Managerial Economics- Test 1 multiple choice practice
1. Seat by seat pricing to max profit: what best describes "Yield management" as
practiced by airlines?
2. primarly growth in consumer income: what main economic factor affect de-
mand?
3. increase: if the price of a substitute good increases significantly, demand for the
competing good will
4. increase: when the price of a smart phone decreases, the demand for data plans
will
5. increase in income, increases its unit sales: what is the best description of a
normal good?
6. cell phones and data plans
coffee and sugar: list two compliment goods
7. -.625: a good's price is $15 and its sales are 400 units. when the price increases
to $18, sales fall to 350 units. the point elasticity at P=$15 is
8. -1.0: a good's demand is given by: Q= 500 - 50P. At P=$5, the point price elasticity
is
9. 350: suppose that the current price for a good is $20 and quantity sold is 400 units.
If the price elasticity is -2.5, and the price rises to $21, what is the new quantity sold?
10. demand is relatively unresponsive to price: inelastic demand is when
11. the long run, because buyers can find more numerous substitutes: in which
case is demand likely to be more elastic, the long run or short run?
12. the goods are strong complements: If the cross price elasticity between goods
is -2.5 how are the two goods related?
13. -22.5%: for a particular good, Ep = -2 and Ey= 1.5... If price increases 15% and
income increases 5%, the predicted change in unit sales is
14. quantity will fall but revenue will increase: if the price of a good is in the
inelastic range and the firm raises prices,
15. variable costs are zero or so low they can be ignored: in a pure selling
problem,
16. $15: a firm produces a good at MC of $20 and sells it for $40 per unit. It currently
has an inventory of 500 units, and P=30 -.05Q describes its current demand curve.
In these circumstances, what is the firms optimal price?
17. $75: a firm produces a good with MC= $60 per unit and Ep= -5... the firms optimal
price is
18. the more elastic is demand, the lower the price: for a profit maximizing
markup,
19. a seller charges different prices for the same good or service: price discrim-
ination occurs when
1/5
, Managerial Economics- Test 1 multiple choice practice
20. market A: suppose a firm sells a good in 3 different markets. In market A,
management thinks that demand elasticity is -1.1... In market B, management thinks
elasticity is -3.5.. In market C, management thinks elasticity is -8.. in which market
can a profit-maximizing firm set the highest price?
21. positive network externalities
high fixed cost and negligible marginal cost: Information goods and services are
characterized by
22. set prices so the marginal revenue from the last business seat equals
marginal revenue from the last pleasure seat: in the case of an airline pricing
business seats and pleasure seats, what rule should the profit-maximizing airlines
follow?
23. 1) degree to which good is a necessity
2) availability of substitutes
3) proportion of income spent on the good/service
4) time of adjustment: what factors affect price elasticity? (4)
24. P= [Ep / (Ep+1)] x MC: given MC and elasticity, what formula is used to
determine price that will maximize profit?
25. (-1.75)(7.5%)+(.6)(1.5%)+(.75)(4.5%)= -8.85%: Ep= -1.75, Ey= .6, En= .75...
these are the elasticities for a college. If tuition raises 7.5%, expected income raises
by 1.5%, and rival colleges announce tuition increase of 4.5%. predict the change
in college enrollment.
26. P=[(-1.75)/(-1.75 +1)] [6000] = $14000: Ep= -1.75, Ey= .6, En= .75... these are
the elasticities for a college. a fund in case for future student enrollment is set up. if
the MC of a student is $6000 what is the college optimal tuition price?
27. profit: according to the model of the firm, management's main objective is to
maximize
28. both revenues and costs with certainty: according to the simple model of a
firm, management can predict
29. TC = $4000 and MC=$15: a firm's total cost function is given by: TC= 1000 +15Q.
At an output of 200 units,
30. P=50-.25Q: a firm's demand curve is described by the equation: Q=200-4P. The
inverse demand curve is:
31. the firm's profit is: -1000+160Q-2Q^2
the firm's revenue is: R=200Q-2Q^2: a firm's price and cost equations are given
by P=200-2Q and C=1000+40Q, respectively. Therefore,
32. reduce output because MR < MC: at its current output level, a firm's marginal
profit is negative. Therefore it should,
33. FC= 100
profit maximizing output is Q=4
2/5
1. Seat by seat pricing to max profit: what best describes "Yield management" as
practiced by airlines?
