Free Printable Managerial Economics Test 2

1.

Maruti estimates that domestic demand for its newest car will be P = 100 - 0.5Q; export demand will be P= 100 - 2Q. The total market demand curve for this car is (with P plotted along the vertical axis and Q along the horizontal axis)

a)

straight line with a slope of -0.4

b)

straight line with a slope of -2.5

c)

kinked line with the kink at P=50

d)

kinked line with the kink at Q = 50

e)

none of the above.

2.

Consider a production function of the form

Q\left(K,L\right)=K^2L^2

What is the marginal rate of technical substitution of capital for labor at the point where K=10 and L=5?

a)

5

b)

2

c)

1

d)

0.5

3.

In a certain textile firm, labor is the only short term variable input. The manager notices that the marginal product of labor is the same for each unit of labor, which implies that

a)

the average product of labor is always greater than the marginal product of labor.

b)

the average product of labor is always less than the marginal product of labor.

c)

the average product of labor is always equal to the marginal product of labor.

d)

as more labor is used, the average product of labor falls.

4.

Suppose that capital and labor are perfect complements in a one-to-one ratio in a firm’s production function. The firm is currently at an efficient production level, employing an equal number of machines and workers. Suppose the cost of labor were to double and the cost of capital were to fall by half. If the firm wanted to produce the previous level of output, the firm would hire

a)

more labor and less capital.

b)

less labor and more capital

c)

the same amounts of labor and capital.

d)

cannot be determined from the given information

5.

Which of the following factors may explain diseconomies of scale?

a)

Increasing returns to scale of inputs.

b)

Specialization of labor.

c)

Indivisible inputs

d)

Managerial inefficiency

6.

A firm has a positive fixed cost and a constant marginal cost. Its average total cost curve, ATC(q), must be:

a)

increasing and above MC(q)

b)

increasing and below MC(q)

c)

V-shaped and above MC(q)

d)

decreasing and asymptotic to MC(q)

7.

A firm's production function is given by Q = KL. The wage rate of labor is w = 10 and the rental rate of capital is r = 20. The firm wants to produce 1,800 units of output in the most efficient way possible. How much does the firm spend?

a)

2,000

b)

1.300

c)

1,200

d)

1,100

8.

Identify the truthfulness of the following statements.

I. When marginal cost is rising, average total cost is rising.

II. When marginal cost is below average total cost, average total cost is falling.

a)

Both I and II are true.

b)

Both I and II are false.

c)

I is true; II is false.

d)

I is false; II is true.

9.

A necessary condition for price discrimination is difference in price elasticities.

a)

This statement is false

b)

This statement is true

c)

Validity of this statement depends on whether the commodity in question is price elastic or price inelastic.

10.

The demand for for back seats in an auditorium which hosts plays and live performances is given by

Q_{B\ }=60\ -\ P_B

and those for front row seats given by

3Q_F\ =\ 56\ -\ P_F

. Total cost of running shows is

TC\ =\ 40\ +\ 20Q.\

This is the only auditorium in town. What is the price if the auditorium decides to charge the same price for both kind of seats?

a)

38

b)

26.9

c)

25

d)

16.1

11.

The demand for for back seats in an auditorium which hosts plays and live performances is given by

Q_{B\ }=60\ -\ P_B

and those for front row seats given by

3Q_F\ =\ 56\ -\ P_F

. Total cost of running shows is

TC\ =\ 40\ +\ 20Q.\

This is the only auditorium in town. What are the prices

P_B

and

P_F

if the auditorium decides to price discriminate?

a)

25,38

b)

25,10

c)

38, 6

d)

38,25

12.

$Q^d\ =\ 10\ -\ 0.5P^d$ and $Q^s\ =\ -2\ +\ P\ when\ P\ge2\ and\ \ 0,\ otherwise$

Demand and supply of housing in DU-Model Town is given above. The Government, in a bid of help the student renters imposes a price ceiling of 6 in this market. The dead-weight loss from this policy is

a)

6

b)

8

c)

40

d)

48

13.

$Q^d\ =\ 10\ -\ 0.5P^d$ and $Q^s\ =\ -2\ +\ P\ when\ P\ge2\ and\ \ 0,\ otherwise$

Demand and supply of housing in DU-Model Town is given above. The Government, in a bid of help the student renters imposes a price ceiling of 6 in this market. The difference between quantity demanded and quantity supplied in the market because of this policy is best described by

a)

an excess demand of 7

b)

an excess demand of 3

c)

an excess supply of 5

d)

an excess supply of 4

14.

$AC\left(q\right)\ =\ 40\ -\ q\ +\ 0.01q^2$

Assume that the market for kulfi is perfectly competitive. Each firm has a long-run cost curve given above . The market demand curve is $Q^d\ =\ 25,000\ -\ 1,000\ P$

Find the long-run equilibrium price.

a)

50

b)

15

c)

200

d)

10,000

15.

$AC\left(q\right)\ =\ 40\ -\ q\ +\ 0.01q^2$

Assume that the market for kulfi is perfectly competitive. Each firm has a long-run cost curve given above . The market demand curve is $Q^d\ =\ 25,000\ -\ 1,000\ P$

Find the number of firms that will be in this industry in the long-run.

a)

50

b)

15

c)

200

d)

10,000

16.

For a monopoly firm, the slope of AR is

a)

Equal to the slope of MR

b)

Twice the slope of MR

c)

Thrice the slope of MR

d)

Half the slope of MR

17.

$Q^d\ =\ 10\ -\ 0.5P^{ }$ and $Q^s\ =\ -2\ +\ P\ when\ P\ge2\ and\ \ 0,\ otherwise$

Demand and supply of cigarettes is given above. The Government imposes an excise tax of 6. The price received by the seller is

a)

4

b)

6

c)

9

d)

12

18.

$Q\ -\ 100\ +\ 2P=0$

The demand function faced by a firm is given above. Average cost function is given below: $AC\ =\ Q^2\ -\ 8Q\ +\ 57\ +\ \frac{4}{Q}$ . Sales (or revenue) maximising output and profit maximising output are given by

a)

50, 2.33

b)

2.33, 50

c)

0.53, 0.53

d)

50, 0.53

19.

Positive implicit costs imply that

a)

economic costs will be more than accounting costs

b)

economic costs will be less than accounting costs

c)

economic profits will be same than accounting profits

d)

economic profits will be more than accounting profits

20.

Which of the following statements hold for factors of production in perfectly competitive market structure

a)

There are barriers to move across firms

b)

Factors of production do not respond to changes in factor payments

c)

There is mobility across firms

d)

Payments to factors do not influence market price.

Managerial Economics Test 2

Total questions: 20

Worksheet time: 31mins

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