ANSWERS TO TEST BANK QUESTIONS

Chapter 1: MANAGERS, PROFITS, AND MARKETS

1-1a / 1-11d / 1-21e / I-31c
1-2c / 1-12d / 1-22e / I-32a
1-3a / 1-13e / 1-23a / I-33d
1-4d / 1-14d / 1-24d / I-34e
1-5c / 1-15d / 1-25d / I-35e
1-6d / 1-16e / 1-26e / I-36d
1-7a / 1-17d / 1-27d / I-37e
1-8e / 1-18c / 1-28d / I-38c
1-9a / 1-19a / 1-29e / I-39d
1-10d / 1-20c / 1-30b / I-40d

1-1Fa.$100,000; $75,000; $175,000

b.$275,000

  1. $350,000
  2. $237,500

1-2Fa.

b.higher; decrease

1-3Fa.$629,036; $629,036

  1. $575,022; $575,022

1-4Fa.industrial organization

b.business practices or tactics

c.behavior; profit

d.total revenue; accounting profit

b.economic

c.smaller

d.differentiated

e.larger

f.owner-supplied

g.shareholders; managers

h.hazard

i.control

j.outsiders; value (or price)

k.average cost

l.share

m.is not

n.will not

Chapter 2: DEMAND, SUPPLY, AND MARKET EQUILIBRIUM

2-1c / 2-16d / 2-31a / 2-46a
2-2a / 2-17b / 2-32b / 2-47a
2-3d / 2-18a / 2-33b / 2-48d
2-4c / 2-19b / 2-34c / 2-49b
2-5e / 2-20c / 2-35d / 2-50a
2-6c / 2-21b / 2-36e / 2-51b
2-7d / 2-22a / 2-37d / 2-52e
2-8c / 2-23a / 2-38b / 2-53d
2-9e / 2-24c / 2-39d / 2-54d
2-10b / 2-25a / 2-40b / 2-55d
2-11a / 2-26d / 2-41a / 2-56b
2-12c / 2-27c / 2-42e / 2-57d
2-13b / 2-28d / 2-43b / 2-58e
2-59e
2-60e
2-14e / 2-29e / 2-44d / 2
2-15a / 2-30b / 2-45c

2-1Fincome; positive

2-2Frelated; positive

2-3Fdownward; demand; inversely

2-4Finferior

2-5Fnegative; increase; rightward; increase

2-6Fpositive; decrease; leftward; decrease

2-7Fincrease

2-8Fgreater; supply

2-9Fless; demand

2-10Frises (or increases); rises (or increases)

2-11Frises (or increases); falls (or decreases)

2-12Frises; may either rise or fall (indeterminate)

2-13Fmay either rise or fall (indeterminate); falls

2-14Fshortage, surplus

2-15Fa.normal; M; positive

  1. complements; PB; negative
  2. 51,000

2-16Fa.Qs = 560 + 4P; $140

  1. 640; 1,040
  2. P = 140 + 0.25Qs; $327.50

2-17Fa.$10; 45

  1. shortage; 19; surplus; 19
  2. $8; 32
  3. $7.67; 52

2-18Fa.

  1. $200
  2. $125
  3. surplus; 100
  4. $140

2-19Fa.demand; increase; increase; increase

  1. supply; increase; decrease; increase
  2. may rise, fall, or stay the same (i.e., indeterminate); is going to increase
  3. If price controls deep gasoline prices below the market clearing price.

2-20FEvent (i) is an increase in the price of a complement in production, so the supply of leather increases (shifts rightward). Event (ii) is an increase in the price of a substitute, so the demand for leather increases (shifts rightward). The two events cause an increase in the equilibrium quantity of leather but the effect on the price of leather is indeterminate.

2-21FEvent (i) is an increase in the number of firms or productive capacity of the movie theater industry, so the supply of movie tickets increases (shifts rightward). Event (ii) is a decrease in the price of a complement, so the demand for movie tickets increases (shifts rightward). The two events cause an increase in the equilibrium quantity of movie tickets but the effect on ticket prices is indeterminate.

2-22FA decrease in the supply of RAM chips will not cause a shortage in RAM chips as long as prices of RAM chips are allowed to rise when supply decreases. The market for RAM chips will clear at a higher price when supply decreases.

