ManEco - MC and Problems - Chapter 2-5
ManEco - MC and Problems - Chapter 2-5
ManEco - MC and Problems - Chapter 2-5
Veluz
BSA-1A
4. Government regulation
a. provides incentives to conduct business in an illegal black market.
b. plays no role in generating wealth.
c. is the best way to eliminate poverty.
d. does not enforce property rights.
6. A price ceiling
a. is a government-set maximum price.
b. is an implicit tax on producers and an implicit subsidy to consumers.
c. will create a surplus.
d. causes an increase in consumer and producer surplus.
7. Taxes:
a. Impede the movement of assets to higher- valued uses.
b. reduce incentives to work.
c. decreases the number of wealth creating transactions.
d. All the above
8. A consumer values a car at $30,000 and it costs a producer $20,000 to make the same car. If the transaction is
completed at $24,000, the transaction will generate:
a. no surplus.
b. $4,000 worth of seller surplus and unknown amount of buyer surplus.
c. $6,000 worth of buyer surplus and $4,000 of seller surplus.
d. $6,000 worth of buyer surplus and unknown amount of seller surplus.
9. A consumer values a car at $525,000 and a producer values the same car at $485,000. If sales tax is 8% and is levied on
the seller, then the seller’s bottom line price is
a. $527,000.
b. $523,800.
c. $525,000.
d. $500,000.
1. A business owner makes 1,000 items a day. Each day he or she contributes eight hours to produce those items. If hired,
elsewhere he or she could have earned $250 an hour. The item sells for $15 each. Production does not stop during
weekends. If the explicit costs total $150,000 for 30 days, the firm’s ac- counting profit for the month equals
a. $300,000.
b. $60,000.
c. $450,000.
d. $240,000.
2. A business owner makes 1,000 items a day. Each day he or she contributes eight hours to produce those items. If hired,
elsewhere he or she could have earned $250 an hour. The item sells for $15 each. Production does not stop during
weekends. If the explicit costs total $150,000 for 30 days, the economic profit for the month equals:
a. $300,000.
b. $60,000.
c. $450,000.
d. $240,000.
8. Mr. D’s Barbeque of Pickwick, TN produces 10,000 dry-rubbed rib slabs per year. Annually Mr. D’s fixed costs are
$50,000. The average variable cost per slab is a constant
$2. The average total cost per slab then is
a. $7.
b. $2.
c. $5.
d. Impossible to determine
10. The U.S. government bought 112,000 acres of land in south-eastern Colorado in 1968 for $17,500,000. The cost of
using this land to- day exclusively for the reintroduction of the black-tailed prairie dog
a. is zero, because they already own the land.
b. is zero, because the land represents a sunk cost.
c. is equal to the market value of the land.
d. is equal to the total dollar value the land would yield if used for farming and ranching.
3-5 Starbucks
Starbucks is hoping to make use of its excess restaurant capacity in the evenings by experimenting with selling beer and
wine. It speculates that the only additional costs are hiring more of the same sort of workers to cover the additional hours
and costs of the new line of beverages. What hidden costs might emerge?
3. A firm produces 500 units per week. It hires 20 full-time workers (40 hours/week) at an hourly wage of $15. Raw
materials are ordered weekly, and they cost $10 for every unit produced. The weekly cost of the rent payment for the
factory is $2,250. How do the overall costs break down?
a. Total variable cost is $17,000; total fixed cost is $2,250; total cost is $19,250.
b. Total variable cost is $12,000; total fixed cost is $7,250; total cost is $19,250.
c. Total variable cost is $5,000; total fixed cost is $14,250; total cost is $19,250.
d. Total variable cost is $5,000; total fixed cost is $2,250; total cost is $7,250.
4. Total costs increase from $1,500 to $1,800 when a firm increases output from 40 to 50 units. Which of the following is
true if marginal cost is constant?
a. FC = $100
b. FC = $200
c. FC = $300
d. FC = $400
5. 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.
6. A firm is thinking of hiring an additional worker to their organization who they believe can increase total productivity
by 100 units a week. The cost of hiring him or her is $1,500 per week. If the price of each unit is $12,
a. the MR of hiring the worker is $1,500.
b. the MC of hiring the worker is $1,200.
c. the firm should not hire the worker since MB < MC.
d. All the above
7. A retailer has to pay $9 per hour to hire 13 workers. If the retailer only needs to hire 12 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
9. 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 suggests 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 don’t care about the costs of drug development.
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, tomorrow.
d. Sales representatives think only about one thing, sales.
10. 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.
3. Assume a firm has the following cost and revenue characteristics at its current level of output: price = $10.00, average
variable cost = $8.00, and average fixed cost = $4.00. This firm is
a. incurring a loss of $2.00 per unit and should shut down.
b. realizing only a normal profit.
c. realizing an economic profit of $2.00 per unit.
d. incurring a loss per unit of $2.00, but should continue to operate in the short run.
4. Sarah’s Machinery Company is deciding to dump their current technology A for a new technology B with small
fixed costs but big marginal costs. The current technology has fixed costs of $500 and marginal costs of $50 whereas
the new technology has fixed costs of $250 and marginal costs of $100. At what quantity is Sarah Machinery
indifferent between two technologies?
a. 5
b. 6
c. 7
d. 8
5. What is the net present value of a project that requires a $100 investment today and returns $50 at the end of the first
year and $80 at the end of the second year? Assume a discount rate of 10%.
a. $10.52
b. $11.57
c. $18.18
d. $30.00
6. You expect to sell 500 cell phones a month, which have a marginal cost of $50. If your fixed costs are $5,000 per
month, what is the breakeven price?
a. $10
b. $50
c. $60
d. $100
7. You are considering opening a new business to sell dartboards. You estimate that your manufacturing equipment will
cost $100,000, facility updates will cost $250,000, and on average it will cost you $80 (in labor and material) to produce a
board. If you can sell dartboards for $100 each, what is your breakeven quantity?
a. 1,000
b. 3,500
c. 4,375
d. 17,500
8. Which of the following is NOT true if a firm shuts down and produces zero output in the short run?
a. Variable costs will be zero.
b. Losses will be incurred.
c. Fixed costs will be greater than zero.
d. Fixed costs will be less than zero.