1. 1. A basketball company is considering purchasing a new machine that doubles capacity from
200 to 400 balls per day. The machine will occupy 5,000 square feet of unused space on the
factory floor. Which costs are irrelevant in this decision to purchase a machine?
Select one:
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.
2. 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) $50,000 100,000
Configuration B(Medium) 150,000 220,000
Configuration C (Large) 300,000 360,000
Configuration D (Extra Large) 400,000 420,000
Select one:
a. [moodle]Configuration A.
b. [moodle]Configuration B.
c. [moodle]Configuration C.
d. [moodle]None of the Configurations.
3. A company currently sells 60,000 units a month at $10 per unit. The marginal cost is
constant at $6 up to 100,000 units per month. The company is considering raising the price by
10% to $11. If the price elasticity of demand is constant and _____ in that price range then
profits would increase if they raise the price to $11.
Select one:
a. greater than or equal to -2.2
b. between -2.8 and -2.5
c. equal to -2.8
d. equal to -3.0
e. none of the above
4. A company manufactures three products as shown below. It is considering a decision to
discontinue the production of product C. Corporate overhead of $60,000 is allocated to each
product in equal parts. If the company decides to discontinue product C, 50% of its quantity
demanded will shift to product A (i.e., products A and C are substitutes). Product B is neither a
substitute nor a complement for product A or product C.
A B C
Unit Price $10.00 $15.00 $5.00

2. Marginal Cost $5.00 $5.00 $3.00
Quantity Sold 10,000 2,000 3,000
Unit Margin $5.00 $10.00 $2.00
Total Margin $ $50,000.00 20,000.00 $6,000.00
Overhead Allocation $20,000.00 $20,000.00 $20,000.00
Accounting Profit $30,000.00 $0.00 -$14,000.00
The company should:
Select one:
a. [moodle]discontinue producing C because this decision maximizes the total economic profit
contribution generated by the company.
b. [moodle]continue producing C because the substitution effect does not compensate for the loss
of profit contribution from product C.
c. [moodle]continue producing C because it has a positive unit margin.
d. [moodle]discontinue both B and C since neither has a positive contribution to economic profit.
5. A company currently sells 60,000 units a month at $10 per unit. The marginal cost is
constant at $6 up to 100,000 units per month. The company is considering raising the price by
10% to $11. If the price elasticity of demand is constant and _____ in that price range then
profits would increase if they raise the price to $11.
Select one:
a. greater than or equal to -2.2
b. between -2.8 and -2.5
c. equal to -2.8
d. equal to -3.0
e. none of the above
6. A company manufactures three products as shown below. It is considering a decision to
discontinue the production of product C. Corporate overhead of $60,000 is allocated to each
product in equal parts. If the company decides to discontinue product C, 50% of its quantity
demanded will shift to product A (i.e., products A and C are substitutes). Product B is neither a
substitute nor a complement for product A or product C.
A B C
Unit Price $10.00 $15.00 $5.00
Marginal Cost $5.00 $5.00 $3.00
Quantity Sold 10,000 2,000 3,000
Unit Margin $5.00 $10.00 $2.00
Total Margin $50,000.00 $20,000.00 $6,000.00
Overhead Allocation $20,000.00 $20,000.00 $20,000.00
Accounting Profit $30,000.00 $0.00 -$14,000.00
The company should:

3. Select one:
a. [moodle]discontinue producing C because this decision maximizes the total economic profit
contribution generated by the company.
b. [moodle]continue producing C because the substitution effect does not compensate for the loss
of profit contribution from product C.
c. [moodle]continue producing C because it has a positive unit margin.
d. [moodle]discontinue both B and C since neither has a positive contribution to economic profit.
7. 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
Select one:
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.
8. A firm is producing 10,000 units of output. Price at this output level is $16.00 for each unit,
and marginal revenue is $15.00. Average per unit cost is $14.00, and marginal cost is $14.25.
From this information, we can conclude that the business _____.
Select one:
a. enjoys economies of scale.
b. is maximizing profit at this level.
c. should produce less.
d. should produce more.
9. A mall movie theater is considering reducing its rates to increase attendance. Which of the
following costs is not relevant to that decision?
Select one:
a. cost of printing tickets.
b. cost of popping popcorn.
c. cost of rent payments.
d. cost of post-show theater cleaning.
10. A monopolistic firm (price searcher) can sell 10 units for $150 each. If the marginal
revenue from selling the 11th unit is $73, what is the unit price at which 11 units can be sold?
Select one:
a. $133.
b. $143.
c. $148.
d. $1153.
e. impossible to determine.
11. A pencil manufacturer is in a perfectly competitive market. The firm can sell as much as it
wants at a price of $1.50 per pencil. At some production levels, its average variable costs are less

