A production function is a table, a graph, or an equation showing the:
a. least-cost method of producing output.
b. optimal combination of inputs.
c. maximum output that can be achieved from specified levels of inputs.
d. combinations of inputs that can be produced with equal costs.
e. optimal production technology that a firm should employ.
My Big Banana (MBB) has a monopoly in Middletown on large banana splits. The
demand for this delicacy is given by Q = 80 ” P. MBB’s costs are given by TC = 40 +
2Q + 2Q2. Its maximum monopoly profit is:
a. $267.
b. $467.
c. $627.
d. $672.
e. $674.
Total profit is maximized when:
a. marginal profit equals average profit.
b. marginal profit equals zero.
c. average profit equals zero.
d. average profit is maximized.
e. marginal profit is greater than average profit.
The annual mean daily high and low temperatures by selected cities are given in the
following table. What is the estimate of the intercept coefficient a for the regression of
the mean daily high temperature as a function of the mean daily low temperature?
a. 50.0.
b. 45.0.
c. 47.5.
d. “47.50.
e. “50.0.
If an activity produces an external diseconomy, then there will be too:
a. much of the activity undertaken by private parties from a social viewpoint.
b. little of the activity undertaken by private parties from a social viewpoint.
c. much of the activity undertaken by government from a private viewpoint.
d. much of the activity undertaken by private parties from a private viewpoint.
e. much of the activity undertaken by government from a social viewpoint.
In most cases, at the optimal consumption bundle:
a. the consumer cannot increase utility without some change in market conditions or
preferences.
b. the last dollar spent on each good brings the same amount of satisfaction to the
consumer.
c. the marginal rate of substitution is equal to the absolute values of the slope of the
budget constraint.
d. the indifference curve is just tangent to the budget constraint.
e. all of the above
For constants a and b, 0 < b, b 1, and expected profit E(p), the utility function of a
person who is risk-neutral can be written as U = :
a. a + bE(p).
b. a ” bE(p).
c. a + bp.
d. a + [E(p)]b.
e. a + [E(p)] “b.
The reservation prices, in dollars, for three classes of demanders (A, B, and C) for three
restaurants (1, 2, and 3) are given in the following table. What is the maximum revenue
that can be generated by setting a bundled price for the three restaurants?
a. $46.
b. $52.
c. $63.
d. $72.
e. $84.
Why Can”t We Be Friends? operates a conflict settlement service for distressed couples.
If it has no fixed costs and its monthly average variable cost of cases is given by AVC =
2.5Q + 500, the marginal cost at a caseload of 50 attempted reconciliations per month
is:
a. $500.
b. $550.
c. $600.
d. $625.
e. $750.
If the Durbin-Watson statistic is near 4, we can conclude that there is:
a. positive serial correlation.
b. negative serial correlation.
c. no serial correlation.
d. a multicollinearity problem.
e. not enough data to estimate the regression.
The demand for space heaters is Q = 250 ” P + 2COOL, where COOL is the absolute
value of the difference between the average overnight low temperature and 40°F.
Assume that the average overnight low this month is 40°F. When the price of space
heaters is P = $50, the price elasticity of demand is:
a. “1.38.
b. “13.8.
c. “0.138.
d. “1.50.
e. “0.25.
Total surplus in a market is a measure of:
a. social welfare created by the market.
b. profits that accrue to the owners of firms in a particular market.
c. the rebates that consumers receive when they purchase certain goods or services.
d. excess inventory that remains at the end of a season.
e. planned inventory that a firm carries from one year to the next.
Increasing returns to scale:
a. occur only where marginal returns are increasing.
b. cannot occur if all inputs have diminishing returns.
c. imply imperfect capital market returns.
d. result from just-in-time production.
e. are consistent with diminishing marginal returns by all inputs.
Isoquants usually slope downward (from left to right) because:
a. marginal products are usually positive.
b. marginal products are always positive.
c. marginal products will eventually decrease.
d. marginal products are always increasing.
e. average products are usually less than marginal products.
The formula for the cross-price elasticity of demand can be written as:
a. hXY = (DQX / DPY)(PY / QX).
b. hXY = (DPY / DQX)(PY / QX).
c. hXY = (DPY / DQX)(PY / QX).
d. hXY = (DPY / DQX)(QX / PY).
e. none of the above.
A manager has a utility function U = C 0.5 if she doesn”t work hard and U = C 0.5 ” 3 if
she does. Expected profit will increase from 1,000 to 1,500 if she works hard. The
manager receives compensation C equal to 144 plus a portion x of any profit in excess
of 1,000. What is the value of x that will make the manager indifferent between shirking
and working hard?
a. 0.09.
b. 0.105.
c. 0.19.
d. 0.162.
e. None of the above.