2. primarly growth in consumer income: what main economic factor affect de-
mand?
3. increase: if the price of a substitute good increases significantly, demand for the
competing good will
4. increase: when the price of a smart phone decreases, the demand for data plans
will
5. increase in income, increases its unit sales: what is the best description of a
normal good?
6. cell phones and data plans
coffee and sugar: list two compliment goods
7. -.625: a good's price is $15 and its sales are 400 units. when the price increases
to $18, sales fall to 350 units. the point elasticity at P=$15 is
8. -1.0: a good's demand is given by: Q= 500 - 50P. At P=$5, the point price elasticity
is
9. 350: suppose that the current price for a good is $20 and quantity sold is 400 units.
If the price elasticity is -2.5, and the price rises to $21, what is the new quantity sold?
10. demand is relatively unresponsive to price: inelastic demand is when
11. the long run, because buyers can find more numerous substitutes: in which
case is demand likely to be more elastic, the long run or short run?
12. the goods are strong complements: If the cross price elasticity between goods
is -2.5 how are the two goods related?
13. -22.5%: for a particular good, Ep = -2 and Ey= 1.5... If price increases 15% and
income increases 5%, the predicted change in unit sales is
14. quantity will fall but revenue will increase: if the price of a good is in the
inelastic range and the firm raises prices,
15. variable costs are zero or so low they can be ignored: in a pure selling
problem,
16. $15: a firm produces a good at MC of $20 and sells it for $40 per unit. It currently
has an inventory of 500 units, and P=30 -.05Q describes its current demand curve.
In these circumstances, what is the firms optimal price?
17. $75: a firm produces a good with MC= $60 per unit and Ep= -5... the firms optimal
price is
18. the more elastic is demand, the lower the price: for a profit maximizing
markup,
19. a seller charges different prices for the same good or service: price discrim-
ination occurs when
1/5
, Managerial Economics- Test 1 multiple choice practice
20. market A: suppose a firm sells a good in 3 different markets. In market A,
management thinks that demand elasticity is -1.1... In market B, management thinks
elasticity is -3.5.. In market C, management thinks elasticity is -8.. in which market
can a profit-maximizing firm set the highest price?
21. positive network externalities
high fixed cost and negligible marginal cost: Information goods and services are
characterized by
22. set prices so the marginal revenue from the last business seat equals
marginal revenue from the last pleasure seat: in the case of an airline pricing
business seats and pleasure seats, what rule should the profit-maximizing airlines
follow?
23. 1) degree to which good is a necessity
2) availability of substitutes
3) proportion of income spent on the good/service
4) time of adjustment: what factors affect price elasticity? (4)
24. P= [Ep / (Ep+1)] x MC: given MC and elasticity, what formula is used to
determine price that will maximize profit?
25. (-1.75)(7.5%)+(.6)(1.5%)+(.75)(4.5%)= -8.85%: Ep= -1.75, Ey= .6, En= .75...
these are the elasticities for a college. If tuition raises 7.5%, expected income raises
by 1.5%, and rival colleges announce tuition increase of 4.5%. predict the change
in college enrollment.
26. P=[(-1.75)/(-1.75 +1)] [6000] = $14000: Ep= -1.75, Ey= .6, En= .75... these are
the elasticities for a college. a fund in case for future student enrollment is set up. if
the MC of a student is $6000 what is the college optimal tuition price?
27. profit: according to the model of the firm, management's main objective is to
maximize
28. both revenues and costs with certainty: according to the simple model of a
firm, management can predict
29. TC = $4000 and MC=$15: a firm's total cost function is given by: TC= 1000 +15Q.
At an output of 200 units,
30. P=50-.25Q: a firm's demand curve is described by the equation: Q=200-4P. The
inverse demand curve is:
31. the firm's profit is: -1000+160Q-2Q^2
the firm's revenue is: R=200Q-2Q^2: a firm's price and cost equations are given
by P=200-2Q and C=1000+40Q, respectively. Therefore,
32. reduce output because MR < MC: at its current output level, a firm's marginal
profit is negative. Therefore it should,
33. FC= 100
profit maximizing output is Q=4
2/5
