Managerial Economics Exam 2

42 Questions | By Mattyoung741 | Updated: Mar 22, 2022 | Attempts: 337

Questions

Settings

Feedback

During the Quiz End of Quiz

Play as

Quiz Flashcard

Create your own Quiz

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