Course Introduction
Business Economics
Final Exam Questions
Business Economics explores the application of economic theory and methodologies to business decision-making and strategy. This course examines the fundamental principles of microeconomics and macroeconomics as they relate to real-world business problems, including demand and supply analysis, pricing strategies, market structures, productivity, cost analysis, and the impact of government policies. By integrating economic concepts with practical business practices, students gain the skills needed to analyze market trends, assess risks, and make informed decisions that enhance organizational efficiency and profitability.
Recommended Textbook
Managerial Economics and Business Strategy 8th Edition by Michael Baye
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14 Chapters
1968 Verified Questions
1968 Flashcards
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Page 2
Chapter 1: The Fundamentals of Managerial Economics
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143 Verified Questions
143 Flashcards
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Sample Questions
Q1) In the Wealth of Nations, Adam Smith argues that:
A) self-interest leads to the efficient allocation of resources.
B) benevolence leads to the efficient allocation of resources.
C) profits are maximized where marginal revenue equals net marginal benefits.
D) None of the statements associated with this question are correct.
Answer: A
Q2) If the interest rate is 5 percent, the present value of $200 received at the end of five years is:
A) $121.34.
B) $156.71.
C) $176.41.
D) $132.62.
Answer: B
Q3) In order to maximize net benefits, firms should produce where:
A) total benefits equal total costs.
B) profits are zero.
C) marginal cost is minimized.
D) marginal benefits equal marginal costs.
Answer: D
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Page 3
Chapter 2: Market Forces: Demand and Supply
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150 Verified Questions
150 Flashcards
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Sample Questions
Q1) Suppose the demand for good X is given by Q<sup>d</sup><sub>x</sub> = 10 + a<sub>x</sub>P<sub>x</sub> + a<sub>y</sub>P<sub>y</sub> + a<sub>M</sub>M. If a<sub>y</sub> is positive, then:
A) goods y and x are complements.
B) goods y and x are inferior goods.
C) goods y and x are normal goods.
D) goods y and x are substitutes.
Answer: D
Q2) Suppose the demand for X is given by Q<sub>x</sub><sup>d</sup> = 1002P<sub>X</sub> + 4P<sub>Y</sub> + 10M + 2A, where P<sub>X</sub> represents the price of good X, P<sub>Y</sub> is the price of good Y, M is income and A is the amount of advertising on good X. If advertising on good X increases by $10,000, then the demand for X will
A) decrease by $20,000.
B) decrease by $100,000.
C) increase by $100,000.
D) increase by $20,000.
Answer: D
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Page 4
Chapter 3: Quantitative Demand Analysis
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170 Verified Questions
170 Flashcards
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Sample Questions
Q1) For a given set of data and a regression equation, the greater the R-square:
A) the greater the t-value.
B) the lower the t-value.
C) the greater the adjusted R-square.
D) the lower the adjusted R-square.
Answer: C
Q2) The management of Local Cinema has estimated the monthly demand for tickets to be ln Q = 22,328 - 0.41 ln P + 0.5 ln M - 0.33 ln A + 100 ln P<sub>DVD</sub>, where Q = quantity of tickets demanded, P = price per ticket, M = income, A = advertising outlay, and P<sub>DVD</sub> = price of a DVD rental. It is known that P = $5.50, M = $9,000, A = $900, and P<sub>DVD</sub> = $3.00. Determine the own price elasticity of demand for movie tickets.
A) -0.29
B) -0.32
C) -0.39
D) -0.41
Answer: D
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Page 5
Chapter 4: The Theory of Individual Behavior
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179 Flashcards
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Sample Questions
Q1) An economics professor went out to dinner one night and observed one of her students drinking heavily. The next day was a final exam. When the professor's husband found out the student was in her class, he said the student's behavior was irrational. The professor disagreed. Under what condition is behavior irrational according to the properties of consumer behavior discussed in the chapter? What situations could make the student's behavior rational?
Q2) What are the advantages to a firm of selling gift certificates?
A) Greater quantity sold if your good is a normal good.
B) Greater quantity sold if your good is an inferior good.
C) Reduced strain on the refund department and greater quantity sold if your good is a normal good.
D) Reduced strain on the refund department and greater quantity sold if your good is an inferior good.
Q3) Diminishing marginal rate of substitution implies that indifference curves are:
A) convex from the origin.
B) concave from the origin.
C) either convex or concave from the origin.
