Economics for Managers Practice Questions
Course Introduction
Economics for Managers provides students with a foundation in economic concepts and analytical tools relevant to managerial decision-making. The course explores microeconomic principles such as demand and supply, market structures, pricing strategies, and cost analysis, alongside macroeconomic topics that impact business environments, including inflation, unemployment, fiscal policy, and international trade. Emphasizing practical applications, it equips future managers with the ability to analyze markets, assess business risks, and make informed decisions that align with organizational objectives in a dynamic economic landscape.
Recommended Textbook
Managerial Economics Theory Applications and Cases 8th Edition by W. Bruce Allen
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19 Chapters
693 Verified Questions
693 Flashcards
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Page 2
Chapter 1: Introduction
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Sample Questions
Q1) The economic theory of the firm assumes that the primary objective of a firm's owner or owners is to:
A) behave in a socially conscientious manner.
B) maximize the firm's profit.
C) maximize the firm's total sales.
D) maximize the value of the firm.
E) All of these are primary objectives.
Answer: D
Q2) As a result of historically high gasoline prices in 2008,traffic volume in the United States (measured in terms of billions of miles driven per month)declined significantly.These changes were caused by a of gasoline and .
A) surplus; a decrease in the quantity demanded of gasoline
B) surplus; a decrease in the demand for gasoline
C) shortage; a decrease in the quantity demanded of gasoline
D) shortage; a decrease in the demand for gasoline
E) shortage; an increase in the demand for gasoline
Answer: C
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3
Chapter 2: Demand Theory
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Sample Questions
Q1) The demand for fashion watches is Q = 9 - 0.7P + 2I.Assume that per capita income I is $13.When the price of fashion watches is P = $30,the price elasticity of demand is:
A) -0.66.
B) -1.0.
C) -2.0.
D) -0.5.
E) -1.5.
Answer: E
Q2) Along a linear demand curve,total revenue is maximized:
A) where the slope of a line from the origin to the demand curve is equal to the elasticity.
B) where the elasticity is -1.
C) near the quantity axis intercept.
D) near the price axis intercept.
E) where the elasticity is 0.
Answer: B
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4
Chapter 3: Consumer Behavior and Rational Choice
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Sample Questions
Q1) Don consumes bagels and cream cheese.He likes to place 2 ounces of cream cheese on each bagel,no more,no less.In this case,Don's indifference curves for bagels and cream cheese will be:
A) straight lines with slopes equal to -2.
B) L-shaped, or right angles.
C) upward-sloping.
D) horizontal lines.
E) vertical lines.
Answer: B
Q2) A corner solution to a consumer choice problem suggests that:
A) the consumer is not rational.
B) one product is not purchased at all.
C) both products are preferred, but one at a lower rate than the other.
D) neither product is a normal good.
E) all of the above
Answer: B
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Chapter 4: Estimating Demand Functions
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Sample Questions
Q1) The most frequently used method for estimating demand functions is:
A) market experiments.
B) consumer interviews.
C) regression analysis.
D) focus groups.
E) casual introspection.
Q2) The coefficient of determination from a regression represents the:
A) proportion of variation in the dependent variable explained by variation in the independent variables.
B) proportion of variation in the independent variables explained by variation in the dependent variable.
C) variation in the dependent variable.
D) proportion of the variation in the dependent variable.
E) proportion of the variation in the independent variable.
Q3) If the Durbin-Watson statistic is near 4,we can conclude that there is:
A) positive serial correlation.
B) negative serial correlation.
C) no serial correlation.
D) a multicollinearity problem.
E) not enough data to estimate the regression.
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Chapter 5: Production Theory
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Sample Questions
Q1) Output is produced according to Q = 4L + 6K,where L is the quantity of labor input and K is the quantity of capital input.If the price of K is $12 and the price of L is $6,then the cost-minimizing combination of K and L capable of producing 60 units of output is:
A) L = 5 and K = 6.66.
B) L = 7.5 and K = 5.
C) L = 6 and K = 6.
D) L = 0 and K = 10.
E) L = 15 and K = 0.
Q2) The law of diminishing marginal returns is obvious because,if it didn't hold,it would be possible to:
A) feed everyone in the world by intensively cultivating one acre of land.
