Managerial Economics Final Exam
Course Introduction
Managerial Economics applies economic theory and quantitative methods to business decision-making. The course explores concepts such as demand analysis, production and cost functions, market structures, and pricing strategies, all within the context of organizational objectives and resource allocation. By integrating microeconomic principles with real-world business scenarios, students learn to analyze market trends, optimize operational efficiency, and make informed strategic choices to enhance firm profitability and competitiveness.
Recommended Textbook Principles of Economics 7th Edition by
Robert H. Frank
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2
Chapter 1: Thinking Like an Economist
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Sample Questions
Q1) With ATMs, it is possible to retrieve cash from the bank at any time. One hundred years ago, one could only get cash from the bank during business hours, say, 9 am to 3 pm. The present availability of 24-hour service has arisen because:
A)flexibility was not valued 100 years ago.
B)it was impossible to provide 24-hour service 100 years ago.
C)the cost of providing 24-hour service is much lower today.
D)government forced banks to become more convenient.
Answer: C
Q2) You want to buy a TV that regularly costs $250. You can either buy the TV from a nearby store or from a store that's downtown. Relative to going to the nearby store, driving downtown involves additional time and gas. The downtown store, however, has a 10 percent off sale this week. Last week you drove downtown to save $20 on some concert tickets, a 15 percent savings. Should you drive downtown to buy the TV?
A)Yes, because you will save 10 percent, which is better than nothing.
B)No, because you will save more than $20.
C)Yes, because you will save more than $20.
D)No, because you will only save 10 percent, which is less than 15 percent.
Answer: C
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Chapter 2: Comparative Advantage
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Sample Questions
Q1) Earth Movers & Shakers operates 3 iron ore mines. The accompanying table shows each mine's total daily production and the current number of miners at each mine. All miners work for the same wage, and each miner in any given mine produces the same number of tons per day as every other miner in that mine. \[\begin{array} { | l | r | r | }
\hline & \text { Total Tans Per Day } & \text { Number of Miners } \\
\hline \text { Mother Iuode } & 100 & 25 \\
\hline \text { Bcrapirng Bottorn } & 30 & 75 \\
\hline \text { Middle Drift } & 75 & 15 \\
\hline
\end{array}\]
The opportunity cost of moving one miner from Mother Lode to another mine is:
A)2 tons per day.
B)3 tons per day.
C)4 tons per day.
D)1 ton per day.
Answer: C
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Chapter 3: Supply and Demand
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Sample Questions
Q1) Assume the demand for sugar decreases and the supply of sugar increases. Which of the following outcomes is certain to occur?
A)The equilibrium price of sugar will rise.
B)The equilibrium quantity of sugar will rise.
C)The equilibrium price of sugar will fall.
D)The equilibrium quantity of sugar will fall.
Answer: C
Q2) Suppose the equilibrium price and quantity of ketchup fall. The most likely explanation for these changes is:
A)a decrease in the demand for ketchup.
B)an increase in the demand for ketchup.
C)a decrease in the supply of ketchup.
D)an increase in the supply of ketchup.
Answer: A
Q3) In a free market, if the price of a good is below the equilibrium price, then;
A)the government will set a higher price to reestablish the market equilibrium.
B)sellers, dissatisfied with growing inventories, will raise their prices.
C)buyers, hoping to ensure they acquire the good, will bid the price higher.
D)sellers, dissatisfied with growing inventories, will lower their prices.
Answer: C
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Chapter 4: Elasticity
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Sample Questions
Q1) If the price elasticity of demand for chicken is 2, then a 20 percent decrease in the price of chicken will lead to a:
A)10 percent decrease in the quantity demanded of chicken.
B)10 percent increase in the quantity demanded of chicken.
C)40 percent decrease in the quantity demanded of chicken.
D)40 percent increase in the quantity demanded of chicken.
Q2) Suppose that if the price of plane tickets increased, more people would choose to travel by train. If this happened, you would know that:
A)plane tickets are an inferior good.
