1. A weekend fisherman notices the following relationship between hours spent fishing along the breakwaters of CCP and the quantity of fish caught:

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Clifford Burke
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1 1. A weekend fisherman notices the following relationship between hours spent fishing along the breakwaters of CCP and the quantity of fish caught: Hours Quantity of fish caught The marginal product of an additional hour spent fishing when 3 hours have already been spent is? a. 28. b. 24. c. 4. d. can t be calculated from the data. 2. The fisherman s fixed cost is Php10 (his pole). The average fixed cost of the fisherman when he has caught 10 fish is (hint: same logic for average product applies to this) a b. 3.0 c. 2.5 d Dribblin Donut s total revenue is equal to the market price times the quantity it sells; (the market is a perfectly competitive one and includes Dunkin Donut) if the price doubles, what happens to Dribblin Donut? a. price doubles. b. revenue doubles. c. cost doubles. d. profit doubles. 4. The table below describes the number of baseballs a manufacturer can produce per day with different quantities of labor. Each baseball sells for $5, and each worker earns $50 per day. Using this table, how many workers should the baseball manufacturer employ? Workers Baseballs Per Day

2 a. 1 b. 2 c. 3 d. 4 e In general, what can we say about the elasticity of labor demand for low-skilled workers and for high- skilled workers? a. The demand for low-skilled workers is perfectly elastic. b. The demand for high-skilled workers is perfectly inelastic. c. The demand for low-skilled workers is more elastic than for high-skilled workers. d. The demand for low-skilled workers is less elastic than for high-skilled workers. e. The demand for low-skilled workers has the same elasticity as for high-skilled workers. 6. Too many cooks spoil the broth implies that the marginal product of the last cook is: a. Very low. b. Zero. c. Negative. d. Can only tell that the average cost is negative, can t tell about the marginal product. e. Both c and d. 7. Variable inputs are those inputs: a. That depend on the level of production. b. That are cheap enough to own rather than lease. c. In which diminishing returns do not occur in short run. d. That can be stored for less than one year. e. c and d. 8. Which of the following is true for production in the short-run? a. Average product will be at its maximum when marginal product is at the maximum. b. Average product will be at its maximum when marginal product is zero. c. Average product will be at its maximum when marginal product equals average product. d. Average product never reaches a maximum. e. Average product is negative when marginal product is negative. 9. Book publishers sell hardback and paperback editions of the same book. Hardback books are issued first and are sold at a far higher price than the paperback edition, which is not made available until at least six months later. Which of the statements is true? a. Book publishers can charge every potential buyer of a book a different price. b. The seller charges those customers who have an elastic demand a higher price. c. The seller charges those customers who have an inelastic demand a higher price. d. The seller engages in first-degree price discrimination.

3 e. None of the above 10. Consider the market for bread and butter, which are complements. Suppose that these markets are perfectly competitive and are in equilibrium. Suddenly, improved technology increases the supply of butter. a. The price of butter falls and the quantity demanded of bread increases. b. The price of bread rises and the quantity demanded of bread increases. c. Both the price of bread and the quantity demanded of bread decrease. d. Both the price of bread and the demand for butter decrease. e. None is correct. 11. In Makati the price elasticity of demand for used cars is 1/3. This means that a 25 percent increase in the quantity of used cars demanded was caused by the following change in the price of used cars: a. Increase by approximately 75 percent. b. Decrease by approximately 75 percent. c. Decrease by approximately 25 percent. d. Decrease by approximately 50 percent. e. None of the above. 12. In the Christmas season, people have to buy toys and gifts for loved ones. People s demand curves become more ; firms supplying such items will prices to maximize profits. a. Inelastic, decrease b. Elastic, increase c. Inelastic, increase d. Elastic, decrease e. None of the above. 13. Randy goes out to watch PBA frequently. If the entrance charge went down by 10% or his income went up by 20%, he would go to watch PBA 15% more. What kinds of good would we define PBA games to be for Randy? a. Inelastic and a luxury good. b. Elastic and an inferior good. c. Elastic and a luxury good. d. Inelastic and a necessity. e. Elastic and a necessity. 14. Mr. Ridalot spends his entire income on food and books. He always spends 3/4 of his income on books. His demand for food has an income elasticity of:

