Managerial Economics
Final Exam Questions
Course Introduction
Managerial Economics focuses on the application of economic theory and methodologies to managerial decision-making processes within organizations. This course explores topics such as demand analysis, production and cost functions, market structures, pricing strategies, and the impact of government regulations. Students learn how to use quantitative and qualitative analytical tools to address business problems, forecast market trends, evaluate business opportunities, and optimize resource allocation. The course aims to develop critical thinking and problem-solving skills essential for effective decision-making in an ever-changing business environment.
Recommended Textbook
Microeconomic Theory Basic Principles and Extensions 10th Edition by Walter Nicholson
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17 Chapters
334 Verified Questions
334 Flashcards
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Page 2
Chapter 1: Preferences and Utility
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Sample Questions
Q1) For this utility function,the MRS
A)depends on the values of x and y.
B)is always 0.
C)is always 2.
D)is always 4.
Answer: C
Q2) For an individual who consumes only two goods,x and y,the opportunity cost of consuming one more unit of x in terms of how much y must be given up is reflected by
A)the individual's marginal rate of substitution.
B)the market prices of x and y.
C)the slope of the individual's indifference curve.
D)none of these is correct.
Answer: B
Q3) Indifference curves
A)are non-intersecting.
B)are contour lines of a utility function.
C)are negatively sloped.
D)all of these are correct.
Answer: D
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Page 3
Chapter 2: Utility Maximization and Choice
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Sample Questions
Q1) If the price of x falls,the budget constraint
A)shifts outward in a parallel fashion.
B)shifts inward in a parallel fashion.
C)rotates outward about the x?intercept.
D)rotates outward about the y?intercept.
Q2) If an individual's indifference curve map does not obey the assumption of a diminishing MRS,then
A)the individual will not maximize utility.
B)the individual will buy none of good X.
C)tangencies of indifference curves to the budget constraint may not be points of utility maximization.
D)the budget constraint cannot be tangent to an appropriate indifference curve.
Q3) An individual has a utility function for tennis rackets (x)and tennis balls (y)of the form U(x,y)= min (3x,y).His or her expenditure function is given by
A)\(E = \left( \frac { 1 } { 3 } p _ { x } + p _ { y } \right) U\) .
B)\(E = \left( p _ { x } + 3 p _ { y } \right) U\) .
C)\(E = \left( p _ { x } + \frac { 1 } { 3 } p _ { y } \right) U\) .
D)\(E = \left( p _ { x } + p _ { y } \right) U / 3\) .
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4
Chapter 3: Income and Substitution Effects
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Sample Questions
Q1) The price elasticity of demand for a vertical demand curve is A)0.
B)1
C)1.
D)infinity.
Q2) An individual's demand curve
A)represents the various quantities that a consumer is willing to purchase of a good at various price levels.
B)is derived from an individual's indifference curve map.
C)will shift if preferences,prices of other goods,or income change.
D)all of these answers are correct.
Q3) The price elasticity of demand for a linear demand curve follows the pattern (moving from high prices to low prices)
A)elastic,unit elastic,inelastic.
B)unit elastic,inelastic,elastic.
C)inelastic,unit elastic,elastic.
D)elastic,inelastic,unit elastic.
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Chapter 4: Demand Relationships Among Goods
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Sample Questions
Q1) For the "Composite Commodity Theorem" to hold,all goods in the composite must
A)have constant prices.
B)have constant relative prices.
C)be used in fixed proportions.
D)be net complements.
Q2) Quasi-concavity of utility functions insures that with only two goods,these goods must be
A)gross substitutes.
B)gross complements.
C)net substitutes.
D)net complements.
Q3) The attributes model of consumer choice explains the possibility that an individual does not purchase a particular good,z by assuming A)the person's preferences do not favor z.
B)linear combinations of other goods dominate z.
C)that MU<sub>z </sub>/ p<sub>z</sub> is less than the marginal utility of income. D)z is inferior.
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6
Chapter 5: Uncertainty and Information
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Sample Questions
Q1) Suppose a person's utility of wealth is given by \(U ( W ) = \sqrt { W }\) and his or her initial wealth is 10,000.What is the maximum amount he or she would pay for insurance against a 50 percent chance of losing 3,600?
A)1,800.
B)1,900.
C)2,000.
D)2,100.
Q2) Which of the following utility functions would indicate the most (relative)risk averse behavior?
A)U(W)= W.
B)U(W)= \(\sqrt { W }\) .
C)U(W)= ln W.
D)U(W)= -1/W.
Q3) Risk-averse individuals will diversify their investments because this will A)increase their expected returns.
B)provide them with some much-needed variety.
C)reduce the variability of their returns.
D)reduce their transactions costs.
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Chapter 6: Strategy and Game Theory
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Sample Questions
Q1) The difference between a Nash equilibrium and a subgame-perfect equilibrium is A)the former requires rational play both on and off the equilibrium path but the latter requires rational play only on the equilibrium path.
