Decision Making for Managers Exam Bank
Course Introduction
Decision Making for Managers explores the processes, tools, and frameworks essential for effective managerial decision-making in complex organizational settings. The course examines a variety of decision-making models, the role of uncertainty and risk, and the influence of cognitive biases and organizational culture on choices. Students learn to apply quantitative and qualitative analysis, solve problems collaboratively, and use data-driven approaches to enhance outcomes. Real-world case studies and simulations provide practical experience, helping students develop critical thinking and strategic judgment necessary for leadership roles.
Recommended Textbook
Managerial Economics 5th Edition by Luke M. Froeb
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Page 2
Chapter 1: The One Lessor of Business
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Sample Questions
Q1) A consumer values a car at $30,000 and a producer values the same car at $20,000.If the transaction is completed at $24,000,the transaction will generate:
A)No surplus
B)$4,000 worth of seller surplus and unknown amount of buyer surplus
C)$6,000 worth of buyer surplus and $4,000 of seller surplus
D)$6,000 worth of buyer surplus and unknown amount of seller surplus
Answer: C
Q2) Ethanol Mandates
Congress has passed laws requiring that a certain percentage of retail gasoline be from ethanol produced from corn.How would this destroy wealth?
Answer: This regulation is mandating the movement of corn from a higher value use such as food,sugar,etc to a lower value use of gasoline (If gasoline was the highest value use you would not require a mandate!)In addition,the required use of ethanol means that petroleum from oil is not being refined.The mandate moves a high valued asset,oil,into lower,unrefined,uses.[Note: The use of oil also causes pollution,an additional cost to society.If refiners would choose to use ethanol if they bore these pollution costs,then wealth may have been created.
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Chapter 2: Benefits, Costs, and Decisions
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Sample Questions
Q1) You go to see a movie that you believe would turn out to be amazing.The ticket costs you $20.Once in the theatre you realize that the movie is awful.If you leave now,you can still catch your favorite TV show.What should you do?
A)Stay and watch the movie since you paid $20 for it
B)The ticket price is now a sunk cost,you can ignore it and go home
C)Stay and watch the movie since the opportunity cost of the movie is zero
D)None of the above
Answer: B
Q2) Wealthy professors are more likely to shop at high end stores with shorter wait times at the cashier than poor students because
A)They value the item more than the student
B)They like wasting money
C)The opportunity cost of waiting in a cashier line is higher for professors than for undergraduate students
D)They like to show off
Answer: C
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Chapter 3: Extent How Much Decisions
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Sample Questions
Q1) If a firm produces 8 units of output with average fixed cost=$40 and average variable cost=$25,what is its total variable cost?
A)$320
B)$200
C)$650
D)$1,000
Answer: B
Q2) The marginal cost of hiring the 7th worker is
A)$400
B)$1,000
C)$200
D)$0
Answer: A
Q3) Managers undertake an investment only if
A)Marginal revenue is greater than zero
B)Marginal costs is less than marginal revenue
C)Marginal revenue is greater than marginal costs
D)Investment decisions do not depend on marginal analysis
Answer: C
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Page 5
Chapter 4: Investment Decisions: Look Ahead and Reason
Back
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Sample Questions
Q1) Hold-up problems usually occur when
A)One of the parties makes a heavy investment in equipment specific to its trading partner
B)One of the firms decides to invest heavily in general purpose equipment
C)Costs are avoidable
D)Costs are incurred
Q2) A cloth manufacturing firm is deciding whether or not to invest in new machinery.The machinery costs $45,000 and is expected to increase cash flows in the first year by $25,000 and in the second year by $30,000.The firm's current fixed costs are $9,000 and current marginal costs are $15.The firm currently charges $18 per unit.If the interest rate is 5% then the present value of the cash flows is
A)$6,020.41
B)$51,020.41
C)-$7,380.95
D)$10,000
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6
Chapter 5: Simple Pricing
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Sample Questions
Q1) What is consumer surplus?
