1. Suppose a manager at McDonalds was making $45,000 per year but gave up his job in order to start his own hamburger joint. He withdraws $60,000 from his retirement account that was earning 10% per year. His yearly revenue from the venture is $170,000 and his cost of goods sold and other yearly expenses are $110,000, this includes the $25,000 salary he decided to pay himself. Given this information his economic profits are

A. $54,000

B. $34,000

C. $60,000

D. $9,000

E. -$45,000

2. Which of the following correctly describes the relationship between the marginal product and the average product curves?

A. MP is everywhere above AP.

B. AP is everywhere above MP.

C. MP crosses AP at the AP’s maximum point.

D. AP crosses MP at the MP’s maximum point

E. both AP and MP first fall and then rise.

3. If the results of a regression analysis produce a t-statistic that is +2.7 and an adjusted R^2 of 0.15, then one can concluded

1. That the variations in independent variable explain a significant fraction of the variation of the dependent variable.
2. That we can reject the hypothesis that the independent variable is significantly different than zero and conclude that it has a positive but insignificant impact on the dependent variable.
3. That the independent variable is significantly different than the dependent variable and positive.
4. That we can reject the hypothesis that the independent variable is equal to zero and has a positive impact on the dependent variable.
5. That we can accept the hypothesis that the independent variable is significantly different than zero and has a negative impact on the dependent variable.

4. Third Degree price discrimination requires

1. That consumers with different price elasticities can be segregated into separate groups.
2. That there is no ability for customers to resell the lower priced products to the high priced customers.
3. That the firm has some degree of market power that allows it to charge about its production costs.
4. All of the above.
5. None of the above, because all forms of price discrimination have been outlawed by the Robinson Patman Act of 1936.

5. Claude’s Copper Clappers sells clappers for $40 each in a perfectly competitive market. At its present rate of output, Claude’s marginal cost is $39, average variable cost is $45 and average total cost is $60. To improve his profit/loss situation Claude should

1. increase output.
2. reduce output but not to zero.
3. maintain the present rate of output.
4. shut down.
5. raise price.

6. In a high tech industry with constant opportunities for technological innovation and product improvement that has medium to low barriers to entry, fairly low minimum efficient size of the plant relative to the market and high profit margins, the best pricing strategy might be

1. Limit pricing
2. Predatory pricing
3. Cream skimming
4. Price discrimination.
5. Mark-up pricing.

ScholarMatic: Explanation & Answer

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