Course Introduction
Managerial Economics Exam Practice Tests
Managerial Economics is a course that bridges economic theory and business practice, emphasizing the application of microeconomic concepts to managerial decision-making. Students will learn how to analyze market dynamics, demand and supply, production and cost functions, pricing strategies, and competitive environments to enhance organizational efficiency and profitability. The course focuses on practical frameworks and quantitative tools to solve real-world business problems, equipping students with skills to make informed decisions about resource allocation, risk assessment, and strategic planning in various organizational settings.
Recommended Textbook Microeconomics 7th Edition by R. Glenn Hubbard
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18 Chapters
4654 Verified Questions
4654 Flashcards
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Page 2
Chapter 1: Economics: Foundations and Models
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240 Verified Questions
240 Flashcards
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Sample Questions
Q1) What is a mixed economy?
Answer: A mixed economy is an economy in which most economic decisions result from the interaction of buyers and sellers in markets but in which the government plays a significant role in the allocation of resources.
Q2) Which of the following is an example of an activity undertaken by an entrepreneur?
A)deciding whether to purchase a gasoline-powered automobile or an electric vehicle
B)being appointed as the head of a charitable organization
C)running for a seat on the city council
D)starting your own cigar manufacturing business
Answer: D
Q3) Economists assume that rational people do all of the following except
A)use all available information as they act to achieve their goals.
B)undertake activities that benefit others and hurt themselves.
C)weigh the benefits and costs of all possible alternative actions.
D)respond to economic incentives.
Answer: B
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3
Chapter 2: Trade-Offs, Comparative Advantage, and the Market
System
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Sample Questions
Q1) Refer to Table 2-7.What is Fred's opportunity cost of making a unicycle?
A)1/3 of a pogo stick
B)3 pogo sticks
C)1/2 of a unicycle
D)1.3 pogo sticks
Answer: B
Q2) "An Inquiry into the Nature and Causes of the Wealth of Nations" published in 1776 was written by
A)John Maynard Keynes.
B)Karl Marx.
C)Alfred Marshall.
D)Adam Smith.
Answer: D
Q3) Crude oil is not an example of a factor of production, but when crude oil is processed into gasoline, it is a factor of production.
A)True
B)False
Answer: False
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Chapter 3: Where Prices Come From: the Interaction of
Demand and Supply
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242 Flashcards
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Sample Questions
Q1) Harvey Rabbitt pays for monthly cable TV service.Last week, the cable company informed Harvey that his monthly cable price would go down because the city council has granted approval for three new cable companies to service his area.How is the market for cable TV services affected by this?
A)There is an increase in the supply of cable TV service.
B)There is a decrease in the demand for cable TV service.
C)There is a decrease in the quantity of cable TV service supplied.
D)There is a decrease in the supply of cable TV service.
Answer: A
Q2) Suppose that when the price of hamburgers decreases, the Ruiz family increases their purchases of ketchup.To the Ruiz family,
A)hamburgers and ketchup are complements.
B)hamburgers and ketchup and substitutes.
C)hamburgers and ketchup are normal goods.
D)hamburgers are normal goods and ketchup is an inferior good.
Answer: A
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Chapter 4: Economic Efficiency, Government Price Setting, and Taxes
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208 Flashcards
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Sample Questions
Q1) Refer to Figure 4-8.The price buyers pay after the tax is A)$7.
B)$20.
C)$22.
D)$27.
Q2) Refer to Figure 4-1.Arnold's marginal benefit from consuming the third burrito is A)$1.25.
B)$1.50.
C)$2.50.
D)$6.00.
Q3) The difference between the highest price a consumer is willing to pay for a good and the price the consumer actually pays is called
A)producer surplus.
B)the substitution effect.
C)the income effect.
D)consumer surplus.
Q4) One result of a tax is an increase in economic efficiency.
A)True
B)False
6
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Chapter 5: Externalities, Environmental Policy, and Public Goods
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262 Verified Questions
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Sample Questions
Q1) Which of the following displays these two characteristics: rivalry and nonexcludability?
