Business Economics
Final Test Solutions
Course Introduction
Business Economics explores the application of economic principles and methodologies to real-world business decision-making. This course provides an understanding of how economic forces, such as demand and supply, market structure, production costs, and pricing strategies, shape the behavior of firms and industries. Students will analyze the role of government regulation, risk assessment, and resource allocation in the business environment, developing the analytical skills needed to solve practical business problems and make informed strategic choices in a competitive market.
Recommended Textbook
Managerial Economics and Business Strategy 7th Edition by Michael R. Baye
Available Study Resources on Quizplus
14 Chapters
1912 Verified Questions
1912 Flashcards
Source URL: https://quizplus.com/study-set/2568
Page 2
Chapter 1: The Fundamentals of Managerial Economics
Available Study Resources on Quizplus for this Chatper
136 Verified Questions
136 Flashcards
Source URL: https://quizplus.com/quiz/51121
Sample Questions
Q1) Managerial economics
A)has little to say about day-to-day decisions.
B)is valuable to the coordinator of a shelter for the homeless.
C)is not relevant for managers of "not-for-profit" groups.
D)is the study of how to get rich in the stock market.
Answer: B
Q2) The lower the interest rate:
A)the greater the present value of a future amount.
B)the smaller the present value of a future amount.
C)the greater the level of inflation.
D)none of the statements associated with this question are correct.
Answer: A
Q3) Suppose B(Q) = 5Q - Q<sup>2</sup> and C(Q) = 1 + Q<sup>2</sup>.Then, net benefits are ______ when Q equals __________ units since the second-order condition is ______________.
A)maximized; 5/4; negative
B)minimized; -1; positive
C)maximized; 4/5; positive
D)minimized; 4/5; negative
Answer: A
To view all questions and flashcards with answers, click on the resource link above. Page 3
Chapter 2: Market Forces: Demand and Supply
Available Study Resources on Quizplus for this Chatper
155 Verified Questions
155 Flashcards
Source URL: https://quizplus.com/quiz/51115
Sample Questions
Q1) When quantity demanded exceeds quantity supplied
A)there exists a surplus of a good.
B)the price tends to fall.
C)the price is below the equilibrium price.
D)there is no excess demand.
Answer: C
Q2) If supply increases, then the
A)supply curve shifts to the left.
B)equilibrium price goes down.
C)equilibrium quantity goes down.
D)demand curve shifts to the right.
Answer: B
Q3) Given a linear demand function of the form Q<sub>X</sub><sup>d</sup> = 1000.5P<sub>X</sub>, find the inverse linear demand function.
A)P<sub>X</sub> = 200 - 2Q<sub>X</sub>.
B)P<sub>X</sub> = 100 - 0.5Q<sub>X</sub>.
C)P<sub>X</sub> = 100 - 2Q<sub>X</sub>.
D)P<sub>X</sub> = 100Q<sub>X</sub> - 0.5P<sub>X</sub>.
Answer: A
To view all questions and flashcards with answers, click on the resource link above.
Page 4
Chapter 3: Quantitative Demand Analysis
Available Study Resources on Quizplus for this Chatper
166 Verified Questions
166 Flashcards
Source URL: https://quizplus.com/quiz/51114
Sample Questions
Q1) If the income elasticity for lobster is 0.4, a 40% increase in income will lead to a:
A)10% drop in demand for lobster.
B)16% increase in demand for lobster.
C)20% increase in demand for lobster.
D)4% increase in demand for lobster.
Answer: B
Q2) Suppose the equilibrium price in the market is $100 and the marginal revenue associated with the linear (inverse) demand function is $50.Then we know that the own price elasticity of demand is A)-1.
B)1.
C)2.
