Managerial Economics Exam Review
Course Introduction
Managerial Economics is a course that blends economic theory with business practice to aid managers in making well-informed decisions. The course covers fundamental concepts such as demand and supply analysis, production and cost functions, market structures, pricing strategies, and risk analysis. Students learn how to apply microeconomic principles to real-world business challenges such as resource allocation, profit maximization, and strategic planning. Emphasis is placed on using economic logic and quantitative methods to assess business opportunities and solve managerial problems, making this course essential for future leaders aiming to align business objectives with economic efficiency.
Recommended Textbook
Microeconomics 7th Edition by R.
Glenn Hubbard
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18 Chapters
4654 Verified Questions
4654 Flashcards
Source URL: https://quizplus.com/study-set/1426
Page 2
Chapter 1: Economics: Foundations and Models
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240 Verified Questions
240 Flashcards
Source URL: https://quizplus.com/quiz/28291
Sample Questions
Q1) Refer to Table 1-3.What is Santiago's marginal cost if he decides to stay open for an extra two hours instead of one hour?
A)$18
B)$36
C)$38
D)$102
Answer: A
Q2) Refer to Table 1-1.Using marginal analysis, by how many hours should Lydia extend her nail salon's hours of operations?
A)2 hours
B)3 hours
C)4 hours
D)5 hours
E)6 hours
Answer: D
Q3) What is an economic model?
Answer: An economic model is a simplified version of reality used to analyze real-world economic situations.
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Chapter 2: Trade-Offs, Comparative Advantage, and the Market System
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258 Flashcards
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Sample Questions
Q1) Refer to Table 2-6.What is Serena's opportunity cost of making a necklace?
A)2 necklaces
B)1/2 of a bracelet
C)1/2 of a necklace
D)3/4 of a bracelet
Answer: B
Q2) Which of the following are separate flows in the circular flow model?
A)the flow of goods and the flow of services
B)the flow of costs and the flow of revenue
C)the flow of income earned from the sale of resources and the flow of expenditures on goods and services
D)the flow of income received by households and the flow of tax revenues paid by households
Answer: C
Q3) A decrease in the unemployment rate may be represented as a movement from a point on the production possibilities frontier to a point outside the frontier.
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 Verified Questions
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 the cost of growing organic corn has risen at the same time as consumer preference for organic corn has fallen.In the market for organic corn, this would be represented by the equilibrium price ________ and the equilibrium quantity
A)increasing; increasing or decreasing
B)increasing or decreasing; decreasing
C)decreasing; increasing or decreasing
D)increasing or decreasing; increasing
Answer: B
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Chapter 4: Economic Efficiency, Government Price Setting, and Taxes
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208 Verified Questions
208 Flashcards
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Sample Questions
Q1) In a city with rent-controlled apartments, all of the following are true except A)apartments usually rent for rates lower than the market rate.
B)apartments are often in shorter supply than they would be without rent control.
C)it usually takes more time to find an apartment than it would without rent control. D)landlords have an incentive to rent more apartments than they would without rent control.
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) Marginal benefit is the total benefit to a consumer from consuming one more unit of a good or service.
A)True
B)False
Q4) What is "tax incidence"? What determines tax incidence in a competitive market?
Q5) What is the difference between scarcity and a shortage?
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Chapter 5: Externalities, Environmental Policy, and Public Goods
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262 Verified Questions
262 Flashcards
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Sample Questions
Q1) If the marginal benefit of reducing emissions of some air pollutant is less than the marginal cost,
A)further reductions will make society better off.
B)further reduction will make society worse off.
C)pollution taxes should be imposed on producers to pay for further reductions.
D)economic efficiency will be increased if further reductions are made.
Q2) An important difference between the demand for a private good and the demand for a public good is that
A)individuals reveal their preferences for a public good but they do not have to reveal their preferences a private good.
B)the resources used to provide public goods are common resources or government owned; the resources used to produce private goods are all privately owned.
C)individuals reveal their preferences for a private good but they do not have to reveal their preferences for a public good.
D)the demand for a private good produces consumption externalities; the demand for a public good produces production externalities.
