ECON 528 Midterm ACTUAL
QUESTIONS AND CORRECT ANSWERS
Managerial economics - CORRECT ANSWER helps managers make decisions in the face of
scarcity
Economic costs of production differ from accounting costs in that - CORRECT ANSWER
economic costs add the opportunity costs of a firm using its own resources while accounting
costs do not.
How many pounds of apples should Margie sell to maximize her profit? Refer to Table 12-2.A table of
market prices Table 12-2 lists the various pounds (lbs.) of apples that Margie Stattler can sell. Assume
that Margie operates in a perfectly competitive market. - CORRECT ANSWER This cannot be
determined without knowing Margie's total or marginal production costs
Figure 12-9 shows cost and demand curves facing a profit-maximizing, perfectly competitive firm.
Identify the short-run shut down point for the firm. Price and Cost Curves - CORRECT ANSWER
B
Sally quit her job as an auto mechanic earning $50,000 per year to start her own business. To save
money she operates her business out of a small building she owns which, until she started her own
business, she had rented out for $10,000 per year. She also invested her $20,000 savings (which
earned a market interest rate of 5% per year) in her business.
You are given the following information about the first year of her operations.
Total revenue: $120,000
Cost of labor: $40,000
Cost of materials: $15,000
Equipment rental: $5,000
Foregone Salary: $50,000
Foregone Interest: $1,000
Opportunity cost of Building: 10,000 - CORRECT ANSWER In the first year, economic profit
is -$1,000 and accounting profit is $60,000
A firm that can effectively price discriminate will charge a higher price to - CORRECT ANSWER
customers who have the more inelastic demand for the product.
, Selling tickets in the orchestra region of the Metropolitan Opera for $55 and selling tickets in the
upper balcony for $28 to listen to Luciano Pavoratti describes which type of price discrimination? -
CORRECT ANSWER third-degree price discrimination
If a firm charges customers $ 200 per unit of the first unit purchased, and $160 per unit for each
additional unit purchased in excess of one unit. Then, what is the economic term of this strategy? -
CORRECT ANSWER Second-degree price discrimination
If the Apple iPhone and the Samsung Galaxy are considered substitutes, then, other things equal, an
increase in the price of the iPhone will - CORRECT ANSWER increase the demand for the
Galaxy.
If the price of automobiles was to increase, then - CORRECT ANSWER the demand for
gasoline would decrease.
Studies have shown links between calcium consumption and a reduction in osteoporosis. How does
this affect the market for calcium? - CORRECT ANSWER The calcium demand curve shifts to
the right because of a change in tastes in favor of calcium.
Buyers rush to purchase stocks in California vineyards following a forecast of a 30 percent decline in
this year's grape harvest. What happens in the California wine market as a result of this
announcement? - CORRECT ANSWER The demand curve for California wine shifts to the
right in anticipation of higher prices in the future.
If the cross-price elasticity of demand for two goods is 1.25, then - CORRECT ANSWER the
two goods are substitutes.
Assume that a 4 percent decrease in income results in a 6 percent increase in the quantity demanded
of a good. The income elasticity of demand for the good is - CORRECT ANSWER negative,
and the good is an inferior good
In September 2012, the average price of gasoline in the United States was $3.91 per gallon and
consumers bought 5 percent less gasoline than they had during September 2011, when the average
price was $3.66 per gallon. Based on these numbers, what was the arc price elasticity of demand
(midpoint formula) for gasoline from September 2011 to September 2012? - CORRECT ANSWER
-0.76
QUESTIONS AND CORRECT ANSWERS
Managerial economics - CORRECT ANSWER helps managers make decisions in the face of
scarcity
Economic costs of production differ from accounting costs in that - CORRECT ANSWER
economic costs add the opportunity costs of a firm using its own resources while accounting
costs do not.
How many pounds of apples should Margie sell to maximize her profit? Refer to Table 12-2.A table of
market prices Table 12-2 lists the various pounds (lbs.) of apples that Margie Stattler can sell. Assume
that Margie operates in a perfectly competitive market. - CORRECT ANSWER This cannot be
determined without knowing Margie's total or marginal production costs
Figure 12-9 shows cost and demand curves facing a profit-maximizing, perfectly competitive firm.
Identify the short-run shut down point for the firm. Price and Cost Curves - CORRECT ANSWER
B
Sally quit her job as an auto mechanic earning $50,000 per year to start her own business. To save
money she operates her business out of a small building she owns which, until she started her own
business, she had rented out for $10,000 per year. She also invested her $20,000 savings (which
earned a market interest rate of 5% per year) in her business.
You are given the following information about the first year of her operations.
Total revenue: $120,000
Cost of labor: $40,000
Cost of materials: $15,000
Equipment rental: $5,000
Foregone Salary: $50,000
Foregone Interest: $1,000
Opportunity cost of Building: 10,000 - CORRECT ANSWER In the first year, economic profit
is -$1,000 and accounting profit is $60,000
A firm that can effectively price discriminate will charge a higher price to - CORRECT ANSWER
customers who have the more inelastic demand for the product.
, Selling tickets in the orchestra region of the Metropolitan Opera for $55 and selling tickets in the
upper balcony for $28 to listen to Luciano Pavoratti describes which type of price discrimination? -
CORRECT ANSWER third-degree price discrimination
If a firm charges customers $ 200 per unit of the first unit purchased, and $160 per unit for each
additional unit purchased in excess of one unit. Then, what is the economic term of this strategy? -
CORRECT ANSWER Second-degree price discrimination
If the Apple iPhone and the Samsung Galaxy are considered substitutes, then, other things equal, an
increase in the price of the iPhone will - CORRECT ANSWER increase the demand for the
Galaxy.
If the price of automobiles was to increase, then - CORRECT ANSWER the demand for
gasoline would decrease.
Studies have shown links between calcium consumption and a reduction in osteoporosis. How does
this affect the market for calcium? - CORRECT ANSWER The calcium demand curve shifts to
the right because of a change in tastes in favor of calcium.
Buyers rush to purchase stocks in California vineyards following a forecast of a 30 percent decline in
this year's grape harvest. What happens in the California wine market as a result of this
announcement? - CORRECT ANSWER The demand curve for California wine shifts to the
right in anticipation of higher prices in the future.
If the cross-price elasticity of demand for two goods is 1.25, then - CORRECT ANSWER the
two goods are substitutes.
Assume that a 4 percent decrease in income results in a 6 percent increase in the quantity demanded
of a good. The income elasticity of demand for the good is - CORRECT ANSWER negative,
and the good is an inferior good
In September 2012, the average price of gasoline in the United States was $3.91 per gallon and
consumers bought 5 percent less gasoline than they had during September 2011, when the average
price was $3.66 per gallon. Based on these numbers, what was the arc price elasticity of demand
(midpoint formula) for gasoline from September 2011 to September 2012? - CORRECT ANSWER
-0.76
