If the demand for a product is said to be relatively inelastic, the “absolute” value of the
elasticity coefficient will be
A) less than one.
B) greater than one.
C) equal to one.
D) zero.
In order for price discrimination to exist
A) markets must be capable of being separated.
B) markets must be interdependent.
C) different demand price elasticities must exist in different markets.
D) demand price elasticities must be identical in all markets.
E) Both A and C
Which of the following is the best example of “how goods and services should be
produced?”
A) complying with the technical specifications in the production of an aircraft
B) the production of jet aircraft for the air force or for a commercial airline
C) the use of additional workers versus the use of machines in the production of goods
D) the production of a new manufacturing facility
If a price of corn is $3.00 a bushel, 5,000 bushels would be demanded. If the price rises
to $4.00 a bushel, 4,000 bushels would be demanded.
a. What is the (arc) price elasticity of demand?
b. Based on this answer, if the price of corn rose to $5.00 a bushel, what would be the
demand for corn?
c. If the price of corn decreased from $4.00 to $3.00 a bushel, what would be the
change in total revenue for sellers of corn?
d. If the price of corn increased from $4.00 to $5.00 a bushel, what would be the change
in total revenue for sellers of corn?
Which of the following cost functions will exhibit both decreasing and increasing
marginal costs?
A) a cubic cost function
B) a quadratic cost function
C) a linear cost function
D) All of the above
An isoquant indicates different combinations of
A) two inputs that can be purchased for the same amount of money.
B) two inputs that can produce the same amount of output.
C) output that can be produced with the same amount of input.
D) output that cost the same amount to produce.
Which of the following is the best example of the “command” process?
A) United Airlines buys Northwest Airlines.
B) Striking auto workers force General Motors to shut down its factories.
C) Banks raise their fees on late payments by credit card holders.
D) The FCC requires local telephone companies to provide access to their local
networks before being able to offer long distance service.
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
The Coase theorem states that, in the presence of cost externalities, an optimal
equilibrium can be attained
A) with government taxation.
B) by prohibiting production.
C) by correctly defining property rights and through negotiation between the parties.
D) None of the above
Which of the following relationships is correct?
A) When marginal product starts to decrease, marginal cost starts to decrease.
B) When marginal cost starts to increase, average cost starts to increase.
C) When marginal cost starts to increase, average variable cost starts to increase.
D) When marginal product starts to decrease, marginal cost starts to increase.
If $1,000 is placed in an account earning 8% annually, the balance at the end of seven
years will be
A) $1,080.
B) $1,560.
C) $2,000.
D) $1,714.
Which of the following distinctions helps to explain the difference between relevant and
irrelevant cost?
A) accounting cost vs. direct cost
B) historical cost vs. replacement cost
C) sunk cost vs. fixed cost
D) variable cost vs. incremental cost
Select the group that best represents the basic factors of production.
A) land, labor, capital, entrepreneurship
B) land, labor, money, management skills
C) land, natural resources, labor, capital
D) land, labor, capital, technology
In finance, risk is most commonly measured by
A) the probability distribution.
B) the standard deviation.
C) the average deviation.
D) the square root of the standard deviation.
Which of the following statements best represents a difference between short-run and
long-run cost?
A) Less than one year is considered the short run; more than one year the long run.
B) There are no fixed costs in the long run.
C) In the short-run labor must always be considered the variable input and capital the
fixed input.
D) All of the above are true.
If a regression coefficient passes the t-test, it means that
A) the regression equation is valid.
B) the regression coefficient is significantly different from zero.
C) the regression coefficient can be used for forecasting.
D) the regression coefficient should be included in the regression equation.
When the law of diminishing returns takes effect
A) firms must add increasingly more input if they are to maintain the same extra
amount of output.
B) firms must add decreasingly more input if they are to maintain the same extra
amount of output.
C) more input must be added in order to increase its output.
D) a firm must always try to add the same amount of input to the production process.
If government imposes an excise tax on a good and the tax burden is borne equally by
buyers and sellers, then
A) price elasticity of demand is unitary.
B) price elasticity of supply is unitary.
C) the absolute values of price elasticities of demand and supply are equal.
D) None of the above
The learning curve
A) is really no different from a marginal cost curve.
B) calculates average cost at a particular point in time.
C) shows the decrease in unit cost as more of the same product is produced over time.
D) None of the above
A monopoly will usually produce
A) where its demand curve is inelastic.
B) where its demand curve is elastic.
C) where its demand curve is either elastic or inelastic.
D) only when its demand curve is perfectly inelastic.
The result for the seller of being able to practice price discrimination will be
A) higher profits.
B) lower demand elasticity.
C) lower quantity sold.
D) cost minimization.
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.
Annual demand and supply for the Entronics company is given by:
QD = 5,000 + 0.5 I + 0.2 A – 100P, and QS = -5000 + 100P
where Q is the quantity per year, P is price, I is income per household, and A is
advertising expenditure.
a. If A = $10,000 and I = $25,000, what is the demand curve?
b. Given the demand curve in part a., what is equilibrium price and quantity?
c. If consumer incomes increase to $30,000, what will be the impact on equilibrium
price and quantity?
