BUS 475 Economics Topics Answer Guide | June 2017

Hailey’s Food Inc. sells fish sticks at $3.00 a box

Hailey’s Food Inc. sells fish sticks at $3.00 a box. The government passes a law requiring sellers of food products to pay $0.50 as tax for each product they sell. Hailey’s has to pay the government $0.50 for every box of fish sticks it sells. The company decides to trade down to compensate for the tax. Which of the following is a likely outcome of the company’s decision?

  • The company will increase the price and quantity of fish sticks,
  • The company will continue to sell the same quantity of fish sticks at the same price.
  • The company will sell fish sticks worth $2.50 at $3.00 per box.
  • The company will increase the price of one box of fish sticks to $3.50 while also increasing the package size

Explanation: When a company “trades down”, it is selling one item to buy something less expensive. In this case, the company is likely to sell a less valuable product at a higher price to compensate for the tax.

A shift in the demand curve for pretzels increases the price of pretzels from $1.25 to $1.75 and its quantity demanded from 30 million to 35million. The price elasticity of demand for pretzels is ____.

  • 5 million pretzels per dollar
  • 2.34.
  • 0.46
  • $1.50 per pretzels

Explanation: Solution = Change in Quantity % / Change in Price % or 0.4 / 0.1666

Sophie owns SugarCream bakery that produces 20 pastries in a day

Sophie owns SugarCream bakery that produces 20 pastries in a day. The price of one pastry is $12. If she hires another worker, she will be able to produce 24 pastries in a day. Assuming that she operates in a competitive market and aims to maximize her profits, she decides not to hire the additional worker. Which of the following explains why Sophie did not hire the additional worker?

  • The cost of hiring the additional worker was greater than the value of producing additional pastries.
  • The cost of hiring the additional worker was less than the marginal product of the additional worker.
  • The opportunity cost of hiring the additional worker was zero.
  • The cost of hiring the additional worker was less than the average product of the additional worker.

Colneith Corp. is a pharmaceutical firm that mainly produces drugs for Alzheimer’s disease.

Colneith Corp. is a pharmaceutical firm that mainly produces drugs for Alzheimer’s disease. The Medical Association of Zachary Islands conducted a study on the effectiveness of the firm’s drugs and found that multiple dosages of drugs were fatal. This discovery would most likely lead to:

  • a decline in the production of the drug.
  • short-run profits for the firm
  • the exit of the firm from the market
  • an increase the production of the drug

Explanation: These findings would force the company to scale back production of this drug, but not cause them to leave the market completely.

 
  • Student: Dimitri Bush
  • Textbook: Variety
  • Course: BUS 475 – 2017/18
 

BUS/475 Answer Guide Contents

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