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business
managerial economics

Questions and Answers of Managerial Economics

Suppose a firm is currently using 500 laborers and 325 units of capital to produce its product. The wage rate is $25, and the price of capital is $130. The last laborer adds 25 units to total output,
In the accompanying figure, labor costs $100 per unit. The manager wants to produce 2,500 units of output. Answer the following questions: a. At point A, the MRTS is__________ (less than, greater
The price of capital is $50 per unit. Use the accompanying figure, which shows an isocost curve, to answer the questions that follow: a. The equation for the isocost curve shown in the figure is K =
The accompanying figure shows the isoquant for producing 1,000 units.a. At point A in the figure, the marginal rate of technical substitution (MRTS) is_________.b. At point A in the figure,
Assume that labor?the only variable input of a firm?has the average and marginal product curves shown in the following graph. Labor?s wage is $60 per unit.a. When the firm attains minimum average
The first two columns in the following table give a firm?s short-run production function when the only variable input is labor, and capital (the fixed input) is held constant at 5 units. The price of
Suppose that a firm is currently employing 20 workers, the only variable input, at a wage rate of $60. The average product of labor is 30, the last worker added 12 units to total output, and total
Assume average variable cost is constant over a range of output. What is marginal cost over this range? What is happening to average total cost over this range?
Fill in the blanks in the following table: Total fixed Total variable cost Average fixed cost Average variable cost Average total cost Total Marginal Output cost cost cost 100 260 60 200 0.30 300
The following table shows the amount of total output produced from various combinations of labor and capital:a. Calculate the marginal product and average product of labor when capital is held
Refer to Table 8.3 and explain precisely why using 10 units of labor and 2 units of capital is not economically efficient. (1) (2) Total product (Q) (3) Average product (AP= Q/L) (4) Marginal product
Fill in the blanks in the following table: Units of labor Total product Average product Marginal product 1 40 48 3 138 44 24 6 210 7 29 8 -27 4.
A start-up biomedical engineering firm has begun manufacturing a drug-coated bimetallic stent, which is a thin wire mesh tube inserted in clogged coronary arteries to prop them open and prevent
For each of the following situations, determine whether the manager is concerned with a short-run or a long-run production decision. Explain briefly in each case.a. A petroleum drilling supervisor on
Jetways Airline flies passengers between New York and Miami, making one round-trip daily using a leased Boeing 737 aircraft. Consider the number of passengers served daily as the output for the
A firm plans to produce 1,000 units per day of good X. The firm?s production engineer finds two technically efficient processes (i.e., input combinations of labor and capital) to produce 1,000 units
In the final section of this chapter we provided warnings about three problems that frequently arise. List, explain, and provide an example of each.
Describe the major shortcomings of time-series models.
Consider a firm subject to quarter-to-quarter variation in its sales. Suppose that the following equation was estimated using quarterly data for the period 2011?2018 (the time variable goes from 1 to
A linear trend equation for sales of the form Qt = a + bt was estimated for the period 2003?2017 (i.e., t 5 2003, 2004, . . . , 2017). The results of the regression are as follows: a. Evaluate the
The following log-linear demand curve for a price-setting firm is estimated using the ordinary least-squares method: Q = aPbMcPdR Following are the results of this estimation: a. The estimated