B)the cross-price elasticity between plane tickets and train tickets is positive.
C)the cross-price elasticity between plane tickets and train tickets is negative.
D)plane tickets and train tickets are complements.
Q3) The price elasticity of demand for a good measures the responsiveness of:
A)demand to a 1 percent change in price of that good.
B)price to a 1 percent change in the demand for that good.
C)quantity demanded to a 1 percent change in price of that good.
D)price to a 1 percent change in the quantity demanded of that good.
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Page 6
Chapter 5: Demand
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Q1) Let MUc denote the marginal utility that Pablo receives from a cup of coffee, and let Pc denote the price of a cup of coffee. We typically expect that as Pablo buys more coffee:
A)MUc/Pc will rise.
B)MUc/Pc will fall.
C)MUc/Pc will not change.
D)MUc and Pc will both fall.
Q2) Shelter for homeless people is an example of:
A)a want.
B)a need.
C)something they can live without.
D)something hard to find.
Q3) For two goods, coffee and scones, suppose that MU(coffee)/P(coffee)= 4 and MU(scones)/P(scones)= 3. To maximize your total utility from these two goods, you should purchase:
A)less coffee and more scones.
B)more coffee and fewer scones.
C)less coffee and fewer scones.
D)more coffee and more scones.
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Page 7
Chapter 6: Perfectly Competitive Supply
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Sample Questions
Q1) Suppose that when a perfectly competitive firm produces 1,000 units of output, its total variable cost is $1,900. If the marginal cost of producing the 1,000 unit is $1.70, and if the market price of each unit of output is $1.70, then the firm should:
A)shut down.
B)raise its price.
C)increase output.
D)continue to produce 1000 units.
Q2) Which of the following will cause a decrease in the supply of jeans?
A)An increase in the wages paid to workers who make jeans.
B)A decrease in the demand for jeans.
C)A decrease in the price of jeans.
D)A decrease in the expected future price of jeans.
Q3) Suppose 30 employees per day can produce 50 units of output. Assuming the law of diminishing marginal returns is present, to produce 100 units of output would require:
A)an additional 30 employees per day.
B)more than 30 additional employees per day.
C)a total of 60 or fewer employees per day.
D)fewer than 30 additional employees per day.
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Page 8
Chapter 7: Efficiency, Exchange, and the Invisible Hand in Action
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Sample Questions
Q1) Which of the following would not be included in the calculation of accounting profit?
A)The wages paid to the company's workers.
B)The salary the owner could have earned working elsewhere.
C)The rent paid by the owner for the use of a building.
D)The medical insurance coverage for the company's workers.
Q2) Consider a perfectly competitive industry in a long-run equilibrium. If a single firm in that industry discovers a significant cost-saving production technology, then:
A)all firms in the market will earn an economic profit in the short run.
B)the rest of the industry will quickly adopt the new technology.
C)the firm will earn an economic profit in the long run.
D)all the firms in the market will earn an economic profit in the long run.
Q3) In the long run, in a perfectly competitive industry:
A)economic profit tends to persist.
B)the number of firms in the industry will increase.
C)economic loss tends to persist.
D)economic profit and loss are driven to zero by entry and exit.
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Page 9
Chapter 8: Monopoly, Oligopoly, and Monopolistic Competition
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Sample Questions
Q1) Which of the following is NOT an example of the hurdle method of price discrimination?
A)Offering a mail-in rebate.
B)Permanently reducing all prices by 10 percent.
C)Charging less for airline tickets if the trip includes a Saturday night stayover.
D)Giving a discount on movie tickets to people with a student ID.
Q2) The reason economists consider monopoly to be socially undesirable is that monopolists:
A)earn too much economic profit.
B)can charge any price they want.
C)exploit the inelastic nature of demand.
D)produce less than the socially optimal level of output.
Q3) The primary objective of an imperfectly competitive firm is to:
A)charge the highest possible price.
B)maximize total revenue.
