KEY891F - BUSINESS 802FIRST EXAM KEY FALL 1989 1. SOLUTION...

Info iconThis preview shows pages 1–2. Sign up to view the full content.

View Full Document Right Arrow Icon
Sheet1 Page 1 BUSINESS 802FIRST EXAM KEY FALL 1989 1. SOLUTION A. False. Perfect correlation between actual and forecast values is a necessary but not sufficient condition for perfect forecasts. Perfect forecast values both move with actual values (have perfect correlation) and have zero mean squared error. B. Uncertain. Average costs are minimized or maximized when MC = AC. To check for a minimum, the second derivative of the average cost function must be negative, d2AC/dQ2 < 0. 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. SOLUTION A. Marginal FailuresMarginal Failure Value Inspectors Failure Rate (=250,000 (2)) Reduction (=$25 (4)) (1) (2) (3) (4) (5) __________ ____________ _____________ ________________ _________ 0 0.050 12,500 -- -- 1 0.040 10,000 2,500 $62,500 2 0.032 8,000 2,000 50,000 3 0.026 6,500 1,500 37,500 4 0.022 5,500 1,000 25,000 5 0.020 5,000 500 12,500 B. Three. With a $30,000 inspector salary, the firm will enjoy a net marginal return of $7,500 (= $37,500 - $30,000) from hiring a third inspector. Hiring a fourth inspector would result in a marginal loss of
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Image of page 2
This is the end of the preview. Sign up to access the rest of the document.

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.

Page1 / 6

KEY891F - BUSINESS 802FIRST EXAM KEY FALL 1989 1. SOLUTION...

This preview shows document pages 1 - 2. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online