Course Introduction
Managerial Economics Exam Preparation Guide
Managerial Economics explores the application of microeconomic principles and analytical tools to business decision-making. The course examines how firms optimize resource allocation, pricing strategies, production, and cost decisions in competitive and non-competitive markets. Emphasis is placed on demand analysis, forecasting, market structure, risk analysis, and the impact of governmental policies on the business environment. Through case studies and real-world examples, students develop the skills to interpret economic data, assess the viability of strategic choices, and enhance organizational performance.
Recommended Textbook
Managerial Economics and Business Strategy 8th Edition by Michael Baye
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14 Chapters
1968 Verified Questions
1968 Flashcards
Source URL: https://quizplus.com/study-set/3805
Page 2
Chapter 1: The Fundamentals of Managerial Economics
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143 Verified Questions
143 Flashcards
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Sample Questions
Q1) Economics:
A) exists because of scarcity.
B) is not related to decision making.
C) is the science of the rich.
D) has nothing to do with the allocation of resources.
Answer: A
Q2) "Our marginal revenue is greater than our marginal cost at the current production level." This statement indicates that the firm:
A) is maximizing profits.
B) should increase the quantity produced to increase profits.
C) should decrease the quantity produced to increase profits.
D) None of the statements associated with this question are correct.
Answer: B
Q3) Consumer-consumer rivalry:
A) increases the negotiating power of consumers in the marketplace.
B) reduces the negotiating power of producers in the marketplace.
C) reduces the negotiating power of consumers in the marketplace.
D) increases the likelihood of government intervention in the marketplace.
Answer: C
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Page 3
Chapter 2: Market Forces: Demand and Supply
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150 Verified Questions
150 Flashcards
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Sample Questions
Q1) Consider a market characterized by the following inverse demand and supply functions: P<sub>X</sub> = 10 - 2Q<sub>X</sub> and P<sub>X</sub> = 2 + 2Q<sub>X.</sub> Compute the surplus consumers receive when an $8 per unit price floor is imposed on the market.
A) $0.
B) $1.
C) $3.
D) $5.
Answer: B
Q2) Demand shifters do not include the A) price of the good.
B) consumer's tastes and preferences.
C) the price of the other related goods.
D) consumer's expectations about future prices of the good.
Answer: A
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4
Chapter 3: Quantitative Demand Analysis
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170 Verified Questions
170 Flashcards
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Sample Questions
Q1) We would expect the demand for jeans to be:
A) more elastic than the demand for clothing.
B) less elastic than the demand for clothing.
C) the same as the demand for clothing.
D) neither more elastic, less elastic, nor the same elasticity as that of the demand for clothing.
Answer: A
Q2) When a demand curve is linear:
A) demand is elastic at low prices.
B) demand is inelastic at low prices.
C) demand is unitary elastic at low prices.
D) the elasticity is constant at all prices.
Answer: B
Q3) If the own price elasticity of demand is infinite in absolute value, then:
A) demand is perfectly inelastic.
B) the demand curve is horizontal.
C) consumers do not respond at all to changes in price.
D) demand is neither perfectly inelastic nor is the demand curve horizontal.
Answer: B
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Page 5
Chapter 4: The Theory of Individual Behavior
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179 Verified Questions
179 Flashcards
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Sample Questions
Q1) If a worker receives a fixed payment of $100 plus $10 for every hour she works, what is the maximum total earnings the worker can receive if she is restricted to a maximum of 12 hours of work per day?
A) $220
B) $120
C) $340
D) $125
Q2) By the property of "more is better" and transitivity, indifference curves:
A) can intersect one another only once.
B) can intersect one another only twice.
C) do not intersect one another.
D) may overlap one another.
Q3) Suppose the utility function for a firm manager is U = + bQ, where Q is output, is profit, and b is a negative constant. How would the firm's output compare with what it would be if the manager's objective was to maximize profit?
A) It would be greater than the profit-maximizing output.
B) It would be less than the profit-maximizing output.
C) It would be the same as the profit-maximizing output.
D) None of the statements is correct.
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Page 6
Chapter 5: The Production Process and Costs
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173 Verified Questions
173 Flashcards
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Sample Questions
Q1) The value of marginal product of an input is the value of the:
A) total output produced by total inputs.
B) average output produced by inputs.
C) output produced by the last unit of an input.
D) output produced by the first unit of an input.
Q2) The recipe that defines the maximum amount of output that can be produced with K units of capital and L units of labor is the:
A) Production function.
B) Technological constraint.
C) Research and development schedule.
