Managerial Economics
Exam Materials
Course Introduction
Managerial Economics is a foundational course that explores the application of economic theory and quantitative methods to business decision-making. The course covers topics such as demand analysis, production and cost functions, market structures, pricing strategies, and the role of government in the marketplace. Through case studies and problem-solving exercises, students learn to analyze business problems, forecast the economic environment, and evaluate the risks and opportunities facing organizations. Emphasis is placed on optimal allocation of scarce resources, profit maximization, and strategic planning, equipping students with practical tools to make informed managerial decisions.
Recommended Textbook Principles of Microeconomics 9th Edition by
John Sayre Alan Morris
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Chapter 1: The Economic Problem
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Sample Questions
Q1) The fact that the typical movie theatre charges people for popcorn but does not charge them to use the restrooms is an example of which of the four Cs?
A)Competition.
B)Command.
C)Custom.
D)Cooperation.
Answer: C
Q2) How does microeconomics differ from macroeconomics?
Answer: Microeconomics involves an analysis of individual parts of an economy whereas macroeconomic analysis looks at the big picture,the economy as a whole.Microeconomics is the study of individual choice,and how choice is influenced by economic forces.Macroeconomics is the study of the economy as a whole,which includes inflation,unemployment,business cycles and growth.
Q3) What is the difference between productive and allocative efficiency?
Answer: Productive efficiency refers to 'the production of an output at the lowest average cost.'
Allocative efficiency refers to 'the production of the combination of products that best satisfies consumer's demand'.
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Chapter 2: Demand and Supply: An Introduction
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Sample Questions
Q1) An increase in the price of a product leads to an increase in the supply.
A)True
B)False
Answer: False
Q2) Assume the market for apple pie is initially in equilibrium.
a)Draw a demand and supply diagram to illustrate the initial equilibrium.
b)Explain the impact on the apple pie market if there is an increase in the price of vanilla ice cream.
c)Graphically illustrate the impact on the diagram you prepared for part (a).
Answer: a) 11ea7cab_97da_4fdc_8d24_630768a6e9c8_TB5692_00
b)Assuming vanilla ice cream and apple pie are complementary goods,an increase in the price of vanilla ice cream will decrease the demand for apple pie.The price and quantity traded will decrease.
c) 11ea7cab_97da_4fdd_8d24_ebb8449fcb9d_TB5692_00
Q3) What is true of substitute products?
A)When the price of one increases,the quantity purchased of the other decreases.
B)When the price of one increases,the quantity purchased of the other increases.
C)When the price of one decreases,the quantity purchased of the other increases.
D)They are products which are always purchased together.
Answer: B
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Chapter 3: Demand and Supply: An Elaboration
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Sample Questions
Q1) Refer to the graph above to answer this question.What must be true if the quantity currently being purchased is 25?
A)There is a price ceiling of $3.
B)There is a price floor of $3.
C)Equilibrium price is $3.
D)Consumers would like to buy 10 more units at a price of $3.
Answer: A
Q2) Refer to the information above to answer this question.All of the following statements except one are correct.Which is the exception?
A)The equilibrium price and quantity are $10 and 70.
B)At a price of $7,there is a surplus of 60.
C)At a price of $11,there is a surplus of 20.
D)At a price of $9,there is a shortage of 20.
Answer: B
Q3) Distinguish between shortage and scarcity.
Answer: A shortage exists when quantity supplied is less than quantity demanded.Scarcity is a condition where wants are always greater than what can be produced because of limited resources.
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Chapter 4: Elasticity
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Sample Questions
Q1) If demand is elastic and price rises,then total revenue will rise.
A)True
B)False
Q2) Suppose that average incomes increased from $30,000 to $34,000,and the quantity demanded of a product increased from 45 to 55.What is the value of the income elasticity of demand?
A)+0.625.
B)+0.74.
C)-1.0.
D)+1.36.
E)+1.6.
Q3) Refer to the graph above to answer this question.Which of the following statements is correct?
A)Demand curve D<sub>3</sub> is the most inelastic demand.
