Managerial Economics & Business Strategy Michael
Baye 9th Edition- Test Bank
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Managerial Economics & Business Strategy Michael Baye 9th Edition- Test Bank
Sample Questions
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Chapter 03
Quantitative Demand Analysis
Multiple Choice Questions
1.
Assume that the price elasticity of demand is −2 for a certain firm’s product. If
the firm raises price, the firm’s managers can expect total revenue to:
A.decrease.
B. increase.
C. remain constant.
D. either increase or remain constant, depending upon the size of the price increase.
Answer: A
Learning Objective: 03-02
Topic: Own Price Elasticity of Demand
Blooms: Remember
AACSB: Knowledge Application
Difficulty: 01 Easy
2.
A price elasticity of zero corresponds to a demand curve that is:
A. horizontal.
B. downward sloping with a slope always equal to 1.
C.vertical.
D. either vertical or horizontal.
Answer: C
Learning Objective: 03-02
Topic: Own Price Elasticity of Demand
Blooms: Understand
AACSB: Knowledge Application
Difficulty: 02 Medium
3.
As we move down along a linear demand curve, the price elasticity of demand
becomes more:
A. elastic.
B.inelastic.
C. log-linear.
D. variable.
Answer: B
Learning Objective: 03-02
Topic: Own Price Elasticity of Demand
Blooms: Understand
AACSB: Knowledge Application
Difficulty: 02 Medium
4.
If the demand for a product is Q xd = 10 − lnPx, then product x is:
A. elastic.
B. inelastic.
C.unitary elastic.
D. Cannot be determined without more information.
Answer: C
Learning Objective: 03-05
Topic: Obtaining Elasticities From Demand Functions
Blooms: Remember
AACSB: Knowledge Application
Difficulty: 01 Easy
5.
The demand for good X has been estimated by Q xd = 12 − 3Px + 4Py. Suppose
that good X sells at $2 per unit and good Y sells for $1 per unit. Calculate the own
price elasticity.
A. −0.2
B. −0.3
C. −0.5
D.−0.6
Answer: D
Learning Objective: 03-05
Topic: Obtaining Elasticities From Demand Functions
Blooms: Apply
AACSB: Analytical Thinking
Difficulty: 01 Easy
6.
The own price elasticity of demand for apples is −1.2. If the price of apples falls
by 5 percent, what will happen to the quantity of apples demanded?
A. It will increase 5 percent.
B. It will fall 4.3 percent.
C. It will increase 4.2 percent.
D.It will increase 6 percent.
Answer: D
Learning Objective: 03-01
Topic: Own Price Elasticity of Demand
Blooms: Apply
AACSB: Analytical Thinking
Difficulty: 02 Medium
7.
If apples have an ownprice elasticity of −1.2 we know the demand is:
A. unitary.
B. indeterminate.
C.elastic.
D. inelastic.
Answer: C
Learning Objective: 03-01
Topic: Own Price Elasticity of Demand
Blooms: Remember
AACSB: Knowledge Application
Difficulty: 01 Easy
8.
If quantity demanded for sneakers falls by 10 percent when price increases 25
percent, we know that the absolute value of the own price elasticity of sneakers is:
A. 2.5.
B.0.4.
C. 2.0.
D. 0.27.
Answer: B
Learning Objective: 03-01
Topic: Own Price Elasticity of Demand
Blooms: Apply
AACSB: Analytical Thinking
Difficulty: 02 Medium
9.
The quantity consumed of a good is relatively unresponsive to changes in price
whenever demand is:
A. elastic.
B. unitary.
C. falling.
D.inelastic.
Answer: D
Learning Objective: 03-01
Topic: Own Price Elasticity of Demand
Blooms: Remember
AACSB: Knowledge Application
Difficulty: 01 Easy
10.
If the absolute value of the own price elasticity of steak is 0.4, a decrease in price
will lead to:
A. a reduction in total revenue.
B. an increase in total revenue.
C. no change in total revenue.
D. None of the preceding statements is correct.
Answer: A
Learning Objective: 03-02
Topic: Own Price Elasticity of Demand
Blooms: Understand
AACSB: Knowledge Application
Difficulty: 1 Easy
11.
If a price increase from $5 to $7 causes quantity demanded to fall from 150 to
100, what is the absolute value of the own price elasticity at a price of $7?
A. 0.57
B.1.75
C. 0.02
D. 1.24
Answer: B
Learning Objective: 03-05
Topic: The Elasticity Concept
Blooms: Remember
AACSB: Knowledge Application
Difficulty: 3 Hard
12.
Demand is perfectly elastic when the absolute value of the own price elasticity of
demand is:
A. zero.
B. one.
C.infinite.
D. unknown.
Answer: C
Learning Objective: 03-02
Topic: Own Price Elasticity of Demand
Blooms: Remember
AACSB: Knowledge Application
Difficulty: 1 Easy
13.
The demand curve for a good is horizontal when it is:
A. a perfectly inelastic good.
B. a unitary elastic good.
C.a perfectly elastic good.
D. an inferior good.
Answer: C
Learning Objective: 03-02
Topic: Own Price Elasticity of Demand
Blooms: Remember
AACSB: Knowledge Application
Difficulty: 1 Easy
14.
Suppose Q xd = 10,000 − 2 Px + 3 Py− 4.5M, where Px = $100, Py = $50, and M =
$2,000. What is the own price elasticity of demand?
A. −2.34
B. −0.78
C.−0.21
D. −1.21
Answer: C
Learning Objective: 03-05
Topic: Obtaining Elasticities From Demand Functions
Blooms: Apply
AACSB: Analytical Thinking
Difficulty: 02 Medium
15.
Suppose Q xd = 10,000 − 2 Px + 3 Py− 4.5M, where Px = $100, Py = $50, and M =
$2,000. Then good X has a demand which is:
A. elastic.
B.inelastic.
C. unitary.
D. neither elastic, inelastic, nor unitary elastic.
Answer: B
Learning Objective: 03-05
Topic: Obtaining Elasticities From Demand Functions
Blooms: Apply
AACSB: Analytical Thinking
Difficulty: 01 Easy
16.
Suppose Q xd = 10,000 − 2 Px + 3 Py− 4.5M, where Px = $100, Py = $50, and M =
$2,000. How much of good X is consumed?
A. 100 units
B. 500 units
C. 1,100 units
D.950 units
Answer: D
Learning Objective: 03-05
Topic: Obtaining Elasticities From Demand Functions
Blooms: Apply
AACSB: Analytical Thinking
Difficulty: 01 Easy
17.
Which of the following factors would NOT affect the own price elasticity of a
good?
A. Time
B.Price of an input
C. Available substitutes
D. Expenditure share
Answer: B
Learning Objective: 03-03
Topic: Own Price Elasticity of Demand
Blooms: Remember
AACSB: Knowledge Application
Difficulty: 02 Medium
18.
Lemonade, a good with many close substitutes, should have an own price
elasticity that is:
A. unitary.
B.relatively elastic.
C. relatively inelastic.
D. perfectly inelastic.
Answer: B
Learning Objective: 03-03
Topic: Own Price Elasticity of Demand
Blooms: Understand
AACSB: Knowledge Application
Difficulty: 02 Medium
19.
We would expect the demand for jeans to be:
A.more elastic than the demand for clothing.
B. less elastic than the demand for clothing.
C. the same as the demand for clothing.
D. neither more elastic, less elastic, nor the same elasticity as that of the demand for
clothing.
