KEY901S - BUSINESS 802 MANAGERIAL ECONMICS FIRST EXAM KEY...

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BUSINESS 802 FIRST EXAM KEY SPRING 1990 MANAGERIAL ECONMICS 1. A. True . The demand curve is the average revenue curve. Since average revenue is falling along a downward sloping demand curve, marginal revenue is less than average revenue. B. False . Profits are maximized when marginal revenue equals marginal cost. Profits equal zero at the breakeven point where total revenue equals total cost. C. True . Profit maximization involves setting marginal revenue equal to marginal cost. Revenue maximization involves setting marginal revenue equal to zero. Given a downward sloping demand curve and positive marginal costs, revenue maximizing firms will charge lower prices and offer greater quantities of output than will profit maximizers. D. False . Average cost will fall as output expands so long as marginal cost is simply less than average cost. If this condition is met, average cost will decline whether marginal costs are falling, rising or constant. E. True . Marginal profit equals marginal revenue minus marginal cost, and will equal zero at the profit maximizing activity level. 2. A. An increase in the quality of secondary education has the effect of increasing worker productivity and will cause an increase or rightward shift in the demand for unskilled labor. To the extent that the benefits of an increase in the quality of education are recognized by students, more will stay in school and a secondary effect of a decrease or leftward shift in the supply of unskilled labor will also be observed. This shift will be reinforced as workers "graduate" from the unskilled to the skilled segment of the labor force. B. A rise in welfare benefits makes not working more attractive, and will cause a decrease or leftward shift in the supply of unskilled labor. C. "Self-service" gas stations, car washes, and so on, involve a substitution of the consumer's own labor for hired unskilled labor. As self-serve increases in popularity, a decrease or leftward shift in the demand for unskilled labor occurs. D. Holding all else equal, a fall in interest rates will increase the attractiveness of capital relative to labor. Employers can be expected to substitute capital for the now relatively more expensive labor. A decrease or leftward shift in the demand for unskilled labor will result. Of course, this influence can be mitigated to the extent that lower
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2 interest rates spur capital investment in a subsequent increase in employment opportunities. E.
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This note was uploaded on 07/31/2011 for the course ECON 1201 taught by Professor Smith during the Spring '11 term at Waseda University.

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KEY901S - BUSINESS 802 MANAGERIAL ECONMICS FIRST EXAM KEY...

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