2-23Fa.$3

b.$5; $2

c.$2; $1

d.$1,050

e.$525

f.$1,575; social surplus

g.$1,250; $625

h.$1,875

Chapter 3: MARGINAL ANALYSIS FOR OPTIMAL DECISIONS

3-1e / 3-21c / 3-41d / 3-61b / 3-81b
3-2c / 3-22c / 3-42d / 3-62d / 3-82e
3-3a / 3-23d / 3-43e / 3-63a / 3-83d
3-4a / 3-24d / 3-44d / 3-64c / 3-84b
3-5d / 3-25d / 3-45c / 3-65c / 3-85b
3-6d / 3-26a / 3-46e / 3-66a / 3-86d
3-7e / 3-27c / 3-47b / 3-67c / 3-87a
3-8c / 3-28e / 3-48c / 3-68e / 3-88c
3-9b / 3-29b / 3-49b / 3-69a / 3-89b
3-10e / 3-30a / 3-50c / 3-70d / 3-90d
3-11c / 3-31b / 3-51d / 3-71e / 3-91e
3-12b / 3-32e / 3-52d / 3-72b / 3-92d
3-13a / 3-33c / 3-53b / 3-73b / 3-93c
3-14c / 3-34c / 3-54b / 3-74b / 3-94a
3-15a / 3-35a / 3-55a / 3-75e / 3-95e
3-16d / 3-36c / 3-56c / 3-76c / 3-96c
3-17c / 3-37a / 3-57e / 3-77a / 3-97b
3-18a / 3-38c / 3-58c / 3-78c
3-19d / 3-39d / 3-59a / 3-79b
3-20d / 3-40b / 3-60a / 3-80c

3-1Fmarginal cost; marginal benefit

3-2Fincrease; $15

3-3Fincrease;$10

3-4Ffixed; sunk; marginal; marginal

3-5Fmarginal benefits per dollar spent onA(MBA/PA); marginal benefits per dollar spent on B (MBB/PB)

3-6Fa.1200; $52; $52

b.$68; $44; increasing; $24

  1. $44; $56; decreasing; $12

3-7Fa.200; $20; $20

b.$15; less

c.$15; more

3-8Fa.increases; 60

b.increases; 65

c.decreases; 20; decreases; 75; increases

  1. 3; 270

3-9Fa.2,300; 800; greater; increases; 1,500

  1. 1,500; 2,000; less; increase; 500
  2. 40; 1,700; 1,700
  3. 84,000; 44,000; 40,000

3-10Fa.8.80

b.19.2

3-11Fdecrease; $6.8 million; too many

3-12Fa.1; 4; 1,960

b.4; 6; 3,510

3-13FSince the custom control system cannot be sold to anyone else (it has no alternative use), it is a sunk cost. Sunk costs should be ignored. The Los Angeles refinery should continue to operate if the marginal benefit of operation exceeds the marginal costs of operation.

Chapter 4: BASIC ESTIMATION TECHNIQUES

4-1d / 4-16d / 4-31d / 4-46e
4-2b / 4-17d / 4-32b / 4-47b
4-3b / 4-18c / 4-33a / 4-48b
4-4d / 4-19c / 4-34c / 4-49d
4-5b / 4-20c / 4-35d / 4-50a
4-6b / 4-21d / 4-36a
4-7c / 4-22e / 4-37d
4-8a / 4-23d / 4-38a
4-9d / 4-24a / 4-39b
4-10a / 4-25b / 4-40b
4-11a / 4-26e / 4-41d
4-12c / 4-27e / 4-42d
4-13d / 4-28d / 4-43c
4-14b / 4-29b / 4-44b
4-15a / 4-30a / 4-45b

4-1Fa.D; G

b.b; a

c.a

  1. b

4-2Fa.22

b.–2.69; 2.819

  1. is not

4-3Fa.

  1. 30; 2.042;
  2. is; is
  3. 2.457; is not; is
  4. 1.24%; making a Type I error
  5. 4.17; is
  6. 29,731.75
  7. 80.89%

4-4Fa.g.648

b.23; 2.807h.63.53%

c.is; is not; is noti.32.76%

d.20j.decreases; 10%

e.1.34; committing a Type I error

f.5.66; is not

4-5Fa.

  1. is NOT; is; is; is
  2. is; is; is; is
  3. 1.04%; making a Type I error, which means finding significance when none exists.
  4. 1,221
  5. 84%

Chapter 5: THEORY OF CONSUMER BEHAVIOR

5-1a / 5-21b / 5-41d / 5-61b / 5-81e
5-2a / 5-22d / 5-42a / 5-62c / 5-82c
5-3d / 5-23a / 5-43b / 5-63b / 5-83d
5-4c / 5-24d / 5-44d / 5-64d
5-5e / 5-25c / 5-45d / 5-65d
5-6d / 5-26e / 5-46c / 5-66d
5-7b / 5-27c / 5-47a / 5-67b
5-8d / 5-28c / 5-48d / 5-68b
5-9e / 5-29a / 5-49d / 5-69b
5-10b / 5-30b / 5-50e / 5-70e
5-11e / 5-31a / 5-51a / 5-71b
5-12c / 5-32e / 5-52b / 5-72c
5-13c / 5-33e / 5-53c / 5-73c
5-14d / 5-34a / 5-54c / 5-74c
5-15e / 5-35b / 5-55c / 5-75d
5-16a / 5-36d / 5-56c / 5-76b
5-17e / 5-37a / 5-57d / 5-77b
5-18b / 5-38a / 5-58e / 5-78e
5-19b / 5-39d / 5-59e / 5-79a
5-20d / 5-40c / 5-60a / 5-80a

