Exam 1

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Question 1 (1.5 points)

With elastic demand, a price increase will:

decrease marginal revenue.
decrease total revenue.
increase total revenue.
decrease marginal revenue and total revenue.

Question 2 (1.5 points)

Value maximization is broader than profit maximization because it considers:

total revenues.
total costs.
real-world constraints.
interest rates.

Question 3 (1.5 points)

Business profit is:

the residual of sales revenue minus the explicit accounting costs of doing business.
a normal rate of return.
economic profit.
the return on stockholders' equity.

Question 4 (1.5 points)

If the market price is higher than the equilibrium price a:

shortage exists and the equilibrium price will rise until it equals the market price and the shortage is eliminated.
surplus exists and the market price will fall until it equals the equilibrium price and the surplus is eliminated.
surplus exists and the equilibrium price will rise until it equals the market price and the surplus is eliminated.
shortage exists and the market price will fall until it equals the equilibrium price and the shortage is eliminated.

Question 5 (1.5 points)

The supply curve expresses the relation between the aggregate quantity supplied and:

price, holding constant the effects of all other variables.
aggregate quantity demanded, holding constant the effects of all other variables.
profit, holding constant the effects of all other variables.
each factor that affects supply.

Question 6 (1.5 points)

Total revenue is maximized at the point where:

marginal revenue equals zero.
marginal cost equals zero.
marginal revenue equals marginal cost.
marginal profit equals zero.

Question 7 (1.5 points)

The point advertising elasticity reveals the:

percentage change in demand following a change in advertising.
percentage change in the quantity demanded following a change in advertising.
percentage change in advertising following a change in the quantity demanded.
percentage change in advertising following a change in demand.

Question 8 (1.5 points)

Goods for which eI > 1 are often referred to as:

cyclical normal goods.
noncyclical normal goods.
being relatively unaffected by changing income.
inferior goods.

Question 9 (1.5 points)

Arc elasticity:

gives accurate estimates of the effect on Y of very small (less than 5%) changes in X.
varies at different points along a function.
measures the effect on a dependent variable Y of a marginal change in an independent variable X.
measures the effect of change in a dependent variable Y of more than a marginal amount on an independent variable X.

Question 10 (1.5 points)

When the product demand curve is Q = 140 - 10P, and price is decreased from P1 = $10 to P2 = $9, the arc price elasticity of demand is:

-0.1
-3
-4
-10

Question 11 (1.5 points)

Unfriendly takeovers have the greatest potential to enhance the market price of companies whose managers:

maximize short-run profits.
maximize the value of the firm.
satisfice.
maximize long-run profits.

Question 12 (1.5 points)

With elastic demand:

a given percentage increase in price causes quantity to decrease by a larger percentage.
|eP| > 1 and the relative change in quantity is smaller than the relative change in price.
a price increase raises total revenue
A price decrease causes total revenues to fall.

Question 13 (1.5 points)

The quantity of product X supplied can be expected to rise with a fall in:

prices of competing products.
price of X.
energy-saving technical change.
input prices.

Question 14 (1.5 points)

A direct relation exists between the price of one product and the demand for:

complements.
substitutes.
normal goods.
inferior goods.

Question 15 (1.5 points)

Economic profit equals:

normal profits plus opportunity costs.
business profits minus implicit costs.
business profits plus implicit costs.
normal profits minus opportunity costs.

Question 16 (1.5 points)

Oil refiners can vary the mix of gasoline versus diesel fuel derived from a barrel of oil. If the price of diesel fuel increases relative to the price of gasoline:

supply of gasoline will shift to the right.
supply of gasoline will shift to the left.
supply of both diesel fuel and gasoline will shift, but in opposite directions.
supply of diesel fuel will shift to the right.

Question 17 (1.5 points)

If P = $1,000 - $4Q:

MR = $1,000 - $4Q
MR = $1,000 - $8Q
MR = $1,000Q - $4
MR = $250 - $0.25P

Question 18 (1.5 points)

With inelastic demand, a price increase produces:

a less than proportionate decline in quantity demanded.
lower total revenue.
lower marginal revenue.
lower marginal and total revenue.

Question 19 (1.5 points)

If demand and supply both increase, the:

equilibrium price will decrease while the quantity produced and sold could increase, decrease or remain constant.
quantity produced and sold will increase while the equilibrium price could increase, decrease, or remain constant.
quantity produced and sold will decrease while the equilibrium market price could increase, decrease, or remain constant.
equilibrium price will increase while the quantity produced and sold could increase, decrease, or remain constant.

Question 20 (1.5 points)

If average profit increases with output marginal profit must be:

decreasing.
greater than average profit.
less than average profit.
increasing.

Question 21 (1.5 points)

The optimal output decision:

minimizes the marginal cost of production.
minimizes production costs.
is most consistent with managerial objectives.
minimizes the average cost of production.

Question 22 (1.5 points)

The demand for a product tends to be inelastic if:

it is expensive.
a small proportion of consumer's income is spent on the good.
consumers are quick to respond to price changes.
it has many substitutes.

Question 23 (1.5 points)

Holding all else equal, an unnecessary increase in federally-mandated auto safety requirements leads to a decrease in:

auto demand.
the quantity of autos supplied.
auto supply.
the quantity of autos demanded.

Question 24 (1.5 points)

If the income elasticity of demand for a good is greater than one, the good is:

a noncyclical normal good.
a cyclical normal good.
neither a normal nor an inferior good.
an inferior good.

Question 25 (1.5 points)

Direct regulation of business has the potential to yield economic benefits to society when:

barriers to entry are absent.
there are no good substitutes for a product.
many firms serve a given market.
smaller firms are most efficient.

Question 26 (1.5 points)

Industry profits can be increased by constraints on:

natural resources.
imports.
skilled labor.
worker health and safety.

Question 27 (1.5 points)

Demand is the total quantity of a good or service that customers:

are willing to purchase.
are able to purchase.
are willing and able to purchase.
need.

Question 28 (1.5 points)

The value of the firm decreases with a decrease in:

total revenue.
the discount rate.
the cost of capital.
total cost.

Question 29 (1.5 points)

Marginal profit equals average profit when:

marginal profit is maximized.
average profit is maximized.
marginal profit equals marginal cost.
the profit minimizing output is produced.

Question 30 (1.5 points)

The equilibrium market price and quantity of beef would increase if:

consumers increasingly view beef as unhealthy.
the price of cattle feed decreased.
consumer income increased.
herd sizes fell following a severe drought.

Exam 1 Problems

Copyright 2008, by the Contributing Authors. Cite/attribute Resource. admin. (2009, January 27). Exam 1. Retrieved November 23, 2009, from Free Online Course Materials — USU OpenCourseWare Web site: http://ocw.usu.edu/economics/managerial-economics/exam1.htm. This work is licensed under a Creative Commons License.

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