A)a public good
B)a private good
C)a quasi-public good
D)a common resource
Q2) Getting an annual flu shot is a way to reduce the chances of not only contracting influenza, but also spreading it to other people.In this sense, getting an annual flu shot is reducing ________ of spreading a contagious disease.
A)positive externalities
B)negative externalities
C)the private benefit
D)the social benefit
Q3) Government-imposed quantitative limits on the amount of pollution firms are allowed to produce is an example of
A)the Pigovian method of pollution control.
B)a command-and-control approach to pollution reduction.
C)a Coasian solution to pollution reduction.
D)a tradable emission allowance system of pollution control.
Page 7
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Chapter 6: Elasticity: the Responsiveness of Demand and Supply
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Sample Questions
Q1) The government of Bassaland is looking for new revenue sources.It is considering imposing an excise tax on two goods: palm wine and diapers.If the price elasticity of demand for the goods are -0.47 and -1.89 respectively, which good should it tax if the goal is to raise revenue? If the government wants to tax only one good, which good should it tax if the goal is to discourage consumption? Explain your answer.
Q2) The price elasticity of an upward-sloping supply curve is always A)positive.
B)negative.
C)greater than one.
D)impossible to determine.
Q3) If, for a given percentage increase in price, quantity supplied increases by a proportionately larger percentage, then supply is A)unit elastic.
B)perfectly elastic.
C)inelastic.
D)elastic.
Q4) Explain why a local bottler of PepsiCo products would likely prefer a national soda tax to a local soda tax in its region.
Page 8
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Chapter 7: The Economics of Health Care
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171 Flashcards
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Sample Questions
Q1) Regarding the Patient Protection and Affordable Care Act (ACA),
A)most economists and policymakers agree that the ACA should be repealed and replaced with market-based reforms.
B)most economists and policymakers agree that the ACA should be repealed and replaced with a single-payer health care system.
C)most economists favor replacing the ACA with market-based reforms and most policymakers favor replacing the ACA with a single-payer health care system.
D)there is still considerable debate among economists and policymakers with respect to amending or repealing the ACA.
Q2) Of the following high-income countries, which has the lowest number of MRI units per 1 million population?
A)Canada
B)Japan
C)the United Kingdom
D)the United States
Q3) What is the main difference between a single-payer health care system and socialized medicine?
Q4) What are the main sources of health insurance in the United States?
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Chapter 8: Firms, the Stock Market, and Corporate Governance
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Sample Questions
Q1) Who controls a partnership?
A)the owners
B)stockholders
C)bondholders
D)employees
Q2) On a balance sheet,
A)total assets must equal total liabilities plus equity.
B)total assets plus equity must equal total liabilities.
C)total assets plus total liabilities must equal zero.
D)total assets plus total liabilities plus equity must equal zero.
Q3) Unlike firms that sell stock in financial markets, which are known as ________ firms, companies which do not sell stock in financial markets are known as ________ firms.
A)public; private
B)open; closed
C)corporate; proprietary
D)stock market; bond market
Q4) Who decides control of a corporation?
Page 10
Q5) How does the principal-agent problem extend to managers and employees?
Q6) What is the difference between explicit and implicit costs?
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Chapter 9: Comparative Advantage and the Gains From International Trade
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Sample Questions
Q1) The World Trade Organization (WTO)promotes foreign trade and investment, or globalization.In recent years opposition to globalization has led to violent protests at meetings of the WTO.One reason for these anti-globalization protests is A)foreign trade and investment are examples of zero-sum games. B)protesters believe that globalization will result in a return to communism in developing countries.
C)protesters believe that free trade destroys the distinctive cultures of many countries. D)protesters object to the loss of intellectual property (such as software programs and movies)that results from foreign trade and investment.
Q2) Under autarky, consumer surplus is represented by the area
A)above the supply curve and below the equilibrium price.
B)above the supply curve and below the demand curve.
C)below the demand curve and above the equilibrium price.
D)above the demand curve and below the supply curve.
Q3) What is autarky?
Q4) Anti-globalization and protectionism are both arguments against free trade.How do these two arguments differ?
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Chapter 10: Consumer Choice and Behavioral Economics
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Sample Questions
Q1) What is the endowment effect?