Answer: A
Learning Objective: 03-03
Topic: Own Price Elasticity of Demand
Blooms: Understand
AACSB: Knowledge Application
Difficulty: 02 Medium
20.
Demand is more inelastic in the shortterm because consumers:
A. are impatient.
B.have no time to find available substitutes.
C. are present-oriented.
D. None of the preceding statements is correct.
Answer: B
Learning Objective: 03-03
Topic: Own Price Elasticity of Demand
Blooms: Understand
AACSB: Knowledge Application
Difficulty: 02 Medium
21.
We would expect the own price elasticity of demand for food to be:
A.less elastic than the demand for cereal.
B. more elastic than the demand for cereal.
C. the same as that for soap.
D. perfectly inelastic.
Answer: A
Learning Objective: 03-03
Topic: Own Price Elasticity of Demand
Blooms: Understand
AACSB: Knowledge Application
Difficulty: 02 Medium
22.
The elasticity which shows the responsiveness of the demand for a good due to
changes in the price of a related good is the:
A. own price elasticity.
B. income elasticity.
C. log-linear elasticity.
D.cross-price elasticity.
Answer: D
Learning Objective: 03-01
Topic: Cross-Price Elasticity
Blooms: Remember
AACSB: Knowledge Application
Difficulty: 01 Easy
23.
If the cross-price elasticity between goods A and B is negative, we know the
goods are:
A. inferior goods.
B.complements.
C. inelastic.
D. substitutes.
Answer: B
Learning Objective: 03-01
Topic: Cross-Price Elasticity
Blooms: Remember
AACSB: Knowledge Application
Difficulty: 01 Easy
24.
If the cross-price elasticity between ketchup and hamburgers is −1.2, a 4 percent
increase in the price of ketchup will lead to a 4.8 percent:
A. drop in quantity demanded of ketchup.
B.drop in quantity demanded of hamburgers.
C. increase in quantity demanded of ketchup.
D. increase in quantity demanded of hamburgers.
Answer: B
Learning Objective: 03-01
Topic: Cross-Price Elasticity
Blooms: Apply
AACSB: Analytical Thinking
Difficulty: 02 Medium
25.
If the price of pork chops falls from $8 to $6, and this leads to an increase in
demand for apple sauce from 100 to 140 jars, what is the cross-priceelasticity of
apple sauce and pork chops at a pork chop price of $6?
A. −1.17
B. 2.71
C. 0.42
D.−0.86
Answer: D
Learning Objective: 03-01
Topic: Cross-Price Elasticity
Blooms: Apply
AACSB: Analytical Thinking
Difficulty: 03 Hard
26.
Suppose the demand function is Q xd = 100 − 8Px + 6Py – M. If Px = $4, Py = $2,
and M = $10, what is the cross-price elasticity of good x with respect to the price of
good y?
A.0.17
B. 0.38
C. 0.21
D. 0.04
Answer: A
Learning Objective: 03-05
Topic: Obtaining Elasticities From Demand Functions
Blooms: Apply
AACSB: Analytical Thinking
Difficulty: 02 Medium
27.
The elasticity that measures the responsiveness of consumer demand to changes
in income is the:
A.income elasticity.
B. own price elasticity.
C. cross-price elasticity.
D. neither the income elasticity, the own price elasticity, nor the cross-price elasticity.
Answer: A
Learning Objective: 03-01
Topic: Income Elasticity
Blooms: Remember
AACSB: Knowledge Application
Difficulty: 01 Easy
28.
An income elasticity less than zero tells us that the good is:
A. a normal good.
B. a Giffen good.
C.an inferior good.
D. an inelastic good.
Answer: C
Learning Objective: 03-01
Topic: Income Elasticity
Blooms: Remember
AACSB: Knowledge Application
Difficulty: 01 Easy
29.
If the income elasticity for lobster is 0.4, a 40 percent increase in income will lead
to a:
A. 10 percent drop in demand for lobster.
B.16 percent increase in demand for lobster.
C. 20 percent increase in demand for lobster.
D. 4 percent increase in demand for lobster.
Answer: B
Learning Objective: 03-01
Topic: Income Elasticity
Blooms: Apply
AACSB: Analytical Thinking
Difficulty: 02 Medium
30.
You are the manager of a supermarket, and you know that the income elasticity
of peanut butter is exactly −0.7. Due to the economic recession, you expect incomes
to drop by 15 percent next year. How should you adjust your purchase of peanut
butter?
A.Buy 10.5 percent more peanut butter.
B. Buy 2.14 percent more peanut butter.
C. Buy 6.2 percent less peanut butter.
D. Buy 9.8 percent less peanut butter.
Answer: A
Learning Objective: 03-01
Topic: Income Elasticity
Blooms: Apply
AACSB: Analytical Thinking
Difficulty: 02 Medium
31.
Suppose demand is given by Q xd = 50 − 4Px + 6Py + Ax, where Px = $4, Py = $2,
and Ax = $50. What is the advertising elasticity of demand for good x?
A. 1.12
B. 0.38
C. 1.92
D.0.52
Answer: D
Learning Objective: 03-05
Topic: Obtaining Elasticities From Demand Functions
Blooms: Apply
AACSB: Analytical Thinking
Difficulty: 02 Medium
32.
Suppose demand is given by Q xd = 50 − 4Px + 6Py + Ax, where Px = $4, Py = $2,
and Ax = $50. What is the quantity demanded of good x?
A.96
B. 50
C. 46
D. 72
Answer: A
Learning Objective: 03-05
Topic: Obtaining Elasticities From Demand Functions
Blooms: Apply
AACSB: Analytical Thinking
Difficulty: 01 Easy
33.
You are the manager of a popular shoe company. You know that the advertising
elasticity of demand for your product is 0.15. How much will you have to increase
advertising in order to increase demand by 10 percent?
A. 0.02 percent
B. 38.6 percent
C.66.7 percent
D. 4.3 percent
Answer: C
Learning Objective: 03-01
Topic: Other Elasticities
Blooms: Apply
AACSB: Analytical Thinking
Difficulty: 02 Medium
34.
Suppose the demand for good x is lnQxd = 21 − 0.8 lnPx− 1.6 ln Py + 6.2 ln M +
0.4 ln Ax. Then we know goods x and y are:
A. substitutes.
B.complements.
C. normal goods.
D. inferior goods.
Answer: B
Learning Objective: 03-05
Topic: Obtaining Elasticities From Demand Functions
Blooms: Apply
AACSB: Analytical Thinking
Difficulty: 02 Medium
35.
Suppose the demand for good x is ln Qxd = 21 − 0.8 ln Px− 1.6 ln Py + 6.2 ln M +
0.4 ln Ax. Then we know good x is:
A. an inferior good.
B. an elastic good.
C.a normal good.
D. a Giffen good.
Answer: C
Learning Objective: 03-05
Topic: Obtaining Elasticities From Demand Functions
Blooms: Apply
AACSB: Analytical Thinking
Difficulty: 02 Medium
36.
Suppose the demand for good x is ln Qxd = 21 − 0.8 ln Px− 1.6 ln Py + 6.2 ln M +
0.4 ln Ax. Then we know that the own price elasticity for good x is:
A. unitary.
B. elastic.
C.inelastic.
D. It cannot be calculated from the existing information.
Answer: C
Learning Objective: 03-05
Topic: Obtaining Elasticities From Demand Functions
Blooms: Apply
AACSB: Analytical Thinking
Difficulty: 02 Medium
37.
