Managerial Decision Analysis Review
Questions
Course Introduction
Managerial Decision Analysis explores the frameworks, techniques, and tools used by managers to make effective decisions in complex and uncertain business environments. The course covers topics such as decision-making processes, risk assessment, decision modeling, sensitivity analysis, and the application of quantitative methods like linear programming and simulation. Emphasizing real-world case studies and practical applications, students learn to critically evaluate alternatives, interpret data, and implement effective solutions while considering both ethical and organizational implications. This course equips future managers with the analytical skills needed to drive sound, data-informed decisions in dynamic managerial roles.
Recommended Textbook
Managerial Economics 3rd Edition by Froeb
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Chapter 2: The One Lessor of Business
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Sample Questions
Q1) The biggest advantage of capitalism is that
A)It generates wealth with the help of government intervention
B)Prices hinder in moving assets from high-value to low-value uses
C)It forces involuntary exchanges
D)It creates wealth by letting a person follow his or her own self-interest
Answer: D
Q2) Price floors are primarily targeted to help
A)No one
B)Consumers
C)Producers
D)Government
Answer: C
Q3) A consumer values a car at $525,000 and a producer values the same car at $485,000.If sales tax is 8% and is levied on the seller,then the sellers bottom line price is A)$527,000
B)$523,800
C)$525,000
D)$500,000
Answer: B
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Chapter 3: Benefits, Costs, and Decisions
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Sample Questions
Q1) A professor will sometimes pay higher prices for some goods compared to an undergraduate student because
A)They value the item more than the student
B)They like wasting money
C)crowded and understaffed discount stores impose higher time costs
D)they like to show off
Answer: C
Q2) In the long-run,all costs are
A)Fixed costs
B)Variable costs
C)Sunk Costs
D)Marginal Costs
Answer: B
Q3) In the short-run:
A)All costs are variable
B)Some costs are fixed and some costs are variable
C)There are no fixed inputs
D)The firm is not constrained to vary output
Answer: B
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Page 4
Chapter 4: Extent How Muchdecisions
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Sample Questions
Q1) A firm is thinking of hiring an additional worker to their organization who they believe can increase total productivity by 100 units a week.The cost of hiring him or her is $1500 per week.If the price of each unit is $20,
A)the MR of hiring the worker is $2000
B)The MC of hiring the worker is $1500
C)The firm should hire the worker since MB>MC
D)All the above
Q2) When economists speak of "marginal",they mean
A)Opportunity
B)Scarcity
C)Incremental
D)Unimportant
Q3) If the firm hires 8 workers,the total amount of fixed costs equals
A)$6200
B)$1000
C)$600
D)$1200
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Chapter 5: Investment Decisions: Look Ahead and Reason
Back
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Sample Questions
Q1) What's the firm's contribution margin?
A)$1800
B)$800
C)$1000
D)$300
Q2) Break-even quantity is a point where
A)Level of profit is maximized
B)Level of cost is minimized
C)Only variable costs are covered
D)There is neither a profit nor a loss
Q3) Which firm has higher fixed costs?
A)Jim's Production
B)Competitor
C)They both have the same fixed costs
D)Need more information
Q4) In order to continue its operations,in the long-run a firm must
A)Charge a price that is equal to its AVC
B)Charge a price that is equal to its AFC
C)Charge a price that is equal to its AVC + AFC
D)Need more information to determine the price
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Chapter 6: Simple Pricing
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Sample Questions
Q1) As the number of substitutes for a good increases,its own-price elasticity becomes more
A)Unitary
B)Relatively elastic
C)relatively inelastic.
D)perfectly inelastic.
Q2) Given the information above,the demand is
A)unitary.
B)indeterminate.
C)elastic.
D)inelastic.
