Managerial Economics Exam
Questions
Course Introduction
Managerial Economics bridges economic theory with practical business application to aid in decision-making and strategy formulation within organizations. This course explores key concepts such as demand analysis, production and cost functions, market structure, pricing strategies, and competitive behavior. Through real-world case studies and quantitative methods, students learn how to apply economic reasoning to solve managerial problems, evaluate business opportunities, and make informed choices under different market conditions. Emphasis is placed on understanding how microeconomic principles support effective management and optimize resource allocation in both domestic and global business environments.
Recommended Textbook Economics of Strategy 6th Edition by David
Besanko
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14 Chapters
419 Verified Questions
419 Flashcards
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Page 2
Chapter 1: The Power of Principles: an Historical Perspective
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Sample Questions
Q1) What economics game theory concept is demonstrated by the Erie Canal public works project?
A) Nash equilibrium
B) Lock-in
C) Backwards induction
D) Fair division
E) Prisoner's dilemma
Answer: E
Q2) What is throughput?
A) The movement of inputs and outputs through a production process
B) Assets that assist in the production or distribution of goods and services
C) A condition that determines the horizontal and vertical boundaries of business firms
D) An investment in the acquisition of raw materials
E) The amount of time for a good to travel between metropolitan areas
Answer: A
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3
Chapter 2: Economies of Scale and Scope
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Sample Questions
Q1) If a firm enjoys lower costs due to a complex labor-intensive process,which of the following statements would then be true?
A) Cutbacks in volume will always raise unit costs
B) The firm is unconcerned with labor turnover
C) An example of this process could be the practice of anti-trust law
D) The firm's average cost rises due to moving down the learning curve
E) The process is likely a repetitive manufacturing process such as two-piece aluminum can manufacturing
Answer: C
Q2) What institution within a firm must fail on some level for managers to be motivated to acquire another firm for the purposes of increasing their own compensation,shielding themselves against risk,or gaining prominence by running a larger firm?
A) Legal department
B) Corporate board
C) Mergers and acquisitions program
D) Firm bonus schedule
E) Corporate governance
Answer: E
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4
Chapter 3: The Vertical Boundaries of the Firm
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Sample Questions
Q1) What problem preventing complete contracts refers to a lack of transparency/equal access to the details surrounding a contract?
A) Agency costs
B) Bounded rationality
C) Performance measurement difficulties
D) Asymmetric information
E) Contract body of law
Answer: D
Q2) Suppose you manufacture 10 million hard drives per year specifically for Dell laptop computers.Suppose your average variable cost C=$20/unit,annualized cost of investment to build a hard drive factory I=$30 million,and the market price (bailout market price in the event Dell does not buy)Pm=$22/unit.If Dell agrees to purchase the 10 million hard drives at a price P*=$25/unit and subsequently renegotiates to only purchase for $22.50/unit,what has Dell increased its own profits by?
Answer: $25 million
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Chapter 4: Integration and Its Alternatives
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Sample Questions
Q1) For what critical aspect of drug development has research (Azoulay & Henderson)shown that major drug houses have chosen tapered integration?
A) Clinical Research
B) Drug Development
C) Marketing
D) Sales
E) Manufacturing
Q2) Which of the following is true with regard to the difference in exchange costs between an item produced internally firm and an item purchased from an outside supplier through an arm's length market transaction as the level of asset specificity increases?
A) The cost difference is positive for both low and high levels of specificity
B) The cost difference is negative for both low and high levels of specificity
C) The cost difference is negative for low and positive for high levels of specificity
D) The cost difference is positive for low and negative for high levels of specificity
E) As asset specificity increases, the transaction costs of the market exchange decrease
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Chapter 5: Competitors and Competition
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Sample Questions
Q1) Suppose two hot dog stands,Al's & Bob's,position themselves at different ends of a 1000 yard stretch of beach.Assume there are 100 beach goers evenly distributed along the stretch of beach and travel costs are $.01 per yard.If Al charges $1 for his hot dogs and Bob charges $2 for his hot dogs,what is the cost of purchasing a hot dog from each stand for a hungry beachgoer situated at a position D yards from Al's end of the beach? How many consumers will go to Al's and how many will go to Bob's?
Q2) What is defined by the number and size distribution of the firms in a market?
A) Herfindahl index
B) Market share
C) Market structure
D) SSNIP
E) Numbers-equivalent of firms
Q3) What empirical method generally is used to measure the degree to which products substitute for each other?
A) Cross-price elasticity
B) Price comparison
C) Relatedness factor
D) Standard Industrial Classification
E) SSNIP
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Page 7
Chapter 6: Entry and Exit
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Sample Questions
Q1) What term describes when a firm sells a combination of goods and services at a price below what the individual items would cost?
A) Packaging
B) Combining
C) Bundling
D) Mixing
E) Assembling
Q2) When is reputation a most effective entry barrier?
A) When the incumbent has incurred them and the entrant has not
B) When incumbents have long-standing relationships with suppliers and customers
C) When channels are few and hard to replicate
D) When a firm has a reputation for toughness or competes in multiple markets
E) When marginal costs are low and flooding the market causes large price reductions
Q3) Which of the following is not an exit barrier for firms in an industry?
A) Sunk costs
B) Labor agreements or commitments to purchase raw materials
C) Obligations to input suppliers
D) Excess capacity
E) Government restrictions
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Page 8
Chapter 7: The Dynamics Competing Across Time
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Q1) Which of the following terms describes the situation created by a large dominant firm where smaller firms can find buyers as long as they sustain a lower price?
