Question 1:

Sales of shampoo by CleanHair, Inc. have recently decreased from 1,300 to 1,100 units in response to a price decrease from $7 to $5 by its main competitor. Assuming that everything else is being held constant, we can infer that:

the cross-price ARC-elasticity (midpoints formula) between the two products is -2.

the cross-price ARC-elasticity (midpoints formula) between the two products is -½.

the cross-price ARC-elasticity (midpoints formula) between the two products is ½.

the cross-price ARC-elasticity (midpoints formula) between the two products is 2.

Question 2 :

Assume Pyrotex Inc. estimates the demand for its fireworks to be linear. If the current price charged by Pyrotex is such that the elasticity of demand is equal to 2.5, which of the following statements is true?

Pyrotex will surely increase its profits by decreasing the price of fireworks.

Pyrotex will surely increase its profits by increasing the price of fireworks.

Pyrotex cannot increase its profits by changing the price of fireworks.

Not enough information is provided to determine whether Pyrotex is currently maximizing its profits.

Question 3 :

Assume the generic production function Q=f(K,L) displays both decreasing returns to capital (K) and decreasing returns to labor (L), then:

this production function will certainly display decreasing returns to scale.

this production function will certainly display constant returns to scale.

this production function will certainly display increasing returns to scale.

this production function may display increasing returns to scale.

Question 4 :

If the generic production function Q=f(K,L) displays increasing returns to scale, the value of K is fixed in the short-run and the prices of all inputs are held constant, then:

the Short-Run Average Cost curve must be strictly decreasing.

the Long-Run Average Cost curve must be strictly decreasing .

the Short-Run and the Long-Run Average Cost curves will coincide.

the Long-Run Average Cost curve must be strictly increasing .

Question 5 :

The Marginal Product curve of input Y shows:

how the quantity of output produced changes for each amount of input Y, whether or not all other inputs are held constant.

how the quantity of output produced changes for each amount of input Y, holding all other inputs constant.

how the average quantity of output produced varies with input Y, whether or not all other inputs are held constant.

how the average quantity of output produced varies with input Y, holding all other inputs constant.

Question 6 :

increasing returns to scale

decreasing returns to scale

constant returns to scale

diminishing returns to the variable input

Question 7 :

Let EdGI refer to the income elasticity for gasoline. Suppose EdGI= 2; this means that:

if income increases by 2%, then QdG will increase by 1%.

if income decreases by 1%, then QdG will decrease by 2%.

if income increases by $1, then QdG will decrease by 2%.

if income decreases by 2%, then QdG will decrease by 1%.

Question 8 :

Assume SeatComfy Inc. produces table and chairs with the following total cost function TC=10,000+10Q+0.1Q2 in which Q=quantity of chairs produced. If SeatComfy can sell as many chairs it wishes at the current market price of $45, how many chairs should it produce to maximize its short-run profits?

350

700

175

45

Question 9 :

BrightLight Ltd. estimates the demand curve for its table lamps to be Q = 1,000 - 4 P. That is, P = 250- .25Q. Which of the following is false?

The maximum total revenue BrightlLight can obtain is $62,500.

The Marginal Revenue curve for BrightLight's table lamps is given by MR = 250 - ½ Q.

The elasticity of demand for BrightLight's table lamps is equal to 7.5 when their price is $125.

Question 10 :

Assume the demand function for skin care products is given by Q = 1,000 - 20 P + 5I. If P=$25 and I=$1,000 currently, then:

skin care products are a normal good.

the elasticity of demand is equal to 11.

skin care products are inferior.

the price is too high.

Question 11:

For many corporations, a major portion of the cost of production is fixed in the short run. Should these very large fixed costs be ignored when the executives are making output and pricing decisions? Why?

Question 12 :

In the small town of Springfield, Duffman observes that the price of beer has fallen. Duffman concludes that the total amount of money spent buying beer has to fall since the price of beer is lower. Is he correct? Why or why not? Clearly explain your answer.