Thursday
October 2, 2014

Homework Help: Managerial Economics--Help!

Posted by Sarah on Monday, December 11, 2006 at 6:33pm.

I just need help in reviewing my answers...they are all true/false questions..THANKS!!!

1. A principal-agent problem occurs when managerial decisions are inconsistent with the firm’s revenue maximizing objective.
False

2. A firm making less than a normal profit would have an economic loss.
True

3. An inferior good is a good whose demand decreases as its prices decreases.
False

4. Assuming that crude oil is an input to automobile tires as well as to gasoline, an increase in the price crude oil would result in a reduction in the demand for tires while the equilibrium price of tires may increase or decrease.
True

5. Other things remaining unchanged, a reduction in income would make demand for a normal good less price elastic.
True

6. The cross price elasticity demand for a good with respect to the price of a complementary good is negative.
True

7. When the marginal product of labor is greater than its average product, the average product decreases with each additional unit of labor.
False

8. The slope of an isoquant is equal to the ratio between the price of labor and the price of capital.
False

9. If the ratio between the price of labor and the price of capital (w/r) is greater than the ratio between the marginal product of labor and the marginal product of capital, the firm should hire more capital.
True

10. Normally the ratio between the price of a variable input and the marginal product of that input is equal to marginal revenue product.
True

11. When labor is the variable input the ratio between wage and the marginal product of labor is equal to marginal cost.
True

12. If the price falls below the average variable cost the firm shuts down in the short run.
False

13. When a perfectly competitive firm is producing at its profit maximizing level of output, its MR is equal to its MC but it is not necessarily equal its ATC.
False

14. The price a profit maximizing monopoly charges is always greater than its marginal cost as well as it MR.
True

15. As new firms enter a monopolistically competitive market, the demand faced by each competing firm becomes more elastic.
True

16. The long-run equilibrium of a monopoly is characterized by its price being greater than its MR and MC but not necessarily greater than its ATC.
False

17. A monopolistically competitive firm sets its price equal to its MR, but not equal to its MC.
False

18. We say that the long-run equilibrium of a monopolistically competitive firm reflects excess capacity because its MC is below its price.
True

19. In a duopoly with a zero marginal cost, according to the Cournot model, at equilibrium each firm produces exactly ˝ of the market demand at a zero price.
True

20. In the kinked demand curve model it is assumed that the demand faced by an oligopoly is more elastic when it lowers the price but less elastic when it raises the price.
True

21. A distinguishing characteristic of monopolistically competitive market is product differentiation.
True

22. The general explanation for the relative price stability in an oligopolistic market is the existence of some degree of decision interdependency among the firms in the market.
True

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