Managerial Economics
Exam Answer Key
Course Introduction
Managerial Economics explores the application of economic theories and methodologies to managerial decision-making processes within organizations. The course covers topics such as demand analysis, production and cost functions, market structures, pricing strategies, and risk analysis, with an emphasis on using quantitative and qualitative tools to solve practical business problems. Through case studies and real-world examples, students learn how to identify optimal solutions to resource allocation, forecasting, and strategic planning, equipping them with the analytical skills necessary to make informed economic decisions in a dynamic business environment.
Recommended Textbook Microeconomics Student Value 4th Edition by R.
Glenn Hubbard
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18 Chapters
2548 Verified Questions
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Page 2
Chapter 1: Economics: Foundations and Models
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Sample Questions
Q1) As population declines,scarcity eventually disappears.
A)True
B)False Answer: False
Q2) Marginal benefit is the benefit that your activity provides to someone else.
A)True
B)False Answer: False
Q3) In a market economy,________ interact in markets to decide the answers to the fundamental economic questions.
A)state and local governments
B)large corporations
C)households and firms
D)the judicial and legislative branches of the federal government
Answer: C
Q4) One example of human capital is the amount of savings that you have.
A)True
B)False Answer: False
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Chapter 2: Trade-Offs, comparative Advantage, and the Market System
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Sample Questions
Q1) Refer to Table 2-3.What is Jack's opportunity cost of mowing a lawn?
A)half a garden cultivated
B)two lawns mowed
C)two-thirds of a garden cultivated
D)one and a half lawns mowed
Answer: C
Q2) Refer to Figure 2-2.The linear production possibilities frontier in the figure indicates that
A)Vidalia has a comparative advantage in the production of orchids.
B)Vidalia has a comparative disadvantage in the production of roses.
C)the tradeoff between roses and orchids is constant.
D)it is progressively more expensive to produce orchids.
Answer: C
Q3) In economics,the term "free market" refers to a market where no sales tax is imposed on products sold.
A)True
B)False
Answer: False
Q4) List the four broad categories of factors of production.
Answer: labor,capital,natural resources,and entrepreneurship
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Chapter 3: Where Prices Come From: the Interaction of
Demand and Supply
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Sample Questions
Q1) If pilots and flight attendants agree to wage and benefit reductions in the wake of the financial difficulties in the airline industry,what impact would this have on the supply and demand in the market for airline service,assuming no other changes take place in this market?
Answer: A reduction of wages and benefits will shift the supply curve to the right,but will not shift the demand curve.This will decrease the equilibrium price and increase the equilibrium quantity in the market for airline service.
Q2) If a decrease in income leads to in a decrease in the demand for ice cream,then ice cream is
A)a normal good.
B)a neutral good.
C)a complement.
D)a necessity.
Answer: A
Q3) All else equal,as the price of a product falls,the quantity supplied decreases.
A)True
B)False
Answer: True
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Chapter 4: Economic Efficiency, government Price Setting, and Taxes
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Sample Questions
Q1) In a competitive market the ________ curve shows the marginal benefit received by consumers and the ________ curve shows the marginal cost to producers.
A).demand; supply
B)supply; demand
C)demand; market demand
D)supply; market supply
Q2) Refer to Figure 4-9.How much of the tax is paid by buyers?
A)$8
B)$5
C)$4
D)$3
Q3) Government intervention in agricultural markets in the U.S.began
A)during World War II to ensure that enough food was available for domestic consumption.
B)after World War I in order to assist farmers to adjust from a war-time economy to a peace-time economy.
C)during the Great Depression.
D)during the Korean War.
Q4) What is deadweight loss? When is deadweight loss equal to zero?
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Chapter 5: Externalities, environmental Policy, and Public Goods
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Sample Questions
Q1) Which of the following describes the difference between the market demand curve for a private good and the demand curve for a public good?
