Economics for Management
Mock Exam
Course Introduction
Economics for Management explores the fundamental principles of microeconomics and macroeconomics as they pertain to managerial decision-making within organizations. The course examines how market forces, pricing strategies, cost analysis, and consumer behavior influence business operations and competitiveness. Students learn to apply economic reasoning and quantitative tools to solve practical business problems, forecast market trends, evaluate the impact of government policies, and make informed strategic choices. Emphasis is placed on case studies and real-world scenarios to link economic concepts with day-to-day management challenges.
Recommended Textbook Microeconomics Theory and Applications 12th Edition by Edgar K. Browning
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Page 2
Chapter 1: An Introduction to Microeconomics
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Sample Questions
Q1) Economic theory:
A)can determine which public policy is the most desirable.
B)tries to account for all possible influences.
C)is a tool for understanding economic relationships.
D)uses no assumptions in deriving results.
Answer: C
Q2) Value judgments:
A)always produce predictable results.
B)are subjective opinions that cannot be proven correct on the basis of objective facts or evidence.
C)should be the basis for all serious policy discussions.
D)can always be tested and verified using accepted standards of logic and evidence.
Answer: B
Q3) The test of a theory is whether:
A)its assumptions are realistic.
B)it predicts the outcomes well.
C)it explains the observed data perfectly.
D)it incorporates every relevant factor bearing on the analysis.
Answer: B
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Page 3
Chapter 2: Supply and Demand
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Sample Questions
Q1) What will be the shape of the supply curve and the elasticity of supply of a good,if the average cost of production increases with an increase in output? If after a point in time,the per-unit cost of production becomes constant how will the shape of the supply curve and the elasticity change?
Answer: The supply curve will be upward sloping and the elasticity of supply will be positive under increasing per unit cost of production.When the per-unit cost of production becomes constant,the supply curve will become horizontal and the quantity supplied will become infinitely price elastic.
Q2) The price elasticity of demand for a good is equal to:
A)the percentage change in quantity demanded divided by the percentage change in price.
B)the percentage change in price divided by the percentage change in quantity demanded.
C)the percentage change in quantity divided by the change in price.
D)the percentage change in price divided by the change in quantity demanded.
Answer: A
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Chapter 3: The Theory of Consumer Choice
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Sample Questions
Q1) Candies are on the vertical axis and pretzels are on the horizontal axis.Both goods command a positive price in the market place.The indifference curves are shaped such that the marginal rate of substitution increases rather than decreases.At equilibrium,the consumer will:
A)consume both pretzels and candy in the ratio of their prices.
B)consume only pretzels or only candy.
C)consume both pretzels and candy in the ratio of their marginal utilities.
D)consume equal amounts of pretzels and candy.
Answer: B
Q2) Suppose you have hamburgers on the horizontal axis and root beer on the vertical axis.If the price of hamburgers increased,how would this be shown using the income constraint?
A)It would shift the constraint outward.
B)It would shift the constraint inward.
C)It would rotate the vertical intercept outward.
D)It would rotate the horizontal intercept inward.
Answer: D
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Chapter 4: Individual and Market Demand
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Sample Questions
Q1) From which of the following can we derive a consumer's demand curve for a commodity?
A)Isoquants
B)Price-consumption curve
C)Production-possibility frontier
D)Contract curve
Q2) The indifference curve approach to measuring consumer surplus will yield the same answer as the approach using areas under the demand curve if:
A)the substitution effect of a price change is zero.
B)the substitution effect of a price change is larger than the income effect.
C)the income effect of a price change is larger than the substitution effect.
D)the income effect of a price change is zero.
Q3) At every point on a demand curve,the height of the demand curve indicates:
A)the total benefit of the good to the consumer.
B)the minimum price the consumer is willing to pay for the good.
C)the consumer's utility level.
D)the marginal rate of substitution.
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Chapter 5: Using Consumer Choice Theory
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Sample Questions
Q1) Consider an individual for whom consumption in two periods is a normal good.Other things remaining the same,if the interest rate increases,then:
A)he is worse off.
B)he is better off.
C)he will spend more in each period.
D)he will choose to save more.
Q2) An individual is considering consumption in two periods.He has decided to borrow $1,000 in period 1,given his endowment and the interest rate.Other things remaining the same,if the interest rate increases,he will:
A)borrow less than $1,000.
B)continue to borrow $1,000.
C)borrow more than $1,000.
D)borrow more or less depending upon whether or not the substitution effect of the change is greater than the income effect.