B)the former requires rational play only on the equilibrium path but the latter requires rational play both on and off the equilibrium path.
C)Nash equilibria are a subset of the subgame-perfect equilibria. D)nothing; they are synonyms.
Q2) Consider a version of the Tragedy of the Commons in which herder 1 and 2 simultaneously choose to graze quantities of sheep \(q _ { 1 }\) and \(q 2\) ,respectively,and in which the payoff functions are \(q _ { 1 } \left( 100 - q _ { 1 } - q _ { 2 } \right)\) for 1 and \(q _ { 2 } \left( 100 - q _ { 1 } - q _ { 2 } \right)\) for 2.The Nash equilibrium is \(q _ { 1 } ^ { * } = q _ { 2 } ^ { * } =\)
A)100.
B)60.
C)40.
D)33.3.
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Chapter 7: Production Functions
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Sample Questions
Q1) A production function may exhibit
A)constant returns to scale and diminishing marginal productivities to all inputs.
B)constant returns to scale and diminishing marginal productivities to all but one input,but at least one input must have a constant marginal productivity.
C)constant returns to scale and diminishing marginal productivity to at most one input.
D)constant returns to scale and diminishing marginal productivities for no inputs.
Q2) The marginal physical productivity of labor is defined as
A)a firm's total output divided by total labor input.
B)the extra output produced by employing one more unit of labor while allowing other inputs to vary.
C)the extra output produced by employing one more unit of labor while holding other inputs constant.
D)the extra output produced by employing one more unit of capital while holding labor input constant.
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9
Chapter 8: Cost Functions
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Sample Questions
Q1) For the cost function \(C = q ^ { \cdot 8 }~~ v ^ { .4} ~~w ^ { .6 }\) consider the following statements:
I.The function exhibits decreasing average cost.
II.The function is homogeneous of degree 1 in v and w.
III.The elasticity of marginal cost with respect to v exceeds the elasticity with respect to w.
A)None is true.
B)All are true.
C)Only I is true.
D)Only I and II are true.
Q2) As long as marginal cost is less than average variable cost,
A)both average total costs and average variable costs will be falling.
B)average total costs will be falling but average costs may be rising or falling.
C)average fixed costs are rising.
D)average total costs are falling but average fixed costs may be rising.
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10
Chapter 9: Profit Maximization
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Sample Questions
Q1) If price is equal to short-run average variable cost,the firm is at the point known as
A)the break even point.
B)the profit maximizing point.
C)the shutdown point.
D)the revenue maximizing point.
Q2) Which of the following conditions would result in the short run marginal cost curve not correctly reflecting the supply behavior of a profit-maximizing firm?
A)The firm is a price taker.
B)Price exceeds average total cost.
C)The elasticity of demand facing the firm is -3.
D)The firm can vary several inputs in the short run.
Q3) A profit-maximizing firm's demand function for labor can be found by differentiating
A)the profit function with respect to w.
B)the cost function with respect to w.
C)the supply function with respect to w.
D)the production function with respect to w.
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Chapter 10: The Partial Equilibrium Competitive Model
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Sample Questions
Q1) A demand curve will shift out for any of the following reasons except A)preference for a good increases.
B)price of a substitute falls.
C)income rises.
D)price of a complement falls.
Q2) Long-run elasticity of supply is defined as
A)percentage change in quantity demanded in the long run divided by percentage change in price.
B)percentage change in price divided by percentage change in quantity demanded in the long run
C)percentage change in quantity supplied in the long run divided by percentage change in price.
D)percentage change in price divided by percentage change in quantity demanded in the long run.
Q3) In a competitive market,an efficient allocation of resources is characterized by
A)a price greater than the marginal cost of production.
B)the possibility of further mutually beneficial transactions.
C)the largest possible sum of consumer and producer surplus.
D)a value of consumer surplus equal to that of producer surplus.
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Page 12
Chapter 11: General Equilibrium and Welfare
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Sample Questions
Q1) Consider three ways of allocating two goods in a two-person exchange economy.
I.Both individuals take prices as given and equilibrium prices are established by an impartial auctioneer.
II.One individual can act as a perfect price discriminator and force the other individual to pay a different price for each unit of a good that is traded.
III.One individual is a monopolist and can charge the other individual a single,utility-maximizing price.
Which of these situations is efficient?
A)None of them.
B)Only I.
C)I and II,but not III.
D)I and III,but not II.
E)All of them.
Q2) An allocation of resources is technically efficient if
A)it is impossible to increase the output of a particular good.
B)it is possible to increase the output of all goods.
C)it is impossible to increase the output of one good without cutting back on the production of something else.
D)it is possible to increase the output of one good.
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Page 13
Chapter 12: Monopoly
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Sample Questions
Q1) If the government requires a natural monopoly to price at marginal cost,
A)monopoly firms will earn zero economic profits because the price of the good equals the cost of producing that good.
B)monopoly firms will operate at a loss because P < AC.
C)more firms will be able to enter the market.
