question

An individual's value for a good or service is the

answer

The amount of money he or she is willing to pay for it

question

The biggest advantage of capitalism is

answer

Creates wealth by letting a person follow his or her own self-interest

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Wealth creating transactions are more likely to occur

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With private property rights, With contract enforcement

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Government regulation provides incentives to.....

answer

provides incentives to conduct business in an illegal black market

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An example of price floor is

answer

Minimum wages

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A price ceiling is the equivalent of...

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Is the equivalent of an implicit tax on producers and an implicit subsidy to consumers.

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Taxes:

answer

Impede the movement of assets to higher valued uses Reduce incentives to work Decreases the number of wealth creating transactions

question

A consumer values a car at $30,000 and a producer values the same car at $20,000. If the transaction is completed at $24,000, the transaction will generate:

answer

$6,000 worth of buyer surplus and $4,000 of seller surplus

question

A consumer values a car at $525,000 and a producer values the same car at $485,000. If sales tax is 8% and is levied on the seller, then the sellers bottom line price is

answer

$523,800

question

Efficiency implies opportunity when?

answer

never

question

A business owner makes 1000 items a day. Each day he or she contributes 8 hours to produce those items. If hired, elsewhere he/she could have earned $250 and hour. The item sells for $15 each. Production does not stop during weekends. If the explicit costs total $150,000 for 30 days, the firm's accounting profit for the month equals:

answer

$300,000

question

A business owner makes 1000 items a day. Each day he or she contributes 8 hours to produce those items. If hired, elsewhere he/she could have earned $250 an hour. The item sells for $15 each. Production does not stop during weekends. If the explicit costs total $150,000 for 30 days, the firm's accounting profit for the month equals:

answer

$240,000

question

If a firm is earning negative economic profits, it implies

answer

More information is needed to conclude about accounting profits

question

Opportunity costs arise due to

answer

Resource scarcity

question

After graduating from college, Jim had three choices, listed in order of preference: (1) Move to Florida from Philadelphia, (2) work in a car dealership in Philadelphia, or (3) play soccer for a minor league in Philadelphia. His opportunity cost of moving to Florida includes

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The income he could have earned at the car dealership

question

Economic Value Added helps firms to avoid the hidden-cost fallacy

answer

by taking all capital costs into account including the cost of equity

question

The fixed-cost fallacy occurs when

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A firm considers irrelevant costs A firm considers overhead or depreciation costs to make short-run decisions

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Mr. D's Barbeque of Pickwick, TN produces 10,000 dry-rubbed rib slabs per year. Annually Mr. D's fixed costs are $50,000. The average variable cost per slab is a constant $2. The average total cost per slab then is

answer

$7

question

All the following are examples of variable costs, except

answer

Accounting fees

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The U.S. Government bought 112,000 acres of land in southeastern Colorado in 1968 for $17,500,000. The cost of using this land today exclusively for the reintroduction of the black-tailed prairie dog

answer

is equal to the market value of the land

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When economists speak of "marginal", they mean

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Incremental

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Managers undertake an investment only if

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Marginal benefits are greater than marginal costs

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A firm produces 500 units per week. It hires 20 full-time workers (40 hours/week) at an hourly wage of $15. Raw materials are ordered weekly and they costs $10 for every unit produced. The weekly cost of the rent payment for the factory is $2,250. How do the overall costs breakdown?

answer

Total variable cost is $17,000; total fixed cost is $2,250; total cost is $19,250

question

Total costs increase from $1500 to $1800 when a firm increases output from 40 to 50 units. Which of the following are true?

answer

FC = $300

question

A manager of a clothing firm is deciding whether to add another factory in addition to one already in production. The manager would compare

answer

The incremental benefit expected from the second factory to the cost of the second factory

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A firm is thinking of hiring an additional worker to their organization who they believe can increase total productivity by 100 units a week. The cost of hiring him or her is $1500 per week. If the price of each unit is $12,

answer

The firm should not hire the worker since MB;MC

question

A retailer has to pay $9 per hour to hire 13 workers. If the retailer only needs to hire twelve workers, a wage rate of $7 per hour is sufficient. What is the marginal cost of the 13th worker?

answer

$33

question

If a firm's average cost is rising then

answer

Marginal cost is greater than average cost

question

After the first week of his MBA Managerial Economics class, one of your pharmaceutical sales representatives accuses you of committing the sunk cost fallacy by refusing to allow him to reduce price to make what he considers to be a really tough sale. Which of the following suggest the sales representative may be right?

answer

Most of the costs of drug development are sunk, not fixed

question

A company is producing 15,000 units. At this output level, marginal revenue is $22 and the marginal cost is $18. The firm sells each unit for $48 and average total cost is $40. What can we conclude from this information?

answer

The company needs to increase production

question

What will increase the break-even quantity?

answer

A decrease in the price level

question

The higher the interest rates

answer

the more value individuals place on CURRENT dollars

question

Assume a firm has the following cost and revenue characteristics at its current level of output: price=$10.00, average variable cost=$8.00 and average fixed cost =$4.00. This firm is

answer

incurring a loss per unit of $2.00, but should continue to operate in the short run

question

Sarah's Machinery Company is deciding to dump their current technology A for a new technology B with small fixed costs but big marginal costs. The current technology has fixed costs of $500 and marginal costs of $50 whereas the new technology has fixed costs of $250 and marginal costs of $100At what quantity is Sarah Machinery indifferent between two technologies?

answer

5

question

What is the net present value of a project that requires a $100 investment today and returns $50 at the end of the first year and $80 at the end of the second year? Assume a discount rate of 10%.