Suppose the demand function is given by Qxd = 8Px0.5 Py0.25 M0.12 H. Then the crossprice elasticity between goods x and y is:
A. 4.00.
B.0.25.
C. 0.50.
D. 8.33.
Answer: B
Learning Objective: 03-05
Topic: Obtaining Elasticities From Demand Functions
Blooms: Apply
AACSB: Analytical Thinking
Difficulty: 03 Hard
38.
Suppose the demand function is given by Qxd = 8Px0.5 Py0.25 M0.12 H. Then good x is:
A.a normal good.
B. an inferior good.
C. a complement for good y.
D. perfectly inelastic.
Answer: A
Learning Objective: 03-05
Topic: Obtaining Elasticities From Demand Functions
Blooms: Apply
AACSB: Analytical Thinking
Difficulty: 03 Hard
39.
Suppose the demand function is given by Qxd = 8Px0.5 Py0.25 M0.12 H. Then the demand
for good x is:
A.inelastic.
B. unitary.
C. elastic.
D. perfectly elastic.
Answer: A
Learning Objective: 03-05
Topic: Obtaining Elasticities From Demand Functions
Blooms: Apply
AACSB: Analytical Thinking
Difficulty: 03 Hard
40.
The statistical analysis of economic phenomena is defined as:
A.econometrics.
B. variance.
C. confidence intervals.
D. standard deviation.
Answer: A
Learning Objective: 03-06
Topic: Regression Analysis
Blooms: Remember
AACSB: Knowledge Application
Difficulty: 01 Easy
41.
The demand for video recorders has been estimated to be Q v = 134 − 1.07Pf +
46Pm−2.1Pv− 5I, where Qv is the quantity of video recorders, Pf denotes the price of
video recorder film, Pm is the price of attending a movie, Pv is the price of video
recorders, and I is income. Based on the estimated demand equation we can
conclude:
A.video recorders are inferior goods.
B. video recorder film is a substitute for video recorders.
C. the demand for video recorders is inelastic.
D. the demand for video recorders is neither inferior nor inelastic, and video recorder
film is not a substitute for video recorders.
Answer: A
Learning Objective: 03-05
Topic: Obtaining Elasticities From Demand Functions
Blooms: Apply
AACSB: Analytical Thinking
Difficulty: 02 Medium
42.
Which of the following is used to determine the statistical significance of a
regression coefficient?
A.t-statistic
B. F-statistic
C. R-square
D. Adjusted R-square
Answer: A
Learning Objective: 03-06
Topic: Regression Analysis
Blooms: Remember
AACSB: Knowledge Application
Difficulty: 01 Easy
43.
Which of the following provides a measure of the overall fit of a regression?
A. t-statistic
B. F-statistic
C. R-square
D.The F-statistic and R-square
Answer: D
Learning Objective: 03-06
Topic: Regression Analysis
Blooms: Remember
AACSB: Knowledge Application
Difficulty: 01 Easy
44.
Which of the following can be used to quantify the overall statistical significance
of a regression?
A. t-statistic
B.F-statistic
C. R-square
D. The F-statistic and R-square
Answer: B
Learning Objective: 03-06
Topic: Regression Analysis
Blooms: Remember
AACSB: Knowledge Application
Difficulty: 02 Medium
45.
Which of the following measures of fit penalizes a researcher for estimating many
coefficients with relatively little data?
A. t-statistic
B. R-square
C.Adjusted R-square
D. Neither the t-statistic, the R-square, nor the adjusted R-square
Answer: C
Learning Objective: 03-06
Topic: Regression Analysis
Blooms: Remember
AACSB: Knowledge Application
Difficulty: 01 Easy
46.
As a ruleofthumb, a parameter estimate is statistically different from zero when
the absolute value of the t-statistic is:
A. zero.
B. less than one.
C. greater than or equal to 1.
D.greater than or equal to 2.
Answer: D
Learning Objective: 03-06
Topic: Regression Analysis
Blooms: Remember
AACSB: Knowledge Application
Difficulty: 01 Easy
47.
A study has estimated the effect of changes in interest rates and consumer
confidence on the demand for money to be: ln M = 14.666 + .021 ln C − 0.036 ln r,
where M denotes real money balances, C is an index of consumer confidence, and r is
the interest rate paid on bank deposits. Based on this study we know that the
interest elasticity is:
A. unitary.
B. zero.
C. very elastic.
D.very inelastic.
Answer: D
Learning Objective: 03-06
Topic: Regression Analysis
Blooms: Understand
AACSB: Knowledge Application
Difficulty: 03 Hard
48.
A study has estimated the effect of changes in interest rates and consumer
confidence on the demand for money to be: ln M = 14.666 + .021 ln C − 0.036 ln r,
where M denotes real money balances, C is an index of consumer confidence, and r is
the interest rate paid on bank deposits. Based on this study, a 5 percent increase in
interest rates will cause the demand for money to:
A. drop by 1.8 percent.
B. increase by 1.8 percent.
C.drop by 0.18 percent.
D. increase by 0.18 percent.
Answer: C
Learning Objective: 03-05
Topic: Obtaining Elasticities From Demand Functions
Blooms: Apply
AACSB: Analytical Thinking
Difficulty: 02 Medium
49.
The elasticity of variable G with respect to variable S is defined as:
A.the percentage change in variable G that results from a given percentage change
in variable S.
B. the percentage change in variable G that results from a given change in variable
S.
C. the change in variable G that results from a given percentage change in variable
S.
D. the change in variable G that results from a given change in variable S.
Answer: A
Learning Objective: 03-01
Topic: The Elasticity Concept
Blooms: Remember
AACSB: Knowledge Application
Difficulty: 01 Easy
50.
If the absolute value of the own price elasticity of demand is greater than 1, then
demand is said to be:
A.elastic.
B. inelastic.
C. unitary elastic.
D. neither elastic, inelastic, nor unitary elastic.
Answer: A
Learning Objective: 03-01
Topic: Own Price Elasticity of Demand
Blooms: Remember
AACSB: Knowledge Application
Difficulty: 01 Easy
51.
Suppose the own price elasticity of demand for good X is −0.5, and the price of
good X increases by 10 percent. We would expect the quantity demanded of good X
to:
A. increase by 5 percent.
B. increase by 20 percent.
C.decrease by 5 percent.
D. decrease by 20 percent.
Answer: C
Learning Objective: 03-01
Topic: Own Price Elasticity of Demand
Blooms: Apply
AACSB: Analytical Thinking
Difficulty: 02 Medium
52.
Suppose the own price elasticity of demand for good X is −0.5, and the price of
good X increases by 10 percent. What would you expect to happen to the total
expenditures on good X?
A.Increase
B. Decrease
C. Remain unchanged
D. Neither increase, decrease, nor remain unchanged
Answer: A
Learning Objective: 03-01
Topic: Own Price Elasticity of Demand
Blooms: Understand
AACSB: Knowledge Application
Difficulty: 02 Medium
53.
If the own price elasticity of demand is infinite in absolute value, then:
A. demand is perfectly inelastic.
B.the demand curve is horizontal.
C. consumers do not respond at all to changes in price.
D. demand is neither perfectly inelastic nor is the demand curve horizontal.
Answer: B
Learning Objective: 03-01
Topic: Own Price Elasticity of Demand
Blooms: Understand
AACSB: Knowledge Application
Difficulty: 02 Medium
54.
If demand is perfectly inelastic, then:
A. the own price elasticity of demand is infinite in absolute value.
B. a small increase in price will lead to a situation where none of the good is
purchased.
