Business Administration
Chapter Exam Questions
Course Introduction
Business Administration is an interdisciplinary course that explores the fundamental principles and practices required to effectively manage organizations. Covering topics such as management, marketing, finance, human resources, and operations, the course provides students with a comprehensive understanding of how businesses function in both local and global environments. Emphasis is placed on decision-making, strategic planning, organizational behavior, and the application of analytical skills to solve real-world business challenges. Students will develop critical thinking, leadership, and communication skills essential for success in various business roles and industries.
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Managerial Economics 12th Edition by Mark Hirschey
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Page 2
Chapter 1: Nature and Scope of Managerial Economics
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Q1) Managers who seek satisfactory rather than optimal results:
A) take actions that benefit parties other than stockholders.
B) are insensitive to social constraints.
C) are insensitive to self-imposed constraints.
D) increase allocative efficiency.
Answer: A
Q2) In a free market economy, the optimal quality of goods and services is determined by:
A) workers.
B) firms.
C) government.
D) customers.
Answer: D
Q3) Business profit is:
A) the residual of sales revenue minus the explicit accounting costs of doing business.
B) a normal rate of return.
C) economic profit.
D) the return on stockholders' equity.
Answer: A
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Page 3
Chapter 2: Economic Optimization
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Q1) At the profit-maximizing level of output:
A) marginal profit equals zero.
B) marginal profit is less than average profit.
C) marginal profit exceeds average profit.
D) marginal cost equals average cost.
Answer: A
Q2) Total revenue is maximized at the point where marginal:
A) revenue equals zero.
B) cost equals zero.
C) revenue equals marginal cost.
D) profit equals zero.
Answer: A
Q3) Total revenue increases at a constant rate as output increases when average revenue:
A) increases as output increases.
B) increases and then decreases as output increases.
C) exceeds price.
D) is constant.
Answer: D
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Page 4
Chapter 3: Demand and Supply
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Q1) Derived demand is directly determined by:
A) utility.
B) the profitability of using inputs to produce output.
C) the ability to satisfy consumer desires.
D) personal consumption.
Answer: B
Q2) The equilibrium market price of lead pencils would decrease and the quantity of pencils produced and sold would increase if:
A) the price of graphite (pencil lead) decreased.
B) pencil workers obtained higher wages.
C) the price of word processors decreased.
D) the price of pens, a substitute for pencils, increased.
Answer: A
Q3) Change in the quantity supplied reflects a:
A) change in price.
B) switch from one supply curve to another.
C) change in one or more nonprice variables.
D) shift in supply.
Answer: A
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Page 5
Chapter 4: Demand Analysis
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Q1) Price Elasticity. Z-Best Pizza recently decided to raise its regular price on medium pizzas from $9 to $12 following increases in the costs of labor and materials. Unfortunately, sales dropped sharply from 8,100 to 4,500 pizzas per month. In an effort to regain lost sales, Z-Best ran a coupon promotion featuring $5 off the new regular price. Coupon printing and distribution costs totaled $100, and caused only a modest increase in the typical advertising budget of $2,400 per month. The promotion was judged a success as it proved highly popular with consumers. In the period prior to expiration, coupons were used on 40% of all purchases and monthly sales rose to 7,500 pizzas.
A. Calculate the arc price elasticity implied by the initial response to Z-Best's price increase.
B. Calculate the effective price reduction resulting from the coupon promotion.
C. In light of this price reduction, and assuming no change in the price elasticity of demand, calculate Z-Best's arc advertising elasticity.
D. Why might the true arc advertising elasticity differ from that calculated in Part C?
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Chapter 5: Demand Estimation
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Q1) Tests of the b = 0 hypothesis are:
A) tests for the share of dependent variable variation explained by the regression model.
B) one-tail t tests.
C) two-tail t tests
D) tests of direction or comparative magnitude.
Q2) If P<sub>1</sub> = $5, Q<sub>1</sub> = 10,000, P<sub>2</sub> = $6 and Q<sub>2</sub> = 5,000, then a linear estimate of the demand curve is:
A) P = $7 - $0.002Q
B) P = $5 + $10,000Q
C) Q = 7 - 0.002P
D) Q = 35,000 - 5,000P
Q3) If P<sub>1</sub> = $5, Q<sub>1</sub> = 10,000, P<sub>2</sub> = $6 and Q<sub>2</sub> = 5,000, then at point P<sub>2</sub> an estimate of the point price elasticity e<sub>P</sub> equals:
A) -6
B) -2.5
C) -4.25
D) -0.12
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Chapter 6: Forecasting
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Q1) Sales Forecast Modeling. Kerry Weaver, office manager for Pediatric Medicine, Ltd., would like to generate a sales forecast based on the assumption that next year sales are a function of current income, advertising, and advertising by a competing local hospital:
A. Write an equation for predicting sales based on the assumption that the percentage change in sales is three times as large as the percentage change in income and advertising; but only one-fourth as large as, and of the opposite sign of, the percentage change in competitor advertising. Use the symbols S = sales, Y = income, A = advertising, and CA = competitor advertising.
