Page 1 of 86
Ivy Software MBA Prepworks Fundamentals of
Economics EXAM ALL WITH COMPLETE 350
QUESTIONS AND SOLUTIONS LATEST UPDATE JUST
RELEASED THIS YEAR
Question: Consider the market for pork. Suppose that disposable income increases and pork is
an inferior good. Because of that change in income, the equilibrium price of pork...? - CORRECT
ANSWER✔✔Decreases because the increase in disposable income causes the demand curve for
pork to shift south west, because pork is an inferior good. because of this shift, the equilibrium
price of pork decreases.
Question: Consider the market for pork. Suppose that 1) disposable income increases and pork
is a normal good, And 2) the price of hog feed decreases. Because of these changes, the
equilibrium price of pork is... - CORRECT ANSWER✔✔Indeterminate because the increase in
disposable income causes the demand curve for pork to shift north east because pork is a
normal good. The decrease in price of hog feed causes the supply curve to shift to the south
east. The net effect of these shifts leaves us unable to say waht will happen to the equilibrium
price of pork.
Question: Consider the market for pork. Suppose that disposable income increases and pork is
a normal good and the price of hog feed decreases. The equilibrium quantity of pork...? -
CORRECT ANSWER✔✔Increases.
Question: Suppose the price elasticity for demand for retail phone service in the US is 0.95. If
the # of retail substitutes for retail telephone service increases, will the price elasticity of
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demand become more elastic or more inelastic? - CORRECT ANSWER✔✔Elastic. When the
number of substitute products increases, the price elasticity of demand will become more
elastic. consumers become more sensitive to price when they have more options to chose
among.
Question: True or False: the law of demand states that if the price of a good increases, CP, then
the quantity demanded of that good will increase. - CORRECT ANSWER✔✔False. quantity
demanded of that good will decrease.
Question: Suppose the cross-price elasticity of demand for home heating oil with respect to the
price of natural gas is +0.6. This number tells us that home heating oil and natural gas are
substitute or compliment goods? - CORRECT ANSWER✔✔Substitute goods. When the cross
price elasticity is positive then they are substitutes.
Question: Consider the market for mustard which is a complement to hot dogs. Suppose the
price of hot dogs increase. What happens to the equilibrium price and equilibrium quantity of
the mustard market? - CORRECT ANSWER✔✔Equilibrium price decreases and equilibrium
quantity decreases. The price of hot dogs is an independent variable in the demand function for
mustard. This is because hot dogs and mustard are complementary goods. Therefore, if the
price of hot dogs increases, then the demand curve for mustard shifts to the south-west. People
demand less mustard at every price when hot dogs are more expensive. In the mustard market,
the equilibrium price decreases and equilibrium quantity decreases.
Question: profit maximizing rule - CORRECT ANSWER✔✔a business maximizes profits when it
produces where the marginal revenue from selling another unit equals the marginal cost of
producing another unit.
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Marginal Revenue=Marginal Cost
Question: Marginal cost - CORRECT ANSWER✔✔is equal to the change in the total cost that
arises from an extra unit of production. It is calculated by taking the change in total cost and
dividing it by the change in the quantity produced
=change in TC/change in Q
Question: Marginal revenue - CORRECT ANSWER✔✔is the change in total revenue generated
from an additional unit sold. It is calculated by taking the change in total revenue divided by the
change in quantity sold
Question: Short Run - CORRECT ANSWER✔✔a time horizon where some fixed costs exist.
is a time horizon within which a business is unable to adjust at least one input because there is
a fixed cost of some kind.
we think in terms of the short run not the long run
Question: Long Run - CORRECT ANSWER✔✔a situation where the fixed costs (the inputs)
become variable. a time horizon long enough for the seller to adjust all inputs. If you observe a
business with no fixed costs, then it is in a long run state.
\when prices remain low for a very long period of time, then the business moves into a long run
decision mode. In the long run there are no fixed costs.
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Question: fixed costs - CORRECT ANSWER✔✔costs that do not vary with changes in the
quantity produced. what expenses must be paid even if production equals zero?
Question: variable costs - CORRECT ANSWER✔✔costs that do vary with changes in the quantity
produced
Question: total cost - CORRECT ANSWER✔✔equals the sum of the fixed costs and variable costs
TC=VC+FC
Question: average fixed cost - CORRECT ANSWER✔✔equals fixed cost divided by quantity
produced
AFC= TC/Q
Question: average variable cost - CORRECT ANSWER✔✔equals variable cost divided by the
quantity produced
Question: average total cost - CORRECT ANSWER✔✔equals the total cost divided by the
quantity produced, or it is the sum of average fixed cost plus average variable cost
Question: sunk cost - CORRECT ANSWER✔✔a cost that has already been committed and cannot
be recovered
Ivy Software MBA Prepworks Fundamentals of
Economics EXAM ALL WITH COMPLETE 350
QUESTIONS AND SOLUTIONS LATEST UPDATE JUST
RELEASED THIS YEAR
Question: Consider the market for pork. Suppose that disposable income increases and pork is
an inferior good. Because of that change in income, the equilibrium price of pork...? - CORRECT
ANSWER✔✔Decreases because the increase in disposable income causes the demand curve for
pork to shift south west, because pork is an inferior good. because of this shift, the equilibrium
price of pork decreases.