5-1Fa.utility

  1. slope; marginal rate of substitution (MRS)
  2. 4; ¼
  3. MRS; price ratio
  4. slope; price ratio

5-2FA; B; MUA / PA; MUB / PB; ¾

5-3Fa.substitution; income; total

  1. horizontal; demands

5-4Fa.1.5; 1.5; 2/3

  1. ½; ½; 2
  2. ¾; ¾; 11/3 (or 4/3)

5-5Fa.$12; $18;

b.$12; $9;

5-6F: a.$20; $15; 20; 15; ¾

  1. greater than; ratio; X; Y; not enough income to purchase any combination on III.
  2. less; ratio; Y; X; less

5-7Fa.$9; 300; $25.50; 200

  1. 150; +50; 100
  2. inferior

5-8Fa.$10; 30; $5; 70

  1. +30; +10; +40
  2. normal

5-9Fa.3; 1/3

  1. 2; ½; 2Y for 1X
  2. No; X; Y

5-10F a.price ratio; MRS

  1. marginal utility; price; MRS; price
  2. utility maximizing; price

5-11FCokes; hotdogs

Chapter 6: ELASTICITY AND DEMAND

6-1d / 6-16e / 6-31e / 6-46a / 6-61a / 6-76b
6-2d / 6-17b / 6-32c / 6-47a / 6-62d / 6-77c
6-3c / 6-18d / 6-33b / 6-48a / 6-63d
6-4b / 6-19d / 6-34a / 6-49c / 6-64c
6-5e / 6-20a / 6-35a / 6-50d / 6-65c
6-6c / 6-21e / 6-36e / 6-51d / 6-66b
6-7c / 6-22a / 6-37b / 6-52d / 6-67e
6-8b / 6-23b / 6-38a / 6-53e / 6-68b
6-9c / 6-24b / 6-39b / 6-54e / 6-69c
6-10e / 6-25c / 6-40a / 6-55e / 6-70a
6-11d / 6-26a / 6-41d / 6-56d / 6-71c
6-12e / 6-27c / 6-42b / 6-57a / 6-72d
6-13a / 6-28a / 6-43d / 6-58d / 6-73e
6-14a / 6-29e / 6-44c / 6-59c / 6-74a
6-15e / 6-30e / 6-45d / 6-60b / 6-75e

6-1Fa.decrease; 18

  1. decreased; 11.11

6-2Fa.price; quantity

b.quantity; price

c.neither

  1. same; dominant

6-3Fa.increase; rise

b.decrease; rise

c.decrease; stay the same

d.elastic

e.unitary elastic

  1. inelastic

6-4Fa.7

b.1

  1. 0.50

6-5Fa.6.50

b.0.42

c.$375

  1. gets smaller

6-6Fa.8.29

b.normal

6-7Fa.1.57

  1. substitutes

6-8FTotal revenues: 4,000; 4,500; 4,800; 4,900; 4,800; 4,500

Marginal revenues: 50; 30; 10; 10; –30

Elasticities: 2.11; 1.55; 1.15; 0.87; 0.65

6-9Fa.1.50

b.0.67

c.falls; positive

d.falls; negative

6-10Fa.$64

b.$40

c.500

d.$20,000

e.48

f.–16

g.500

6-11Fa.False, the quantity effect dominates the price effect since demand is elastic at –1.25.

b.False, the elasticity would have to be –0.8 in order for a 5 percent decrease in price to cause quantity demanded to increase by 4 percent.

c.True, a decrease in price when demand is elastic causes total revenue to rise.

Chapter 7: DEMAND ESTIMATION AND FORECASTING

ANSWERS

1

7-1d

7-2d

7-3d

7-4b

7-5d

7-6d

7-7a

7-8b

7-9b

7-10d

7-11c

7-12c

7-13b

7-14e

7-15e

7-16b

7-17a

7-18e

7-19b

7-20b

7-21b

7-22d

7-23e

7-24e

7-25e

7-26b

7-27a

7-28e

7-29b

7-30a

7-31d

7-32a

7-33e

7-34e

7-35d

7-36d

7-37b

7-38e

7-39d

7-40e

7-41e

7-42a

7-43c

7-44b

7-45a

7-46c

7-47b

7-48d

7-49a

7-50a

7-51a

7-52c

7-53e

7-54c

7-55d

7-56a

7-57c

7-58e

7-59c

7-60a

7-61d

7-62d

7-63e

7-64d

7-65a

7-66e

7-67b

7-68a

ANSWERS

1

7-1Fa.inferior; complements

  1. 2,600
  2. (1) E = 0.12; (2) EXG = 0.58; (3) EM = 1.38

7-2Fainferior; substitutes

b.

