The profit margins for fast food firms like Wendy\'s have fallen drastically bec
ID: 1209060 • Letter: T
Question
The profit margins for fast food firms like Wendy's have fallen drastically because of an increase in competition from similar fast food chains and microwaveable food available in supermarkets. Based on this information, which of the following is true?
A. The value of price elasticity of demand for Wendy’s fast food is low.
B. Wendy's operates as a monopoly firm in the fast food market.
C. The value of price elasticity of demand for Wendy’s fast food is high.
D. The fast food market is perfectly competitive.
2. The marginal cost of a firm under perfect competition is given by the equation MC = 2Q 20. The market price is $50 per unit. If there are 20 identical firms in this market determine the market supply curve.
A. Q = 0.5P + 15
B. Q = 0.025P + 10
C. Q = 0.5P + 10
D. Q = 10P + 200
3. Does the cost function C = 15 + 5Q1Q2 + 2Q1 + 4Q2 exhibit economies of scope when 3 units of Q1 and 2 units of Q2 are produced?
A. Yes.
B. No.
4. Which of the following is true about a product manufactured by a firm with market power?
A. The firm can raise price of its product and still not lose any quantity demanded of the product.
B. The firm will lose all of its product’s quantity demanded if it raises its price.
C. In order to sell more of its product the firm must lower its price.
D. The firm has only control over quantity of the product it sells but no control over price.
5. If a monopolist claims that his profit-maximizing markup on price is 33%, what is the corresponding price elasticity of demand?
A. -1.5 C. -2.5
B. -2.0 D. -3.0
6. The production manager of a clothing manufacturer estimates that the total annual cost of producing men’s suits is given by the equation: C = 5000 + Q3 - 100Q2 + 2600Q in which total fixed cost amounts to $5,000. If the market is perfectly competitive and marginal cost is given by MC = 3Q2 - 200Q + 2600, at what price will the firm shut down?
A. $100. C. $33.
B. $50. D. $733.
7. Heat Tamers Inc. of Bend, Oregon produces special heat-resistant boots used primarily by firefighters, smoke-jumpers and steelworkers. It is contemplating an expansion into the heat resistant leather market charging a price of $150 per pair of boots. The production of each pair of boots would require $60 in materials, and $30 in labor. Energy and miscellaneous variable costs would amount to $25 per unit. The accounting department has derived an allocated expense of $8,400,000 to account for the expected increase in fixed costs. What is Heat Tamers’ breakeven sales volume (in pairs) for heat-resistant boots?
A. 56,000
B. 31,698
C. 240,000
D. 73,043
8. You are a manager in a perfectly competitive market. The price in your market is $14. Your total cost curve is C = 10 + 10Q + 0.5Q2 such that marginal cost is given by MC = Q + 10. If firms in this market are maximizing profits what will happen in the long run?
A. New firms will enter.
B. Existing firms will exit.
C. There will be neither entry nor exit from the market.
9. The Zinger Company is a monopolist that manufactures and sells a line of sewing machines. Demand per period for a particular model is given by Q = 400 – 0.5P so that marginal revenue is given by MR = 800 – 4Q. Total cost of producing Q units per period is given by C = 20000 + 50Q + 3Q2 such that marginal cost is given by MC = 50 + 6Q. What is the maximum profit earned by Zinger Company?
A. $8,125
B. $48,750
C. $40,625
D. -$2,200
10. Refer to question 9 above. If Zinger Company behaves like a first degree price discriminating monopolist and its marginal cost is constant at $400, then how many sewing machines will it sell in order to maximize profits?
A. 100.
B. 200.
C. 300.
D. 75.
11. Suppose that Verizon Wireless has hired you as a consultant to determine what price it should set for calling services. Suppose that an individual's inverse demand for wireless services in the greater Boston area is estimated to be P = 100 - 33Q and the marginal cost of providing wireless services to the area is $1 per minute. What is the optimal two-part price that you would suggest to Verizon?
A. Charge a fixed fee = $95.5 and a usage fee of $1 per minute.
B. Charge a fixed fee = $3 and a usage fee of $0.33 per minute.
C. Charge a fixed fee = $148.50 and a usage fee of $1 per minute.
D. Charge a fixed fee = $3 and a usage fee of $3 per minute.
12. You are the manager of a small firm that sells nails in a perfectly competitive market. Due to a growing U.S. economy, the overall market demand for nails increases by 2 percent. If you are currently maximizing profits you will _________ the quantity of nails produced as a result of this event in the short-run.
A. increase
B. decrease
C. not change
Explanation / Answer
1. D. The fast food market is perfectly competitive.
2. B. Q = 0.025P + 10
3. A. Yes.
4. C. In order to sell more of its product the firm must lower its price.
5 D. -3.0
6 A 100
P= MC = AVC , 3Q2 - 200Q + 2600 = Q2 - 100Q + 2600 , Q =50 and P =2500 - 5000 + 2600 = 100
7 C. 240000
$8,400,000 = 150Q - 115Q , Q = $8,400,000/35
8 B. Existing firms will exit.
9 B. $48,750
10 B. 200.
11 A. Charge a fixed fee = $95.5 and a usage fee of $1 per minute.
12 A. increase
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