4. than $1.50, but there is not production level where its average total cost is equal or less than
$1.50. What would be your recommendation to the pencil manufacturer?
Select one:
a. Decrease production
b. Exit the business immediately.
c. Continue production in both the short and long runs.
d. Continue production in the short run, but exit the business in the long run unless prices are
expected to rise or costs to fall.
e. Increase production to decrease fixed costs per unit.
12. A retailer has to pay $10 per hour to hire 15 workers. If the retailer only needs to hire
fourteen workers, a wage rate of $9 per hour is sufficient. What is the marginal cost of the 13th
worker?
Select one:
a. $9.
b. $14.
c. $24.
d. $126.
13. A security system company's total production costs depend on the number of systems
produced according to the following equation: Total Costs = $20,000,000 + $1000*quantity
produced. What is the average total cost of production when 20,000 units are produced?
Select one:
a. [moodle]4,000.
b. [moodle]2,500.
c. [moodle]2,000.
d. [moodle]1,000.
14. A wild misfit decides that he wants to drive a car into a lake. Once decided, he goes to a
rental car company, rents a car, and gets full coverage on the car. This behavior best reflects
what economic theory in action?
Select one:
a. Adverse selection
b. Moral hazard
c. Agency theory
d. Opportunity cost
15. According to the law of demand, _____.
Select one:
a. when demand decreases, prices go down.
b. when supply increases, demand increases a corresponding amount.
c. when supply decreases, demand decreases a corresponding amount.
d. when price increases, quantity demanded decreases.
16. As a shoe company produces more shoes the average total cost of each shoe produced
decreases. This is because _____.
Select one:

5. a. Average fixed costs are decreasing as more shoes are produced.
b. Average fixed costs remain constant as more shoes are produced.
c. There are scale economies.
d. Total variable cost is decreasing as more shoes are produced.
17. Bertha's Bait Shop sells cartons of worms for $5 each. Assuming Bertha is a monopolistic
firm (price searcher), marginal revenue on the 5th carton sold should be _____.
Select one:
a. [moodle]$5.
b. [moodle]less than $5.
c. [moodle]greater than $5.
d. [moodle]impossible to determine.
18. Christine has purchased one banana and is considering the purchase of a second. It is likely
she will purchase the second banana if _____.
Select one:
a. the marginal value she gets from the second banana is lower than its price.
b. the marginal benefit of the second banana exceeds its price.
c. the quality of the second banana is higher than the first banana.
d. the total personal value of two bananas exceeds the total expenditure to purchase two bananas.
19. Dr. Octavio is an Ophthalmologist who performs both cataract and Lasik surgeries. If a
competitor starts offering Lasik surgery as well, causing a decrease in the price Dr. Octavio can
charge for Lasik. This price decrease _____.
Select one:
a. increases the demand for Lasik surgery.
b. reduces the opportunity cost of performing cataract surgeries.
c. increases the opportunity cost of performing cataract surgeries.
d. increases the demand for cataract surgeries, if cataract and Lasik surgeries are substitutes.
20. For a competitive firm (price-taker), _____.
Select one:
a. If it increased price, all revenues would disappear.
b. If it increased price, total revenues would rise.
c. If it increased price, total revenues would rise, but profits could fall.
d. If it increased price, both total revenues and profits would rise.
21. How much of a good will consumers who wish to maximize their net benefit (value less
cost) purchase?
Select one:
a. The amount where average value just equals the good’s price.
b. The amount where marginal value starts to fall.
c. The amount where total value is maximized.
d. The amount where marginal value just equals the good’s price.
22. If a business can sell 12 units at a price of $25 but has to reduce price to $24 in order to sell
13 units, which of the following can we conclude?

