Exam 1: The Fundamentals of Managerial Economics

A new manager recently was given an assignment to create two possible wage schemes for a design firm.The manager came up with the following packages: (1)Each employee will start at $15 per hour and will work eight hours per day; (2)each employee will receive $8 per hour and one-tenth of 1 percent of profits (expected profits are $80,000 per day if everyone puts out maximum effort).Which program will motivate the employees more? Which program would you choose? Why?

Which of the following is NOT a source of rivalry in economic transactions?

A firm will have constant profits of $100,000 per year for the next four years,and the interest rate is 6 percent.Assuming these profits are realized at the end of each year,what is the present value of these future profits?

Which of the following is incorrect?

The higher the interest rate:

Suppose total benefits and total costs are given by B(Y)= 100Y − 8Y² and C(Y)= 10Y².What is the maximum level of net benefits (rounded to the nearest whole number)?

The opportunity cost of an action is the:

The marginal cost in the table is: Control Variable Total Benefits Total Costs Net Benefits Marginal Benefit Marginal Cost Marginal Net Benefit Q B(Q) C(Q) N(Q) (Q) (Q) MNB(Q) 0 0 0 0 -- -- -- 1 900 100 800 900 100 800 2 1,700 300 C 800 200 600 3 2,400 600 1,800 700 E 400 4 A 1,000 2,000 600 400 200 5 3,500 1,500 2,000 500 500 F 6 3,900 2,100 1,800 D 600 -200 7 4,200 2,800 1,400 300 700 -400 8 4,400 B 800 200 800 -600 9 4,500 4,500 0 100 900 -800 10 4,500 5,500 -1,000 0 1,000 -1000

Consumer−producer rivalry occurs because of:

If the interest rate is 5 percent,the present value of $200 received at the end of five years is:

Negotiation between the buyer and seller of a new ski boat is an example of:

You are the manager of a Fortune 500 hotel chain and must decide where to locate a new hotel.Based on tax considerations,your accounting department suggests that Atlantic City is the best choice,followed closely by Las Vegas.In particular,your current year tax savings from locating in Atlantic City are $4 million,but they are only $3 million in Las Vegas.Your marketing department,on the other hand,has provided you with sales estimates that suggest that the present value of the gross (of taxes)operating profits from locating in Atlantic City are only $10 million,but they are $14 million for Las Vegas.It will cost $14 million to build the hotel in either location.Ignoring all other considerations,where should you build the hotel? What are your firm's economic profits if you locate the hotel in Atlantic City?

You are the manager of a firm that specializes in selling exotic animals to zoos around the world.Your goal is to determine the number of baby zebras (Z)that must be born on your firm's farm each month in order to maximize profits.The total benefits (revenues)and costs to your firm of producing various quantities of zebras are given in the first three columns of the following table.Based on this scenario,complete the table and answer the accompanying questions: (1) (2) (3) (4) (5) (6) (7) Control Total Total Net Marginal Marginal Marginal Variable Benefits Costs Benefits Benefit Cost Net Z B(Z) C(Z) N(Z) MB(Z) MC(Z) Benefit MNB(Z) 0 0 0 1 200 10 2 380 30 3 540 60 4 680 100 5 800 150 6 900 210 7 980 280 8 1,040 360 9 1,080 450 10 1,100 550 a.What level of zebra births maximizes net benefits? b.What is the relation between marginal benefit and marginal cost at this level of Z? c.Graph the total cost and total benefit curves. d.On another graph,plot the points for the marginal cost,marginal benefit,and marginal net benefit. e.Show how the two graphs relate to each other.

Negotiations between the buyer and seller of a new house are an example of:

Which of the following is an implicit cost of going to college?

Net benefits in the table: Control Variable Total Benefits Total Costs Net Benefits Marginal Benefit Marginal Cost Marginal Net Benefit Q B(Q) C(Q) N(Q) (Q) (Q) MNB(Q) 0 0 0 0 -- -- -- 1 900 100 800 900 100 800 2 1,700 300 C 800 200 600 3 2,400 600 1,800 700 E 400 4 A 1,000 2,000 600 400 200 5 3,500 1,500 2,000 500 500 F 6 3,900 2,100 1,800 D 600 -200 7 4,200 2,800 1,400 300 700 -400 8 4,400 B 800 200 800 -600 9 4,500 4,500 0 100 900 -800 10 4,500 5,500 -1,000 0 1,000 -1000

If the annual interest rate is 0 percent,the present value of receiving $210 in the next year is:

If the interest rate is 5 percent and cash flows are $3,000 at the end of year one and $5,000 at the end of year two,then the present value of these cash flows is:

Maximizing total benefits is equivalent to maximizing net benefits if and only if there are:

New firms have incentive to enter an industry when there is(are):