Question 1

The data below are for a competitive business (price-taker).If the market price is $1,100 per unit,the company should $\begin{array}{rrrrr}
&\text { Average } & \text { Average } & \text { Average }\
\text { Output}& \text {Fixed Costs}& \text {Variable Costs}& \text {Total Costs} &\text {Marginal Cost }\
\hline
0&\$ 3,000\
1 & \$ 3,000 & \$ 900 & \$ 3,900 & \$ 900 \
2 & \$ 1,500 & \$ 800 & \$ 2,300 & \$ 700 \
3 & \$ 1,000 & \$ 700 & \$ 1,700 & \$ 500 \
4 & \$ 750 & \$ 600 & \$ 1,350 & \$ 300 \
5 & \$ 600 & \$ 500 & \$ 1,100 & \$ 100 \
6 & \$ 500 & \$ 550 & \$ 1,050 & \$ 800 \
7 & \$ 429 & \$ 600 & \$ 1,029 & \$ 900 \
8 & \$ 375 & \$ 650 & \$ 1,025 & \$ 1,000 \
9 & \$ 333 & \$ 700 & \$ 1,033 & \$ 1,100 \
10 & \$ 300 & \$ 750 & \$ 1,050 & \$ 1,200
\end{array}$

Accepted Answer

To maximize profit, the company should continue producing as long as its marginal cost is less than or equal to the market price. From the table, we can see that the marginal cost of the 9th unit is $1,100, which is equal to the market price. Therefore, the company should produce 9 units to maximize profit.

To calculate the profit, we need to subtract the total costs from the total revenue, which is equal to the market price times the number of units sold. At 9 units, the total revenue is $9,900 ($1,100 x 9) and the total costs are $8,300 ($3,000 + $700 + $700 + $600 + $500 + $550 + $600 +$650 + $700). Therefore, the profit is $1,600 ($9,900 - $8,300), or $600 per unit.

Question 2

The data below are for a competitive business (price-taker).If the market price is $800 per unit,the company should $\begin{array}{rrrrr}
&\text { Average } & \text { Average } & \text { Average }\
\text { Output}& \text {Fixed Costs}& \text {Variable Costs}& \text {Total Costs} &\text {Marginal Cost }\
\hline
0&\$ 3,000\
1 & \$ 3,000 & \$ 900 & \$ 3,900 & \$ 900 \
2 & \$ 1,500 & \$ 800 & \$ 2,300 & \$ 700 \
3 & \$ 1,000 & \$ 700 & \$ 1,700 & \$ 500 \
4 & \$ 750 & \$ 600 & \$ 1,350 & \$ 300 \
5 & \$ 600 & \$ 500 & \$ 1,100 & \$ 100 \
6 & \$ 500 & \$ 550 & \$ 1,050 & \$ 800 \
7 & \$ 429 & \$ 600 & \$ 1,029 & \$ 900 \
8 & \$ 375 & \$ 650 & \$ 1,025 & \$ 1,000 \
9 & \$ 333 & \$ 700 & \$ 1,033 & \$ 1,100 \
10 & \$ 300 & \$ 750 & \$ 1,050 & \$ 1,200
\end{array}$

Accepted Answer

To determine the best choice, we need to calculate the profit for each output level at the given market price of $800. Profit can be calculated using the formula:

Profit = Total Revenue - Total Cost

We know that Total Revenue = Price x Quantity, where Price = $800.

Now, let's calculate the Total Costs and profit for each output level:

- Output 0: Total Cost = $3,000, Total Revenue = $0, Profit = -$3,000 
- Output 1: Total Cost = $3,900, Total Revenue = $800, Profit = -$3,100 
- Output 2: Total Cost = $2,300, Total Revenue = $1,600, Profit = $300 
- Output 3: Total Cost = $1,700, Total Revenue = $2,400, Profit = $700 
- Output 4: Total Cost = $1,350, Total Revenue = $3,200, Profit = $1,850 
- Output 5: Total Cost = $1,100, Total Revenue = $4,000, Profit = $2,900 
- Output 6: Total Cost = $1,050, Total Revenue = $4,800, Profit = $3,750 
- Output 7: Total Cost = $1,029, Total Revenue = $5,600, Profit = $4,571 
- Output 8: Total Cost = $1,025, Total Revenue = $6,400, Profit = $5,375 
- Output 9: Total Cost = $1,033, Total Revenue = $7,200, Profit = $6,167 
- Output 10: Total Cost = $1,050, Total Revenue = $8,000, Profit = $6,950

Based on the above calculations, producing 6 units will maximize profit, with a profit of $3,750. Therefore, the best choice is to produce six units.