Q3) Show and explain why substituting an unrestricted cash transfer for an excise subsidy of equal cost to the government must lead to less consumption of the subsidized good and more consumption of other goods.
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Chapter 6: Exchange, Efficiency, and Prices
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Sample Questions
Q1) An endowment refers to _____.
A)a set of property rights
B)a diversified portfolio
C)an initial distribution of goods
D)a set of least-cost production possibilities
Q2) Two goods are allocated inefficiently between consumers when _____.
A)both consumers will lose from any further trades
B)it is impossible to make further trades and increase welfare
C)further trade will make one consumer worse off and not affect the other
D)welfare of both consumer can be increased with further trade
Q3) Given an Edgeworth exchange box showing Homer's and Sandy's endowments of donuts and coffee:
A)for Homer to have more coffee Sandy must have less donuts.
B)if Sandy is on the contract curve Homer must be off the contract curve.
C)Homer and Sandy will be equally well off at any point on the contract curve.
D)for Sandy to have more coffee Homer must have less coffee.
Q4) What did the moral philosopher Adam Smith mean by his invisible hand theorem?
Q5) How are prices of goods that you buy in an auction,at a garage sale,and at a drugstore determined? Is the price discovery process the same in all these markets?
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Chapter 7: Production
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Sample Questions
Q1) Which of the following is a feature of an isoquant?
A)Isoquants are concave to the origin.
B)Isoquants are nonintersecting.
C)Isoquants lying farther to the northeast identify lower levels of output.
D)Producers prefer higher points on an isoquant.
Q2) The fact that a large-scale operation can take advantage of specialization of labor often gives rise to _____.
A)constant marginal rate of substitution
B)diseconomies of scale
C)increasing returns to scale
D)management inefficiencies
Q3) What is meant by technological efficiency in production?
A)Using the latest available technology in production
B)Producing the maximum possible output from given inputs
C)Using the least number of inputs in production
D)Minimizing the cost of production
Q4) Answer the following:
a)What are the characteristics of isoquants?
b)How do they differ from indifference curves?
c)Graphically show that isoquants cannot intersect.
Page 9
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Chapter 8: The Cost of Production
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Sample Questions
Q1) If the marginal product of labor is four times the marginal product of capital and the price of labor is twice the price of capital,then:
A)labor will be substituted for capital by a profit maximizing firm.
B)capital will be substituted for labor by a profit maximizing firm.
C)output cannot be expanded any further by using the same input levels.
D)input usage should be left unchanged.
Q2) If fixed costs are $1,000 and variable costs are constant at $1.00 per unit over the relevant range of output,what will the average total cost be when 2,000 units are produced?
A)$0.50
B)$1.00
C)$1.50
D)$2.00
Q3) Learning by doing is illustrated by:
A)a movement along the average cost curve to a lower cost.
B)a downward shift of the average cost curve.
C)a movement along the average cost curve to a higher cost.
D)an upward shift of the average cost curve.
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Chapter 9: Profit Maximization in Perfectly Competitive Markets
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Sample Questions
Q1) Refer to Figure 9-4.The total variable cost for the firm at output level OB is _____.
A)BT
B)BKPO
C)BK
D)BTVO
Q2) During the 1970s,oil prices reached historical highs,causing many competitive industries to reduce the supply of goods and services.Which of the following is the most likely explanation for this reduction in supply?
A)The total fixed cost of the firms would have increased due to the higher price of oil.
B)The marginal cost curves of the firms most likely shifted upward.
C)The supply curves of firms may have shifted downward.
D)The average total cost of these firms mostly likely shifted downward due to the high inflation.
Q3) Explain the difference between diminishing marginal returns to factor and a decreasing-cost industry.
Q4) Derive the first-order and second-order conditions for perfect competition.
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Chapter 10: Using the Competitive Model
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Sample Questions
Q1) Suppose the demand for ice cream sundaes can be represented by the equation Q<sub>D</sub> = 10 - P,and the supply is given by the equation Q<sub>S</sub> = P.Which of the following is the best estimate of the producer surplus in this market?
A)$5
B)$10
C)$12.5
D)$22.5
Q2) What is meant by consumer surplus?
A)It is the total quantity of a good bought by a consumer divided by the price paid.
B)It is a measure of an individual consumer's utility from the consumption of a good.
C)It is the difference between a consumer's maximum willingness to pay and the price.
D)It is a measure of the total benefit to consumers from the purchase of a good.