A)The market demand curve for a private good is derived by adding vertically the quantities that consumers demand at each price.The demand curve for a public good is derived by adding horizontally the quantities that consumers demand at each price.
B)The market demand curve for a private good is derived by adding horizontally the quantity of the good demanded at each price by each consumer.The demand curve for a public good is derived by adding up the price each consumer is willing to pay for each quantity of the good.
C)The market demand curve for a private good will always is downward sloping.The demand curve for a public good will always is upward sloping.
D)The market demand curve is drawn holding everything other than the price of the good constant; the demand curve for a public good is drawn by allowing all variables that affect demand to change.
Q2) A negative externality is an example of market failure.The root of the problem lies in the definition and enforcement of property rights.Explain.
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Chapter 6: Elasticity: the Responsiveness of Demand and Supply
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Sample Questions
Q1) If the price elasticity of demand is unit-elastic,a 10 percent increase in price will result in a 10 percent increase in revenue.
A)True
B)False
Q2) If demand for a product is perfectly inelastic a change in price will not change total revenue.
A)True
B)False
Q3) If the income elasticity for canned food is 0.8,then canned food is an inferior good.
A)True
B)False
Q4) The price elasticity of demand for beef is estimated to be 0.60 (in absolute value).This means that a 20 percent increase in the price of beef,holding every thing else constant,will cause the quantity of beef demanded to
A)decrease by 12 percent.
B)decrease by 26 percent.
C)decrease by 32 percent.
D)decrease by 60 percent.
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Chapter 7: The Economics of Health Care
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Sample Questions
Q1) Changes in the health of the average person are relatively unimportant as an indicator of changes in the standard of living.
A)True
B)False
Q2) All of the following are ways in which health insurance companies can potentially reduce adverse selection except
A)by insuring only large groups of people.
B)by lowering the co-payments and deductibles on the policies they issue.
C)by refusing to insure some applicants,for example based on prior health conditions.
D)by finding out as much information about a person applying for insurance,for example requiring a medical examination.
Q3) Typically,the ________ in a country,the higher the level of spending per person on health care.
A)higher the level of income per person
B)larger the population
C)higher the level of income taxes
D)lower the median age of the population
Q4) How do adverse selection and moral hazard affect the market for insurance?
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Page 9
Chapter 8: Firms, the Stock Market, and Corporate Governance
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Sample Questions
Q1) The three most widely followed stock indexes in the United States include all of the following except
A)the Dow Jones Industrial Average.
B)the S&P 500.
C)the Fortune 500.
D)The NASDAQ.
Q2) An increase in liabilities will reduce a firm's net worth.
A)True
B)False
Q3) Why is a dollar today more valuable than a dollar a year from now?
A)The dollar today can be immediately used to buy something.
B)A dollar a year from now will likely have less purchasing power because of inflation.
C)The unknown future is riskier than the known present.
D)all of these
Q4) Raising funds through financial intermediaries is called
A)direct finance.
B)corporate finance.
C)indirect finance.
D)dividend reinvestment.
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Chapter 9: Comparative Advantage and the Gains From International Trade
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Sample Questions
Q1) In the past two decades the United States lost its comparative advantage in automobiles to Japan.What factor was most responsible for the development of Japan's comparative advantage in automobiles?
A)Japanese firms excelled in process technology.
B)Japan has abundant supplies of labor.
C)Japanese firms benefited from external economies.
D)Japan has abundant supplies of natural resources needed to produce automobiles.
Q2) China has developed a comparative advantage in the production of children's toys.The source of this comparative advantage is A)superior process technology.
B)a large supply of unskilled workers and relatively little capital.
C)investment in capital used to produce toys.
D)a large supply of natural resources.
Q3) A tariff
A)makes domestic consumers better off.
B)makes both domestic producers and consumers better off.
C)makes everyone worse off.
D)makes domestic producers better off.
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Chapter 10: Consumer Choice and Behavioral Economics
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Sample Questions
Q1) Refer to Figure 10-5.If the consumer has $240 to spend on DVDs and CDs,what is the price of a DVD if the budget constraint is BC1?
