1、Managerial EconomicsPart 1:1. The price of good A goes up. As a result the demand for good B shifts to the left. From this we can infer that:a.good A is a normal good.b.good B is an inferior good.c.goods A and B are substitutes.d.goods A and B are complements.e.none of the above.Choose: d) the defin

2、ition os complements2. Joe's budget line is 15F + 45C = 900. When Joe chooses his most preferred market basket, he buys 10 units of C. therefore, he also buys : a. 10 units of F b. 30 units of F c. 50 units of F d. 60 units of F e. None of the aboveChoose: b) We assume that Joe will spend all hi

3、s income. If C = 10, then 15F =900 45(10) =450, so F = 450/15 =30.3. Kim only buys coffee and compact discs. Coffee costs $0.60 per cup, and CDs cost $12.00 each. She has $18 per week to spend on these two goods. If Kim is maximizing her utility, her marginal rate of substitution of coffee for CDs i

4、s: a. 0.05 b. 20 c. 18 d. 1.50 e. None of the aboveChoose: a) At Kim's most preferred market basket, her MRS equals the price ratio (Pcoffee/PCD), which equals 0.6/12 or 0.05.4. The bandwagon effect corresponds best to which of the following?a.snob effect.b.external economy.c.negative network ex

5、ternality.d.positive network externality.Choose: d)5. A Giffen gooda.is always the same as an inferior good.b.is the special subset of inferior goods in which the substitution effect dominates the income effect.c.is the special subset of inferior goods in which the income effect dominates the substi

6、tution effect.d.must have a downward sloping demand curve.Choose: c) the definition of Giffen good6. An Engel curve for a good has a positive slope if the good is :a. an inferior good. b. a Giffen good.c. a normal good. d. a, b, and c are true.e. None of the above is true.Choose: c) Inferior and Gif

7、fen goods have negatively sloped Engel curves.7. The price of beef and quantity of beef traded are P* and Q*, respectively. Given this information, consumer surplus is the area:a. 0BCQ* b. ABC c. ACP* d. CBP* e. 0ACQ*Choose: d) Consumer surplus is the area between the demand line and the price.8. In

8、 Figure 1, holding income constant, what change must have occurred to rotate the budget line from the old line(1) to the new line(2)? (1)(2)PizzaCokeFigure 1a. The price of Coke fellb. The price of pizza fellc. The price of pizza rosed. The price of Coke went upe. b and cChoose: b) The horizontal in

9、tercept, I/PC, is unchanged, which implies that PC could not have changed (holding income constant). Since the slope is PP/PC, the slope change means that the price of pizza must have fallen. This can also be seen intuitively from Figure 1, since the consumer can now buy more pizza than before if he

10、 spends all his income on pizza.9. Andy buys 10 pounds of onions per month when the price is $0.75 per pound. If the price falls to $0.50 per pound, he buys 30 pounds of onions. What is his arc elasticity of demand over this price range?a. - 1.33 b.2 c.2.5 d. - 6 e. None of the above is correct.Choo

11、se: c) Using the arc elasticity formula,The next two questions refer to the following information: Opie and Gomer are the only two consumers in the video cassette rental market in the Mayberry. Their demand curves per week are pictured in Figure 2.10. If rentals cost $2.50 each, the total quantity d

12、emanded each week in the market is :a. 3 b. 6 c. 15 d. 10 e. None of the above is correct.Choose: b) Add horizontally to get the market demand curve. At P = $2.50, QO = 3 and QG = 3 for a total of 6 units demanded.11. For a decrease in price from $2.50 to $1.50, market demand is :a. elastic. b. unit

13、 elastic. c. inelastic. d. perfectly inelastic. e. More information is needed.Choose: a) Demand is price elastic:EP = %Q/%P = (15-6)/6/(2.50-1.50)/2.50 = -3.75OPIE2.501.50 3 8Quantity(number of cassettes)DoPrice($/unit) (a)Price($/unit)2.501.50 3 7Quantity (number of cassettes)COMERDG(b) Figure 212.