c.5,000

d.(1) E = 2.2; (2) EXY = 2.6; (3) EM = 0.25

7-3Fa.ln = 284.29  1.02 ln P + 0.45 ln M 2.0 ln PR

  1. normal; complements
  2. Only and are significant at the 5% level.
  3. (1) E = 1.02, (2) EXR = 2.0, (3) EM = 0.45
  4. decrease; 9.9%
  5. decrease; 22.44%
  6. increase; 16%

7-4Fa.complements; substitutes; normal

  1. exact level of significance for
  2. 862.2
  3. –0.125; inelastic
  4. increase; 0.74%

7-5Fa.1.943; is; is

  1. upward; 12,045
  2. 1,065,800
  3. 1,077,845

7-6Fa2.807; is; is; is

  1. upward; 47.52
  2. positive; 34.66
  3. 1,524
  4. 1,607
  5. 1,619
  6. 1,667

7-7Fa2.457; is; is; is; is; is

  1. upward; 0.9
  2. 13; 15; 17; 21
  3. 45.4; 48.3; 51.2; 56.1

Chapter 8:PRODUCTION AND COST IN THE SHORT RUN

8-1c / 8-16e / 8-31e / 8-46d / 8-61d / 8-76a / 8-91b
8-2c / 8-17b / 8-32c / 8-47b / 8-62c / 8-77c / 8-92e
8-3b / 8-18c / 8-33d / 8-48e / 8-63a / 8-78d / 8-93a
8-4d / 8-19d / 8-34d / 8-49b / 8-64d / 8-79e / 8-94d
8-5b / 8-20e / 8-35d / 8-50e / 8-65b / 8-80c / 8-95b
8-6b / 8-21b / 8-36c / 8-51c / 8-66b / 8-81c / 8-96d
8-7e / 8-22c / 8-37e / 8-52c / 8-67a / 8-82a / 8-97c
8-8c / 8-23e / 8-38d / 8-53b / 8-68e / 8-83a / 8-98a
8-9a / 8-24c / 8-39b / 8-54d / 8-69a / 8-84b / 8-99d
8-10d / 8-25e / 8-40d / 8-55a / 8-70b / 8-85e / 8-100a
8-11a / 8-26e / 8-41b / 8-56b / 8-71e / 8-86a
8-12d / 8-27a / 8-42c / 8-57b / 8-72a / 8-87d
8-13b / 8-28c / 8-43a / 8-58a / 8-73e / 8-88e
8-14d / 8-29c / 8-44d / 8-59e / 8-74a / 8-89a
8-15c / 8-30d / 8-45e / 8-60a / 8-75e / 8-90c

8-1Fa.short run

b.long run

c.short run

  1. long run
  2. long run
  3. short run

8-2F2; $1760; $1920

8-3Fa.second; second

b.25; 30

c.23.33; 20

  1. 20; 10

8-4Fa.second; second

b.50; 60

c.46.67; 40

d.40; 20

8-5Fa.falls; $10; $8

b.falls; $10; $6.67

c.rises; $8.57; $10

d.rises; $10; $20

8-6Fa.falls; $15; $12

b.falls; $15; $10

c.rises; $12.86; $15

  1. rises; $15; $30

8-7Fa.70; 35

b.30; 20

c.100; 25

8-8Fa.the period in which all inputs are variable

b.the period during which at least one input is fixed in amount

8-9Fmarginal product must begin to decrease

8-10Fa.increase (shift up)

b.increase (shift up)

c.increase (shift up)

8-11Fa.1,500

  1. $4; $4
  2. $8

8-12Fa.450

  1. $6.67; $3.33
  2. decreasing; decreasing

8-13Fa.1,600

  1. $5; $10
  2. increasing, increasing

8-14Fa.All four input combinations are technically efficient because production functions are constructed under the assumption of technical efficiency, i.e., all combinations are technically efficient.

b.5L, 1k costs $140, and it is economically efficient because the other three input combinations cost more than $140.

c.2L, 4K is now economically efficient (i.e., least-total-cost)

d.Yes, because marginal product declines after the fourth unit of labor.

e.10, 13, 20, 53. Marginal product of labor rises when workers have more capital to work with.