Q3) When MR<MC firms should raise their prices because A)Demand is flat
B)Demand is upright
C)Demand is elastic
D)Demand is inelastic
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Chapter 7: Economies of Scale and Scope
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Sample Questions
Q1) When there are economies of scale,
A)per-unit costs increase as output increases
B)per-unit costs decrease as output increases
C)per-unit costs are constant as output increases
D)output does not affect per-unit costs
Q2) When a firm's marginal productivity of an input eventually declines as the quantity of input increases,then the production is experiencing
A)Diminishing returns to scale
B)Diminishing marginal product
C)Increasing returns to scale
D)Increasing marginal product
Q3) Microsoft found that instead of producing a dvd player and a gaming system separate,it is cheaper to incorporate dvd playing capabilities in their new version of the gaming system.Microsoft is taking advantage of
A)Economies of Scale
B)Learning curve
C)Economies of Scope
D)Decreasing marginal costs
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Chapter 8: Understanding Markets and Industry Changes
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Sample Questions
Q1) While you were an intern you bought 5 packages of hot dogs a month.After acquiring a full-time job with a considerable higher salary,you stopped purchasing hot dogs.For you,hot dogs are
A)Complementary good
B)Normal good
C)Inferior good
D)Substitute good
Q2) The price of peanuts increases.At the same time,we see the price for Jelly rise.How does this affect the market for peanut butter?
A)The demand curve will shift to the left;the supply curve will shift to the left
B)The demand curve will shift to the left;the supply curve will shift to the right
C)The demand curve will shift to the right;the supply curve will shift to the left
D)The demand curve will shift to the right;the supply curve will shift to the right
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Chapter 9: Market Structure and Long-Run Equilibrium
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Sample Questions
Q1) A firm sees its marginal revenue increase by $20 and marginal cost increase by $15 when it produces its 1000th product.This implies
A)the production of the 1000th unit of output increases the firm's profit by $5.
B)The firm is past its profit maximizing output
C)We cannot say much on the profitability of the firm
D)Producing the 1000th item will in fact decrease the overall firm's profits.
Q2) A monopoly has
A)A perfectly elastic demand curve
B)A perfectly elastic supply curve
C)A downward sloping demand curve
D)A upward sloping demand curve
Q3) The short run supply curve for a perfect competitive firm is
A)Marginal cost curve
B)Average revenue curve
C)Marginal revenue curve
D)Marginal cost curve above its average variable cost curve
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Chapter 10: Strategy: the Quest to Keep Profit From Eroding
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Sample Questions
Q1) Supplier power tends to be low when
A)Suppliers are less concentrated
B)Inputs provided by the supplier are not vital
C)Inputs are less differentiated
D)All the above
Q2) Apple continues to be innovative to ensure that their demand curve stays or becomes
A)More inelastic
B)More elastic
C)Unitary elastic
D)None of the above
Q3) What is the 4-firm concentration ratio of an industry with 25 firms each having an equal market share?
A)0.16.
B)0.24.
C)0.20.
D)0.12.
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Sample Questions
Q1) If buyers expect prices to ________ faster than the interest rate,it makes sense to _____ as much money as possible to _____ now in order to ______ in the future.
A)Increase;borrow;buy;sell
B)increase;save;buy;sell
C)decrease;save;buy;sell
D)decrease;borrow;sell;buy
Q2) If the US interest rate is 4% per year and the Mexico interest rate is 9% per year,which of the following is true:
A)The dollar will depreciate 5% in one year.
B)The peso will appreciate 9% in one year.
C)The peso will depreciate 5% in one year.
D)The dollar will appreciate 9% in one year.
Q3) If buyers expect future price increase,they will ___________ their purchases to avoid it.Similarly,sellers will __________ selling to take advantage of it.
A)Accelerate;accelerate
B)Accelerate;delay
C)Delay;accelerate
D)Delay;delay
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Chapter 12: More Realistic and Complex Pricing
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Sample
Questions
Q1) Firm A producing one good acquires another firm B producing another good.The cross price elasticity of demand for the goods owned by each firm is 2.6.Holding other things constant,the acquiring firm should
A)Raise prices on both goods
B)Lower prices on both goods
C)Raise price on the acquired good only
D)Need more information
Q2) Firm's should lower the price of their goods
A)If the demand for the product is elastic
B)If it acquires a firm selling a complement good
C)If it acquires a firm selling a substitute good
D)Both a and b
Q3) A firm started promoting its product through advertising.This changed the product's elasticity from -1.08 to -0.99.The firm should
A)Lower prices as the demand is more elastic
B)Lower prices as the demand is more inelastic
C)Raise prices as the demand is more elastic
D)Raise prices as the demand is more inelastic
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Chapter 13: Direct Price Discrimination Indirect Price Discrimination
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Sample Questions
Q1) What is the total profit to the monopolist from selling the goods separately?