B) manufacture all of the cars in the world using just one of the world's existing factories.
C) increase total output of a product without employing additional inputs.
D) All of the above.
E) a and b.
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7
Chapter 6: The Analysis of Costs
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Sample Questions
Q1) Marginal cost is equal to the:
A) change in total variable cost divided by the change in output.
B) total variable cost divided by the level of output.
C) price of the input divided by the average product of the variable input.
D) price of the input divided by the total product of the variable input.
E) total variable cost divided by the change in output levels.
Q2) If there is only one variable input,average variable cost can be defined as the:
A) output's price divided by the input's average product.
B) output's price divided by the input's marginal product.
C) price of the variable input divided by its average product.
D) price of the variable input divided by its marginal product.
E) price of the variable input multiplied by its marginal product.
Q3) Average fixed cost is equal to the:
A) difference between marginal cost and average variable cost.
B) difference between marginal cost and average total cost.
C) difference between average total cost and average variable cost.
D) total fixed cost divided by the minimum efficient scale.
E) total variable cost divided by the minimum efficient scale.
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Chapter 7: Perfect Competition
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Sample Questions
Q1) If the perfectly competitive market supply of pork bellies shifts from Q<sub>S</sub><sub>,93</sub> = 250 + 50P to Q<sub>S</sub><sub>,94</sub> = 400 + 40P,and the market demand is given by Q<sub>D</sub> = +10,000 - 200P,then the change in equilibrium quantity will be:
A) 200 units.
B) 100 units.
C) 0 units.
D) -100 units.
E) -200 units.
Q2) A representative firm with short-run total cost given by TC = 50 + 2q + 2q<sup>2</sup> operates in a competitive industry where the short-run market demand and supply curves are given by Q<sub>D</sub> = 1,410 - 40P and Q<sub>S</sub> = -390 + 20P.Its short-run profit-maximizing level of output is:
A) 0 units.
B) 1 unit.
C) 2 units.
D) 5 units.
E) 7 units.
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Page 9
Chapter 8: Monopoly and Monopolistic Competition
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Sample Questions
Q1) For the Mickey Mice Company,the price elasticity of demand is -3,average cost is $15,and marginal cost is $30.Mickey's profit-maximizing price is:
A) $10.00.
B) $20.00.
C) $22.50.
D) $30.00.
E) $45.00.
Q2) Firms that produce similar,slightly differentiated products are called a(n):
A) oligarchy.
B) oligopoly.
C) cabal.
D) cartel.
E) product group.
Q3) In the model of monopoly,firms produce a:
A) standardized product with considerable control over price.
B) differentiated product with considerable control over price.
C) standardized product with no control over price.
D) differentiated product with no control over price.
E) standardized or differentiated product with some control over price.
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Chapter 9: Managerial Use of Price Discrimination
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Sample Questions
Q1) If a firm supplies separable markets with price elasticities \(\eta\)<sub>1</sub> = -3 and \(\eta\)<sub>2</sub> = -2,it should set prices P<sub>1</sub> and P<sub>2</sub> so that:
A) P<sub>1</sub> = P<sub>2</sub>.
B) 3P<sub>1</sub> = 2P<sub>2</sub>.
C) 2P<sub>1</sub> = 3P<sub>2</sub>.
D) 2/3P<sub>1</sub> = 1/2P<sub>2</sub>.
E) 2P<sub>1</sub> = 2/3P<sub>2</sub>.
Q2) When Exxoff Oil Corporation offers discounts based on credit card records of gas quantities purchased,they are practicing:
A) first-degree price discrimination.
B) second-degree price discrimination.
C) third-degree price discrimination.
D) markup pricing.
E) tying.
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11
Chapter 10: Bundling and Intrafirm Pricing
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Sample Questions
Q1) The XYZ Steel Company produces its own coal for use in its production facility.The demand for steel is given by P<sub>s</sub> = 500 - 2Q<sub>s</sub> and the total cost of producing steel is given by TC<sub>s</sub> = 175Q<sub>s</sub>,where Q<sub>s</sub> is tons of steel per week.The price of coal in a perfectly competitive market outside the firm is $250 per ton,and the total cost of producing coal is given by TC<sub>c</sub> = 40 + 5Q<sub>c</sub><sup>2</sup>,where Q<sub>c</sub> is tons of coal per week.How much steel should the XYZ Company produce?
