Economics for Managers Practice Questions
Course Introduction
Economics for Managers provides a thorough introduction to fundamental economic concepts and analytical tools essential for effective decision-making in business environments. The course explores microeconomic principles such as demand and supply analysis, market structures, pricing strategies, and cost behavior, alongside key macroeconomic factors like inflation, unemployment, and fiscal policy. Through real-world case studies and practical applications, students learn how economic forces shape organizational strategy, competitiveness, and market outcomes, empowering them to make informed managerial decisions in dynamic economic contexts.
Recommended Textbook
Managerial Economics and Business Strategy 9th Edition by Michael Baye
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14 Chapters
2024 Verified Questions
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Page 2
Chapter 1: The Fundamentals of Managerial Economics
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Sample Questions
Q1) If the interest rate is 7 percent,$500 received at the end of nine years is worth how much today?
A) 500/(0.07)<sup>9</sup>
B) 500/(1 + .07)<sup>9</sup>
C) 500/(1 + 7)<sup>9</sup>
D) 500
Answer: B
Q2) Suppose the growth rate of the firm's profit is 4 percent,the interest rate is 5 percent,and the current profits of the firm are $75 million.What is the value of the firm?
A) $2,111.5 million
B) $7,766.6 million
C) $10,600 million
D) None of the statements associated with this question are correct. Answer: D
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3
Chapter 2: Market Forces: Demand and Supply
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Sample Questions
Q1) Suppose market demand and supply are given by Q<sup>d</sup> = 100 2P and Q<sup>s</sup> = 5 + 3P.If a price floor of $30 is set,what will be size of the resulting surplus?
A) 0
B) 45
C) 30
D) 55
Answer: D
Q2) Good X is a normal good,and its demand is given by Q<sub>x</sub><sup>d</sup> = F1F1F1S1 F1F1F10<sub>0</sub> + F1F1F1S1 F1F1F10<sub>X</sub>P<sub>X</sub> + F1F1F1S1 F1F1F10<sub>Y</sub>P<sub>Y</sub> + F1F1F1S1 F1F1F10<sub>M</sub>M + F1F1F1S1 F1F1F10<sub>H</sub>H.Then we know that:
A) F1F1F1S1 F1F1F10<sub>H</sub> > 0.
B) F1F1F1S1 F1F1F10<sub>X</sub> > 0.
C) F1F1F1S1 F1F1F10<sub>Y</sub> > 0.
D) F1F1F1S1 F1F1F10<sub>M</sub> > 0.
Answer: D
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Page 4
Chapter 3: Quantitative Demand Analysis
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Sample Questions
Q1) The own price elasticity of demand for apples is 1.2.If the price of apples falls by 5 percent,what will happen to the quantity of apples demanded?
A) It will increase 5 percent.
B) It will fall 4.3 percent.
C) It will increase 4.2 percent.
D) It will increase 6 percent.
Answer: D
Q2) When a demand curve is linear:
A) demand is elastic at low prices.
B) demand is inelastic at low prices.
C) demand is unitary elastic at low prices.
D) the elasticity is constant at all prices.
Answer: B
Q3) A price elasticity of infinity corresponds to a demand curve that is: A) horizontal.
B) downward sloping with a slope always equal to 1. C) vertical.
D) either vertical or horizontal.
Answer: A
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Page 5
Chapter 4: The Theory of Individual Behavior
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Sample Questions
Q1) When the price of one good increases,the associated income effect is represented by a move from one indifference curve to a:
A) lower indifference curve since real income is now higher.
B) lower indifference curve since real income is now lower.
C) higher indifference curve since real income is now higher.
D) higher indifference curve since real income is now lower.
Q2) If widgets and gidgets are complements and both are normal goods,then an increase in the demand for widgets will result from:
A) an increase in the price of widgets.
B) a decrease in income.
C) a decrease in the price of gidgets.
D) an increase in the price of widgets and a decrease in income.
Q3) If income decreases,then:
A) the budget line remains the same.
B) the vertical intercept of the budget line shifts downward.
C) the horizontal intercept of the budget line shifts upward.
D) the slope of the budget line becomes steeper.
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Chapter 5: The Production Process and Costs
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Sample Questions
Q1) The difference between average total costs and average variable costs is:
A) marginal cost.
B) average fixed cost.
C) fixed cost.
D) None of the preceding statements is correct.
Q2) For the cost function C(Q)= 100 + 4Q + 19Q<sup>2</sup> + 2Q<sup>3</sup>,what is the marginal cost of producing the fourth unit of output?
