Transcript
University of Louisiana at Lafayette
Econ 528: Managerial Economics
Chapter 2: Sample Questions
1) Golda Rush quit her job as a manager for Home Depot to start her own hair dressing salon, Goldilocks. She gave up a salary of $40,000 per year, invested her savings of $30,000 (which was earning 5 percent interest) and borrowed $10,000 from a close friend, agreeing to pay 5 percent interest per year. In her first year, Golda spent $18,000 to rent a salon, hired a part-time assistant for $12,000 and incurred another $15,000 on equipment and hairdressing material. Based on this information, what is the amount of her explicit costs?
A) $45,000
B) $45,500
C) $47,000
D) $87,000
Answer: B
2) Economic costs include implicit costs but not explicit costs.
Answer: FALSE
Table 12-1
Quantity
Total Cost
(dollars)
Variable Cost
(dollars)
0
$1,000
$0
100
1,360
360
200
1,560
560
300
1,960
960
400
2,760
1,760
500
4,000
3,000
600
5,800
4,800
Table 12-1 shows the short-run cost data of a perfectly competitive firm that produces plastic camera cases. Assume that output can only be increased in batches of 100 units.
3) Refer to Table 12-1. What is the fixed cost of production?
A) $0
B) $500
C) $1,000
D) It cannot be determined.
Answer: C
4) Refer to Table 12-1. If the market price of each camera case is $8, what is the profit-maximizing quantity?
A) 300 units
B) 400 units
C) 500 units
D) 600 units
Answer: B
5) Refer to Table 12-1. If the market price of each camera case is $8, what is the firm's total revenue?
A) $2,400
B) $3,200
C) $4000
D) $4,800
Answer: B
6) Refer to Table 12-1. If the market price of each camera case is $8 and the firm maximizes profit, what is the amount of the firm's profit or loss?
A) $0 (it breaks even)
B) loss of $1,000
C) profit of $440
D) loss of $440
Answer: C
7) Refer to Table 12-1. Suppose the fixed cost of production rises by $500 and the price per unit is still $8. What happens to the firm's profit-maximizing output level?
A) It must fall.
B) It must rise to offset the increased cost.
C) It will remain the same.
D) The firm will shut down.
Answer: C
8) Refer to Table 12-1. The firm will not produce in the short run if the output price falls below
A) $8.
B) $4.
C) $3.20.
D) $2.80.
Answer: D
9) Fill in the columns in the following table and use the values in the table to determine the profit-maximizing level of output.
Quantity
Total Revenue (TR)
Total Cost (TC)
Profit
Marginal Revenue (MR)
Marginal Cost (MC)
0
0
3
1
5
5
2
10
6
3
15
8
4
20
11
5
25
15
6
30
21
7
35
30
8
40
42
9
45
60
10
50
85
Answer:
Quantity
Total Revenue (TR)
Total Cost (TC)
Profit
Marginal Revenue (MR)
Marginal Cost (MC)
0
0
3
-3
---
---
1
5
5
0
5
2
2
10
6
4
5
1
3
15
8
7
5
2
4
20
11
9
5
3
5
25
15
10
5
4
6
30
21
9
5
6
7
35
30
5
5
9
8
40
42
-2
5
12
9
45
60
-15
5
18
10
50
85
-35
5
25
The profit-maximizing level of output is 5 units.
10) Which of the following is a factor of production that generally is fixed in the short run?
A) raw materials
B) labor
C) a factory building
D) water
Answer: C
11) Which of the following is an example of a long run adjustment?
A) Your university offers Saturday morning classes next fall.
B) Ford Motor Company lays off 2,000 assembly line workers.
C) A soybean farmer turns on the irrigation system after a month long dry spell.
D) Wal-Mart builds another Supercenter.
Answer: D
12) Academic book publishers hire editors, designers, and production and marketing managers who help prepare books for publication. Because these employees work on several books simultaneously, the number of people the company hires will not go up and down with the quantity of books the company publishes during any particular year. The salaries and benefits of people in these job categories will be included in
A) fixed cost and marginal cost but not variable cost.
B) fixed cost but not variable cost and total cost.
C) marginal cost and total cost but not fixed cost.
D) fixed cost and total cost but not variable cost.
Answer: D
13) If, for a given output level, a perfectly competitive firm's price is less than its average variable cost, the firm
A) is earning a profit.
B) should shut down.
C) should increase output.
D) should increase price.
Answer: B
14) Which of the following statements best describes the economic short run?
A) It is a period of one year or less.
B) It is a period during which firms are free to vary all of their inputs.
C) It is a period during which at least one of the firm's inputs is fixed.
D) It is a period during which fixed inputs become variable inputs because of depreciation.
Answer: C