A)$4,500
B)$6,300
C)$7,000
D)$6,200
Q2) Mixed bundling is
A)Where customers pay for each item separately
B)Where customers buy all item in a store at one price
C)Where customers have a choice of buying each item separately or all items at one price
D)Where customers are charged one fixed fee and a cost per unit for every unit bought
Q3) Suppose the monopolist only sold the goods separately.What price will the monopolist charge for Good 2 to maximize revenues for good 2?
A)$2,300
B)$2,800
C)$1,200
D)$1,700
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Page 14
Chapter 15: Strategic Games
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Sample Questions
Q1) If the game is played for 10 years,the Nash equilibrium will be
A)Low,Low
B)Low,High
C)High,Low
D)High,High
Q2) In sequential games,
A)Players take turns,and each player observes what his or her rival did before having to move
B)Players take turns,but each player does not observe what his or her rival did before having to move
C)Players move at the same time
D)None of the above
Q3) Game theory assumes that to compute the likely outcome of games,one needs to assume that players act
A)Rationally
B)Optimally
C)In their own self-interest
D)All the above
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Chapter 16: Bargaining
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Sample Questions
Q1) In the nonstrategic view of bargaining
A)Insights are drawn from how many similar games are played without specifying the strategies
B)We use the fact that bargaining often results in a fifty-fifty split
C)The bargain is affected by the parties' disagreement values
D)All of the above
Q2) The reason we study the sequential labor negotiation game:
A)Is to show that these games usually go on for rounds and rounds
B)Is to show the importance of the first mover being able to commit to an offer
C)Is to show the importance of the second mover being able to commit to an offer
D)Is to show the problems of prisoners dilemmas
Q3) When buying a car from a commission salesman you improve your bargaining position by
A)shopping for last year's model when the new model year cars are arriving
B)shopping when the showroom is full of customers
C)shopping when the car lot has few cars left unsold
D)shopping toward the beginning of the month
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Chapter 17: Making Decisions With Uncertainty
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Sample Questions
Q1) Heads and tails are equally likely but you win a dollar on heads and lose a dollar on tails
A)the expected value is $0.50
B)the expected value is -$0.50
C)the expected value is $1.00
D)the expected value is $0.00
Q2) Three possibilities have probabilities 0.5,0.4 and 0.1 and values $10,$20,and $30 respectively.The expected value is:
A)$15
B)$16
C)$17
D)$18
Q3) You want to run a difference-in-difference experiment with a price increase for your lawn chairs in Miami.If you are worried about "leakage" with your control group,a poor comparison city would be
A)Boston
B)San Francisco
C)St.Paul
D)Tampa Bay
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Page 17
Chapter 18: Auctions
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Sample Questions
Q1) In common value auctions
A)Every bidder know the value of the object being sold
B)Each bidder makes the same estimate of the value of the good C)Bidders do not know the estimates of the others
D)The true value of the item differs across bidders
Q2) In common value auctions
A)Bidder do not know the value of the object being sold
B)Each bidder makes the same estimate of the value of the good C)All bidders know the estimates of the others
D)The true value of the item differs across bidders
Q3) A second-price auction
A)is also called a Vickrey auction
B)is conducted by bidders submitting a single sealed bid
C)is where the highest bidder wins and pays the amount of the next highest bid
D)all of the above
Q4) Bid-rigging is more likely when
A)auctions are larger
B)auctions are infrequent
C)auctions generate the same set of potential bidders
D)the auctioneer is paid on commission rather than a fixed fee
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Chapter 19: The Problem of Adverse Selection
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Sample Questions
Q1) The following is an example of risk aversion
A)those applying for a well-paid job tend to be the most qualified
B)more reckless drivers opt for cars with fewer safety devices
C)the contractor with the lowest bid for a is the most qualified
D)Initial Public Offerings (IPOs)seek investors when prospects look poor
Q2) Which is NOT an example of signaling high quality in a social setting
A)wearing a business suit on a job interview
