Managerial Economics Exam Questions
Course Introduction
Managerial Economics is a course that explores the application of economic theory, quantitative tools, and analytical frameworks to business decision-making. Students learn to analyze how market forces, consumer behavior, production costs, pricing strategies, and competitive dynamics impact managerial choices. The course emphasizes practical problem-solving techniques, focusing on optimizing resource allocation, forecasting demand, evaluating risk, and developing strategies to achieve organizational objectives in diverse business environments. By integrating economic principles with real-world management scenarios, the course equips students with critical skills to make informed and effective decisions in both domestic and global contexts.
Recommended Textbook
ECON MICRO 5th Edition by William A. McEachern
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Page 2
Chapter 1: The Art and Science of Economic Analysis
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Q1) An economic model:
A)omits critical elements.
B)must be presented in mathematical terms.
C)simplifies reality in order to focus on its essential elements.
D)can never be proven wrong if its assumptions are realistic.
E)produces poor predictions if it includes an unrealistic assumption.
Answer: C
Q2) Which of the following is a positive statement?
A)The unemployment rate of 7 percent or higher is a national disgrace.
B)Unemployment is a less important problem than inflation.
C)When the national unemployment rate is 7 percent, the unemployment rate among inner-city youth is often close to 40 percent.
D)Unemployment and inflation are equally important problems.
E)An inflation rate of 7 percent is too high.
Answer: C
Q3) Labor and capital are exchanged in the resource market.
A)True
B)False
Answer: True
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Chapter 2: Economic Tools and Economic Systems
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Sample Questions
Q1) In a command economy, _____.
A)a dictator makes every economic decision
B)owners can sell their resources to the highest bidder
C)no individual or group coordinates the economy
D)in theory, individual choices are reflected in collective decisions and decisions are made by central planners.
E)public ownership of resources is combined with free markets to direct economic activity
Answer: D
Q2) The opportunity cost of going to college consists of more than just the tuition that will be paid.
A)True
B)False Answer: False
Q3) A rational decision maker engages in an activity if that activity is more attractive than the best alternative.
A)True
B)False
Answer: True
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Page 4
Chapter 3: Economic Decision Makers
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Sample Questions
Q1) Trade restrictions result in all of the following except one. Which is the exception?
A)Higher prices
B)Fewer choices
C)Improved quality
D)Misallocation of resources
E)Reduced competition
Answer: C
Q2) Suppose you own a proprietorship that is in serious financial difficulty. The assets of the company are $100,000 but liabilities are $175,000. You also have, however, stock in General Motors worth $200,000. If you file for bankruptcy, what amount of personal assets do you stand to lose?
A)$100,000
B)$75,000
C)$200,000
D)$275,000
E)$375,000
Answer: B
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Page 5
Chapter 4: Demand, Supply, and Markets
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Sample Questions
Q1) In case of a normal good, an increase in consumers' incomes would shift the:
A)demand curve inward.
B)supply curve inward.
C)supply curve outward.
D)supply and demand curves inward.
E)demand curve outward.
Q2) Jennifer expects the price of CDs to go up by 10 percent next week. Which of these is most likely to result from such an expectation?
A)Jennifer's demand for CD players will decrease during this week.
B)Jennifer's demand for CDs will decrease during this week.
C)Jennifer's demand for CDs will increase during the following week.
D)Jennifer's demand for CDs will increase during this week.
E)Jennifer's demand for CD players will increase during the following week.
Q3) The substitution effect of a price change describes the change in the quantity demanded of a good due to a change in its relative price.
A)True
B)False
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Chapter 5: Elasticity of Demand and Supply
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Q1) Which of the following goods will have a higher price elasticity of demand?
A)A good with few substitutes.
B)A good with many substitutes.
C)A good that represents a small proportion of the consumer's budget.
D)A good that is broadly defined.
E)A good that is a necessity.
Q2) A perfectly elastic demand curve is:
A)a vertical straight line.
B)a horizontal straight line.
C)a downward-sloping straight line.
D)an upward-sloping straight line.
E)u-shaped.