Which of the following are risks for multinational corporations but not risks for
domestic corporations?
A) changes in government rules and regulations
B) capital controls
C) changes in tax laws
D) government red tape and corruption
Which of the following indicates when Stage I ends and Stage II begins in the short-run
production?
A) when AP = 0
B) when MP = 0
C) when MP = AP
D) when MP starts to diminish
A monopolistic firm operates in two separate markets. No trade is possible between
market A and market B. The firm has calculated the demand functions for each market
as follows:
Market A p = 15 – Q; Market B p = 11 – Q
The company estimates its total cost function to be TC = 4Q. Calculate:
a. quantity, total revenue and profit when the company maximizes its profit and charges
the same price in both markets
b. quantity, total revenue and profit when the company charges different prices in each
market and maximizes its total profit
Which of the following represents a capital budgeting problem for multinational
corporations but not for domestic corporations?
A) determining the cost of capital
B) calculating after-tax cash flows
C) selecting the appropriate risk-adjusted rates of return
D) None of the above
A perfectly elastic demand curve
A) can be represented by a line parallel to the vertical axis.
B) is a 45-degree line.
C) can be represented by a line parallel to the horizontal axis.
D) cannot be represented on a two-dimensional graph.
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.
The demand curve is given by:
QD = 5000 – 10 P
Find equations for:
a. Total revenue
b. Marginal revenue
Among the problems encountered when time series analysis is used to estimate cost
functions is
A) that technological changes may have occurred.
B) that accounting changes may have occurred during the period analyzed.
C) that some costs are recorded on the books of account at a time other than when they
are incurred.
D) All of the above
Which of the following would cause a decrease in the demand for fish?
A) The price of red meat increases.
B) The price of fish increases.
C) The price of chicken decreases.
D) The number of fishing boats decreases.
Which of the following industries is most likely to represent the monopolistic
competition market structure?
A) automobiles
B) tobacco products
C) restaurants
D) farm equipment
Average weekly claims for unemployment insurance, money supply and the index of
stock prices are all examples of
A) leading indicators.
B) coincident indicators.
C) lagging indicators.
D) None of the above
The oligopolistic situation in which a company’s objective is to maximize revenue
subject to a minimum profit requirement is usually referred to as
A) the aggregate model.
B) the Baumol model.
C) the aggressive model.
D) the Marshall model.
When would you use a one-tailed rather than a two-tailed t-test when checking
significance levels?
How do the three basic economic questions relate to the firm?
You buy a lottery ticket for $1. If you win, you receive $3 million. The odds of your
numbers coming up are 1:10,000,000. What is the expected value of this gamble?
Q = K1/2L1/2
w = $2, r = $2
The firm would like to know the minimum cost of producing 2000 units of output. Find
the combination of inputs that minimizes the cost of producing 2000 units, the total
cost, and identify the expansion path.
The following are the actual sales for the last six periods:
Period Sales
1 750
2 820
3 600
4 850
5 900
6 700
If the exponential smoothing forecasting method is used, and the smoothing factor is .6,
what will be the forecast for period 7?
Refer to the production function. The marginal product at 5 units equals ________
units.
You are given the following straight-line trend equation: Sales = 1,275 + 89.3t, where
1990 represents t = 1. Project sales for 2000.
Refer to the production function. The average product at 5 units equals ________ units.
Use the equation
Qd = 5,000 – 15P + 50A + 3Px – 4I, (2,117) (2.7) (15) (2) (3)
where Qd = Quantity Demanded, P = Good Price, A = Advertising Expenditures, Px =
Price of a Competitive Good, A = Advertising Expenditures, I = Average Monthly
Income, and the Standard Errors of the Regression Coefficients are shown in
Parentheses.
Calculate the t-statistics for each variable and explain what inferences can be drawn
from them. If R2 of this equation is 0.25, what inference can be drawn from it?
You’ve been hired by an unprofitable firm to determine whether it should shut down its
operation. The firm currently uses 70 workers to produce 300 units of output per day.
The daily wage (per worker) is $100, and the price of the firm’s output is $30. The cost
of other variable inputs is $500 per day. Although you don’t know the firm’s fixed cost,
you know that it is high enough that the firm’s total costs exceed its total revenue. You
know that the marginal cost of the last unit is $30. Should the firm continue to operate
at a loss? Carefully explain your answer.
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
How is the R2 value calculated, and what information does this give you?
Why would a firm choose to remain in an industry in which it makes an economic
profit of zero?
The following are the sales achieved by Jensen Fabrics during the last 7 years:
2007 $116,000
2008 124,000
2009 127,000
2010 146,000
2011 155,000
2012 154,000
2013 162,000
Using the compound growth rate calculation, what would be your estimate for sales in
2014?
Why do cartels tend to break up?
How is a monopolistically competitive industry like perfect competition? How is it like
monopoly?
Why is the identification problem more likely with time-series estimates of demand?
Fred’s Widget Company has purchased $500,000 in equipment, which can be sold for a
salvage value of $300,000 at any time. The best interest rate on alternative investments
is 5%. What is the cost of using this machinery for one year? How would your answer
be different if the machinery had not yet been purchased?
Carefully explain the difference between diseconomies of scale and diminishing
returns.