Set#1:Midterm Exam For Open University Malysia Students...Albrady

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Set#1:Midterm Exam For Open University Malysia Students...Albrady - Quiz

This exam is given to my friends in OUM Bahrain,to the Managerial Economices. The exam purpose is to simulate the real exam, it will show 30 equastions with 60 minutes.
I hope from each one write his or her dummy name to see the progress that refluct the level of knowldge.


Questions and Answers
  • 1. 

    Rational behavior and marginal analysis:

    • A.

      Explain why there is "no free lunch"

    • B.

      Are part of the economic perspective

    • C.

      Are relevant in short-term but not long-term analysis

    • D.

      Explain the "fallacy of composition"

    Correct Answer
    B. Are part of the economic perspective
    Explanation
    Feedback: The economic perspective assumes scarcity of resources relative to human wants, assumes that individuals rationally pursue their self-interest, and assumes that individuals compare costs and benefits at the margin. These assumptions hold in both the long term and the short term.

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  • 2. 

    In studying economic principles, economists make use of:

    • A.

      Both the economic perspective and the scientific method

    • B.

      The economic perspective but not the scientific method

    • C.

      The scientific method but not the economic perspective

    • D.

      Neither the scientific method nor the economic perspective

    Correct Answer
    A. Both the economic perspective and the scientific method
    Explanation
    Feedback: Both the economic perspective and the scientific method are fundamental to the study of economics.

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  • 3. 

    Microeconomics:

    • A.

      Is particularly subject to the "fallacy of composition"

    • B.

      is concerned with the economy as a whole

    • C.

      Studies how supply and demand determine prices in individual markets

    • D.

      Describes the aggregate flows of output and income

    Correct Answer
    C. Studies how supply and demand determine prices in individual markets
    Explanation
    Feedback: Microeconomics is the study of specific economic units such as particular firms, households, or markets.

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  • 4. 

    The two major features of the economic perspective are:

    • A.

      Rational behavior and marginal analysis

    • B.

      Normative and positive analysis

    • C.

      Benefit and cost

    • D.

      Consumers and producers

    Correct Answer
    A. Rational behavior and marginal analysis
    Explanation
    Feedback: Rational self-interest and comparing costs and benefits at the margin are the key features of the economic perspective.

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  • 5. 

    The price at which there is neither surplus nor shortage is called:

    • A.

      The adjustment price.

    • B.

      The equal price.

    • C.

      The fair price.

    • D.

      The market-clearing price.

    Correct Answer
    D. The market-clearing price.
    Explanation
    This means at equilibrium price

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  • 6. 

    Suppose that there has been a decline in the price of cheep. What effect will this have on the market for beef?

    • A.

      It will decrease demand and decrease supply.

    • B.

      It will decrease demand and decrease quantity supplied.

    • C.

      It will decrease quantity demanded and decrease supply.

    • D.

      It will decrease quantity demanded and decrease quantity supplied.

    Correct Answer
    B. It will decrease demand and decrease quantity supplied.
    Explanation
    A decline in the price of cheep will decrease the demand for beef because consumers may choose to buy more of the cheaper alternative. Additionally, it will decrease the quantity supplied of beef because producers may find it less profitable to produce beef at a lower price. Therefore, both the demand and quantity supplied of beef will decrease as a result of the decline in the price of cheep.

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  • 7. 

    If both the demand curve and supply curve move to the left, we can predict:

    • A.

      price will fall, but we cannot predict quantity.

    • B.

      Price will rise, but we cannot predict quantity.

    • C.

      quantity will rise, but we cannot predict price.

    • D.

      Quantity will fall, but we cannot predict price.

    Correct Answer
    D. Quantity will fall, but we cannot predict price.
    Explanation
    If both the demand curve and supply curve move to the left, it indicates a decrease in both demand and supply. This would result in a decrease in the quantity of the product being exchanged in the market. However, the change in price cannot be predicted because it depends on the magnitude of the shifts in the demand and supply curves.

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  • 8. 

    Aabced, Inc. finds that no matter how much it sells, its marginal revenue is always $7.50. This constant marginal revenue tells us that the elasticity of its demand curve is:    

    • A.

      Infinity or perfectly elastic.

    • B.

      7.5

    • C.

      1.

    • D.