A linear industry demand function of the form Q = a + bP + cM + dPR was estimated using regression analysis. The results of this estimation are as follows: a. Is the sign of b? as would be predicted
The empirical demand function for good X is estimated in log-linear form asln Q̂ = 11.74209 - 1.65 ln P + 0.8 ln M - 2.5 ln PYwhere Q̂ is the estimated number of units of good X demanded, P
The estimated market demand for good X isQ̂ = 70 - 3.5P - 0.6M + 4PZwhere Q̂ is the estimated number of units of good X demanded, P is the price of the good, M is income, and PZ is the price of
The general linear demand for good X is estimated to beQ = 250,000 - 500P - 1.50M - 240PRwhere P is the price of good X, M is average income of consumers who buy good X, and PR is the price of
Suppose the demand for good X is Q = 20P-1.a. When P = $1, total revenue is _________.b. When P = $2, total revenue is _________.c. When P = $4, total revenue is _________.d. The price elasticity of
In the following two panels, the demand for good X shifts due to a change in income (Panel A) and a change in the price of a related good Y (Panel B). Holding the price of good X constant at $50,
Write the equation for the demand curve in the graph for Technical Problem 7. What is the equation for marginal revenue? At what price is demand unitary elastic? At what output is marginal revenue
Use the figure below to answer the following questions: a. Calculate price elasticity at point S using the method? b. Calculate price elasticity at point S using the method E = P / P -A. c. Compare
Use the linear demand curve shown below to answer the following questions: a. The point elasticity of demand at a price of $800 is _____________.b. The point elasticity of demand at a price of $200
Use the graph on the next page to answer the following questions:a. The interval elasticity of demand over the price range $3 to $5 is ____________.b. The interval elasticity of demand over the price
For each pair of price elasticities, which elasticity (in absolute value) is larger? Why?a. The price elasticity for carbonated soft drinks or the price elasticity for Coca-Cola.b. The price
In Panel A of Figure 6.1, verify that demand is unitary elastic over the price range of $11 to $13 without calculating the price elasticity of demand. Figure 6.1 Quantity effect dominates Price
Fill in the blanks:a. When demand is elastic, an increase in price causes quantity demanded to_______________ and total revenue to _______________.b. When demand is inelastic, a decrease in
Fill in the blanks:a. When demand is elastic, the ________effect dominates the effect________.b. When demand is inelastic, the ________effect dominates the effect________.c. When demand is unitary
Fill in the blanks:a. The price elasticity of demand for a firm’s product is equal to 21.5 over the range of prices being considered by the firm’s manager. If the manager decreases the price of
Moving along a demand curve, quantity demanded decreases 8 percent when price increases 10 percent.a. The price elasticity of demand is calculated to be __________.b. Given the price elasticity
A consumer has the indifference map shown below. The market prices of X and Y are $24 and $8, respectively. The consumer has $120 to spend on goods X and Y.a. Construct the consumer?s budget line and
Suppose there are only three consumers in the market for a particular good. The quantities demanded by each consumer at each price between $1 and $9 are shown in the following table:a. Using the
The following graph shows a portion of a consumer?s indifference map and three budget lines. The consumer has an income of $1,000. What is the price of Y? What are three price?quantity combinations
Assume that an individual consumes three goods, X, Y, and Z. The marginal utility (assumed measurable) of each good is independent of the rate of consumption of other goods. The prices of X, Y, and Z
Sally purchases only pasta and salad with her income of $160 a month. Each month she buys 10 pasta dinners at $6 each and 20 salads at $5 each. The marginal utility of the last unit of each is 30.