B)leaving a big tip for the waiter after a dinner date
C)offering an expensive engagement ring to your bride
D)Doing messy chores before a big date
Q3) Which is NOT an example of signaling high quality in a social setting
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
Q4) A risk averse individual
A)values a lottery at more than its expected value
B)values a lottery at exactly its expected value
C)values a lottery at less than its expected value
D)tends to play lots of lotteries
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Chapter 20: The Problem of Moral Hazard
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Sample Questions
Q1) Which is NOT an example of moral hazard
A)people eat more at all-you-can-eat buffets
B)loggers clear-cut a tract of land rather than when paying per tree felled
C)Drivers of heavier,safer cares are more likely to run stop signs
D)workers paid an hourly wage work harder than those on commission
Q2) An example of moral hazard is
A)people drive as carefully in icy conditions with antilock brakes as without
B)people drive as safely with more airbags as without
C)football players avoid 'spearing' with their heads even with safer helmets
D)people fail to read the medicine warnings more often when self-medicating versus with a doctor's prescription
Q3) Which is NOT an example of signaling high quality in a social setting
A)wearing a business suit on a job interview
B)scrimping on the tip for the waiter after a dinner date
C)offering an expensive engagement ring to your bride
D)Visiting the beauty salon before a big date
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Page 20
Chapter 21: Getting Employees to Work in the Firms Best
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Sample Questions
Q1) In a franchising relationship
A)the franchisor is the local businessman or businesswoman
B)the trademark holder contracting with local operations is the franchisor
C)the franchisor is the trademark holder contracting with local operations
D)the trademark holder contracting with local operations is the franchisee
Q2) As a result of moving more decision making from the periphery of the organization toward the center,typically
A)the flow of information to the decision maker that is relevant to the decision should be enhanced
B)the flow of information from the decision maker that is relevant to the decision should be enhanced
C)the incentive structure for the decision maker should be strengthened
D)the incentive structure for the decision maker can be eliminated
Q3) In managerial economics,agency costs refer to
A)booking travel arrangements
B)model and actor representation
C)imperfections in dealing with those hired
D)foreign espionage
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Chapter 22: Getting Divisions to Work in the Firms Best
Interest
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Sample Questions
Q1) If the fixed costs are relatively large,a relatively good approximation to the correct transfer price is
A)average costs
B)average fixed costs
C)average variable costs
D)the market price
Q2) A production goal may be set too high by upper management because
A)they are unsure about the actual costs of production
B)they under-estimate the difficulty of meeting a goal
C)division managers over-state the difficulty of meeting the goal
D)all of the above
Q3) In profit centers
A)Managers are easy to evaluate because there is a 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 do not have the incentives to run their division efficiently
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Page 22
Chapter 23: Managing Vertical Relationships
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Sample Questions
Q1) Mechanisms that manufacturers can use to deal with misaligned retailer incentives include
A) setting a maximum retail price
B) providing an exclusive contract to a single retailer in a market
C) preventing retailers from compensating sales staff for demonstrating the product
D) eliminate manufacturer staff that was demonstrating the product in stores
Q2) The conditions in which vertical relationships can enhance a firm's ability to price discriminate include
A) the manufacturer's product is of value to multiple types of customers
B) the costs of arbitraging the price differences across markets is large
C) the manufacturer acquires the distributer in the higher priced market
D) competition provide little ability for the manufacturer has to price above marginal cost
Q3) Vertical relationships can increase profits through
A) preventing firms from evading regulation
B) creating a double-markup problem
C) better aligning the incentives of manufacturers and retailers
D) preventing price discrimination
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