Managerial Economics A Problem Solving Approach 1st Edition by by Luke M. Froeb – Test Bank

Managerial Economics A Problem Solving Approach 1st Edition by by Luke M. Froeb – Test Bank

Multiple-Choice Questions

1. A manufacturer produces 1,000 basketballs each day, which it sells to customers for $30 each. All costs associated with production and sales total $10,000; however, if the manufacturer were to produce one additional basketball per day, total costs would increase to $10,100. From these amounts, we can tell that
a. the firm has negative profit.
b. marginal cost equals $100. **
c. marginal cost equals $150.
d. marginal cost equals marginal revenue.

2. A retailer has to pay $9 per hour to hire 13 workers. If the retailer only needs to hire twelve workers, a wage rate of $7 per hour is sufficient. What is the marginal cost of the 13th worker?
a. $117.
b. $9.
c. $33. **
d. $84.

3. A computer manufacturer can produce 5 computers for $5,000 and 10 computers for $7,500. Based on this information, what is the marginal cost per computer of the 6th through 10th computers?
a. $500 **
b. $750
c. $1,000
d. $2,500

4. To maximize profits, you should produce at the point where
a. you maximize the amount by which marginal revenue exceeds marginal costs.
b. you minimize total costs.
c. you maximize total benefit.
d. marginal benefits and marginal costs are just equal. **

5. A basketball company is considering purchasing a new machine that doubles capacity from 100 to 200 balls per day. The machine will occupy 1,000 square feet of unused space on the factory floor. Which costs are irrelevant in this decision to purchase a machine?
a. Rental expense associated with the 20,000 square foot factory. **
b. Additional personnel required to operate the machine.
c. Additional electricity required to operate the machine.
d. Maintenance cost for routine cleaning of the machine.

6. If you are trying to determine the value of a business, which of the following factors would be irrelevant?
a. Interest rate (discount rate).
b. Costs incurred by the business.
c. Revenues generated by the business.
d. How long the business is expected to survive.
e. None of the factors are irrelevant. **

7. A basketball manufacturer is considering a number of options for its new factory. Given the following costs and benefits of the four different factory configurations, what are the marginal costs and benefits of the Extra Large configuration relative to the Large configuration?
Total Cost Total Benefit
Configuration A(Small) $45,000 $70,000
Configuration B(Medium) 120,000 170,000
Configuration C (Large) 240,000 300,000
Configuration D (Extra Large) 400,000 420,000

a. Marginal cost of $160,000 and marginal benefit of $120,000. **
b. Marginal cost of $400,000 and marginal benefit of $420,000.
c. Marginal cost of $120,000 and marginal benefit of $120,000.
d. Marginal cost of $160,000 and marginal benefit of $220,000.

8. A basketball manufacturer is considering a number of options for its new factory. Given the following costs and benefits of the four different factory configurations, which Configuration should they select?
Total Cost Total Benefit
Configuration A(Small) $45,000 $90,000
Configuration B(Medium) 120,000 180,000
Configuration C (Large) 240,000 290,000
Configuration D (Extra Large) 400,000 420,000

a. Configuration A.
b. Configuration B. **
c. Configuration C.
d. None of the Configurations.

9. Which of the following would be considered an extent decision?
a. A business is considering diversifying into a new line of business.
b. A business is considering shutting down operations.
c. A business is considering the sale of an underperforming line of business.
d. A business manager is trying to decide how many workers to hire for a new line of business. **

10. A computer manufacturer shares its production capacity across two separate products, computers and printers. If the profitability of selling printers decreases, then the company will find that the
a. cost of producing computers decreases. **
b. cost of producing computers increases.
c. cost of producing computers is not affected.
d. profitability of producing computers increases.