Q3) If an increase in price from $1 to $2 per unit leads to an increase in quantity supplied from 20 to 100 units, then the value of the price elasticity of supply is:
A)0.38.
B)2.
C)2.67.
D)4.
E)8.
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Chapter 6: Consumer Choice and Demand
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Q1) Suppose the marginal utility of a unit of good x = MU<sub>x</sub>, the marginal utility of a unit of good y = MU<sub>y</sub>, P<sub>x</sub>= price of a unit of good x, and P<sub>y</sub>= price of a unit of a good y. If MU<sub>x</sub>/P<sub>x</sub> > MU<sub>y</sub>/P<sub>y</sub>, the consumer can increase utility by buying more of good x.
A)True
B)False
Q2) The law of diminishing marginal utility explains why an individual's demand curve is elastic.
A)True B)False
Q3) The law of diminishing marginal utility states that as one consumes more and more of a good, other things constant, _____.
A)total utility keeps on increasing
B)marginal utility always stays positive
C)marginal utility approaches but never becomes zero
D)marginal utility keeps on increasing
E)marginal utility eventually declines
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Chapter 7: Production and Cost in the Firm
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Sample Questions
Q1) Suppose a lawyer leaves his $50,000-a-year job and starts his own firm breeding pit bulls. In the first year, his accounting profit is $70,000. The lawyer finances his new business with $100,000 from his savings account, which had earned 10 percent interest. From his new business, the lawyer earns an economic profit of _____.
A)$10,000
B)$60,000
C)$70,000
D) $80,000
E) $90,000
Q2) Minimum efficient scale is the level of output at which:
A)short-run average total cost stops decreasing.
B)short-run average total cost stops increasing.
C)long-run average cost stops decreasing.
D)long-run average cost stops increasing.
E)profit stops increasing.
Q3) The long-run average cost curve is tangent to the minimum point of every short-run average total cost curve.
A)True
B)False
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Page 9
Chapter 8: Perfect Competition
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Sample Questions
Q1) Which of the following firms is most likely to be a perfectly competitive firm?
A)One of the three largest automobile manufacturers in the United States
B)One of the "Seven Sisters," which are oil-producing companies
C)A public school operated by the government
D)A farm that grows soybeans
E)A manufacturer of refrigerators
Q2) In the long run, the entry of new firms in a competitive industry:
A)drives up the equilibrium price.
B)eliminates economic profits.
C)reduces the equilibrium quantity.
D)makes the demand curve facing each firm more inelastic.
E)makes the market demand curve steeper.
Q3) If new firms enter a perfectly competitive industry seeking economic profit and begin supplying goods in the market, which of the following will occur?
A)The market supply curve will shift leftward.
B)The market supply curve will shift rightward.
C)The market supply and demand curves will both shift to the left.
D)The market supply and demand curves will both shift to the right.
E)There will be a downward movement along a fixed supply curve.
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Page 10
Chapter 9: Monopoly
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Q1) Which of the following equations describes the relationship between market price (P), average revenue (AR), and marginal revenue (MR) for a non-discriminating monopolist?
A)P = AR = MR
B)P > AR = MR
C)P = AR > MR
D)P > AR > MR
E)P = AR < MR
Q2) Suppose a monopolist must choose between two points on its demand curve. It can either sell 100 units for $3 each or sell 140 units for $2 each. Which of the following is true?
A)The demand for the monopolist's product is price elastic for the given range of output.
B)The demand for the monopolist's product is unit elastic for the given range of output.
C)The demand for the monopolist's product is price inelastic for the given range of output.
D)The monopolist is facing a horizontal supply curve.
E)The monopolist is facing an upward-rising demand curve.
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11
Chapter 10: Monopolistic Competition and Oligopoly
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Q1) Which of the following is true of the relationship between price and marginal cost under monopolistic competition?
A)Price equals marginal cost at all levels of output.
B)Price equals marginal cost only at the profit-maximizing quantity
C)Price exceeds marginal cost at the profit-maximizing level of output
D)Price is less than marginal cost at the profit-maximizing quantity
E)Price is less than marginal cost at all levels of output
Q2) A payoff matrix is a table listing the expected economic profit resulting from different possible strategies.