A) $42
B) $295
C) $252
D) $116
Q3) If the production function is Q = K<sup>.5</sup>L<sup>.5</sup> and capital is fixed at 1 unit,then the average product of labor when L = 36 is:
A) 1/3.
B) 1/6.
C) 2/3.
D) None of the answers are correct.
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Chapter 6: The Organization of the Firm
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Sample Questions
Q1) A manager who tries to enhance worker effort by tying workers' compensation to the profitability of the firm is using:
A) spot checks.
B) revenue sharing.
C) profit sharing.
D) piece rates.
Q2) Which of the following is an outside incentive that forces managers to put forth maximal effort?
A) Incentive contracts
B) Performance bonuses
C) Flat fees
D) Reputation
Q3) Suppose a firm manager has a base salary of $175,000 and earns 0.5 percent of all profits.Determine the manager's income if revenues are $10,000,000 and profits are $5,000,000.
A) $150,000
B) $200,000
C) $225,000
D) $300,000
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Page 8
Chapter 7: The Nature of Industry
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Sample Questions
Q1) An electronics company purchases a food company.This is an example of:
A) vertical integration.
B) horizontal integration.
C) cointegration.
D) conglomerate integration.
Q2) Four firms control the market for a particular good,resulting in an HHI of 2,900.Total industry sales are $500,and it is known that two firms each have sales of $175.If each of the remaining two firms have the same sales,then we can conclude that the remaining two firms each have a market share of:
A) $125.
B) $75.
C) 0.15.
D) 0.50.
Q3) According to the "feedback critique":
A) the conduct of firms in an industry may affect the firm's performance.
B) the conduct of firms in an industry may affect the market structure.
C) market structure may affect the firm's conduct.
D) All of the statements associated with this question are correct.
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Chapter 8: Managing in Competitive, Monopolistic, and
Monopolistically Competitive Markets
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Sample Questions
Q1) The source(s)of monopoly power for a monopoly may be:
A) economies of scale.
B) economies of scope.
C) patents.
D) All of the statements associated with this question are correct.
Q2) Suppose that initially the price is $50 in a perfectly competitive market.Firms are making zero economic profits.Then the market demand shrinks permanently,some firms leave the industry,and the industry returns to a long-run equilibrium.What will be the new equilibrium price,assuming cost conditions in the industry remain constant?
A) $50
B) $45
C) Lower than $50, but exact value cannot be known without more information.
D) Larger than $45, but exact value cannot be known without more information.
Q3) Which of the following formulas correctly measures the profit of a monopoly?
A) F1F1F1S1 F1F1F10 = TR TC
B) F1F1F1S1 F1F1F10 = (P ATC)Q
C) F1F1F1S1 F1F1F10 = (P AVC)Q
D) F1F1F1S1 F1F1F10 = TR TC and F1F1F1S1 F1F1F10 = (P ATC)Q
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Chapter 9: Basic Oligopoly Models
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Sample Questions
Q1) Two firms compete as a Stackelberg duopoly.The demand they face is P = 40 Q.The cost function for each firm is C(Q)= 4Q.The profits of the two firms are:
A) F1F1F1S1 F1F1F10<sub>L</sub> = $162; F1F1F1S1 F1F1F10<sub>F</sub> = $81.
B) F1F1F1S1 F1F1F10<sub>L</sub> = $81; F1F1F1S1 F1F1F10<sub>F</sub> = $40.5.
C) F1F1F1S1 F1F1F10<sub>L</sub> = $81; F1F1F1S1 F1F1F10<sub>F</sub> = $40.5.
D) F1F1F1S1 F1F1F10<sub>L</sub> = $162; F1F1F1S1 F1F1F10<sub>F</sub> = $40.5.
Q2) A firm's isoprofit curve is defined as the combinations of outputs produced by:
A) a firm that earns it the same level of profits.
B) all firms that yield the firm the same level of profit.
C) all firms that make total industry profits constant.
D) None of the preceding answers is correct.
Q3) There are many different models of oligopoly because:
A) beliefs play an important role in oligopolistic competition.
B) firms do not maximize profits in oligopolistic competition.
C) oligopoly is the most complicated type of market structure.
D) beliefs play an important role in oligopolistic competition and oligopoly is the most complicated type of market structure.
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Chapter 10: Game Theory: Inside Oligopoly
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Sample Questions
Q1) A mixed strategy is a strategy that:
A) results in the highest payoff to a player regardless of the opponent's action.
