Economic Analysis for Business Decisions
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Course Introduction
Economic Analysis for Business Decisions equips students with the fundamental economic concepts and analytical tools necessary to make informed business decisions. The course covers topics such as demand and supply analysis, market structures, cost and production theories, and pricing strategies. Students learn to assess the economic environment, forecast market trends, and evaluate the impact of government policies on business operations. Through real-world case studies and quantitative methods, the course emphasizes practical application of microeconomic and macroeconomic principles in managerial decision-making, enabling learners to solve complex business problems and develop strategic recommendations.
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) Wealth creating transactions are more likely to occur
A)With private property rights
B)With contract enforcement
C)Both a and b
D)None of the above
Answer: C
Q2) Subsidies can destroy wealth because
A)subsidies move assets from lower- to higher- valued uses
B)subsidies move assets from higher- to lower- valued uses
C)subsidies help producers only
D)subsidies help consumers only
Answer: B
Q3) An advantage of capitalism is that
A)It allows the market to self-regulate and clear itself
B)It allows a person to follow his or her own self interest
C)It allows voluntary transactions,which create wealth
D)All of the above
Answer: D
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3
Chapter 2: Benefits, Costs, and Decisions
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Sample Questions
Q1) Fast Food Terminals III
After firing cashiers to install touchscreens for patrons to place orders,Taco Casa determined that their average cost per touchscreen order was $0.65.After determining that the average compensation cost per human mediated order was $0.60 per order,they revert back to human order takers.Then why did the realized average cost per order with humans come in at $0.70?
Answer: Compensation costs represent the bulk of the employee costs,but not all of them.Low wage employees can have conflicts with customers that reduces orders,employees can incur costs if they get injured on the job or if they break equipment,and some employees steal while machines typically do not.A full analysis would incorporate these potentially hidden costs.
Q2) All of the following costs are included in the calculation of accounting profit,except
A)Interest payments on borrowed funds
B)Costs paid to suppliers for product ingredients
C)Opportunity cost of capital
D)Depreciation expenses related to investments in buildings and equipment
Answer: C
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Page 4
Chapter 3: Extent How Much Decisions
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Sample Questions
Q1) Total costs increase from $1,500 to $1,800 when a firm increases output from 40 to 50 units.Which of the following are true?
A)VC rise by $300
B)VC rise by $1,800
C)VC rise by $1,500
D)VC rise by $0
Answer: A
Q2) Marginal cost
A)Is the incremental cost incurred by producing an additional unit of output.
B)Is the total cost of production.
C)Is the total fixed cost of production.
D)None of the above
Answer: A
Q3) What are the total profits if four units are produced?
A)40.
B)70.
C)-30.
D)20.
Answer: D
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Page 5
Chapter 4: Investment Decisions: Look Ahead and Reason
Back
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Sample Questions
Q1) The break-even quantity is
A)Fixed Costs/Price
B)Fixed Costs/Marginal Cost
C)Fixed Costs/(Price - Marginal Costs)
D)Contribution Margin/Fixed Costs
Q2) Which of the following will decrease the break-even quantity?
A)Falling fixed costs
B)Increasing marginal costs
C)An increase in the price
D)Both A&C
Q3) Break-even quantity is a point where
A)the level of profit is maximized
B)the level of cost is minimized
C)Only variable costs are covered
D)There are zero profits
Q4) In order to continue operating,in the long-run a firm must
A)Charge a price equal to its AVC
B)Charge a price equal to its AFC
C)Charge a price equal to its AC
D)None of the above
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Chapter 5: Simple Pricing
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Sample Questions
Q1) An rational,optimizing,self interested consumer would consume up to the point where
A)the consumer surplus from the last unit is positive
B)the consumer surplus from the last unit is negative
C)the consumer surplus from the last unit is zero
D)none of the above
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) The demand for insulin is typically_________________ than the demand for a large screen TV.
A)More elastic
B)More inelastic
C)Less elastic
D)Less inelastic
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Chapter 6: Economies of Scale and Scope
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Sample Questions
Q1) It costs firm A $800 to produce five radios and it costs firm B $500 to produce five batteries.If Firm A merges with firm B,it can produce both the five radios and the five batteries for $1000.The firm has experienced
A)Economies of Scale
B)Economies of Scope
C)Diseconomies of Scale
D)Diseconomies of Scope
Q2) The ability to lower the average costs over total production as more products are introduced
A)Economies of scale
B)Economies of Scope
C)Diseconomies of Scale
D)Diseconomies of Scope
Q3) The term "bottleneck" refers to
A)when increasing amounts of variable inputs must share a fixed input.
B)"fixity" of some factor of production
C)None of the above
D)Both a and b
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Chapter 7: Understanding Markets and Industry Changes
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Sample Questions
Q1) Peter's Pizzeria sells both pizzas and wings.It wants to increase the sales of its pizzas.Assuming that the pizza and the wings are complements,which of these strategies can it employ?
