Midterm 2 (with answers)

Midterm 2 (with answers) - Name Student ID Number Section...

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Name:_____________________________________ Student ID Number:__________________________ Section Number:_____________________________ University of Michigan School of Business Administration Practice Midterm Exam 3 WITH ANSWERS Instructions: You will have two hours to complete the exam.
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Section I Multiple Choice: Choose the best answer (5 points each) 1. MARKET STRUCTURE: Suppose the University of Michigan sold the right to its logo exclusively to one sportswear company last year for $10 million. As a result of winning the national championship, suppose Michigan increased that price to $15 million. Assuming the other cost conditions and demand conditions remained the same, then in the short run, a. the price of Michigan t-shirts should increase b. the price of Michigan t-shirts should decrease c. the price of Michigan t-shirts should remain the same d. the output of Michigan t-shirts should increase e. both a and d are correct 2. NETWORKS, INTERNATIONAL TRADE AND COSTS: Which of the following are true: I. If all countries have the same production abilities so that no one country has a comparative advantage over any other country, there is no benefit to free trade between countries. II. The fact that an industry is a network industry will have no effect on the optimal pricing in this period. It may affect the decision of whether or not to allow other producers to develop products that are compatible with your own. III. If there are learning curve effects, it may be optimal to produce a quantity that exceeds the quantity at which marginal cost for the current period equals the marginal revenue for the current period. a. I is true b. II and III are true c. All are true d. III is true e. None are true 3. MARKET STRUCTURE: In 1976, a frost in Brazil killed over 500 million coffee trees and damaged many more. A civil war in Angola, a major supplier of coffee, reduced its crop. An earthquake in Guatemala disrupted the flow of coffee from this country. Despite all of this, these three countries reported an increase in export earnings from coffee sales. Based on this information it is reasonable to conclude that a. the demand for coffee is elastic b. the supply of coffee is elastic c. the demand for coffee is inelastic d. the supply of coffee is inelastic e. you cannot determine anything about supply or demand elasticities based on this information. 4. DEMAND: You discover that in one of the regions in which your firm sells books, there was a price increase of 5% two years ago. As a result, your firm’s sales dropped from 10,000 to 9600. Assume that the price change is the only change that took place that would have affected the quantity of books sold. Assuming your firm wants to maximize profits and assuming there is no strategic reason for the prices that are used, you argue to your boss that in this region a. your price must be too high b. your price must be too low c.
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This test prep was uploaded on 04/02/2008 for the course OMS 301 taught by Professor All during the Winter '07 term at University of Michigan.

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Midterm 2 (with answers) - Name Student ID Number Section...

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