C.the demand curve is vertical.
D. None of the preceding statements is correct.
Answer: C
Learning Objective: 03-01
Topic: Own Price Elasticity of Demand
Blooms: Understand
AACSB: Knowledge Application
Difficulty: 02 Medium
55.
The demand for good X is estimated to be Qxd = 10,000 − 4PX + 5PY + 2M +
AX where PX is the price of X, PY is the price of good Y, M is income, and AX is the
amount of advertising on X. Suppose the present price of good X is $50, PY = $100, M
= $25,000, and AX = 1,000 units. What is the demand curve for good X?
A. 61,500
B. 61,300
C. 61,300 − 4PX
D.61,500 − 4PX
Answer: D
Learning Objective: 03-05
Topic: Own Price Elasticity of Demand
Blooms: Apply
AACSB: Analytical Thinking
Difficulty: 02 Medium
56.
The demand for good X is estimated to be Qxd = 10,000 − 4PX + 5PY + 2M +
AX where PX is the price of X, PY is the price of good Y, M is income, and AX is the
amount of advertising on X. Suppose the present price of good X is $50, PY = $100, M
= $25,000, and AX = 1,000 units. What is the quantity demanded of good X?
A. 61,500
B.61,300
C. 61,300 − 4PX
D. 61,500 − 4PX
Answer: B
Learning Objective: 03-05
Topic: Own Price Elasticity of Demand
Blooms: Apply
AACSB: Analytical Thinking
Difficulty: 01 Easy
57.
The demand for good X is estimated to be Qxd = 10,000 − 4PX + 5PY + 2M +
AX, where PX is the price of X, PY is the price of good Y, M is income, and AX is the
amount of advertising on X. Suppose the present price of good X is $50, PY = $100, M
= $25,000, and AX = 1,000 units. What is the own price elasticity of demand for good
X?
A.−0.003
B. −0.03
C. −0.3
D. −3
Answer: A
Learning Objective: 03-05
Topic: Obtaining Elasticities From Demand Functions
Blooms: Apply
AACSB: Analytical Thinking
Difficulty: 02 Medium
58.
The demand for good X is estimated to be Qxd = 10, 000 − 4PX + 5PY + 2M +
AX, where PX is the price of X, PY is the price of good Y, M is income, and AX is the
amount of advertising on X. Suppose the present price of good X is $50, PY = $100, M
= $25,000, and AX = 1,000 units. Based on this information, we know that the
demand for good X is:
A. elastic.
B.inelastic.
C. unitary elastic.
D. neither elastic, inelastic, nor unitary elastic.
Answer: B
Learning Objective: 03-05
Topic: Obtaining Elasticities From Demand Functions
Blooms: Apply
AACSB: Analytical Thinking
Difficulty: 02 Medium
59.
The demand for good X is estimated to be Qxd = 10, 000 − 4PX + 5PY + 2M +
AX, where PX is the price of X, PY is the price of good Y, M is income, and AX is the
amount of advertising on X. Suppose the present price of good X is $50, PY = $100, M
= $25,000, and AX = 1,000 units. Based on this information, the cross-price elasticity
between goods X and Y is:
A.0.008.
B. −0.08.
C. −0.8.
D. −8.
Answer: A
Learning Objective: 03-05
Topic: Obtaining Elasticities From Demand Functions
Blooms: Apply
AACSB: Analytical Thinking
Difficulty: 02 Medium
60.
The demand for good X is estimated to be Qxd = 10,000 − 4PX + 5PY + 2M +
AX, where PX is the price of X, PY is the price of good Y, M is income, and AX is the
amount of advertising on X. Suppose the present price of good X is $50, PY = $100, M
= $25,000, and AX = 1,000 units. Based on this information, goods X and Y are:
A.substitutes.
B. complements.
C. normal goods.
D. inferior goods.
Answer: A
Learning Objective: 03-05
Topic: Cross-Price Elasticity
Blooms: Apply
AACSB: Analytical Thinking
Difficulty: 02 Medium
61.
The demand for good X is estimated to be Qxd = 10, 000 − 4PX + 5PY + 2M +
AX, where PX is the price of X, PY is the price of good Y, M is income, and AX is the
amount of advertising on X. Suppose the present price of good X is $50, PY = $100, M
= $25,000, and AX = 1,000 units. Based on this information, the income elasticity of
good X is:
A. 0.008.
B. 0.082.
C.0.82.
D. 8.2.
Answer: C
Learning Objective: 03-05
Topic: Obtaining Elasticities From Demand Functions
Blooms: Apply
AACSB: Analytical Thinking
Difficulty: 02 Medium
62.
The demand for good X is estimated to be Qxd = 10, 000 − 4PX + 5PY + 2M +
AX, where PX is the price of X, PY is the price of good Y, M is income, and AX is the
amount of advertising on X. Suppose the present price of good X is $50, PY = $100, M
= $25,000, and AX = 1,000 units. Based on this information, good X is:
A. an inferior good.
B.a normal good.
C. a Giffen good.
D. a regular good.
Answer: B
Learning Objective: 03-05
Topic: Income Elasticity
Blooms: Apply
AACSB: Analytical Thinking
Difficulty: 01 Easy
63.
When a demand curve is linear,
A. the elasticity is the same as the slope of the demand curve.
B.demand is elastic at high prices.
C. demand is unitary elastic at low prices.
D. the elasticity is constant at all prices.
Answer: B
Learning Objective: 03-01
Topic: Own Price Elasticity of Demand
Blooms: Understand
AACSB: Knowledge Application
Difficulty: 02 Medium
64.
Which of the following is NOT an important factor that affects the magnitude of
the own price elasticity of a good?
A. Available substitutes
B.Supply of the good
C. Time
D. Expenditure share
Answer: B
Learning Objective: 03-03
Topic: Own Price Elasticity of Demand
Blooms: Remember
AACSB: Knowledge Application
Difficulty: 02 Medium
65.
If there are few close substitutes for a good, demand tends to be relatively:
A. elastic.
B.inelastic.
C. unitary elastic.
D. neither elastic, inelastic, nor unitary elastic.
Answer: B
Learning Objective: 03-03
Topic: Own Price Elasticity of Demand
Blooms: Understand
AACSB: Knowledge Application
Difficulty: 02 Medium
66.
The demand for food (a broad group) is more:
A. elastic than the demand for beef (specific commodity).
B.inelastic than the demand for beef (specific commodity).
C. sensitive to price changes than the demand for beef.
D. responsive to price changes than the demand for beef.
Answer: B
Learning Objective: 03-03
Topic: Own Price Elasticity of Demand
Blooms: Understand
AACSB: Knowledge Application
Difficulty: 02 Medium
67.
The demand for women’s clothing is, in general:
A.more elastic than the demand for clothing.
B. less elastic than the demand for clothing.
C. equally elastic to the demand for clothing.
D. neither more elastic, less elastic, nor equally elastic to the demand for clothing.
Answer: A
Learning Objective: 03-03
Topic: Own Price Elasticity of Demand
Blooms: Understand
AACSB: Knowledge Application
Difficulty: 02 Medium
68.
Demand tends to be:
A. more elastic in the shortterm than in the longterm.
B.more inelastic in the shortterm than in the longterm.
C. equally elastic in the shortterm and in the longterm.
D. None of the preceding statements is correct.
Answer: B
Learning Objective: 03-03
Topic: Own Price Elasticity of Demand
Blooms: Understand
AACSB: Knowledge Application
Difficulty: 02 Medium
69.
