An agency is having problems with personal phone calls made during working hours.

Each
minute of a personal call costs the agency $0.50 in wasted wages. The agency decides to hire
operators to monitor calls in order to attain the optimal number of personal calls (minimize total
cost of personal calls).

Total minutes of personal calls  

Number of Operators
(per hour)  
0 700
1 570  
2 460
 
3 370
4 300
 
5 250
 

What is the most the agency would be willing to pay the first operator?

65
Answer:

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Consider the additional benefit that the first operator adds to the company.

The correct answer is: $ 65

Question 2

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If operators receive $38 an hour, how many operators should the agency hire?

3
Answer:

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Consider the marginal benefit each operator is providing to the company (in terms of dollars).

The correct answer is: 3

Question 3

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Assume a change in the operator labor market results in operator wages rising to $47 an hour;
what is the optimal number of operators the agency should hire after the wage change?

2
Answer:

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Consider whether the wage change is a change in marginal benefit or marginal cost.

The correct answer is: 2

Question 4

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Assume that operators receive $38 an hour again, but that the cost of personal calls rises to $0.75
in wasted wages. How many operators should the agency hire now?

4
Answer:
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The correct answer is: 4

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Bavarian Crystal Works designs and produces lead crystal wine decanters for export to
international markets. The production manager of Bavarian Crystal Works estimates total and
marginal production costs to be

TC = 10,000 + 40Q + 0.0025Q2

and

MC = 40 + 0.005Q

where costs are measured in U.S. dollars and Q is the number of wine decanters produced
annually. Because Bavarian Crystal Works is only one of many crystal producers in the world
market, it can sell as many of the decanters as it wishes for $70 apiece. Total and marginal
revenue are

TR = 70Q

and

MR = 70

where revenues are measured in U.S. dollars and Q is annual decanter production.

Question 5

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What is the optimal level of production of wine decanters?

6000
Answer:

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Recall the rule for optimization

The correct answer is: 6000

Question 6

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What is the marginal revenue from the last wine decanter sold?

70
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The correct answer is: $ 70

Question 7

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What is the total revenue from selling the optimal number of wine decanters?

420000
Answer:

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The correct answer is: 420 $

Question 8

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What is the total cost from selling the optimal number of wine decanters?

340000
Answer:

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The correct answer is: 340 $

Question 9

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What is the net benefit (profit) from selling the optimal number of wine decanters?

80000
Answer:

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The correct answer is: 80 $

Question 10

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At the optimal level of production of decanters, an extra decanter can be sold for $70, thereby
increasing total revenue by $70. Why would the manager of this firm not produce and sell either
one more or one less unit?

Select one:
a. Profit increases, but costs increase more rapidly.
b. Net benefit becomes negative.
c. At any level other than the optimum, total cost exceeds total revenue.
d. It reduces net benefit (profit).

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The correct answer is: It reduces net benefit (profit).

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The director of marketing at Vanguard Corporation believes that sales of the company's Bright
Side laundry detergent (S) are related to Vanguard's own advertising expenditures (A), as well as
the combined advertising expenditures of its three biggest rival detergents (R). The marketing
director collects 36 weekly observations on S, A, and R to estimate the following multiple
regression equation:

S = a + bA + cR

where S, A, and R are measured in dollars per week. Vanguard's marketing director is
comfortable using parameter estimates that are statistically significant at the 10 percent level or
better.

Question 11

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The expected sign of

Select one:
a. a is positive, b is negative, and c is positive.
b. a is positive, b is positive, and c is positive.
c. a is positive, b is positive, and c is negative.
d. a is negative, b is positive, and c is negative.

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The correct answer is: a is positive, b is positive, and c is negative.

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The regression output from the computer is as follows:

Dep. Var.: S R-square F-ratio p-value on F   Question 12

observations: 36 0.2247 4.781 0.0150  
Variable Parameter Estimate Standard Error T-ratio P-value Correct
Intercept 175086.0 63821.0 2.74 0.0098 Mark 1.00 out of 1.00
A 0.8550 0.3250 2.63 0.0128
B -0.284 0.164 -1.73 0.0927

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The estimated coefficient for a (intercept) suggests that

Select one:
a. If A and R are zero, Vanguard could still expect about $175,086 in sales per week.
b. Sales will be $175,086 per week when A and R are at their maximum values.
c. a cannot be interpreted with confidence since its parameter estimate is not statistically
significant.
d. Sales will range between $63,821 and $175,086 per week, but not outside those limits.

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The correct answer is: If A and R are zero, Vanguard could still expect about $175,086 in sales
per week.

Question 13

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The estimated coefficient for b (own advertising expenditures A) suggests that

Select one:
a. An increase of $855 of own advertising expenditures will reduce rival advertising
expenditures by $284.
b. own advertising expenditures is inelastic since its parameter estimate is less than 1.
c. a $1,000 increase in own advertising expenditures is associated with an increase of weekly
sales of $855.
d. if own advertising expenditures is increased by $855, sales will increase by $1,000.

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The correct answer is: a $1,000 increase in own advertising expenditures is associated with an
increase of weekly sales of $855.

Question 14

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The estimated coefficient for c (rival advertising expenditures R) suggests that

Select one:
a. a $284 decrease in combined rival advertising expenditures is associated with a $1,000
increase in Vanguard's weekly sales.
b. a $1,000 increase in combined rival advertising expenditures is associated with a $284
drop in Vanguard's weekly sales.
 c. combined rival advertising expenditures follows the law of demand since its parameter
estimate is negative as expected.
d. when Vanguard increases its advertising expenditures by $1,000, its rivals reduce theirs
by $284.

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The correct answer is: a $1,000 increase in combined rival advertising expenditures is associated
with a $284 drop in Vanguard's weekly sales.