Question 3

A monopolistic firm (price searcher)can sell 10 units for $120 each.If the marginal revenue from selling the 11th unit is $87,what is the unit price at which 11 units can be sold?

Accepted Answer

In monopolistic competition, marginal revenue is less than price. So, the price of the eleventh unit will be less than $120. Let the price of the eleventh unit be 'x'. 
Total revenue from selling 10 units = 10 * 120 = $1200
Total revenue from selling 11 units = 10 * 120 + x = $1200 + x
Marginal revenue from selling the 11th unit = Total revenue from selling 11 units - Total revenue from selling 10 units = x - $120
Given, Marginal revenue from selling the 11th unit = $87
So, x - $120 = $87
x = $207
Therefore, the price of the eleventh unit will be $207/11 = $18.81 (approximately)
Therefore, the unit price at which 11 units can be sold is 120 + 18.81 = $118.81 ≈ $117. Hence, the correct answer is B.

Question 4

A mall movie theater is considering reducing its rates to increase attendance.Which of the following costs is not to that decision?

Accepted Answer

The cost of rent payments is a fixed cost and is not directly affected by the decision to reduce rates. It will remain constant regardless of the number of attendees. The other costs, such as printing tickets, popping popcorn, and post-show theater cleaning, are variable costs that will increase with an increase in attendance due to the lower rates.

Question 5

Management at the East Alabama Motor Speedway estimates that the "Friday Night Fanatics" would continue to enthusiastically pack the house (every ticket would be sold)even after a 35% increase in the price of admission.Apparently the E.A.M.S is operating in the ______ portion of their ______ curve.

Accepted Answer

The demand is inelastic because the quantity demanded (attendance) does not decrease even with a significant increase in price.

Question 6

If a business can sell 10 units at a price of $30 but has to reduce price to $29 in order to sell 11 units,which of the following can we conclude?

Accepted Answer

If the business has to reduce the price to increase sales, we can conclude that demand is elastic. This means that marginal revenue is positive. If the business can sell more units at a lower price, the total revenue may increase, but this does not necessarily mean that demand is inelastic. Therefore, option D is incorrect. Option A is incorrect because negative marginal revenue would mean that selling an additional unit would decrease total revenue, which is not the case here. Option B is incorrect because if marginal revenue is decreasing but still higher than price, the business would not reduce the price to increase sales.

Question 7

If demand for a product falls at the same time supply rises,which of the following might we expect?

Accepted Answer

When demand decreases and supply increases, the equilibrium price will fall. The equilibrium quantity could either rise or fall depending on the relative magnitudes of the shifts in demand and supply.

Question 8

Which of the following would most likely make the demand for an item more elastic?

Accepted Answer

When there are no costs associated with switching to a competitor's product, buyers are more likely to switch if the price of the original product increases. This makes their demand for the original product more elastic. In contrast, if buyers perceive few close substitutes (A) or the item represents a small fraction of their budget (B), they may be less likely to switch and their demand may be less elastic. If buyers have not had time to adjust to the price change (D), they may not have changed their behavior yet, but this does not necessarily make their demand more elastic.

Question 9

A monopolistic firm (price searcher)will set price

Accepted Answer

A monopolistic firm maximizes profit by setting price in the elastic portion of the demand curve, where marginal revenue is positive and greater than marginal cost.

Question 10

Which of the following is the reason for the existence of consumer surplus?

Accepted Answer

Consumer surplus exists because some consumers are willing to pay more than the market price for a good or service. This means they are willing to pay a price higher than what suppliers are charging in the market, creating a surplus benefit for those consumers. The gap between what they are willing to pay and the actual price they pay is their consumer surplus.

Question 11

When demand for a product falls,which of the following events would you NOT necessarily expect to occur?

Accepted Answer

A decrease in demand does not necessarily lead to a decrease in supply. Supply is determined by factors such as production costs, technology, and availability of resources. However, if the decrease in demand is significant and prolonged, it may eventually lead to a decrease in supply as producers may reduce production or exit the market altogether.

Question 12

A baseball manufacturer is currently producing 10,000 baseballs.At this production level,marginal cost is $2.50 and average total cost is $2.00.Baseballs sell for $3.00 at this production level,and marginal revenue is $2.25.From this information,we can conclude that

Accepted Answer

The manufacturer is producing too many baseballs because the marginal cost ($2.50) is greater than the marginal revenue ($2.25), indicating that producing additional baseballs decreases profit.

Question 13

"Smitty's Hot Boiled Peanuts" recently reported that its revenue increased from the previous quarter,along with its profits.What is the most likely explanation for this change,if the only change Smitty's made was in its price?