In the following table, the average product of labor at L = 3 is:
a. 5
b. 8
c. 0.2
d. 2
e. 3
The antitrust law that made giving discounts to large buyers on the basis of volume
purchases illegal was the:
a. Sherman Act.
b. Clayton Act.
c. Federal Trade Commission Act.
d. Robinson-Patman Act.
e. Celler-Kefauver Act.
Carmen’s Detective Agency can use apprentice detectives, A, or experienced detectives,
E. The cost of completing a job is C = 100 + A2 + E2 ” 2AE. If a job requires a total of
six detectives of either or both types, the cost-minimizing combination of detectives is:
a. A = 3 and E = 3.
b. A = 2 and E = 4.
c. A = 4 and E = 2.
d. A = 6 and E = 0.
e. A = 0 and E = 6.
If a monopolist faces a constant-elasticity demand curve given by Q = 202,500P “3 and
has total costs given by TC = 10Q, its profit-maximizing level of output is:
a. 50
b. 60
c. 75
d. 100
e. 120
Useful strategies to deter entry include:
a. increasing advertising.
b. increasing prices.
c. decreasing capacity.
d. increasing capacity.
e. a and d
The opportunity cost doctrine says that opportunity costs:
a. and economic costs differ by the amount of implicit costs.
b. should always be greater than explicit costs.
c. should usually be greater than explicit costs.
d. and the firm’s production costs determine the firm’s economic cost of production.
e. can never be properly figured by accountants.
If a representative firm with long-run total cost given by TC = 2,000 + 20q + 5q2
operates in a competitive industry where the market demand is given by QD = 10,000 ”
40P, in the long-run equilibrium there will be:
a. 60 firms.
b. 98 firms.
c. 106 firms.
d. 110 firms.
e. 120 firms.
A manager has a utility function U = C 0.5 if she doesn”t work hard and U = C 0.5 ” 1 if
she does. Expected profit will increase from 1,400 to 1,600 if she works hard. The
manager receives compensation C equal to 82 plus a portion x of any profit in excess of
1,400. What is the value of x that will make the manager indifferent between shirking
and working hard?
a. 0.095.
b. 0.105.
c. 0.19.
d. 0.242.
e. None of the above.
Requiring applicants for life insurance to undergo a physical examination is an effective
way to:
a. reduce moral hazard.
b. increase information asymmetry.
c. reduce adverse selection.
d. increase sales.
e. none of the above.
Managerial economics draws upon all of the following EXCEPT:
a. finance.
b. microeconomics.
c. accounting.
d. marketing.
e. sociology.
A person who has a utility function (with income on the horizontal axis and utility on
the vertical axis) that curves up as income increases is:
a. risk-averse and profit maximizing.
b. risk-averse and not profit maximizing.
c. risk loving and profit maximizing.
d. risk loving and not profit maximizing.
e. risk-neutral.
Total revenue can be defined as:
a. average revenue multiplied by marginal revenue.
b. average revenue divided by marginal revenue.
c. average revenue multiplied by output.
d. average revenue divided by output.
e. marginal revenue divided by output.
A feasible strategy set is:
a. all actions with a nonzero probability of occurring.
b. only actions that have a 50% or greater probability of occurring.
c. actions that result in positive profits for the firm.
d. actions that a decision maker is willing to take.
e. the one outcome that the decision maker chooses.
The lengthy delays for hearings and appeals over proposed rate increases by a natural
monopoly are known as:
a. regulatory lags.
b. leaves of appeal.
c. leaves of repeal.
d. prudent delays.
e. the public’s right to be heard.
Consider Mr. Ed, who purchases an insurance policy on a thoroughbred that he has
acquired. He then proceeds to run the horse even though the horse has tendinitis. This is
an example of:
a. an adverse-selection problem.
b. a moral-hazard problem.
c. coinsurance.
d. signaling.
e. all the above.
In a sealed-bid auction:
a. buyers bid against each other with a succession of increasingly higher prices until
only one remains.
b. a bid is announced, and if no buyer accepts the bid in a given period of time, a new,
slightly lower, bid is announced; this procedure continues until a bidder accepts the
announced price.
c. each bidder submits a price that is known only to that bidder; bids are opened and the
highest (lowest) bid is accepted.
d. each bidder submits a price that is known only to that bidder; bids are opened and the
highest (lowest) bidder wins, but the transaction occurs at the second highest (lowest)
price.
e. none of the above.
Second-price, sealed-bid auctions have rules that are incentive-compatible because:
a. they encourage buyers and sellers to maximize profits.
b. they encourage buyers and sellers to collude to fix the results of the auction.
c. they encourage individuals to reveal their true preferences.
d. individual bidders are encouraged to work with rivals to submit bids that maximize
joint profits.
e. each buyer is encouraged to submit the same bid.
Long-run average cost equals long-run marginal cost whenever:
a. the production function exhibits constant returns to scale.
b. fixed costs are zero.
c. no factor always has increasing marginal returns.
d. the cost of capital is near zero.
e. long-run marginal cost is at its minimum.