Executive MBA Economics
Test Preparation
Course Introduction
Executive MBA Economics provides experienced professionals with a comprehensive understanding of economic principles and their practical application to business decision-making. The course explores key microeconomic and macroeconomic concepts such as market structures, supply and demand dynamics, fiscal and monetary policy, global economic trends, and the economic impacts of regulatory environments. Emphasis is placed on interpreting economic data, forecasting market conditions, and using economic analysis to inform strategic planning, risk management, and corporate growth initiatives. Through case studies and real-world examples, participants develop the analytical tools needed to navigate complex economic challenges in todays dynamic business environment.
Recommended Textbook
Managerial Economics Theory Applications and Cases 8th Edition by W. Bruce Allen
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Page 2
Chapter 1: Introduction
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Sample Questions
Q1) ConAgra has introduced a lean mixture of cereal and ground beef that is indistinguishable from ground beef but has about the same amount of fat as chicken.As a result,the:
A) demand for chicken increases.
B) demand for ground beef decreases.
C) demand for chicken decreases.
D) demand for cereal decreases.
E) supply of chicken increases.
Answer: C
Q2) California imposes strict new regulations on the blending of gasoline that increase production costs.As a result,the:
A) demand for gasoline will increase.
B) demand for gasoline will decrease.
C) supply of gasoline will increase.
D) supply of gasoline will decrease.
E) demand for and supply of gasoline will not change.
Answer: D
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Page 3
Chapter 2: Demand Theory
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Sample Questions
Q1) The constant price elasticity of demand for cigarettes has been estimated to be -0.5.To reduce smoking by 50%,approximately how much tax needs to be added to a $1 pack?
A) $1.00
B) $2.00
C) $3.00
D) $0.50
E) $4.00
Answer: A
Q2) A market demand curve is likely to shift to the right when:
A) average income falls.
B) prices fall.
C) prices rise.
D) population increases.
E) new firms enter the market.
Answer: D
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Chapter 3: Consumer Behavior and Rational Choice
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Sample Questions
Q1) Suppose Al is currently consuming five movies and two concerts per month.If his utility function is given by U = 15MC,where M represents the number of movies seen and C represents the number of concerts attended,Al's total utility is equal to:
A) 10.
B) 15.
C) 30.
D) 75.
E) 150.
Answer: E
Q2) Points along an indifference curve represent bundles of goods that:
A) cost the same amount to buy.
B) consumers don't like very much.
C) decline in marginal utility.
D) deliver equal utility.
E) cannot be compared.
Answer: D
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Chapter 4: Estimating Demand Functions
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Sample Questions
Q1) If the Durbin-Watson statistic is near 0,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.
Q2) 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.
Q3) When the coefficient of determination is near 1 but the t-statistics are all insignificant,the regression likely suffers from:
A) nonconstant variance of the error terms.
B) multicollinearity.
C) serial correlation.
D) randomness.
E) nonidentifiability.
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Page 6
Chapter 5: Production Theory
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Sample Questions
Q1) Whenever marginal product is positive and declining with increasing use of an input:
A) total product is declining as input use increases.
B) average product is declining as input use increases.
C) marginal product is greater than average product.
D) marginal product is less than average product.
E) total product is increasing at a decreasing rate as input use increases.
Q2) If output is produced according to Q = 3K + 4L,then this production process exhibits:
A) increasing returns to scale.
B) decreasing returns to scale.
C) first increasing and then decreasing returns to scale.
D) constant returns to scale.
E) first decreasing and then increasing returns to scale.
Q3) The optimal combination of two inputs,K and L,can be characterized by:
A) P<sub>K</sub>MP<sub>K</sub> = P<sub>L</sub>MP<sub>L</sub>.
B) MP<sub>K</sub> = MP<sub>L</sub>.
C) P<sub>L</sub>MP<sub>K</sub> = P<sub>K</sub>MP<sub>L</sub>.
D) MP<sub>K</sub> /MP<sub>L</sub> = P<sub>L</sub> /P<sub>K</sub>.
E) none of the above.
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Chapter 6: The Analysis of Costs
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Sample Questions
Q1) The Wilson Corporation produces output according to Q = 4(KL)<sup>1/2</sup>,where K is the amount of capital used and L is the amount of labor employed.If capital costs $2 per unit and labor costs $8 per unit,Wilson's minimized long-run average total cost is:
A) $2.
B) $2Q.
C) $10.
D) $10Q.
E) $22.
Q2) An example of implicit costs is the:
A) bad-debt liabilities arising out of excessive sales on credit. B) wages paid to the owners' children.
C) opportunity cost of owner-supplied capital and labor that is not recognized by accountants.
D) prices paid for purchased inputs.
E) the alternative uses for money that could be borrowed.
