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WorksheetsMidterm Exam_2-031
Total questions: 46
Worksheet time: 1hrs 5mins
Remembering that demand elasticity is defined as the percentage change in quantity divided by the percentage change in price, if price decreases and, in percentage terms, quantity rises more than price has dropped, total revenue will
increase.
decrease.
remain the same.
either increase or decrease.
Suppose the price of beans rises from $1.00 a pound to $2.00 a pound, quantity demanded falls from 10 units to 6 units, the coefficient of elasticity of demand for beans using the arc elasticity approach is
-1.33.
-0.75.
-0.4.
-0.25.
Suppose the price of beans rises from $1.00 a pound to $2.00 a pound, quantity demanded falls from 10 units to 6 units. In this example, the demand for beans is said to be
relatively elastic.
relatively inelastic.
perfectly elastic.
perfectly inelastic.
The cross-price elasticity of demand for coffee and coffee-cream is likely to be
greater than zero.
less than zero.
zero.
infinity.
When purchases of tennis socks decline following an increase in the price of tennis sneakers (other things remaining equal), the relationship between these two items can be described as
substitutable.
complementary.
unique.
ordinary.
The owner of a produce store found that when the price of a head of lettuce was raised from 50 cents to $1, the quantity sold per hour fell from 18 to 8. The arc elasticity of demand for lettuce is
-0.56.
-1.15.
-0.8.
-1.57.
When total revenue reaches its peak (elasticity equals 1), marginal revenue reaches
1.
zero.
-1.
Cannot be determined from the information provided
If the demand for a good is price inelastic and the good price is increased, then the marginal revenue (MR) received by the seller will
not change.
decrease.
increase.
Cannot be determined from this information
If the price elasticity of supply of a good is elastic and the good price increases, then the increase in the good's supply should be
greater than the increase in price.
less than the increase in price.
the same as the increase in price.
Cannot be determined from this information
The derived demand curve for a good component will be more inelastic
the larger is the fraction of total cost going to this component.
the more inelastic is the demand curve for the final good.
the more elastic are the supply curves of cooperating factors.
the less essential is the component in question.
Coffee Market Case
The initial price of a cup of coffee is $1, and at that price, 400 cups are demanded. If the price falls to $0.90, the quantity demanded increases to 500.
a. Calculate the (arc) price elasticity of demand for coffee.
b. Based on your answer, is the demand for coffee elastic or inelastic?
c. Based on your answer to (a), if the price of coffee is increased by 10%, what will happen to the revenues from coffee? Explain briefly.
Instructions:
Answer all parts (a–c) in one text box only.
Label each answer (a., b., c.) clearly.
Round numerical answers to two decimal places and include the negative sign if needed.
Keep explanations short (1–2 sentences).
Sample Format (Example Only):
a. Arc elasticity = -1.25
b. Demand is inelastic.
c. Revenues will increase because demand is inelastic.
(Sample only — not the correct answer.)
Point Elasticity of Demand
The demand curve is given by:
QD = 500 − (1/2)P
a. Calculate the (point) price elasticity of demand when price is $100. Is demand elastic or inelastic?
b. Calculate the (point) price elasticity of demand when price is $700. Is demand elastic or inelastic?
c. Find the point at which point elasticity is equal to −1.
Instructions:
Answer all parts (a–c) in one text box only.
Label each answer (a., b., c.) clearly.
Round elasticity values to two decimal places and include the negative sign (–) if needed.
Keep explanations short (1–2 sentences).
Sample Format (Example Only):
a. Elasticity = -0.50, inelastic.
b. Elasticity = -1.80, elastic.
c. Elasticity equals -1 at midpoint, P = 400, Q = 300.
(Sample only — not the actual answer.)
Suppose that the price elasticity of demand for wheat is known to be -0.75. Will a good wheat crop (which increases the supply of wheat) be likely to increase or decrease the revenues of farmers? Carefully explain.
The demand for salt is relatively price inelastic, while the demand for pretzels is relatively price elastic. How can you best explain why?
Which of the following holds true?
When the Marginal Product (MP) is rising, Marginal cost (MC) is rising; and when MP is falling, MC is falling.
When MP is rising, MC is falling, and when MP is falling, MC is rising.
When MP is rising, MC is constant, and when MP is falling, MC is negative.
There is no relationship between MP and MC.
The marginal product of the variable input
is always positive.
typically falls then rises.
is equal to the total product divided by the total amount of the variable input employed.
