Test Bank for Managerial Economics, 6e

Test Bank for Managerial Economics, 6e Ivan Png (All Chapters)

Chapter 1

MCQs

MCQ1. Suppose that both the local government and a for-profit business run primary schools. The local government provides free education while the business charges fees.Everything else – students, teachers’ wages, and facilities – is the same. How does the value added of the government school compare with that of the for-profit schools?

(a) Government school higher; (b) Private school higher; (c) Same in both schools.

A: (c).

MCQ2. The pay scale at a warehouse is $15 per hour for a basic eight-hour day, and $20 per hour for overtime of up to four hours, and $25 for overtime exceeding four hours a day.Angela works 10 hours a day. What are her marginal and average pay?

(a) Marginal pay = $20 per hour, average pay = $16 per hour; (b) Marginal pay = $15 per hour, average pay = $20 per hour; (c) Marginal pay = $15 per hour, average pay = $15 per hour; (d) Marginal pay = $15 per hour, average pay = $17.30 per hour;

A: (a).

MCQ3. To encourage saving for retirement, many governments allow people to avoid income tax on their contributions to pre-tax retirement plans. Consider the decisions (i) to set up a pre-tax retirement plan, and (ii) on the amount to put aside for retirement. Classify as decisions of participation or extent.

(a) (i) Participation; (ii) Extent; (b) (i) Extent; (ii) Extent; (c) (i) Participation; (ii) Participation; (d) (i) Extent; (ii) Participation.

A: (a).

MCQ4. Healthcare systems worldwide lack kidneys for organ transplants. The government of Singapore pioneered the “opt-out” rule. All residents are deemed to donate their organs upon death unless they register to opt out. Which behavioral bias justifies this rule?

(a) Sunk-cost fallacy; (b) Status quo bias; (c) Anchoring; (d) None of the above. 1 / 4

A: (b).

MCQ5. Buying online can be complex. Retailers display the prices of products separately from shipping charges and taxes, making it difficult to know the price including all charges and taxes. Some consumers may just focus on product prices, without considering shipping charges and taxes. Which behavioral bias do they suffer from?

(a) Sunk-cost fallacy; (b) Status quo bias; (c) Anchoring; (d) Participation.

A: (c).

MCQ6. ByteDance, the Chinese technology firm that provides the TikTok video sharing service, expanded into e-commerce. Which organizational boundaries changed?

(a) Horizontal; (b) Vertical; (c) Neither.

A: (a).

MCQ7. At the time of writing, Tesla buys battery cells from Panasonic and assembles them into batteries for its electric cars. In the long term, Tesla plans to manufacture battery cells.Which organizational boundaries would change?

(a) Horizontal; (b) Vertical; (c) Neither.

A: (b).

MCQ8. The border between North and South Korea is strictly patrolled by security forces to prevent movement of people. North Korea is impoverished, while South Korea is well developed. Why would South Korean labor unions oppose the opening of the border?

(a) The supply of labor in South Korea would increase; (b) Wages in South Korea would fall; (c) All of the above; (d) None of the above.

A: (c).

MCQ9. Consider the chain of production from OLEDs (organic light-emitting diodes) to smartphones. How does the chain illustrate that not all buyers are consumers?

(a) The sellers in the OLED market are OLED manufacturers; (b) The buyers in the OLED market are smartphone manufacturers; (c) The sellers in the smartphone market are smartphone manufacturers; 2 / 4

(d) The buyers in the smartphone market are consumers.

A: (b).

MCQ10. In the United States, as of 2018, Federal Prison Industries employed 12,000 inmates at 83 factories, and paid them between 23 cents and $1.15 per hour. What explains the low wages of prison workers?

(a) Prisoners are few in number; (b) Wages in the free labor market are high; (c) Market power of prisons over prisoners; (d) Prisoners get free food and accommodation.

A: (c).