A)The maximum willingness to pay for a unit of a product
B)The price that an individual pays in equilibrium for a product
C)The difference between how much an individual is willing to pay for a product and how much he ends up paying
D)How many units are traded in equilibrium
Q2) If cars are normal goods,a fall in income will
A)Increase the demand for cars
B)Decrease the demand for cars
C)Have no effect on the demand for cars
D)None of the above
Q3) A price elasticity of demand of 2.3 implies
A)Demand is inelastic
B)Demand is elastic
C)Demand is unitary elastic
D)Demand is perfectly elastic
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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Sample Questions
Q1) Diminishing marginal productivity can occur due to the following reason(s)
A)the difficulty of monitoring and motivating larger workforces
B)the increasing complexity of larger systems
C)the "fixity" or permanence of some factor of production
D)all of the above
Q2) A firm could experience diseconomies of scale if
A)One of its inputs is fixed
B)Marginal costs are rising
C)All of its inputs are variable
D)Both A & B
Q3) A firewood supplier has a very seasonal demand for its product.Its transport trucks lay idle during the warmer parts of the year.It can exploit economies of scope if
A)It merges with a manufacturer of wooden Christmas ornaments
B)It turns into a rental trucking company during the warmer months for other seasonal producers such as ice-cream makers
C)It starts producing other seasonal products that would sell mostly during the warmer months such as rustic lawn chairs
D)B and C
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8
Chapter 7: Understanding Markets and Industry Changes
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Sample Questions
Q1) Changes in the price of a product can cause
A)A movement along the demand curve
B)A shift of the demand curve
C)A shift of the supply curve
D)All of the above
Q2) In the market for used cars we have 10 sellers,willing to sell at the prices of $1000,$2000,$3000,$4000,$5000,$6000,$7000,$8000,$9000,$10000.What could the market price be in order to induce five sellers to offer their cars for sale?
A)$4001
B)$5001
C)$6001
D)$7001
Q3) A recent medical study reports new benefits of cycling.Simultaneously,the price of the parts needed to make bikes falls.If the change in supply is greater than the change in demand,the price will _________ and the quantity will _________.
A)Rise,rise
B)Rise,fall
C)Fall,rise
D)Fall,fall
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Page 9
Chapter 8: Market Structure and Long Run Equilibrium
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Sample Questions
Q1) Two cities face identical prices for their housing.City A decided to be a pollution free city "Clean town" and all the factories would locate in city B "Smogville",in equilibrium,we expect to see
A)a compensating differential between the prices of housing between the two cities
B)the prices of housing in both the cities to be identical
C)The prices of housing in B to be higher
D)All of the above
Q2) In equilibrium,high risk stocks would typically be accompanied by
A)low returns
B)no returns
C)high returns
D)no sales-no one would buy risky stocks
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) Strategy is
A)The art of matching the resources and capabilities of a firm to the opportunities and risks in its environment
B)Developing a resource for the company that is both rare and valuable to create competitive advantage
C)Making sure that the resource developed is non-fungible to create a sustainable advantage
D)All of the above
Q2) Which firm in an industry is likely to have higher profits?
A)Sellers with higher costs than their competitors
B)Sellers with lower costs than their competitors
C)Sellers with the same costs as their competitors
D)All of the above
Q3) Supplier power is high when
A)Suppliers are concentrated
B)The inputs provided are critical
C)The inputs provided are unsubstitutable
D)All of the above
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Chapter 10: Foreign Exchange, Trade, and Bubbles
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Sample Questions
Q1) Currency devaluations help suppliers because they make exports ________ expensive
A)Less
B)More
C)All of the above
D)None of the above
Q2) According to the purchasing power parity,if the price level in the US rises relative to Mexico
A)The dollar will appreciate relative to the peso
B)The dollar will depreciate relative to the peso
C)There is no effect on either currency
D)None of the above
Q3) If the Chinese Yuan devalues against the US dollar,then
A)Both the US importers and Chinese importers would benefit
B)The US importers would benefit while the Chinese importers would be hurt
C)The US importers would be hurt while the Chinese importers would benefit
D)Both the US importers and Chinese importers would be hurt
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Chapter 11: More Realistic and Complex Pricing
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Sample Questions
Q1) Which of the following is true?