C)minimize total cost.
D)maximize profit.
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Page 10
Chapter 9: Games and Strategic Behavior
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Sample Questions
Q1) Mexico and the members of OPEC produce crude oil. Realizing that it would be in their best interests to form an agreement on production goals, a meeting is arranged and an informal, verbal agreement is reached. If both Mexico and OPEC abide by the agreement, then OPEC's profit will be $200 million and Mexico's profit will be $100 million. If both Mexico and OPEC cheat on the agreement, then OPEC's profit will be $175 million and Mexico's profit will be $80 million. If only OPEC cheats, then OPEC's profit will be $185 million, and Mexico's profit will be $60 million. If only Mexico cheats, then Mexico's profit will be $110 million, and OPEC's profit will be $150 million. In the Nash equilibrium of this game:
A)both Mexico and OPEC abide by the agreement.
B)both Mexico and OPEC cheat on the agreement.
C)Mexico cheats on the agreement and OPEC abides by the agreement.
D)OPEC cheats on the agreement and Mexico abides by the agreement.
Q2) Emotions like guilt and sympathy:
A)are irrelevant to economic decision-making.
B)reduce the likelihood that a transaction will maximize total economic surplus.
C)can solve commitment problems.
D)can solve commitment problems, but generally reduce players' payoffs.
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Chapter 10: An Introduction to Behavioral Economics
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Sample Questions
Q1) If people care about relative consumption rather than absolute consumption, then:
A)their behavior will be consistent with traditional economic models.
B)there is little need for government intervention in markets.
C)their choices will lead to an efficient allocation of resources.
D)individuals' decisions need not lead to socially optimal outcomes.
Q2) According to the ________, if Carla has many of the characteristics of a stereotypical basketball player (for example, she is tall), then people will be more likely to assume she plays basketball.
A)adaptive rationality standard
B)representative heuristic
C)availability heuristic
D)Weber-Fechner law
Q3) According to the adaptive rationality standard, people might choose to have unselfish preferences because:
A)people sometimes make irrational choices.
B)doing so could be in their own best interest.
C)they do not know how to make efficient choices.
D)they have no other choice.
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Chapter 11: Externalities, Property Rights, and the Environment
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Sample Questions
Q1) When Brady is driving he throws his cigarette butts out the window, reasoning that other people will clean up the litter on the side of the road. By throwing his cigarette butts out the window, Brady is:
A)helping to achieve the socially optimal level of litter.
B)creating a positive externality for himself.
C)imposing an external cost on others.
D)treating his private property as common property.
Q2) If the marginal cost of pollution abatement differs across firms, then regulations that require all polluters to reduce pollution by a fixed proportion will be:
A)efficient.
B)inefficient
C)ineffective.
D)fair to all polluters.
Q3) A benefit of an activity received by people not participating in the activity is called a(n):
A)winner's curse.
B)positive externality.
C)external cost.
D)negative externality.
Page 13
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Chapter 12: The Economics of Information
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Sample Questions
Q1) Which of the following helps explain the problem of disappearing political discourse?
A)The lemons model
B)Adverse selection
C)Moral hazard
D)Statistical discrimination
Q2) Suppose that the salary range for recent college graduates with a bachelor's degree in economics is $30,000 to $50,000, with 25 percent of jobs offering $30,000 per year, 50 percent offering $40,000 per year and 25 percent offering $50,000 per year and that in all other respects, the jobs are equally satisfying. Assume that in this market, a job offer remains open for only a short time so that continuing to search requires an applicant to reject any current job offer. If this scenario describes job searches in general, the segment of the population that is most risk-averse will tend to earn:
A)average salaries.
B)below-average salaries.
C)above-average salaries.
D)stable salaries.
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Chapter 13: Labor Markets, Poverty, and Income Distribution
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Sample Questions
Q1) Leo is a welfare recipient who qualifies for two means-tested cash benefit programs. If he does not earn any income, he receives $225 from each program. For each dollar he earns (which his employer is required to report to the welfare agency), his benefit from each program is reduced by 75 cents until the benefit equals zero. In the absence of any earnings, Leo will receive ________ in cash from each program, for a total of ________ in benefits.
