Managerial Economics
Midterm Exam
Course Introduction
Managerial Economics explores the application of economic theory and quantitative methods to business decision-making. The course equips students with analytical tools to interpret market dynamics, optimize resource allocation, analyze production and cost functions, and evaluate pricing strategies. Through real-world case studies and problem-solving exercises, students learn to assess the impact of external factors such as competition and government regulation on organizational performance, ultimately supporting sound managerial strategies in a dynamic economic environment.
Recommended Textbook
Intermediate Microeconomics and Its Application 12th Edition by Walter Nicholson
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Chapter 1: Economic Models
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Sample Questions
Q1) The slope of a nonlinear function at some particular point
A)is the slope of the straight line that is tangent to the function at that point.
B)is the slope of the straight line connecting the origin and the point.
C)cannot be determined.
D)is constant for the entire function.
Answer: A
Q2) For the function \(Y=X \cdot Z\)
,the equation \(X \cdot Z = 10\) represents
A)the X-intercept.
B)the Y-intercept.
C)a contour line.
D)a tangent line.
Answer: C
Q3) Normative economic analysis
A)involves the study of what comprises a normal firm.
B)involves how resources are actually used in an economy.
C)involves judgments on how resources should be used in an economy.
D)is usually thought to be a waste of time.
Answer: C
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Chapter 2: Utility and Choice
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Q1) Suppose that at current consumption levels an individual's marginal utility of consuming an extra hot dog is 10 whereas the marginal utility of consuming an extra soft drink is 2.Then the MRS (of soft drinks for hot dogs)-that is,the number of hot dogs the individual is willing to give up to get one more soft drink is
A)5
B)2
C)1/2
D)1/5
Answer: D
Q2) As an individual moves northwest along an indifference curve substituting more and more Y for X,his or her MRS of X for Y
A)increases.
B)decreases.
C)stays the same.
D)changes in a way that cannot be determined.
Answer: A
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4
Chapter 3: Demand Curves
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Sample Questions
Q1) If there are only two goods and these are consumed in fixed proportions,the price elasticities of demand for these two goods will sum to
A)0.0
B)-0.5
C)-1.0
D)a number between 0 and -1.
Answer: C
Q2) Suppose two goods coffee and creamer provide the consumer with utility but only if they are consumed in fixed proportions.An increase in the price of coffee will yield
A)a substitution effect and an income effect in opposite directions.
B)a substitution effect and an income effect in the same direction.
C)a substitution effect but no income effect.
D)an income effect but no substitution effect.
Answer: D
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Chapter 4: Uncertainty
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Sample Questions
Q1) Continuing with the same family from the preceding question,suppose a risk neutral insurance company exists to provide vacation insurance.Suppose further that each vacation day requires a constant expenditure,and this expenditure is standard across everybody. This allows us to simplify the problem by considering all payments to be in terms of vacation days. What is the least the insurance company would charge (in terms of vacation days)?
A)3
B)4
C)5
D)6
Q2) 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.
Q3) An individual will never buy complete insurance if
A)he or she is risk averse.
B)he or she is a risk taker.
C)insurance premiums are fair.
D)under any circumstances.
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Chapter 5: Game Theory
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Sample Questions
Q1) A subgame-perfect equilibrium is a Nash equilibrium that A)cannot persist through several periods.
B)involves only credible threats.
C)consists only of dominant strategies.
D)is unique.
Q2) Consider the game between the teens from the previous question. In addition to any pure-strategy Nash equilibrium,there is another one in mixed strategies. In it,each teen chooses to declare with probability
A)0.52
B)0.5
C)0.34
D)0.1
Q3) Consider the same setup with the curved final exam as in the previous question.Now suppose the students move sequentially.Which best describes the outcome in the subgame-perfect equilibrium?
A)Brainiacs study and Numbskulls party regardless of who moves first.
B)Brainiacs party and Numbskulls study regardless of who moves first.
C)The party moving first studies.
D)The party moving first parties.
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Page 7
Chapter 6: Production
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Sample Questions
Q1) If production is given by Q = K<sup>s</sup>L<sup>b</sup>,(a + b < 1)doubling both inputs
A)more than doubles output.
B)exactly doubles output.
C)increases output but does not double it.
D)leaves output unchanged.
Q2) A firm's isoquant shows
A)the amount of labor needed to produce a given level of output with capital held constant.
B)the amount of capital needed to produce a given level of output with labor held constant.
