The Toyota Motor Company uses the Economic Order Quantity model to
a) determine the maximum value of the firm.
determine the optimal amount of a product to order each time it
b)places an order.
c) maximize the profits of the enterprise.
d)determine the optimal amount of each type of product to use in
e) none of the above
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.
3. The difference between accounting and economic profit is
a) caused by confusion over tax laws.
b) the value of owner resources at 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.
The Anheuser-Busch brewing company produces advertisements encouraging
young people to consume less alcohol. This strategy is designed to
a) encourage goodwill among consumers. b) minimize the costs at the firm.
c) limit the firm’s liability in the event of accidents.
d) maximize the firm’s revenues.
e) decrease sales.
5. An increase in fleet sales of new cars to rental car companies that then resell
the cars after only 5,000 miles will
a) likely cause the equilibrium price of new cars to fall.
b) likely cause the equilibrium price of new cars to rise.
c) increase the demand for cars in new-car show rooms.
d) increase the demand for Japanese imports.
e) none of the above.
If the annual interest rate is i, the present value of $ X to be received at the
end of each of the next n years is
a) $X / i.
b) $X / (1 + i ) .
d) $X [(1 + i) ] / [ i(1 + i) – 1].
e) $X / [i(1 + i) – 1].
You’ve just won the $25 million lottery. You are going to receive a check for
$1 million dollars today and at the end of every year for the next 24 years. If
the interest rate is 10 percent, the present value of your prize is
e) $25,000,000. You buy your child a $100 savings bond that matures in 10 years and pays an
annual interest rate of 10 percent. At maturity the bond will be worth
9. J. D. Power, the big management consulting firm, extols the reliability of Dell
computers; this causes the
a) demand for Dell computers to decrease.
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.
10. 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.
c) decreased while the supply of computers has decreased.
d) increased while the supply of computers has increased.
e) become more volatile. CHAPTER APPENDIX A
A function of one argument is maximized when the first derivative
a) is zero and the second derivative is positive.
b) is positive and the second derivative is negative.
c) is zero and the second derivative is negative.
d) is negative and the second derivative is positive.
e) and the second derivative are both zero.
2. The second derivative of the total profit function is
a) average profit.
b) marginal profit.
c) the slope of the average profit function.
d) the slope of the marginal profit function.
e) the slope of the total profit function.
If Y = –2 + X + 32X , then dY/dX is
a) 1 + 96X .
b) –1 + 96X .2
c) 1 + 96X .2
d) 96X 2.
e) X + 32X .2
4. If Y = aX / (b + X ), then dY/dX is
a) [a(b + X ) – acX ] / (b + X ) .2
c c – 1
b) a(b + X ) + acX .
c c – 1 c
c) [a(b + X ) – acX ] / (b + X ).
c c – 1 c 2
d) [a(b + X ) + acX ] / (b + X ) . e) a(b + X ) / (b + X ) .
If Y = 3 / X, then d Y/dX is
a) –6 / X .
b) –3 / X .
c) 6 / X .
d) 6 / X .
e) 6X .
6. Sally can advertise on radio, A 1 or on television, A2, so long as she spends no
more than $10. Profits depend on her advertising according to
. The constrained profit maximizing
levels of radio and television advertising are
a) A 1 $3 and A = 27.
b) A 1 $7 and A = 23.
c) A 1 $10 and A = $2.
d) A 1 $0 and A = 210.
e) A 1 $5 and A = 25.
7. Wilma’s Car Repair can repair cars using kryptonite bolts, K, or lithium bolts,
L, so long as it uses 10 bolts in toto. The cost of repairing a car is TC = K +
L – KL. The cost minimizing combination of kryptonite and lithium bolts is
a) K = 6 and L = 4.
b) K = 4 and L = 6.
c) K = 7 and L = 3.
d) K = 3 and L = 7.
e) K = 5 and L = 5.
8. The chain rule of differentiation is
a) Y = U(W(X)) ⇒ dY/dX = dY/dX dW/dX. b) Y = U(W(X)) ⇒ dY/dX = dU/dW dW/dX.
c) Y = U(W(X)) ⇒ dY/dX = dU/dX dW/dX.
d) Y = U(W(X)) ⇒ dY/dX = dW/dU dU/dX.
e) Y = U(W(X)) ⇒ dY/dX = dU/dU dU/dX.
9. Bolan’s Fabric Shop sells discount material. Its demand and cost functions are
Q D 40 – 2P and TC = 0.5Q . Its profit maximizing price is
a) P = $5.
b) P = $10.
c) P = $15.
d) P = $20.
e) P = $0.
1. The market demand schedule shows the quantities that would be purchased,
ceteris paribus, from a group of firms during a given time period
a) at varying prices.
b) at varying advertising levels.
c) at varying competitors’ prices and advertising levels.
d) at varying prices and advertising levels.
e) over different time intervals.
2. If the elasticity of per capita demand with respect to population is zero, then a
10 percent increase in the population will cause the quantity demanded to
a) increase by 25 percent.
b) decrease by 10 percent.
c) remain constant.
d) increase by 10 percent.
e) decrease by 25 percent. 3. The formula for the point price elasticity can be written