Q3) What would be the welfare effect of a per-unit tax in the following markets?
a)The market for cigarettes
b)The market for cashmere scarves
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Chapter 11: Monopoly
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Sample Questions
Q1) Acme Baseball Bats is a monopoly firm.If the marginal cost of producing a baseball bat is $30,and the absolute value of price elasticity of demand for Acme Baseball Bat Company is estimated to be 4,at what price should Acme set its price if it wants to maximize profits?
A)$30
B)$40
C)$50
D)$60
Q2) Which of the following is true of a monopolist?
A)A monopolist takes the price of the product as given and produces as much output as possible.
B)A monopolist can price the product at any price,regardless of demand.
C)A monopolist can choose to produce at any price along the market demand curve.
D)A monopolist prices products at the highest point on the demand curve.
Q3) Refer to Figure 11-5.A fall in price will increase total revenue _____.
A)between the points C and F
B)between the points E and A
C)between the points A and F
D)at point G
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Page 13
Chapter 12: Product Pricing With Monopoly Power
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Sample Questions
Q1) Why is popcorn so expensive at the movies? Make a case for each of the followingthat the high price of popcorn is price discrimination and that it is not price discrimination.Identify all the factors that are or are not present,enabling price discrimination by the theatre owner.
Q2) With a two-part tariff,consumers pay:
A)a constant "average" price per unit of output.
B)higher prices for purchasing greater quantities of output.
C)an "average" price per unit of output that declines with the quantity purchased.
D)a flat fee followed by an increasing per unit price.
Q3) Which of the following is true of arbitrage?
A)It is the revenue from the sale of a used product.
B)It is the resale of a product among market segments.
C)It is the profit from initial sales of a product.
D)It is the ability of a firm to discriminate prices among customers.
Q4) Which of the following best describes a two-part tariff?
A)A discount provided to frequent shoppers
B)A price that varies with the quantity of output consumed
C)A price that varies with each individual consumer's ability to pay
D)An entry fee followed by a constant per-unit price
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Chapter 13: Monopolistic Competition and Oligopoly
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Sample Questions
Q1) Given the same demand and cost conditions,_____ for a Stackelberg model as compared to a Cournot duopoly model.
A)total output is lower and price is higher
B)total output is higher and price is lower
C)total output and price are both lower
D)total output and price are both higher
Q2) The output of a monopolistically competitive industry is inefficient because firms:
A)produce at the highest point on the average cost curve.
B)do not produce at the minimum point on their average cost curve.
C)produce at the highest point on the marginal cost curve.
D)do not produce at the minimum point on the marginal cost curve.
Q3) When a firm in a monopolistically competitive market is operating at excess capacity it implies that:
A)it is producing the efficient level of output.
B)it is producing more than the competitive level of output
C)it can produce output at a lower cost
D)it is facing an upward-sloping average cost curve
Q4) What is a cartel and why are cartels considered to be inherently unstable?
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Page 15
Chapter 14: Game Theory and the Economics of Information
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Sample Questions
Q1) If a firm is better off with a particular strategy regardless of what the other firm does,then it is called the firm's:
A)dominated strategy.
B)dominant strategy.
C)weakly dominated strategy.
D)winning strategy.
Q2) Assume that two firms are engaged in a pricing rivalry and attempt collusion.If each firm knows that the pricing game will last for a finite number of periods,and the collusion contract is not enforceable,then they will have an incentive to:
A)cheat in every period.
B)cheat in alternate periods.
C)cheat in every period but the first.
D)cheat in every period but the last.
Q3) In Table 14-5,what values will not make this payoff matrix a prisoner's dilemma?
A)X = 7 years,Y = 7 years
B)X = 6 years,Y = 6 years
C)X = 5 years,Y = 5 years
D)X = 1 years,Y = 1 years
Q4) Compare the benefits and the costs of advertising.
Page 16
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Chapter 15: Using Noncompetitive Market Models
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Sample Questions
Q1) In Figure 15-3,if the maximum price allowed in the market is P<sub>1</sub>,output levels below Q<sub>1</sub> will:
A)yield more economic profit than at Q<sub>1</sub>.
B)yield positive but lesser economic profit than at Q<sub>1</sub>.
C)yield negative economic profit.
D)yield zero economic profit.
Q2) Deadweight losses due to monopoly include:
A)the transfer of producer surplus to consumers.
B)costs of acquiring and maintaining the monopoly position.
C)the redistribution of income in favor of consumers.
D)the excess of actual output over competitive output.
Q3) Refer to Table 15-3.When Costello chooses the low-pricing strategy,Abbott's highest possible profit is:
A)$50
B)$21
C)$107
D)$115
Q4) What is a natural monopoly? Draw a diagram to illustrate the profit-maximizing output of a natural monopoly.
