Managerial Economics Questions 1. Suppose market demand and supply are given by Qd = 100 – 2P ..

Managerial Economics Questions

1. Suppose market demand and supply are given by Q^d = 100 – 2P and Q^S = –50 + 3P. The equilibrium quantity is:

	40.
	20.
	30.
	50.

2.Which of the following signals to firm owners that scarce resources might be better allocated to a different industry?

	Fewer government regulations in that other industry
	Profits in that other industry
	Better availability of labor in that other industry
	Cheaper cost of capital in that other industry

3. Suppose Q_x^d = 5,000 ? 2 P_x + 3 P_y ? 2M, where P_x = $100, P_y = $100, and M = $2,000. What is the own price elasticity of demand?

	?2
	?0.27
	?0.21
	?0.18

4. Assume that the price elasticity of demand is ?.5 for a certain firm's product. If the firm decreases price, the firm's managers can expect total revenue to:

	decrease.
	increase.
	remain constant.
	either increase or remain constant, depending upon the size of the price increase.

5. The higher the interest rate:

	the greater the present value of a future amount.
	the smaller the present value of a future amount.
	the greater the level of inflation.
	None of the statements associated with this question are correct.

6. If good A is a normal good, an increase in income leads to:

	An increase in the demand for good B.
	A decrease in the demand for good A.
	An increase in the demand for good A.
	No change in the quantity demanded of good A.

7. If the income elasticity for lobster is 0.5, a 20 percent increase in income will lead to a:

	10 percent increase in demand for lobster.
	10 percent decrease in demand for lobster.
	20 percent increase in demand for lobster.
	20 percent decrease in demand for lobster.

8. Suppose the marginal product of capital is 16 and the marginal product of labor is 3. If the price of capital is $4 and the wage rate is $3, then in order to minimize costs the firm should use:

	more capital and less labor.
	more labor and less capital.
	three times more capital than labor.
	none of the answers are correct.

9. Consider a market characterized by the following demand and supply conditions: P_X = 30 - 4Q_X and P_X = 6 + 4Q_X. The equilibrium price and quantity are, respectively,

	$3 and 9 units.
	$9 and 3 units.
	$3 and 18 units.
	$18 and 3 units.

10. For a cost function C = 50 + 2Q + Q², the marginal cost of producing 2 units of output is:

	50.
	8.
	58.
	None of the answers are correct

11. The demand for good X has been estimated to be ln Q_x^d = 100 ? 3 ln P_X + 7 ln P_Y + 5 ln M. The income elasticity of good X is:

	–3.0.
	7.0.
	5.0.
	?5.0.

12. Other things held constant, producer surplus decreases as:

	The price of a good decreases.
	The price of a good increases.
	The demand curve shifts upward.
	None of the above.

13. At what level of output does marginal cost equal marginal revenue?

	1
	2
	3
	5

14. If the price of good X becomes higher, then the level of consumer surplus becomes:

	lower.
	higher.
	unchanged.
	lower in the short run but higher in the long run.

15. Suppose the demand for X is given by Q_x^d = 100 + 2P_X + 4P_Y + 10M + 2A, where P_X represents the price of good X, P_Y is the price of good Y, M is income, and A is the amount of advertising on good X. Good X is:

	an inferior good.
	a normal good.
	a Giffen good.
	a complement.

16. For the multiproduct cost function C(Q₁, Q₂) = 100 + 2Q₁Q₂ + 4Q₁², what is the marginal cost function for good one??0_09_2014_QC_55537

	MC1 = 2Q2 + 4Q1 ? Q22.
	MC1 = 2Q2 + 8Q1.
	MC1 = 100 + 2Q1Q2 + 4Q12.
	MC1 = 4Q2 + 6Q1.

17. A firm will have constant profits of $100,000 per year for the next four years, and the interest rate is 6 percent. Assuming these profits are realized at the end of each year, what is the present value of these future profits?

rev: 10_09_2014_QC_55537, 01_19_2015_QC_CS-4218

	$325,816.49
	$376,741.64
	$400,000.85
	$346,510.56

18. Which of the following statements is correct?

	If a firm decreases the price of its product and demand for the good is inelastic, its total revenue will decrease.
	If a firm decreases the price of its product and demand for the good is elastic, its total revenue will decrease.
	As the price of X falls and we move down an individual's demand curve for X, the money income of the individual also changes.
	The own price elasticity of demand is constant at all points along a linear demand curve.

19. The cost curve that declines continuously as output increases is the:

	total cost curve.
	average cost curve.
	average fixed costs curve.
	variable cost curve.

20. Incentive plans mean that:

	managers are paid the same amount regardless of how much effort they put forth.
	managers are paid less (more) if they put forth less (more) effort.
	managers have the interests of the owner in mind regardless of how they are paid.
	managers need to be monitored constantly.

21. When dealing with present value, a lower interest rate:

	does not affect the present value of the future amount.
	increases the present value of a future amount.
	decreases the present value of a future amount.
	None of the statements associated with this question are correct.

22. Marginal net benefits are:

	The difference between marginal benefits and marginal costs.
	The difference between the benefits and costs of a project.
	The difference between the present value of the benefits and costs of a project.
	The change in total benefits arising from a change in a managerial control variable.

23. Suppose market demand and supply are given by Q^d = 100 – 2P and Q^S = 5 + 3P. If a price ceiling of $10 is imposed, what will be the resulting full economic price?

	$19.
	$32.50.
	$22.50.
	$10.

24. If the interest rate is 3 percent, the present value of $900 received at the end of three years is:

	$891.
	$823.63.
	$799.64.
	$983.45.

25. Suppose demand is given by Q_x^d = 25 ? 5P_x + 2P_y + A_x, where P_x = $10, P_y = $5, and A_x = $100. What is the advertising elasticity of demand for good x?

	1
	1.18
	0.85
	0.52

26. You’ve recently learned that the company where you work is being sold for $380,000. The company’s income statement indicates current profits of $15,000, which have yet to be paid out as dividends. Assuming the company will remain a “going concern” indefinitely and that the interest rate will remain constant at 6 percent, at what constant rate does the owner believe that profits will grow?

Instruction: Round your response to 2 decimal places.

Growth rate of: percent.

27. Suppose the cross-price elasticity of demand between goods X and Y is 2. How much would the price of good Y have to change in order to change the consumption of good X by 40 percent?

percent

28. From California to New York, legislative bodies across the United States are considering eliminating or reducing the surcharges that banks impose on noncustomers, who make $10 million in withdrawals from other banks’ ATM machines. On average, noncustomers earn a wage of $22 per hour and pay ATM fees of $3.00 per transaction. It is estimated that banks would be willing to maintain services for 6 million transactions at $1.25 per transaction, while noncustomers would attempt to conduct 21 million transactions at that price. Estimates suggest that, for every 1 million gap between the desired and available transactions, a typical consumer will have to spend an extra minute traveling to another machine to withdraw cash.

Based on this information, what would be the nonpecuniary cost of legislation that would place a $1.25 cap on the fees banks can charge for noncustomer transactions?

Instructions: Round your answer to the nearest penny (2 decimal places).

$

What would be the full economic price of this legislation?

$

29. The supply curve for product X is given by Q_X^S = -520 + 20P_X .

a. Find the inverse supply curve.

P = + Q

b. How much surplus do producers receive when Q_x = 400? When Q_x = 1,200?

When Q_X = 400: $

When Q_X = 1,200: $

30. What is the value of a preferred stock that pays a perpetual dividend of $150 at the end of each year when the interest rate is 7 percent?

Instruction:Round your response to the nearest dollar.

$