A) 6.25 tons.
B) 18.75 tons.
C) 25 tons.
D) 43.75 tons.
E) 75 tons.
Q2) When a firm requires a customer to buy additional products in order to buy one of its products,this is known as a(n):
A) bundling contract.
B) price differentiation.
C) oligopolistic device.
D) two-part tariff.
E) maximizing device.
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Page 12
Chapter 11: Oligopoly
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Sample Questions
Q1) Two local ready-mix cement manufacturers,Here and There,have combined demand given by Q = 105 - P.Their total costs are given by TC<sub>Here</sub> = 5Q<sub>Here</sub> + 0.5Q<sup>2</sup><sub>Here</sub> and TC<sub>There</sub> = 5Q<sub>There</sub> + 0.5Q<sup>2</sup><sub>There</sub>.If they successfully collude,their maximum joint profits will be:
A) $500.
B) $1,000.
C) $1,600.
D) $2,000.
E) $2,500.
Q2) Two local ready-mix cement manufacturers,Here and There,have combined demand given by Q = 105 - P.Their total costs are given by TC<sub>Here</sub> = 5Q<sub>Here</sub> + 0.5Q<sup>2</sup><sub>Here</sub> and TC<sub>There</sub> = 5Q<sub>There</sub> + 0.5Q<sup>2</sup><sub>There</sub>.If they successfully collude,their total output will be:
A) 10 units.
B) 20 units.
C) 40 units.
D) 50 units.
E) 66.67 units.
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Page 13
Chapter 12: Game Theory
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Sample Questions
Q1) Useful strategies to deter entry include:
A) increasing advertising.
B) increasing prices.
C) decreasing capacity.
D) increasing capacity.
E) a and d
Q2) The difference between game trees and decision trees is:
A) that game trees are not useful in strategic situations.
B) that decision trees describe actions that depend on the behavior of rivals.
C) that game trees have interactive payoffs.
D) that decision trees are a function of many individuals and the state of nature.
E) none of the above.
Q3) A player in a game theoretic model is:
A) anyone working for a firm that is operating strategically.
B) a decision-making entity at a firm involved in a strategic game.
C) a firm that is operating as a perfect competitor.
D) a monopolist who produces a unique product with no close substitutes.
E) a stockholder at a firm involved in a strategic game.
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14
Chapter 13: Auctions
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Sample Questions
Q1) Relative to the posted-price selling mechanism,an auction market will provide:
A) more surplus to the market.
B) more consumer surplus and less producer surplus to the market.
C) more producer surplus and less consumer surplus to the market.
D) less surplus to the market.
E) no change in the allocation of consumer and producer surplus to the market.
Q2) The winner's curse is an issue only when:
A) an auction is conducted by sealed bid.
B) an auction is an increasing value auction.
C) an auction is a decreasing bid auction.
D) the true value of the good or service being auctioned is unknown.
E) bidders are able to collude.
Q3) As far as we know,auctions first emerged:
A) as e-commerce exploded in recent years.
B) when capitalism became a popular form of economic organization.
C) after the emergence of communism, because black markets were popular in centrally planned economies.
D) in Babylonian marriage markets.
E) to increase efficiency in the trading of commodities.
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Page 15
Chapter 14: Risk Analysis
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Sample Questions
Q1) A project could yield a profit of $1,$2,$3,or $6,with equal probability.Then the variance \(\sigma\)<sup>2</sup>,is:
A) 1.
B) 3/2.
C) 7/2.
D) 9/2.
E) 14.
Q2) George is indifferent between $100 and a bet with a 0.6 chance of $50 and a 0.4 chance of $200.If U(50)= a and U(200)= b,then U(100)= :
A) 0.4a + 0.6b.
B) 0.6a + 0.4b.
C) (a + b) / 2.
D) a + b.
E) 6a + 4b.
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Chapter 15: Principalagent Issues and Managerial Compensation
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Sample Questions
Q1) Consider Mr.Ed,who purchases an insurance policy on a thoroughbred that he has acquired.He then proceeds to run the horse even though the horse has tendinitis.This is an example of:
A) an adverse-selection problem.
B) a moral-hazard problem.
C) coinsurance.