B. During the current year, sales total $1,000,000, local disposable income is $78,750 per household, advertising is $90,000, and competitor advertising is $100,000. Previous period levels were $75,000 (income), $80,000 (advertising), and $125,000 (competitor advertising). Forecast next year sales.
Q2) Lagging economic indicators include:
A) personal income.
B) the change in stock prices.
C) orders for new plant and equipment.
D) the average duration of unemployment.
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Chapter 7: Production Analysis and Compensation Policy
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Q1) Total output is maximized when:
A) average product equals zero.
B) marginal product is maximized.
C) average product is maximized.
D) marginal product equals zero.
Q2) Total product divided by the number of units of variable input employed equals:
A) average product.
B) marginal revenue product.
C) returns to scale.
D) marginal product.
Q3) Returns to a factor denotes the relation between the quantity of an individual input employed and the:
A) optimal scale of a firm.
B) optimal size of production facilities.
C) optimal length of production runs.
D) level of output produced.
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Chapter 8: Cost Analysis and Estimation
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Q1) Profit Contribution Analysis. San Francisco's Pier 9, Inc., sells souvenir T-shirts at a price of $25. Of this amount, $15 is profit contribution. Pier 9 is considering differentiating its product from several other competitors by using higher quality T-shirts. Doing so would increase unit cost by $2.50 per shirt. Current monthly profits are $10,000 on 2,500 unit sales.
A. Assuming average variable costs are constant at all output levels, what is FWC's total cost function before the proposed change?
B. What will the total cost function be if higher quality t-shirts are used?
C. Assume shirt prices remain stable at $25. What percentage increase in sales would be necessary to maintain current profit levels?
Q2) A cost-output relation for a specific plant and operating environment is the:
A) short-run cost curve.
B) long-run total cost curve.
C) long-run marginal cost curve.
D) long-run average cost curve.
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10
Chapter 9: Linear Programming
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Q1) Linear programming assumes:
A) falling input prices.
B) increasing returns to each factor input.
C) straight-line objective and constraint functions.
D) monopolistic competition.
Q2) Unit costs are always constant if:
A) input prices are constant.
B) the total cost function is linear.
C) constant returns to scale are operative.
D) input prices are constant and the total cost function is linear.
Q3) Net profits equals profit contribution minus:
A) variable costs.
B) total costs.
C) average total costs.
D) fixed costs.
Q4) If the capital slack variable = 0, then:
A) the shadow price on capital is > 0.
B) the marginal product of capital = 0.
C) the marginal revenue product of capital = 0.
D) excess capital capacity exists.
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Chapter 10: Competitive Markets
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Q1) Above-normal profits in a perfectly competitive market are caused by:
A) increases in demand that are successfully anticipated.
B) decreases in cost that are successfully anticipated.
C) increases in productivity that are successfully anticipated.
D) luck.
Q2) In competitive market equilibrium, the firm's:
A) MR = MC and P > AR
B) MR = MC and P > AC
C) AR = AC and MR > MC
D) P = MR = AR = AC = MC
Q3) At the point of minimum AVC:
A) MC is falling.
B) MC is constant.
C) MC is rising.
D) MC = AVC.
Q4) A firm will earn normal profits when price:
A) equals average total cost.
B) equals average variable cost.
C) equals marginal cost.
D) exceeds minimum average total cost.
Page 12
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Chapter 11: Performance and Strategy in Competitive Markets
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Q1) A price ceiling is a costly and seldom used mechanism for:
A) restraining excess supply.
B) restraining excess demand.
C) counteracting the effects of falling productivity.
D) counteracting the effects of rising productivity.
Q2) The welfare loss triangle depicts:
A) deadweight losses suffered by consumers.
B) deadweight losses suffered by producers.
C) deadweight losses suffered by consumers and producers.
D) lost profits.
Q3) Consumer sovereignty reflects:
A) buyer power.
B) failure by market structure.
C) failure by incentive.
D) externalities.
Q4) Economic rents are profits due to:
A) luck.
B) uniquely productive inputs
C) monopoly power.
D) regulation.
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Chapter 12: Monopoly and Monopsony
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Q1) Utility price and profit regulation is based on the perception of:
A) externalities.
B) diseconomies of scale.
C) natural monopoly.
D) Consumers' surplus.
Q2) For a monopoly in equilibrium:
A) MR = MC
B) MC £ AC
C) MR £ AC
D) P ³ AC
Q3) In the short run, a monopolist will:
A) shut down if price equals average total cost.
B) shut down if price is less than average total cost.
C) shut down if price is less than average variable cost.
D) never shut down.
Q4) To the extent that costs exceed benefits, a given mode of regulation is:
A) inequitable.
B) efficient.
C) inefficient.
D) fair.
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Chapter 13: Monopolistic Competition and Oligopoly
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Q1) The vigor of competition always decreases with a fall in:
A) product differentiation.
B) barriers to entry.
C) the level of available information.
D) the number of competitors.
