Economic Analysis for Managers
Exam Bank
Course Introduction
Economic Analysis for Managers equips students with essential economic concepts and analytical tools to inform and improve managerial decision-making. The course covers both microeconomic and macroeconomic principles, emphasizing how market structures, consumer behavior, and competitive dynamics affect business strategies and outcomes. Students will learn to apply economic models to real-world scenarios, analyze demand and supply, evaluate pricing strategies, and assess the impact of government policies on business operations. Through case studies and practical examples, the course fosters a deeper understanding of how economic forces shape organizational performance and guide effective resource allocation.
Recommended Textbook
Managerial Economics 5th Edition by Luke
M. Froeb
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21 Chapters
1734 Verified Questions
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Chapter 1: The One Lessor of Business
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Sample Questions
Q1) A retailer X that is operating at a loss gets bought out by a larger chain of department stores,which shuts down the brand,using its assets for their own brand,
A)Wealth is destroyed since the company shut down
B)Wealth is created since the resources were of lesser value under the X brand and are now worth more
C)Wealth is neither created nor destroyed since the total amount of resources stay the same
D)None of the above
Answer: B
Q2) 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
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Chapter 2: Benefits, Costs, and Decisions
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Sample Questions
Q1) For a trucking company,all of the following are examples of fixed costs,except
A)Tax accountant fees
B)Package designing fees
C)Insurance
D)Gasoline costs
Answer: D
Q2) If a firm is earning negative accounting profits,it implies
A)That the firm's economic profits are necessarily zero
B)That the firm's economic profits are necessarily positive
C)That the firm's economic profits are necessarily negative
D)Accounting profits alone cannot determine economic profits
Answer: D
Q3) The hidden-cost fallacy occurs when
A)A firm considers irrelevant costs
B)A firm ignores relevant costs
C)A firm considers overhead or depreciation costs to make short-run decisions
D)Both a and c
Answer: B
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4
Chapter 3: Extent How Much Decisions
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Sample Questions
Q1) Total cost divided by the number of units produced is called:
A)marginal cost
B)average cost
C)total cost
D)variable cost
Answer: B
Q2) What is the average cost per unit for producing 3 units?
A)200.
B)260.
C)70.
D)110.
Answer: B
Q3) 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
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Page 5
Chapter 4: Investment Decisions: Look Ahead and Reason
Back
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Sample Questions
Q1) Bidding on a Missile Program
Merowak Missiles is proposing to develop its next generation Democratizer Offensive Weapon System II (DOWS II)for the US military.It expects to have to sink $1 billion into R&D and design,spend $0.5 billion building the tools and production facility that are unique to DOWS II production.It houses these in standard factory floor space that costs $1 million.Each missile has a marginal cost of $2,000.The Pentagon is considering ordering 1 million of these missiles.Merowak fears that the Pentagon will ask for a lower price after only half the missiles are produced.How could it keep itself from being victim of holdup?
Q2) In the short-run,a firm's decision to shut-down should not take into consideration
A)Avoidable costs
B)Variable costs
C)Fixed costs
D)Marginal costs
Q3) A firm will shut down in the short-run if
A)P>AVC
B)P<AVC
C)Profits<0
D)P<ATC
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Chapter 5: Simple Pricing
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Sample Questions
Q1) 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
Q2) If the current margin is greater than the desired margin,the firm should
A)Increase production
B)Decrease production
C)Not change production level
D)Production ceases
Q3) Since demand is more inelastic for products that represent a smaller share of your income,which one of the following is true?
A)the demand for shoe laces is more elastic than the demand for shoes
B)The demand for oil changes is more inelastic than the demand for cars
C)the demand for ear buds is more elastic than the demand for ipods
D)the demand for Salt has a more elastic than the demand than meat
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Chapter 6: Economies of Scale and Scope
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Sample Questions
Q1) Learning curves mean
A)you learn from experience
B)current production decreases future unit costs
C)production today leads to lower costs in the future
D)All of the above
Q2) What are economies of scope?
A)lower average costs when multiple different products are produced
B)higher average costs when multiple different products are produced
C)Constant average costs when multiple different products are produced
D)none of the above
Q3) A food company trying to increase its profits by expanding in to the soft drinks business is an example of
A)Economies of scale
B)Economies of Scope
C)Diseconomies of Scale
D)Diseconomies of Scope
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Chapter 7: Understanding Markets and Industry Changes
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Q1) 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.If the equilibrium price in the market is $2500,how many cars would be sold?