B)Equilibrium price must be $50.
C)If price is $30 and demand is D<sub>3</sub> then the quantity demanded is 720 units per day.
D)Demand curve D<sub>1</sub> is more inelastic than D<sub>3</sub>.
E)Demand curve D<sub>1</sub> is perfectly elastic.
Q4) "A linear demand curve implies constant elasticity." Evaluate this statement.
Page 6
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Chapter 5: Consumer Choice
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Sample Questions
Q1) What is marginal utility?
A)The utility derived from marginal products.
B)The utility derived from the consumption of all products.
C)The utility derived from the consumption of the average product.
D)The utility derived from the consumption of an extra unit of a product.
Q2) The consumer surplus derived from products that have an inelastic demand is greater than that from products with an elastic demand.
A)True
B)False
Q3) Refer to the above graph to answer this question.If the price of milk is $2,the price of a cookie is $1 and Sandeep has a budget of $7,how many will he purchase if he wishes to maximize his total utility?
A)0 milk and 7 cookies.
B)1 milk and 5 cookies.
C)2 milk and 3 cookies.
D)3 milk and 1 cookie.
E)3 milk and 4 cookies.
Q4) Explain why a rational consumer does not spend all of her income buying only her favorite product.
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Chapter 6: A Firms Production Decisions and Costs in the Short Run
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Sample Questions
Q1) What is the significance of the minimum point on the average variable cost curve?
Q2) Refer to the information above to answer this question.What is the value of AVC if 3 units of labour are used?
A)$1.50.
B)$5.
C)$6.67.
D)$10.
E)$18.60.
Q3) Which of the following is a fixed cost?
A)Electricity to power the production process.
B)Insurance on the factory's physical plant.
C)Raw materials.
D)Wages paid to labour.
Q4) What is depreciation?
A)Costs that are actually paid out in money.
B)A type of explicit cost.
C)Revenue over and above all costs,including normal profits.
D)The annual cost of any asset that is expected to be in use for more than a year.
Page 8
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Chapter 7: Costs in the Long Run
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Sample Questions
Q1) State whether each of the following is a short-run or long-run adjustment
a)A firm hires two more workers
b)A firm builds a new plant
c)A pizza parlor decides to add more pepperoni on their signature pizza.
d)A restaurant expands its kitchen
Q2) Refer to the graph above to answer this question.Which of the following statements is correct?
A)Q<sub>1</sub> must be the best output for a firm to produce.
B)Q<sub>2</sub> must be the best output for a firm to produce.
C)While it is possible for a firm to be too small,it could not be too large.
D)While it is possible for a firm to be too large,it could not be too small.
E)Firms that produce an output which is less than Q<sub>1</sub> cannot be achieving minimum efficient scale.
Q3) Suppose it takes 30 workers and 120 units of capital to produce 300 trucks a day.How much labour and capital is involved in producing 900 trucks a day if the firm experiences constant returns to scale?
Q4) What is the shape of the LRAC curve for a firm enjoying economies of scale?
Q5) Explain how the long run average cost curve is derived.
Q6) What is the likely cause of a firm operating below MES?
Page 9
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Chapter 8: Perfect Competition
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Sample Questions
Q1) When is a competitive firm's profits maximized?
A)When P = AC.
B)When MR = MC.
C)When P = MR.
D)When MR = AC.
Q2) Demonstrate graphically and explain verbally an example where a perfectly competitive firm is earning a positive economic profit.Be sure to label the profit maximizing level of output and shade in the area that represents profit.
Q3) Refer to the above graph to answer this question.If the market is in equilibrium,what quantity will the firm produce?
A)30.
B)50.
C)70.
D)90.
E)100.
Q4) Profit maximization occurs at the output where marginal revenue equals zero.
A)True
B)False
Q5) Differentiate between a firm and an industry.
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Chapter 9: An Evaluation of Competitive Markets
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Sample Questions
Q1) Refer to the above information to answer this question.In an effort to increase the number of daycare spaces,suppose the authorities give daycare operators a subsidy of $150 for each child registered.What will be the new equilibrium fee?