The following graph shows a portion of a consumer?s indifference map. The consumer faces the budget line LZ, and the price of X is $20.a. The consumer?s income 5 $ ?____________.b. The price of Y is
Suppose that the marginal rate of substitution is 2, the price of X is $3, and the price of Y is $1.a. If the consumer obtains 1 more unit of X, how many units of Y must be given up in order to keep
Suppose a consumer has the indifference map shown below. The relevant budget line is LZ. The price of good Y is $10.a. What is the consumer?s income?b. What is the price of X?c. Write the equation
Use the figure below to answer the following questions:a. The equation of budget line LZ is Y =_________________ - _________________X.b. The equation of budget line LR is Y = _________________-
A consumer buys only two goods, X and Y.a. If the MRS between X and Y is 2 and the marginal utility of X is 20, what is the marginal utility of Y?b. If the MRS between X and Y is 3 and the marginal
Use the graph below of a consumer?s indifference curve to answer the questions:a. What is the MRS between A and B?b. What is the MRS between B and C?c. What is the MRS at B? 1,000 800 A 600 В 400 C
Suppose that two units of X and eight units of Y give a consumer the same utility as four units of X and two units of Y. Over this range:a. What is the marginal rate of substitution over this range
Answer each part of this question using the consumption bundles shown in Figure 5.1. Assume a consumer has complete and transitive preferences for goods X and Y and does not experience satiation for
Answer the following questions about consumer preferences:a. If Julie prefers Diet Coke to Diet Pepsi and Diet Pepsi to regular Pepsi but is indifferent between Diet Coke and Classic Coke, what are
Suppose Y is related to R and S in the following nonlinear way: Y = aRbSc a. How can this nonlinear equation be transformed into a linear form that can be analyzed by using multiple regression
Eighteen data points on M and X are used to estimate the quadratic regression model M = a + bX + cX2. A new variable, Z, is created to transform the regression into a linear form. The computer output
A multiple regression model, R = a + bW + cX + dZ, is estimated by a computer package, which produces the following output: a. How many degrees of freedom does this regression analysis have?b. What
Evaluate each of the following statements:a. “In a multiple regression model, the coefficients on the explanatory variables measure the percent of the total variation in the dependent variable Y
A simple linear regression equation, Y = a + bX, is estimated by a computer program, which produces the following output: a. How many degrees of freedom does this regression analysis have?b. What is
Ten data points on Y and X are employed to estimate the parameters in the linear relation Y = a + bX. The computer output from the regression analysis is the following: a. What is the equation of
The linear regression in problem 1 is estimated using 26 observations on R and W. The least-squares estimate of b is 40.495, and the standard error of the estimate is 16.250.Perform a t-test for
Evaluate the following statements:a. “The smaller the standard error of the estimate, Sb̂, the more accurate the parameter estimate.”b. “If b̂ is an unbiased estimate of b, then b̂ equals
Regression analysis involves estimating the values of parameters and testing the estimated parameters for significance. Why must parameter estimates be tested for statistical significance?
Regression analysis is often referred to as least-squares regression. Why is this name appropriate?
A simple linear regression equation relates R and W as follows:R = a + bWa. The explanatory variable is________, and the dependent variable is________.b. The slope parameter is________, and the
a. If, in a constrained minimization problem, PA = $10, PB = $10, MBA = 600, and MBB = 300 and one unit of B is taken away, how many units of A must be added to keep benefits constant?b. If the
Suppose a firm is considering two different activities, X and Y, which yield the total benefits presented in the schedule below. The price of X is $2 per unit, and the price of Y is $10 per unit.a.
A decision maker wishes to maximize the total benefit associated with three activities, X, Y, and Z. The price per unit of activities X, Y, and Z is $1, $2, and $3, respectively. The following table
A decision maker is choosing the levels of two activities, A and B, so as to maximize total benefits under a given budget. The prices and marginal benefits of the last unitsof A and B are denoted PA,
Fill in the blanks. When choosing the levels of two activities, A and B, in order to maximize total benefits within a given budget:a. If at the given levels of A and B, MB/P of A is__________ MB/P of
Now suppose the decision maker in Technical Problem 6 faces a fixed cost of $24. Fill in the blanks in the following table to answer the questions below. AC is the average cost per unit of
Fill in the blanks in the following table to answer the questions below. a. What is the optimal level of activity in the table above?b. What is the value of net benefit at the optimal level of
Fill in the blanks in the following statement:If marginal benefit exceeds marginal cost, then increasing the level of activity by one unit___________ (increases, decreases)___________ (total,