14、 As president and CEO of MegaWorld industries, you must decide on some very risky alternative investments:ProjectProfit if SuccessfulProbability of SuccessLoss if FailureProbability of FailureA$10 million.5-$6 million.5B$50 million.2-$4 million.8C$90 million.1-$10 million.9D$20 million.8-$50 million

15、.2E$15 million.4$0.6The highest expected return belongs to investmenta. A. b. B. c. C. d. D. e. EChoose: b) Ea=2 Eb=6.8 Ec=0 Ed=6 Ee=613.An individual with a constant marginal utility of income will bea.risk averse. b.risk neutral.c.risk loving. d.insufficient information for a decision.Choose: b) A

16、n individual with a constant marginal utility of income is risk neutral.14. In the figure below, what is true about the two jobs?a. Job 1 has a lower standard deviation than Job 2.b. All outcomes in both jobs have the same probability of occurrence.c. A risk-averse person would prefer Job 2.d. A ris

17、k-neutral person would prefer Job 1.e. Job 1 has a higher expected income than Job 2.Choose: a) Job 1 has a lower standard deviation than Job 2. Expected income of Job 1 equals to Job 2.Part 2:The demand curves for steak, eggs, and hot dogs are given in the table below. The current price of steak is

18、 $5. The price of eggs is $2.50, and the price of hot dogs is $0.75. Fill in the remaining columns of the table using this information. Indicate which goods are substitutes and which goods are complements.GoodDemand EquationSteak Price Elasticity of DemandEgg Price Elasticity of DemandHotdog Price E

19、lasticity of DemandSteakEggHotdogSolution:GoodDemand EquationSteak Price Elasticity of DemandEgg Price Elasticity of DemandHotdog Price Elasticity of DemandSteak-0.020-0.000511.53E-5Egg-0.0799-0.121.20E-3Hotdog0.0160.00082-0.0012Steak and eggs are complements. Steak and hotdogs and eggs and hotdogs

20、are substitutes.Part 3:Draw indifference curves to represent the following descriptions of consumer preferences:a. I cant taste the difference between apple and grape jelly, but I likethem both.b. I only like grape jelly and never eat apple jelly.c. Apple and grape jelly are better mixed, although I

21、 dont care too much about the proportions.Answer:a) See Figure 7(a). Since the consumer can not tell the difference between the two flavors, all he would care about is the total amount of jelly he has.b) See Figure 7(b). An increase in the amount of apple jelly does not affect the consumer since he

22、never eats it.c) See Figure 7(c). Here, a mixed bundle is better than an extreme one, but the consumer is willing to trade off the different flavors.Figure Ounces of Grape JellyOunces of Apple Jelly(a)Ounces of Grape JellyOunces of Apple Jelly(b)(c)Ounces of Grape JellyOunces of Apple Jelly7Part 4:T

23、here are reasons other than fads, fashions, and consumer insecurity for bandwagon and snob effects. Various types of externalities in the consumption of certain goods also exist. Explain which these effects (bandwagon or snob) might be present in the following cases:a. A restaurant that is often cro

24、wdedb. A personal computer software productc. A rock concertAnswer:a) A price decrease will attract more customers, but the crowding(longer lines, poorer service) will discourage others. This would resemble a snob effect.b) The more people you expect to buy a software product, the more likely you ca

25、n find another experienced user to ask questions about it. Also, the more likely it is that a computer bookstore will carry publications about how to use the software. Thus, we would expect to see a bandwagon effect.c) Here, crowding might discourage some customers. But, since part of the enjoyment

26、of a concert is seeing the band with other fans, we might observe a bandwagon effect.Part 5:Tom Wilson is the operations manager for BiCorp, a real estate investment firm. Tom must decide if BiCorp is to invest in a strip mall in a northeast metropolitan area. If the shopping center is highly successful, after tax profits will be $100,000 per year. Moderate success would yield an annual profit of $50,000, while the project will lose $