A) Price umbrella
B) Price leading
C) Predatory pricing
D) Premium pricing
E) Price lining
Q2) Which of the following statements is true about a soft commitment?
A) It is bad for competitors
B) It is good for competitors
C) In Cournot competition, capacity expansion is an example of a soft commitment
D) In Betrand competition, a commitment to reduce prices is an example of a soft commitment
E) Tough commitments are always in the best interest of a firm
Q3) Suppose a firm has $50 million to invest in a new market.Given market uncertainties,the firm forecasts a high-scenario where the present value of the investment is $200 million and a low-scenario where the present value of the investment is $20 million.If the firm believes each scenario is equally likely and invests today,what is the net present value of the investment?
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Page 9
Chapter 8: Industry Analysis
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Sample Questions
Q1) Which of the following is not a factor that could intensify internal rivalry in the Chicago hospital market?
A) Relatively large number of hospitals
B) Considerable variation in production costs
C) Relatively small number of doctors
D) Excess capacity
E) Aging baby boomers increasing demand for admissions
Q2) Which of the following is a complement to professional sports?
A) Merchandise sales
B) Gambling
C) Luxury Boxes at stadiums
D) Food and beverage sales
E) None of the above
Q3) Which of the following is the most likely substitute for commercial aircraft travel between Chicago and Tokyo?
A) Bicycle
B) Teleconferencing
C) Automobile
D) Commuter train
E) Walking
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Chapter 9: Strategic Positioning for Competitive Advantage
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Sample Questions
Q1) The steepness (slope)of an indifference curve indicates which of the following?
A) The tradeoff a consumer is willing to make between price and quality
B) The change in price holding product benefit constant
C) The change in benefit holding price constant
D) The tradeoff between consumer surplus and producer surplus
E) None of the above
Q2) Which of the following statements best describes a characteristic of geographic specialization focus strategies?
A) Offers a variety of products and/or sells to a variety of customer groups within a narrow geography
B) Offers an array of product varieties to a limited class of customers
C) Caters to the particular needs of the customer group served
D) Offers a limited set of products to an array of different customer groups
E) Does an especially good job satisfying a subset of the needs of the consumer groups being served
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Chapter 10: Information and Value Creation
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Sample Questions
Q1) What term best describes a firm informing customers about a product's benefits?
A) Advertising
B) Certification
C) Disclosure
D) Notice
E) Broadcasting
Q2) Products for which consumers cannot easily compare product characteristics and value information from others are called:
A) Experience goods
B) Search goods
C) Retail goods
D) Consumer goods
E) Credence Goods
Q3) Why would a report card that measures inputs possibly lead to multitasking?
A) Sellers would raise the price of goods with low quality inputs
B) Consumers would only know the "ingredients" in a production process
C) The cost of the report card would be passed on in lower product quality
D) Sellers may invest only in reported inputs but scale back on unreported inputs
E) Firms will not disclose poor report card scores
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Page 12
Chapter 11: Sustaining Competitive Advantage
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Sample Questions
Q1) What product characteristic refers to the situation where consumers place higher value on a product if other consumers also use it?
A) Value creation effect
B) Product linkage
C) Product externality
D) Complementary effect
E) Network effect
Q2) Which of the following terms best describes a phenomenon whereby a profit-maximizing firm sticks with its current technology or product concept even though the profit-maximizing decision for a firm starting from scratch would be to choose a different technology or product concept?
A) The replacement effect
B) Strategic intent
C) Strategic stretch
D) Hypercompetition
E) The sunk cost effect
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Chapter 12: Performance Measurement and Incentives
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Q1) Which of the following terms best describes the principle stating that when allocating effort among a variety of tasks,employees will tend to exert more effort toward those tasks that are rewarded?
A) Effort allocation principle
B) Premium principle
C) Compensation principle
D) Risk-reward principle
E) Multitask principle
Q2) Given an employee cost of effort function (where e is given in hours worked per week and each unit of e produces an extra $100 in sales):
c(e)= 0 if e<=40 (1/3)*(e-40)² if e>40
If the firm offers a salary-plus-commission job of $500 per week plus 20% of sales,how can we write the employee's payoff function? What is the employee's total compensation for working a 46 hour workweek (Note: This is the compensation and not payoff net of effort costs)?
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Chapter 13: Strategy and Structure
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Q1) Which of the following modes of task interdependence exists between two or more workers,positions,or groups when one depends on the outcome of others,but not vice versa?
A) Technology interdependence
B) Environment interdependence
C) Reciprocal interdependence
D) Sequential interdependence
E) Pooled interdependence
Q2) Which of the following terms best describes the extent to which two or more positions depend on each other to do their own work?
A) Technology interdependence
B) Task interdependence
C) Information processing
D) Environmental contingencies
E) Structure-environment coherence
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15
Chapter 14: Environment, power, and Culture
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Sample Questions
Q1) What term does Ronald Burt use to describe a valued relationship between two unconnected parties with a strategy involving spanning a structural hole and bargaining with parties on either side for the most favorable terms?
A) Mavens
B) Nodes
C) Second who benefits
D) Tertius gaudens
E) Brokers
Q2) What does Chester Barnard mean when he uses the term zone of indifference?
A) The set of issues over which the powerful individual with formal authority usually prevails
B) The set of issues over which the powerful individual with reputation usually prevails
C) The set of issues over which the powerful individual with knowledge usually prevails
D) The set of issues over which the powerful individual with influence usually prevails
E) The set of issues over which the powerful individual with image usually prevails
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