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Chapter 16: Employment and Pricing of Inputs
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Q1) Consider a firm's isocost line where labor is measured on the horizontal axis and capital on the vertical axis.If everything else is unchanged,an increase in the price of capital would:
A)decrease the horizontal intercept of the isocost line.
B)shift the isocost line outward away from the origin.
C)shift the isocost line inward toward the origin.
D)decrease the vertical intercept of the isocost line.
Q2) The input demand curve is likely to be relatively more elastic when:
A)the demand for the final product is relatively elastic.
B)it is difficult to substitute the input for another input in production.
C)the supply of other inputs is relatively inelastic.
D)demand for the input is measured over a short time period.
Q3) Which of the following conditions would be associated with a more elastic input demand curve?
A)A less elastic demand for the final product
B)A higher ease of input substitution in the production process
C)A less elastic supply curve for other inputs
D)A shorter time period
Q4) Define monopsony in an input market and graphically illustrate equilibrium employment and wages under a monopsony.
Page 18
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Chapter 17: Wages, Rent, Interest, and Profit
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Q1) In equilibrium,interest rates on different assets will differ for all of the following reasons,except for differences in _____.
A)the risks associated with the asset
B)the asset prices
C)the duration of the loan
D)the tax treatment of the investment
Q2) What is meant by the gross marginal productivity of an investment?
A)It is the total addition to productivity contributed by capital investment.
B)It is the addition to total revenue from the sale of an extra unit of output.
C)It is the increase in production by proportionately increasing all inputs.
D)It is the increase in the average product from an extra unit of capital investment.
Q3) Real wages are higher in the United States than in less developed countries for all of the
Following reasons,except:
A)the large size of the labor force.
B)the skills of the labor force.
C)the amount of capital available per worker.
D)the output produced per worker.
Q4) How can the presence of a union in a labor market be beneficial?
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Chapter 18: Using Input Market Analysis
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Q1) According to Figure 18-2,the proportion of the per-unit tax paid by the employers is:
A)OA/OB.
B)AB/AC.
C)BC/AC.
D)BC/AB.
Q2) Which of the following is not likely to contribute to wage disparity between men and women?
A)Differences in employment experience
B)Primary care responsibilities for family
C)An increase in technology related employment
D)Differences in the average number of hours worked per week
Q3) Refer to Figure 18-1.Which of the following distances represents the disemployment effect of the minimum wage?
A)L<sub>1</sub>L<sub>3</sub>
B)L<sub>2</sub>L<sub>3</sub>
C)L<sub>2</sub> L<sub>1</sub>
D)OL<sub>2</sub>
Q4) Explain how you would investigate whether wage differences are due to discrimination.
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Chapter 19: General Equilibrium Analysis and Economic Efficiency
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Q1) In the absence of trade between a small country and the rest of the world,product X costs 1/3 as much per-unit as does product Y in the small country.However,in the world market X and Y trade at equal prices.If trade were now made possible between the small country and the rest of the world:
A)the small country would adjust by importing X.
B)the small country would adjust by exporting X.
C)the small country would end up importing both Y and X from the rest of the world.
D)the rest of the world would not find it advantageous to trade with the small country.
Q2) Perfect competition in product and factor markets results in:
A)maximum utility from the consumption of goods for all consumers.
B)efficient production,distribution,and output level.
C)efficient decision-making by policymakers.
D)minimal voluntary exchange.
Q3) In Figure 19-1,a movement from A to B would represent:
A)a movement from an efficient allocation of resources to an inefficient one.
B)an improvement of Monica's welfare.
C)a movement from an efficient to an inefficient resource allocation.
D)an improvement in Hank's well-being.
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Chapter 20: Public Goods and Externalities
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Q1) Taxes imposed on polluting firms,for internalizing the externalities created by them,may not always lead to an efficient solution because:
A)the taxes lowers the firms' incentives to reduce pollution
B)it is difficult to determine the appropriate level of the tax that will result in an efficient output.
C)firms that cannot earn positive economic profits after the tax is imposed will go out of business.
D)the tax imposed by the government results in an increase in the average price level.
Q2) The efficient output of a public good is determined at the point where:
A)the average revenue curve intersects the marginal cost curve.
B)the total benefit curve is at its maximum.
C)the social marginal benefit curve intersects the marginal cost curve.
D)the social total cost curve intersects the social benefit curve.
Q3) Explain with the help of a suitable figure,why the government needs to subsidize inoculation against a viral infection.
Q4) Explain with the help of a suitable real life example how common resources are depleted if property rights are not ensured?
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