D) signaling.
E) all the above.
Q2) Donald has a beach house on the Outer Banks of North Carolina that was severely damaged in the most recent hurricane to strike the coast.Due to beach erosion,he has rebuilt twice in the past 20 years.He is intent on rebuilding,confident that government-provided flood insurance will cover his expenses.This is an example of:
A) how market-based solutions to problems are superior to government solutions.
B) moral hazard.
C) adverse selection.
D) asset substitution.
E) none of the above.
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Chapter 16: Adverse Selection
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Sample Questions
Q1) Suppose the Ajax Insurance Company provides insurance for skydivers whose wealth before diving is $400.An accident will leave divers with a wealth of $100.The company divides the divers into two classes,safe (probability of an accident = 0.2)and unsafe (probability of an accident = 0.5).The utility of wealth for all divers is given by the function: U(w)= w<sup>0.5</sup>.Given this information,the divers are:
A) risk-averse.
B) risk seeking.
C) risk-neutral.
D) indifferent to risk.
E) risk-averse, risk seeking, or risk-neutral; we cannot tell from this information.
Q2) Adverse selection implies that:
A) the market for used cars is perfectly competitive.
B) the market for used cars will contain more cars of higher than average quality.
C) the market for used cars will contain more cars of lower than average quality.
D) all used cars will be of equal quality.
E) the government overinsures the market for used cars.
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Page 18
Chapter 17: Government and Business
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Sample Questions
Q1) When economies of scale persist to such high levels of output that it is efficient to have only one firm produce,the resulting firm is known as a(n):
A) patent holder.
B) regulated monopolist.
C) reluctant monopolist.
D) natural monopolist.
E) acceptable monopolist.
Q2) The antitrust law that made giving discounts to large buyers on the basis of volume purchases illegal was the:
A) Sherman Act.
B) Clayton Act.
C) Federal Trade Commission Act.
D) Robinson-Patman Act.
E) Celler-Kefauver Act.
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Chapter 18: Optimization Techniques
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Sample Questions
Q1) If marginal revenue exceeds marginal costs,to increase profits a firm should:
A) reduce output.
B) increase output.
C) hold output constant.
D) increase marginal revenue.
E) reduce marginal cost.
Q2) The quotient rule of differentiation is:
A) Y = U(X) / W(X)\(\rarr\) dY/dX = (W dU/dX - U dW/dX) / W <sup>2</sup>.
B) Y = U(X) / W(X)\(\rarr\) dY/dX = (W dU/dX - U dW/dX) / W.
C) Y = U(X) / W(X) \(\rarr\)dY/dX = [(W dU/dX) / (U dW/dX)] / W <sup>2</sup>.
D) Y = U(X) / W(X) \(\rarr\) dY/dX = [(W dU/dX)(U dW/dX)] / W <sup>2</sup>.
E) Y = U(X) / W(X) \(\rarr\)dY/dX = [(W dU/dX)(U dW/dX)] / W.
Q3) If Y = 21X<sup>1/3</sup>(25 + X<sup>4</sup>),then dY/dX is:
A) 7X<sup> -2/3</sup>(25 + X<sup>4</sup>) + 84X<sup>10/3</sup>.
B) 7X<sup>2/3</sup>(25 + X<sup>4</sup>) + 84X<sup>10/3</sup>.
C) 7X<sup> -1/3</sup>(25 + X<sup>4</sup>) + 84X<sup>10/3</sup>.
D) 7X<sup>1/3</sup>(25 + X<sup>4</sup>) + 84X<sup>10/3</sup>.
E) 7X<sup>1/3</sup>(25 + X<sup>4</sup>).
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Chapter 19: Appendix Problems
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Sample Questions
Q1) If the annual interest rate is i,the present value of a payment of $X to be received n years from now forever is:
A) $X/(1 + i).
B) $X/i.
C) $X/(1 + i )<sup>n</sup>.
D) $X/i <sup>n</sup>.
E) none of the above.
Q2) If the annual interest rate is i,the present value of $X to be received at the end of each future year forever is:
A) $X/(1 + i).
B) $X/i.
C) $X/(1 + i)<sup>n</sup>.
D) $X/i <sup>n</sup>.
E) $X<sup>n</sup>/i <sup>n</sup>.
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