C)the various combinations of capital and labor that will produce a given amount of output.
D)None of the above.
Q3) If more and more labor is employed while keeping all other inputs constant,the marginal physical productivity of labor
A)will eventually increase.
B)will eventually decrease.
C)will eventually remain constant.
D)cannot tell from the information provided.
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Chapter 7: Costs
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Sample Questions
Q1) Technical progress will
A)shift a firm's production function and its related cost curves.
B)not affect the production function,but may shift cost curves.
C)shift a firm's production function and alter its marginal revenue curve.
D)shift a firm's production function and cause more capital (and less labor) to be hired.
Q2) Suppose a cost function is TC = Aq<sup>3</sup> + bq<sup>2</sup> + cq +d. Then the total fixed cost is
A)Aq<sup>2</sup>+ bq + cq +d/q
B)Aq<sup>2</sup> + bq + c
C)Aq<sup>3</sup> + bq2 + cq
D)d
Q3) The shape of a firm's expansion path depends upon
A)the price of the labor input.
B)the price of the capital input.
C)the shape of the firm's production function.
D)all of these factors.
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Chapter 8: Profit Maximization and Supply
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Q1) 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.
Q2) In order to maximize profits,a firm should produce at the output level for which A)average cost is minimized.
B)marginal revenue equals marginal cost.
C)marginal cost is minimized.
D)price minus average cost is as large as possible.
Q3) In order to maximize profits,a firm that can sell all it wants without affecting price should produce
A)where average variable costs are minimized.
B)where marginal cost is equal to average variable costs.
C)where marginal cost is equal to price.
D)where marginal cost is a minimum.
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Chapter 9: Perfect Competition in a Single Market
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Sample Questions
Q1) 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.
Q2) In the short run
A)new firms may enter an industry.
B)existing firms may change the quantity they are supplying.
C)price and quantity supplied are absolutely fixed.
D)quantity supplied is absolutely fixed.
Q3) In the short run,an increase in market demand will usually lead to a(n)
A)decrease in price and an increase in quantity.
B)decrease in price and a decrease in quantity.
C)increase in price and an increase in quantity.
D)increase in price and a decrease in quantity.
Q4) Positive economic profits exist for a firm in the long run if price is above
A)long-run average cost.
B)long-run marginal cost.
C)long-run total cost.
D)long-run variable cost.
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Chapter 10: General Equilibrium and Welfare
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Sample Questions
Q1) Consider three ways of allocating two goods in a two-person exchange economy. Which of these situations is efficient?
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.
A)None of them.
B)Only I.
C)I and II,but not III.
D)I and III,but not II.
Q2) Markets can fail to achieve efficiency when
A)there are prices consumers do not think are fair.
B)there are wages workers do not think are fair.
C)trade puts people out of work.
D)there are public goods.
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12
Chapter 11: Monopoly
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Sample Questions
Q1) Which of the following is not a legal barrier to entry in a monopolized market?
A)A patent.
B)An exclusive franchise.
C)Decreasing average cost.
D)An exclusive license.
Q2) Consider the same monopoly situation as in the previous question. The deadweight loss (compared to a single firm behaving as if it were perfectly competitive)is about
A)667
B)333
C)1,000
D)1,333
Q3) All of the following might explain a firm offering quantity discounts except:
A)lower costs of handling large orders.
B)an inelastic demand for the good.
C)monopoly power in this market.
D)existence of some high and some low demand consumers.
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13
Chapter 12: Imperfect Competition
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Sample Questions
Q1) Each firm in a cartel has an incentive to chisel because market price exceeds
A)marginal cost.
B)average cost.
C)average variable cost.
D)average fixed cost.
Q2) In the Cournot model,each firm assumes that its rival will ____ its output when the firm adjusts its own output.Which word best completes the sentence?
A)increase
B)not change
C)decrease
D)adjust
Q3) Consider the same market for nonalcoholic beer as in the previous question.
Cudweiser's response function is
A)QB = 2,000 - .5QC
B)QB = 1,500 - .5QC
C)QC = 2,000 - .5QB
D)QC = 1,500 - .5QB
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14
Chapter 13: Pricing in Input Markets
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Sample Questions
Q1) The substitution effect of a change in wage rate on a firm's demand for labor input will be more significant
A)the greater the change in output.
B)the more sharply curved are the firm's isoquants.
C)the flatter are the firm's isoquants.