D) straight line.
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6
Chapter 5: The Production Process and Costs
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173 Flashcards
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Sample Questions
Q1) Which of the following is NOT a means of acquiring product and process innovations?
A) Independent research and development
B) Mass production of the existing product
C) Reverse engineering
D) Hiring employees of innovating firms
Q2) Which of the following profit functions exhibits a Cobb-Douglas production function?
A) = P × K<sup>0.75</sup>L<sup>0.50</sup> - 20L - 35K
B) = P × min(2L, 5K) - 20L - 35K
C) = P × (3K + 4L) - 20L - 35K
D) = P × (3K<sup>0.5</sup> + 4L<sup>0.5</sup>) <sup>1/0.2</sup> - 20L - 35K
Q3) It is profitable to hire labor so long as the:
A) MP<sub>L</sub> is greater than wage.
B) MP<sub>L</sub> is less than wage.
C) VMP<sub>L</sub> is less than wage.
D) VMP<sub>L</sub> is greater than wage.
Q4) The maker of Turbotax produces software that prepares federal income tax returns. In addition, it produces software that prepares various state income tax returns. Why doesn't it pay for the firm to specialize in federal software?
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Chapter 6: The Organization of the Firm
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157 Verified Questions
157 Flashcards
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Sample Questions
Q1) If a manager is not the owner, the manager:
A) receives the full benefit of good decisions.
B) bears the full cost of bad decisions.
C) does not receive the full benefit nor the full cost of his or her decisions.
D) None of the statements is correct.
Q2) If a manager wishes to produce a large level of output, which compensation mechanism is most effective?
A) Spot check
B) Piece rate
C) Revenue sharing
D) Profit sharing
Q3) Long-term contracts are NOT efficient if:
A) a firm engages in relationship-specific exchange.
B) specialized investments are unimportant.
C) the contractual environment is simple.
D) managers shirk.
Q4) In general, automobile manufacturers produce their own engines but purchase tires from independent suppliers. Why?
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Chapter 7: The Nature of Industry
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123 Flashcards
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Sample Questions
Q1) A firm has a marginal cost of $200 and charges a price of $500. The Lerner index for this firm is:
A) 0.20.
B) 0.50.
C) 1.50.
D) 0.60.
Q2) 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?
Q3) During a sales meeting, one of the regional managers of Toga Industries remarked that structural variables such as advertising and R&D activities by rival firms were likely to hamper the firm's sales over the next year. The manager received numerous stares after making the remarks. Why?
Q4) In Tuna, Texas, the retail gasoline market consists of six firms. Firm 1 has 35 percent of the market, Firm 2 has 25 percent, and the remaining firms have 10 percent each. What is the four-firm concentration ratio for this industry?
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Page 9
Chapter 8: Managing in Competitive, Monopolistic,
and Monopolistically Competitive Markets
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130 Verified Questions
130 Flashcards
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Sample Questions
Q1) Let the demand function for a product be Q = 50 - 5P. The inverse demand function of this demand function is:
A) Q = 25 + P
B) P = 10 - 0.2Q
C) P = 10 + 0.2Q
D) P = 50 - 0.2Q
Q2) You are the manager of a firm that produces output in two plants. The demand for your firm's product is P = 78 - 15Q, where Q = Q<sub>1</sub> + Q<sub>2</sub>. The marginal costs associated with producing in the two plants are MC<sub>1</sub> = 3Q<sub>1</sub> and MC<sub>2</sub> = 2Q<sub>2</sub>. What price should be charged in order to maximize revenues?
A) $39
B) $47
C) $52
D) $56
Q3) A linear demand function exhibits:
A) constant demand elasticity.
B) more elastic demand as output increases.
C) less elastic demand as output increases.
D) insufficient information to determine.
Page 10
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Chapter 9: Basic Oligopoly Models
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134 Flashcards
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Sample Questions
Q1) Orion and Zeda are the only producers of a unique product that is sold in a market where the inverse demand curve is P = 200 - 2Q. The firms produce identical products and have identical cost functions given by C(Q<sub>i</sub>) = 4Q<sub>i</sub>. The managers of each firm must decide on their outputs on Monday morning and then bring products to market by noon.
a. What is each firm's marginal revenue? Marginal cost?
b. Equate each firm's marginal revenue to marginal cost.
c. Use your result in part (b) to solve for each firm's reaction function.
d. Use your results in part (c) to solve for the Cournot equilibrium levels of output for each firm.