Chapter 9:PRODUCTION AND COST IN THE LONG RUN

9-1c / 9-16b / 9-31c / 9-46a / 9-61e / 9-76b
9-2a / 9-17e / 9-32a / 9-47b / 9-62b / 9-77a
9-3c / 9-18c / 9-33e / 9-48e / 9-63a / 9-78d
9-4c / 9-19d / 9-34b / 9-49e / 9-64a / 9-79b
9-5a / 9-20b / 9-35b / 9-50a / 9-65c / 9-80e
9-6c / 9-21a / 9-36a / 9-51a / 9-66e / 9-81c
9-7b / 9-22b / 9-37e / 9-52e / 9-67a / 9-82b
9-8a / 9-23b / 9-38b / 9-53d / 9-68b / 9-83b
9-9b / 9-24b / 9-39d / 9-54e / 9-69a / 9-84c
9-10d / 9-25d / 9-40a / 9-55d / 9-70a / 9-85a
9-11d / 9-26a / 9-41b / 9-56c / 9-71e / 9-86b
9-12c / 9-27e / 9-42e / 9-57c / 9-72b / 9-87e
9-13d / 9-28d / 9-43c / 9-58a / 9-73b / 9-88e
9-14e / 9-29c / 9-44a / 9-59e / 9-74b / 9-89b
9-15b / 9-30d / 9-45e / 9-60a / 9-75b / 9-90c

9-1Fa.$12,000; $300

b.K = 60 – 1.5L; 1.5

c.$12,000; $150

d.K = 60 – 0.75L; 3/4

9-2Fa.2

b.½

c.75/50 = 1.5

9-3Fa.greater than; $4,000

  1. increases; decreases; greater than; decreased; $500
  2. minimizes; equal to
  3. 10; 20; $3,000

9-4Fa.labor; capital; $4,000

  1. capital; labor; decreased; $500
  2. equal to
  3. $2,500; it is not able to produce 3,000 units.

9-5Fa.1.67; 2

  1. 2/3; increase; 6.67 units
  2. capital; labor; 3/2

9-6Fa.less than

  1. capital; labor; 2; $20
  2. capital; labor; MRTS; 3/4; MPL / 30; MPK / 40

9-7Fa.MRTS; the input price ratio (w/r); MPL / w; MPK / r; labor; capital

  1. the input price ratio (w/r); MRTS; MPK / r; MPL / w; capital; labor
  2. 3/4

9-8Fa.MRTS; the input price ratio, w/r; MPL / w; MPK / r

  1. minimizes the cost; each level of output
  2. the output; level of cost

9-9Fa.40; LAC; decreasing

  1. $760; $38; $38
  2. $1,350; $33.75; $29.50

9-10Fa.40; LAC; increasing

  1. $2,300; $38.33; $47.50
  2. $3,500; $43.75; $60

9-11Fa.economies of scale; diseconomies of scale

  1. $20; $30
  2. ATC; LAC; ATC; LAC

9-12Fcapital; labor; MPL/w ; MPK/r

Chapter 10:PRODUCTION AND COST ESTIMATION

10-1a / 10-16d / 10-31b / 10-46c
10-2c / 10-17e / 10-32a / 10-47a
10-3c / 10-18e / 10-33d / 10-48e
10-4e / 10-19b / 10-34b / 10-49d
10-5a / 10-20b / 10-35a / 10-50e
10-6c / 10-21d / 10-36d / 10-51b
10-7d / 10-22c / 10-37b / 10-52e
10-8e / 10-23b / 10-38a / 10-53a
10-9b / 10-24b / 10-39e / 10-54b
10-10c / 10-25a / 10-40b / 10-55e
10-11a / 10-26c / 10-41c
10-12d / 10-27c / 10-42e
10-13e / 10-28a / 10-43d
10-14d / 10-29d / 10-44d
10-15a / 10-30b / 10-45b

10-1Fa.1.5

b.4.5

c.3.0

d.does not

10-2Fa.K/L

b.6K

c.6L

d.does not

10-3Fa.TP = 50L3 + 5000L2 ; AP = 50L2 + 5000L ; MP = 150L2 + 10,000L

b.33 1/3

  1. MP = 85,000; AP = 45,000

d.TP = 25.6L3 + 3200L2 ; AP = 25.6L2 + 3200L ; MP = 76.8L2 + 6,400L

  1. MP = 56,320; AP = 29,440; decreased

10-4Fa.TP = –0.0016L3 + 0.40L2 ; AP = 0.0016L2 + 0.40L ; MP = 0.0048L2 + 0.8L

b0.32%; 0.02%

  1. 83 1/3
  2. 125
  3. $12.00; $12.00
  4. 2,400; $12.50; $9.38

10-5Fa..