D)cannot be determined from the information contained in the question. Answer: A
To view all questions and flashcards with answers, click on the resource link above. Page 5
Chapter 4: The Theory of Individual Behavior
Available Study Resources on Quizplus for this Chatper
174 Verified Questions
174 Flashcards
Source URL: https://quizplus.com/quiz/51113
Sample Questions
Q1) If the price of a good purchased by a utility maximizing consumer goes down, all other things remain the same, and the consumer's income is adjusted so that he can just barely attain his previous level of satisfaction, and if the consumer had indifference curves of the usual shape it will be found that
A)more of the good will be purchased than before.
B)less of the good will be purchased than before.
C)the same amount of the good will be purchased as before.
D)the consumer will stop purchasing the good at all.
Q2) If the price of a good rises, then the equilibrium consumption of that good
A)increases if it is an inferior good.
B)decreases if it is a normal good.
C)remains the same.
D)none of the statements associated with this question are correct.
Q3) The possibility of the endless cyclical preference is eliminated by the property of A)completeness.
B)more and better.
C)diminishing marginal rate of substitution.
D)transitivity.
To view all questions and flashcards with answers, click on the resource link above.
6
Chapter 5: The Production Process and Costs
Available Study Resources on Quizplus for this Chatper
178 Verified Questions
178 Flashcards
Source URL: https://quizplus.com/quiz/51112
Sample Questions
Q1) Suppose the long-run average cost curve is U-shaped.When LRAC is in the increasing stage, there exist
A)economies of scope.
B)diseconomies of scope.
C)economies of scale.
D)diseconomies of scale.
Q2) What is the marginal cost of producing 90 units of output?
A)5.32.
B)8.75.
C)11.67.
D)21.00.
Q3) A production function exhibits decreasing returns to scale if a twofold (threefold, etc.) increase in all inputs increases output by less than twofold (less than threefold, etc.).For example, by doubling the use of capital and labor, the firm would less than double its output.
a.What would the average and marginal cost curves look like under decreasing returns to scale? Explain.
b.Give an example of a production function that exhibits decreasing returns to scale.
To view all questions and flashcards with answers, click on the resource link above.
Chapter 6: The Organization of the Firm
Available Study Resources on Quizplus for this Chatper
148 Verified Questions
148 Flashcards
Source URL: https://quizplus.com/quiz/51111
Sample Questions
Q1) In general, automobile manufacturers produce their own engines but purchase tires from independent suppliers.Why?
Q2) The solutions to the principal-agent problem ensures that the firm is operating
A)on the production function.
B)above the production function.
C)below the production function.
D)above the isoquant curve.
Q3) Which of the following is not a means of avoiding opportunism?
A)contracts.
B)spot exchange.
C)vertical integration.
D)long-term contracts.
Q4) According to Industry Week, a shoe manufacturer recently had a production run that resulted in 100,000 pairs of defective shoes.Workers on the production line knew the shoes were defective as they were being produced, but did nothing to fix the problem.Do you think a profit sharing plan for workers would mitigate future problems? Explain.
Q5) Is it necessarily in the best interest of shareholders for management to ensure that there is absolutely no shirking in the workplace? Explain.
To view all questions and flashcards with answers, click on the resource link above. Page 8
Chapter 7: The Nature of Industry
Available Study Resources on Quizplus for this Chatper
117 Verified Questions
117 Flashcards
Source URL: https://quizplus.com/quiz/181072
Sample Questions
Q1) Suppose that there are two industries, A and B.There are five firms in industry A with sales at $5 million, $2 million, $1 million, $1 million, and $1 million, respectively.There are 4-firms in industry B with equal sales of $2.5 million for each firm.The HHI for industry A is A)3,200.
B)2,800.
C)1,800.
D)2,500.
Q2) Which of the following kinds of market structure are not associated with market power?
A)oligopoly.
B)perfect competition.
C)monopolistic competition.
D)perfect competition and monopolistic competition.
Q3) Holding all else constant, higher prices will
A)increase the Lerner index.
B)decrease the Lerner index.
C)have no impact on the Lerner index.
D)may increase or decrease the Lerner index depending on the relative magnitude of the price increase.
To view all questions and flashcards with answers, click on the resource link above.
