KEY892F - BUSINESS 802 SECOND EXAM KEY FALL 1989 MANAGERIAL...

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Page 1 BUSINESS 802 SECOND EXAM KEY FALL 1989 MANAGERIAL ECONOMICS SHORT ANSWER 1. A. True. An infinite number of parallel isoprofit lines can be drawn in any bounded feasible space. B. False. For any system of equations to yield a unique solution, the number of variables (unknowns) must be just equal to the number of equations (known relations). C. True. Profit contribution is the difference between total revenues and total variable costs. Profit, on the other hand, is the difference between total revenues and total variable plus fixed costs. Since fixed costs do not vary with output, either maximizing profit contribution or profit with respect to output will always identify a unique activity level. D. False. Output along a given process ray increases proportionately with increases in the input factors. Therefore, equal changes in distances along a given process ray indicate equal output quantities. E. False. An increase in input prices would be reflected by an inward shift in the related isocost line. (See Problem 8.1, p. 344.) 2. A. Economies of Scale. Increased worker specialization as output expands is a prime cause of increasing returns to scale in production. B. Economies of Scale. As output per period expands, increased worker specialization and other advantages of large size become operative. As in Part A, this involves a downward movement along the average cost curve. C. Economies of Scope. Product line extension allows a firm to extend to related products the special productive capabilities and marketing skills gained in the production and sale of a given product. The cost savings which result are due to economies of scope. D. Learning curve advantages. Better labor-management coordination over time is an example of how greater experience in production can lead to substantial cost savings. Since such advantages are a function of time (cumulative output), they can be described as learning curve advantages. E. Learning curve advantages. Growing practical experience in production is a prime source of learning curve advantages. (See Problem 7.1, p. 288.) 3. A. A fall in wage rates will cause a downward shift in the LRAC curve, and decrease LRAC. B. A rise in output will be reflected in a rightward movement along a given LRAC curve, and involve an uncertain effect on the level of LRAC. C.
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KEY892F - BUSINESS 802 SECOND EXAM KEY FALL 1989 MANAGERIAL...

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