Corporate Economics
Textbook Exam Questions
Course Introduction
Corporate Economics explores the application of economic principles and analytical tools to decision-making within firms and organizations. The course examines how companies assess market structures, pricing strategies, production costs, and competitive environments to maximize profitability and efficiency. Key topics include demand estimation, cost analysis, market behavior, strategic interactions, and the impact of government regulation on business operations. Through case studies and real-world examples, students gain insights into how economic theory informs corporate strategy and policy.
Recommended Textbook
Managerial Economics 5th Edition by Luke M. Froeb
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Chapter 1: The One Lessor of Business
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Sample Questions
Q1) Baseball Cards
Your favorite uncle left you his baseball card collection in his will.Since you are not a fan,you auction them off on an Internet website.Since nothing was created,how could this decision have created wealth?
Answer: The transaction moved the baseball card collection from a low valued use in your possession to a higher valued use in the possession of a true fan.
Q2) If company X is successfully outsourcing its production of T-shirts to China,it is
A)Creating wealth by moving labor in China from lower value use to higher value use
B)Should be stopped on economic grounds since it is destroying wealth
C)Destroying wealth by acquiring cheaper labor from China
D)Both A & C
Answer: A
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3
Chapter 2: Benefits, Costs, and Decisions
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Sample Questions
Q1) Variable costs are
A)costs that vary with output
B)not important in decision making
C)costs that do not vary with output
D)equal to total costs
Answer: A
Q2) A company invested $400,000 in a technology that reduced the overall costs of production by reducing their cost per unit from $2 to $1.85.Later,a manager has an opportunity to outsource production to another company at a cost per unit of $1.75.If you are the manager,you
A)should consider the $400,000 as a sunk cost,not relevant to the decision.
B)should reduce his effort by ignoring any new developments and letting the production run as it is.
C)should ignore the $400,000 fixed cost.
D)Both A & C
Answer: D
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4
Chapter 3: Extent How Much Decisions
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Sample Questions
Q1) What are the total profits if four units are produced?
A)40.
B)70.
C)-30.
D)20.
Answer: D
Q2) The marginal cost of hiring the 4th worker is
A)$40
B)$100
C)$20
D)$0
Answer: A
Q3) What is the Customer Acquisition Cost?
A)Total cost of customers
B)Average cost per customer
C)The marginal cost of acquiring another customer
D)All of the above
Answer: C
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Chapter 4: Investment Decisions: Look Ahead and Reason
Back
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Sample Questions
Q1) A catering company is producing at a point where its marginal costs are $25 and its fixed costs are $5000.At the current price of $10 it is producing 50 meals.If the demand goes up,such that they can now charge $20 per meal,how much should the firm now produce?
A)60 meals
B)70 meals
C)80 meals
D)None,they should shut down
Q2) At what quantity is the firm indifferent between the two technologies?
A)10
B)2
C)5
D)8
Q3) A firm sells 300,000 units per week.It charges $ 35 per unit,the average variable costs are $40,and the average costs are $55.In the short run,the firm should
A)Shut-down as the firm is making a loss of $15 million per week
B)Shut-down as the firm cannot cover the variable costs
C)Shut down because the price is lower than average cost
D)None of the above
Page 6
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Chapter 5: Simple Pricing
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Sample Questions
Q1) What is an aggregate demand curve
A)The demand of an individual with respect to price
B)The total demand of the market with respect to price of a good
C)The preference of an individual in the market
D)None of the above
Q2) If the current margin is greater than the desired margin,the firm should
A)Increase price
B)Decrease price
C)Not change the price
D)Marginal revenue and marginal cost are both zero
Q3) The quantity demanded of good X falls by 20% and,in response,your income goes down by 10% and,the income elasticity of demand would be:
A)2
B)4
C).5
D).20
Q4) Music Pricing
Downloads of digital entertainment goods,e.g. ,movies,songs,books,have marginal costs that are essentially zero.If so,what elasticity are the sellers adjusting prices to achieve?