Page 9
Chapter 8: Managing in Competitive, Monopolistic, and
Monopolistically Competitive Markets
Available Study Resources on Quizplus for this Chatper
138 Verified Questions
138 Flashcards
Source URL: https://quizplus.com/quiz/51109
Sample Questions
Q1) What contributes to the existence of multiproduct firms?
A)Economies of scale.
B)Economies of scope.
C)Cost complementarity.
D)Economies of scope and cost complementarity.
Q2) Economies of scale exist whenever:
A)average total costs decline as output increases.
B)average total costs increase as output increases.
C)average total costs are stationary as output increases.
D)average total costs increase as output increases and average total costs are stationary as output increases.
Q3) Which of the following is an example of monopoly?
A)Shoe industry in the United States.
B)Local utility industry in a small town.
C)Newspaper industry in New York City.
D)Bread industry in New York City.
Q4) Manufacturers of laundry detergent and dishwashing soap reinvest a relatively large percentage of their sales revenues on advertising campaigns.Most of these advertisements that appear on television stress the fact that their product is "New and Improved." Why?
To view all questions and flashcards with answers, click on the resource link above. Page 10
Chapter 9: Basic Oligopoly Models
Available Study Resources on Quizplus for this Chatper
125 Verified Questions
125 Flashcards
Source URL: https://quizplus.com/quiz/181073
Sample Questions
Q1) Which of the following is true about a differentiated-product Bertrand duopoly?
A)Firm 1 and firm 2's prices will exceed marginal cost.
B)Firm 1 and firm 2's prices will equal marginal cost.
C)Firm 1's price will always be above marginal cost, while firm 2's price will be greater than marginal cost.
D)Firms in a differentiated-product Bertrand duopoly cannot earn positive economic profits in the long run.
Q2) An important condition for a contestable market is:
A)all producers have different technologies.
B)there are high transaction costs.
C)existing firms cannot respond quickly to entry by lowering their price.
D)there are sunk costs.
Q3) Consider a Stackelberg duopoly with the following inverse demand function: P = 100 - 2Q<sub>1</sub> - 2Q<sub>2</sub>.The firms' marginal cost are identical and given by MC<sub>i</sub>(Q<sub>i</sub>) = 2.Based on this information follower's reaction function is
A)r<sub>F</sub>(Q<sub>L</sub>) = 24.5 - 0.5Q<sub>F</sub>.
B)Q<sub>L</sub> = 49 - 0.5Q<sub>F</sub>.
C)r<sub>F</sub>(Q<sub>L</sub>) = 24.5 - 0.5Q<sub>L</sub>.
D)Q<sub>F</sub> = 49 - 0.25Q<sub>L</sub>.
To view all questions and flashcards with answers, click on the resource link above. Page 11
Chapter 10: Game Theory: Inside Oligopoly
Available Study Resources on Quizplus for this Chatper
134 Verified Questions
134 Flashcards
Source URL: https://quizplus.com/quiz/181126
Sample Questions
Q1) Which of the following is true?
A)A dominant strategy for Firm A is "high price".
B)There does not exist a dominant strategy for Firm A.
C)A dominant strategy for Firm B is "low price".
D)none of the statements associated with this question are correct.
Q2) 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 $1 million, but firm B only makes $1 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 $5 million.If firm A stays out, it earns zero while firm B earns $10 million.Which of the following are perfect equilibrium strategies?
A)(enter, soft).
B)(not enter, soft).
C)(enter, hard).
D)(not enter, hard).
To view all questions and flashcards with answers, click on the resource link above.
Page 12
Chapter 11: Pricing Strategies for Firms With Market Power
Available Study Resources on Quizplus for this Chatper
128 Verified Questions
128 Flashcards
Source URL: https://quizplus.com/quiz/51119
Sample Questions
Q1) Suppose a typical consumer's inverse demand function for bottled water at a resort area where one firm owns all the rights to a local spring is given by
Q2) Consider a Cournot oligopoly consisting of five, identical firms producing good X.If the firms produce good X at a marginal cost of $7 per unit and the market elasticity of demand is -3, determine the profit-maximizing price.