      Zero or Perfectly inelasic

    Correct Answer
    A. Infinity or perfectly elastic.
    Explanation
    The constant marginal revenue of $7.50 indicates that the demand curve for Aabced, Inc. is perfectly elastic or infinite. This means that no matter how much the company sells, the price remains constant at $7.50. In other words, the company can increase or decrease its quantity of sales without affecting the price. This suggests that the company operates in a highly competitive market where buyers are very sensitive to price changes and have many alternatives to choose from.

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  • 9. 

    Connie Mix is a consultant to Vidget Corp. He tells them that their product, Vidgets, is an inferior good. He would make this claim if he believed that the product had:   

    • A.

      an income elasticity greater than zero.

    • B.

      An income elasticity less than zero.

    • C.

      A price elasticity of supply greater than one.

    • D.

      A price elasticity of supply less than one.

    Correct Answer
    B. An income elasticity less than zero.
    Explanation
    If Connie Mix claims that Vidgets is an inferior good, it means that he believes that the demand for Vidgets decreases as income increases. This indicates a negative relationship between income and demand, which is represented by an income elasticity less than zero.

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  • 10. 

    In January of 1999 the U.S. Post Office raised the price of mailing a first class letter from 32 to 33 cents, an increase of about 3%. If the Post Office faces a section of its demand curve that is elastic, one can predict that revenues will:  

    • A.

      increase by more than 3%.

    • B.

      increase by 3%.

    • C.

      increase, but by less than 3%

    • D.

      Decrease.

    Correct Answer
    D. Decrease.
    Explanation
    If the Post Office faces a section of its demand curve that is elastic, it means that a small change in price will result in a relatively larger change in quantity demanded. In this case, when the price of mailing a first class letter increased by 3%, it is expected that the quantity demanded will decrease by more than 3%. As a result, the revenues of the Post Office will decrease.

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  • 11. 

    The following table gives information about the costs and benefits of an activity. Amount Total Cost Marginal Benefit 1 (first) $8 $18 2 (second) 16 14 3 (third) 25 8 4 (fourth) 36 7 5 (fifth) 50 3The total benefit of three units and the marginal cost of the fourth unit are::   

    • A.

      Total benefit= $9 & MC=7.

    • B.

      Total benefit=$24 & MC =$9.

    • C.

      Total benfit=$30 & MC= $36.

    • D.

      Total benefit=$40 & MC= $11.

    Correct Answer
    D. Total benefit=$40 & MC= $11.
    Explanation
    The correct answer is "Total benefit=$40 & MC= $11." This is because the total benefit of three units is $24, and the marginal cost of the fourth unit is $11.

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  • 12. 

    Refer to the following: S1 and D1 represent the original supply and demand curves and S2 and D2 the new curves.  In this market:

    • A.

      both supply and demand have decreased and equilibrium price has increased

    • B.

      Demand has increased, supply has decreased, and equilibrium price has decreased

    • C.

      Both demand and supply have increased and equilibrium price has decreased

    • D.

      Demand has decreased, supply has increased and equilibrium price has decreased

    Correct Answer
    C. Both demand and supply have increased and equilibrium price has decreased
    Explanation
    Feedback: Both S2 and D2 show an increase in quantity at each possible price. The increase in supply has more than offset the increase in demand, however. Equilibrium has moved from point J to point L, reflecting a drop in the equilibrium price.

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  • 13. 

    A partial explanation for the inverse relationship between price and quantity demanded is that a:

    • A.

      Lower price shifts the supply curve to the left

    • B.

      Higher price shifts the demand curve to the left

    • C.

      Lower price shifts the demand curve to the right

    • D.

      Higher price reduces the real incomes of buyers

    Correct Answer
    D. Higher price reduces the real incomes of buyers
    Explanation
    Feedback: The demand curve is the relationship between price and quantity demanded, all else equal. A change in price changes quantity demanded, but does not shift the demand curve. One explanation for the inverse relationship between price and quantity demanded along the curve is that a higher price reduces the real incomes of buyers. For normal goods, this drop in real income will reduce desired purchases.

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  • 14. 

    Suppose the production of VCRs can be represented by the following production function: q = L0.4K0.4 Which of the following statements is (are) TRUE?

    • A.

      Capital and labor can be substituted for one another.

    • B.