Q2) Which of the following is/are NOT price-setting oligopoly models?
A) Stackelberg.
B) Cournot.
C) Bertrand.
D) Stackelberg and Cournot.
Q3) In a Cournot oligopoly, a decrease in a firm's marginal cost leads to:
A) reduced output and a higher price.
B) reduced output and a lower price.
C) higher output and a higher price.
D) higher output and a lower price.
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Chapter 10: Game Theory: Inside Oligopoly
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140 Verified Questions
140 Flashcards
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Sample Questions
Q1) 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.
Q2) Which of the following is NOT true?
A) An extensive form representation usually provides more information than a normal-form representation of a game.
B) An extensive form game is most useful for sequential-move games.
C) The notion of perfect equilibrium is more useful in analyzing extensive form games than normal-form games.
D) The notion of credible threats makes more sense in normal-form representations than in extensive form representations of a game.
Q3) OPEC was an effective cartel for many years, but recently it has been unable to maintain a high price for oil. What factors do you think are contributing to the demise of OPEC?
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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) Many restaurants have found that it is advantageous to offer free appetizers with a two-drink minimum during a limited number of hours. Is this profit-maximizing behavior? Why or why not?
Q2) A monopolist is profit maximizing where the elasticity of demand is -2 and price is $4. What is the monopolist's marginal cost?
Q3) The price elasticity of demand for senior citizens purchasing coffee from McDonald's is -5, while non-senior citizens have a price elasticity of demand equal to -1.25. If it costs McDonald's $0.02 to produce a coffee, the optimal price for a cup of coffee for senior citizens and the resultant marginal cost under third-degree price discrimination are, respectively:
A) $0.016 and $0.20.
B) $0.02 and $0.80.
C) $0.025 and $0.02.
D) $0.10 and $0.02.
Q4) Which group of policies aims at discouraging rivals from starting a price war?
A) Price matching and randomized pricing
B) Price matching, brand loyalty, and commodity bundling
C) Randomized pricing, price discrimination, and cross-subsidization
D) Peak-peak pricing, two-part pricing, and price matching
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Chapter 12: The Economics of Information
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128 Verified Questions
128 Flashcards
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Sample Questions
Q1) When managers of firms are given fixed salaries, which are not tied to the firm's profits, they generally put forth less effort than they otherwise would. This is an example of:
A) adverse selection.
B) moral hazard.
C) risk aversion.
D) None of the answers are correct.
Q2) "Guaranteed issue" is a controversial topic in the insurance market. It requires firms offering health coverage for one employee to offer the same coverage to all employees, regardless of their health risks. Why is this so controversial?
Q3) After a person buys insurance for his car, he will generally not care for his car as much as he otherwise would. This is an example of:
A) adverse selection.
B) moral hazard.
C) risk aversion.
D) None of the statements is correct.
Q4) Explain why a used car that is only six months old and has been driven only 5,000 miles typically sells for 20 percent less than a new car with the same options.
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Page 14
Chapter 13: Advanced Topics in Business Strategy
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89 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) A potential entrant knows that it faces a (inverse) residual demand curve given by P = 50 - 4Q. While the entrant does not know the inverse market demand, it does know that the incumbent committed to producing 150 units. Using this information, which of the following equations best summarizes the inverse market demand curve?
A) P = 200 - 4Q
B) P = 200 - Q
C) P = 150 - 4Q
D) None of the statements are correct.
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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) The domestic demand and supply for sugar are Q<sup>d</sup> = 700 - 2P and Q<sup>SD</sup> = 100 + 4P. The foreign supply is Q<sup>SF</sup> = 150 + 3P. Suppose an import quota of 100 is imposed in the domestic market. What will be the new market price of sugar?
A) 62.50
B) 90
C) 100
D) 110
Q2) The domestic demand and supply for sugar are Q<sup>d</sup> = 60,000 - 400P and Q<sup>SD</sup> = 20,000 + 500P. The foreign supply is Q<sup>SF</sup> = 20,000 + 100P. How many units of sugar will domestic producers supply after the quota is imposed?
A) 35,000
B) 30,000
C) 58,000
D) 23,000
Q3) In the 1990s Japan reduced its exports of automobiles to the United States by 28 percent. If you were the manager of a Buick dealership, how would this affect your pricing strategy? Explain.
Page 16
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