4 a. 0 b. 3/4 c. 1 d. Not enough information to answer the question. e. None is correct. 15. Each day Peter must eat one pandesal. He pays Php1 for a piece at his local Panaderya. One day last week, the Panaderya was closed for inventory, so Peter bought a pandesal at PugonDeManila for Php3. What do we know about Peter s consumer surplus at the local Panaderya? a. Nothing; just that he d rather not buy at PugonDeManila b. It is less than 2 c. It is exactly 2 d. It is at least 2 e. None of the above 16. Charlie likes to watch PBA games and UAAP games. An extra PBA game yields twice the utility of an extra UAAP game. The prices of watching the PBA and UAAP games are Php40 and Php80 respectively. a. The law of diminishing marginal utility tells that Charlie consumes more PBA games than UAAP games. b. Charlie should consume more UAAP games and fewer PBA games to maximize utility. c. The law of diminishing marginal utility tells that Charlie must be consuming more UAAP games than PBA games. d. Charlie should consume more PBA games and fewer UAAP games to maximize utility. e. a and b. 17. Which of the following is a firm most likely NOT able to adjust in the long run? a. Machines b. Labor c. Electricity d. Buildings/Structures e. None of the above 18. When the product demand curve is Q = P, and price is decreased from P1 = 10 to P2 = 9, the PED is: a b. -3 c. -4 d. -10 e. none of the above

5 19. When the cross-price elasticity = 3: a. demand rises by 3% with a 1% increase in the price of X. b. the quantity demanded rises by 3% with a 1% increase in the price of X. c. the quantity demanded rises by 1% with a 3% increase in the price of X. d. demand rises by 1% with a 3% increase in the price of X. 20. In a not so distant past (read: when I was your age and Michael Jackson ruled the charts) The demand for cassette players can be characterized by the following elasticities: price elasticity = - 2, cross-price elasticity with AA Alkaline batteries = -1.5, and income elasticity = 3. Which of the following statements is false? A. A price increase for cassette players will decrease both the number of units demanded and the total revenue of sellers. B. The cross-price elasticity indicates that a 2% reduction in the price of cassette players will cause a 3% increase in battery demand. C. Demand for cassette players is price elastic and they are cyclical normal goods. D. Falling battery prices will definitely increase revenues received by sellers of both cassette players and batteries. E. A 3% price reduction in cassette players would be necessary to overcome the effects of a 2% decline in income. 21. Total output is maximized when: a. average product equals zero. b. marginal product is maximized. c. average product is maximized. d. marginal product equals zero. 22.Hydraulics Ltd. has designed a pipeline that provides a throughput of 70,000 gallons of water per 24-hour period. If the diameter of the pipeline were increased by 1 inch, throughput would increase by 4,000 gallons per day. Alternatively, throughput could be increased by 6,000 gallons per day using the original pipe diameter with pumps that had 100 more horsepower. Assuming the cost of additional pump size is Php600 per horsepower and the cost of larger diameter pipe is Php200,000 per inch, does the original design exhibit the property required for optimal input combinations? (hint: point of tangency between isocost and isoquant) a. Yes b. No c. Incomplete info to compute d. Incompatible given because the derived isoquant approximates a straight line. 23.

6 Quantity of Mentos Marginal utility from mentos Marginal utility from flat tops Quantity of flat tops Given the data in the above table, income of Php13, a price of Php1 for mentos and Php2.00 for flat tops, what is the quantity of mentos and the quantity of flat tops that will maximize the consumer s utility? A) 5 mentos and 4 flat tops B) 4 mentos and 4 flat tops C) 1 mentos and 6 flat tops D) 6 mentosand 6 flat tops 24. An indifference curve is a line that shows combinations of goods among which a consumer A) needs equally. B) does not care which combination he or she receives. C) can afford. D) has readily available. 25. The marginal product and average product curves A) never intersect. B) intersect at the maximum point of the marginal product curve. C) intersect at the maximum point of the average product curve. D) do not intersect at any predictable point. 26. The price elasticity of demand for cigarettes is 0.4. If government wants to reduce smoking by 10 percent, by how much should it raise the price of cigarettes? A) By 10 percent. B) By 20 percent. C) By 25 percent. D) By 50 percent. E) none of the above 27. Units of Capital Units of Labor What is the marginal product of the 3 rd worker when 1 unit of capital is used?

7 a) 100 b) 120 c) 150 d) 170 Fill in the blanks using one of the following words: opportunity cost, total cost, fixed cost, variable cost, average total cost, marginal cost. (refer to the ppt on costs) 28. Profit equals total revenue less 29. A cost that does not depend on the quantity produced is a. 30. The cost of producing an extra unit of output is. 31. In the ice-cream industry in the short run, includes the cost of cream and sugar, but not the cost of the factory. 32. is falling when marginal cost is below it, and rising when marginal cost is above it.

Section I (20 questions; 1 mark each)

Foundation Course in Managerial Economics- Solution Set- 1 Final Examination Marks- 100 Section I (20 questions; 1 mark each) 1. Which of the following statements is not true? a. Societies face an important