A)$350.
B)$550.
C)$500.
D)$450.
E)$650.
Q2) Free market environmentalism is a form of emissions trading.
A)True
B)False
Q3) Producer surplus is the
A)cumulative difference between the price producers receive and the price they require in order to produce.
B)difference between the brand name price and the generic brand price.
C)difference between the suggested retail price and the actual cost.
D)value of the mark-up over price.
E)value of extra sales generated by loss leaders.
Q4) State three reasons why the government provide quasi-public goods.
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Chapter 10: Monopoly
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Sample Questions
Q1) If a monopolist set the quantity produced at MR = MC and charge a price according to the market demand curve,then:
A)a deadweight loss is created as a result of a lower consumer surplus.
B)a deadweight loss is created as a result of a higher consumer surplus.
C)a deadweight loss is created as a result of a loss to the monopolist.
D)a deadweight loss is created as a result of higher output produced and higher price charged by the monopolist.
Q2) What is a monopoly?
A)A market in which a single firm is the sole producer.
B)An illegal consortium of firms acting as one.
C)A market where there is a sole buyer of a product.
D)A conglomerate where many different products are produced by one firm.
Q3) At the profit-maximizing output of the monopolist,the price will be equal to the marginal cost.
A)True
B)False
Q4) Why would a lump-sum profit tax have no impact on either the price or the output of a monopolist?
Q5) State five criticisms of a monopoly.
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Chapter 11: Imperfect Competition
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Sample Questions
Q1) Refer to the graph above to answer this question.What area graphically represents a profit-maximizing firm's total revenue?
A)0P<sub>5</sub>FQ<sub>1</sub>.
B)0P<sub>4</sub>JQ<sub>1</sub>.
C)0P<sub>3</sub>GQ<sub>1</sub>.
D)0P<sub>2</sub>IQ<sub>2</sub>.
E)0P<sub>1</sub>HQ<sub>1</sub>.
Q2) In what way does the theory of the kinked-demand curve explain price stability in an oligopoly industry?
A)Because if the firm either raises or lowers its price,its total revenue will decrease.
B)It assumes that rival firms will match any price increase and ignore any price decrease.
C)It assumes that firms are in collusion with each other.
D)It assumes that demand is inelastic above the established price and elastic below it.
Q3) Use the kinked demand curve diagram to illustrate and describe why prices are often sticky in an oligopoly market.
Q4) What is collusion?
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Chapter 12: The Factors of Production
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Sample Questions
Q1) Refer to the above information to answer this question.What quantity of labour is Nearly Done Inc.employing when the marginal product of labour is maximized?
A)2.
B)4.
C)6.
D)8.
E)Cannot be determined.
Q2) What happens if the demand for labour increases more than does the supply of labour?
A)Wage rates will increase.
B)Wage rates will decrease.
C)The effect on wage rates is indeterminate.
D)The quantity of hours worked will decline.
Q3) Graphically,what is necessary for economic rent to exist?
A)A perfectly inelastic demand curve.
B)An elastic demand curve.
C)A perfectly elastic supply curve.
D)An inelastic supply curve.
E)Both a perfectly elastic supply and demand curve.
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Chapter 13: International Trade
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Sample Questions
Q1) What is a quota?
A)A limit imposed on the production or sale of a product.
B)A restriction placed on the importation of foreign products.
C)A tax levied on imports.
D)A maximum or minimum price placed on a product by government regulation.
Q2) Refer to above table to answer this question.What is the cost of producing one broomstick in Potter?
A)2 swords.
B)0.5 swords.
C)0.33 swords.
D)3 swords.
Q3) Refer to the information above to answer this question.Assuming no trade,what are the equilibrium price and quantity of wine in Germany?
A)$6 and 10.
B)$7 and 5.
C)$8 and 7.
D)$9 and 7.
Q4) Explain why Canada imports banana.
Q5) What are Canada's main exports?
Q6) List five ways to restrict imports.
Page 15
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