A)1
B)2
C)3
D)4
Q2) 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
Q3) The law of supply states that,holding other factors constant,as price increases
A)Quantity supplied increases
B)Quantity supplied decreases
C)Quantity demanded increases
D)Quantity demanded decreases
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Page 9
Chapter 8: Market Structure and Long Run Equilibrium
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Sample Questions
Q1) 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
Q2) In a competitive industry
A)firms sell more if price is above marginal cost
B)firms sell more is price is below marginal cost
C)firms sell less if price is above marginal cost
D)none of the above
Q3) In a competitive industry,the competitive firm's profits are
A)independent of the industry in which they compete
B)closely linked to the industry in which they compete
C)determined only by their own differentiated product
D)determined solely by the inelastic demand for their product
Q4) A sudden fall in the market demand in a competitive industry leads to
A)A short run market equilibrium price higher than the original equilibrium
B)A market equilibrium price lower than the short run price
C)Some firms exiting the market
D)All of the above
Page 10
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Chapter 9: Strategy: the Quest to Keep Profit From Eroding
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Sample Questions
Q1) In the IO perspective it is important to enter an industry with A)Low supplier power
B)Low threat from substitutes
C)Low levels of rivalry between firms
D)All of the above
Q2) The RBV perspective is based on
A)Resource mobility
B)Resource immobility
C)Resource heterogeneity
D)Only A&C
Q3) Supplier power tends to be higher when
A)Suppliers are concentrated
B)There are high costs to switching between suppliers
C)Both A&B
D)None of the above
Q4) In the IO perspective,it is important to enter an industry with A)High barriers to entry
B)High buyer power
C)High supplier power
D)All of the above
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Chapter 10: Foreign Exchange, Trade, and Bubbles
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Sample Questions
Q1) If the price of a Canadian dollar went from 0.95 US dollars to 0.98 US dollars,we would say that the US dollar has
A)Appreciated
B)Depreciated
C)Not changed in value
D)None of the above
Q2) In the market for Canadian dollars measured in US dollars,the supply of Canadian dollars is
A)The demand for Canadian dollars
B)The demand for US Dollars
C)The supply of US dollars
D)None of the above
Q3) A weaker peso,relative to the US dollar,causes the demand for US imports from Mexico to _____ and the demand for US exports to Mexico to_______
A)Increase;Decrease
B)Decrease;Increase
C)Increase;Increase
D)Decrease;Decrease
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Chapter 11: More Realistic and Complex Pricing
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Sample Questions
Q1) The pricing rule MR=MC holds for
A)All firms
B)Single product firms
C)Multiple product firms
D)None of the above
Q2) After firm A acquired firm B,it raised the prices for the goods produced by both firms.This can increase profits if those goods are
A)Substitutes
B)Complements
C)Not related
D)None of the above
Q3) A Swiss watch company advertises its history of superior craftsmanship.The company thinks that this would
A)Make the demand for the product less elastic
B)Make the customers less sensitive to the price
C)Assist them with differentiating their product
D)All of the above
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Chapter 12: Direct Price Discrimination
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Sample Questions
Q1) When a grocery store offers discount coupons in Sunday papers,it is trying to
A)Price discriminate
B)Undercut its competition
C)Reward the frequent readers
D)Provide a social service
Q2) For direct price discrimination to work
A)The firm must be able to identify the members of the low value group
B)The firm must charge a single price to all its customers
C)The firm need not worry about any arbitrage since all its customers are charged the same price
D)The firm should charge a higher price to those customers with the most elastic demand
Q3) Which of the following is an example of price discrimination?
A)Seniors paying a lower price for tickets at movie theatres
B)Students paying discounted rates on travel
C)Tourists paying higher prices on local attractions than locals
D)All of the above
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Chapter 13: Strategic Games
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Q1) Which one of the following is a way to get out of a repeated Prisoner's Dilemma Nash Equilibrium?
A)Do not be provoked
B)Do not be easily provoked
C)Be easily provoked
D)All of the above
Q2) If Tattling Tina tattles,what would Bratty Brenda's best response be
A)Hit
B)Not hit
C)Run
D)Hide
Q3) What is the Nash equilibrium of the game?
