MGMT5245 1

Java Python MGMT5245

Assignment 1

MULTIPLE CHOICE SECTION (20 points, 2 point each)

1. In the case of a normal good, an increase in consumers’ incomes would:

a. Shift the demand curve inward.

b. Shift the supply curve inward.

c. Shift the supply curve outward.

d. Shift the supply and demand curves inward.

e. Shift the demand curve outward. 

2.  Which of the following observations is true?

  a. In the long run, more costs become variable.

  b. Fixed costs can be completely varied if the time period is sufficient.

  c. Fixed costs arise when some types of inputs can be bought only in big batches.

  d. Variable costs arise when inputs have a large productive capacity.

3. Which of the following experiments will yield observations that would allow one to calculate the marginal product of labor?

a. increase the number of lumberjacks with chain saws and observe the change in output of cut trees

b. increase the number of workers on an assembly line and record the change in output

  c. Both a and b are correct.

  d. Neither a nor b are correct.

4. In an attempt to forecast enrollment, a major university hired an economist to give a "head count." Which of the following variables would she probably emphasize more than any other in trying to forecast this?

a. How interested people are in attending college

b. The employment opportunities when the college opens up

c. Survey results on public interest in education

d. Her instinct about what the public wants

e. Tuition (the price of attendance)

5. USX, a steel company, reduced the number of man-hours required to produce a ton of steel from 10.8 in 1982 to 3.8 in 1990, thereby eliminating 55,000 jobs. Technically, this rise in productivity means the

  a. marginal product of labor increased.

  b. average product of labor increased.

  c. average product of capital fell.

  d. marginal product of capital fell.

6. If the MP of labor is 60 and the price of labor per period is $20, the MP of machinery is 75 and the price of the machinery per period is $25, in order to achieve optimal input proportions the firm should use

  a. more labor and less machinery.

  b. more machinery and less labor.

  c. more labor with the same amount of machinery.

  d. the current combination.

7. To find a firm's total revenue at every quantity, all you need to know is

  a. the demand curve for its product.

  b. the demand curve for its product and its total cost.

  c. its profit-maximizing price and quantity.

  d. its total profit curve.

8. The total cost curve generally has

  a. slope values which first decrease and then increase rapidly.

  b. slope values which first increase rapidly and then decrease.

  c. increasing slope values.

  d. decreasing slope values.

9. A profit-maximizing firm always

  a. sells its output at P = MR.

  b. produces at the output at which MR = 0.

  c. hires labor until the MRP of labor = 0.

  d. produces every unit of output for which MR > MC.

Table 1

Picker     Oranges Picked

  1 1,000

  2 2,000

  3 3,000

  4 3,900

  5 4,700

  6 5,400

  7 6,000

  8 6,200

  9 6,000

10. In Table 1 above, diminishing returns set in with picker

  a. 3.

  b. 4.

  c. 5.

  d. 6.

  e. 9.

SHORT ANSWER SECTION (80 points):

Question 1 (5 points):

What happens to the demand for a product when the price rises? Explain your answer.

Answer:

Question 2 (5 points):

Suppose demand can be described with the equation Q = 900 − 5P and supply with the equation Q = 100 + 5P. Complete the following table. Determine the equilibrium price and quantity.

$ Price	Quantity Demanded	Quantity Supplied	Surplus/Shortage
100
95
90
85
80
75
70
65
60

Question 3 (5 points):

When the price is above the equilibrium level, do suppliers offer more or less than demanders wish to buy? Explain your answer.

Answer:

Question 4 (5 points):

What happens to the quantity that sellers wish to sell as the price changes? Is the supply  curve upward sloping or downward sloping? Explain your answer.

Answer:

Question 5 (5 points):

If Polaroid wanted damages against Kodak for infringing on its instant developing film process and the courts found a high positive cross-elasticity between purchases of Polaroid instant film and 35mm regular film, would that have strengthened or weakened Polaroid's claim against Kodak? Explain your answer.

Answer:

Question 6 (5 points):

How might a market research analyst use measures of elasticity-price, cross, and income-in her work? Explain.

Answer:

Question 7 (10 points):

The boss observes that her 10 workers produce 1,000 widgets a day. She concludes that she can employ 20 workers and make 2,000 widgets, 30 to make 3,000, or 40 to make 4,000. Explain why this observation is either correct or incorrect.

Answer:

Question 8 (10 points):

Suppose that on a Saturday night at 10pm a large hotel has 300 vacant rooms, with little expectation of renting them at such a late hour on a weekend. A traveler comes in the door, looking a bit down on his luck, and asks how much a room will cost. Since he can't afford the normal rate of $150, the night manager decides to let him stay in the room for only $40. Is it likely that this decision reduced, or increased, the hotel's profits? Explain your answer.

Answer:

Question 9 (10 points):

Assume that you have taken over management of a small concession stand on a local beach for the summer. Your main product is iced water, popular on hot days. You've been selling 400 cups per day at 50 cents each. The cups cost 5 cents each. One of your customers suggests that you cut the price to 40 cents to make more money. For the customer to be correct, how much must your sales increase?

Answer:

Question 10 (20 points):

The market for cars has seen significant changes in the last few years. The global chip shortage has caused several distractions in the supply chain of new vehicles while the demand for cars was very high. During the pandemic, many people wanted to commute using their own vehicles. As cities begin to reopen, many households were looking for the opportunity to buy new cars to commute to work and to take road trips in after a long time in lockdown. Under normal circumstances, many economists would advise households to buy a slightly used car instead of a new one, since the value of a car depreciates significantly in the first two years. Yet things are very different in the car industry given the circumstances described above and mentioned in the article “Top 15 Cars That Cost More Used Than New.” According to the U.S. Bureau of Labor Statistics, the average price of a used car has increased by 28% recently.

As the economy continues to reopen, chances are that other markets will experience a similar effect, especially the market for durable goods (e.g., air conditioners, refrigerators, washers). Those equipped with enough economic tools would have the opportunity to benefit from the current market conditions (see “How a 16-Year-Old Made $1.7 Million in Revenue Reselling Scarce Goods”).

Using the information provided above, respond to the following prompts:

a. Draw the supply-demand diagram for the two markets in question (new and used cars) before any market changes.

b. Show the market changes that take place and affect the supply and/or demand in each one of those markets.

c. Why do those changes take place?

d. What is the outcome in terms of the equilibrium quantity and price in each market?

e. Is the cross-price elasticity of demand for each market positive or negative?

f. Suppose that there is a sudden increase in consumers' income (e.g., they receive stimulus checks). How will both markets be affected? Why?

g. Suppose that students of the Microeconomics class, equipped with all the necessary knowledge and information regarding the current situation, expect a future increase in the price of household appliances and game consoles