Q3) What is an externality?
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Page 7
Chapter 6: Elasticity: the Responsiveness of Demand and Supply
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Sample Questions
Q1) Linesha, a college student working part-time received a wage increase.An avid movie buff, she increased her purchases of Blu-ray discs and reduced her purchases of DVDs.Based on this information
A)DVDs and Blu-ray discs are substitutes.
B)Blu-ray discs are normal goods and DVDs are inferior goods.
C)DVDs and Blu-ray discs are normal goods.
D)the cross-price elasticity between DVDs and Blu-ray discs is negative.
Q2) In September 2006, the Food and Drug Administration recommended that Americans avoid eating bagged raw spinach in the wake of an outbreak of E.coli bacteria.Following this recommendation, the food industry looked at alternatives and many turned to arugula.One Chicago distributor claimed, "The sale of the stuff has gone through the roof." Based on this information
A)arugula is a normal good while raw spinach is an inferior good.
B)the cross-price elasticity between arugula and spinach is negative.
C)the cross-price elasticity between arugula and spinach is positive.
D)the price elasticity of arugula is positive while the price elasticity of spinach falls to zero.
Q3) What is the relationship between price elasticity of demand and total revenue?
Q4) Define the economic concept of elasticity.
Page 8
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Chapter 7: The Economics of Health Care
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171 Verified Questions
171 Flashcards
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Sample Questions
Q1) In the United States in 2016, more than seventy percent of those who were not covered by health insurance
A)are single and unemployed.
B)live in families in which at least one member has a job.
C)live in families in which all members are unemployed.
D)are retired from the workforce.
Q2) Under the Patient Protection and Affordable Care Act (ACA), residents who do not have health insurance will not be allowed to seek employment.
A)True
B)False
Q3) In the United States in 2016, the percentage of people with private health insurance was about
A)17%.
B)29%.
C)56%.
D)83%.
Q4) Life expectancy at birth in the United States has more than doubled since 1850.
A)True
B)False
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Chapter 8: Firms, the Stock Market, and Corporate Governance
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261 Verified Questions
261 Flashcards
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Sample Questions
Q1) What do economists call the situation where a hired manager does not have the same interests as the owners of the business?
A)conquest and control
B)a financial problem
C)a principal-agent problem
D)a financial intermediary problem
Q2) Accounting profit is the sum of a firm's revenue and its opportunity costs.
A)True
B)False
Q3) On a balance sheet, short-term debts such as accounts payable are listed as
A)current assets.
B)current liabilities.
C)stockholders' equity.
D)goodwill.
Q4) The Sarbanes-Oxley Act of 2002 was passed in response to what event/events?
A)a series of accounting scandals in the early 2000s
B)unexpected increases in dividend payments to stockholders at various corporations
C)volatility in NASDAQ indexes
D)historically low bond prices
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Chapter 9: Comparative Advantage and the Gains From International Trade
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188 Verified Questions
188 Flashcards
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Sample Questions
Q1) Refer to the Article Summary.All else equal, if the Trump administration decides to enact protectionist measures, such as a tariff, against foreign solar panels, the price of solar panels in the United States will ________ and the quantity of solar panels demanded in the United States will ________.
A)increase; increase
B)increase; decrease
C)decrease; increase
D)decrease; decrease
Q2) Which of the following is not a source of comparative advantage?
A)relative abundance of labor and capital
B)technology
C)climate and natural resources
D)a strong foreign currency exchange rate
Q3) NAFTA refers to a 1994 agreement that eliminated most tariffs among which countries?
A)Canada, the United Kingdom, and Mexico
B)the United States, the United Kingdom, and Mexico
C)the United States, Canada, and Mexico
D)the United States, Mexico, and Cuba
Q4) What is the difference between imports and exports?
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Chapter 10: Consumer Choice and Behavioral Economics
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304 Verified Questions
304 Flashcards
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Sample Questions
Q1) A standard which came to the market first, such as the QWERTY letter layout in typewriters, can become entrenched (this layout is still used for computer keyboards today).What is this phenomenon called?