      The marginal productivity of labor falls as labor increases in the short-run.

    • C.

      The production function has decreasing returns to scale.

    • D.

      All of the above are true.

    Correct Answer
    D. All of the above are true.
    Explanation
    The production function q = L0.4K0.4 indicates that capital and labor are substitutable inputs, as changing the quantities of either input can affect the level of output. The fact that the production function has exponents less than 1 (0.4) for both capital and labor suggests that there are decreasing returns to scale, meaning that as both inputs are increased, the rate of increase in output will eventually diminish. Additionally, the marginal productivity of labor falls as labor increases in the short-run, indicating diminishing marginal returns to labor. Therefore, all of the statements are true.

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  • 15. 

    "Returns to scale" is a concept that operates

    • A.

      In both the long-run and the short-run.

    • B.

      In either the long-run or the short-run but never both.

    • C.

      Only in the long-run.

    • D.

      Only in the short-run.

    Correct Answer
    C. Only in the long-run.
    Explanation
    The concept of "returns to scale" refers to the relationship between the inputs used in production and the resulting output. In the long-run, a firm has the flexibility to adjust all of its inputs, such as labor and capital, in order to maximize its output. This means that it can increase or decrease the scale of production to achieve higher or lower levels of output. In contrast, in the short-run, at least one input is fixed and cannot be adjusted. Therefore, the concept of returns to scale only applies in the long-run, where all inputs can be varied.

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  • 16. 

    If a firm can produce 90 units with 6 workers and the average product for the 7th worker is 14, then the marginal product is

    • A.

      10

    • B.

      7

    • C.

      98

    • D.

      8

    Correct Answer
    D. 8
    Explanation
    The marginal product is calculated by finding the change in output when an additional unit of input is added. In this case, the average product for the 7th worker is given as 14, which means that the total output with 7 workers is 14 times the output with 6 workers. Therefore, the marginal product of the 7th worker is 14 units. However, this is not one of the options provided. Since none of the options match the given information, it is not possible to determine the correct answer.

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  • 17. 

    If a firm doubles all inputs and output more than doubles, there are

    • A.

      Decreasing returns to scale.

    • B.

      Increasing returns to the variable factor.

    • C.

      Increasing returns to scale.

    • D.

      Constant returns to scale.

    Correct Answer
    C. Increasing returns to scale.
    Explanation
    If a firm doubles all inputs and output more than doubles, it indicates increasing returns to scale. This means that as the firm increases its scale of production by doubling all inputs, the output increases at a greater rate. In other words, the firm experiences economies of scale, where the cost per unit of output decreases as the firm expands its production. This can be due to various factors such as specialization, better utilization of resources, and improved efficiency. Overall, increasing returns to scale suggest that the firm can achieve higher levels of output with proportionately lower costs.

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  • 18. 

    Consider the following production function:Q = A L a K b If the firm has increasing returns to scale, then which of the following answers correctly reflects that?

    • A.

      A = 0.6 and B = 0.33

    • B.

      A = 0.59 and B = 0.69

    • C.

      A = 0.4 and B = 0.3

    • D.

      A = 0.2 and B = 0.5

    Correct Answer
    B. A = 0.59 and B = 0.69
  • 19. 

    If a firm pays cash to buy a building to use for office space for its workers, the monthly opportunity cost of the building is best measured as          

    • A.

      The rent the firm could earn if it rented the building to another firm.

    • B.

      The price the firm paid divided by twelve.

    • C.

      The monthly mortgage payment the firm would have had to pay.

    • D.

      Zero.

    Correct Answer
    A. The rent the firm could earn if it rented the building to another firm.
    Explanation
    The monthly opportunity cost of the building is best measured as the rent the firm could earn if it rented the building to another firm. This is because by using the building for office space, the firm is forgoing the potential rental income it could have earned if it had leased the building to another firm. This represents the opportunity cost of using the building for its own workers.

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  • 20. 

    Suppose the total cost of producing T-shirts can be represented as TC = 50 + 2q. Which of the following statements is TRUE at all levels of production?  

    • A.

      MC > AFC.

    • B.

      MC = AC.

    • C.

      MC = AVC.

    • D.

      All of the above.