A)$10
B)$20
C)$24
D)$40
Q2) Refer to Table 10-6.What is Antonio's marginal utility from consuming the fifth beer?
A)4 utils
B)13.6 utils
C)69 utils
D)134 utils
Q3) Celebrity endorsements of products,such as Snoop Dogg's tweets about the Toyota Sienna minivan,are intended to cause the demand curve for the product to ________,which allows the product's manufacturer to ________.
A)shift to the right; lower its production costs and increase output.
B)shift to the left; lower its production costs and increase output.
C)shift to the right; sell more of the product at every price.
D)shift to the left; sell more of the product at every price.
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Page 12
Chapter 11: Technology, production, and Costs
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Sample Questions
Q1) The rules of accounting generally require that ________ costs be used for purposes of keeping a company's financial records and for paying taxes.These costs are sometimes called ________ costs.
A)economic; legal
B)real; explicit
C)total; economic
D)explicit; accounting
Q2) Sam Lewis owns a firm in New York City's garment district.If Sam keeps adding workers to use the same number of sewing machines,eventually the workplace will become so crowded that workers will get in each other's way.At this point
A)the marginal product of labor in Sam's business would be negative and his total output would decrease.
B)Sam should encourage his workers to share their sewing machines.
C)Sam's business will be in violation of safety rules that have been established by the New York City government.
D)Sam should begin using a division of labor in his business.
Q3) What is an isocost line? What is the slope of an isocost line?
Q4) Describe the difference between technology and positive technological change.
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Page 13
Chapter 12: Firms in Perfectly Competitive Markets
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Sample Questions
Q1) Allocative efficiency is achieved in an industry when firms supply those goods and services that provide consumers with a marginal benefit equal to the marginal cost of producing those goods and services.
A)True
B)False
Q2) A perfectly competitive apple farm produces 1,000 bushels of apples at a total cost of $36,000.The price of each bushel is $50.Calculate the firm's short-run profit or loss.
A)loss of $14,000
B)profit of $14,000
C)profit of $50,000
D)There is insufficient information to answer the question.
Q3) If a firm shuts down in the short run it will
A)break even.
B)declare bankruptcy.
C)suffer a loss equal to its variable costs.
D)suffer a loss equal to its fixed costs.
Q4) If firms do not earn economic profits in a competitive equilibrium,why would the firms choose to stay in business?
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Page 14
Chapter 13: Monopolistic Competition: the Competitive
Model in a More Realistic Setting
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Sample Questions
Q1) Some factors that allow firms to make economic profits are beyond its control.All but one of the following is an uncontrollable factor.Which factor is controllable?
A)input prices
B)consumer tastes
C)chance events
D)product differentiation
Q2) Monopolistic competition is a market structure in which
A)firms produce and sell products for which there are no close substitutes.
B)the demand curve for a typical firm is horizontal.
C)firms cannot influence the market price.
D)barriers to entry are low.
Q3) Which of the following is not a characteristic of monopolistic competition?
A)There are many buyers and sellers.
B)There are low barriers to entry.
C)Average revenue is equal to price.
D)The products sold by all firms are identical.
Q4) Why are many companies concerned about brand management?
Q5) Explain the significance of brand management to a firm that has differentiated its product.Comment specifically on the importance of obtaining a trademark.
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Chapter 14: Oligopoly: Firms in Less Competitive Markets
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Sample Questions
Q1) We can draw demand curves for firms in perfectly competitive and monopolistically competitive industries,but not for oligopoly firms.The reason for this is
A)there are no barriers to entry in perfectly competitive and monopolistically competitive industries.There are high barriers to entry in oligopoly industries.
B)we can assume that the prices charged by perfectly competitive and monopolistically competitive firms have no impact on rival firms.For oligopoly this assumption is unrealistic.