A)network externalities
B)path dependency
C)sunk cost
D)comparative advantage
Q2) Music writer Anthony Kuzminski praised the late rock star Tom Petty in a 2007 article in the online Unrated Magazine.Kuzminski wrote: "Something Petty never can get enough credit for is his fan-friendly attitude.He kept ticket prices for [his concerts] at $50 when other acts this summer are charging upwards of $100 for stadium gigs.Petty could charge more, but he doesn't see the point.He has stated time and time again he still makes millions when he's on the road, regardless of his ticket prices.He is the last of the fan friendly rock stars out there." Use economic reasoning to write a rationale for Tom Petty's decision to charge prices for his band's ("Tom Petty and the Heartbreakers")concerts that were less than market clearing prices.
Source: Anthony Kuzminski, "Tom Petty & The Heartbreakers at the Vic Theater" http://www.unratedmagazine.com/
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Chapter 11: Technology, Production, and Costs
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327 Verified Questions
327 Flashcards
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Sample Questions
Q1) In the short run, marginal product of labor increases at first and then falls because
A)as more labor is hired, they are not as skilled as the first ones hired.
B)there are fewer opportunities for division of labor and specialization when fewer workers are hired.
C)managerial inefficiency sets in when a firm gets too large.
D)the new workers do not have as much experience as those who have been with the firm for a long time and therefore are not as productive.
Q2) Refer to Figure 11-15.What is the combination of inputs that produces 200 gooseberry pies at the lowest cost?
A)combination e: 10 hours of labor and 48 units of capital
B)combination f: 40 hours of labor and 24 units of capital
C)combination g: 60 hours of labor and 14 units of capital
D)combination h: 60 hours of labor and 9 units of capital
Q3) Long-run cost curves are U-shaped because
A)of the law of demand.
B)of the law of diminishing returns.
C)of economies and diseconomies of scale.
D)of the law of supply.
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Chapter 12: Firms in Perfectly Competitive Markets
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297 Verified Questions
297 Flashcards
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Sample Questions
Q1) If the market price is $40, the average revenue of selling five units is
A)$8.
B)$20.
C)$40.
D)$200.
Q2) Refer to Table 12-4.If the market price is $45, the firm
A)will earn a profit of $3,600.
B)will suffer a loss of $200.
C)will break even.
D)will earn profit of $1,040.
Q3) Refer to the Article Summary.Assume that the increase in net farm income in 2017 was a result of average total cost falling from being equal to the market price to slightly below the market price at the output level where marginal cost equals marginal revenue.This indicates that the market went from
A)breaking even to earning a profit.
B)suffering a loss to breaking even.
C)suffering a loss to earning a profit.
D)earning a profit to suffering a loss.
Q4) What is the difference between "shutting down temporarily" and "exiting the industry"?
Page 14
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Chapter 13: Monopolistic Competition: the Competitive
Model in a
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272 Verified Questions
272 Flashcards
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Sample Questions
Q1) You have just opened a new Italian restaurant in your hometown where there are three other Italian restaurants.Your restaurant is doing a brisk business and you attribute your success to your distinctive northern Italian cuisine using locally grown organic produce.What is likely to happen to your business in the long run?
A)Your competitors are likely to change their menus to make their products more similar to yours.
B)Your success will invite others to open competing restaurants and ultimately your profits will be driven to zero.
C)If your success continues, you will be likely to establish a franchise and expand your market size.
D)If you continue to maintain consistent quality, you will be able to earn profits indefinitely.
Q2) In both monopolistically competitive and perfectly competitive industries
A)firms produce products for which there are no close substitutes.
B)there are high barriers to entry.
C)there are many buyers and sellers.
D)firms are price takers.
Q3) What is meant by "excess capacity"? How does it relate to consumer utility?
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Chapter 14: Oligopoly: Firms in Less Competitive Markets
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257 Verified Questions
257 Flashcards
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Sample Questions
Q1) What is the incentive for a firm to join a cartel?
A)to be able to earn profits in the long run but not in the short run
B)to be able to earn larger profits than if it was not part of the cartel
C)to completely insulate itself from competition
D)to produce a larger amount of output than if it was not part of the cartel
Q2) By the 21st century, few people purchased printed encyclopedias.Which of the following competitive forces best explains this?