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8
Chapter 7: Perfect Competition
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Sample Questions
Q1) A representative firm with long-run total cost given by TC = 20 + 20q + 5q<sup>2</sup> operates in a competitive industry where the short-run market demand and supply curves are given by Q<sub>D</sub> = 1,400 - 40P and Q<sub>S</sub> = -400 + 20P.If it continues to operate in the long run,its profit-maximizing level of output is:
A) 1 unit.
B) 2 units.
C) 4 units.
D) 5 units.
E) 6 units.
Q2) A decreasing-cost industry is one in which:
A) input prices fall over time.
B) technology deteriorates over time.
C) input prices and technology do not change over time.
D) firms are in the growth phase of the industry's life cycle.
E) input prices fall or technology improves as firms enter the industry.
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9
Chapter 8: Monopoly and Monopolistic Competition
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Sample Questions
Q1) 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.
Q2) If C is total cost,Q is quantity,P is price,and A is total assets,the target return r is defined by:
A) (PQ - C)/A.
B) [1 - (P - C)/Q]A.
C) [1 - (P - C)Q]A.
D) (P - C)Q/A.
E) 1 - (P - C)Q/A.
Q3) So long as price exceeds average variable cost,in the model of monopolistic competition,a firm maximizes profits by producing where:
A) the difference between marginal revenue and marginal cost is maximized.
B) marginal cost equals marginal revenue.
C) marginal revenue equals price.
D) the difference between price and marginal cost is maximized.
E) price equals marginal cost.
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Chapter 9: Managerial Use of Price Discrimination
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Sample Questions
Q1) When an electrical utility charges higher prices during the day than at night,it is practicing:
A) peak load pricing.
B) first-degree price discrimination.
C) second-degree price discrimination.
D) third-degree price discrimination.
E) fourth-degree price discrimination.
Q2) 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>.
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11
Chapter 10: Bundling and Intrafirm Pricing
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Sample Questions
Q1) The Two Stage Photo Company has a division for each stage of photo processing.There is no external market for the first stage's output.For a fixed quantity of photo processing,the transfer price should depend on:
A) whatever management wants.
B) marginal costs at stage 1 only.
C) marginal costs at each stage.
D) average costs at stage 1 only.
E) average costs at each stage.
Q2) Tying can sometimes be justified as helping consumers by:
A) brand-name quality protection.
B) different consumer evaluations of the main good.
C) transportation costs.
D) standard industry practice.
E) offsetting price reductions in the main good.
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Chapter 11: Oligopoly
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Sample Questions
Q1) Glyde Air Fresheners is the dominant firm in the solid room aromatizer industry,which has a total market demand given by Q = 80 - 2P.Glyde has competition from a fringe of four small firms that produce where their individual marginal costs equal the market price.The fringe firms each have total costs given by TC<sub>i</sub> = 10Q<sub>i</sub> + 2Q<sup>2</sup><sub>i </sub>.If Glyde's total costs are given by TC<sub>G</sub> = 100 + 6Q<sub>G</sub>,what is Glyde's maximum profit?
A) $148.
B) $184.
C) $240.
D) $332.
E) $362.
Q2) Profit-maximizing cartels allocate sales according to:
A) precartel sales.
B) potential to cheat on the cartel.
C) geographic location.
D) quantities where all firms' marginal revenues are equal.
E) quantities where all firms' marginal costs are equal.
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Page 13
Chapter 12: Game Theory
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Sample Questions
Q1) A feasible strategy set is:
A) all actions with a nonzero probability of occurring.
B) only actions that have a 50% or greater probability of occurring.
C) actions that result in positive profits for the firm.
D) actions that a decision maker is willing to take.
E) the one outcome that the decision maker chooses.
Q2) If a firm has a dominant strategy:
A) its optimal strategy depends on the play of rivals.
B) its optimal strategy is always the same, even if payoffs change.
C) it is determined by the behavior of only one key rival.
D) it receives the same profits regardless of the strategy of rivals.
E) its optimal strategy is independent of the play of rivals.
Q3) A most-favored-customer clause:
A) is a commitment but not a threat.
B) is a threat but not a commitment.
C) is both a threat and a commitment.
D) is neither a threat nor a commitment.
E) could be either a threat or a commitment depending on the terms.
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Chapter 13: Auctions
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Sample Questions
Q1) In recent years,auction sites,such as ebay,have flooded the Internet.Sellers expect to gain by using the Internet for conducting auctions because:
A) more bidders means that price discrimination is an option.
B) with more bidders, each submits a bid closer to his or her reservation price to increase the probability of a win.
C) with more bidders, sellers expect to realize greater profits.
D) consumer surplus will increase.
E) b and c
Q2) Which of the following is an example of an ascending-bid auction?
A) Sealed-bid auction.
B) Japanese auction.
C) Dutch auction.
D) Vickrey auction.
E) Rabbit auction.
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Chapter 14: Risk Analysis
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Sample Questions
Q1) For constants a and b,0 < b,b \(\neq\) 1,and expected profit E(\(\pi\)),the utility function of a person who is risk-neutral can be written as U = :
A) a + bE(\(\pi\)).