C)that perfectly competitive and monopolistically competitive firms are price takers.Oligopoly firms are price makers.
D)perfectly competitive and monopolistically competitive firms sell standardized products.Oligopoly firms sell differentiated products.
Q2) The five competitive forces model was developed by
A)Michael Porter.
B)John Nash.
C)Michael Spence.
D)Porter Smith.
Q3) What is the difference between explicit collusion and implicit collusion?
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16
Chapter 15: Monopoly and Antitrust Policy
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Sample Questions
Q1) Natural monopolies are most likely to occur in markets where fixed costs are very large relative to variable costs.
A)True
B)False
Q2) Economic efficiency requires that a natural monopoly's price be set corresponding to the quantity where marginal revenue equals marginal cost.
A)True
B)False
Q3) A merger between firms at different stages of production of a good
A)is a vertical merger.
B)was made illegal by the Sherman Act.
C)was made legal by the Clayton Act.
D)is a horizontal merger.
Q4) What is the difference between a monopoly's marginal revenue curve and a perfect competitor's marginal revenue curve?
Q5) Producers in perfect competition receive a smaller producer surplus than a monopoly producer.
A)True
B)False
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Chapter 16: Pricing Strategy
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Sample Questions
Q1) Bubba's Hula Shack bar and bistro has begun giving customers who can show proof that they arrived at the establishment by public transportation a 10 percent discount on their total bill.All else equal,customers who arrive by public transportation to take advantage of Bubba's Hula Shack discount have a ________ for the services of the establishment than customers who drive to the establishment.
A)higher price elasticity of demand
B)lower price elasticity of demand
C)higher price elasticity of supply
D)lower price elasticity of supply
Q2) Book publishers often use a cost-plus pricing strategy.One reason for this is
A)most publishers do not hire economists who can determine the number of books they must sell to equate marginal cost and marginal revenue.
B)publishers do not want to incur the expense of determining the profit-maximizing strategy.They prefer cost-plus pricing because of its lower cost.
C)much of the cost of publishing textbooks is difficult to assign to any particular book.
D)bookstores,not publishers,ultimately determine how many books will be produced.
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Chapter 17: The Markets for Labor and Other Factors of Production
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Sample Questions
Q1) Larry and Mike are equally skilled construction workers employed by the Brown and Root Company.Larry's job is riskier because he typically works on a scaffold 1,000 feet above ground.Larry's higher wage rate is the result of
A)economic discrimination.
B)a compensating differential.
C)a negative feedback loop.
D)a higher marginal revenue product.
Q2) If the labor supply curve shifts to the right and the labor demand curve remains unchanged,what will happen to the equilibrium wage and the equilibrium level of employment? Illustrate your answer with a graph.
Q3) What are the three most important variables that cause the market supply curve of labor to shift?
Q4) A decrease in the amount of human capital acquired by workers will lead to decrease in the supply of labor.
A)True
B)False
Q5) How will a government-imposed minimum wage affect the equilibrium level of employment in a competitive labor market and in a monopsony labor market?
Page 19
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Chapter 18: Public Choice, taxes, and the Distribution of Income
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Sample Questions
Q1) A key insight of the public choice model is that public policymakers are likely to pursue the public's interest,even if their self-interests conflict with the public interest.
A)True
B)False
Q2) For many U.S.individuals and households,replacing the federal income tax with a consumption tax would not make a major change in their tax liability - the amount they would be taxed.Which of the individuals described would be least affected by replacing the income tax with a consumption tax?
A)A person in the lowest income bracket.This person would pay little or no tax under either system.
B)A high-income individual who saves 35 percent of this income and uses his savings to purchase stocks and bonds.
C)A female head of family,with no husband present.
D)A taxpayer who puts part of her savings into a 401(k)retirement plan and in an Individual Retirement Account.
Q3) In 2010,which type of tax raised the most revenue for the U.S.federal government? Which type of tax raised the most revenue for state and local governments?
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