A)To reduce cannibalization among products,reposition a product so that it does not directly compete with the other
B)After acquiring a substitute product,lower prices on both the products
C)After acquiring a complementary product,raise prices on both the products
D)All of the above
Q2) Many wines are priced high in order to
A)Indicate low quality
B)Indicate high quality
C)Indicate a bargain brand
D)None of the above
Q3) All of the following are true,except
A)Some consumers may infer high quality from high price
B)Low prices can indicate lower quality given that no other information is available
C)Promotional campaigns do not affect consumer's perception on quality
D)It makes more sense to raise price when advertising makes demand less elastic
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13
Chapter 12: Direct Price Discrimination
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Sample Questions
Q1) The "damaged goods" strategy refers to
A)Trying to sell damaged goods to your customers
B)Damaging the goods after they have been paid for but before the shipping
C)Incurring additional costs to make the cheaper goods unattractive to high-value users
D)Incurring additional costs to make the more expensive goods better quality
Q2) Given that the firm only chooses to sell the no-name brand,how should it price its product?
A)Price low,sell to both users
B)Price high,sell only to the professional chefs
C)Price low,sell only to the professional chefs
D)Price high,sell only to the home users
Q3) Cowboy Hat Markets
Cody's Cowboy Hat Emporium has two stores Fort Worth,TX.One in the Stockyards area that caters to tourists and another a mile further north that caters to ranch hands.Why doesn't Cody sell to both customer types out of one store?
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14
Chapter 13: Strategic Games
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Sample Questions
Q1) If Bratty Brad decides not to hit Mousey Mike,what would Mousey Mike's best response be?
A)Tell
B)Not tell
C)Run
D)Hide
Q2) If player B destroys his own brakes before the race,and player A sees that,what is player A's best response
A)Stop
B)Not stop
C)Crash into player B
D)All of the above
Q3) If Mattie's threatens to always fight,what would Irene's best response be?
A)Enter
B)Not enter
C)Run
D)All of the above
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Page 15
Chapter 14: Bargaining
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Sample Questions
Q1) Jim is haggling with a car dealer over the sale price of a used car.When he entered the store he was the only customer.This means that
A)Jim has a better chance of having his offer accepted,since the seller does not have any outside offers
B)Jim has lower chances of having his offer accepted,since the seller has more outside offers
C)The disagreement value for the seller has increased
D)Only A&C
Q2) You are a restaurant owner buying vegetables from a local farmer.You recently found out that another one of the farmer's clients,a competing restaurant has shut down,what would that do to your bargaining power?
A)Increase your bargaining power
B)Decrease your bargaining power
C)Not affect your bargaining power
D)None of the above
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Page 16
Chapter 15: Making Decisions With Uncertainty
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Sample Questions
Q1) At a fair carnival roulette wheel,a player can either win $10,$30,or $80.If the player were to be made indifferent between playing the game or not,how much should the owner charge him?
A)$30
B)$40
C)$50
D)$80
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
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17
Chapter 16: Auctions
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Sample Questions
Q1) Experiencing the winner's curse in a common-value auction means
A)You lost money in the auction
B)You bid too low
C)Your estimate of the value of the good being auctioned was too optimistic
D)Your estimate of the value of the good being auctioned was too pessimistic
Q2) Expected Oral Auction Price with Four Bidders
At an oral auction for a lamp,half of all bidders have a value of $50 and half have a value of $70.What is the expected winning bid if there are four bidders?
Q3) Anna's Antiques expects to get two 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 Anna can only set one price,what price should she set?
