21 Jan 30In general, the smaller

Question
ECN601 Economics
Week 4 Exam 1

1Use the table provided to answer the following question. If hiring the fourth worker increases total product by 50 units and the price of each unit is $15:

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The firm should not hire the fourth worker as MR

The firm should not hire the fourth worker as MR

Marginal revenue equals $150.

The firm should hire the fourth worker as MR>MC.

2The change in quantity demanded derived from a change in price is:

The movement along a demand curve

The movement along a supply curve

A shift in the demand curve

A shift in the supply curve

3 The difference between the minimum price the producer is willing to accept and the price the producer actually receives for a product is referred to as:

Market surplus

Market shortage

Consumer surplus

Producer surplus

4At a price for which quantity demanded exceeds quantity supplied, a __________ is experienced, which pushes the price __________ toward its equilibrium value.

Surplus; downward

Surplus; upward

Shortage; downward

Shortage; upward

5The opportunity cost of an action is:

Equal to the marginal cost of an action

Equal to explicit cost

Equal to the cost (value) of the next best alternative forgone

The total cost of an action

6An example of a price floor is:

Minimum wages

Rent controls in New York

Both A and B

None of the above

7A monopolistically competitive firm will tend to have a more elastic demand curve than a monopolist because:

The monopolist can more easily achieve abnormal profits.

The monopolist makes a more “unique” product.

The monopolistically competitive firm faces more competition.

Both B and C

8Use the table provided to answer the following question. If the firm hires eight workers, the total fixed costs is:

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$600

$1,200

$1,000

$6,200

9Peter’s Pizzeria sells both pizzas and soda. It wants to increase the sales of its pizzas. Assuming that the pizza and the sodas are complements, which of these strategies can it employ?

Increase the price of the soda.

Decrease the price of the soda.

Increase the quality of the pizza

Both B and C

10Use the table provided to answer the following question. How many units should the profit maximizing firm produce?

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1

2

3

4

11A car dealership union negotiates a contract that dramatically increases the salaries of all salesmen. If one of the salesmen is thinking of changing careers to be a hardware salesman, his opportunity cost:

Would not be affected

Of becoming a hardware salesman would decrease

Of becoming a hardware salesman would increase

None of the above

12If the cross-price elasticity of demand between two goods is negative, then:

As the price of one good rises, the quantity demanded of the other good also rises.

The two goods are rarely used together by consumers.

The two goods are substitutes.

The two goods are complements.

13In an oligopoly, firms will tend to compete on the basis of price.

True

False

14An increase in the price of a complement shifts the demand curve to the:

Right

Left

It does not change the demand curve.

None of the above

15If the price elasticity of demand is 0.8 and the firm increases price, revenue will:

Increase

Decrease

Stay constant

Become zero, as they would lose all their customers

16A company invested $400,000 in a technology that reduced the overall costs of production by reducing their cost per unit from $2 to $1.85. Later, a manager has an opportunity to outsource production to another company at a cost per unit of $1.75. If you are the manager, you:

Should consider the $400,000 as a sunk cost, not relevant to the decision.

Should reduce his effort by ignoring any new developments and letting the production run as it is.

Should ignore the $400,000 fixed cost.

Both A and C

17An increase in the price of a substitute shifts the demand curve to the:

Right

Left

It does not change the demand curve.

None of the above

18A business produces 5,000 units per month. It spends $12,000 on raw materials. It pays wages of $20,000. Other costs include $50,000 for rent, paid by the month. In order to break even, the selling price per unit will have to be:

$25.20

$16.40

$20.30

$28.00

19A firm sells 1,000 units per week. It charges $70 per unit, the average variable costs are $25, and the average fixed costs are $65. In the short run, the firm should:

Shut down, as the firm is making a loss of $15,000 per week.

Shut down, as price is lower than average cost.

Continue operating, as the firm is covering all the variable costs and some of the fixed costs.

Shut down, as it is cost-effective to pay off the remaining fixed costs.

20Which of the following describes a firm?

Purchases labor hours from workers.

Borrows capital from investors.

Combines labor and capital to create production, moving them from their low value use to high value use.

All of the above

21Jim saw a decrease in the quantity demanded for his firm’s product from 8,000 to 6,000 units per week when he raised the price of the product from $200 to $250. What is Jim’s own price elasticity of demand?

1.29

1.00

0.25

0.78

22Use the table provided to answer the following question. What is the marginal revenue from producing the fourth unit?

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90

50

0

180

23A manager invests $20,000 in equipment that would help the company reduce it’s per unit costs from $15 to $12. He expects the equipment to be in use for the next seven years. After two years, he realizes that if he outsourced the production, the unit cost would be $7 instead. At this point what should the senior manager do?

Charge the manager for the next five years of depreciation

Write off the equipment as sunk cost and allow for outsourcing since it is cheaper

Not allow for outsourcing since the equipment is good for another five years.

None of the above

24The government decided to reduce taxes on fast-food to increase tax revenue. The government assumes that fast-food products have:

An inelastic demand

An elastic demand

A demand curve that is upward sloping

A unitary elastic demand curve

25Which of the following factors would shift the supply curve for ice cream to the right?

A new cooling technology emerges.

The price per unit increases.

The number of producers in the market for ice cream increase.

Both A and C

26A firm sells 1,000 units per week. It charges $15 per unit, the average variable costs are $10, and the average fixed costs are $25. In the long run, the firm should:

Shut down, as the firm is making a loss of $10,000 per week.

Shut down, as price is lower than average total cost.

Continue operating, as the firm is covering all the variable costs and some of the fixed costs.

Shut down, as it is cost effective to pay off the remaining fixed costs.

27Use the table provided to answer the following question. If the firm hires five workers, the average cost equals:

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$80

$1,000

Need more information

$10

28Price ceilings cause:

Some suppliers to drop out of the market

A decrease in the total production in the market

The creation of black markets

All the above

29A buyer values a house at $525,000 and a seller values the same house at $485,000. If sales tax is 8% and is levied on the seller, then what would be the lowest price at which the seller would be willing to sell?

$527,000

$523,800

$525,00

$500,000

30In general, the smaller the price elasticity:

The smaller the responsiveness of price to changes in quantity.

The smaller the responsiveness of quantity to changes in price.

The larger the responsiveness of price to changes in quantity.

The larger the responsiveness of quantity to changes in price.