Business Economics
Final Exam
Course Introduction
Business Economics explores the application of economic theory and analytical methods to business decision-making. The course covers fundamental concepts such as demand and supply, market structures, cost and production analysis, pricing strategies, and the impact of government policies on business operations. Emphasizing both microeconomic and macroeconomic perspectives, students learn to analyze business environments, forecast market trends, evaluate risk, and make informed managerial decisions. Real-world case studies and quantitative tools are integrated to develop practical problem-solving skills relevant to today's dynamic business world.
Recommended Textbook
Managerial Economics and Business Strategy 9th Edition by Michael Baye
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14 Chapters
2024 Verified Questions
2024 Flashcards
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Page 2
Chapter 1: The Fundamentals of Managerial Economics
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145 Verified Questions
145 Flashcards
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Sample Questions
Q1) Suppose total benefits and total costs are given by B(Y)= 100Y 8Y<sup>2</sup> and C(Y)= 10Y<sup>2</sup>.Then marginal benefits are:
A) 100 16Y.
B) 100Y 8Y<sup>2</sup>.
C) 50 4Y.
D) 200Y 10Y.
Answer: A
Q2) Suppose the growth rate of the firm's profit is 5 percent,the interest rate is 6 percent,and the current profits of the firm are $100 million.What is the value of the firm?
A) $111.5 million
B) $1,766.6 million
C) $10,600 million
D) None of the statements associated with this question are correct. Answer: C
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3
Chapter 2: Market Forces: Demand and Supply
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149 Verified Questions
149 Flashcards
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Sample Questions
Q1) Given a linear supply function of the form Q<sub>X</sub><sup>S</sup> = 3,000 + 3P<sub>X</sub> 2P<sub>r</sub> P<sub>w</sub>,find the inverse linear supply function,assuming P<sub>r</sub> = $1,000 and P<sub>w</sub> = $100.
A) Q<sub>X</sub><sup>S</sup> = 900 + 3P<sub>X</sub>
B) P<sub>X</sub> = 300 + 0.3333Q<sub>X</sub>
C) P<sub>X</sub> = 300 + 0.3333Q<sub>X</sub>
D) P<sub>X</sub> = 2,900 + 3P<sub>X</sub>
Answer: C
Q2) Suppose that supply increases and demand decreases.What effect will this have on price and quantity?
A) Price will increase and quantity may rise or fall.
B) Price will decrease and quantity will increase.
C) Price will decrease and quantity will decrease.
D) None of the statements associated with this question are correct.
Answer: D
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Chapter 3: Quantitative Demand Analysis
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167 Flashcards
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Sample Questions
Q1) Demand is more inelastic in the short term because consumers:
A) are impatient.
B) have no time to find available substitutes.
C) are present-oriented.
D) None of the preceding statements is correct.
Answer: B
Q2) Your firm's research department has estimated the elasticity of demand for toys to be 0.7.As the manager of a local chain of toy stores,determine the impact of an 8 percent increase in toy prices on your total revenues.
Answer: Since the elasticity of demand for toys is less than 1 in absolute value,an increase in toy prices will increase your total revenues.
Q3) The lower the standard error:
A) the less confident the manager can be that the parameter estimates reflect the true values.
B) the more confident the manager can be that the parameter estimates reflect the true values.
C) the more precisely the parameter estimates the true values.
D) the less precisely the parameter estimates the true values.
Answer: B
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Page 5
Chapter 4: The Theory of Individual Behavior
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183 Flashcards
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Sample Questions
Q1) What is the maximum amount of good Y that can be purchased if X and Y are the only two goods available for purchase and P<sub>x</sub> = $5,P<sub>y</sub> = $10,X = 20,and M = 500?
A) 40
B) 25
C) 50
D) 75
Q2) A B means:
A)bundle A is not preferred to bundle B.
B)bundle A is preferred to bundle B.
C)bundle A is equally preferred to bundle B.
D)bundle A is greater than bundle B.
Q3) If the price of a good Y falls,then the marginal rate of substitution between X and Y: A) increases.
B) decreases.
C) remains the same.
D) depends on whether X and Y are normal or inferior goods, and we cannot tell without that information.
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Chapter 5: The Production Process and Costs
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186 Flashcards
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Sample Questions
Q1) For the cost function C(Q)= 100 + 4Q + 19Q<sup>2</sup> + 2Q<sup>3</sup>,what is the marginal cost of producing the fourth unit of output?
A) $42
B) $295
C) $252
D) $116
Q2) The value of marginal product of an input is the value of the:
A) total output produced by total inputs.