A)competition from substitutes
B)the bargaining power of buyers
C)the bargaining power of suppliers
D)the threat from potential entrants
Q3) A game in which each player adopts its dominant strategy
A)will not lead to an equilibrium.
B)must be a cooperative game.
C)could result in a Nash equilibrium.
D)can never result in a Nash equilibrium.
Q4) Most economists are concerned about entry barriers.Why is this so important to them?
Q5) List the competitive forces in the five competitive forces model.
Q6) Firms in an oligopoly are said to be interdependent.What does this mean?
Page 16
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Chapter 15: Monopoly and Antitrust Policy
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279 Flashcards
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Sample Questions
Q1) What is a network externality?
A)It refers to having a network of suppliers and buyers for a good or service.
B)It refers to lobbying to form a public enterprise.
C)It refers to a situation in which a product's usefulness increases with the number of people using it.
D)It refers to a product that requires connection to a network for it to be useful.
Q2) A patent or copyright is a barrier to entry based on
A)ownership of a key necessary raw material.
B)large economies of scale as output increases.
C)government action to protect a producer.
D)widespread network externalities.
Q3) The International Nickel Company of Canada is often cited as an example of monopoly.What was the source of the barrier to entry that gave this firm monopoly power?
A)It was a public enterprise; therefore, the Canadian government blocked entry into the market for nickel.
B)There were important network externalities in the production of nickel.
C)Economies of scale resulted in the company becoming a natural monopoly.
D)It had control of a key resource.
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Page 17
Chapter 16: Pricing Strategy
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Sample Questions
Q1) One method of setting price using the cost-plus method is to add
A)a given percentage of marginal cost to marginal cost of production.
B)a given percentage of fixed cost to total fixed cost.
C)a given percentage of average total cost to average total cost.
D)a given percentage of average variable cost to average total cost.
Q2) The expenses you encounter when you buy in one market and sell in a distant market are known as
A)production costs.
B)fixed costs.
C)transactions costs.
D)sunk costs.
Q3) Some firms require consumers to pay an initial fee for the right to buy their product and an additional fee for each unit of the product they purchase.This practice is referred to as
A)odd pricing.
B)dual pricing.
C)a two-part tariff.
D)intertemporal pricing.
Q4) Under what circumstances will the law of one price hold, and when might it not hold?
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Chapter 17: The Markets for Labor and Other Factors of Production
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Sample Questions
Q1) The economists at the New York Fed estimate that the return the typical person receives from an investment in a college education is
A)4.5 percent per year.
B)12.5 percent per year.
C)15 percent per year.
D)more than 40 percent per year.
Q2) Since Poland joined the European Union in 2004, many young and educated Poles have emigrated to the United Kingdom.As a result, the labor supply curve in the United Kingdom shifts to the right and the equilibrium wage rises.
A)True
B)False
Q3) The substitution effect of a wage decrease examines the effect of the decrease in wage income on a worker's ability to consume goods and services.
A)True
B)False
Q4) What is the difference between "straight-time pay," "commission pay," and "piece-rate pay"?
Q5) What is the marginal productivity theory of income distribution?
Page 19
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Chapter 18: Public Choice, Taxes, and the Distribution of Income
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Sample Questions
Q1) The sales tax
A)is consistent with the benefits-received principle because low-income individuals spend less on goods and services than do high-income people.
B)is not consistent with the ability-to-pay principle because low-income individuals tend to spend a larger fraction of their income than do high-income individuals.
C)is not consistent with the ability-to-pay principle because low-income individuals tend to purchase a smaller bundle of goods and services compared to high-income individuals.
D)is not consistent with the benefits-received principle because low-income individuals spend less on goods and services than do high-income individuals, yet pay the same sales tax rate.
Q2) If you pay $2,000 in taxes on an income of $20,000, and a tax of $3,000 on an income of $30,000, then over this range of income the tax is
A)regressive.
B)proportional.
C)progressive.
D)There is insufficient information to answer the question.
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Page 20