NOTE: TO RECEIVE CREDIT, YOU MUST SHOW YOUR CALCULATIONS

1.The relationship between quantity supplied and price is _________ and the relationship between quantity demanded and price is _________.

A.direct, inverse

B.inverse, direct

C.inverse, inverse

D.direct, direct

Chapter 2

2. "Low Crop Prices Drag Farm Towns Down with Them: Low wheat, corn, and soybean prices mean another bad year for many Midwest farmers."

In response to the above newspaper headline, what government action would economists recommend?

A. Establish price ceilings

B. Establish price floors

C. Provide subsidies to farmers

D. No action

3.A consumer values a house at $525,000 and a producer values the same house at $485,000. If the transaction is completed at $510,000, the transaction will generate:

a.

No surplus

b.

$25,000 worth of seller surplus and unknown amount of buyer surplus

c.

$15,000 worth of buyer surplus and $25,000 of seller surplus

d.

$25,000 worth of buyer surplus and unknown amount of seller surplus

4.A consumer values a house at $525,000 and a producer values the same house at $485,000. If the transaction is completed at $510,000, what amount of tax will result in unconsummated transaction?

a.

A tax of $9,000

b.

A tax of $14,000

c.

A tax of $15,000

d.

A tax of $18,000

5.A consumer values a house at $525,000 and a producer values the same house at $485,000. If the transaction is completed at $510,000, what level of tax rate will result in unconsummated transaction?

a.

1%

b.

5%

c.

3%

d.

2%

6.A buyer values a house at $525,000 and a seller values the same house at $485,000. If sales tax is 8% and is levied on the seller, then what would be the lowest price that the seller would be willing to sell at?

a.

$527,000

b.

$523,800

c.

$525,000

d.

$500,000

7.A buyer values a house at $525,000 and a seller values the same house at $485,000. If sales tax is 8% and is levied on the buyer, then, what would be the highest price that the buyer would be willing to pay?

a.

$525,000

b.

$523,800

c.

$485,000

d.

$486,111

8.If company X is successfully outsourcing its production of T-shirts to China, it is

a.

Creating wealth by moving labor in China from lower value use to higher value use

b.

Should be stopped on economic grounds since it is destroying wealth

c.

Destroying wealth by acquiring cheaper labor from China

d.

Both A & C

9.When the market is in equilibrium, with no government intervention,

a.

Total surplus is minimized

b.

Total surplus is maximized

c.

Government maximizes total revenue

d.

None of the above

10.Price ceilings are primarily intended to help

a.

No one

b.

Consumers

c.

Producers

d.

Government

11.Price ceilings cause

a.

Some suppliers to drop out of the market

b.

A decrease in the total production in the market

c.

The creation of black markets

d.

All the above

Chapter 3

12.Scott used $4,000,000 from his savings account that paid an annual interest of 5% to purchase a hardware store. After one year, Scott sold the business for $4,100,000.His accounting profits is:

a.

$300,000

b.

$100,000

c.

$80,000

d.

$20,000

13.Scott used $4,000,000 from his savings account that paid an annual interest of 5% and a $60,000 loan at an annual interest rate of 5% to purchase a hardware store. After one year, Scott sold the business for $4,100,000.His accounting profits is:

a.

$300,000

b.

$100,000

c.

$97,000

d.

$20,000

14.Scott used $4,000,000 from his savings account that paid an annual interest of 5% and a $60,000 loan at an annual interest rate of 5% to purchase a hardware store. After one year, Scott sold the business for $4,100,000.His economic profits is:

a.

$300,000

b.

$100,000

c.

$97,000

d.

None. He runs an economic loss of $103,000

15.Scott used $4,000,000 from his savings account that paid an annual interest of 5% to purchase a hardware store. After one year, Scott sold the business for $4,100,000. His economic profits is:

a.

$300,000

b.

$100,000

c.

-$100,000

d.

-$200,000

16. A company currently sells 10,000 units at $9/unit and makes $20,000 accounting profit. Variable costs currently stand at $6 per unit. By how much would variable costs have to increase before the company makes zero accounting profits?

a)$1.00

b)$2.00

c)$3.00

d)$4.00

e)

17.A manager invests $20,000 in equipment that would help the company reduce it's per unit costs from $15 to $12. He expects the equipment to be in use for the next seven years. After two years, he realizes that if he outsourced the production, the unit cost would be $7 instead. At this point what should the senior manager do?

a.

Charge the manager for the next five years of depreciation

b.

Write off the equipment as sunk cost and allow for outsourcing since it is cheaper

c.

Not allow for outsourcing since the equipment is good for another five years

d.

None of the above

Chapter 4

18. A manager of a clothing firm is deciding whether to add another factory in addition to one already in production. The manager would compare

a. The total benefits gained from the two factories to the total costs of running the two factories.

b. The incremental benefit expected from the second factory to the total costs of running the two factories.

c. The incremental benefit expected from the second factory to the cost of the second factory

d. The total benefits gained from the two factories to the incremental costs of running the two factories.

19. A retailer has to pay $9 per hour to hire 13 workers.If the retailer only needs to hire twelve workers, a wage rate of $7 per hour is sufficient.What is the marginal cost of the 13th worker?

a. $117.

b. $9.

c. $33.

d. $84.

20.If a firm's average cost is rising then

a. Marginal cost is less than average cost.

b. Marginal cost is rising.

c. Marginal cost is greater than average cost

d. The firm is making an economic profit

21. After the first week of his MBA Managerial Economics class, one of your pharmaceutical sales representatives accuses you of committing the sunk cost fallacy by refusing to allow him to reduce price to make what he considers to be a really tough sale.Which of the following suggest the sales representative may be right?

a.Most of the costs of drug development are sunk, not fixed.

b.Sales representatives are paid a sales commission on revenue, so they want to price where MR>0 instead of where MR>MC.

c.Sales representatives don't worry that a low price today may make it more difficult for the company's other sales representatives to charge higher prices to their customers.

d.Sales representatives forget that P>MC does NOT imply that MR>MC.

22. A company is producing 15,000 units. At this output level, marginal revenue is $22 and the marginal cost is $18. The firm sells each unit for $48 and average total cost is $40. What can we conclude from this information?

a. The company is making a loss

b. The company needs to cut production

c. The company needs to increase production

d. Not enough information is provided

23. Define Economics. Science of production, distribution, and consumption of goods and services