  1. 100; $74.40

c.SMC = 75  0.024Q + 0.00018Q2

d.AVC = 75  0.012Q + 0.00006Q2

e.$6,411

f.$2,163

Chapter 11:MANAGERIAL DECISIONS IN COMPETITIVE MARKETS

11-1d / 11-21e / 11-41d / 11-61b / 11-81b
11-2e / 11-22a / 11-42c / 11-62b / 11-82a
11-3e / 11-23d / 11-43a / 11-63a / 11-83b
11-4e / 11-24e / 11-44d / 11-64c / 11-84d
11-5c / 11-25a / 11-45c / 11-65b / 11-85b
11-6a / 11-26d / 11-46d / 11-66d / 11-86d
11-7c / 11-27a / 11-47c / 11-67d / 11-87b
11-8d / 11-28b / 11-48d / 11-68b / 11-88e
11-9b / 11-29d / 11-49d / 11-69e / 11-89e
11-10a / 11-30c / 11-50e / 11-70b / 11-90e
11-11d / 11-31a / 11-51e / 11-71d
11-12b / 11-32b / 11-52e / 11-72b
11-13c / 11-33d / 11-53a / 11-73c
11-14c / 11-34a / 11-54b / 11-74a
11-15a / 11-35d / 11-55d / 11-75e
11-16d / 11-36b / 11-56a / 11-76c
11-17a / 11-37b / 11-57d / 11-77e
11-18c / 11-38c / 11-58e / 11-78b
11-19e / 11-39b / 11-59c / 11-79b
11-20e / 11-40b / 11-60a / 11-80e

11-1Fperfectly; price; marginal revenue

11-2Fa.500; $17,500; $12,500

  1. $5,000
  2. 350; $7,000; $8,750
  3. $1,750
  4. $1,750; fixed costs; fixed costs
  5. $12.50

11-3Flong-run average cost; long-run marginal cost; zero; the opportunity cost of the resources they provide to the firm.

11-4Fa.fall; new firms will enter the market

  1. more; more
  2. zero

11-5Fa.5,500

  1. $385,000; $275,000
  2. $110,000
  3. 4,000; $40
  4. $0

11-6Fa.40

  1. 35
  2. none; zero

11-7Fa.price; marginal cost; average total cost

  1. price; marginal cost; minimum average variable cost; minimum average total cost
  2. minimum average variable cost; its fixed cost

11-8Fa.SMC = 125  0.42Q + 0.0021Q2

  1. 150; $109.25
  2. 200; $700
  3. 172.39; $2,569
  4. zero; $3,500

11-9Fa.SMC = 20 – 0.08Q + 0.00015Q2

b.400; $12

c.575; $5,290

d.460; $769.60

e.zero; –500

11-10Fa.$20

b.$20; $0

c.$40,000; $30

d.$30; $30

e.True

f.$400,000

g.resource owners

Chapter 12:MANAGERIAL DECISIONS FOR FIRMS WITH MARKET POWER

12-1 d / 12-21 b / 12-41 b / 12-61 d / 12-81 e / 12-101 a
12-2 c / 12-22 e / 12-42 b / 12-62 c / 12-82 c / 12-102 a
12-3 e / 12-23 a / 12-43 d / 12-63 c / 12-83 d / 12-103 e
12-4 d / 12-24 b / 12-44 d / 12-64 a / 12-84 e / 12-104 c
12-5 d / 12-25 c / 12-45 d / 12-65 d / 12-85 a / 12-105 b
12-6 e / 12-26 e / 12-46 e / 12-66 c / 12-86 d / 12-106 e
12-7 b / 12-27 c / 12-47 b / 12-67 c / 12-87 d / 12-107 a
12-8 a / 12-28 b / 12-48 b / 12-68 a / 12-88 e / 12-108 d
12-9 c / 12-29 c / 12-49 c / 12-69 e / 12-89 b / 12-109 e
12-10 d / 12-30 d / 12-50 a / 12-70 d / 12-90 c / 12-110 a
12-11 c / 12-31 a / 12-51 c / 12-71 b / 12-91 c
12-12 d / 12-32 c / 12-52 e / 12-72 e / 12-92 b
12-13 e / 12-33 a / 12-53 b / 12-73 e / 12-93 e
12-14 a / 12-34 b / 12-54 e / 12-74 c / 12-94 b
12-15 d / 12-35 b / 12-55 d / 12-75 e / 12-95 c
12-16 a / 12-36 e / 12-56 d / 12-76 a / 12-96 c
12-17 d / 12-37 d / 12-57 a / 12-77 a / 12-97 d
12-18 b / 12-38 b / 12-58 b / 12-78 a / 12-98 b
12-19 d / 12-39 c / 12-59 d / 12-79 d / 12-99 c
12-20 e / 12-40 e / 12-60 a / 12-80 a / 12-100 e

12-1Fa.1.67; $5

b.0.6; –$5

12-2Fa.losing all its sales; market power

b.elasticity of demand; the Lerner index

c.easy entry of new firms into the market; zero economic profit

d.price is above average variable cost (PAVC); less; price is below long run average cost

12-3Fa.$20; 80; positive (greater than zero)

b.$20; 80; negative

c.$20; 80; zero

12-4Fa.marginal revenue product; the price of the input (the wage rate)

  1. the price of the input (the wage rate); marginal revenue product
  2. maximum average revenue product

