TEST BANK. Managerial Economics EIGHTH EDITION

Transcription

1 TEST BANK Managerial Economics EIGHTH EDITION

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3 TEST BANK Managerial Economics EIGHTH EDITION W. Bruce Allen Neil A. Doherty Keith Weigelt Edwin Mansfi eld Nitin V. Paranjpe WAYNE STATE UNIVERSITY B W W NORTON & COMPANY NEW YORK LONDON

4 W. W. Norton & Company has been independent since its founding in 1923, when William Warder Norton and Mary D. Herter Norton first published lectures delivered at the People s Institute, the adult education division of New York City s Cooper Union. The firm soon expanded its program beyond the Institute, publishing books by celebrated academics from America and abroad. By midcentury, the two major pillars of Norton s publishing program trade books and college texts were firmly established. In the 1950s, the Norton family transferred control of the company to its employees, and today with a staff of four hundred and a comparable number of trade, college, and professional titles published each year W. W. Norton & Company stands as the largest and oldest publishing house owned wholly by its employees. Copyright 2013 by W. W. Norton & Company, Inc. All rights reserved. Printed in the United States of America. Associate media editor: Nicole Sawa Production manager: Ben Reynolds Composition by Westchester Publishing Services Manufacturing by Sterling Pierce ISBN W. W. Norton & Company, Inc. 500 Fifth Avenue, New York, N.Y wwnorton.com W. W. Norton & Company Ltd. Castle House, 75/76 Wells Street, London W1T 3QT

5 CONTENTS Preface vii PART 1: THE NEED FOR A GUIDE Chapter 1 Introduction 1 PART 2: THE NATURE OF MARKETS Chapter 2 Demand Theory 9 Chapter 3 Consumer Behavior and Rational Choice 25 Chapter 4 Estimating Demand Functions 47 PART 3: PRODUCTION AND COST Chapter 5 Production Theory 65 Chapter 6 The Analysis of Costs 80 PART 4: MARKET STRUCTURE AND SIMPLE PRICING STRATEGIES Chapter 7 Perfect Competition 98 Chapter 8 Monopoly and Monopolistic Competition 111 PART 5: SOPHISTICATED MARKET PRICING Chapter 9 Managerial Use of Price Discrimination 124 Chapter 10 Bundling and Intrafirm Pricing 134 v

6 vi Contents PART 6: THE STRATEGIC WORLD OF MANAGERS Chapter 11 Oligopoly 145 Chapter 12 Game Theory 158 Chapter 13 Auctions 170 PART 7: RISK, UNCERTAINTY, AND INCENTIVES Chapter 14 Risk Analysis 179 Chapter 15 Principal Agent Issues and Managerial Compensation 191 Chapter 16 Adverse Selection 202 PART 8: GOVERNMENT ACTIONS AND MANAGERIAL BEHAVIOR Chapter 17 Government and Business 208 Chapter 18 Optimization Techniques 218 Appendix Problems 232

7 PREFACE WHY A NEW APPROACH? In December 2007, W. W. Norton conducted a focus group with the brightest minds in educational testing to create a new model for assessment. A good assessment tool must: 1. define what students need to know and the level of knowledge and skills that constitute competence in the concepts they are learning about; 2. include test items that provide valid and reliable evidence of competence by assessing the material to be learned at the appropriate level; 3. enable instructors to accurately judge what students know and how well they know it, allowing instructors to focus on areas where students need the most help. In evaluating the test banks that accompany introductory texts, we found four main problems: 1. Test questions were misclassified in terms of type and difficulty. 2. The prevalence of low- level and factual questions misrepresented the goals of the course. 3. Trivial topics were tested via multiple items while important concepts were not tested at all. 4. Links to course topics were too general, preventing diagnostic use of the item information. Norton has collaborated with Valerie Shute (Florida State University) and Diego Zapata- Rivera (Electronic Testing Ser vices) to develop a methodology for vii