B) average output produced by inputs.
C) output produced by the last unit of an input.
D) output produced by the first unit of an input.
Q3) Changes in the price of an input cause:
A) isoquants to become steeper.
B) slope changes in the isocost line.
C) parallel shifts of the isocost lines.
D) changes in both the isoquants and isocosts of equal magnitude.
Q4) Show that the Cobb-Douglas production function \(Q = K ^ { 1 / / 4 } L ^ { 3 } / 4\) exhibits the law of diminishing marginal rate of technical substitution.
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Page 7
Chapter 6: The Organization of the Firm
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157 Flashcards
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Sample Questions
Q1) Often owners of firms who hire managers must install incentive or bonus plans to ensure that the:
A) company is financially secure.
B) manager will work hard.
C) manager will maintain employee morale.
D) company will have positive economic profits.
Q2) Under a profit-sharing compensation scheme,the manager will:
A) shirk all day.
B) not shirk all day.
C) optimize his choice between income and leisure.
D) do the same thing as under a fixed salary scheme.
Q3) Which type of compensation method works by performance bonus?
A) Profit sharing
B) Revenue sharing
C) Piece rate
D) All of the statements associated with this question are correct.
Q4) Is it necessarily in the best interests of shareholders for management to ensure that there is absolutely no shirking in the workplace?
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Chapter 7: The Nature of Industry
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124 Flashcards
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Sample Questions
Q1) The Dansby-Willig index measures market:
A) structure.
B) performance.
C) conduct.
D) behavior.
Q2) A student figured out that the HHI for an industry was 15,000.What is the proper conclusion?
A) The market is monopolistic.
B) The market is close to perfectly competitive or monopolistically competitive.
C) The student made some computational errors.
D) There is free entry in the market.
Q3) Which of the following industry structures would you expect to have the lowest Lerner index score?
A) Perfect competition
B) Monopoly
C) Monopolistic competition
D) Oligopoly
Q4) Zelda Manufacturing has a rather unique product that sells for $15 per unit,and the marginal cost is $7.50.Determine the Lerner index for Zelda Manufacturing.Does this index indicate market power?
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Chapter 8: Managing in Competitive, Monopolistic, and Monopolistically Competitive Markets
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Sample Questions
Q1) Suppose perfectly competitive market conditions are characterized by the following inverse demand and inverse supply functions: P = 100 5Q and P = 10 + 5Q.The demand curve facing an individual firm operating in this market is:
A) P = 100 5Q.
B) a horizontal line at $9.
C) a horizontal line at $55.
D) P/N = (100 5Q)/N, where N is the total number of firms in the competitive market.
Q2) You are the manager of a monopoly that faces a demand curve described by P = 80 5Q.Your costs are C = 10 + 5Q.The revenue-maximizing output is:
A) 2.5.
B) 5.
C) 8.
D) None of the preceding answers is correct.
Q3) If a monopolist has an own price demand elasticity of .8,is it maximizing profits?
Q4) Would you expect the demand for a monopolistically competitive firm's product to be more or less elastic than that for a monopolist's product?
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Page 10
Chapter 9: Basic Oligopoly Models
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Sample Questions
Q1) Collusion in oligopoly is difficult to achieve because:
A) it is prohibited by law.
B) every firm has an incentive to cheat given that others follow the agreement.
C) firms usually take care of consumers' interests as a decision priority.
D) it is prohibited by law and every firm has an incentive to cheat given that others follow the agreement.
Q2) The market for widgets consists of two firms that produce identical products.Competition in the market is such that each of the firms independently produces a quantity of output,and these quantities are then sold in the market at a price that is determined by the total amount produced by the two firms.Firm 2 is known to have a cost advantage over firm 1.A recent study found that the (inverse)market demand curve faced by the two firms is P = 280 - 2(Q<sub>1</sub> + Q<sub>2</sub>),and costs are C<sub>1</sub>(Q<sub>1</sub>)= 3Q<sub>1</sub> and C<sub>2</sub>(Q<sub>2</sub>)= 2Q<sub>2</sub>.
a.Determine the marginal revenue for each firm.
b.Determine the reaction function for each firm.
c.How much output will each firm produce in equilibrium?
d.What are the equilibrium profits for each firm?