Accepted Answer

If the only change Smitty's made was in its price and yet its revenue and profits increased, it suggests that the demand for Smitty's hot boiled peanuts is inelastic - that is, customers continue to buy roughly the same quantity of peanuts even when the price increases. If Smitty's increased its price and still saw an increase in revenue and profits, it suggests that the increase in price more than offset any decrease in the quantity of peanuts sold, which suggests inelastic demand.

Question 14

In the long-run,which of the following outcomes is most likely for a firm?

Accepted Answer

In the long-run, firms in a competitive market tend to earn zero economic profits due to the entry and exit of firms, but they can still have positive accounting profits because accounting profits do not account for opportunity costs.

Question 15

Dr.Octavio is an Ophthalmologist who performs both cataract and Lasik surgeries.If a competitor starts offering Lasik surgery as well,causing a decrease in the price Dr.Octavio can charge for Lasik.This price decrease

Accepted Answer

The decrease in the price of Lasik surgery will make it less profitable for Dr. Octavio to perform Lasik surgeries. Therefore, the opportunity cost of performing cataract surgeries (compared to performing Lasik surgeries) will decrease. As a result, Dr. Octavio may choose to perform more cataract surgeries instead of Lasik surgeries, which would increase the demand for cataract surgeries. However, it is not necessary to assume that cataract and Lasik surgeries are substitutes.

Question 16

Which of the following will NOT cause the demand curve for turkey meat to shift?

Accepted Answer

A sudden decrease in price will result in a movement along the demand curve, not a shift of the entire curve. The other options listed would cause a shift in the demand curve. Rising chicken and pork prices would increase the demand for turkey meat as a substitute, news indicating cancer-fighting properties would increase the perceived value of turkey meat, and Thanksgiving would increase demand due to its traditional association with turkey consumption.

Question 17

Bertha's Bait Shop sells cartons of worms for $4 each.Assuming Bertha is a monopolistic firm (price searcher),marginal revenue on the 10th carton sold is

Accepted Answer

As a monopolistic firm, Bertha has market power and can set a price higher than the marginal cost to maximize profits. However, to sell more units, she needs to lower the price. Therefore, the marginal revenue of the 10th carton sold will be less than $4.

Question 18

Suppose a new manufacturing technology results in an expansion in the supply of golf balls in the United States of 15%.If the elasticity of demand of golf balls sold in the US is -0.4,the new equilibrium price will be

Accepted Answer

Given, 
% change in supply = 15%
Elasticity of demand = -0.4

We can use the following formula to find the percentage change in price:

% change in price = (% change in supply) / (elasticity of demand)

% change in price = 15% / (-0.4) = -37.5%

The negative sign indicates that the price will fall. Therefore, the new equilibrium price will be 37.5% lower than the original price. Hence, the correct choice is D.

Question 19

The U.S.Government bought 112,000 acres of land in southeastern Colorado in 1968 for $17,500,000.The cost of using this land today exclusively for the reintroduction of the black-tailed prairie dog

Accepted Answer

The cost of using the land today is equal to its current market value, as this represents the opportunity cost of not using the land for its next best alternative use.

Question 20

The data below are for a competitive business (price-taker).If the market price is $300 per unit,the company should $\begin{array}{rrrrr}
&\text { Average } & \text { Average } & \text { Average }\
\text { Output}& \text {Fixed Costs}& \text {Variable Costs}& \text {Total Costs} &\text {Marginal Cost }\
\hline
0&\$ 3,000\
1 & \$ 3,000 & \$ 900 & \$ 3,900 & \$ 900 \
2 & \$ 1,500 & \$ 800 & \$ 2,300 & \$ 700 \
3 & \$ 1,000 & \$ 700 & \$ 1,700 & \$ 500 \
4 & \$ 750 & \$ 600 & \$ 1,350 & \$ 300 \
5 & \$ 600 & \$ 500 & \$ 1,100 & \$ 100 \
6 & \$ 500 & \$ 550 & \$ 1,050 & \$ 800 \
7 & \$ 429 & \$ 600 & \$ 1,029 & \$ 900 \
8 & \$ 375 & \$ 650 & \$ 1,025 & \$ 1,000 \
9 & \$ 333 & \$ 700 & \$ 1,033 & \$ 1,100 \
10 & \$ 300 & \$ 750 & \$ 1,050 & \$ 1,200
\end{array}$

Accepted Answer

The answer of The data below are for a competitive...

Quiz 1: Managerial Economics

A monopolistic firm (price searcher) can sell 10 units for $120 each.If the marginal revenue from selling the 11th unit is $87,what is the unit price at which 11 units can be sold?