8 viii Preface delivering high- quality, valid, and reliable assessment through our test banks and our extensive suite of support materials. HOW DOES IT WORK? The test bank authors list, in order of importance, the concepts from each chapter that they believe are the most important for students to learn. The authors then create a concept map for each chapter that shows the relationships among these ideas. Once the concept maps are created, the authors develop three types of questions designed to test students knowledge of each concept. The question types are designed to help students (1) understand the facts, (2) learn how to apply them, and (3) learn why they are true. By asking students questions that vary in both type and level of difficulty, instructors can gather different types of evidence, which will allow them to more effectively assess how well students understand specific concepts. THREE KNOWLEDGE TYPES 1. Factual questions (ask What? ) Test declarative knowledge, including textbook definitions and relationships between two or more pieces of information. 2. Applied questions (ask How? ) Pose problems in a context different from the one in which the material was learned, requiring students to draw from their declarative and/or procedural understanding of important concepts. 3. Conceptual questions (ask Why? ) Ask students to draw from their prior experience and use critical- thinking skills to take part in qualitative reasoning about the real world. THREE DIFFICULTY LEVELS 1. Easy questions require a basic understanding of the concepts, definitions, and examples presented in the textbook. 2. Moderate questions direct students to use critical- thinking skills and to demonstrate an understanding of core concepts in de pen dent of specific textbook examples. 3. Difficult questions ask students to synthesize textbook concepts with their own experience, making analytical inferences about economic topics and more.

9 GENERAL RULES FOR NORTON ASSESSMENT Preface ix 1. Each question mea sures and explicitly links to a specific competency. 2. Questions are written with clear, concise, and grammatically correct language that suits the difficulty level of the specific competency being assessed. To ensure the validity of the questions, no extraneous, ambiguous, or confusing material is included, and no slang expressions are used. 3. In developing the questions, every effort has been made to eliminate bias (e.g., race, gender, cultural, ethnic, regional, handicap, and age) to help with issues of accessibility and validity. 4. Questions require specific knowledge of material studied, not general knowledge or experience. READING THE TEST ITEM NOTATION Five data fields are associated with each question: ANS: denotes the answer DIF: denotes the difficulty level TOP: references the topic, taken from the Concept Map, that is tested by the question REF: references the text page number where content pertaining to the question can be found MSC: denotes the knowledge type tested by the question

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11 CHAPTER 1 Introduction CONCEPT MAP Introduction The Theory of the Firm Profit Managerial Interests and the Principal Agent Problem Demand and Supply Equilibrium Price MULTIPLE CHOICE 1. Managerial economics uses to help managers solve problems. a. formal models b. prescribed behavior c. quantitative methods d. microeconomic theory e. all of the above ANS: E DIF: Easy TOP: Introduction REF: 2 MSC: Factual 2. Managerial economics draws upon all of the following EXCEPT: a. finance. b. microeconomics. c. accounting. d. marketing. e. sociology. ANS: E DIF: Easy TOP: Introduction REF: 2 MSC: Factual 1

12 2 Chapter 1 3. The economic theory of the firm assumes that the primary objective of a firm s own er or own ers is to: a. behave in a socially conscientious manner. b. maximize the firm s profit. c. maximize the firm s total sales. d. maximize the value of the firm. e. All of these are primary objectives. ANS: D DIF: Easy TOP: The Theory of the Firm REF: 3 MSC: Factual 4. In managerial economics, managers are assumed to maximize: a. current profits. b. their take- home pay. c. their employees welfare. d. the value of their firm. e. social welfare. ANS: D DIF: Easy TOP: The Theory of the Firm REF: 3 MSC: Factual 5. Own er- supplied labor is a cost that is usually: a. included in both accounting costs and economic costs. b. included in accounting costs but not in economic costs. c. included in economic costs but not in accounting costs. d. not included in either accounting costs or economic costs. e. ignored because it is impossible to place a value on it. ANS: C DIF: Easy TOP: Profit REF: 5 MSC: Factual 6. What is the relationship between economic and accounting profit? a. Economic profit is equal to accounting profit. b. Economic profit is greater than accounting profit. c. Economic profit is less than accounting profit. d. Economic profit may be equal to or less than accounting profit. e. Economic profit may be equal to or greater than accounting profit. ANS: D DIF: Easy TOP: Profit REF: 5 MSC: Factual 7. The difference between accounting and economic profit is: a. caused by confusion over tax laws. b. the value of owned resources in their next best alternative use. c. the result of superior training received by accountants. d. proportionately very small for owner- managed firms. e. a decreasing function of interest rates. ANS: B DIF: Moderate TOP: Profit REF: 5 MSC: Factual