None of the above
The marginal product of the variable input
is always positive.
typically falls then rises.
is equal to the total product divided by the total amount of the variable input employed.
None of the above
The marginal product of the variable input
is always positive.
typically falls then rises.
is equal to the total product divided by the total amount of the variable input employed.
None of the above
When the law of diminishing returns takes effect
firms must add increasingly more input if they are to maintain the same extra amount of output.
firms must add decreasingly more input if they are to maintain the same extra amount of output.
more input must be added in order to increase its output.
a firm must always try to add the same amount of input to the production process.
Assume a firm employs 10 workers and pays each $15 per hour. Further assume that the MP of the 10th worker is 5 units of output and that the price of the output is $4. According to economic theory, in the short run
the firm should hire additional workers.
the firm should reduce the number of workers employed.
the firm should continue to employ 10 workers.
More information is required to answer this question.
Assume a firm employs 10 workers and pays each $15 per hour. Further assume that the MP of the 10th worker is 5 units of output and that the price of the output is $4. According to economic theory, in the short run
the firm should hire additional workers.
the firm should reduce the number of workers employed.
the firm should continue to employ 10 workers.
More information is required to answer this question.
In the long run, a firm is said to be experiencing decreasing returns to scale if a 10 percent increase in inputs results in
an increase in output from 100 to 110.
a decrease in output from 100 to 90.
an increase in output from 100 to 105.
a decrease in output from 100 to 85.
In economic theory, if an additional worker adds less to the total output than previous workers hired, it is because
there may be less that this person can do, given the fixed capacity of the firm.
he/she is less skilled than the previously hired workers.
everyone is getting in each other's way.
the firm is experiencing diminishing returns to scale.
In economic theory, if an additional worker adds less to the total output than previous workers hired, it is because
there may be less that this person can do, given the fixed capacity of the firm.
he/she is less skilled than the previously hired workers.
everyone is getting in each other's way.
the firm is experiencing diminishing returns to scale.
In economic theory, if an additional worker adds less to the total output than previous workers hired, it is because
there may be less that this person can do, given the fixed capacity of the firm.
he/she is less skilled than the previously hired workers.
everyone is getting in each other's way.
the firm is experiencing diminishing returns to scale.
The following Cobb-Douglas production function, Q = 1.8L^0.74K^0.36, exhibits
increasing returns.
constant returns.
decreasing returns.
Both A and B
When the exponents of a Cobb-Douglas production function sum to more than 1, the function exhibits
constant returns.
increasing returns.
decreasing returns.
either increasing or decreasing returns.
Which of the following is not one of the strengths of the Cobb-Douglas production function?
Both marginal product and returns to scale can be estimated from it.
It can be converted into a linear function for ease of calculation.
It shows a production function passing through increasing returns to constant returns and then to decreasing returns.
The sum of the exponents indicates whether returns to scale are increasing, constant or decreasing.
35) For the following function, describe returns to scale: Q = K + L.
Constant returns to scale
Increasing returns to scale
Decreasing returns to scale
Variable returns to scale
36) For the following function, returns to scale are best described as: b. Q = K^(1/2)L^(3/4)
Increasing returns to scale
Constant returns to scale
Decreasing returns to scale
Variable returns to scale
For the following function, describe returns to scale: K2L .
Increasing returns to scale
Constant returns to scale
Decreasing returns to scale
Variable returns to scale
Production Function:
Q = 60X + 12X² − X³
where Q = Output and X = Input
a. What is the Marginal Product (MP) when X = 7?
b. What is the Average Product (AP) when X = 5?
c. At what value of X will Q be at its maximum?
Instructions (for Wayground student view):
Answer all parts (a–c) in one text box only.
Label each answer clearly (a., b., c.).
Round numerical answers to whole numbers.
Use concise explanations (1 sentence per item).
Sample Format (Example Only):
a. MP = 85 when X = 6
b. AP = 100 when X = 4
c. Q maximum at X = 10
Regression analysis can best be described as
a statistical technique for estimating the best relationship between one variable and a set of other selected variables.
a statistical technique for determining the true values of variables.
a statistical technique for creating functional relationships among variables.
None of the above
If a regression coefficient passes the t-test, it means that
the regression equation is valid.
the regression coefficient is significantly different from zero.
the regression coefficient can be used for forecasting.
the regression coefficient should be included in the regression equation.
The coefficient of a linear regression equation indicates
the change in the dependent variable relative to a unit change in the independent variable.
the change in the independent variable relative to a unit change in the dependent variable.
the percentage change in the dependent variable relative to a unit change in the independent variable.
the percentage change in the independent variable relative to a unit change in the dependent variable.