12-5Fa.14; $26

b.$126

c.$13; $11

d.$11; $12; reducing; $1

12-6Fa.300; $30

b.$9,000; $6,000; $3,000

12-7Fa.2,000; $60

  1. $20,000
  2. $120,000; $80,000; $40,000
  3. $60,000 = TFC

12-8Fa.30

  1. 35; $1,575; $350; $675
  2. zero workers

12-9Fa.Q = 4,500  100P

b.P = 45  0.01Q

c.MR = 45  0.02Q

d. SMC = 40  0.16Q + 0.0003Q2

  1. 500
  2. $40
  3. should produce; P = $40 > AVC = $25
  4. $2,500

12-10Fa.MR; total marginal cost (MCT); its demand

b.MCA; MCB

c.A; B; MCB; MCA

12-11Fa.QA = 400 + 20MCA; QB = 300 + 50MCB

b.QT = 700 + 70MCT

c.MCT = 10 + 0.01429QT

d.700

e.QA = 300; QB = 1,450

12-12Fa.300; B

b.400; 600

  1. 650; $80
  2. 200; 450

Chapter 13:STRATEGIC DECISION MAKING IN OLIGOPOLY MARKETS

13-1d / 13-16a / 13-31b / 13-46a / 13-61c
13-2e / 13-17c / 13-32a / 13-47e / 13-62b
13-3a / 13-18 c / 13-33b / 13-48d / 13-63a
13-4a / 13-19 c / 13-34d / 13-49c / 13-64c
13-5d / 13-20e / 13-35d / 13-50a / 13-65 c
13-6d / 13-21d / 13-36e / 13-51a / 13-66 a
13-7d / 13-22c / 13-37e / 13-52b / 13-67 c
13-8a / 13-23e / 13-38a / 13-53d / 13-68 c
13-9b / 13-24b / 13-39e / 13-54e
13-10d / 13-25c / 13-40a / 13-55d
13-11d / 13-26a / 13-41c / 13-56a
13-12a / 13-27e / 13-42d / 13-57d
13-13d / 13-28e / 13-43d / 13-58c
13-14b / 13-29a / 13-44c / 13-59d
13-15a / 13-30e / 13-45a / 13-60a

13-1 Fa.simultaneous

  1. dominant strategy; Nash
  2. prisoners’ dilemma
  3. dominant; dominated
  4. best; expect (or anticipate, predict)
  5. unilaterally
  6. credible

13-2Fa.it has no dominant strategy

  1. low
  2. it has no dominated strategy
  3. high
  4. high; low
  5. is NOT

13-3 Fa.$2 million

  1. $1 million
  2. Remington; $2 million
  3. $3 million; $3 million
  4. is; is

13-4Fa.$25

  1. $25; $30 (Note: Points J and N will coincide in the figure)

  1. $300; $1,000
  2. $800; more
  3. $1,200; more
  4. strategically stable (or Nash equilibrium); decrease

13-5Fa.Alpha

  1. it has no dominant strategy
  2. A
  3. blanks filled in from the payoff table
  4. Circle the decision path Alpha, Alpha; 15; 11
  5. blanks filled in from the payoff table
  6. Circle the decision path Alpha, Alpha; 15; 11
  7. Neither
  8. Neither

13-6 Fa.is

b.D; A

c.B; C

d.A

e.can

f.can

g.$1,500; $2,891

h.$2,000; $3,965

i.should not

13-7Fa.Enter; High

b.Not credible because Maytag does better for itself by pricing High if Whirlpool enters.

c.Game tree should look like the following:

d.can now; irreversible

Chapter 14: ADVANCED PRICING TECHNIQUES

14-1 e / 14-21 a / 14-41 a
14-2 a / 14-22 b / 14-42 e
14-3 b / 14-23 e / 14-43 c
14-4 c / 14-24 d / 14-44 a
14-5 d / 14-25 a / 14-45 c
14-6 c / 14-26 b / 14-46 c
14-7 c / 14-27 a / 14-47 a
14-8 c / 14-28 a / 14-48 b
14-9 a / 14-29 d / 14-49 e
14-10 a / 14-30 b / 14-50 a
14-11 b / 14-31 c / 14-51 c
14-12 b / 14-32 b / 14-52 a
14-13 d / 14-33 a / 14-53 e
14-14 b / 14-34 b / 14-54 c
14-15 b / 14-35 d / 14-55 e
14-16 d / 14-36 d / 14-56 b
14-17 d / 14-37 d / 14-57 d
14-18 e / 14-38 d
14-19 a / 14-39 c
14-20 c / 14-40 a

14-1Fa.$55; 100; $62,500; $1,250

b.$11,000; 200; $125,000; $0

c.0; 80; $800; 80; 160; 8,000; 160; 240; 160; $8,000; $80,000; $1,600

14-2Fa.200; $16; $1,600

b.$800

c.$800

d.400

e.400

f.$6,400; $3,200; $3,200; $1,600

14-3Fa.800; 300; 500

b.$65; $75

c.4.33; 3; yes, the higher price is in the less elastic market.

