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Practice Set 4 With Answers DEM GSCM 2022

The document provides practice questions and answers related to demand and production concepts. Question 25 asks if the demand curve for Rock and Roll Trivia slopes downward based on the given demand function, and the answer is yes. Question 26 asks what can be inferred from the demand function, and answer A states that Rock and Roll Trivia is an inferior good. Question 30 asks how a slight price increase of the game will affect total consumer expenditures, and answer A states that expenditures will increase.

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Romit Banerjee
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59 views6 pages

Practice Set 4 With Answers DEM GSCM 2022

The document provides practice questions and answers related to demand and production concepts. Question 25 asks if the demand curve for Rock and Roll Trivia slopes downward based on the given demand function, and the answer is yes. Question 26 asks what can be inferred from the demand function, and answer A states that Rock and Roll Trivia is an inferior good. Question 30 asks how a slight price increase of the game will affect total consumer expenditures, and answer A states that expenditures will increase.

Uploaded by

Romit Banerjee
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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PRACTICE SET 4 with answers

The demand curve for the new computer game, Rock and Roll Trivia, is given as follows:

Q = 200 - 5P - .1Pc - .5Pd + .2A - I

where P is the price of the game


Pc is the price of a computer
Pd is the price of a diskette
A is the level of advertising
I is the level of income

25) See the information in Scenario 4.4. Does the demand curve for Rock and Roll Trivia
slope downward?
A) Yes it does.
B) No it does not.
C) More information is needed to answer this question.
Answer: A

26) See the information in Scenario 4.4. From this demand function, one can infer that:
A) Rock and Roll Trivia is an inferior good.
B) computers and diskettes are substitutes.
C) computers and diskettes are complements.
D) computers are a normal good.
E) A, B and D are true.
Answer: A

28) See the information in Scenario 4.4. Suppose P = 10, Pc = 100, Pd = 2, A = 5, and I = 50.
How many games will be sold?
A) -100
B) 0
C) 50
D) 90
E) none of the above
Answer: D

29) See the information in Scenario 4.4. Suppose P = 10, Pc = 100, Pd = 2, A = 5, and I = 50.
What is the price elasticity of demand?
A) 0
B) -5/9
C) -1
D) -9/5
E) none of the above
Answer: B

30) See the information in Scenario 4.4. Suppose that the price should increase slightly from
$10, how will this affect the total expenditure of consumers on the game?
A) Total expenditures will increase.
B) Total expenditures will not change.
C) Total expenditures will decrease by a larger percentage than the price increase.
D) Total expenditures will decrease by a smaller percentage than the price increase.
E) either C or D could be true.
Answer: A
Diff: 2
Section: 4.3

31) See the information in Scenario 4.4. Suppose P = 10, Pc = 100, Pd = 2, A = 5, and I = 50.
What is the income elasticity of demand?
A) 0
B) 5/9
C) 1
D) 9/5
E) none of the above
Answer: E

33) A local retailer has decided to carry a well-known brand of shampoo. The marketing
department tells them that the quarterly demand by an average man is:
Qd = 3 - 0.25P
and the quarterly demand by an average woman is:
Qd = 4 - 0.5P
The market consists of 10,000 men and 10,000 women. How may bottles of shampoo can
they expect to sell if they charge $6 per bottle?
A) 20,000
B) 33,000
C) 25,000
D) 10,000
E) none of the above
Answer: C

4) When the price of wood (which is an input in the production of furniture) falls, the
consumer surplus associated with the consumption of furniture
A) increases.
B) decreases.
C) does not change.
D) could be any of the above.
Answer: A

2) The bandwagon effect corresponds best to which of the following?


A) Snob effect
B) External economy
C) Negative network externality
D) Positive network externality
Answer: D

4) The snob effect corresponds best to a


A) negative network externality.
B) Giffen good.
C) positive network externality.
D) bandwagon effect.
Answer: A

7) As more and more firms have acquired fax machines, the fax machine has become a
standard means of business communication. The increase in demand for fax machines for
business communication:
A) is an example of the snob effect.
B) proves that the fax machine is an inferior good.
C) proves that the fax machine is a luxury good.
D) is an example of a positive network externality.
E) is an example of a negative network externality.
Answer: D

10) Use the following statements to answer this question:


I. A network externality is a situation in which each individual's demand depends on the
purchases of other buyers.
II. Network externalities are mainly positive effects resulting from the actions of others,
while ordinary externalities are mainly negative effects resulting from the actions of others.
A) I and II are true.
B) I is true and II is false.
C) I is false and II is true.
D) I and II are false.
Answer: B

