According to the text, successful firms tend to set up
an organizational architecture that is complex and decisions are “top-down.”
an organizational architecture that is least expensive and decisions are “top-down.”
an organizational architecture that links decision making with decision rights.
an organizational architecture that keeps decision rights reserved for the senior management.
The income effect means that when the price of a good rises
the buying power of your income falls.
consumers have an incentive to consume less of the good with a relatively higher price and more of the good with a relatively lower price.
your preferences also change.
you buy more normal goods and fewer inferior goods.
Suppose canned soup is an inferior good. This means that
when income rises, more cans of soup will be bought.
when income rises, fewer cans of soup will be bought.
when income falls, fewer cans of soup will be bought.
you will never consume canned soup because of its low quality.
The opportunity cost of an action is the
Monetary payment the action required
Value of the most highly valued alternative action given up
Cost of all alternative actions that could have been taken
None of the statements associated with this question are correct
Marginal utility is the
total happiness obtained from a consumption bundle.
additional utility obtained by a fall in the price of a good.
additional utility obtained by consuming one additional unit of a good.
total amount spent to purchase one additional unit of a good.
The substitution effect
reduces the quantity demanded of a good when its price increases.
is equal to the income effect for a normal good.
is always greater than the income effect.
is always smaller than the income effect.
Which of the following is an implicit cost of going to college?
Cost of books and supplies
Room and board
Assume that the quantity of apples is measured on the horizontal axis and the quantity of oranges is measured on the vertical axis. If Andy likes both apples and oranges, then his Marginal Rate of Substitution along the indifference curve indicates
how many oranges he is willing to give up in order to obtain one more apple.
how many additional oranges he wants in order to give up two apples.
how many oranges he is willing to give up in order to get rid of one apple.
how many apples he is willing to give up in order to get rid of one orange.
Assume MACROSOFT is planning to develop and sell a new word processor. It estimates that R&D expenses will amount to $300,000 for this new software, and it will have to invest an additional $150,000 to advertise and distribute the new product. If MACROSOFT’s managers are risk-neutral, they will undertake this project if the expected revenues from the sales of the new software are
at least $150,000.
at least $100,000.
at least $300,000.
at least $450,000.
Susan Chen is a stock analyst. She values two goods: money (income) and her integrity. Her bonus is based on the number of investments she recommends to the company. Generally speaking, the higher the bonus she receives,
the more she is willing to trade off her integrity for money.
the less she is willing to trade off her integrity for money.
the smaller is the shift in her budget line.
the more she is indifferent to changes in the level of bonus.
The ______ of an uncertain payoff is defined as the weighted average of all possible outcomes, where the probability of each outcome is used as the weights
The ______ model suggests that that the productivity of employees in a firm will increase if the firm offers lifetime employment and a high salary.
If employees’ activities follow the economists’ view of behavior, managers will be most effective if they can
influence the costs and benefits of employee actions.
improve employee satisfaction with the job.
communicate goals and objectives effectively to their employees.
fire inefficient employees.
Assume that the quantity of apples is measured on the horizontal axis and the quantity of oranges is measured on the vertical axis. If the budget line rotates upward while keeping the same horizontal intercept, it implies that
the price of apples has decreased.
the price of oranges has decreased.
the available income has increased.
the price of oranges has increased.
A budget line
shows all the combinations of goods that yield the same utility.
shows all the combinations of goods that require the same total expenditure.
has a slope that depends on consumers’ income.
usually slopes upward.
Assume that the quantity of CDs is measured on the horizontal axis, while the quantity of movie tickets is measured on the vertical axis. If available income decreases, then
the horizontal intercept of the budget line decreases, while the vertical intercept remains unchanged.
the vertical intercept of the budget line decreases, while the horizontal intercept remains unchanged.
the budget line will shift inward.
the budget line will shift outward.
Assume that the quantity of X is measured on the horizontal axis, and the quantity of Y is measured on the vertical axis. Assume that the price of X is $3 and the price of Y is $6. If Amanda has $90 to spend on X and Y, then
her budget line has a slope of –2.
her budget line has a slope of −3.
she can buy, at most, 15 units of good X.
she can buy, at most, 30 units of good X.
Robert only consumes X and Y, and his indifference curves have the usual convex shape. Consider the consumption bundles (3, 9), (6, 6), and (9, 3) (Hint: The consumption bundles completely exhaust Robert’s income). If Robert is indifferent between (3, 9) and (9, 3), then:
he prefers (3, 9) over (6, 6).
he prefers (9, 3) over (6, 6).
he prefers (6, 6) over both (3, 9) and (9, 3).
he prefers (6, 6) over (3, 9) but not over (9, 3).
In the textbook, there is an example of a software firm in which the managers provided a financial incentive to get rid of software bugs. The result was that software writers added more bugs into the software. This example shows that
financial incentives should never be used.
most employees are corrupt.
incentives can create perverse effects.
high-tech firms are unique.
Robinson pays $100 for tickets to see his favorite sports team play. With 10 minutes left in the game, his team is losing heavily and has no chance of winning the game. Robinson chooses to stay until the end of the game because he wants to get the full value for his admission price. As an economist, you should advise Robinson to
stay until the end of the game as his intuition is correct.
stay until the end of the game as he might be heckled on the way out.
leave the game if his marginal benefit of leaving is greater than marginal cost, as the admission price is a sunk cost.
leave the game now as the line to exit the stadium is shorter now.
Marginal analysis refers to the
relationship between the cause and effect of an economic event.
study of trade relations based on absolute cost differences.
comparison of benefits and costs of choosing a little more or a little less of a good.
calculation of opportunity costs of an economic activity.
If Larry starts a new pizza parlor and hires a manager for $30,000 per year, this implies that
pizza parlor managers are inexpensive to hire.
Larry values his labor at less than $30,000 per year.
Larry values his labor at more than $30,000 per year.
the price of pizza will increase if Larry works in the parlor himself.
are the expenditures already made that can’t be recovered.
are not relevant when making an economic decision.
are costs that are usually classified under “miscellaneous.”
are the incremental costs associated with making a decision.
The business practice of looking for a firm that has best practices in an area and then emulating those practices is called
Jojo is in Las Vegas. He has an opportunity to get $100 by rolling a 6 or $50 by rolling a 3 (on a regular six-sided die). Assuming that Jojo is risk neutral, how much should he be willing to pay for one roll.