A)Low,Low
B)Low,High
C)High,Low
D)High,High
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Chapter 14: Bargaining
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Sample Questions
Q1) Jill,a bookkeeper just received an attractive offer from an outside firm.Her opportunity cost,of staying in her current position has
A)Increased
B)Decreased
C)Not changed
D)All of the above
Q2) 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.During the negotiations,a second customer walks in and is interested in that particular car.At this point
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)This should not impact Jim's chances of having his offer accepted
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Chapter 15: Making Decisions With Uncertainty
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Sample Questions
Q1) Expected values are
A)Values that you expect from an individual
B)Mean values
C)Weighted average outcomes
D)Both B&C
Q2) Wellness Experiment
Old Republic Title Insurance Company noticed that its sedentary clerical workers were gaining weight,developing diabetes,and potentially leading to increases in their health insurance costs.It developed a wellness program in which participating employees could consult with trainers,nutritionists and dieticians about healthier lifestyle choices with the goal of increasing the number of employees with a Body Mass Index (BMI)of 30 or lower within a year.In addition,in some locations,it also provided $1,000 bonuses to test role of financial incentives.In the locations without the incentive,at the average location,52.4% of the participating employees met the goal before the plan and 56.2% after.In the locations with the incentive plan,57.1% met the goal before and 62.7% met it afterward.What is the diff-in-diff estimate of the effect of the financial incentives?
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Chapter 16: Auctions
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Q1) Economists love auctions because
A)They maximize consumer surplus
B)They create efficiency by allotting the item to the highest-value bidder
C)They create efficiency by allotting the item to the lowest value bidder
D)All of the above
Q2) Bid-rigging is less likely in
A)oral auctions
B)English auctions
C)first-price sealed-bid auctions
D)all are equally likely
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 receives $70 from the auction,she can infer that
A)Both the bidders were high value bidders
B)Both the bidders were low value bidders
C)One of the bidders was high value,while the other was low value
D)All of the above
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Chapter 17: The Problem of Adverse Selection
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Q1) 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.What is her expected wealth?
A)80,000
B)$87,000
C)$97,000
D)$99,000
Q2) Which of the following is NOT a way to signal high quality
A)wearing a business suit on a job interview
B)leaving a big tip for the waiter after a dinner date
C)offering a cheap engagement ring to your bride
D)Visiting the beauty salon before a big date
Q3) The reason some insurance customers are more eager to purchase insurance is
A)they are more risk averse
B)they are less risk averse
C)they have a greater risk of making a claim
D)Both A&C
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Chapter 18: The Problem of Moral Hazard
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Q1) For a mortgage lender that makes mortgage loans to borrowers,which one of the following would be an example of moral hazard?
A)After the loan has been made,individuals become careless with their finances
B)Individuals most likely to default are the ones most likely to apply for the loan
C)Lenders performing a credit check on all potential borrowers
D)None of the above
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) A firm that screens candidates to determine how well they would work with limited supervision is afraid of facing
A)Adverse selection
B)Moral hazard
C)Forced bankruptcy
D)None of the above
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Chapter 19: Getting Employees to Work in the Firms Best
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Q1) An industrious franchisee will
A)Always be outbid by lazy ones for the right to run a franchised restaurant
B)Always outbid the lazy ones for the right to run a franchised restaurant
C)Never outbid the lazy ones for the right to run a franchised restaurant
D)None of the above
Q2) A payday loan company has decided to open several new locations in the city.To decide where to open these locations it hires consultants and must decide how to pay them.To align incentives,it should to pay the consultants
A)Per store opened
B)A percentage of the profit earned per new store
C)A fixed contract amount
D)All of the above
Q3) Sharing contracts in franchising the marginal benefit of the effort
A)Increases
B)Decreases
C)Do not change
D)Eliminates
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Page 21
Chapter 20: Getting Divisions to Work in the Firms Best Interest
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Q1) Managers of profit centers are usually given a lot of discretion because
A)They always do an excellent job
B)They rarely do a good job
C)The company can never judge their performance
D)It is relatively easy to tie management pay to division performance
Q2) A cost center is
A)evaluated based on minimizing costs within the division
B)evaluated based on maximizing costs within the division
C)evaluated based on minimizing profits generated by the division
D)evaluated based on maximizing profits generated by the division
Q3) In profit centers
A)Managers are difficult to evaluate because there is no simple metric of how well they performed
B)Managers typically do not have the information to run their division efficiently
C)Managers' decisions rarely affect other divisions
D)Managers typically are incentivized to run their division efficiently
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22
Chapter 21: Managing Vertical Relationships
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Sample Questions
Q1) Double markup problems arise when
A)upstream firms have no market power
B)downstream firms have no market power
C)upstream and downstream products are unrelated in demand
D)upstream and downstream firm's pricing decisions tend to decrease the demand for the other product
Q2) Vertical integration often aims to
A)Prevent the retailers from defeating upstream price discrimination through arbitrage
B)Avoid paying higher taxes
C)Serve as a "signal" of the manufacturer's belief of the likely success of his product
D)All of the above
Q3) Vertical contracts between manufacturers and retailers often aim to
A)Prevent the manufacturers from upstream price discrimination
B)Reward the manufacturer 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
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