Managerial Economics Exam 2

42 Questions | Total Attempts: 233

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Economics Quizzes & Trivia

Questions and Answers
  • 1. 
    An old friend takes you out to dinner, and pays for your meal. Which of the following best represents your opportunity costs? 
    • A. 

      The amount of money that you would have spent to pay for your own dinner

    • B. 

      The money your friend could have made buying a winning lottery ticket

    • C. 

      The money you could have made working overtime at your job

    • D. 

      Both A and C

  • 2. 
    One problem with measuring a durable goods cost is
    • A. 

      That the good may break before the end of its estimated useful life

    • B. 

      When to decide to throw it away for a newer model even if the cost has not been accounted for

    • C. 

      How to handle the cost if the value changes overtime

    • D. 

      How to account for depreciation of the good

  • 3. 
    A sunk cost is?
    • A. 

      A cost that is highly relevant for decision making

    • B. 

      An opportunity cost

    • C. 

      The cost for drilling certain types of wells, such as for water

    • D. 

      A past cost that cannot be recovered

  • 4. 
    Average fixed cost (AFC) 
    • A. 

      Is always fixed across all output ranges for the given production function

    • B. 

      Falls as output falls

    • C. 

      Rises as output falls

    • D. 

      Rises as output rises

  • 5. 
    Suppose the total cost of producing t shirts can be represented by TC= 50+2Q. The average cost of the 5th shirt is? 
    • A. 

      2

    • B. 

      12

    • C. 

      60

    • D. 

      52

  • 6. 
    If the average cost is decreasing 
    • A. 

      Marginal cost equals average cost

    • B. 

      Marginal cost is less than average cost

    • C. 

      Marginal cost exceeds average cost

    • D. 

      Not enough information is given

  • 7. 
    Suppose the short run production function is q=10* L. If the wage rate is 10 per unit of labor, then AVC equals
    • A. 

      10/q

    • B. 

      Q

    • C. 

      Q/10

    • D. 

      1

  • 8. 
    If the Cobb Douglas production function for a beer manufacturer is q=1.52L^0.6K^0.4. If we assume the firms capital is fixed at 250 units and the rental rate of capital is 5 per unit, then the average fixed cost is
    • A. 

      1.52L^.6 (250)^.4

    • B. 

      1250

    • C. 

      1250/q

    • D. 

      Not enough information

  • 9. 
    When the isocost line is tangent to the isoquant, then 
    • A. 

      The firm is producing that level of output at minimum cost

    • B. 

      The firm has achieved the right economics of scale

    • C. 

      MPL=MPK

    • D. 

      All of the above

  • 10. 
    If the marginal rate of technical substitution for a cost minimizing firm is 10, and the wage rate for labor is 5$, what is the rental rate for capital in dollars 
    • A. 

      .5

    • B. 

      10

    • C. 

      2

    • D. 

      1

  • 11. 
    Suppose MPL=.5 *(q/l) and MPK =.5 * (q/k). In the long run, the firm will hire equal amounts of capital and labor 
    • A. 

      Only when w=.5 * r

    • B. 

      All of time

    • C. 

      Only when w=r

    • D. 

      No point in time

  • 12. 
    If there diseconomics of scale within a given range of output, which of following is(are) TRUE?
    • A. 

      The long run average cost curve must be upward sloping within the range of output.

    • B. 

      Long run average cost must equal short run average cost

    • C. 

      The short run average cost curve must be upward sloping within that range of output

    • D. 

      All of the above

  • 13. 
    Long run average cost is never greater than short run average cost because in the long run 
    • A. 

      Capital cost equals zero

    • B. 

      The firm can move to the lowest possible isocost curve

    • C. 

      Wages always decrease over time

    • D. 

      Wages always increase over time

  • 14. 
    Learning by doing, which leads to lower level costs in the long run, is often 
    • A. 

      Improved through better use of computers in the production process

    • B. 

      Increased when new machinery is brought into the production process

    • C. 

      Not very important to most firms

    • D. 

      A function of cumulative output, that is producing more of the good or service

  • 15. 
    Suppose the cost of producing two goods, x and y, can be represented as C=ax+by+cxy. If there are economies of scope 
    • A. 

      A+b=-c

    • B. 

      C=0

    • C. 

      C>0

    • D. 

      C

  • 16. 
    Limited liability is a benefit to? 
    • A. 

      Partnerships

    • B. 

      Sole proprietorships

    • C. 

      Corporations

    • D. 

      All of the above

  • 17. 
    A firm sets output where
    • A. 

      A marginal revenue minus marginal profit equals zero (MR-MP=0)

    • B. 

      Marginal profit minus marginal cost equals zero (MP-MC=0)

    • C. 

      Marginal revenue minus marginal cost equals zero (MR-MC=0

    • D. 

      None of the above

  • 18. 
    A small business owner earns 60,000 in revenue annually. The explicit costs equals 40,000. The business owner could for someone else and make 25,000 annually. The owners accounting profit is ______ and the owners economic profit is______
    • A. 

      45,000, -5000

    • B. 

      20,000, 5000

    • C. 

      25,000, -5000

    • D. 

      20,000, -5000

  • 19. 
    If a profit maximizing firm finds that, at its current level of production, MR>MC, it will 
    • A. 

      Increase output

    • B. 

      Earn greater profit than MR=MC

    • C. 

      Decrease output

    • D. 

      Shut down

  • 20. 
    A firm should always shut down if its revenue is
    • A. 

      Less than avoidable costs

    • B. 

      Declining

    • C. 

      Less than its average fixed costs

    • D. 

      Less than its total costs

  • 21. 
    If the present value of all future profit is positive, then 
    • A. 

      Then a firm should shut down if it is earning a negative profit in the short run

    • B. 

      The firm should shut down if it cannot carry over its fixed costs in the short run

    • C. 

      The firm should remain operating, even if it earns negative profit in the short run

    • D. 

      None of the above

  • 22. 
    One problem with compensation systems is that 
    • A. 

      Sometimes a manager is rewarded for an objective other than maximizing profits

    • B. 

      The Dodd Frank Act of 2010 requires shareholder votes on compensation that are non binding

    • C. 

      Managers are often paid too much

    • D. 

      Owners sometimes want to pursue social objectives

  • 23. 
    A firms horizontal dimension refers to 
    • A. 

      It's size in its primary market

    • B. 

      The level of supply chain integration the firm undertakes

    • C. 

      It's size in all markets in which it competes

    • D. 

      The number of stages in the production process that are upstream from the stages the firm undertakes.

  • 24. 
    A firm that backward vertically integrates 
    • A. 

      Moves downstream in the production process

    • B. 

      Requires that the production process be relatively simple

    • C. 

      May be producing its own inputs

    • D. 

      Has to merge with another firm

  • 25. 
    Firms might vertically distinengrate when 
    • A. 

      The industry becomes too large to support its self

    • B. 

      The industry shrinks in size

    • C. 

      It becomes more profitable for a firm to specialize

    • D. 

      The IRS cracks down on transfer pricing

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