If the short-term own price elasticity for transportation is estimated to be −0.6,
then long-term own price elasticity is expected to be:
A. −0.6.
B. greater than −0.6.
C.less than −0.6.
D. neither greater than, less than, nor equal to −0.6.
Answer: C
Learning Objective: 03-03
Topic: Own Price Elasticity of Demand
Blooms: Understand
AACSB: Knowledge Application
Difficulty: 03 Hard
70.
Since most consumers spend very little on salt, a small increase in the price of
salt will:
A. reduce quantity demanded by a large amount.
B.not reduce quantity demanded by very much.
C. not change quantity demanded.
D. increase quantity demanded by a small amount.
Answer: B
Learning Objective: 03-03
Topic: Own Price Elasticity of Demand
Blooms: Understand
AACSB: Knowledge Application
Difficulty: 02 Medium
71.
Suppose the income elasticity for transportation is 1.8. Which of the following is
an INCORRECT statement?
A. Transportation is a normal good.
B. Expenditures on transportation grow more rapidly than income grows.
C.Expenditures on transportation will fall less rapidly than income falls.
D. Whenever the income increases by 1 percent, the expenditure on transportation
increases by 1.8 percent.
Answer: C
Learning Objective: 03-01
Topic: Income Elasticity
Blooms: Understand
AACSB: Knowledge Application
Difficulty: 02 Medium
72.
Non-fed ground beef is an inferior good. In economic booms, grocery managers
should:
A. increase their orders of non-fed ground beef.
B.reduce their orders of non-fed ground beef.
C. not change their orders of non-fed ground beef.
D. neither increase, reduce,nor maintain their current orders for non-fed ground beef.
Answer: B
Learning Objective: 03-01
Topic: Income Elasticity
Blooms: Understand
AACSB: Knowledge Application
Difficulty: 01 Easy
73.
The demand for good X has been estimated to be ln Qxd = 100 − 2.5 ln PX + 4 ln
PY + ln M. The own price elasticity of good X is:
A.−2.5.
B. 4.0.
C. −2.5 percent.
D. 4.0 percent.
Answer: A
Learning Objective: 03-05
Topic: Obtaining Elasticities From Demand Functions
Blooms: Apply
AACSB: Analytical Thinking
Difficulty: 02 Medium
74.
The demand for good X has been estimated to be ln Qxd = 100 − 2.5 ln PX + 4 ln
PY + ln M. The cross-price elasticity of demand between goods X and Y is:
A. −2.5.
B.4.0.
C. −2.5 percent.
D. 4.0 percent.
Answer: B
Learning Objective: 03-05
Topic: Obtaining Elasticities From Demand Functions
Blooms: Apply
AACSB: Analytical Thinking
Difficulty: 02 Medium
75.
The demand for good X has been estimated to be ln Qxd = 100 − 2.5 ln PX + 4 ln
PY + ln M. The income elasticity of good X is:
A. 4.0.
B.1.0.
C. 2.0.
D. −2.5.
Answer: B
Learning Objective: 03-05
Topic: Obtaining Elasticities From Demand Functions
Blooms: Apply
AACSB: Analytical Thinking
Difficulty: 02 Medium
Chapter 05
The Production Process and Costs
Multiple Choice Questions
1.
Suppose the marginal product of labor is 8 and the marginal product of capital is
2. If the wage rate is $4 and the price of capital is $2, then in order to minimize costs
the firm should use:
2.
more capital and less labor.
B.more labor and less capital.
C. three times more capital than labor.
D. none of the answers are correct.
Answer: B
Learning Objective: 05-02
Topic: The Production Function
Blooms: Understand
AACSB: Knowledge Application
Difficulty: 02 Medium
2.
Suppose the production function is Q = min {K, 2L}. How much output is
produced when 4 units of labor and 9 units of capital are employed?
3.
2
B. 4
C.8
D. 9
Answer: C
Learning Objective: 05-01
Topic: The Production Function
Blooms: Understand
AACSB: Knowledge Application
Difficulty: 02 Medium
3.
Suppose the production function is given by Q = 3K + 4L. What is the average
product of capital when 10 units of capital and 10 units of labor are employed?
4.
3
B. 4
C.7
D. 45
Answer: C
Learning Objective: 05-01
Topic: The Production Function
Blooms: Understand
AACSB: Knowledge Application
Difficulty: 01 Easy
4.
Suppose the production function is given by Q = 3K + 4L. What is the marginal
product of capital when 10 units of capital and 10 units of labor are employed?
5.
3
B. 4
C. 11
D. 45
Answer: A
Learning Objective: 05-01
Topic: The Production Function
Blooms: Understand
AACSB: Knowledge Application
Difficulty: 01 Easy
5.
Suppose the production function is given by Q = min{K, L}. How much output is
produced when 10 units of labor and 9 units of capital are employed?
6.
0
B. 4
C.9
D. 13
Answer: C
Learning Objective: 05-01
Topic: The Production Function
Blooms: Understand
AACSB: Knowledge Application
Difficulty: 02 Medium
6.
Suppose the production function is given by Q = min {K, L}. How much output is
produced when 4 units of labor and 9 units of capital are employed?
7.
0
B.4
C. 9
D. 13
Answer: B
Learning Objective: 05-01
Topic: The Production Function
Blooms: Understand
AACSB: Knowledge Application
Difficulty: 01 Easy
7.
Suppose the production function is given by Q = 3K + 4L. What is the marginal
product of capital when 5 units of capital and 10 units of labor are employed?
8.
3
B. 4
C. 11
D. 45
Answer: A
Learning Objective: 05-01
Topic: The Production Function
Blooms: Analyze
AACSB: Analytical Thinking
Difficulty: 01 Easy
8.
Suppose the production function is given by Q = 3K + 4L. What is the average
product of capital when 5 units of capital and 10 units of labor are employed?
9.
3
B. 4
C.11
D. 45
Answer: C
Learning Objective: 05-01
Topic: The Production Function
Blooms: Analyze
AACSB: Analytical Thinking
Difficulty: 03 Hard
9.
For the cost function C(Q) = 100 + 2Q + 3Q2, the marginal cost of producing 2
units of output is:
10.
2.
B. 3.
C. 12.
D.14.
Answer: D
Learning Objective: 05-05
Topic: The Cost Function
Blooms: Analyze
AACSB: Analytical Thinking
Difficulty: 02 Medium
10.
For the cost function C(Q) = 100 + 2Q + 3Q2, the average fixed cost of producing
2 units of output is:
11.
100.
B.50.
C. 3.
D. 2.
Answer: B
Learning Objective: 05-05
Topic: The Cost Function
Blooms: Analyze
AACSB: Analytical Thinking
Difficulty: 02 Medium
11.
For the cost function C(Q) = 100 + 2Q + 3Q2, the total variable cost of producing
2 units of output is:
12.
16.
B. 12.
C. 4.
D. None of the answers are correct.
Answer: A
Learning Objective: 05-05
Topic: The Cost Function
Blooms: Analyze
AACSB: Analytical Thinking
Difficulty: 02 Medium
12.
13.
If a firm’s production function is Leontief and the wage rate goes up, the:
firm must use more labor in order to minimize the cost of producing a given level
of output.
B. firm must use more capital in order to minimize the cost of producing a given level
of output.
C. firm must use less labor in order to minimize the cost of producing a given level of
output.
D.cost minimizing combination of capital and labor does not change.