B) guarantees the highest payoff given the worst possible scenario.
C) describes a set of circumstances in which no player can improve her payoff by unilaterally changing her own strategy, given the other players' strategies.
D) randomizes over two or more available actions in order to keep rivals from being able to predict a player's action.
Q2) If you advertise and your rival advertises,you each will earn $4 million in profits.If neither of you advertises,you will each earn $10 million in profits.However,if one of you advertises and the other does not,the firm that advertises will earn $1 million and the non-advertising firm will earn $5 million.If you and your rival plan to hand your business down to your children (and this "bequest" goes on forever),then a Nash equilibrium is for each firm to:
A) not advertise until the rival does, and then to advertise forever.
B) never advertise.
C) always advertise.
D) advertise until the rival does not advertise, and then not advertise forever.
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Chapter 11: Pricing Strategies for Firms With Market Power
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Sample Questions
Q1) Suppose that Verizon Wireless has hired you as a consultant to determine what price it should set for calling services.Suppose that an individual's inverse demand for wireless services in the greater Boston area is estimated to be P = 100 33Q and the marginal cost of providing wireless services to the area is $1 per minute.What is the optimal two-part price that you would suggest to Verizon?
A) Charge a fixed fee = $95.5 and a usage fee of $1 per minute.
B) Charge a fixed fee = $3 and a usage fee of $0.33 per minute.
C) Charge a fixed fee = $148.50 and a usage fee of $1 per minute.
D) Charge a fixed fee = $3 and a usage fee of $3 per minute.
Q2) Which of the following pricing strategies does NOT usually enhance the profits of firms with market power?
A) Marginal cost pricing
B) Price discrimination
C) Block pricing
D) Commodity bundling
Q3) You are the owner of a Mom and Pop store that buys milk from a supplier at a cost of $1 per gallon.If you estimate the elasticity of demand for milk sold at your store to be -3.5,what are your profit-maximizing markup and price?
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13
Chapter 12: The Economics of Information
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Sample Questions
Q1) Determine the most likely information structure (independent private values,affiliated values,or common values)for an auction involving:
a.A music CD.
b.An offshore oil lease.
c.A used car.
Q2) During the recession in the early 1990s,retailers observed that consumers were spending a lot more time searching for good bargains than ever before,which led the retailers to lower prices.Why?
Q3) Suppose a consumer has determined that her reservation price,R,is $75.The expected benefit of an additional search at this reservation price is $25.Based on this information we can conclude that:
A) search costs are $25 per search.
B) this consumer will reject any price above $25.
C) this consumer will accept any price below $75.
D) search costs are $25 per search, and this consumer will accept any price below $75.
Q4) Will consumers spend more time searching when stores are located in a mall or when they are spread all over town?
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Chapter 13: Advanced Topics in Business Strategy
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Sample Questions
Q1) You are the owner of a new network that is superior to an existing two-way network.The network you aim to replace currently has 50 users,each of whom is willing to pay an average of $75,000 for each connection service within the current network.You are confident that each user values connection services within your new two-way network at an average of $100,000 per connection service.
a.What is the maximum price the existing network can charge each user for its services? b.Devise a pricing strategy that will permit your firm to overcome the first-mover advantage enjoyed by the existing network.
Q2) A network linking six users is typically:
A) less likely to exhibit bottlenecks than a network linking two users.
B) three times as valuable as a network linking two users.
C) more than three times as valuable as a network linking two users.
D) less than three times as valuable as a network linking two users.
Q3) Bottlenecks:
A) occur only in one-way networks.
B) occur only in two-way networks.
C) occur in both one-way and two-way networks.
D) are a positive externality associated with networks.
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Chapter 14: A Managers Guide to Government in the Marketplace
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Sample Questions
Q1) In highly concentrated markets,an increase in the HHI of more than
raises potential concerns.
A) 5 points
B) 10 points
C) 30 points
D) 50 points
Q2) Which of the following is true about an excise tariff?
A) Domestic firms' marginal cost curves are shifted up by the amount of the excise tariff.
B) Foreign firms' average cost curves are shifted down by the amount of the excise tariff.
C) Domestic firms' average cost curves are shifted up by the amount of the excise tariff.
D) Foreign firms' marginal cost curves are shifted up by the amount of the excise tariff.
Q3) Which of the following is antitrust legislation?
A) Sherman Act
B) Securities and Exchange Act
C) Lanham Act
D) Sherman Act and Lanham Act
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