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Chapter 10: Game Theory: Inside Oligopoly
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142 Verified Questions
142 Flashcards
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Sample Questions
Q1) Consider the following entry game: Here,firm B is an existing firm in the market,and firm A is a potential entrant.Firm A must decide whether to enter the market (play "enter")or stay out of the market (play "not enter").If firm A decides to enter the market,firm B must decide whether to engage in a price war (play "hard"),or not (play "soft").By playing "hard," firm B ensures that firm A makes a loss of $2 million,but firm B only makes $2 million in profits.On the other hand,if firm B plays "soft," the new entrant takes half of the market,and each firm earns profits of $4 million.If firm A stays out,it earns zero while firm B earns $8 million.Which of the following are perfect equilibrium strategies?
A) (enter, soft)
B) (not enter, soft)
C) (enter, hard)
D) (not enter, hard)
Q2) A finitely repeated game differs from an infinitely repeated game in that:
A) the former needs a lower interest rate to support collusion than the latter needs.
B) there is an end-of-period problem for the former.
C) a collusive outcome can usually be sustained in the former but not the latter.
D) All of the statements associated with this question are correct.
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Page 12
Chapter 11: Pricing Strategies for Firms With Market Power
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140 Verified Questions
140 Flashcards
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Sample Questions
Q1) Suppose two types of consumers buy suits.Consumers of type A will pay $100 for a coat and $50 for pants.Consumers of type B will pay $75 for a coat and $75 for pants.The firm selling suits faces no competition and has a marginal cost of zero.If the firm charges $75 for pants and $75 for a coat,the firm will sell a coat to:
A) type A consumers.
B) type B consumers.
C) type A consumers and type B consumers.
D) None of the answers are correct.
Q2) A monopoly producing a chip at a marginal cost of $6 per unit faces a demand elasticity of 2.5.Which price should it charge to optimize its profits?
A) $6 per unit
B) $8 per unit
C) $10 per unit
D) $12 per unit
Q3) To engage in first-degree price discrimination,a firm must:
A) be able to set P > MC.
B) know each consumer's maximum willingness to pay.
C) prevent low-value consumers from reselling to high-value consumers.
D) All of the answers are correct.
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Page 13
Chapter 12: The Economics of Information
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147 Flashcards
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Sample Questions
Q1) An incumbent usually charges a higher price than a new entrant does.Which of the following is a plausible reason for this observation?
A) An incumbent usually has a bigger bureaucratic body than a new entrant does and hence has a higher marginal cost.
B) Consumers are risk averse, hence new firms charge lower prices to attract customers.
C) The incumbent is ignorant of the new entrant, hence it is still charging the old high price.
D) All of the statements associated with this question are correct.
Q2) Suppose option A has a lower expected value than option B.Which of the following statements is,in general,true?
A)A risk-averse person prefers option B to option A.
B)A risk-neutral person is indifferent between options A and B.
C)A risk-averse person prefers option A to option B.
D)Insufficient information to determine.
Q3) Why do life insurance policies have clauses stipulating that the company will not pay benefits for suicide within one year from the policy date?
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Chapter 13: Advanced Topics in Business Strategy
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90 Verified Questions
90 Flashcards
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Sample Questions
Q1) Effective limit pricing between one incumbent firm and one potential entrant involves:
A) the incumbent linking the pre-entry price to post-entry profits only.
B) the incumbent reducing price below the monopoly price to prevent entry only.
C) the incumbent linking the pre-entry price to post-entry profits and the incumbent reducing price below the monopoly price to prevent entry.
D) None of the statements are correct.
Q2) Consider a two-way network with 1,000 users.The number of potential connections is:
A) 999.
B) 1,000.
C) 2,000.
D) 999,000.
Q3) A network linking six users is typically:
A) less likely to exhibit bottlenecks than a network linking two users.
B) three times as valuable as a network linking two users.
C) more than three times as valuable as a network linking two users.
D) less than three times as valuable as a network linking two users.
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Chapter 14: A Managers Guide to Government in the Marketplace
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112 Verified Questions
112 Flashcards
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Sample Questions
Q1) Consider the monopoly in the figure below with price regulated at $2 per unit.The regulated price will result in a:
A) surplus of 2 units.
B) shortage of 2 units.
C) surplus of 5 units.
D) shortage of 5 units.
Q2) Which of the following are characteristics of public goods?
A) Nonrivalry
B) Nonchivalrous
C) Nonexclusionary
D) Nonrivalry and nonexclusionary
Q3) Suppose the external marginal cost of pollution is MC<sub>external</sub> = 5Q and the internal marginal cost is MC<sub>internal</sub> = 10Q.Further,assume the inverse demand for the product,Q,is given by P = 90 - Q.
a.What is the socially efficient level of output?
b.How much output would a competitive industry produce?
c.How much output would a monopoly produce?
d.Discuss three ways government can induce firms to produce the socially efficient level of output.
Page 16
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