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New H

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re University
S

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of Business

Spring Term

2

0

20

Economics

for

Business

MBA –

50

2

Quiz 2

for

Dr. Tasto

Instructions:

· You have 1 week

(

7

d

ays

)

to complete this assignment.

P

lease submit this no later than 11:59pm on Tuesday 3/2

4

/2020. Please send me a scanned version of your quiz illustrating your work, by e-mail, to

m.tasto@snhu.edu

.

· This work is to be completed by yourself only – no collaborating with others.

· Each Multiple Choice question in Part I is worth 1 point for a total of 15 points.

· Each Short-Answer question in Part II is worth 5 points for a total of 15 points. Show all of your work in this section.

·

The quiz is worth 30 points and there is partial credit for your work in Part II.

PART I

1.

In the figure above, which movement reflects an increase in demand?

A) From point a to point e.

B) From point a to point b.

C) From point a to point c.

D) From point a to point d.

2. At a price of

$

8

in the above figure, there is
A) a surplus of

200

units.

B) a shortage of 200 units.

C) a surplus of 400 units.

D) the equilibrium quantity is 400 units.

3. Looking at just the demand curve in the above figure, calculate the Arc Elasticity of Demand for a price increase from $

6

to $8. We can infer that Demand is:

A) Elastic.

B) Inelastic.

C) Unit Elastic.

D) Unable to be determined.

The figure below represents a situation faced by a firm, use this graph to answer question 4 and 5.

4. This firm is earning a:

A) Accounting Loss

B) Economic Loss.

C) Economic Profit.

D) Not enough information to determine an Economic/Accounting Loss or Profit.

5. For a firm in the figure above, the profit-maximizing (or loss-minimizing) price and level of output are:

A) P1 and Q1.

B) P2 and Q2.

C) P1 and Q2.

D) P4 and Q1.

E) Unable to determine.

6. Considering the market for Lobsters (an expensive seafood item), what is the effect on the equilibrium price and quantity of Lobsters when Incomes decrease and the price of Lobster boat fuel rises?

A) Price and Quantity Increase.

B) Price and Quantity Decrease.

C) Price Increases and Quantity Decreases.

D) Price Decreases and Quantity Increases.

E) Price Increases and Quantity is ambiguous.

F) Price Decreases and Quantity is ambiguous.

G) Price is ambiguous and Quantity Decreases.

H) Price is ambiguous and Quantity Increases.

7. On Saturday morning, you rank your choices for activities in the following order: #1 go to the library, #2 work out at the gym, #3 have breakfast with friends, and #4 sleep late. Suppose you decide to #1 go to the library. Your opportunity cost in choosing choice #1 is:

A) working out at the gym, having breakfast with friends, and sleeping late.

B) working out at the gym.

C) zero because you do not have to pay money to use the library.

D) not clear because not enough information is given.

8. Refer to the production possibilities frontier in the figure above. Which point indicates that resources are NOT fully utilized or are misallocated?

A) Point a. C) Point c.

B) Point b. D) Point e.

9. If a business increased the price of its product from $7 to $8 when the price elasticity of demand was inelastic, then

A) Total Revenues increase

B) Total Revenues decrease.

C) Total Revenues remain unchanged.

D) Not enough information to determine Total Revenue.

10

. Consider the following data: equilibrium price = $9, quantity of output produced = 1,000 units, average total cost = $8, and average variable cost $6. Given this, total revenue is ____, total cost is ____, and fixed cost is ____.

A) $6,000; $8,000; $1,000

B) $9,000; $7,000; $8,000

C) $9,000; $8,000; $2,000

D) $9,000; $8,000; $6,000

E) none of the above

Use the following to answer question 11:

A firm produces 4,000 units of output using 500 workers. The wage rate per worker is $160, and total fixed cost is $

100

,000.

11.

What is average variable cost?

A)

$0.32

B)

$16

C)

$20

D)

$1,280

E)

none of the above

Use the following demand and supply functions to answer question

12

and 13:

Demand: Supply:

12.

Equilibrium price and output are

A)

P = $7 and

Q

= 480.

B)

P = $10 and Q = 300.

C)

P = $20 and Q =

150

.

D)

P = $100 and Q = 5,300.

E)

none of the above

13.

Calculate the inverse demand function, what is the interpretation of the price, where it crosses the y-axis.

A)

Suppliers will supply more quantity as the price rises.

B)

At a price above $90 no product will be demanded.

C)

At a price above $15, no product will be demanded.

D)

The price never reaches the y-intercept.

Use the following to answer questions 14-15:

The graph on the left shows the marginal cost curve for an individual firm selling in a perfectly competitive market in the short run. The graph on the right shows current demand and supply in the market.

14.

What is the marginal revenue for the firm from selling the

250

th unit of output?

A)

$10

B)

$8

C)

$6

D)

$4

E)

zero

15.

What output level should the individual firm produce at?

A)

50

B)

100

C)

150

D)

200

E)

250

PART II

Each question is worth 5 points.

1. Safdar, K. 2019 May 13. Nike’s Strategy to Get a Lot More Personal with Its Customers. WSJ.

https://www.wsj.com/articles/nikes-strategy-to-get-a-lot-more-personal-with-its-customers-11557799501

Assume that you are hired as an intern by Nike. Your manager wants you to get a sense of their pricing strategy. Please consider the following. Feel free to see chapter 3 in our textbook to assist with these questions.

Key Questions:

a) What is price elasticity of demand? What are the primary determinants of price elasticity of demand? In other words, what factors cause the demand for a good or service to be relatively elastic or inelastic?

b) How would you characterize the price elasticity of demand for Nike products? Is demand relatively elastic or inelastic? Be sure to consider your answer in a).

c) Does price elasticity of demand vary across Nike products? Why? Feel free to provide some examples and take a look at Nike’s website.

d) How much control does Nike have over the price that they charge to consumers? What strategies does Nike use to identify customers who are willing and able to pay higher prices?

 

 

 

 

 

 

 

 

QTY, Q

PRICE,P

COST, C

PROFIT=Q*(P-C)

2. Profit Analysis

A hamburger chain sells 1000 hamburgers, 600 cheeseburgers, and 1200 milk shakes per week.

Hamburg

The price of a hamburger is $1.45, and the price of a cheeseburgers is $2.10. Milk shakes are priced at $0.50.

Cheeseburg

The cost to the shop for the hamburgers is $0.45 each, and cheeseburgers cost $1.10, while milk shakes cost $0.65 each.

A. Find the firm’s profit/loss for each item sold.

B. What is the total profit or loss?

C. What would you recommend to management in order to increase profits? D. What is the average costs of these products? E. Can you calculate Marginal Cost, if so, what is it? Why would this be important?

3. Market Equilibrium

The following equations describe the supply and demand for appliances.

QD=60000 – 15000P

Q

S

= -40000+10000P

Complete the following table.

Price

QS

QD

Surplus/Shortage

  $6

5

4

3

2

1

0

A. What is the Inverse Demand Function?

B. What is the Inverse Supply Function?

C. What is the equilibrium price and quantity?

D. What is the Y and X intercept of the demand curve?

E. Plot the demand and supply curves on a graph and add a STAR at equilibrium.
Label Everything Clearly – (don’t worry about precise slopes on the graph – just make sure all intercepts, curves and axis are labeled (with the equilibrium P and Q, of course)).

6

90060

d

QP

=-

20050

s
QP

=-+

12

q

250
50
100
6
10
8
150

The Market

4
0
200

MC

12
Q
6
10
8

5,000

4
2

15,000

S

D

The Firm

2
0
$
$

10,000

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