Answer: D
Learning Objective: 05-01
Topic: The Production Function
Blooms: Understand
AACSB: Knowledge Application
Difficulty: 03 Hard
13.
14.
Which of the following statements is incorrect?
Fixed costs do not vary with output.
B. Sunk costs are those costs that are forever lost after they have been paid.
C.Fixed costs are always greater than sunk costs.
D. Fixed costs could be positive when sunk costs are zero.
Answer: C
Learning Objective: 05-04
Topic: The Cost Function
Blooms: Analyze
AACSB: Analytical Thinking
Difficulty: 03 Hard
14.
You are an efficiency expert hired by a manufacturing firm that uses K and L as
inputs. The firm produces and sells a given output. If w = $40, r = $100, MP L = 20,
and MPK = 40 the firm:
15.
is cost minimizing.
B. should use less L and more K to cost minimize.
C.should use more L and less K to cost minimize.
D. is profit maximizing but not cost minimizing.
Answer: C
Learning Objective: 05-01
Topic: The Production Function
Blooms: Analyze
AACSB: Analytical Thinking
Difficulty: 02 Medium
15.
16.
The production function Q = L.5K.5 is called:
Cobb Douglas.
B. Leontief.
C. linear.
D. None of the answers are correct.
Answer: A
Learning Objective: 05-01
Topic: The Production Function
Blooms: Remember
AACSB: Knowledge Application
Difficulty: 01 Easy
16.
The production function for a competitive firm is Q = K.5L.5. The firm sells its
output at a price of $10, and can hire labor at a wage of $5. Capital is fixed at 25
units. The profit-maximizing quantity of labor is:
17.
1.
B. 2.
C. 10.
D.None of the answers are correct.
Answer: D
Learning Objective: 05-02
Topic: The Production Function
Blooms: Analyze
AACSB: Analytical Thinking
Difficulty: 03 Hard
17.
You are an efficiency expert hired by a manufacturing firm that uses K and L as
inputs. The firm produces and sells a given output. If w = $40, r = $100, MP L = 4, and
MPK = 40 the firm:
18.
is cost minimizing.
B. should use less L and more K to cost minimize.
C.should use more K and less L to cost minimize.
D. is profit maximizing but not cost minimizing.
Answer: C
Learning Objective: 05-01
Topic: The Production Function
Blooms: Analyze
AACSB: Analytical Thinking
Difficulty: 03 Hard
18.
If the production function is Q = K.5L.5 and capital is fixed at 1 unit, then the
average product of labor when L = 25 is:
19.
2/5.
B.1/5.
C. 10.
D. None of the answers are correct.
Answer: B
Learning Objective: 05-01
Topic: The Production Function
Blooms: Understand
AACSB: Knowledge Application
Difficulty: 02 Medium
19.
For a cost function C = 100 + 10Q + Q2, the marginal cost of producing 10 units
of output is:
20.
10.
B. 200.
C. 210.
D.None of the answers are correct.
Answer: D
Learning Objective: 05-05
Topic: The Cost Function
Blooms: Analyze
AACSB: Analytical Thinking
Difficulty: 02 Medium
20.
For a cost function C = 100 + 10Q + Q2, the average variable cost of producing
20 units of output is:
21.
10.
B. 20.
C.30.
D. None of the answers are correct.
Answer: C
Learning Objective: 05-05
Topic: The Cost Function
Blooms: Analyze
AACSB: Analytical Thinking
Difficulty: 02 Medium
21.
For a cost function C = 100 + 10Q + Q2, the average fixed cost of producing 10
units of output is:
22.
10.
B. 5.
C. 1.
D. None of the answers are correct.
Answer: A
Learning Objective: 05-05
Topic: The Cost Function
Blooms: Analyze
AACSB: Analytical Thinking
Difficulty: 02 Medium
22.
Which of the following conditions is true when a producer minimizes the cost of
producing a given level of output?
23.
The MRTS is equal to the ratio of input prices.
B. The marginal product per dollar spent on all inputs is equal.
C. The marginal products of all inputs are equal.
D.The MRTS is equal to the ratio of input prices, and the marginal product per dollar
spent on all inputs is equal.
Answer: D
Learning Objective: 05-02
Topic: The Production Function
Blooms: Understand
AACSB: Knowledge Application
Difficulty: 02 Medium
23.
If the production function is Q = KL and capital is fixed at 1 unit, then the
marginal product of labor when L = 25 is:
24.
¼.
B. 1/10.
C. 15.
D.None of the answers are correct.
Answer: D
Learning Objective: 05-01
Topic: The Production Function
Blooms: Analyze
AACSB: Analytical Thinking
Difficulty: 03 Hard
24.
The production function for a competitive firm is Q = K.5L.5. The firm sells its
output at a price of $10, and can hire labor at a wage of $5. Capital is fixed at one
unit. The profit-maximizing quantity of labor is:
25.
2/5.
B.1.
C. 10.
D. None of the answers are correct.
Answer: B
Learning Objective: 05-02
Topic: The Production Function
Blooms: Analyze
AACSB: Analytical Thinking
Difficulty: 03 Hard
25.
The production function for a competitive firm is Q = K.5L.5. The firm sells its
output at a price of $10, and can hire labor at a wage of $5. Capital is fixed at one
unit and costs $2. The maximum profits are:
26.
3.
B. 10.
C. 15.
D. None of the answers are correct.
Answer: A
Learning Objective: 05-02
Topic: The Production Function
Blooms: Analyze
AACSB: Analytical Thinking
Difficulty: 03 Hard
26.
The feasible means of converting raw inputs such as steel, labor, and machinery
into an output are summarized by:
27.
land.
B. production.
C. capital.
D.technology.
Answer: D
Learning Objective: 05-01
Topic: The Production Function
Blooms: Understand
AACSB: Knowledge Application
Difficulty: 02 Medium
27.
The recipe that defines the maximum amount of output that can be produced
with K units of capital and L units of labor is the:
28.
production function.
B. technological constraint.
C. research and development schedule.
D. total product.
Answer: A
Learning Objective: 05-01
Topic: The Production Function
Blooms: Remember
AACSB: Knowledge Application
Difficulty: 01 Easy
28.
The creation of a new product is referred to as:
29.
process innovation.
B. independent research and development.
C.product innovation.
D. patent disclosure.
Answer: C
Learning Objective: 05-01
Topic: The Production Function
Blooms: Remember
AACSB: Knowledge Application
Difficulty: 01 Easy
29.
Which of the following is NOT a means of acquiring product and process
innovations?
30.
Independent research and development
B.Mass production of the existing product
C. Reverse engineering
D. Hiring employees of innovating firms
Answer: B
Learning Objective: 05-01
Topic: The Production Function
Blooms: Remember
AACSB: Knowledge Application
Difficulty: 01 Easy
30.
31.
Inputs a manager may adjust in order to alter production are:
all factors.
B.variable factors.
C. long-run factors.
D. fixed factors.
Answer: B
Learning Objective: 05-01
Topic: The Production Function
Blooms: Remember
AACSB: Knowledge Application
Difficulty: 01 Easy
31.
What is the average product of labor, given that the level of labor equals 10, total
output equals 1200, and the marginal product of labor equals 200?
32.
20
B.120
C. 6
D. 2,000
Answer: B
Learning Objective: 05-01
Topic: The Production Function
Blooms: Understand
AACSB: Knowledge Application
Difficulty: 01 Easy
32.
33.
The change in total output attributable to the last unit of an input is the:
total product.