A)True B)False
Q3) As firms in an oligopoly are interdependent, they attempt to maximize revenues rather than profits.
A)True
B)False
Q4) Price wars occur more often in monopolistic competition than in other market structures.
A)True B)False
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Chapter 11: Resource Markets
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Sample Questions
Q1) If two resources, such as labor and farm machinery, are complements:
A)one can be used in place of the other.
B)an increase in the price of one will increase the demand for the other.
C)an increase in the price of one will increase the supply of the other.
D)a decrease in the price of one will decrease the demand for the other.
E)a decrease in the price of one will increase the demand for the other.
Q2) An increase in the price of a resource will cause a movement along the demand curve for that resource.
A)True
B)False
Q3) In the resource market, the demand for labor is a(n) _____.
A)substitution demand
B)complementary demand
C)income demand
D)derived demand
E)marginal demand
Q4) The marginal resource cost is the additional cost of employing one additional unit of the resource.
A)True
B)False
Page 13
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Chapter 12: Labor Markets and Labor Unions
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Sample Questions
Q1) A labor union is a group of:
A)employees who join together to improve their working conditions.
B)firms that join together to hire workers.
C)firms that work together to negotiate better prices in the market.
D)farmers who work together to receive better prices for their agricultural products.
E)workers and firm owners who join together to improve working conditions.
Q2) A consumer maximizes utility by allocating time so that the expected marginal utilities of the last unit of time spent in each activity are identical.
A)True
B)False
Q3) The market labor supply curve is usually _____ over the relevant range of market wage rates.
A)positively sloped
B)negatively sloped
C)backward bending
D)vertical
E)horizontal
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Chapter 13: Capital, Interest, Entrepreneurship, and Corporate Finance
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Q1) If you own a perpetuity of $500 and if the interest rate is 4 percent, then its present value:
A)cannot be determined unless the number of years is known.
B)is $2,000.
C)is $504.
D)is $12,500.
E)is infinite.
Q2) As large-scale production became more profitable during the Industrial Revolution, the easiest way to finance the required factories and heavy machinery was through:
A)sole proprietorships.
B)limited liability partnerships.
C)purchase of government securities.
D)the corporate structure.
E)family businesses.
Q3) The more valuable a collateral backing up a loan, other things constant, the higher the interest rate charged on the loan.
A)True
B)False
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Chapter 14: Transaction Costs, Asymmetric Information, and Behavioral Economics
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Sample Questions
Q1) A firm achieves economies of scale at all output levels beyond the minimum efficient scale of production.
A)True
B)False
Q2) Identify a good that is most likely to have the maximum marginal benefit of search.
A)A pair of shoes
B)An automobile
C)A jar of honey
D)A loaf of bread
E)A pair of jeans
Q3) The term vertical integration is used to describe:
A)the expansion of a firm into earlier or later stages of production.
B)an attempt by a firm to allow market prices to coordinate more transactions.
C)an attempt by a firm to minimize shirking.
D)an attempt by a firm to minimize the need to coordinate transactions within its boundaries.
E)the mechanisms used by a firm to accumulate information about its competitors.
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Page 16
Chapter 15: Economic Regulation and Antitrust Policy
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Sample Questions
Q1) Exclusive dealing occurs when:
A)one individual serves on more than one board of directors.
B)one individual serves on only one board of directors.
C)a producer sells spark plugs to a car manufacturer with the understanding that the manufacturer will buy spark plugs only from that producer.
D)a seller offers a good for sale to an individual (or a limited group) on substantially better terms than is available to the general public.
E)a producer of spark plugs requires that customers also purchase rotors when they buy spark plugs.
Q2) Which of the following most accurately describes the types of mergers that antitrust laws are intended to prohibit?
A)Mergers that tend to reduce competition
B)Horizontal mergers
C)Both vertical and horizontal mergers
D)Conglomerate mergers
E)Vertical mergers
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Chapter 16: Public Goods and Public Choice
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Q1) To purchase goods and services, governments prefer dealing with bureaus rather than private firms because:
A)bureaucrats have less opportunity to reward friends and supporters with jobs than do private business managers.