6. Select one:
a. Marginal revenue is negative.
b. Marginal revenue is decreasing, but it is still higher than price.
c. Demand is elastic and marginal revenue is positive.
d. Total revenue increases, so demand must be inelastic.
23. If you are trying to determine the value of a business, which of the following factors would
be irrelevant?
Select one:
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.
24. In the long-run, which of the following outcomes is most likely for a firm?
Select one:
a. Zero accounting profits.
b. Zero accounting profits but positive economic profits.
c. Zero economic profits but positive accounting profits.
d. Positive accounting profits and positive economic profits.
25. In the spring and summer of 1993, Chronic Wasting Disease wiped out 25% of the elk herd
in Wyoming, and the number of state hunting licenses issued was reduced accordingly. In order
to compensate for the decrease in license issuances, Wyoming dramatically increased the price.
Unfortunately, this strategy proved unsuccessful as the state reported a 50% decrease in total elk
license revenues for '93. Which of the following most accurately describes this economic
situation?
Select one:
a. The demand for Wyoming Elk hunting fell.
b. The supply of Wyoming Elk hunting is price elastic.
c. The demand for Wyoming elk hunting is price inelastic.
d. The demand for Wyoming elk hunting is price elastic.
26. One Thanksgiving, Joe is approached by his wild Uncle Steven. Uncle Steven has been
working on a new software program out of his garage that he believes will be the next big thing
in social networking. He asks Joe to invest $100,000 of his own money to get the company off
the ground. Joe thinks that this idea has potential, but also decides that it is too risky of an
investment with his own money. However, when he returns to work on Monday, he prepares a
pitch to his senior partners to convince his team to use the investment dollars on hand to finance
his Uncle’s business. Joe’s actions in this case best reflect which of the following economic
concepts?
Select one:
a. Adverse selection
b. Moral hazard
c. Misaligned incentives

7. d. Opportunity cost
27. The Country Music Hall of Fame is considering increasing admission prices to increase
gross revenue. If the price of admission rises from $25 to $30, and attendance drops from 10,000
to 8,000, what is the approximate elasticity of demand for admission tickets?
Select one:
a. -1.
b. -1%.
c. 1%.
d. 1
28. The forces that create high rivalry within an industry include all of the following except:
Select one:
a. low switching costs for buyers.
b. fast industry growth.
c. high fixed costs.
d. numerous competitors.
29. The U.S. Government bought 112,000 acres of land in southeastern Colorado in 1968 for
$17,500,000. The cost of using this land today exclusively for the reintroduction of the black-
tailed prairie dog _____.
Select one:
a. is zero, because they already own the land.
b. is equal to the market value of the land.
c. is zero, because the land represents a sunk cost.
d. is equal to the total dollar value the land would yield if used for farming and ranching.
e. depends on the value to society of black-tailed prairie dogs.
30. To maximize profits, you should produce at the point where _____.
Select one:
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.
31. What is the definition of market equilibrium?
Select one:
a. The price at which elasticity of demand is unit elastic.
b. The price at which quantity supplied equals quantity demanded.
c. The price and quantity at which competitors do not want to enter the market.
d. All of the above
32. When demand for a product falls, which of the following events would you NOT
necessarily expect to occur?
Select one:
a. a decrease in the quantity of the product supplied.

8. b. a decrease in its price.
c. a decrease in the supply of the product.
d. a leftward shift of the demand curve.
33. Which of the following is NOT true if a firm shuts down and produces zero output in the
short run?
Select one:
a. Variable costs will be less than fixed costs.
b. Losses will be incurred.
c. Fixed costs will be greater than zero.
d. Fixed costs will be less than zero.
34. Which of the following statements is true:
Select one:
a. A firm's accounting costs are the same as its economic costs if the firm is earning a normal rate
of return.
b. A firm's accounting costs are larger than its economic costs.
c. A firm’s accounting costs take account of implicit costs of capital.
d. A firm's accounting costs are smaller than its economic costs.
35. Which of the following will NOT cause the demand curve for turkey meat to shift?
Select one:
a. falling chicken and pork prices.
b. recent news indicating cancer-fighting properties of turkey meat.
c. sudden increase in price.
d. Thanksgiving.
36. Which of the following will not decrease the demand for jogging shoes?
Select one:
a. An increase in the price of jogging shoes.
b. A decrease in the price of substitutes.
c. Surgeon General's report indicating jogging causes cancer.
d. An increase in the price of complements.
37. Which of the following would be considered an extent decision?
Select one:
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.
38. You've just decided to add a new line to your manufacturing plant. Based on the
information provided below, the expected value of moving forward is a gain of $ -------------
There is a 70% chance that profits will increase by $100,000.
There is a 20% chance that profits will remain the same.
There is a 10% chance that profits will decrease by $15,000.