13 Introduction 3 8. Managers make decisions that contribute to the profitability of a firm by: a. exploiting market efficiencies. b. taking on risks. c. engaging in illegal behavior. d. maximizing sales. e. manipulating the share price of the firm s stock. ANS: B DIF: Moderate TOP: Profit REF: 5 MSC: Factual 9. Economic profits may result from: a. innovation. b. risk taking. c. exploiting market inefficiencies. d. all of the above. e. a and b ANS: D DIF: Easy TOP: Profit REF: 6 MSC: Factual 10. Which of the following would a manager NOT use to create market inefficiencies? a. Establishing a brand name. b. Sophisticated pricing strategies. c. Diversification efforts. d. Output decisions. e. Building market entry barriers. ANS: A DIF: Moderate TOP: Profit REF: 6 MSC: Factual 11. Managers may make decisions that are not consistent with the goals of stockholders. This is referred to as the problem. a. principal agent b. economic disincentive c. incentive compromise d. efficiency inefficiency e. equilibrium ANS: A DIF: Easy TOP: Managerial Interests and the Principal Agent Problem REF: 7 MSC: Factual 12. Managers may choose to pursue goals other than maximization of a firm s value. This is referred to as the problem. a. slacker shirking b. neuropathy c. generation X d. principal agent e. none of the above ANS: D DIF: Easy TOP: Managerial Interests and the Principal Agent Problem REF: 7 MSC: Factual

14 4 Chapter The principal agent problem refers to: a. the threat from foreign competition. b. the need to manage inventory more effectively. c. double- entry bookkeeping. d. the potential costs of separation of own ership and control. e. the time value of money. ANS: D DIF: Moderate TOP: Managerial Interests and the Principal Agent Problem REF: 7 MSC: Factual 14. As a result of historically high gasoline prices in 2008, traffic volume in the United States (mea sured in terms of billions of miles driven per month) declined significantly. These changes were caused by a of gasoline and. a. surplus; a decrease in the quantity demanded of gasoline b. surplus; a decrease in the demand for gasoline c. shortage; a decrease in the quantity demanded of gasoline d. shortage; a decrease in the demand for gasoline e. shortage; an increase in the demand for gasoline ANS: C DIF: Moderate TOP: Demand and Supply REF: 7 MSC: Applied 15. The market supply curve shows the quantity of a good or ser vice that, holding other possible influences constant. a. house holds would sell at various prices b. house holds would buy at various outputs c. firms would sell at various prices d. firms would buy at various prices e. house holds would buy at various prices ANS: C DIF: Easy TOP: Demand and Supply REF: 13 MSC: Factual 16. The market demand curve shows the quantity of a good or ser vice that: a. house holds would sell at various prices. b. house holds would buy at various outputs. c. firms would sell at various prices. d. firms would buy at various prices. e. house holds would buy at various prices. ANS: E DIF: Easy TOP: Demand and Supply REF: 13 MSC: Factual

15 Introduction The price of computers has fallen, while the quantity purchased has remained constant. This implies that the demand for computers has: a. decreased, while the supply of computers has increased. b. increased. c. decreased, while the supply of computers has decreased. d. increased, while the supply of computers has increased. e. become more volatile. ANS: A DIF: Easy TOP: Demand and Supply REF: 13 MSC: Applied 18. J. D. Power, the big management consulting firm, extols the reliability of Dell computers; this causes the: a. demand for Dell computers to increase. b. supply of Dell computers to increase. c. quantity supplied of Dell computers to increase. d. quantity supplied of Dell computers to decrease. e. demand and supply of Dell computers to remain unchanged. ANS: A DIF: Easy TOP: Demand and Supply REF: 13 MSC: Applied 19. ConAgra has introduced a lean mixture of cereal and ground beef that is indistinguishable from ground beef but has about the same amount of fat as chicken. As a result, the: a. demand for chicken increases. b. demand for ground beef decreases. c. demand for chicken decreases. d. demand for cereal decreases. e. supply of chicken increases. ANS: C DIF: Easy TOP: Demand and Supply REF: 13 MSC: Applied

16 6 Chapter In the following figure, there will be an excess supply at any price: a. above P b. b. below P b. c. other than P b. d. below P a. e. above P c. ANS: A DIF: Easy TOP: Equilibrium Price REF: 15 MSC: Applied