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Washington State University Economics 592: Managerial Economics First Exam Spring 2000 February 28, 2000 Dr.

Ananish Chaudhuri NAME: TOTAL POINTS: 60 TOTAL TIME: 75 minutes

The following exam contains 30 multiple choice questions - each worth 2 points, for a total of 60 points. Please pick the correct answer to your question. DO NOT FORGET TO WRITE THE ALPHABET CORRESPONDING TO YOUR ANSWER IN THE SPACE PROVIDED. AND DO NOT FORGET TO WRITE YOUR NAME ON THE EXAM. Relax, concentrate and think your answers through. All the best. Consider the following numbers for a demand equation and supply equation Demand P 28 24 20 Q 1 2 3 P Supply Q 5 6 7 3 4 5

1.

2.

The equation for the supply curve is a. P = 2 + Q b. P = 2 - Q c. P = 2 + 2Q d. P = 2 + 4Q

Answer: A 3. The equilibrium price and quantity in this market is given by a. P=\$8; Q=8 b. P=\$8; Q=6 c. P=\$6; Q=4 d. P=\$6; Q=6 Answer: B 4. Suppose a tax of \$5 per unit of output is imposed on the sellers of this good. The new equilibrium price and quantity will be a. P=\$5; Q=12 b. P=\$12; Q=5 c. P=\$8; Q=6 d. P=\$6; Q=8 Answer: A Use the information provided in the table below to answer questions 5, 6 and 7. Output Total Cost 5. 0 10 1 11 2 13 3 16 4 20 5 25 6 31 7 38 8 48

6.

The average fixed cost of producing 5 units of output is a. 13 b. 6.5 c. 5 d. 2

Answer: D 7. The marginal cost of producing the 6th unit of output is a. b. c. d. Answer: A 8. If marginal cost (MC) is \$12 and average variable cost (AVC) is \$10 then AVC is a. At a minimum b. At a maximum c. Increasing d. Decreasing 6 31 6/31 31/6

Answer: C 9. If a firms total cost function is a straight line through the origin, then a. Marginal cost is zero b. Average cost is zero c. Marginal cost is constant d. All of the above are true

Answer: C 10. If average cost is at a minimum, then a. It is equal to marginal cost b. Total cost is also at a minimum c. Profit is at a maximum d. All of the above are true

Answer: A 11. If two goods are complements, then a. The cross price elasticity of demand is negative b. The cross price elasticity of demand is zero 3

c. d. Answer: C 12.

The cross price elasticity of demand is positive The cross price of elasticity of demand is infinity

A firm has the production function f(x,y) = 50*x1/5*y4/5. The slope with respect to X at any point on the isoquant is 10*(y/x)4/5 while that with respect to Y is 40*(x/y)1/5. The slope of the firms isoquant at the point (X,Y) = (10, 10) is (in absolute value): a. 1.67 b. 0.25 c. 4 d. 0.15

Answer: B 13. Consider the slope of the isoquant in the previous question. Suppose the firm is producing its output efficiently at minimum cost at this point (10, 10). Then a feasible ratio of input prices will be a. w=20, r=80 b. w=25; r=200 c. w=15; r=10 d. w=15; r=100

Answer: A 14. The round-trip train fare charged by NJ Transit from New Brunswick, NJ to New York is \$ 15.50 during the morning rush hour from 6:00 am to 9:00 am, but drops to \$11.50 after 9:00 am. This is because the demand for train rides from New Brunswick to New York is: a. Elastic in the rush hour, but inelastic later in the day. b. Unit elastic at all times of the day. c. Inelastic in the rush hour, but elastic later in the day. d. Unit elastic in the rush hour, but inelastic later in the day. Answer: C 15. Total revenue in the market will fall if : a. Price rises on the elastic portion of the demand curve. b. Price falls on the elastic portion of the demand curve. c. Price rises on the inelastic portion of the demand curve. d. Price falls on the elastic portion, but stops at the mid-point of the demand curve.

Answer: A 16. If the marginal revenue is zero, then a. Total revenue is zero b. Average revenue is zero c. Total revenue is at a maximum or a minimum d. Average revenue is at a maximum Answer: C 4

17.

As far as a monopoly is concerned, if marginal revenue is positive then demand is: a. elastic. b. inelastic. c. unit elastic. d. could be either elastic or inelastic.

Answer: A 18. The slope of the marginal revenue curve for a monopolist is: a. always equal to one. b. the same as the slope of the demand curve. c. half as much as the slope of the demand curve. d. twice as much as the slope of the demand curve.

Answer: D 19. A firm produces a product at a fixed marginal cost of \$2 and sells the product on two different markets. The inverse demand in market A is P A = 10 - QA and the demand in market B is PB = 20 - QB. What output should the firm sell in market A? a. 4 b. 6 c. 9 d. 12

Answer: A 20. Use the same information given in Question 19. market B? a. b. c. d. Answer: C 21. Consider the demand curve P = 100 2Q. Suppose a monopolist wished to MAXIMIZE REVENUE. What quantity should he produce in that case? a. 0 b. 50 c. 25 d. 10 4 6 9 12 What output should the firm sell in

Answer: C 22. Consider a monopolist whose Marginal Revenue is \$4 and the price elasticity of demand is 5

2 (in absolute value). This monopolist must be charging a price of a. \$8 b. \$16 c. \$4 d. \$24 Answer: A 23. Consider a monopolist whose Marginal Cost is \$8. The price elasticity of demand is 2 (in absolute value). IF THIS MONOPOLIST IS MAXIMIZING PROFIT at this level of output and at this MC, then the price he must be charging is a. \$8 b. \$16 c. \$4 d. \$24

Answer: B 24. Consider a monopolist who faces a demand curve of the form P = 100-2*Q. His marginal cost is constant and has the form MC=\$20. The profit maximizing output for this monopolist is a. 10 b. 20 c. 30 d. 40

25.

Use the information in Question 24. When the monopolist produces this level of output his total revenue is a. \$1000 b. \$1200 c. \$1500 d. Not enough information

Answer: B 26. Continue to use the information in Questions 24 and 25. In addition the monopolists Average Cost is also constant (in fact if marginal cost is constant then so is average Cost) and is equal to \$20. Then the total amount of PROFIT that the monopolist makes when producing the profit maximizing level of output is a. \$800 b. \$400 c. \$1000 d. \$1200

Answer: A 27. firm A firm has the production function f(x1, x2) = (x1b + x2b)c where b > 0 and c > 0. will have a. Constant returns to scale if and only if 2b+c = 1 b. Constant returns to scale if and only if bc = 1 c. Constant returns to scale if and only if b+c = 1 d. Constant returns to scale if and only if c = 1 This

Answer: B 28. Suppose a firms total revenue function is TR = 200Q - 20Q2. What is average revenue equal to when the firm produces one unit of output? a. 180 b. 20 c. 200 d. 220 Answer: A

29.

If a firms total revenue function is a straight line through the origin, then a. Marginal revenue is zero b. Average revenue is zero c. Marginal revenue is equal to average revenue d. All of the above are true

Answer: C 30. The shut-down point for a perfectly competitive firm is : a. the lowest point on the ATC curve. b. the point at which the firm's long-run supply curve ends. c. the lowest point on the AVC curve. d. the lowest point on the MC curve.