Midterm Exam Total Score: 30 points ee for Managers Time Allowed: od 1) Xand Y are said to be if the demand for one of them decreases wher the price of | Sue! ses. f : ) complements} \ j b) substitutes weer ¢) inferior i e 2) \fanitem has several substitutes, the demand curve for that item is likely to b latively inelastic ©) relatively elastic ‘Af the income elasticity of demand for a particular good is negative 0.2, it would be conside’ 3) anormal good. > . a luxury good. z €)_aninferior good. that operates in stage Ill of the short-run Production function Ould try to increase the amount of variable input used. ~~ much fixed capacity relative to its variable inputs. little fixed capacity relative to its variable inputs. IS distinguished from the short run because only in the ong run ces can vary. roduction prices can vary. tities of all factors of production can be varied. if the following refers to a shift in the demand curve? ew sellers enter the market, the demand for New advertising campaign should really in drop our price to increase our demand, r the product is expected to increase," crease our demand," Page | 1 of 3 L ? —2 {6 Points) that follow. apples, tomatoes, t of these products positively. As a rest the quantity sold from each e and answer the questions and wheat. Suppose that ult, the Read the following cos Orchids Farms sell thre’ favorable weather condition market prices of these Pro product increased as follows quantity of apples increased PY 25%. = Quantity of tomatoes increased by 15%. | ‘quantity of wheat increased PY 10%. e agricultural products: wns have affected the harvest ducts declined by 20%, Consequently, ae '} Calculate the price elasticity of demand for the three products: appl a ret your answers apples, tomatoes and wheat. te vy ‘analyze the potential effect ofthe decrease npices or(saies revenue bf each pr roduct. ¢ SR: x = ? (5 Poir fi Hf -oints a ‘the figure below shows four different short-run eceees z tT | SK , ie | } TC 1. ta § 2) Why is 5 ver the curve (8) U-shaped? at is the fost efficient lev An increase in rent 1K An increase in the rice of raw ma al in ri te als,Question Three (8 Points) Read the following case ‘and answer the questions that follow. ‘The table below gives the Felationship between the number of labor hours and the corresponding ‘Number of boxes of cookies that can be produced in Mother’s* Cookies Bakery, based in Oakland, California, per week, 4) Calculate the marginal product of labor (MP\) and the average product of labor (AP.). What is the interpretation of each ofthem? =~ b)_ Explain the relationship between AP, and MP,. Based on your answer, identify the three stages through which the above mentioned production process passes. 2 . ©} Complete the following two statements: @) Increasing returns arise because of b)_ Diminishing returns arise because ot d) Based on the above information, can you identify the optimal number of labor hours} per week? Explain your answer. a oe i tr Apseie MP oo t Question One {5 Points) Read the following case and answer the question that follows. Tara, a pharmacist, is planning on opening her own pharmacy. Tara Pharmacy is expected to {generate yearly revenue[of $400,000) Tara is going to run the pharmacy herself. Tara’s alternative employment options are as follows: qo 5 ‘ Continue to work as a senior medical representative fo$50,000 per year Seok /' 7 —_—ee MOF * Accepts a research position in another company fo$70,000 per years, SU0/ ¥ Tye Tara expects to spend $250,000 per year on purchasing drugs and cosmetics for resale to her TEC {Eustomers. She will also need to hire three eiiployeess an assistant, an accountant anda Custodian, “or whom thé total salaries to be paid are expected to be) $50,000 per year] Tara owns the building which her pharmacy is supposed to be; however, she could rent the pharmacy-sto rm fore space out for Em’ tt ; ne sy Tara’s accounting profit and economic profit Rae Y < Based on your answer, do you recomm to proceed with opening her pharmad ' oe