the benefits of diversification.
C) may not have any synergistic effects.
D) will necessarily lead to an increase in the market power of the merged company.
Which of the following is the best example of economies of scope?
A) Coca-Cola expands its global operations to sub-Sahara Africa.
B) Alcohol for car fuel is produced from corn.
C) Amazon.com decides to rent out its Web site to independent e-commerce companies.
D) A company reduces its cost by getting bigger discounts for bulk purchases.
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
Which of the following would indicate that price is temporarily above its market
equilibrium?
A) There are a number of producers who are left with unwanted inventories.
B) There are a number of customers who are looking for a good but cannot find sellers.
C) New firms decide to enter the market.
D) The government must step in and impose a tax on the good.
For each of the following changes, show the effect on the demand curve and state what
will happen to market equilibrium price and quantity in the short run.
a. Consumers expect that the price of the good will be higher in the future.
b. The price of a substitute good rises.
c. Consumer incomes fall, and the good is normal.
d. Consumer incomes fall, and the good is inferior.
e. A medical report is published showing that this good is hazardous to your health.
f. The price of the good rises.
The coefficient of a linear regression equation indicates
A) the change in the dependent variable relative to a unit change in the independent
variable.
B) the change in the independent variable relative to a unit change in the dependent
variable.
C) the percentage change in the dependent variable relative to a unit change in the
independent variable.
D) the percentage change in the independent variable relative to a unit change in the
dependent variable.
The delay between when a policy action is taken and when they affect the economy is
referred to as the
A) impact lag.
B) action lag.
C) recognition lag.
D) policy lag.
McDonald's charges a higher price for a Big Mac in New York City than it does in a
small town in Iowa. Is this an example of third-degree price discrimination? Explain.
MC increases because
A) MC naturally increases as the firm nears capacity.
B) labor is paid overtime wages when volume increases.
C) in the short run, MC always increases.
D) the law of diminishing returns takes effect.
Which of the following is the exponential trend equation to forecast sales (S)?
A) S = a + b(t)
B) S = a + bt
C) S = a + b(t) + c(t)2
D) None of the above
If a multinational is controlling funds, it will expect a subsidiary to remit a ________
portion of their earnings if this subsidiary has the opportunity to reinvest its earnings
profitably.
A) significant
B) substantial
C) smaller
D) larger
Which of the following would not be considered a synergistic benefit from a merger?
A) an improvement in distribution systems
B) economies of scale in production
C) decreased cost of capital
D) None of the above
If a product which costs $8 is sold at $10, the profit margin is
A) $2.
B) 25%.
C) 20%.
D) None of the above
An explanatory forecasting technique in which the analyst must select independent
variables that help determine the dependent variable is called
A) exponential smoothing.
B) regression analysis.
C) trend analysis.
D) moving average method.
Economies of scale are indicated by
A) declining long-run AVC.
B) declining long-run AFC.
C) declining long-run AC.
D) declining long-run TC.
Globalization has depressed wages in western industrialized countries, particularly
those for
A) highly skilled workers.
B) highly educated workers.
C) semi-skilled workers.
D) low skilled workers.
If the price of a substitute increases, which of the following is most likely to happen in
the market for the product under consideration in the short run?
A) Supply will increase.
B) Firms will leave the market.
C) Firms will devote more variable inputs in the production of this good.
D) Firms will devote less variable inputs in the production of this good.
Which of the following is correct? The supply curve will shift when
A) income, preferences, or the number of suppliers change.
B) income, preferences, or the number of buyers change.
C) income, preferences, or production technology changes.
D) the number of sellers and the number of buyers change.
E) production technology and input prices change.
When a firm increased its output by one unit, its AFC decreased. This is an indication
that
A) the law of diminishing returns has taken effect.
B) MC < AFC.
C) AVC < AFC.
D) the firm is spreading out its total fixed cost.
Which of the following holds true?
A) When the Marginal Product (MP) is rising, Marginal cost (MC) is rising; and when
MP is falling, MC is falling.
B) When MP is rising, MC is falling, and when MP is falling, MC is rising.
C) When MP is rising, MC is constant, and when MP is falling, MC is negative.
D) There is no relationship between MP and MC.
The demand equation for the Widget Company has been estimated to be:
Q = 20,000 + 10 I - 50P + 20 PC
where Q = monthly number of widgets sold, I = average monthly income, P = price of
widgets, and PC = average price of competing goods.
a. If next month's income is forecast to be 2,000, the price of competing goods is
forecast to be $20, and the price of widgets will be set at $30, forecast sales.
b. What will sales be if the price is dropped to $20?
If the price of a substitute increases, which of the following is most likely to happen in
the market for the product under consideration in the short run?
A) Supply will increase.
B) Firms will leave the market.
C) Firms will devote more variable inputs in the production of this good.
D) Firms will devote less variable inputs in the production of this good.
The forecasting technique, which predicts technological trends and is carried out by a
sequential series of written questions and answers is
A) the Delphi method.
B) the market research method.
C) opinion polling.
D) the jury of executive opinion approach.
The use of sensitivity analysis will generally result in
A) the calculation of a certainty equivalent NPV.
B) the calculation of a best case, a base case and a worst case.
C) the calculation of the coefficient of variation.
D) the calculation of the probability of the maximum profit.
Stage III of the short-run Production Function is
A) the most efficient mix of inputs.
B) the least costly level of output.
C) where additional units of variable inputs will lead to less output.
D) where additional units of variable inputs will lead to more output.
The best example of an economic goal of a firm is
A) providing good products/services to its customers.
B) improving its public image.
C) increasing employee morale.
D) increasing shareholder wealth.