A)Increase the price of the wings
B)Decrease the price of the wings
C)Increase the quality of the pizza
D)Both B & C
Q2) The change in any factor other than ________ would shift the demand curve
A)Weather
B)interest rate
C)Price
D)all of the above
Q3) How does an increase in income affect the market for bus rides (inferior good)?
A)The demand curve for bus rides to shift to the right
B)The demand curve for bus rides to shift to the left
C)The supply curve for bus rides to shift to the right
D)The supply curve for bus rides to shift to the left
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Chapter 8: Market Structure and Long Run Equilibrium
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Sample Questions
Q1) The main reason(s)firms in a competitive market cannot earn positive profits in the long run is(are)
A)assets can quickly move in and out of the industry when demand fluctuates
B)an increase in demand leads to entry of firms which absorb the extra demand
C)a decrease in demand leads to exit of firms from the market such that there is no surplus
D)all of the above
Q2) 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
Q3) A perfectly competitive firm has
A)A perfectly elastic demand for its products
B)A perfectly inelastic demand for its products
C)A downward sloping demand for its products
D)None of the above
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Page 10
Chapter 9: Strategy: the Quest to Keep Profit From Eroding
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Sample Questions
Q1) Typical structure characteristics of interest to Industrial Organization researchers include
A)Barriers to entry
B)Product differentiation among firms
C)The number and size distribution of firms
D)All of the above
Q2) Firms maintain their completive edge by
A)Providing a good at lower costs than their rivals
B)Providing a superior product at the same cost as your rival
C)Being innovative
D)All the above
Q3) Supplier power tends to be low when
A)Suppliers are less concentrated
B)Inputs provided by the supplier are not vital
C)Inputs are homogenous
D)All 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) In the market for Canadian dollars measured in US dollars,the demand for US dollars is
A)The supply of Canadian dollars
B)The demand for Canadian Dollars
C)The supply of US dollars
D)None of the above
Q3) In the case where interest rates are lower in Japan,which of the following is an example of a "carry trade"
A)Increase borrowing in the US,convert to Yuan and invest in financial assets in Japan
B)Increase borrowing in Japan and invest in Japan
C)Increase borrowing in Japan,convert to Dollars and invest in the US
D)Increase borrowing in the US and invest in the US
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12
Chapter 11: More Realistic and Complex Pricing
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Sample Questions
Q1) You own two different energy drink brands: "Blue Cow" and "600 minute energy." If you reduce the price on "Blue Cow",
A)Sales of "Blue Cow" would increase,without any changes in sales for "600 minute energy."
B)Sales of both "Blue Cow" and "600 minute energy." would increase
C)Sales of "Blue Cow" would increase,but the sales of "600 minute energy" would be cannibalized
D)Neither "Blue Cow" nor "600 minute energy" would see an increase in sales.
Q2) A football stadium has a fixed number of seats.Given this,how should stadium management determine ticket prices?
A)When MR<MC,do not price to fill capacity
B)When MR<MC,price to fill capacity
C)When MR>MC,price to fill capacity
D)Both A&C
Q3) Advertising claiming superior quality of a product makes its demand
A)More elastic
B)Less elastic
C)Perfectly elastic
D)None of the above
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Page 13
Chapter 12: Direct Price Discrimination
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Sample Questions
Q1) It is illegal for a business to price discriminate when selling goods to other businesses unless
Both A & B are true
A)Price discounts are cost-justified
B)Discounts are offered to meet competitors' price
C)Either A or B is true
Q2) 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?
Q3) An important lesson about pricing is
A)Do not bargain with the customer
B)When bargaining with the customer,do not bargain over the bundled price,bargain over unit price
C)When bargaining with the customer,do not bargain over the unit price,bargain over the bundled price
D)Bargain with the customer over everything
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Chapter 13: Strategic Games
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Sample Questions
Q1) If the game continues for infinity,then the new Nash Equilibrium is
A)for one firm to charge a HP forever.
B)for your firm charge a LP when the other firm does.
C)for each firm to charge HP so long as the rival does,otherwise charge a LP.
D)for each firm to charge LP until the rival does,and then to charge a HP forever.
Q2) What would be the profits for Irene's Dairy in equilibrium?
A)5 million loss
B)5 million
C)10 million
D)20 million
Q3) If Sarah decides to hit Tom,what would Tom's best response be
A)Tell
B)Not tell
C)Run
D)Hide
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Chapter 14: Bargaining
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Sample Questions
Q1) In the non-strategic sequential labor negotiation game:
A)The ability to commit to a strategy gives you an advantage
B)The ability to commit to a strategy gives your opponent an advantage
C)The ability to commit to a strategy is irrelevant
D)Players should simply not commit to a strategy to obtain an advantage
Q2) Which of the following will improve your bargaining position with customers
A)The product your team produces has become more costly to produce
B)New firms have entered the market with competing products for the ones your team produces
C)Your competitors have developed new products that contain more of the features that your team produces
D)There are fewer close substitutes for the product your team supports
Q3) Under the non-strategic view of bargaining,the terms of agreement are determined by
A)The rules of the game
B)The alternatives to agreement
C)The precise form of negotiations
D)All of the above
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16
Chapter 15: Making Decisions With Uncertainty
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Sample Questions
Q1) If the simplified version costs $2 million and its probability of success is 75%,whereas the cost of the complicated version is $10million,what is the minimum probability of success for the complicated version that would make the firm indifferent between the two software?