B)bureaus always produce at the lowest possible cost.
C)bureaus use the market to sell the goods and services they produce.
D)public officials may be better able to control the details of production in bureaus than in private firms.
E)government will not be able to sell the good or service produced by a private firm because of their low quality.
Q2) If voters realize that they have but a tiny possibility of influencing public choices, they:
A)adopt a stance of rational ignorance.
B)prefer direct democracy over representative democracy.
C)engage in rent seeking activities.
D)vote with their feet.
E)tend to understate their true valuation of public goods.
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Chapter 17: Externalities and the Environment
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Q1) When the benefits to society of using a product exceed the benefits to the user, then:
A)the product should be strictly regulated.
B)the product should be taxed.
C)the product provides a positive externality.
D)the product is overproduced at the privately determined equilibrium.
E)the product provides a negative externality.
Q2) The United States recycles a greater portion of its garbage than Japan does.
A)True
B)False
Q3) When the consumption of a good generates positive externalities, _____.
A)the private demand curve for the good shifts rightward.
B)the private demand curve for the good shifts leftward.
C)the private demand curve for the good lies below the marginal social benefit curve.
D)the private demand curve for the good lies above the marginal social benefit curve.
E)the equilibrium quantity of the good determined by the free private market is too high.
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Chapter 18: Poverty and Redistribution
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Q1) Transfer payments have reduced poverty among the elderly, but poverty among females has not reduced.
A)True
B)False
Q2) Poverty is:
A)a relative concept.
B)an absolute concept.
C)more prevalent in North American countries than in other areas.
D)more prevalent in the northern states of the United States.
E)the same in all countries.
Q3) The official poverty level in the United States is defined as:
A)the income earned by the bottom 10 percent of the population.
B)the income level of the poorest 2 million households.
C)income less than $15,000 annually.
D)income equal to three times the estimated cost of a nutritionally adequate diet.
E)the ratio of total annual income of households to the cost of a nutritionally adequate diet.
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Page 20
Chapter 19: International Trade
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Q1) Ad valorem tariffs on imports are based on a percentage of an import's value, while specific tariffs are based on a lump sum per physical unit imported.
A)True
B)False
Q2) Which of the following is a type of trade restriction?
A)Diseconomies of scale
B)Autarky
C)Diminishing marginal returns
D)Health, safety, or technical standards
E)Import concession
Q3) If a manufacturer sells goods abroad for a lesser price than they sell for at home, it implies that _____.
A)an embargo has been established
B)a quota has been imposed
C)the manufacturer is engaged in dumping
D)there has been an improvement in the terms of trade
E)tariffs have been reduced
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21
Chapter 20: International Finance
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Q1) In the United States, imports have exceeded exports every year since 1979.
A)True
B)False
Q2) If interest rates fall in country A, other things constant, which of the following statements is true?
A)The demand for country A's currency will fall and the currency will depreciate.
B)The demand for country A's currency will fall and the currency will appreciate.
C)The demand for country A's currency will increase and the currency will depreciate.
D)The demand for country A's currency will increase and the currency will appreciate.
E)There will be a net inflow of foreign investments in country A.
Q3) The Bretton Woods agreement was reached:
A)immediately after the Civil War.
B)just before World War I.
C)just after World War I.
D)just after the Great Depression.
E)toward the end of World War II.
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Chapter 21: Economic Development
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Q1) In the 1950s, the United States began the Food for Peace program that resulted in
A)the sale of U.S. farm products abroad
B)the sale of farm products from Africa in the U.S.
C)the sale of U.S. industrial products abroad
D)the sale of U.S. software services in foreign countries
E)a rise in contribution by the agricultural sector to the gross domestic product of the U.S.
Q2) Japan's remarkable economic growth in the 20<sup>th</sup> century was a result of _____.
A)heavy imports of primary products from South Asian countries.
B)a growth in education, leading to a ready acceptance of technology.
C)a rise in the price of oil as Japan is an oil-rich country
D)migration of workers from Japan.
E)an increase in employment in the agricultural sector.
Q3) Differences in stages of development among countries are reflected in a number of ways besides per capita income.
A)True
B)False
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Page 23