11) Some luxury product manufacturers will purposefully raise prices on their goods in order
to reduce sales volume. This strategy may successfully increase sales revenue if the luxury
goods are subject to the ________ effect and have relatively ________ demand.
A) bandwagon, elastic
B) bandwagon, inelastic
C) snob, elastic
D) snob, inelastic
Answer: D

13) Software companies continually work to develop new features of their products that make
it easier for users to interact and share their work. As more of these features are embedded in
the software, what happens to the individual demand curve for the software products?
A) Demand curve becomes more elastic due to the bandwagon effect
B) Demand curve becomes less elastic due to the snob effect
C) Demand curve shifts, but its degree of elasticity does not change
D) There is no change in the individual demand curve
Answer: A

13) The market demand curve for denim jeans is Q = 231 - 45 P + 23 I where P is the product
price and I is per-capita consumer income. Which of the following statements about this
demand function is NOT true?
A) Denim jeans are normal goods.
B) The price elasticity of demand is -45.
C) The demand curve is downward sloping.
D) The Engel curve for this denim jeans is upward sloping.
Answer: B

PRODUCTION

1) A production function defines the output that can be produced


A) at the lowest cost, given the inputs available.
B) for the average firm.
C) if the firm is technically efficient.
D) in a given time period if no additional inputs are hired.
E) as technology changes over time.
Answer: C

7) The short run is


A) less than a year.
B) three years.
C) however long it takes to produce the planned output.
D) a time period in which at least one input is fixed.
E) a time period in which at least one set of outputs has been decided upon.
Answer: D

10) For many firms, capital is the production input that is typically fixed in the short run.
Which of the following firms would face the longest time required to adjust its capital inputs?
A) Firm that makes DVD players.
B) Computer chip fabricator
C) Flat-screen TV manufacturer
D) Nuclear power plant
Answer: D

6.2 Production with One Variable Input (Labor)

2) The slope of the total product curve is the


A) average product.
B) slope of a line from the origin to the point.
C) marginal product.
D) marginal rate of technical substitution.
Answer: C

3) The law of diminishing returns refers to diminishing


A) total returns.
B) marginal returns.
C) average returns.
D) all of these.
Answer: B
12) In a certain textile firm, labor is the only short term variable input. The manager notices
that the marginal product of labor is the same for each unit of labor, which implies that
A) the average product of labor is always greater that the marginal product of labor
B) the average product of labor is always equal to the marginal product of labor
C) the average product of labor is always less than the marginal product of labor
D) as more labor is used, the average product of labor falls
E) there is no unambiguous relationship between labor's marginal and average products.
Answer: B

15) The law of diminishing returns applies to


A) the short run only.
B) the long run only.
C) both the short and the long run.
D) neither the short nor the long run.
E) all inputs, with no reference to the time period.
Answer: A

23) For consideration of such issues as labor's productivity growth nationwide, the relevant
measure is the
A) marginal product of labor.
B) average product of labor.
C) total product of labor.
D) wage.
E) cost of capital.
Answer: B

30) You operate a car detailing business with a fixed amount of machinery (capital), but you
have recently altered the number of workers that you employ per hour. Three employees can
generate an average product of 4 cars per person in each hour, and five employees can
generate an average product of 3 cars per person in each hour. What is the marginal product
of labor as you increase the labor from three to five employees?
A) MP = 3 cars
B) MP = 1.5 cars
C) MP = 15 cars
D) MP = -1 cars
Answer: B

6.4 Returns to Scale


2) In a production process, all inputs are increased by 10%; but output increases less than
10%. This means that the firm experiences
A) decreasing returns to scale.
B) constant returns to scale.
C) increasing returns to scale.
D) negative returns to scale.
Answer: A

3) Increasing returns to scale in production means


A) more than 10% as much of all inputs are required to increase output 10%.
B) less than twice as much of all inputs are required to double output.
C) more than twice as much of only one input is required to double output.
D) isoquants must be linear.
Answer: B

10) A farmer uses M units of machinery and L hours of labor to produce C tons of corn, with
the following production function C = L0.5M0.75. This production function exhibits
A) decreasing returns to scale for all output levels
B) constant returns to scale for all output levels
C) increasing returns to scale for all output levels
D) no clear pattern of returns to scale
Answer: C

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