Question 1

Suppose that both the local government and a for-profit business run primary schools. The local government provides free education while the business charges fees. Everything else - students, teachers' wages, and facilities - is the same. How does the value added of the government school compare with that of the for-profit schools?
A) Government school higher.
B) Private school higher.
C) Same in both schools.

Accepted Answer

The value added in both the government and for-profit schools would be the same since value added is calculated based on the output (education provided) minus the inputs (costs such as teachers' wages and facilities), which are the same in both scenarios. The difference in funding mechanism (free vs. fee-based) does not affect the calculation of value added.

Question 2

The pay scale at a warehouse is $15 per hour for a basic eight-hour day, and $20 per hour for overtime of up to four hours, and $25 for overtime exceeding four hours a day. Angela works 10 hours a day. What are her marginal and average pay?
A) Marginal pay = $20 per hour, average pay = $16 per hour.
B) Marginal pay = $15 per hour, average pay = $20 per hour.
C) Marginal pay = $15 per hour, average pay = $15 per hour.
D) Marginal pay = $15 per hour, average pay = $17.30 per hour.

Accepted Answer

Marginal pay refers to the pay for the last hour worked, which for Angela is $20 per hour since she worked 2 hours of overtime. Her average pay is calculated by dividing her total earnings ($150 for 8 hours at $15 per hour plus $40 for 2 hours at $20 per hour) by 10 hours, resulting in $16 per hour.

Question 3

To encourage saving for retirement, many governments allow people to avoid income tax on their contributions to pre-tax retirement plans. Consider the decisions (i) to set up a pre-tax retirement plan, and (ii) on the amount to put aside for retirement. Classify as decisions of participation or extent.
A) (i) Participation. (ii) Extent.
B) (i) Extent. (ii) Extent.
C) (i) Participation. (ii) Participation.
D) (i) Extent. (ii) Participation.

Accepted Answer

Decision (i) to set up a pre-tax retirement plan is a decision of participation (whether or not to participate), and decision (ii) on the amount to put aside for retirement is a decision of extent (how much to participate).

Question 4

Healthcare systems worldwide lack kidneys for organ transplants. The government of Singapore pioneered the "opt-out" rule. All residents are deemed to donate their organs upon death unless they register to opt out. Which behavioral bias justifies this rule?
A) Sunk-cost fallacy.
B) Status quo bias.
C) Anchoring.
D) None of the above.

Accepted Answer

Status quo bias explains this rule because it relies on people's tendency to stick with their current situation or the default option, in this case, being organ donors unless they take action to opt out.

Question 5

Buying online can be complex. Retailers display the prices of products separately from shipping charges and taxes, making it difficult to know the price including all charges and taxes. Some consumers may just focus on product prices, without considering shipping charges and taxes. Which behavioral bias do they suffer from?
A) Sunk-cost fallacy.
B) Status quo bias.
C) Anchoring.
D) Participation.

Accepted Answer

Consumers focusing only on the product prices and not considering additional costs like shipping charges and taxes are influenced by the anchoring bias. They anchor their decision on the initial price they see, neglecting subsequent costs that should be factored into the overall price.

Question 6

ByteDance, the Chinese technology firm that provides the TikTok video sharing service, expanded into e-commerce. Which organizational boundaries changed?
A) Horizontal.
B) Vertical.
C) Neither.

Accepted Answer

ByteDance's expansion into e-commerce represents a change in horizontal boundaries, as the company is diversifying its product offerings beyond its original focus on social media and content creation to include e-commerce.

Question 7

At the time of writing, Tesla buys battery cells from Panasonic and assembles them into batteries for its electric cars. In the long term, Tesla plans to manufacture battery cells. Which organizational boundaries would change?
A) Horizontal.
B) Vertical.
C) Neither.

Accepted Answer

Tesla moving from buying battery cells from Panasonic to manufacturing its own battery cells represents a change in vertical boundaries. This is because Tesla is integrating a previous step in its supply chain (battery cell production) into its operations, which is a form of vertical integration.

Question 8

The border between North and South Korea is strictly patrolled by security forces to prevent movement of people. North Korea is impoverished, while South Korea is well developed. Why would South Korean labor unions oppose the opening of the border?
A) The supply of labor in South Korea would increase.
B) Wages in South Korea would fall.
C) All of the above.
D) None of the above.

Accepted Answer

South Korean labor unions might oppose the opening of the border because an influx of workers from North Korea could increase the supply of labor in South Korea, potentially leading to a decrease in wages due to the increased competition for jobs.

Question 9

Consider the chain of production from OLEDs (organic light-emitting diodes) to smartphones. How does the chain illustrate that not all buyers are consumers?
A) The sellers in the OLED market are OLED manufacturers.
B) The buyers in the OLED market are smartphone manufacturers.
C) The sellers in the smartphone market are smartphone manufacturers.
D) The buyers in the smartphone market are consumers.

Accepted Answer

The buyers in the OLED market are smartphone manufacturers, illustrating that not all buyers are end consumers. In this case, the smartphone manufacturers purchase OLEDs to use in their products, not for personal use.

Question 10

In the United States, as of 2018, Federal Prison Industries employed 12,000 inmates at 83 factories, and paid them between 23 cents and $1.15 per hour. What explains the low wages of prison workers?
A) Prisoners are few in number.
B) Wages in the free labor market are high.
C) Market power of prisons over prisoners.
D) Prisoners get free food and accommodation.