When the R2 of a regression equation is very high, it indicates that
all the coefficients are statistically significant.
the intercept term has no economic meaning.
a high proportion of the variation in the dependent variable can be accounted for by the variation in the independent variables.
there is a good chance of serial correlation and so the equation must be discarded.
Answer the following question(s) based on the following regression equation (Standard errors in parentheses, n = 150):
QD = 1000 - 50PA + 10PB + .05I, (20) (7) (.04)
where QD = quantity demanded of good A, PA = price of good A, PB = price of a competing good B, and I = per capita income.
Using the "rule of 2," which of the following variables can be deemed statistically significant?
PA
PB
I
All of the above
None of the above
Answer the following question(s) based on the following regression equation (Standard errors in parentheses, n = 150):
QD = 1000 - 50PA + 10PB + .05I, (20) (7) (.04)
where QD = quantity demanded of good A, PA = price of good A, PB = price of a competing good B, and I = per capita income.
For which of the following variables should a "two tail" t-test be applied?
PA
I
PB
Should be applied for all.
Which of the following is most likely to indicate a statistically significant regression coefficient?
|t| > R2
R2 > .90
|t| > 2
|t| > 4
Answer the following questions on the basis of the following regression equation. (Standard errors in parentheses, n = 200.)
Q = -6,500 - 100PA + 50PB + .3I + .2A; R2 =.12, (2,500) (50) (30) (.1) (.08)
where Q is the quantity demanded of good A; PA = $10, price of good A; PB = $8, price of good B; I = $12,000, per capita income; and A = $20,000, monthly advertising expenditures.
Which of the variables does not pass the t-test at the .05 level of significance?
PA
PB
A
I
All the variables pass the t-test.
Answer the following questions on the basis of the following regression equation. (Standard errors in parentheses, n = 200.)
Q = -6,500 - 100PA + 50PB + .3I + .2A; R2 =.12, (2,500) (50) (30) (.1) (.08)
where Q is the quantity demanded of good A; PA = $10, price of good A; PB = $8, price of good B; I = $12,000, per capita income; and A = $20,000, monthly advertising expenditures.
As a researcher, which aspect of the results would be of greatest concern?
the negative value of the constant (i.e., -6,500)
the relatively low impact of the competitor's price
the fact that not all of the variables are statistically significant
the poor fit of the regression line
From a management policy perspective, which regression result is the most useful?
a regression equation that passes the F-test
a regression equation whose explanatory variables all pass the t-test
a regression equation that has the highest R2
a regression equation that has the least number of dummy variables
When a regression coefficient is significant at the .05 level, it means that
there is only a five percent chance that there will be an error in a forecast.
there is 95 percent chance that the regression coefficient is the true population coefficient.
there is a five percent chance or less that the estimated coefficient is zero.
there is a five percent chance or less that the regression coefficient is not the true population coefficient.
1) The elasticity for each variable provides information about:
The responsiveness of one variable to changes in another variable.
The total value of all variables combined.
The fixed relationship between variables regardless of changes.
The absolute difference between two variables.
Calculating t-statistics for each variable helps to determine:
The significance of each variable in the model
The mean of each variable
The correlation between variables
The variance of each variable
👇
📊 Question: Regression Analysis – Demand Equation
The estimated regression equation for a product is:
Q = 8,400 − 10P + 5A + 4PX + 0.05I
(1,732) (2.29) (1.36) (1.75) (0.15)
where:
Q = Quantity demanded
P = Price = 1,000
A = Advertising (₱‘000) = 40
PX = Competitor’s price = 800
I = Average monthly income = 4,000
Tasks (7 points total)
1️⃣ Elasticities (4 points) – Compute and briefly interpret:
a. Price elasticity
b. Advertising elasticity
c. Cross-price elasticity
d. Income elasticity
2️⃣ t-Values (2 points) – Compute one t-value for Price and one for Income, and explain which is significant.
3️⃣ Model Evaluation (1 point) – Based on R² = 0.65 and F = 35.25, how good is the overall model?
Instructions (for students):
Type all answers in one box, labeled 1a–3.
Round numerical answers to two decimal places.
Keep explanations short (1–2 sentences per part).
Example Format:
1a. Price elasticity = -5, elastic.
1b. Advertising = 0.1, small positive impact.
2. Price t = -4.37 (significant), Income t = 0.33 (not significant).
3. R² = 0.65 shows a good fit overall.