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Chapter 6: Economies of Scale and Scope
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Q1) As a table manufacturing company produces more tables,the average total cost of each table produced increases.This could be because:
A)Total fixed costs are decreasing as more tables are produced
B)There are economies of scale
C)There are diseconomies of scale
D)Total variable cost is decreasing as more tables are produced.
Q2) What are diseconomies of scope?
A)the cost of producing two products jointly by one firm is more than the cost of producing them separately
B)the cost of producing two products jointly by one firm is lesser than the cost of producing them separately
C)the cost of producing two products jointly by one firm is equal to the cost of producing them separately
D)none of the above
Q3) When a firm is experiencing increasing marginal costs,it implies
A)A constant marginal productivity
B)decreasing average costs
C)decreasing marginal productivity
D)increasing marginal productivity
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Chapter 7: Understanding Markets and Industry Changes
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Questions
Q1) In a market where the equilibrium price is $7,any price lower than $7 would cause
A)a balanced demand and supply
B)an excess supply
C)an excess demand
D)none of the above
Q2) An increase in income causes,the price for ipads _____________ and the quantity demanded for ipads ____________.
A)Increase;increase
B)Increase;decrease
C)Decrease;increase
D)Decrease,decrease
Q3) All these factors would shift the supply curve of tobacco,except
A)Bad weather
B)Change in the price of tobacco
C)Changes in the wages of agricultural workers
D)A tax charged on the production of tobacco
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Chapter 8: Market Structure and Long Run Equilibrium
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Sample Questions
Q1) In the short-run,a monopoly is most likely to achieve
A)An average rate of return
B)Above average profits
C)Economic Profits
D)Both B&C
Q2) Critical care surgeons get paid higher salaries than family doctors because
A)they usually work under highly stressful conditions
B)they usually have to get longer training
C)they usually work uncertain hours
D)all of the above
Q3) The indifference principle states that
A)If an asset is mobile,then in the long run,it will be indifferent about where it is used
B)In the long run,a mobile asset will make the same profit,no matter where it goes
C)If an asset is mobile,then in the long run,it would stay with the first user
D)Only A&B
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Chapter 9: Strategy: the Quest to Keep Profit From Eroding
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Sample Questions
Q1) Industries with high barriers to entry
A)Pushes profits to normal returns
B)Increases the likelihood of firms entering the industry
C)Help firms sustain long term profits
D)Increases the number of competitors
Q2) Assumptions that underlie the Resource-based View include
A)Resource heterogeneity
B)Resource immobility
C)Barriers to entry
D)Both a and b
Q3) The RBV perspective locates the source of competitive advantage for a firm at the A)Individual firm level
B)Industry level
C)Customer Level
D)None of the above
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Chapter 10: Foreign Exchange, Trade, and Bubbles
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Sample Questions
Q1) When interest rates go up,people are
A)More likely to borrow
B)Less likely to borrow
C)Does not affect a person's consumption
D)None of the above
Q2) The US is experiencing a technological boom.Relative to the other countries with lower technological growth,we expect to see the dollar
A)Appreciate
B)Depreciate
C)Stay constant in value
D)None of the above
Q3) A widget costs $1000 in the US and CAD$1200 in Canada.The current exchange rate is 1USD=1.09CAD.At this rate,
A)The good costs more in the US
B)The good costs more in Canada
C)The good costs the same across the two countries
D)None of the above
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Chapter 11: More Realistic and Complex Pricing
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Sample Questions
Q1) Prospect theory implies that consumers are motivated by
A)The actual price level
B)The distance of the price from the reference price
C)All of the above
D)None of the above
Q2) Which of the following are ways of promoting a firm's product
A)Advertising
B)Discount coupons
C)End-of-aisle displays
D)All of the above
Q3) You own two different energy drink brands: "Blue Cow" and "600 minute energy." If you reduce the price on "Blue Cow",sales of "600 minute energy" would
A)Increase
B)Decrease
C)Not change
D)None of the above
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Chapter 12: Direct Price Discrimination
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Sample Questions
Q1) Given that the firm wants to sell both the versions,how much surplus does buying the no-name brand give the professional chefs?