Question 15

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Vanguard's advertising expenditure has a statistically significant effect on the sales of Bright
Side detergent.

Select one:
True
False

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Yes, it's p-value meets the less-than-10% criterion.

The correct answer is 'True'.

Question 16

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Combined advertising expenditures by its three largest rivals affects sales of Bright Side
detergent in a statistically significant way.

Select one:
True
False

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Yes, it's p-value meets the less-than-10% criterion.

The correct answer is 'True'.

Question 17

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What fraction of the total variation in sales of Bright Side remains unexplained?

 
Select one:
a. 4.781%
b. 0.2247, or 22.47%
c. 0.7753, or 77.53%
d. 1/0.2247 = 4.45%
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The correct answer is: 0.7753, or 77.53%

Question 18

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What is the expected level of sales each week when Vanguard spends $40,000 per week and the
combined advertising expenditures for the three rivals are $100,000 per week?

180886
Answer:

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The correct answer is: 180886 $

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Download the “Soft Drink Consumption” Excel sheet. Estimate the following multiple
regression models (remember that all of your independent variables will have to be in adjacent
columns in Excel). Look at each set of results critically and consider how you would interpret the
strengths and weaknesses of each model. Save your results from each model for use when
completing the end-of-module assessment. C, the dependent variable, will always be
“Consumption of Soft Drinks per Capita;” for independent variables, use the following
specifications. (The notation f(X, Y, Z) means “a function of X, Y, Z; i.e., X, Y, and Zare your
independent variables. Even though it isn’t listed, each model will include an intercept.) NOTE:
when Excel reports a value like 2.4E-06, this is scientific notation for 2.4 * (10^-6), or
0.0000024.
Model A: C = f(% obese, dentists, physicians)

Model B: C = f(food services, % smokers total)

Model C: C = f(food services, % male smokers, % female smokers)

Model D: C = f(food services, % smokers total, % male smokers)

Model E: C = f(per capita income, mean annual temp)

Model F: C = f(mean annual temp, % obese, dentists, food services, % male smokers)

Model G: C = f(mean annual temp, % obese, dentists, food services, % smokers total)

Question 19

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In model A, how much of the variation in soft drink consumption is explained by % obese,
dentists, and physicians?

Select one:
a. 0.0226%
b. 24.4%
c. 10.2%
d. 30.9%

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The correct answer is: 30.9%

Question 20
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How would you interpret the coefficient for dentists?

Select one:
a. As the number of dentists increases by 1 per 1000 people, annual soft drink consumption
increases by about 2.85% per year.
b. As the number of dentists increases by 1 per 1000 people, annual soft drink consumption
decreases by about 2.265% per year.
c. When the number of dentists per 1000 people decreases by about 175, then soft drink
consumption per capita is expected to increase by 1 unit annually.
d. As the number of dentists increases by 1 per 1000 people, annual soft drink consumption
decreases by about 175 per year.

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The correct answer is: As the number of dentists increases by 1 per 1000 people, annual soft
drink consumption decreases by about 175 per year.

Question 21

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The coefficient for physicians per 100,000 is statistically significant at the 10% level.

Select one:
True
 False

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Since the p-value is 0.146, t is only significant at the 15% level, not at 10%.

The correct answer is 'False'.

Question 22

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What seems to be the relationship between soft drink consumption and the percent who smoke?

Select one:
a. It is difficult to draw any conclusions because the smoker variables were all insignificant
(at the 10% level) in all models.
b. As the % smokers rise, soft drink consumption increases, since all of the smoking
coefficients in models B-D were positive.
c. For the smoker variables that are statistically significant, the relationship between %
smokers and soft drink consumption appears to be negative.
d. % smokers in total seems important (in model B), but once you separate male vs. female
smokers it appears that it is only % male smokers that is significantly related to soft drink
consumption.

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The correct answer is: % smokers in total seems important (in model B), but once you separate
male vs. female smokers it appears that it is only % male smokers that is significantly related to
soft drink consumption.

Question 23

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A state that currently has 11,000 food service businesses also currently has 20% of its population
who smoke (total, both male and female). The state is considering a major initiative to reduce its
smoking population to 15%. If it is successful, this will also cause soft drink consumption to fall
110

from about 165 drinks annually to about Answer drinks annually (round to nearest
whole number, no decimals).

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The correct answer is: 110

Question 24

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The relationship between number of food service businesses and soft drink consumption per
capita

Select one:
a. is negative since, because all of the estimated coefficients were positive, the fact that they
were insignificant (at the 10% level) means that you switch the signs.
b. is unimportant since, even though it was statistically significant, its coefficient estimate
was always small.
c. is negatively or inversely related since the intercept was always negative in models B-D.
d. is difficult to summarize because it was insignificant (at the 10% level) in models B-D.
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The correct answer is: is difficult to summarize because it was insignificant (at the 10% level) in
models B-D.

Question 25

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Of all the variables in models E through G, mean annual temperature is the only one that is
statistically significant (at the 10% level). 

Select one:
True
False

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The correct answer is 'True'.

Question 26

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In models B-D, it was seen that male smokers was significant. With additional variables added in
models E-G, % male smokers

Select one:
 a. still has a positive coefficient but is insignificant (at the 10% level).
b. has about the same effect on soft drink consumption as does mean annual temperature.
c. is significant but negatively related to soft drink consumption.
d. is insignificant (at the 10% level) while total smokers is now significant.

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The correct answer is: still has a positive coefficient but is insignificant (at the 10% level).

Question 27

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While highly significant in model A, % obese is insignificant (at the 10% level) in models F and
G.

Select one:
True
False

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The correct answer is 'True'.