B. average product.
C.marginal product.
D. marginal return.
Answer: C
Learning Objective: 05-01
Topic: The Production Function
Blooms: Remember
AACSB: Knowledge Application
Difficulty: 01 Easy
33.
If the last unit of input increases total product, we know that the marginal
product is:
34.
positive.
B. negative.
C. zero.
D. indeterminate.
Answer: A
Learning Objective: 05-01
Topic: The Production Function
Blooms: Understand
AACSB: Knowledge Application
Difficulty: 02 Medium
34.
35.
Total product begins to fall when:
marginal product is maximized.
B. average product is below zero.
C. average product is negative.
D.marginal product is zero.
Answer: D
Learning Objective: 05-01
Topic: The Production Function
Blooms: Understand
AACSB: Knowledge Application
Difficulty: 02 Medium
35.
What is the value marginal product of labor if: P = $10, MPL = $25, and APL = 40?
36.
$10,000
B. $1,000
C. $400
D.$250
Answer: D
Learning Objective: 05-01
Topic: The Production Function
Blooms: Understand
AACSB: Knowledge Application
Difficulty: 02 Medium
36.
37.
It is profitable to hire units of labor as long as the value of marginal product:
is less than wage.
B. exceeds average product.
C. equals price.
D.exceeds wage.
Answer: D
Learning Objective: 05-01
Topic: The Production Function
Blooms: Understand
AACSB: Knowledge Application
Difficulty: 02 Medium
37.
Given the following table, how many workers should be hired to maximize
profits?
1.
Labor
Marginal
Product Labor
VM
1
8
$32
2
32
$12
3
16
$64
4
-1
$-4
5
-12
$-4
1
B.2
C. 3
D. 4
Answer: B
Learning Objective: 05-02
Topic: The Production Function
Blooms: Analyze
AACSB: Analytical Thinking
Difficulty: 02 Medium
38.
39.
Firm managers should use inputs at levels where the:
Marginal benefit equals marginal cost.
B. Price equals marginal product.
C. Value marginal product of labor equals wage.
D.Marginal benefit equals marginal cost and value marginal product of labor equals
wage.
Answer: D
Learning Objective: 05-01
Topic: The Production Function
Blooms: Understand
AACSB: Knowledge Application
Difficulty: 02 Medium
39.
Given the linear production function Q = 10K + 5L, if Q = 10,000 and K = 500,
how much labor is utilized?
40.
600 units
B. 800 units
C. 500 units
D.1,000 units
Answer: D
Learning Objective: 05-01
Topic: The Production Function
Blooms: Understand
AACSB: Knowledge Application
Difficulty: 02 Medium
40.
Given the Leontief production function Q = min{5.5K, 6.7L}, how much output is
produced when K = 40 and L = 35?
41.
220
B. 234.5
C. 192.5
D. 268
Answer: A
Learning Objective: 05-01
Topic: The Production Function
Blooms: Understand
AACSB: Knowledge Application
Difficulty: 02 Medium
41.
Suppose the production function is given by Q = K1/2L1/2, and that Q = 30 and K =
25. How much labor is employed by the firm?
42.
49
B. 6
C.36
D. 25
Answer: C
Learning Objective: 05-01
Topic: The Production Function
Blooms: Understand
AACSB: Knowledge Application
Difficulty: 02 Medium
42.
Given the production function Q = min {4K, 3L}, what is the average product of
capital when 8 units of capital and 16 units of labor are used?
43.
16
B. 2
C.4
D. 32
Answer: C
Learning Objective: 05-01
Topic: The Production Function
Blooms: Analyze
AACSB: Analytical Thinking
Difficulty: 02 Medium
43.
For the production function Q = 5.2K + 3.8L, if K = 16 and L = 12, we know that
MPK is:
44.
16.
B.5.2.
C. 3.8.
D. 12.
Answer: B
Learning Objective: 05-01
Topic: The Production Function
Blooms: Analyze
AACSB: Analytical Thinking
Difficulty: 02 Medium
44.
45.
The combinations of inputs that produce a given level of output are depicted by:
indifference curves.
B. budget lines.
C. isocost curves.
D.isoquants.
Answer: D
Learning Objective: 05-01
Topic: The Production Function
Blooms: Remember
AACSB: Knowledge Application
Difficulty: 01 Easy
45.
46.
Isoquants are normally drawn with a convex shape because:
inputs are perfectly substitutable.
B. inputs are perfectly complementary.
C.inputs are not perfectly substitutable.
D. inputs are not perfectly complementary.
Answer: C
Learning Objective: 05-01
Topic: The Production Function
Blooms: Remember
AACSB: Knowledge Application
Difficulty: 01 Easy
46.
47.
The absolute value of the slope of the isoquant is the:
marginal rate of technical substitution.
B. marginal product of capital.
C. marginal rate of substitution.
D. value marginal product of labor.
Answer: A
Learning Objective: 05-01
Topic: The Production Function
Blooms: Remember
AACSB: Knowledge Application
Difficulty: 01 Easy
47.
48.
is:
The production function is Q = K.6 L.4. The marginal rate of technical substitution
2/3 K-1 L.
B. K-1 L-1.
C.2/3 K L-1.
D. K.4 L-.6.
Answer: C
Learning Objective: 05-01
Topic: The Production Function
Blooms: Apply
AACSB: Analytical Thinking
Difficulty: 03 Hard
48.
The Leontief production function implies:
49.
straight-line isoquants.
B. convex-shaped isoquants.
C. A positive MRTS.
D.L-shaped isoquants.
Answer: D
Learning Objective: 05-01
Topic: The Production Function
Blooms: Understand
AACSB: Knowledge Application
Difficulty: 02 Medium
49.
In order for isoquants to have a diminishing marginal rate of substitution, they
must be:
50.
L-shaped.
B. straight lines.
C. vertical.
D.None of the preceding statements is correct.
Answer: D
Learning Objective: 05-01
Topic: The Production Function
Blooms: Remember
AACSB: Knowledge Application
Difficulty: 01 Easy
50.
51.
Changes in the price of an input cause:
isoquants to become steeper.
B.slope changes in the isocost line.
C. parallel shifts of the isocost lines.
D. changes in both the isoquants and isocosts of equal magnitude.
Answer: B
Learning Objective: 05-01
Topic: The Production Function
Blooms: Remember
AACSB: Knowledge Application
Difficulty: 01 Easy
51.
Which of the following sets of economic data is minimizing the cost of producing
a given level of output?
52.
MPL = 20, MPK = 40, w = $16, r = $32.
B. MPL = 20, MPK = 40, w = $32, r = $16.
C. MPL = 40, MPK = 20, w = $16, r = $32.
D. MPL = 40, MPK = 40, w = $16, r = $32.
Answer: A
Learning Objective: 05-02
Topic: The Production Function
Blooms: Analyze
AACSB: Analytical Thinking
Difficulty: 03 Hard
52.
In order to minimize the cost of producing a given level of output, a firm manager
should use more inputs when:
53.
that input’s price rises.
B.that input’s price falls.
C. that input’s price remains the same.
D. the prices of other inputs fall.
Answer: B
Learning Objective: 05-01
Topic: The Production Function
Blooms: Understand
AACSB: Knowledge Application
Difficulty: 02 Medium
53.
54.
Fixed costs exist only in:
the long run.
B. capital-intensive markets.
C.the short run.