A)$225; $225
B)$225; $450
C)$225; $400
D)$200; $400
Q2) An arbitrary preference by an employer for one group of workers over another is termed:
A)customer discrimination.
B)statistical discrimination.
C)employer discrimination.
D)employee discrimination.
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15
Chapter 14: Public Goods and Tax Policy
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Sample Questions
Q1) If the government uses a head tax to finance a public good, then the:
A)proportion of income paid in taxes is constant.
B)dollar amount paid by each taxpayer declines as income rises.
C)proportion of income paid in taxes declines as income rises.
D)proportion of income paid in taxes increases as income rises.
Q2) Lane and Riley are the only two residents in a neighborhood, and they share the same driveway. They would like to have the driveway paved. The value of the paved driveway is $1,500 to Lane and $900 to Riley. Regardless of who pays for the paving both people will benefit from it.
What is the most a contractor can charge to pave the driveway and still be assured of being hired by at least one of them?
A)$600
B)$900
C)$1,500
D)$2,400
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16
Chapter 15: International Trade and Trade Policy
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Sample Questions
Q1) Japan exports cars to the other countries of the world. In an open economy Japan is most likely to have a domestic price that is ________ the world price of cars.
A)less than B)greater than
C)equal to D)close to
Q2) The demand for microwaves in a certain country is given by: D = 8,000 -30P, where P is the price of a microwave. Supply by domestic microwave producers is: S = 4,000 + 10P. If this economy opens to trade while the world price of a microwave is $50, how many microwaves will be imported or exported?
A)1,000 imported
B)2,000 imported
C)3,000 exported
D)2,000 exported
Q3) Why is there often resistance to free trade?
A)Free trade does not benefit the economy as a whole.
B)Specific groups may be hurt by free trade.
C)Free trade does not benefit the global economy.
D)Free trade usually hurts consumers.
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Page 17
Chapter 16: Macroeconomics: The Birds Eye View of the Economy
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Sample Questions
Q1) A trade imbalance occurs when:
A)exports from and imports to a country suddenly decline.
B)the quantity of imports equals the quantity of exports, but are large relative to total output.
C)a country does not import or export any goods or services.
D)the quantity of a country's exports differs significantly from the quantity of imports.
Q2) The adding up of individual economic variables to obtain economy wide totals is called:
A)average labor productivity.
B)aggregation.
C)normative analysis.
D)monetary policy.
Q3) "If the Federal Reserve raises interest rates, demand for housing is likely to fall" is a ________ statement about ________ policy.
A)positive; fiscal
B)normative; fiscal
C)positive; monetary
D)normative; monetary
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Chapter 17: Measuring Economic Activity: GDP and Unemployment
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Sample Questions
Q1) Who from among the following would be classified as out of the labor force?
A)Brenda Smith, an 18 year old college student employed part-time at a fast food restaurant
B)Mario Faubert, a NHL hockey player at home sick with the flu
C)Jack Little, a 21 year old new college graduate actively looking for his first job
D)Amanda Pie, a full-time homemaker
Q2) Which of the following is not classified as a final good?
A)New clothing purchased by a college student
B)Fresh vegetables purchased by a restaurant
C)A new car purchased by a family
D)A new machine purchased by a business
Q3) Workers whose spells of unemployment are broken up by brief periods of employment or withdrawal from the labor force are referred to as ________ workers.
A)short-term unemployed
B)discouraged
C)long-term unemployed
D)chronically unemployed
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Page 19
Chapter 18: Measuring the Price Level and Inflation
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Sample Questions
Q1) The CPI in 1974 equaled 0.49. The CPI in 1975 equaled 0.54. The rate of inflation between 1974 and 1975 was ________ percent.