D) Total product.
Q3) Suppose that production for good X is characterized by the following production function, Q = K<sup>0.5</sup>L<sup>0.5</sup>, where K is the fixed input in the short run. If the per-unit rental rate of capital, r, is $25 and the per-unit wage, w, is $15, then the variable cost of using 81 units of capital and 9 units of labor is:
A) $2,160.
B) $2,025.
C) $135.
D) There is insufficient information to determine the variable costs.
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Page 7
Chapter 6: The Organization of the Firm
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157 Verified Questions
157 Flashcards
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Sample Questions
Q1) One problem with revenue-based incentive schemes is they do NOT provide an incentive to:
A) maximize profit.
B) maximize sales.
C) minimize costs.
D) maximize productivity.
Q2) Revenue sharing tries to induce worker effort by linking:
A) worker compensation to profits.
B) worker compensation to revenues.
C) worker output to profits.
D) worker output to revenues.
Q3) A decrease in the marginal cost arising from a less complex specialized investment environment will cause the optimal contract length to:
A) increase.
B) decrease.
C) remain constant.
D) either increase or decrease.
Q4) Is it necessarily in the best interests of shareholders for management to ensure that there is absolutely no shirking in the workplace? Explain.
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Chapter 7: The Nature of Industry
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123 Verified Questions
123 Flashcards
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Sample Questions
Q1) Producer and consumer surpluses are measures of:
A) industry performance.
B) market structure.
C) firm conduct.
D) None of the answers are correct.
Q2) The causal view of an industry is that:
A) market structure causes firms to behave in a certain way.
B) market performance causes firms to have a certain structure.
C) market performance causes firms to behave in a certain way.
D) behavior causes firms to have a certain structure.
Q3) The concentration and HHI reported in the U.S. Bureau of Census must be interpreted with caution since:
A) they are calculated by excluding foreign imports, hence they bias upward the degree of concentration.
B) they are based on figures for the entire national market.
C) the definition of product classes used to define an industry affects the results.
D) All of the answers are correct.
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9
Chapter 8: Managing in Competitive, Monopolistic, and Monopolistically Competitive Markets
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130 Verified Questions
130 Flashcards
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Sample Questions
Q1) The number of efficient plants compatible with domestic consumption of the refrigerator industry in Sweden is 0.7. Which of the following implications is(are) correct?
A) In the absence of imports, the refrigerator industry in Sweden is monopolistic.
B) The refrigerator industry in Sweden is perfectly competitive.
C) The refrigerator industry in Sweden is monopolistically competitive.
D) None of the answers is correct.
Q2) Suppose perfectly competitive market conditions are characterized by the following inverse demand and inverse supply functions: P = 100 - 5Q and P = 10 + 5Q. The demand curve facing an individual firm operating in this market is:
A) P = 100 - 5Q.
B) a horizontal line at $9.
C) a horizontal line at $55.
D) P/N = (100 - 5Q)/N, where N is the total number of firms in the competitive market.
Q3) Would you expect the demand for a monopolistically competitive firm's product to be more or less elastic than that for a monopolist's product? Explain.
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Page 10
Chapter 9: Basic Oligopoly Models
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134 Flashcards
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Sample Questions
Q1) Consider a Stackelberg duopoly with the following inverse demand function: P = 1002Q<sub>1</sub> - 2Q<sub>2</sub>. The firms' marginal costs are identical and are given by MC<sub>i</sub> = 2. Based on this information, the Stackelberg follower's reaction function is:
A) Q<sub>F</sub> = 24.5 - 0.25Q<sub>L</sub>.
B) Q<sub>F</sub> = 49 - 0.25Q<sub>F</sub>.
C) Q<sub>F</sub> = 24.5 - 0.5Q<sub>L</sub>.
D) Q<sub>F</sub> = 24.5 - Q<sub>L</sub>.
Q2) Sue and Jane own two local gas stations. They have identical constant marginal costs, but earn zero economic profits. Sue and Jane constitute:
A) a Sweezy oligopoly.
B) a Cournot oligopoly.
C) a Bertrand oligopoly.
D) None of the answers is correct.
Q3) Which would you expect to make the highest profits, other things equal?
A) Bertrand oligopolist
B) Cournot oligopolist
C) Stackelberg leader
D) Stackelberg follower
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Page 11
Chapter 10: Game Theory: Inside Oligopoly
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140 Verified Questions
140 Flashcards
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Sample Questions
Q1) Consider the following information for a simultaneous move game: If you advertise and your rival advertises, you each will earn $5 million in profits. If neither of you advertises, you will each earn $10 million in profits. However, if one of you advertises and the other does not, the firm that advertises will earn $15 million and the non-advertising firm will earn $1 million. If you and your rival plan to be in business for only one year, the Nash equilibrium is:
A) for each firm to advertise.