answer

$11.57

question

You expect to sell 500 cell phones a month, which have a marginal cost of $50. If your fixed costs are $5,000 per month, what is the break-even price?

answer

$60

question

You are considering opening a new business to sell dartboards. You estimate that your manufacturing equipment will cost $100,000, facility updates will cost $250,000, and on average it will cost you $80 (in labor and material) to produce a board. If you can sell dart boards for $100 each, what is your breakeven quantity?

answer

17,500

question

Which of the following is NOT true if a firm shuts down and produces zero output in the short run?

answer

Fixed costs will be less than zero

question

What are some of the solutions for a hold-up problem?

answer

Mergers Contracts Exchange of 'hostages'

question

Which of the following is classified as a sunk cost?

answer

Research costs to determine the implementation of a technology

question

Jim has estimated elasticity of demand for gasoline to be -0.7 in the short-run and -1.8 in the long run. A decrease in taxes on gasoline would:

answer

lower tax revenue in the short run but raise tax revenue in the long run.

question

Which one of the following is true: a. Nike has a more inelastic demand curve than shoes b. The demand curve for gas is more elastic in the short- run than in the long-run c. Cigarettes has a more elastic demands than televisions d. Salt has a more inelastic demand than meat

answer

Salt has a more inelastic demand than meat

question

Jim recently graduated from college. His income increased tremendously from earning $5000 a year to $60,000 a year. Jim decided that instead of renting he will buy a house. This implies that

answer

Houses are normal goods for Jim

question

Which of the following goods have a negative income elasticity of demand? a. Cars b. Items from Dollar stores c. Shoes d. Bread

answer

b. Items from Dollar stores

question

An economist estimated the cross-price elasticity for peanut butter and jelly to be +1.5. Based on this information, we know the goods are

answer

substitutes

question

Christine has purchased five bananas and is considering the purchase of a sixth. It is likely she will purchase the sixth banana if

answer

the marginal benefit of the sixth banana exceeds its price

question

Buyers consider Marlboro cigarettes and Budweiser beer to be complements. If Marlboro just increased its prices, what would you expect to occur in the Budweiser market?

answer

Demand would fall, and Budweiser would reduce price.

question

Which of the following is the reason for the existence of consumer surplus?

answer

Some consumers are willing to pay more than the market price

question

A bakery currently sells chocolate chip cookies at a price of $16 per dozen. The marginal cost per dozen is $8. The cookies are becoming more popular with customers and so the bakery owner is considering raising the price to $20/dozen. What percentage of customers must be maintained to ensure that the price increase is profitable?

answer

66.6%

question

A firm adopts a technology that allows you to increase your output by 15%. If the elasticity of demand in the US is -3, how should you adjust your price if you want to sell all of your output?

answer

5% lower

question

Last week, Samsung dropped the price of one of its phones (thru all carriers) from $375 to $350 in the KC area. In response, customer purchases rose from 12,000 phones to 15,500 phones. During the same period, iPhone prices remained the same, but purchases of iPhones dropped from 8,500 to 6,800. The price elasticity of demand for Samsung phones is:

answer

-3.69

question

Based on the numbers above, the cross price elasticity between iPhones and Samsung phones is:

answer

3.22 indicating they are substitutes

question

Microsoft found that instead of producing a DVD player and a gaming system separate, it is cheaper to incorporate DVD playing capabilities in their new version of the gaming system. Microsoft is taking advantage of

answer

Economies of Scope

question

As a golf club production company produces more clubs, the average total cost of each club produced decreases. This is because:

answer

There are economies of scale

question

Average costs curves initially fall

answer

Due to declining average fixed costs

question

What might you reasonably expect of an industry in which firms tend to have economies of scale?

answer

A small number of firms

question

Following are the costs to produce Product A, Product B, and Products A and B together. Which of the following exhibits economies of scope? a. 50, 75, 120 b. 50, 75, 125 c. 50, 75, 130 d. All of the above

answer

a. 50, 75, 120

question

Once marginal cost rises above average cost,

answer

Average costs will increase

question

Changes in prices of a good causes

answer

Movement along the demand curve Movement along the supply curve

question

If the market for a certain product experiences an increase in supply and a decrease in demand, which of the following results is expected to occur?

answer

Equilibrium price would fall, and the equilibrium quantity could rise or fall

question

When demand for a product falls, which of the following events would you NOT necessarily expect to occur? a. A decrease in the quantity of the product supplied. b. A decrease in its price. c. A decrease in the supply of the product. d. A decrease in the quantity bought and sold

answer

A decrease in the supply of the product.

question

Suppose there are nine sellers and nine buyers, each willing to buy or sell one unit of a good, with values {$10, $9, $8, $7, $6, $5, $4, $3, $2}. Assuming no transactions costs and a competitive market, what is the equilibrium price in this market?

answer

$6

question

If the government imposes a price floor at $9 (i.e., price must be $9 or higher) in the above market,how many goods will be traded?

answer

Two

question

Suppose there is a single market maker in this market. What is the optimal bid-ask spread?

answer

$4 bid; $8 ask

question

Now suppose that competition among several market makers forces the spread down to$2.Howmany goods are traded?

answer

Four

question

Holding other factors constant, a decrease in the tax for producing coffee causes

answer

The supply curve to shift to the right, causing the prices of coffee to fall

question

Holding other factors constant, a decrease in the tax for producing coffee causes

answer

The supply curve to shift to the right, causing the prices of coffee to fall

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