D)producer surplus will increase because quantity supplied is greater.
Q2) Perfect (first degree)price discrimination
A)is a common occurrence in situations with many buyers.
B)occurs fairly often in situations with only a few buyers.
C)is only observed in competitive markets.
D)rarely occurs because firms do not have sufficient power to differentiate among specific buyers.
Q3) In the real world,a monopolist's costs will often be
A)lower than for a firm in a competitive industry.
B)equal to the costs of a firm in a competitive industry.
C)higher than for a firm in a competitive industry.
D)almost zero.
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14
Chapter 13: Imperfect Competition
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Sample Questions
Q1) The more a firm invests in a new production technology,the lower its marginal costs.Which of the following scenarios involving this incumbent firm and a potential entrant makes the least economic sense?
A)The incumbent overinvests to deter entry when this investment is observable to the entrant.
B)The incumbent overinvests to deter entry when this investment is unobservable to the entrant.
C)The incumbent underinvests to accommodate entry when this investment is observable and they compete in prices.
D)The incumbent overinvests to accommodate entry when this investment is observable and they compete in quantities.
Q2) A profit-maximizing firm should spend an additional dollar on advertising so long as this expenditure results in more than one dollar of:
A)additional sales.
B)reduced costs.
C)increased profits.
D)demand.
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Chapter 14: Labor Markets
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Sample Questions
Q1) When an individual's wage rises,the income effect tends to A)increase hours worked.
B)decrease hours worked.
C)leave hours worked unchanged.
D)it is impossible to predict what will happen to hours worked.
Q2) When an individual's wage rises,the substitution effect tends to A)increase hours worked.
B)decrease hours worked.
C)leave hours worked unchanged.
D)it is impossible to predict what will happen to hours worked.
Q3) Consider two situations: In situation A the production of widgets is monopolized by a single firm.In situation B the production of widgets is perfectly competitive.In both situations the supply of labor to widget makers is infinitely elastic at a wage of w.In this case,the product \(p \cdot M _ { l }\)
A)will be the same in the two cases.
B)will be higher in case B than in case A.
C)will be higher in case A than in case B.
D)From the information given it is not possible to make a definite statement about the marginal value product of labor.
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Page 16
Chapter 15: Capital and Time
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Sample Questions
Q1) If a tree's value (v)is growing according to the equation \(v ( t ) = e ^ { . i t - .0025 s t
}\) with an interest rate of 5 percent,the tree should be harvested when t =
A)5 years.
B)10 years.
C)25 years.
D)100 years.
Q2) Accelerated depreciation laws may increase firms' investment in equipment because
A)machines will wear out more rapidly.
B)profits will be increased.
C)the rental rate on capital will be reduced.
D)the price of machines will fall.
Q3) A rise in interest rates leads to
A)an increase in the PDV of profits from owning a machine.
B)a decrease in the PDV of profits from owning a machine.
C)offsetting the effects on the costs and benefits of owning a machine.
D)no effect on either the costs or benefits of owning a machine.
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Chapter 16: Asymmetric Information
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Sample Questions
Q1) Suppose you were competing in a sealed-bid,second-price auction for a Vermeer painting,which you happen to value at $100,000.What bid should you submit?
A)Exactly $100,000.
B)Somewhat lower than $100,000 depending on the number of other bidders.
C)Somewhat higher than $100,000 depending on the number of other bidders.
D)Cannot say which of a),b),or c)is right without further information.
Q2) Compared to the case in which a monopoly insurer offers the consumer a contract,if insurance is competitively provided,
A)any moral hazard or adverse-selection problem is alleviated.
B)any moral hazard or adverse-selection problem is worsened.
C)the essence of any moral hazard or adverse-selection problem would not change much.
D)insurers would no longer offer menus of contracts.
Q3) Which contracting party gains from the use of a more sophisticated contract?
A)The principal,who offers the contract.
B)The agent,who accepts the contract.
C)Both parties may lose.
D)Both parties gain equally.
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18
Chapter 17: Externalities and Public Goods
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Sample Questions
Q1) To reach an economically efficient output level,the size of an excise tax imposed on a firm generating a negative externality should be
A)the firm's marginal cost.
B)the social marginal cost.
C)the difference between the social marginal cost and the firm's marginal cost.
D)the sum of the social marginal cost and the firm's marginal cost.
Q2) In the case of a negative externality,the social marginal cost will
A)exceed the private marginal cost.
B)be equal to private marginal cost.
C)fall short of private marginal cost.
D)bear no significant relation to private marginal cost.
Q3) Median voter decisions may not yield efficient allocations of resources because
A)votes are allocated differently than income.
B)externalities may cause private and social costs to diverge.
C)free riders will cause too few public goods to be produced.
D)the median voter may not be the same as the mean voter.
Q4) Left to their own,private markets tend to
A)underallocate resources to public goods.
B)allocate the economically efficient amount of resources to public goods.
C)overallocate resources to public goods.
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