Accepted Answer

Prisons have significant market power over prisoners, allowing them to set low wages due to the lack of alternative employment options for inmates.

Question 11

Suppose that both the local government and a for-profit business run primary schools. The local government provides free education while the business charges fees. Everything else - students, teachers wages, and facilities - is the same. (a) Compare the value added of the two service providers. (b) If the teachers union increases wages for all teachers, in both government and for-profit schools, how would that affect the value added?

Accepted Answer

The answer of Suppose that both the local government and...

Question 12

The pay scale at a warehouse is $15 per hour for a basic eight-hour day, and $20 per hour for overtime of up to four hours, and $25 for overtime exceeding four hours a day. Angela works 10 a day, while Maggie works 14 hours a day. Compare their marginal and average pay. Who incurs the higher marginal cost of work?

Accepted Answer

The answer of The pay scale at a warehouse is...

Question 13

To encourage saving for retirement, many governments allow people to avoid income tax on their contributions to pre-tax retirement plans. Consider the decisions (a) to set up a pre-tax retirement plan, and (b) on the amount to put aside for retirement. Classify as decisions of participation or extent.

Accepted Answer

The answer of To encourage saving for retirement, many governments...

Question 14

Healthcare systems worldwide lack kidneys for organ transplants. The government of Singapore pioneered the "opt-out" rule. All residents are deemed to donate their organs upon death unless they register to opt out. Justify this rule with reference to decision bias.

Accepted Answer

The answer of Healthcare systems worldwide lack kidneys for organ...

Question 15

Buying online can be complex. Retailers display the prices of products separately from shipping charges and taxes, making it difficult to know the price including all charges and taxes. (a) How would a rational consumer choose between retailers? (b) Some consumers may just focus on product prices, without considering shipping charges and taxes. Which behavioral bias do they suffer from?

Accepted Answer

The answer of Buying online can be complex. Retailers display...

Question 16

ByteDance, the Chinese technology firm that provides the TikTok video sharing service, expanded into e-commerce. Comment on the changes in horizontal or vertical boundaries of the company.

Accepted Answer

The answer of ByteDance, the Chinese technology firm that provides...

Question 17

At the time of writing, Tesla buys battery cells from Panasonic and assembles them into batteries for its electric cars. In the long term, Tesla plans to manufacture battery cells. Comment on the changes in horizontal or vertical boundaries of the company.

Accepted Answer

The answer of At the time of writing, Tesla buys...

Question 18

The border between North and South Korea is strictly patrolled by security forces to prevent movement of people. North Korea is impoverished, while South Korea is well developed. Why would South Korean labor unions oppose the opening of the border?

Accepted Answer

The answer of The border between North and South Korea...

Question 19

Consider the chain of production from OLEDs (organic light-emitting diodes) to smartphones. Identify the markets and in each market, the buyers and sellers.

Accepted Answer

The answer of Consider the chain of production from OLEDs...

Question 20

Working prisoners receive wages that are lower than outside jail. In the United States, as of 2018, Federal Prison Industries employed 12,000 inmates at 83 factories, and paid them between 23 cents and $1.15 per hour. Comment on: (a) the market power of prisons over prison workers, and (b) the low wages of prison workers.

Accepted Answer

The answer of Working prisoners receive wages that are lower...

Quiz 1: Introduction to Managerial Economics Part I: Competitive Markets

The pay scale at a warehouse is $15 per hour for a basic eight-hour day, and $20 per hour for overtime of up to four hours, and $25 for overtime exceeding four hours a day. Angela works 10 hours a day. What are her marginal and average pay?

Healthcare systems worldwide lack kidneys for organ transplants. The government of Singapore pioneered the "opt-out" rule. All residents are deemed to donate their organs upon death unless they register to opt out. Which behavioral bias justifies this rule?

ByteDance, the Chinese technology firm that provides the TikTok video sharing service, expanded into e-commerce. Which organizational boundaries changed?

At the time of writing, Tesla buys battery cells from Panasonic and assembles them into batteries for its electric cars. In the long term, Tesla plans to manufacture battery cells. Which organizational boundaries would change?

The border between North and South Korea is strictly patrolled by security forces to prevent movement of people. North Korea is impoverished, while South Korea is well developed. Why would South Korean labor unions oppose the opening of the border?

Consider the chain of production from OLEDs (organic light-emitting diodes) to smartphones. How does the chain illustrate that not all buyers are consumers?

In the United States, as of 2018, Federal Prison Industries employed 12,000 inmates at 83 factories, and paid them between 23 cents and $1.15 per hour. What explains the low wages of prison workers?

Healthcare systems worldwide lack kidneys for organ transplants. The government of Singapore pioneered the "opt-out" rule. All residents are deemed to donate their organs upon death unless they register to opt out. Justify this rule with reference to decision bias.

ByteDance, the Chinese technology firm that provides the TikTok video sharing service, expanded into e-commerce. Comment on the changes in horizontal or vertical boundaries of the company.

At the time of writing, Tesla buys battery cells from Panasonic and assembles them into batteries for its electric cars. In the long term, Tesla plans to manufacture battery cells. Comment on the changes in horizontal or vertical boundaries of the company.

The border between North and South Korea is strictly patrolled by security forces to prevent movement of people. North Korea is impoverished, while South Korea is well developed. Why would South Korean labor unions oppose the opening of the border?

Consider the chain of production from OLEDs (organic light-emitting diodes) to smartphones. Identify the markets and in each market, the buyers and sellers.