A)$7.50 per unit.
B)$5.25 per unit.
C)$7 per unit.
D)$4.20 per unit.
Q3) In a Cournot oligopoly with N-firms and identical marginal costs, the relationship between the price elasticity of demand for the form and that of the market is
A)E<sub>F</sub> = E<sub>M</sub>.
B)E<sub>F</sub> = NE<sub>M</sub>.
C)E<sub>F</sub> = E<sub>M</sub>/N.
D)E<sub>F</sub> = N/E<sub>M</sub>.
Q4) A monopolist is profit maximizing where the elasticity of demand is -2 and price is $4.What is the monopolist's marginal cost?
To view all questions and flashcards with answers, click on the resource link above. Page 13
Chapter 12: The Economics of Information
Available Study Resources on Quizplus for this Chatper
137 Verified Questions
137 Flashcards
Source URL: https://quizplus.com/quiz/51118
Sample Questions
Q1) If insurance companies are required to offer coverage to all interested people, it is said that premiums for each person will be increased.Assume that the insurance market is perfectly competitive.What is the major reason for raising the premium?
A)The insurance companies take advantage of the increased demand and collude.
B)Medical services are more expensive because of increased demand.
C)Less healthy people join the pool of insured and hence increase the risk and the premium.
D)none of the statements associated with this question are correct.
Q2) Which of the following is NOT an example of a managerial decision with risk-averse consumers?
A)The presence of insurance for certain events.
B)The existence of chain stores.
C)The existence of different product qualities.
D)All of the statements associated with this question illustrate examples of managerial decisions with risk-averse consumers.
Q3) You are considering opening your own hamburger restaurant.List the information that will influence your decision about whether to start your own restaurant, or go with a franchise.
To view all questions and flashcards with answers, click on the resource link above. Page 14
Chapter 13: Advanced Topics in Business Strategy
Available Study Resources on Quizplus for this Chatper
74 Verified Questions
74 Flashcards
Source URL: https://quizplus.com/quiz/51117
Sample Questions
Q1) If the above payoff matrix is a simultaneous-move production game, the Nash equilibrium is for
A)both players to produce low output.
B)both players to produce high output.
C)play 1 to produce low output and player 2 to produce high output.
D)play 1 to produce high output and player 2 to produce low output.
Q2) A two-way network linking 5 users creates how many potential network connections?
A)5.
B)10.
C)20.
D)30.
Q3) A network linking 8 users is typically
A)less likely to exhibit bottlenecks than a network linking 2 users.
B)more than four times as valuable as a network linking 2 users.
C)four times as valuable as a network linking 2 users.
D)less than four times as valuable as a network linking 2 users.
To view all questions and flashcards with answers, click on the resource link above.
15
Chapter 14: A Managers Guide to Government in the Marketplace
Available Study Resources on Quizplus for this Chatper
102 Verified Questions
102 Flashcards
Source URL: https://quizplus.com/quiz/51116
Sample Questions
Q1) The external marginal cost of producing coal is MC<sub>external</sub> = 6Q while the internal marginal cost is MC<sub>internal</sub> = 4Q.The inverse demand for coal is given by P = 120 - 2Q.If the government taxed output at $2 per unit, what would a competitive industry produce?
A)10.
B)20.
C)15.
D)8.
Q2) Which of the following is true about a lump - sum tariff?
A)Domestic firms' marginal cost curves are shifted up by the amount of the lump - sum tariff.
B)Foreign firms' average cost curves are shifted up by the amount of the lump - sum tariff.
C)Domestic firms' average cost curves are shifted up by the amount of the lump - sum tariff.
D)Foreign firms' marginal cost curves are shifted up by the amount of the lump - sum tariff.
Q3) Suppose the external marginal cost of pollution is
Q4) You are the manager of a monopoly that faces an inverse demand curve
Page 16
To view all questions and flashcards with answers, click on the resource link above.