D)the larger the quantity of labor employed.
Q2) Suppose Woody Chuck's business is to clear trees for housing developments.Given the constraints of fixed capital,the production function is \(q = .01 \sqrt { L }\) .Suppose Woody Chuck's is one of many firms clearing land and that the market price per cleared lot is $5000.(Note \(M P _ { L } = \frac { .005 } { \sqrt { L } }\) )The marginal Revenue Product of labor is
A)constant at $5000.
B)constant at 25
C) \(\frac { 25 } { \sqrt { L } }\)
D) \(25 \cdot \sqrt { L }\)
Q3) In the study of labor supply,"leisure" refers to
A)time spent sleeping.
B)time spent doing absolutely nothing (except breathing).
C)time spent in one's place of residence.
D)time spent that is not spent in market work.
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Chapter 14: Capital and Time
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Sample Questions
Q1) Suppose you know a piece of land will be worth $1 million (real)in 2045,and the real interest rate is 5%.About how much should you be willing to pay for the land today (2015)? (Assume no taxes).
A)$610,000
B)$1 million
C)$1.89 million
D)$230,000
Q2) The annual rental rate for a machine is
A)the yearly depreciation and maintenance costs for the machine.
B)the yearly interest costs associated with owning the machine.
C)the initial purchase price of the machine divided by the number of years the machine is expected to last.
D)the sum of the yearly depreciation,maintenance,and interest costs associated with owning the machine.
Q3) For a given interest rate,r,which of the following expressions is smallest?
A)1 + r.
B)(1 + r/2)2.
C)(1 + r/12)12
D)(1 + r/365)365.
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Page 16
Chapter 15: Asymmetric Information
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Sample Questions
Q1) One way the "lemons problem" in the used-car market can be mitigated is by
A)raising the price of used cars.
B)hiring auto experts to sell used cars.
C)requiring sellers to guarantee trouble-free cars.
D)allowing owners to trade in their own cars when they purchase a used car.
Q2) Which of the following is an application of the adverse-selection problem?
A)a customer driving more recklessly after buying car insurance.
B)a teenager "hanging out" with friends his or her parents do not approve of.
C)shareholders offering a high-powered incentive contract to a manager.
D)an auto repairman claiming that the repairs are more extensive than they actually are.
Q3) Which is a distortion (a loss of social surplus)associated with a monopolist's inability to observe consumer types when constructing a nonlinear pricing scheme?
A)The monopolist must expend more resources on market research.
B)All bundles involve inefficiently low quantities.
C)Some but not all bundles involve inefficiently low quantities.
D)Quantities aren't distorted,but prices extract too much consumer surplus.
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Page 17
Chapter 16: Externalities and Public Goods
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Sample Questions
Q1) In drilling a new oil well in an existing oil field,the fact that output on existing wells is reduced means that
A)existing wells have negatively sloped marginal cost curves.
B)existing wells and new wells are owned by different people.
C)existing wells and new wells are owned by the same people.
D)there is a discrepancy between private and social marginal costs.
Q2) Left to their own,private markets tend to A)under-allocate resources to public goods.
B)allocate the economically efficient amount of resources to public goods.
C)over-allocate resources to public goods.
Q3) Suppose the market for oranges is perfectly competitive and unregulated.Suppose also that the chemicals used to keep the oranges insect-free damage the environment by an estimated $1 per bushel of oranges.Suppose Q<sub>D</sub> = 1000 - 100P and Q<sub>S</sub> = -100 + 100P.The tax that would have to exist to achieve the socially optimal level of production would be
A)$0
B)$.50
C)$1
D)$2
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Page 18
Chapter 17: Behavioral Economics
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Sample Questions
Q1) What are the main differences between neoclassical economics and behavioral economics?
A)Neoclassical economics is mainly theoretical.
B)Behavioral economics does not take as given that decision makers are rational.
C)Neoclassical economics assumes that decision makers are fully informed.
D)All of the above.
Q2) In what way does prospect theory differ from the standard theory of expected utility?
A)With prospect theory,preferences depend only on final wealth levels.
B)With prospect theory,preferences vary with initial (reference) wealth levels.
C)With prospect theory,individuals are risk loving over small losses.
D)With prospect theory,risk aversion does not play a role.
Q3) Which is not a factor that makes cognitive mistakes more likely?
A)uncertainty.
B)time pressure.
C)repetition.
D)large number of choices.
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