A)the phenomenon that economic agents are endowed with different qualities and abilities so that trade among individuals increase efficiency
B)the tendency for economic agents with abundant resources to consume a proportionately greater quantity of goods and services
C)the tendency of people to be unwilling to sell something they already own even if they are offered a price that is greater than the price they would be willing to pay to buy the good if they didn't already own it.
D)the tendency of firms to use celebrities endowed with good looks to promote their products
Q2) Why do many film processing companies have a policy of printing every picture on a roll of film or a memory card, even if the picture is very fuzzy and customers are allowed to ask for refunds on any pictures they do not like?
Q3) Molly received an autographed poster of David Hasselhoff for her 21st birthday.Her friend Helga offered her $50 for the poster, but Molly refused to sell the poster even though she knows she would never pay that much to replace it if it was ever damaged or destroyed.Explain this inconsistency in Molly's behavior.
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Chapter 11: Technology, Production, and Costs
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Sample Questions
Q1) Which of the following is the best example of a short-run adjustment?
A)A local bakery purchases another commercial oven as part of its capacity expansion.
B)Your local Walmart hires two more associates.
C)Smith University completed negotiations to acquire a large piece of land to build its new library.
D)Toyota builds a new assembly plant in Texas.
Q2) Marginal cost is equal to the
A)change in total cost divided by the change in output.
B)change in average total costs divided by the change in output.
C)change in total product divided by the change in output.
D)change in average product divided by the change in output.
Q3) When a firm experiences a positive technological change
A)the price of a share of the firm's stock rises.
B)the firm is able to produce more output using the same inputs, or the same output using fewer inputs.
C)the value of the firm's assets rises.
D)the firm will hire additional workers in order to increase production.
Q4) State the law of diminishing marginal returns.
Q5) What are economies of scale? What are diseconomies of scale?
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Chapter 12: Firms in Perfectly Competitive Markets
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Sample Questions
Q1) Refer to Figure 12-11.If this is a constant-cost industry, what is the market price in the long-run equilibrium?
A)$5
B)$14
C)$15
D)$20
Q2) Refer to Figure 12-9.At price P , the firm would
A)lose an amount equal to its fixed cost.
B)lose an amount more than fixed cost.
C)lose an amount less than fixed cost.
D)break even.
Q3) What is productive efficiency?
A)a situation in which resources are allocated to their highest profit use
B)a situation in which resources are allocated such that goods can be produced at their lowest possible average cost
C)a situation in which resources are allocated such the last unit of output produced provides a marginal benefit to consumers equal to the marginal cost of producing it
D)a situation in which firms produce as much as possible
Q4) What is meant by the term "long-run competitive equilibrium"?
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Chapter 13: Monopolistic Competition: the Competitive
Model in a
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Sample Questions
Q1) A monopolistic competitor does not earn profits in the long run unless it can successfully differentiate its product in the minds of its consumers.
A)True
B)False
Q2) Recent research has shown that the first firm to enter a market often does not have a long-term advantage over later entrants into the market.An example that has been used to illustrate this is
A)McDonald's entry into the high-end coffee market.
B)Xerox, which became a generic term for making photocopies.
C)Abercrombie and Fitch, which was the first clothing company to market to young men.
D)the introduction of the first ballpoint pen in 1945.
Q3) Every firm that has the ability to affect the price of the good or service it sells will
A)have a perfectly elastic demand curve.
B)have a marginal revenue curve that lies below its demand curve.
C)earn a short-run profit but break even in the long run.
D)shut down in the short run.
Q4) What are the formulas for total revenue, average revenue, and marginal revenue.
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Chapter 14: Oligopoly: Firms in Less Competitive Markets
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Sample Questions
Q1) How does the demand curve for an oligopoly firm differ from the demand curves for firms in competitive market structures?
Q2) A fundamental assumption in game theory is that players do not interact with each other.
A)True
B)False
Q3) Producing a differentiated product occurs in which of the following industries?