Q2) Pricing Discretion. Would the following factors increase or decrease the ability of domestic manufacturers to raise prices and profit margins? Why?
A. Elimination of uniform product safety standards.
B. Increased import tariffs (taxes).
C. Increase import quotas.
D. A rising value of the dollar that has the effect of lowering import prices.
E. A tax on price advertising.
Q3) The demand faced by an industry price leader is:
A) market demand.
B) market demand plus the demand for output by follower firms.
C) market demand less the supply of output by follower firms.
D) kinked.
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Chapter 14: Game Theory and Competitive Strategy
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Q1) Nash bargaining is a:
A) one-shot game.
B) simultaneous-move game of only limited duration.
C) simultaneous-move game of only unlimited duration.
D) simultaneous-move game of limited or unlimited duration.
Q2) The general principle for players in a sequential game is to:
A) look ahead and extrapolate back.
B) trigger a sequence of irrational responses from competitors
C) trigger a sequence of rational decisions from competitors.
D) trigger a sequence of rational decisions and responses from competitors.
Q3) Limit pricing is a competitive strategy to set
A) monopoly prices.
B) less than monopoly prices.
C) competitive prices.
D) less than competitive prices.
Q4) In a predatory pricing strategy:
A) P < AC
B) MR = MC
C) P > AVC
D) P < MC
Page 16
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Chapter 15: Pricing Practices
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Q1) If the optimal markup on price is 50%, the optimal markup on cost is:
A) 100%
B) 75%
C) 50%
D) 25%
Q2) A by-product:
A) has MR = 0.
B) results from an increase in the production of some other output.
C) has MC = MC<sub>Q</sub>.
D) is identified in terms of its excess production.
Q3) If e<sub>P</sub> = -3, the optimal markup on cost is:
A) 33%
B) 50%
C) 300%
D) 25%
Q4) Optimal Price. Japanese Imports, Inc., recently offered rebates of $375 off the regular $25,000 price on Sayonara mini SUVs. Sales responded, rising 12% over the previous month's level.
A. Calculate the point price elasticity of demand for Sayonara vehicles.
B. If marginal cost per unit is $21,875, was the original $25,000 price optimal?
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Chapter 16: Risk Analysis
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Q1) If profits are normally distributed with a mean of $12 and a standard deviation of $4, there is a 50/50 chance actual profits will exceed:
A) $12
B) $8
C) $16
D) $4
Q2) A project with a 50% chance of earning $0 and a 50% chance of earning $100 has a standard deviation of:
A) $100
B) $50
C) $75
D) $0
Q3) Expected Return Analysis. Dr. John Carter offers health seminars to local PTA groups. On average, Carter expects 2% of seminar participants to become patients of his HMO organization at a gross billing of $2,500 per patient per year.
A. Calculate Carter's expected net return per dollar of gross patient billings if attendance averages fifty persons per seminar, and a first-year net return of $100 must be earned to justify Carter's time and effort per seminar.
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Chapter 17: Capital Budgeting
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Q1) The beta coefficient is:
A) a relative measure of stock-price variability.
B) an absolute measure of stock-price variability.
C) equal to the standard deviation divided by covariance.
D) none of these.
Q2) The first step in most capital budgeting decisions is:
A) estimating future demand.
B) determining the operating cost function.
C) estimating the cost of capital.
D) determining the optimal level of output and the expected annual cash flows resulting from operation at this level.
Q3) Net present value is the:
A) current-dollar difference between marginal revenues and marginal costs.
B) change in net cash flows due to an investment project.
C) change in before-tax cash flows due to an investment project.
D) change in net after-tax cash flows due to an investment project.
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Chapter 18: Organization Structure and Corporate Governance
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Q1) The relationship between McDonalds and Coca-Cola is:
A) vertical.
B) virtual.
C) conglomerate.
D) horizontal.
Q2) Expenditures necessary to overcome owner-manager conflicts are called:
A) decision costs.
B) search costs.
C) information costs.
D) agency costs.
Q3) The Sarbanes-Oxley Act does not significantly tighten accountability standards for:
A) directors and officers.
B) stockholders.
C) auditors and legal counsel.
D) security analysts.
Q4) End-of-game Problem. One of the most vexing problems facing boards of directors and stockholders is the so-called "end-of-game" problem.
A. What is it?
B. How do firms efficiently deal with such difficulties?
Page 20
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Chapter 19: Government in the Market Economy
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Q1) Public vs Private Goods. Use the nonrival concept to classify each of the following goods and services as public goods or private goods. Also indicate whether or not the good or service in question can be characterized by the nonexclusion concept. Explain.
A. Police protection.
B. Public libraries
C. State and local lotteries.
D. Long-distance phone service.
E. Yellowstone National Park.
Q2) Policies that are designed to reduce barriers to international trade are known as:
A) trade deficit policies.
B) free trade policies.
C) protectionist policies.
D) import quotas.
Q3) Air and water pollution are examples of:
A) positive externalities.
B) negative externalities.
C) public goods.
D) public bads.
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