B) a - bE(\(\pi\)).
C) a + b\(\pi\).
D) a + [E(b<sup>\(\pi\)</sup>)].
E) a + [E(\(\pi\))]<sup> -</sup><sup>b</sup>.
Q2) If a coin were weighted so that heads had three times the chance [P(H)] of coming up as tails [P(T)],the probability distribution would be given by:
A) P(H) = 0.67 and P(T) = 0.33.
B) P(H) = 1 and P(T) = 3.
C) P(H) = 0.5 and P(T) = 0.5.
D) P(H) = 0.75 and P(T) = 0.25.
E) P(H) = 1 and P(T) = 0.33.
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Chapter 15: Principalagent Issues and Managerial Compensation
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Sample Questions
Q1) Use the following profit function (per worker)for the Blue Delta Faucet Company to answer this question. P(e)= 40e - (2e<sup>2</sup> + 100)
Note that P = firm profits and e = worker-hours per day.Assume that effort is observed perfectly.At the profit-maximizing level of effort for the firm,daily per-worker compensation will be:
A) $100.
B) $200.
C) $300.
D) $340.
E) none of the above.
Q2) Suppose that Wilma's utility function is given by U(E)= 100 - 2E<sup>2</sup>, Where E = Wilma's work effort in producing homemade dinners,measured in hours per day.Given her utility function,Wilma has an incentive to supply:
A) maximum effort, because working hard is important to her.
B) maximum effort, because she is afraid of getting fired.
C) minimum effort, because she knows she will get fired under any circumstances.
D) minimum effort, because her utility decreases as effort increases.
E) maximum effort, because she can increase her salary by working harder.
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Chapter 16: Adverse Selection
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Sample Questions
Q1) Insurance companies are able to offset the adverse selection in markets for life insurance by:
A) requiring premiums that are above the expected value of receipts.
B) only insuring people who appear to be sick.
C) insuring a wide variety of people so that gains on some policies offset losses on others.
D) requiring medical exams from people whom they insure.
E) requiring higher premiums from healthy people than from sick people.
Q2) Which of the following is the best example of adverse selection?
A) Smokers are more likely to obtain health insurance.
B) Safe drivers tend to get auto insurance.
C) All drivers are required to have auto insurance if they are to register their cars legally in Connecticut.
D) Both healthy and unhealthy people tend to buy life insurance.
E) Given the existence of government-funded flood insurance, people continue to build homes in floodplains.
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18
Chapter 17: Government and Business
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Sample Questions
Q1) If an activity produces an external diseconomy,then there will be too:
A) much of the activity undertaken by private parties from a social viewpoint.
B) little of the activity undertaken by private parties from a social viewpoint.
C) much of the activity undertaken by government from a private viewpoint.
D) much of the activity undertaken by private parties from a private viewpoint.
E) much of the activity undertaken by government from a social viewpoint.
Q2) If there are 10 equal-sized firms in an industry,the Herfindahl-Hirschman index would be:
A) 1,000.
B) 100.
C) 10,000.
D) 10.
E) 1.
Q3) The socially optimal level of pollution control occurs where the marginal:
A) benefit of pollution control is zero.
B) cost of pollution is minimized.
C) cost of pollution control equals the marginal cost of pollution.
D) cost of pollution control is minimized.
E) cost of pollution control equals the marginal benefit of pollution.
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Page 19
Chapter 18: Optimization Techniques
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Sample Questions
Q1) Wilma's Car Repair can repair cars using kryptonite bolts,K,or lithium bolts,L,as long as it uses 10 bolts in toto.The cost of repairing a car is TC = K<sup>2</sup> + L<sup>2</sup> - KL.The cost-minimizing combination of kryptonite and lithium bolts is:
A) K = 6 and L = 4.
B) K = 4 and L = 6.
C) K = 7 and L = 3.
D) K = 3 and L = 7.
E) K = 5 and L = 5.
Q2) Campbell's sells used trailers,U,and new trailers,N.Its profits are given by p = 100N + 68U - 5N<sup>2</sup> - 5U<sup>2</sup> - 2NU.The profit-maximizing combination of trailers for Campbell's is:
A) N = 9 and U = 5.
B) N = 7 and U = 7.
C) N = 5 and U = 9.
D) N = 13 and U = 0.
E) N = 9 and U = 9.
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Chapter 19: Appendix Problems
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Q1) You've just won the $25 million lottery.You are going to receive a check for $1 million today and at the end of every year for the next 24 years.If the interest rate is 10%,the present value of your prize is:
A) $8,984,744.
B) $9,984,744.
C) $12,984,744.
D) $20,000,000.
E) $25,000,000.
Q2) Your mortgage requires that you pay $12,000 at the end of each of the next 30 years.If the annual interest rate is 12%,then you must have borrowed approximately: A) $117,660.
B) $96,660.
C) $78,660.
D) $63,660.
E) $133,660.
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