A)oligopoly, monopolistic competition, and perfect competition
B)monopolistic competition only
C)oligopoly only
D)monopolistic competition and oligopoly
Q4) If economies of scale are significant, the typical firm will not reach the minimum point on its long-run average cost curve until it has produced a large fraction of industry sales.
A)True B)False
Q5) The breakfast cereal industry has a four-firm concentration ratio of 80 percent.Is this enough information to classify the industry as an oligopoly? Is a high concentration ratio evidence that an industry is not competitive?
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Chapter 15: Monopoly and Antitrust Policy
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Sample Questions
Q1) For decades, the NCAA restricted the number of college football and basketball games that could be televised, and in 1982 the University of Georgia and the University of Oklahoma sued the NCAA under the federal antitrust laws.In 1984, the Supreme Court decided the case
A)for the NCAA, citing the fact that belonging to the NCAA was voluntary.
B)against the NCAA, citing that the NCAA did not control what television networks put on the air.
C)against the NCAA, citing anticompetitive practice.
D)against the NCAA, citing explicit collusion among the larger colleges.
Q2) Governments grant patents to encourage
A)research and development on new products.
B)competition.
C)low prices.
D)firms to form public enterprises.
Q3) If a monopolist's marginal revenue is $15 per unit and its marginal cost is $25, then to maximize profit the firm should decrease output.
A)True
B)False
Q4) Identify four reasons for high entry barriers.Briefly explain each reason.
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Chapter 16: Pricing Strategy
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Sample Questions
Q1) Firms engage in odd pricing when they charge prices that appear to be less than they really are; for example, charging a price of $4.95 instead of $5.00 and $.99 instead of $1.00.How have researchers tried to determine whether odd pricing is successful in convincing consumers that odd prices are less than they really are?
Q2) "Buy low and sell high is advice given to people who want to make a profit by buying and selling shares of stock.Arbitrage is defined as buying a product in one market at a low price and reselling it in another market at a high price.Therefore, when stock brokers buy and sell stocks to earn a profit they are engaging in arbitrage." Evaluate this statement; state whether it is true or false and explain your answer.
Q3) The antitrust law that prohibits price discrimination on grounds that it reduces competition is
A)the Clayton Act.
B)the Federal Trade Commission Act.
C)the Robinson-Patman Act.
D)the Sherman Act.
Q4) What three conditions must hold for a firm to successfully price discriminate?
Q5) What is the difference between price discrimination and other forms of discrimination?
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Chapter 17: The Markets for Labor and Other Factors of Production
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Sample Questions
Q1) How will an increase in population affect the labor market?
A)It will shift the market supply curve.
B)It will cause a decrease in the quantity of labor demanded.
C)It will increase the supply of jobs.
D)It will increase the opportunity cost of leisure.
Q2) A firm chooses its profit-maximizing quantity of capital by
A)comparing the marginal revenue product of capital with the rental price of capital.
B)comparing the price of capital with the price of labor.
C)examining the total cost of capital equipment.
D)determining the rate at which the firm can borrow funds to purchase plant and equipment.
Q3) Holding the price of a firm's output constant, if the marginal product of labor increases
A)the marginal revenue product of labor decreases.
B)the marginal revenue product of labor also increases.
C)the marginal products of other inputs also increase.
D)the marginal revenue product of labor may increase or decrease.
Q4) What is a compensating differential?
Q5) Why are there superstar baseball players but no superstar chiropractors?
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Chapter 18: Public Choice, Taxes, and the Distribution of Income
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Sample Questions
Q1) If the government wants to minimize the welfare loss of a tax, it should tax goods with more inelastic demand curves or supply curves.
A)True
B)False
Q2) Refer to Figure 18-5.The middle 20 percent of households
A)earn 20 percent of the society's total income.
B)earn 36 percent of the society's total income.
C)earn 48 percent of the society's total income.
D)earn 50 percent of the society's total income.
Q3) In the United States, the federal income tax is an example of a
A)progressive tax.
B)regressive tax.
C)proportional tax.
D)flat tax.
Q4) According to the median voter theorem, the outcome of a majority vote is likely to represent the preferences of the voter who is in the political middle.
A)True
B)False
Q5) What is the relationship between market failure and government failure?
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