A)5.0
B)5.4
C)9.3
D)10.2
Q2) A real quantity is a quantity measured:
A)in physical terms.
B)in terms of current dollar value.
C)by the average quantity.
D)using real prices.
Q3) Marge is lending Martin $1,000 for one year. The CPI is 1.60 at the time the loan is made. They expect it to be 1.76 in one year. If Marge and Martin agree that Marge should earn a 3 percent real return for the year, the nominal interest rate on this loan should be ________ percent.
A)3
B)7
C)13
D)16
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Chapter 19: Economic Growth, Productivity, and Living Standards
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Sample Questions
Q1) Over the period from 1950 to 2010, which country experienced the fastest average annual growth rate of real GDP per person?
A)United States
B)Japan
C)China
D)Canada
Q2) Getting a college degree is an example of investing in:
A)human capital.
B)physical capital.
C)technology.
D)research and development.
Q3) Government support of basic research by funding scientists through the National Science Foundation is an example of a government policy to promote economic growth by:
A)increasing human capital.
B)increasing physical capital.
C)improving technology.
D)increasing the availability of natural resources.
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Chapter 20: The Labor Market: Workers, Wages, and Unemployment
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Sample Questions
Q1) The real wage is the:
A)price of labor.
B)demand for labor.
C)ratio of wage of unskilled workers to the wage of skilled workers.
D)marginal product of labor.
Q2) Frictional unemployment may be economically beneficial if:
A)its psychological costs are borne only by the unemployed worker.
B)losses in economic output are small.
C)it leads to a better match between worker and job.
D)the social costs are limited to smaller tax revenues collected.
Q3) Real wages increased in industrialized countries in the twentieth century because the demand for labor:
A)increased more rapidly than the supply of labor increased.
B)increased more slowly than the supply of labor increased.
C)increased, while the supply of labor decreased.
D)decreased, while the supply of labor increased.
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22
Chapter 21: Saving and Capital Formation
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Q1) If consumption spending increases by $10 million with no changes in net taxes, then:
A)public saving increases.
B)public saving decreases.
C)private saving increases.
D)private saving decreases.
Q2) The introduction of new technologies ________ the real interest rate and ________ the equilibrium quantity of national saving.
A)increases; increases B)increases; decreases C)decreases; decreases D)decreases; increases
Q3) Holding other factors constant, if new environmental regulations increase firms' cost of operating capital, then the real interest rate will ________ and the equilibrium quantity of national saving and investment will ________.
A)increase; increase
B)increase; decrease C)decrease; decrease D)decrease; increase
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23
Chapter 22: Money Prices and the Federal Reserve
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Q1) When your grandfather keeps a bundle of $100 dollar bills behind a brick in the basement, this is an example of dollars serving as:
A)bank reserves.
B)a medium of exchange.
C)a unit of account.
D)a store of value.
Q2) The most important, most convenient, and most flexible way in which the Federal Reserve affects the supply of bank reserves is through:
A)conducting open-market operations.
B)changing the Federal Reserve discount rate.
C)changing bank reserve requirement ratios.
D)changing interest rates.
Q3) 100 percent reserve banking refers to a situation in which banks' reserves equal 100 percent of their:
A)loans.
B)deposits.
C)profits.
D)income.
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Chapter 23: Financial Markets and International Capital
Flows
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Q1) The sum of national saving and capital inflows from abroad must equal:
A)domestic investment in new capital goods.
B)capital outflows.
C)aggregate demand.
D)the trade deficit.
Q2) Net capital inflows equal:
A)capital inflows minus capital outflows.
B)capital outflows minus capital inflows.
C)international production.
D)domestic production.
Q3) Your financial investments consist of U.S. government bonds maturing in twenty years and shares in a start-up internet company. If interest rates on newly-issued government bonds increase, then the price of your bonds will ________ and the price of the shares you own will ________.