B) for neither firm to advertise.
C) for your firm to advertise and the other not to advertise.
D) None of the answers is correct.
Q2) According to a spokesperson for cereal maker Kellogg, " for the past several years, our individual company growth has come out of the other fellow's hide."
a. What implications does this statement have for the level of advertising in the cereal industry?
b. Using the following hypothetical payoff matrix, explain how trigger strategies can be used to support the collusive level of advertising in an infinitely repeated game. For what values of the interest can collusion be sustained?
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Page 12
Chapter 11: Pricing Strategies for Firms With Market Power
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140 Verified Questions
140 Flashcards
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Sample Questions
Q1) Suppose P = 20 - 2Q is the market demand function for a local monopoly. The marginal cost is 2Q. The firm currently uses a standard pricing strategy. Which of the following will allow the firm to enhance the profits?
A) Engage in two-part pricing.
B) Engage in commodity bundling.
C) Engage in randomized pricing.
D) Engage in two-part pricing and engage in commodity bundling.
Q2) A monopoly produces widgets at a marginal cost of $8 per unit and zero fixed costs. It faces an inverse demand function given by P = 38 - Q. The monopoly price is:
A) $30.
B) $23.
C) $15.
D) $8.
Q3) An industry produces 10,000 units of output at a price of $100. At the equilibrium price and quantity, the market elasticity of demand is -0.75. Does this industry consist of a profit-maximizing monopolist? Explain.
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Chapter 12: The Economics of Information
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128 Verified Questions
128 Flashcards
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Sample Questions
Q1) Which of the following statements is NOT true?
A) The Dutch and first-price, sealed-bid auctions are strategically equivalent.
B) A mineral rights auction is a common value auction.
C) An auctioneer is always indifferent between different kinds of auctions.
D) An English auction yields higher expected revenues than a second-price, sealed-bid auction when bidders are risk averse.
Q2) As a personnel director of a major consulting firm, you have been asked to decide whether to hire new employees. At present the economy is in a recession, and you have more people than you need to operate the business. Next year there is a 65 percent chance you will need more people and a 35 percent chance you will need fewer people. What additional information would you need when making this decision? Explain.
Q3) Which of the following is a feature of a Dutch auction?
A) The auctioneer begins with a very high asking price.
B) The winner pays the second-highest bidder's valuation.
C) Bidders write their valuation in a paper simultaneously and separately.
D) More than one bidder will announce their valuation.
Q4) Explain why a used car that is only six months old and has been driven only 5,000 miles typically sells for 20 percent less than a new car with the same options.
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Page 14
Chapter 13: Advanced Topics in Business Strategy
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89 Verified Questions
89 Flashcards
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Sample Questions
Q1) In general, adding one more user to a two-way network tends to:
A) benefit the new user more than the existing users.
B) benefit existing users more than the new user.
C) provide equal benefits to existing users and the new user.
D) not provide any benefit to either new or existing users.
Q2) A two-way network linking 15 users creates how many potential network connections?
A) 225
B) 100
C) 210
D) 300
Q3) Which of the following is an example of a network?
A) Wireless telephone service
B) Railroads
C) Internet
D) All of the examples associated with this question are networks.
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Chapter 14: A Managers Guide to Government in the Marketplace
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112 Verified Questions
112 Flashcards
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Sample Questions
Q1) The manager of Roy's Video noticed a newspaper advertisement by a rival store that erroneously claimed, "We are the only firm in town that does not sell pornographic videos." He initially dismissed the deceptive advertisement but decided to reconsider his course of action when the rival refused to stop running the advertisement. In the interim, numerous churches and other organizations boycotted Roy's Video, resulting in an estimated loss of $25,000. Do you think it would be advisable for Roy to seek legal counsel? Explain.
Q2) If a price ceiling on a monopolist results in NO shortage:
A) the full economic price is lower than the one set by the ceiling.
B) rent seeking must be effective.
C) the firm is on the verge of leaving the market.
D) the firm must be making zero economic profits.
Q3) Under the merger guidelines written by the DOJ and FTC, a merger may not be challenged if:
A) there is significant foreign competition.
B) the firms involved have monetary problems.
C) there is an emergence of new technology.
D) All of the statements associated with this question are correct.
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