A)$100
B)$70
C)Any price higher than $100
D)Any price lower than $70
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Chapter 17: The Problem of Adverse Selection
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Sample Questions
Q1) A firm hiring only MBAs,regardless of the self-professed skill set is an example of
A)Screening mechanism
B)Signaling mechanism
C)Way to waste money
D)None of the above
Q2) Cici's Pizza
Most pizza restaurants charge by the pie or by the slice.Cici's has found a niche by charging a flat rate for the meal and allowing as many visits to the pizza buffet as the customer desires.How does this affect the make-up of its clientele?
Q3) Scatterbrain Samantha often forgets to lock her house.This has caused the probability of a burglary to be 30%.If her house gets broken into,she faces a property loss of $10,000,otherwise she gets to keep her $100,000.If Samantha is offered a full coverage insurance policy for her house at $2000,would she buy the insurance?
A)Yes because she gets to now enjoy her wealth risk-free
B)No,because she can take the risk and be better off
C)Yes,because she gains on average with the insurance
D)Both A&C
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Chapter 18: The Problem of Moral Hazard
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Q1) Which is NOT an example of moral hazard
A)people eat more at all-you-can-eat buffets
B)loggers select the most profitable trees to harvest even when they are paying a fixed fee
C)Drivers of heavier,safer cares are more likely to run stop signs
D)workers on commission work harder than those paid an hourly wage
Q2) One difference between moral hazard and adverse selection is
A)Moral hazard has to do with unobservable characteristics of individuals
B)Adverse selection has to do with unobservable actions of individuals
C)Adverse selection is when individuals change their behaviors because of a contract
D)Adverse selection is when you choose the wrong answer on a test
Q3) 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
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Chapter 19: Getting Employees to Work in the Firms Best Interest
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Sample Questions
Q1) A potential problem arises in principal-agent relationships
A)because the agents' actions are not always observed by the principals
B)because the principals' actions are not always observed by the agents
C)because the agent's and the principals' actions are always observed by each other
D)the observability of actions is irrelevant
Q2) Incentive contracts typically result in higher risk-related compensation to agents on average,
A)even so,they are always worth it
B)this does not affect their desirability
C)as a consequence,they may cost more than the problem they solve
D)therefore,they are never worth it
Q3) The manager of Fatty Foods is thinking about retiring.He has two options: to leave his stores as a company stores,to be managed by a salaried manager,or to sell some of them as franchises.He however has no way of monitoring the salaried managers' activities.What would be his best bet?
A)Let the stores stay company stores
B)Sell them off as franchises
C)Shut down the business completely
D)Never retire
Page 21
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Chapter 20: Getting Divisions to Work in the Firms Best
Interest
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Sample Questions
Q1) Cost centers
A)Are largely run by themselves
B)Require the parent company to monitor quality control
C)May try to reduce costs by reducing quality
D)Both B&C
Q2) When a transfer price decreases
A)the profits of the division producing the intermediate product will rise
B)the profits of the division producing the intermediate product will fall
C)the costs of the division producing the intermediate product will rise
D)the costs of the division producing the intermediate product will fall
Q3) Which of the following is a feature of an M-Form organization?
A)divisions can respond more easily to changes in customer demand
B)it is difficult to maintain customer relationships
C)coordination across divisions is simple and does not take much management time
D)evaluating employees is easier because managers typically are similarly trained
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22
Chapter 21: Managing Vertical Relationships
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Sample Questions
Q1) In the problem of double marginalization,the resulting price is lower than if
A)The manufacturer were to sell directly to the consumer
B)The manufacturer and the retailer were to merge
C)All of the above
D)None of the above
Q2) The conditions in which vertical relationships can enhance a firm's ability to price discriminate include
A)the manufacturer's product is of value to just one type of customer
B)the costs of arbitraging the price difference across markets is large
C)the manufacturer acquires the distributer in the higher priced market
D)lack of competition provides the manufacturer with the ability to price above marginal cost
Q3) Vertical contracts generally run ______the goals of the customers
A)Indifferent to
B)In line with C)Contrary to D)None of the above
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