    Correct Answer
    C. MC = AVC.
    Explanation
    At all levels of production, the statement "MC = AVC" is true. MC (Marginal Cost) represents the additional cost of producing one more unit, while AVC (Average Variable Cost) represents the cost per unit of variable inputs. When MC is equal to AVC, it means that the additional cost of producing one more unit is equal to the average cost per unit of variable inputs. This indicates that the cost of producing each additional unit is equal to the average cost of the variable inputs used to produce that unit.

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  • 21. 

    Suppose the short-run production function is q = 10 * L. If the wage rate is $10 per unit of labor, then MC=  

    • A.

      Q.

    • B.

      q/10.

    • C.

      1.

    • D.

      10/q.

    Correct Answer
    C. 1.
    Explanation
    In this scenario, the short-run production function is q = 10 * L, where q represents the quantity of output and L represents the quantity of labor. The wage rate is given as $10 per unit of labor. Marginal cost (MC) represents the additional cost incurred by producing one more unit of output. Since the wage rate is $10 per unit of labor and the production function is q = 10 * L, it implies that the cost of producing one more unit of output is equal to the wage rate. Therefore, MC is equal to 1.

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  • 22. 

    If a production function is represented as q = LαKβ, the long-run average cost curve will be horizontal as long as   

    • A.

      L = K

    • B.

      α + β = 0

    • C.

      Q > 0

    • D.

      α + β = 1

    Correct Answer
    D. α + β = 1
    Explanation
    The long-run average cost curve will be horizontal as long as α + β = 1. This means that the sum of the exponents for labor (α) and capital (β) in the production function is equal to 1. This condition indicates constant returns to scale, where an increase in inputs leads to an equal increase in output. In this case, the average cost of production remains constant regardless of the scale of production.

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  • 23. 

    The WXY Corporation has fixed costs of $50. Its total variable costs (TVC) vary with output as shown in the following table. Output TVC 1 $   0 2    70 3   110 4   160 5   220 Refer to the table. The average total cost of 4 units of output is:

    • A.

      $27.50

    • B.

      $40.00

    • C.

      $52.50

    • D.

      $210.00

    Correct Answer
    C. $52.50
    Explanation
    Feedback: The total cost of 4 units of output is $210 = $50 (fixed cost) + $160 (total variable cost.) To find average total cost, divide this by the number of units of output: $210 / 4 = $52.50 per unit.

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  • 24. 

    Use the following diagram of a firm's long-run average total cost curve to answer the next question. Which of the following best explains the shape of the curve from B to C?

    • A.

      Labor's marginal product is decreasing

    • B.

      The law of diminishing returns

    • C.

      Wages increase as the firm uses more labor

    • D.

      Managing and coordinating a firm becomes increasingly costly as firm size increases

    Correct Answer
    D. Managing and coordinating a firm becomes increasingly costly as firm size increases
    Explanation
    Feedback: The range from B to C exhibits diseconomies of scale, which is caused primarily by the increasing difficulty of managing and coordinating the firm as it grows.

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  • 25. 

    Answer the next question on the basis of the following short-run production data for a small firm. Number ofWorkers Units ofOutput 0   0 1 12 2 26 3 48 4 60 5 70 6 78 Refer to the data. Average product is at a maximum when:

    • A.

      2 workers are hired

    • B.

      3 workers are hired

    • C.

      4 workers are hired

    • D.

      5 workers are hired

    Correct Answer
    B. 3 workers are hired
    Explanation
    Feedback: Average product is equal to the number of units of output divided by the number of workers. When three workers are hired, average product is equal to 48 / 3 = 16 units per worker. For comparison, average product is 13 when 2 workers are hired and 15 when 4 workers are hired.

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  • 26. 

    OptionalSuppose that a business incurred implicit costs of $300,000 and explicit costs of $1,300,000 over the past year. If the firm sold 70,000 units at $20 per unit, its accounting:

    • A.

      Profits were $400,000 and its economic profits were $100,000

    • B.

      Losses were $200,000 and its economic profits were $100,000

    • C.

      Profits were $100,000 and its economic profits were zero

    • D.

      Profits were $100,000 and its economic losses were $200,000

    Correct Answer
    D. Profits were $100,000 and its economic losses were $200,000
    Explanation
    Feedback: Accounting profits are revenues (70,000 times $20 equals $1,400,000) minus explicit costs. Economic profit is accounting profit minus implicit costs.

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