Empirical estimates of the price elasticity of demand [in Table 3.4] suggest that the
demand for household consumption of alcoholic beverages is:
a. highly price elastic
b. price inelastic
c. unitarily elastic
d. an inferior good
e. none of the above
A change in the level of an economic activity is desirable and should be undertaken as
long as the marginal benefits exceed the ____.
a. marginal returns
b. total costs
c. marginal costs
d. average costs
e. average benefits
The Zinger Company manufactures and sells a line of sewing machines. Demand per
period (Q) for a particular model is given by the following relationship: Q = 400 – .5P
where P is price. Total costs (including a “normal” return to the owners) of producing Q
units per period are: TC = 20,000 + 50Q + 3Q2(a) Express total profits () in terms of Q.
(b) At what level of output are total profits maximized? What price will be charged?
What are total profits at this output level?
(c) What model of market pricing has been assumed in this problem? Justify your
answer.
Select the correct statement.
a. Qualitative forecasts give the direction of change.
b. Quantitative forecasts give the exact amount or exact percentage change.
c. Diffusion forecasts use the proportion of the forecasts that are positive to forecast up
or down.
d. Surveys are a form of qualitative forecasting.
e. all of the above are correct.
In the long-run, firms in a monopolistically competitive industry will
a. earn substantial economic profits
b. tend to just cover costs, including normal profits
c. seek to increase the scale of operations
d. seek to reduce the scale of operations
Lenny’s, a national restaurant chain, conducted a study of the factors affecting demand
(sales). The following variables were defined and measured for a random sample of 30
of its restaurants: Y = Annual restaurant sales ($000)
X1= Disposable personal income (per capita) of residents within 5 mile radius
X2= License to sell beer/wine (0 = No, 1 = Yes)
X3= Location (within one-half mile of interstate highway–0 = No, 1 = Yes)
X4= Population (within 5 mile radius)
X5= Number of competing restaurants within 2 mile radius The data were entered into a
computerized regression program and the following results were obtained:MULTIPLE
R .889
R-SQUARE .79
STD. ERROR OF EST. .40
Questions: (a) Give the regression equation for predicting restaurant sales.
(b) Give an interpretation of each of the estimated regression coefficients.
(c) Which of the independent variables (if any) are statistically significant at the .05
level in “explaining” restaurant sales?
(d) What proportion of the variation in restaurant sales is “explained” by the regression
equation?
(e) Perform an F-test (at the .05 significance level) of the overall explanatory power of
the regression model.
Effective oligopolistic collusion is more likely to occur when customer orders are small,
frequent, and received on a regular basis as compared with large orders that are
received infrequently at irregular intervals.
a. true
b. false
Which of the following (if any) is not a factor affecting the profit performance of firms:
a. differential risk
b. innovation
c. managerial skills
d. existence of monopoly power
e. all of the above are factors
Suppose a plot of sales data over time appears to follow an S-shape as illustrated below.
Sales
TimeWhich of the following is likely that the best forecasting
functional form to use for sales data above?
a. A linear trend, Sales = a + b T
b. A quadratic shape in T, using T-squared as another variable, Sales = a + b T + cT2.
c. A semi-log form as sales appear to be growing at a constant percentage rate, Ln Sales
= a + bT
d. A cubic shape in T, using T-squared and T-cubed as variables, Sales = a + b T + cT2 +
d T3.
e. A quadratic shape in T and T-squared as variables, Sales = a + b T + cT2
Agency problems and costs are incurred whenever the owners of a firm delegate
decision-making authority to management.
a. true
b. false
Companies that reduce their margins on export products in the face of appreciation of
their home currency may be motivated by a desire to
a. sacrifice market share abroad but build market share at home
b. increase production volume to realize learning curve advantages
c. sell foreign plants and equipment to lower their debt
d. reduce the costs of transportation
e. all of the above
Demand functions in the multiplicative form are most common for all of the following
reasons except:
a. elasticities are constant over a range of data
b. ease of estimation of elasticities
c. exponents of parameters are the elasticities of those variables
d. marginal impact of a unit change in an individual variable is constant
e. c and d
Effective collusion generally is more difficult as the number of oligopolistic firms
involved increases.
a. true
b. false
In the absence of any legally binding enforcement mechanism, individual cartel
producers may find it advantageous to cheat on the agreements and engage in secret
price concessions.
a. true
b. false
____ yields the same results as the theory of perfect competition, but requires
substantially fewer assumptions than the perfectly competitive model.
a. Baumol’s sales maximization hypothesis
b. The Pareto optimality condition
c. The Cournot model
d. The theory of contestable markets
e. none of the above
For studying demand relationships for a proposed new product that no one has ever
used before, what would be the best method to use?
a. ordinary least squares regression on historical data
b. market experiments, where the price is set differently in two markets
c. consumer surveys, where potential customers hear about the product and are asked
their opinions
d. double log functional form regression model
e. all of the above are equally useful in this case
In Dutch auctions, the biddinga. starts low and rises until the highest bidder wins.
b. is done in secret ‘œsealed bids’ which are opened at a specified time.
c. begins with a very high price, and is reduced until the first person takes it.
d. is accomplished by giving the price of the second highest bid to the highest bidder.
In which of the following econometric problems do we find Durbin-Watson statistic
being far away from 2.0?
a. the identification problem
b. autocorrelation
c. multicollinearity
d. heteroscedasticity
e. agency problems
Purchasing power parity or PPP says the ratios composed of:
a. interest rates explain the direction of exchange rates.
b. growth rates explain the direction of exchange rates.
c. inflation rates explain the direction of exchange rates.
d. services explain the direction exchange rates.
e. public opinion polls explain the direction of exchange rates.
[Advanced Material] Cross functional revenue management examines capacity,
pricing, and customer account management in order to maximize revenue.
Capacity Planning
Pricing Customer Account ManagementIf the MegaPlex Movie
Theater finds that too often they have to turn customers away from
their theaters at peak movie times for blockbusters creating too much slippage, cross
functional revenue management suggests:a. They could consider increasing the capacity
of each theater to be able to seat more customers.
b. They could lower the price at the peak times to reduce the problem of spoilage.
c. They could stop showing blockbuster movies and select more critically acclaimed art
films to decrease spoilage.
d. They could stop showing movies at night.
Two companies (A and B) are duopolists that produce identical products. Demand for
the products is given by the following demand function: P = 10,000 – QA– QBwhere
QAand QBare the quantities sold by the respective firms and P is the selling price. Total
cost functions for the two companies are: TCA= 500,000 + 200QA+ .5QA2
TCB= 200,000 + 400QB+ QB2Assume that the two firms act independently as in the
Cournot model (that is, each firm assumes that the other firm’s output will not change).
Determine the long-run equilibrium output and selling price for each firm.