Short questions SQ1. Suppose that both the local government and a for-profit business run primary schools.The local government provides free education while the business charges fees. Everything else – students, teachers wages, and facilities – is the same. (a) Compare the value added of the two service providers. (b) If the teachers union increases wages for all teachers, in both government and for-profit schools, how would that affect the value added?

A: (a) Stipulating that the benefit and cost are the same, the value added would be the same. (b) Value added = buyer benefit – seller cost. The increase in wages would reduce value added.

SQ2. The pay scale at a warehouse is $15 per hour for a basic eight-hour day, and $20 per hour for overtime of up to four hours, and $25 for overtime exceeding four hours a day.Angela works 10 a day, while Maggie works 14 hours a day. Compare their marginal and average pay. Who incurs the higher marginal cost of work?

A: Angela: marginal pay = $20 per hour, average pay = ((15 × 8) + (20 × 2)) ÷ (8 + 2) = $16 per hour. Maggie: marginal pay = $25 per hour, average pay = ((15 × 8) + (20 × 4) + (25 × 2)) ÷ (8 + 4 + 2) = $17.86 per hour. At the margin, each worker balances the marginal benefit (pay) with marginal cost of work. So, Maggie incurs the higher marginal cost.

SQ3. To encourage saving for retirement, many governments allow people to avoid income tax on their contributions to pre-tax retirement plans. Consider the decisions (a) to set up a pre-tax retirement plan, and (b) on the amount to put aside for retirement. Classify as decisions of participation or extent.

A: (a) Participation; (b) Extent.

SQ4. Healthcare systems worldwide lack kidneys for organ transplants. The government of Singapore pioneered the “opt-out” rule. All residents are deemed to donate their organs upon death unless they register to opt out. Justify this rule with reference to decision bias.

A: Human beings are subject to status quo bias. Even though they might want to donate their organs, they do not take the active step to register as donors. The “opt-out” rule overcomes the status quo bias.

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SQ5. Buying online can be complex. Retailers display the prices of products separately from shipping charges and taxes, making it difficult to know the price including all charges and taxes. (a) How would a rational consumer choose between retailers? (b) Some consumers may just focus on product prices, without considering shipping charges and taxes. Which behavioral bias do they suffer from?

A: (a) Compare total cost (price + shipping charges + tax); (b) Anchoring on price of product.

SQ6. ByteDance, the Chinese technology firm that provides the TikTok video sharing service, expanded into e-commerce. Comment on the changes in horizontal or vertical boundaries of the company.

A: Video-sharing and e-commerce are both services of businesses to consumers.

ByteDance expanded its horizontal boundaries.

SQ7. At the time of writing, Tesla buys battery cells from Panasonic and assembles them into batteries for its electric cars. In the long term, Tesla plans to manufacture battery cells.Comment on the changes in horizontal or vertical boundaries of the company.

A: By extending into the production of battery cells, Tesla would expand its vertical boundaries.

SQ8. The border between North and South Korea is strictly patrolled by security forces to prevent movement of people. North Korea is impoverished, while South Korea is well developed. Why would South Korean labor unions oppose the opening of the border?

A: North Koreans would flood into South Korea, increasing the supply of labor and depressing wages.

SQ9. Consider the chain of production from OLEDs (organic light-emitting diodes) to smartphones. Identify the markets and in each market, the buyers and sellers.

A: (a) OLED market – Sellers: OLED manufacturers; Buyers: Smartphone manufacturers; (b) Smartphone market – Sellers: Smartphone manufacturers; Buyers: Consumers.

SQ10. Working prisoners receive wages that are lower than outside jail. In the United States, as of 2018, Federal Prison Industries employed 12,000 inmates at 83 factories, and paid them between 23 cents and $1.15 per hour. Comment on: (a) the market power of prisons over prison workers, and (b) the low wages of prison workers.

A: (a) Prison managers have market power over prisoners in buying labor services; (b) Prison managers use the market power to set low wages.

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