D. labor-intensive markets.
Answer: C
Learning Objective: 05-06
Topic: The Cost Function
Blooms: Remember
AACSB: Knowledge Application
Difficulty: 01 Easy
54.
55.
Costs that change as output changes are:
variable costs.
B. fixed costs.
C. sunk costs.
D. None of the preceding statements is correct.
Answer: A
Learning Objective: 05-04
Topic: The Cost Function
Blooms: Remember
AACSB: Knowledge Application
Difficulty: 01 Easy
55.
Costs that are forever lost after they have been paid are:
56.
production costs.
B. fixed costs.
C.sunk costs.
D. variable costs.
Answer: C
Learning Objective: 05-04
Topic: The Cost Function
Blooms: Remember
AACSB: Knowledge Application
Difficulty: 01 Easy
56.
Suppose you are a manager of a factory. You purchase five (5) new machines at
one million dollars each. If you can resell two of the machines for $500,000 and three
of the machines for $200,000, what are the sunk costs of purchasing the machines?
57.
$5 million
B. $500,000
C.$3.4 million
D. $1.6 million
Answer: C
Learning Objective: 05-04
Topic: The Cost Function
Blooms: Understand
AACSB: Knowledge Application
Difficulty: 02 Medium
57.
According to the table below, what is the total cost of producing 125 units of
output?
Q
FC
0
1,000
20
1,000
50
1,000
90
1,000
125
1,000
145
1,000
160
1,000
1.
1,000
B. 2,050
C. 1,400
D.2,400
Answer: D
Learning Objective: 05-03
Topic: The Cost Function
Blooms: Understand
AACSB: Knowledge Application
Difficulty: 02 Medium
58.
According to the table below, what is the average variable cost of producing 50
units of output?
Q
FC
1.
0
1,000
20
1,000
50
1,000
90
1,000
125
1,000
145
1,000
160
1,000
21
B. 34
C.14
D. 20
Answer: C
Learning Objective: 05-05
Topic: The Cost Function
Blooms: Understand
AACSB: Knowledge Application
Difficulty: 02 Medium
59.
According to the table below, what is the average total cost of producing 160
units of output?
Q
FC
0
1,000
20
1,000
50
1,000
90
1,000
125
1,000
145
1,000
160
1,000
12.
12.98
B. 16.31
C. 22.04
D.19.38
Answer: D
Learning Objective: 05-05
Topic: The Cost Function
Blooms: Understand
AACSB: Knowledge Application
Difficulty: 02 Medium
60.
According to the table below, what is the marginal cost of producing 90 units of
output?
Q
FC
0
1,000
20
1,000
50
1,000
90
1,000
125
1,000
145
1,000
160
1,000
5.
5.32
B.8.75
C. 11.67
D. 21.00
Answer: B
Learning Objective: 05-05
Topic: The Cost Function
Blooms: Understand
AACSB: Knowledge Application
Difficulty: 02 Medium
61.
According to the table below, at what level of output is marginal cost minimized?
Q
FC
0
1,000
20
1,000
50
1,000
1.
90
1,000
125
1,000
145
1,000
160
1,000
90
B. 50
C. 125
D. 160
Answer: A
Learning Objective: 05-02
Topic: The Cost Function
Blooms: Understand
AACSB: Knowledge Application
Difficulty: 02 Medium
62.
Which curve(s) does the marginal cost curve intersect at the (their) minimum
point?
63.
Average total cost curve
B. Average fixed cost curve
C. Average variable cost curve
D.Average total cost curve and average variable cost curve
Answer: D
Learning Objective: 05-04
Topic: The Cost Function
Blooms: Understand
AACSB: Knowledge Application
Difficulty: 02 Medium
63.
Given a cost function C(Q) = 200 + 14Q + 8Q2, what is the marginal cost
function?
64.
14 + 16Q
B. 14Q + 8Q2
C. 200 + 8Q2
D. 14 + 16Q2
Answer: A
Learning Objective: 05-05
Topic: The Cost Function
Blooms: Apply
AACSB: Analytical Thinking
Difficulty: 02 Medium
64.
What is implied when the total cost of producing Q1 and Q2 together is less than
the total cost of producing Q1 and Q2 separately?
65.
Economies of scale
B. Diminishing average fixed costs
C. Cost complementarity
D.Economies of scope
Answer: D
Learning Objective: 05-07
Topic: Multiple-Output Cost Functions
Blooms: Understand
AACSB: Knowledge Application
Difficulty: 02 Medium
65.
For the cost function C(Q) = 1000 + 14Q + 9Q2 + 3Q3, what is the marginal cost
of producing the fourth unit of output?
66.
$42
B. $295
C.$230
D. $116
Answer: C
Learning Objective: 05-05
Topic: The Cost Function
Blooms: Apply
AACSB: Analytical Thinking
Difficulty: 03 Hard
66.
For the cost function C(Q) = 200 + 3Q + 8Q2 + 4Q3, what is the average fixed
cost of producing six units of output?
67.
18.31
B. 212.61
C. 42.12
D.33.33
Answer: D
Learning Objective: 05-05
Topic: The Cost Function
Blooms: Apply
AACSB: Analytical Thinking
Difficulty: 02 Medium
67.
68.
Which of the following cost functions exhibits cost complementarity?
−4Q1Q2 + 8Q1.
B. −4Q2 + 8Q1.
C. 6Q1Q2− Q1.
D. 4Q2Q1 + 8Q1.
Answer: A
Learning Objective: 05-07
Topic: Multiple-Output Cost Functions
Blooms: Analyze
AACSB: Analytical Thinking
Difficulty: 03 Hard
68.
For the multiproduct cost function C(Q1,Q2) = 100 + 2Q1Q2 + 4Q12, what is the
marginal cost function for good one?
69.
MC1 = 2Q2 + 4Q1− Q22.
B.MC1 = 2Q2 + 8Q1.
C. MC1 = 100 + 2Q1Q2 + 4Q12.
D. MC1 = 4Q12− 2 Q22.
Answer: B
Learning Objective: 05-05
Topic: Multiple-Output Cost Functions
Blooms: Apply
AACSB: Analytical Thinking
Difficulty: 02 Medium
69.
Which of the following cost functions exhibits economies of scope when three (3)
units of good one and two (2) units of good two are produced?
70.
C = 50 − 5Q1Q2 + 0.5Q12 + Q22.
71.
C = 10 + 4Q1Q2 + Q12 + Q22.
72.
C = 15 + 5Q1Q2 + 2Q1 + 4Q2.
73.
C = 5 + Q1Q2 + Q12Q22.
Answer: A
Learning Objective: 05-07
Topic: Multiple-Output Cost Functions
Blooms: Analyze
AACSB: Analytical Thinking
Difficulty: 02 Medium
70.
The minimum average cost of producing alternate levels of output, allowing for
optimal selection of all variables of production is defined by the:
71.
long-run average total cost curve.
B. short-run average fixed cost curve.
C. short-run marginal cost curve.
D. long-run marginal cost curve.
Answer: A
Learning Objective: 05-06
Topic: The Cost Function
Blooms: Remember
AACSB: Knowledge Application
Difficulty: 01 Easy
71.
72.
A production function:
defines the minimum amount of output that can be produced with inputs such as
capital and labor.
B. defines the average amount of output that can be produced with inputs such as
capital and labor.
C.represents the technology available for turning inputs into output.
D. is determined only by the expenditures on R&D.
Answer: C
Learning Objective: 05-01
Topic: The Production Function
Blooms: Understand
AACSB: Knowledge Application
Difficulty: 02 Medium