14-4Fa.total marginal revenue; marginal cost

  1. the marginal revenue in each equals total marginal revenue
  2. elasticity is higher in B

14-5FB; A; the marginal revenues are equal

14-6Fa.

b.

c.

14-7Fa.substitutes

b.marginal revenue; marginal cost; solving the two simultaneously

14-8Fa.PA = 80  0.02QA; PB = 20  0.00625QB

b.MRA = 80  0.04QA; MRB = 20  0.0125QB

c.MRT = 34.286  0.009524QT

d.1,905; 1,295

14-9Fa.1605; 1525; 80

b.$49.50; $19.50

c.1.62; 39.00; PA; PB

14-10Fa.PX = 73.333  0.000333QX 0.000333QY; PY = 96.667  0.000667QY 0.000167QX

b.MRX = 73.333  0.000667QX 0.000333QY; MRY = 96.667  0.00133QY 0.000167QX

c.QX = 44,720; QY = 40,480

d.$44.93; $62.23

14-11Fa.

b.

c.At the price of $300, quantity demanded is 200 (= 300 – 1/3  300).

d.AVC = $204; AFC = $66 (= $9,900/150); ATC = $270 (= AVC + AFC); profit = $4,500 = (300 – 270)  150.

e.m = 0.40; P = (1 + 0.40)270 = $378

f.At a price of $378, the doctor will perform 174 alignments monthly. Thus, his profit will be $20,376 [= (378 – 204)174 – 9,900].

g.MR = SMC  900 – 6Q = 204 Q* = 116 patients per month P* = $552 (= 900 – 3  116); maximum profit = $30,468 = (552 – 204)  116 – 9,900.

h.Cost-plus pricing does not use any demand information, so there was no reason for Dr. Jones to believe that a 40 percent markup would lead to the profit-maximizing point on demand (i.e., P* and Q*). Furthermore, by using ATC, fixed costs entered into the decision making process. Only marginal costs matter in decision making.

Chapter 15: DECISIONS UNDER RISK AND UNCERTAINTY

15-1b / 15-16e / 15-31d / 15-46d
15-2a / 15-17e / 15-32b / 15-47c
15-3b / 15-18c / 15-33c / 15-49e
15-4c / 15-19c / 15-34a / 15-50e
15-5d / 15-20a / 15-35c / 15-51c
15-6d / 15-21d / 15-36a / 15-52a
15-7e / 15-22c / 15-37d / 15-53b
15-8a / 15-23b / 15-38c / 15-54b
15-9d / 15-24d / 15-39c / 15-55c
15-10a / 15-25c / 15-40e / 15-56a
15-11c / 15-26a / 15-41d / 15-57e
15-12b / 15-27b / 15-42b / 15-58e
15-13e / 15-28b / 15-43d / 15-59e
15-14e / 15-29d / 15-44b / 15-60a
15-15b / 15-30b / 15-45a / 15-61d

15-1Fa.4,000; 4,600

b.800,000; 1,340,000

  1. 894.43; 1,157.58
  2. 2

e.0.22; 0.25; 2

15-2Fa.B

b.B

c.cannot; blank

d.B

15-3Fa.$2,000

b.100,000

c.50

d.neutral; constant

15-4Fa.$16,500

b.96.64

c.6.93; 4.05; 2.88

d.averse; decreasing

15-5Fa.B

b.A

c.B

d.B

Chapter 16: GOVERNMENT REGULATION OF BUSINESS

16-1c / 16-16 d / 16-31 e / 16-46 e
16-2b / 16-17 c / 16-32e / 16-47 b
16-3 c / 16-18 a / 16-33c / 16-48 b
16-4d / 16-19 b / 16-34c / 16-49 a
16-5b / 16-20 a / 16-35 d / 16-50 b
16-6c / 16-21 b / 16-36 e
16-7e / 16-22 e / 16-37 a
16-8d / 16-23 b / 16-38b
16-9d / 16-24 a / 16-39b
16-10a / 16-25 c / 16-40d
16-11a / 16-26 b / 16-41a
16-12e / 16-27 d / 16-42a
16-13 c / 16-28 e / 16-43c
16-14a / 16-29 c / 16-44e
16-15c / 16-30 b / 16-45c

16-1Faccess; usage

16-2Fallocative

16-3FLAC; negative

16-4Fcongestion

16-5FMAC; MD

16-6Ftotal abatement cost; total damages; minimizes

16-7Fdecrease; increase

16-8Fsocial; consumer; producer; economic; productive; allocative

16-9Fproductive; total; minimized

16-10Fallocative; price

16-11Fa.a.$1; 10,000

b.$1; $0.50

c.$10,000; $5,000; $15,000

d.$1.80; 6,000

e.$2,400

ANSWERS

1