Exam 1: The Fundamentals of Managerial Economics

What is the marginal net benefit associated with producing five units of the control variable, Q (identify point F in the table)?

What is the marginal revenue of producing the fortieth unit?

What is the marginal cost of producing the tenth unit?

A firm will have constant profits of $100,000 per year for the next four years, and the interest rate is 6 percent. Assuming these profits are realized at the end of each year, what is the present value of these future profits?

What is the level of net benefits when 20 units are produced?

The second-order condition for maximizing net benefits is:

What is the main role of economic profits?

Compute the present value of a preferred stock that pays, in perpetuity, an annual cash flow of $200 at an annual interest rate of 5 percent.

New firms have incentive to enter an industry when there is(are):

Marginal benefit refers to:

If marginal costs exceed marginal benefits, then:

At what level of output does marginal cost equal marginal revenue?

What is the net benefit associated with producing two units of the control variable, Q (identify point C in the table)?

To an economist, maximizing profit is:

Which of the following is an implicit cost to a firm that produces a good or service?

You are the manager of a firm that plans to expand the human resource base of its operation by hiring additional business school graduates over the next few years. You recently read an article in The Wall Street Journal that reports that enrollments in business schools have declined as students are moving into the "hard sciences." That same article reports that the shakeup of upper management is over at U.S. firms, and that over the next decade there will be a nationwide surge in the demand for MBAs. How will these events affect your firm's ability to expand its own base of MBAs?

You are the manager of a 24-hour copy shop that is closed on Sundays. You lease a building for $2,000 per month and hire three employees who each work eight-hour shifts at a wage of $10.00 per hour. The markets for labor and office space are tight in your area. To acquire the lease and hire workers, you signed contracts requiring you to give 12 months advance notice before abandoning your lease or laying off workers (if you fail to comply, the contracts force you to fully compensate your landlord and workers for the income they otherwise would have earned over the 12-month period). Paper costs you $.02 per sheet. You currently sell 500,000 color copies per year at a price of $.10 per copy and 1,000,000 black-and-white copies per year at a price of $.05 per copy. Because of your high volume, each of your two copiers has a useful life of only one year. You just received a call from an employee who informs you that your color copier just broke down. The good news is that your black-and-white copier is brand-new; the bad news is that a new color copier will cost $30,000. Should you purchase a new color copier? Assume that customers who want color copies are unwilling to substitute black-and-white copies.

If the interest rate is 12.5 percent, what is the present value of $200 received in one year?

If the interest rate is 4 percent, the present value of $500 received at the end of four years is:

The Taxpayer Relief Act of 1997 created the Roth IRA, which permits qualifying individuals to make after-tax retirement contributions of up to $2,000 annually. Contributions to a Roth IRA are not tax-deductible, but no taxes are paid on earnings generated from a Roth IRA. In contrast, contributions made to traditional IRAs are tax-deductible, but individuals will pay taxes on all future distributions. In short, investors using the Roth IRA make contributions that have already been taxed and have earnings that grow tax-free, while those using the traditional IRAs defer taxes until funds are withdrawn. Consider an individual who is five years away from retirement and will need to withdraw all her retirement funds at that time. She has $2,000 in pretax income to allocate each year to a retirement plan, faces a fixed tax rate of 15 percent now as well as at retirement, and anticipates a stable 8 percent return on her investments. She can set up a Roth IRA for a one-time, up-front fee of $10, or she can set up a traditional IRA for free. Which option should she choose?