Use the graph below to answer the following questions: a. At 60 units of the activity, marginal benefit is $___________ and marginal cost is $___________.b. Adding the 60th unit of the activity
Fill in the blanks below. In an unconstrained maximization problem:a. An activity should be increased if___________ exceeds ___________.b. An activity should be decreased if___________
Refer to Figure 3.2 and answer the following questions:a. At 600 units of activity, marginal benefit is___________ (rising, constant, positive, negative) because the tangent line at D is
For each of the following decision-making problems, determine whether the problem involves constrained or unconstrained optimization; what the objective function is and, for each constrained problem,
Use the following graph to answer these questions.a. What are the equilibrium price and quantity?b. What is the effect of a ceiling price of $40?c. What is the effect of a floor price of $50? A floor
In Technical Problem 12, suppose the city council decides rents are too high and imposes a rent ceiling of $400.a. The ceiling on rent causes a______________ of ________________ apartments per
Suppose that the general demand function for good X isQd = 60 - 2Px + 0.01M + 7PRwhereQd = quantity of X demandedPx = price of XM = (average) consumer incomePR = price of a related good Ra. Is good X
Suppose that a pair of events from Technical Problem 15 occur simultaneously. For each of the pairs of events indicated below, perform a qualitative analysis to predict the direction of change in
Use the linear demand and supply curves shown below to answer the following questions: a. The market or equilibrium price is $___________.b. The economic value of the 2,000th unit is $ ___________,
Suppose that the demand and supply functions for good X are
The following table presents the demand and supply schedules for apartments in a small U.S. city: a. If the monthly rental rate is $600, excess ___________of___________ apartments per month will
Other things remaining the same, what would happen to the supply of a particular commodity if the following changes occur?a. The price of the commodity decreases.b. A technological breakthrough
The following general supply function shows the quantity of good X that producers offer for sale (Qs):Qs = 19 + 20Ps - 10PI + 6T - 32Pr - 20Pe + 5Fwhere Px is the price of X, PI is the price of
Suppose the supply curve for good X passes through the point P = $25, Qs = 500. Give two interpretations of this point on the supply curve.
Consider the general supply function:Qs = 60 + 5P - 12PI + 10Fwhere Qs = quantity supplied, P = price of the commodity, PI = price of a key input in the production process, and F = number of firms
What happens to demand when the following changes occur?a. The price of the commodity falls.b. Income increases and the commodity is normal.c. Income increases and the commodity is inferior.d. The
Using a graph, explain carefully the difference between a movement along a demand curve and a shift in the demand curve.
Recall that the general demand function for the demand curves in Figure 2.2 is Qd = 3,200 - 10P + 0.05M + 24PR Derive the demand function for D2 in Figure 2.2. Recall that for D2 income is $52,000
The demand curve for good X passes through the point P = $2 and Qd = 35. Give two interpretations of this point on the demand curve.
Consider the general demand function:Qd = 8,000 - 16P + 0.75M + 30PRa. Derive the equation for the demand function when M = $30,000 and PR = $50.b. Interpret the intercept and slope parameters of the
The general demand function for good A isQd = 600 - 4PA - 0.03M - 12PB + 15T + 6PE + 1.5Nwhere Qd = quantity demanded of good A each month, PA = price of good A, M = average household
Fill in the blanks:a. Managers will maximize the values of firms by making decisions that maximize ______________in every single time period, so long as cost and revenue conditions in each period are
Over the next three years, a firm is expected to earn economic profits of $120,000 in the first year, $140,000 in the second year, and $100,000 in the third year. After the end of the third year, the
During a year of operation, a firm collects $175,000 in revenue and spends $80,000 on raw materials, labor expense, utilities, and rent. The owners of the firm have provided $500,000 of their own
For each one of the costs below, explain whether the resource cost is explicit or implicit, and give the annual opportunity cost for each one. Assume the owner of the business can invest money and
Suppose you were to estimate a statistical model explaining the relation between the degree of ownership concentration and the following variables: (1) the degree of regulation in the industry, (2)
Go to the SEC EDGAR Web site (www.sec.gov/cgi-bin/srch-edgar). Search for the recent SEC filings of a publicly traded company (such as Walmart Stores Inc.). Review the firm's most recent proxy
Bob's Manufacturing Company has altered the determinants of pay raises for U.S. employees. Whereas in the past pay increases for managers, professionals, and hourly workers had been automatic,
Discuss some of the costs and benefits of 360-degree evaluation systems.
By the year 2000, General Motors had decentralized primary decision rights for designing cars to vehicle line managers. In earlier years, General Motors had a centralized corporate design group. This

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