A)increase; increase
B)decrease; decrease
C)increase; not change
D)decrease; not change
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Chapter 24: Short-Term Economic Fluctuations: An Introduction
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Q1) The following data give the dates of successive turning points in U.S. economic activity and the corresponding levels of real GDP at the time. \[\begin{array} { | c | c | c |
}
\hline \text { Turning Paint } & \text { Date } & \text { Real GDP (1996 \$ billims) } \\
\hline \text { (A) } & \text { July } 1953 & 1992.2 \\
\hline \text { (B) } & \text { May } 1954 & 1941.0 \\
\hline \text { (C) } & \text { Apr. } 1957 & 2182.7 \\
\hline \text { (D) } & \text { Apr. } 1958 & 2117.4 \\
\hline \text { (E) } & \text { Apr. } 1960 & 2391.0 \\
\hline \end{array}\]
Which of the turning points are peaks?
A)(A), (B), and (C)
B)(C), (D), and (E)
C)(A), (C), and (E)
D)(B)and (D)
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Chapter 25: Spending and Output in the Short Run
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Q1) In the basic Keynesian model, a tax cut:
A)reduces short-run equilibrium output.
B)increases short-run equilibrium output.
C)reduces potential output.
D)increases potential output.
Q2) A fiscal policy action to close an expansionary gap is to:
A)decrease taxes.
B)increase transfer payments.
C)decrease government purchases.
D)increase the marginal propensity to consume.
Q3) In Econland autonomous consumption equals 700, the marginal propensity to consume equals 0.80, net taxes are fixed at 50, planned investment is fixed at 100, government purchases are fixed at 100, and net exports are fixed at 40. The vertical intercept of the expenditure line is:
A)890.
B)900.
C)940.
D)990.
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Chapter
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Q1) If the Federal Reserve is currently paying 1 percent interest on bank reserves, but then reduces that interest rate to 0.5 percent, banks may decide to hold ________ reserves, and the money supply may ________.
A)more; increase
B)more; decrease
C)fewer; increase D)fewer; decrease
Q2) Federal Reserve actions that increase nominal interest rates and decrease the money supply:
A)close a recessionary gap.
B)close an expansionary gap.
C)raise the rate of inflation.
D)raise bond prices.
Q3) According to the Taylor rule, the Federal Reserve ________ the real interest rate as the output gap increases and ________ the real interest rate as the inflation rate increases.
A)lowers; lowers B)raises; lowers C)lowers; raises D)raises; raises
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Chapter 27: Aggregate Demand, Aggregate Supply, and Inflation
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Q1) Disinflation is
A)a substantial reduction in the rate of inflation.
B)a negative inflation rate.
C)the same as hyperinflation.
D)a sudden change in the normal behavior of inflation, unrelated to the nation's output gap.
Q2) The aggregate demand curve shows the relationship between short-run equilibrium output and the:
A)nominal interest rate.
B)real interest rate.
C)unemployment rate.
D)inflation rate.
Q3) To achieve long-run equilibrium in an economy with a recessionary gap, without the use of stabilization policy, the inflation rate must:
A)increase.
B)decrease.
C)not change.
D)either increase or decrease depending on the relative shifts of AD and AS.
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Chapter 28: Exchange Rates and the Open Economy
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Sample Questions
Q1) An undervalued exchange rate is an exchange rate:
A)that equals the number of units of a foreign currency over the number of units of domestic currency.
B)that has an officially fixed value less than its fundamental value.
C)at which the quantities of currencies demanded and supplied in the foreign exchange market are equal.
D)that has an officially fixed value greater than its fundamental value.
Q2) A country will have a balance-of-payments surplus when its exchange rate:
A)equals the market equilibrium value.
B)is flexible.
C)is overvalued.
D)is undervalued.
Q3) In an open economy with flexible exchange rates, monetary policy affects consumption and investment by changing the ________ and affects net exports by changing the ________.
A)inflation rate; unemployment rate
B)exchange rate; real interest rate
C)growth of domestic real GDP; growth of foreign real GDP
D)real interest rate; exchange rate
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