A)$30
B)$40
C)$50
D)$60
Q2) Given that the firm wants to sell both the versions,how should it price its products to have the users self-sort themselves profitably?
A)No-name $60;High-end $130
B)No-name $60;High-end $100
C)No-name $40;High-end $100
D)No-name $40;High end $130
Q3) Movie theatres offer senior discounts because
A)Seniors have a more elastic demand for movie tickets
B)Seniors have lower incomes
C)Seniors have a lower opportunity cost of time
D)All of the above
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Chapter 13: Strategic Games
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Sample Questions
Q1) If Bratty Brenda decides to hit Tattling Tina,what would Tattling Tina's best response be
A)Tell
B)Not tell
C)Run
D)Hide
Q2) What is the Nash equilibrium of this simultaneous game?
A)Steal,Vigilant
B)Steal,Not vigilant
C)Not steal,Vigilant
D)The game has no Nash equilibrium
Q3) If the apartment owner decides to fine both the roommates if the apartment is dirty,such that now if neither of them clean they each get a 5 utility loss,what would the new equilibrium be now?
A)John cleans,Joe doesn't
B)Joe cleans,John doesn't
C)Neither of them clean the apartment
D)Both A&B
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Chapter 14: Bargaining
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Sample Questions
Q1) If the shopkeeper goes first and quotes a high price,what is the best response of the customer?
A)Accept the high price
B)Yell at the store owner
C)Walk away from the deal
D)Swear off shopping forever
Q2) If a union threatens to strike during a peak demand period,it is more likely to
A)Have its conditions accepted
B)Have its conditions rejected
C)Get laughed at
D)All of the above
Q3) If,during the negotiations between the union and the management a strike occurs,it would be because
A)The union is trying to convince the management that it will stick to its strategy
B)The management doesn't believe the union's threat
C)All of the above
D)None of the above
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Chapter 15: Making Decisions With Uncertainty
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Sample Questions
Q1) Type I errors are
A)False negatives
B)False positives
C)True negatives
D)True positives
Q2) You can invest $100,000 into either project A or B.You estimate that A would succeed with a probability of 0.5 in which case it doubles in value.If it fails,its scrap value is $50,000.Project B would succeed with probability 0.8,in which case it would have a value of $150,000.If it fails,project B's scrap value is $30,000.Which project should you invest in?
A)Project A
B)Project B
C)Neither of the projects
D)You cannot tell from the information presented
Q3) To better align your agent's incentives to your own when buying securities
A)Offer the agent a high price
B)Offer the agent a low price
C)Offer the agent a price based on performance of the security
D)All of the above
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17
Chapter 16: Auctions
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Sample Questions
Q1) To avoid the winner's curse
A)Bid less aggressively as the number of bidders decreases
B)Bid more aggressively as the number of bidders increase
C)Bid less aggressively as the number of bidders increases
D)None of the above
Q2) Auction Information
Austin's Auctions conducts online auctions on behalf of clients trying to dispose of liquidated dental laboratory equipment.Some clients want to keep product information about each of the items as guarded as possible so as to negotiate from a stronger position.Others provide photos,detailed assessments as well as complete maintenance records.Which group of clients receive higher prices and why?
Q3) Anna's Antiques expects to get three bidders for the unique china teacup it sells.Each of the bidders can either have a high-value of $100 or a low-value of $70 with equal probability.If three bidders show up at the auction and two of the bidders are low value,what would the winning price be?
