Question

QUESTION 34

1. Suppose a profit-maximizing monopoly seller adopts new production technology that reduces their marginal cost of production. What is the firm's optimal response to this change?

   	A.	We do not have enough information to answer this question
   	B.	Reduce the product price
   	C.	Do not change the product price
   	D.	Increase the product price

5 points   

QUESTION 35

1. The price elasticity of demand for online book buyers is -0.4 for Barnes and Noble customers and -1.2 for Amazon customers. Both firms set prices that maximize profits from online book sales. Based on this information, which firm should have the higher current margin (Lerner index) from online book sales?

   	A.	Barnes and Noble
   	B.	We do not have enough information to answer this question
   	C.	Both firms should have the same profit margins
   	D.	Amazon

5 points   

QUESTION 36

1. When are accounting profits equal to economic profits?

   	A.	Accounting profits are zero
   	B.	Implicit costs equal zero
   	C.	Explicit costs are zero
   	D.	Implicit costs are positive

5 points   

QUESTION 37

1. Which of the following statements is NOT true?

   	A.	Economic profit can be more than accounting profit
   	B.	Accounting profit can be positive while economic profit may be negative
   	C.	Accounting profit can be equal to economic profit
   	D.	Accounting profit can be more than economic profit

5 points   

QUESTION 38

1. Suppose I value your business at $580,000, you value your business at $550,000, and I must pay an attorney $40,000 to complete the required documents for the county government.  What is the outcome from the potential transaction?

   	A.	The business is sold for $565,000
   	B.	The transaction does not occur because the transaction costs exceed the value created
   	C.	You buy the business from me at a price between $580,000 and $550,000
   	D.	I buy the business from you at a price between $580,000 and $550,000

5 points   

QUESTION 39

1. A new entrant has appeared in your market.  What is the expected impact on the elasticity of demand for your product?

   	A.	Demand becomes more elastic
   	B.	Entrants do not impact demand elasticities
   	C.	Demand becomes more inelastic
   	D.	We do not have enough information to answer this question

5 points   

QUESTION 40

1. If average cost is rising as output increases, then we know that

   	A.	MC > AC
   	B.	Average total cost is less than average fixed cost
   	C.	MC < AC
   	D.	MC < 0

Answer 1

Q. 34). Answer :- Option B). Reduce the product price.

Q. 35). Answer :- Option A). Barnes and Noble.

Explanation :- Lerner index = (-) 1 / Price elasticity of demand.

Lerner index for Barnes and Noble = (-) 1 / (-) 0.4

= 2.50

Lerner index for Amazon = (-) 1 / (-) 1.20

= 0.83

Accordingly, Lerner index for Barnes and Noble is higher than the Amazon company.

Q. 36). Answer :- Option B). Implicit costs equal zero​​​​​​​.

Explanation :- Economic profit = Accounting profit - Implicit costs.

Accordingly, if there are no implicit costs (implicit costs = 0) then economic profit will be equal to accounting profit.

Q. 37). Answer :- Option A). Economic profit can be more than accounting profit.

Explanation :- Either economic profit will be equal to accounting profit (if there are no implicit costs) or economic profit will be lower than the accounting profit (if there are implicit costs), however, economic profit can never be more than the accounting profit. Accordingly, The statement mentioned in option (A) to the given question is not true i.e., false one.

Q. 38). Answer :- Option D). I buy the business from you at a price between $580,000 and $550,000​​​​​​​.

Q. 39). Answer :- Option A). Demand becomes more elastic.

Q. 40). Answer :- Option A). MC > AC​​​​​​​.