A)0.3
B)0.31
C)0.32
D)0.33
Q2) If the firm learns that the complicated technology can be made more stable with a few tweaks increasing the cost by 5.5million and increasing the probability of a launch to 50%.Is it worth for the firm to invest the $500,000 in tweaks?
A)No,because it decreases the total expected value
B)Yes,because it increases expected value
C)No,because it increases risk
D)Yes,because tweaking is good
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Chapter 16: Auctions
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Sample Questions
Q1) The optimal strategy in a Vickery auction is to
A)Bid aggressively
B)Bid above your value since you would be paying the second highest price
C)Bid exactly your value
D)Bid below your value
Q2) 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 all of them are high-value bidders,what would the winning bid be?
A)Just above $100
B)$100
C)Just above $70
D)$70
Q3) In a sealed-bid first price auction,if you notice that your competition is stronger,you should
A)Shade your bid more
B)Shade your bid less
C)Bid more aggressively
D)Both B&C
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Page 18
Chapter 17: The Problem of Adverse Selection
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Q1) The following is an example of adverse selection
A)A majority of those applying for well paid jobs are well qualified
B)More reckless drivers opt for cars with more safety devices
C)Individuals living in less secure neighborhoods want to buy less insurance
D)Individuals with a strong family history of heart diseases opt to buy less insurance
Q2) If you buy an insurance policy with a high deductible and co-payments,you would end up paying
A)A higher premium
B)A lower premium
C)The premium of a low risk individual
D)Both B&C
Q3) Screening is
A)actions by the informed party to reveal her true risks
B)actions by the informed party to conceal her true risks
C)actions by the uninformed party to uncover the true risks
D)actions by the uninformed party to conceal the true risks
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Chapter 18: The Problem of Moral Hazard
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Sample Questions
Q1) Economists discourage homeowner bailouts because
A)They encourage irresponsible borrowings
B)It increases moral hazard among borrowers
C)It punishes responsible borrowers
D)All of the above
Q2) Economists disagree with constant government bailouts of large,struggling companies because it can give a rise to
A)Moral hazard
B)Adverse selection
C)Lazy managers
D)None of the above
Q3) Which of the following problems are created by an information asymmetry
A)Moral hazard
B)Adverse selection
C)Both of the above
D)None of the above
Q4) Rental Car Maintenance
Why do rental cars require more maintenance in their first 50,000 miles than comparable cars driven by private owners?
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Chapter 19: Getting Employees to Work in the Firms Best Interest
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Sample Questions
Q1) When decision rights are decentralized,typically
A)decisions are being moved to those with less of the relevant information
B)decisions are being moved to those with stronger incentives to make good decisions
C)decisions are being moved to those with more of the relevant information
D)decisions are being moved from those with weaker incentives to make good decisions
Q2) In a situation where a car salesman is selling cars on behalf of the dealer,the dealer is the
A)Principal
B)Agent
C)Both of the above
D)None of the above
Q3) If a car salesman is paid a fixed commission when he sells a car,the owner is most likely to see
A)Large margins on sales
B)Low margins on sales
C)No sales
D)None of the above
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Page 21
Chapter 20: Getting Divisions to Work in the Firms Best
Interest
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Sample Questions
Q1) Cost centers are
A)Evaluated on the profits they earn
B)Not evaluated on the profits they earn
C)Sometimes evaluated on the profits they earn and sometimes not
D)None of the above
Q2) Managers of profit centers usually have
A)A lot of discretion over decisions
B)Most of their decisions overseen by corporate executives
C)No discretion over decisions
D)Given excessively high bonuses
Q3) In a firm organized along functional lines,employee performance
A)Is easily evaluated because supervisor and employee have similar skills
B)Is more difficult to evaluate because the supervisor and the employee could have different skills
C)Does not need to be evaluated
D)None of the above
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Chapter 21: Managing Vertical Relationships
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Sample Questions
Q1) Vertical contracts between manufacturers and retailers often aim to
A)Prevent the retailers from defeating upstream price discrimination through arbitrage
B)Reward the retailer for undertaking the risk inherent in introducing a new product
C)Serve as a "signal" of the manufacturer's belief of the likely success of his product
D)All of the above
Q2) 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
Q3) Antitrust risks from vertical integration are usually ______than those from horizontal integration
A)Higher
B)Lower
C)About the same as
D)None of the above
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