A)Just above $100
B)$100
C)Just above $70
D)$70
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Chapter 17: The Problem of Adverse Selection
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Q1) If the insurance company can correctly anticipate the adverse selection,
A)Only Samantha would buy insurance
B)Only Nadia would buy the insurance
C)Both of them would buy the insurance
D)Neither of them would buy the insurance
Q2) Lara will agree to a second date with Tom only if,on their first date,Tom is well mannered and well dressed.Lara is using a
A)Screening mechanism
B)Signaling mechanism
C)All of the above
D)None of the above
Q3) Hiring Tech Support
Collin County Community College (CCCC)has an ongoing problem that the electronic equipment in their classrooms and computer labs keeps malfunctioning and the repairs that are made seem to cause problems with some other aspect of the equipment.Due to its bureaucratic structure,CCCC has a hiring preference for their own students and it is only allowed to pay $15 per hour when the going rate is closer to $18 per hour.How does this contribute to CCCC's equipment problems?
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Chapter 18: The Problem of Moral Hazard
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Q1) To keep employees from shirking,invest in greater monitoring
A)when monitoring is expensive relative to its benefits
B)especially when monitoring is efficient
C)when employees respond well to incentive contracts
D)when incentives solve both moral hazard and adverse selection problems with employees
Q2) An example of moral hazard is
A)A taxi driver paid per mile taking the shortest route
B)a piece-rate garment worker shirking more than a per hour worker
C)an hourly salesman working less hard than a commission salesman
D)an author on contract going to as many book signings as one with a percentage royalty rate
Q3) An example of moral hazard is
A)people drive less carefully in icy conditions with antilock brakes than without
B)people drive as safely with more airbags as without
C)football players avoid 'spearing' with their heads even with safer helmets
D)people read the medicine warnings as carefully when self-medicating as with a doctor's prescription
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Chapter 19: Getting Employees to Work in the Firms Best Interest
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Sample Questions
Q1) To ensure that decision makers have enough information to make god decisions
A)Move information to those making the decisions
B)Move decision making to those with the information
C)All of the above
D)None of the above
Q2) If an auto dealer wants to hire a salaried salesman but is afraid of facing the adverse selection problem,the principle can
A)Hire a salesman who has a reputation for working hard
B)Monitor the salesman to prevent shirking
C)All of the above
D)None of the above
Q3) In a situation where an artist is selling his own work to the galleries,the agent is
A)The artist
B)The gallery
C)Both of the above
D)None of the above
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Chapter 20: Getting Divisions to Work in the Firms Best Interest
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Sample Questions
Q1) In an M-form organization
A)The number of divisional conflicts are reduced
B)Decision making speed increases
C)Customer retention tends to increase
D)All of the above
Q2) Which of the following is FALSE about firms organized along functional lines?
A)Workers develop functional expertise
B)Workers find it difficult to share information within their division
C)They foster the exploitation of economies of scale
D)None of the above
Q3) When a transfer price increases
A)the buying division will want to sell less to the selling division
B)the buying division will want to sell more to the selling division
C)the selling division will want to sell less to the buying division
D)the selling division will want to sell more to the buying division
Q4) Which of the following is TRUE about firms organized along functional lines?
A)Workers find it difficult to develop functional expertise
B)Workers find it difficult to share information within their division
C)They foster the exploitation of economies of scale
D)All of the above
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Chapter 21: Managing Vertical Relationships
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Sample Questions
Q1) Which of the following is TRUE?
A)Discount retailers can defeat price discrimination by the manufacturers through arbitrage
B)Arbitrage is not an effective way for retailers to defeat price discrimination by manufacturers
C)Retailers are incapable of defeating upstream price discrimination once the manufacturer sets prices
D)"High End" retailers can defeat price discrimination by the manufacturers through arbitrage
Q2) Horizontal contracts often result in
A)Higher prices
B)Lower prices
C)Unchanged prices
D)None of the above
Q3) Purchasing a profitable supplier increases profits only if
A)You pay equal to the company's discounted future profits
B)You pay higher than the company's discounted future profits
C)You pay lower than the company's discounted future profits
D)None of the above
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Page 23