Question: Consider the market for pork. Suppose that 1) disposable income increases and pork
is a normal good, And 2) the price of hog feed decreases. Because of these changes, the
equilibrium price of pork is... - CORRECT ANSWER✔✔Indeterminate because the increase in
disposable income causes the demand curve for pork to shift north east because pork is a
normal good. The decrease in price of hog feed causes the supply curve to shift to the south
east. The net effect of these shifts leaves us unable to say waht will happen to the equilibrium
price of pork.
Question: Consider the market for pork. Suppose that disposable income increases and pork is
a normal good and the price of hog feed decreases. The equilibrium quantity of pork...? -
CORRECT ANSWER✔✔Increases.
Question: Suppose the price elasticity for demand for retail phone service in the US is 0.95. If
the # of retail substitutes for retail telephone service increases, will the price elasticity of
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demand become more elastic or more inelastic? - CORRECT ANSWER✔✔Elastic. When the
number of substitute products increases, the price elasticity of demand will become more
elastic. consumers become more sensitive to price when they have more options to chose
among.
Question: True or False: the law of demand states that if the price of a good increases, CP, then
the quantity demanded of that good will increase. - CORRECT ANSWER✔✔False. quantity
demanded of that good will decrease.
Question: Suppose the cross-price elasticity of demand for home heating oil with respect to the
price of natural gas is +0.6. This number tells us that home heating oil and natural gas are
substitute or compliment goods? - CORRECT ANSWER✔✔Substitute goods. When the cross
price elasticity is positive then they are substitutes.
Question: Consider the market for mustard which is a complement to hot dogs. Suppose the
price of hot dogs increase. What happens to the equilibrium price and equilibrium quantity of
the mustard market? - CORRECT ANSWER✔✔Equilibrium price decreases and equilibrium
quantity decreases. The price of hot dogs is an independent variable in the demand function for
mustard. This is because hot dogs and mustard are complementary goods. Therefore, if the
price of hot dogs increases, then the demand curve for mustard shifts to the south-west. People
demand less mustard at every price when hot dogs are more expensive. In the mustard market,
the equilibrium price decreases and equilibrium quantity decreases.
Question: profit maximizing rule - CORRECT ANSWER✔✔a business maximizes profits when it
produces where the marginal revenue from selling another unit equals the marginal cost of
producing another unit.
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Marginal Revenue=Marginal Cost
Question: Marginal cost - CORRECT ANSWER✔✔is equal to the change in the total cost that
arises from an extra unit of production. It is calculated by taking the change in total cost and
dividing it by the change in the quantity produced
=change in TC/change in Q
Question: Marginal revenue - CORRECT ANSWER✔✔is the change in total revenue generated
from an additional unit sold. It is calculated by taking the change in total revenue divided by the
change in quantity sold
Question: Short Run - CORRECT ANSWER✔✔a time horizon where some fixed costs exist.
is a time horizon within which a business is unable to adjust at least one input because there is
a fixed cost of some kind.
we think in terms of the short run not the long run
Question: Long Run - CORRECT ANSWER✔✔a situation where the fixed costs (the inputs)
become variable. a time horizon long enough for the seller to adjust all inputs. If you observe a
business with no fixed costs, then it is in a long run state.
\when prices remain low for a very long period of time, then the business moves into a long run
decision mode. In the long run there are no fixed costs.
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Question: fixed costs - CORRECT ANSWER✔✔costs that do not vary with changes in the
quantity produced. what expenses must be paid even if production equals zero?
Question: variable costs - CORRECT ANSWER✔✔costs that do vary with changes in the quantity
produced
Question: total cost - CORRECT ANSWER✔✔equals the sum of the fixed costs and variable costs
TC=VC+FC
Question: average fixed cost - CORRECT ANSWER✔✔equals fixed cost divided by quantity
produced
AFC= TC/Q
Question: average variable cost - CORRECT ANSWER✔✔equals variable cost divided by the
quantity produced
Question: average total cost - CORRECT ANSWER✔✔equals the total cost divided by the
quantity produced, or it is the sum of average fixed cost plus average variable cost
Question: sunk cost - CORRECT ANSWER✔✔a cost that has already been committed and cannot
be recovered
