Managerial Economics
Mock Exam
Course Introduction
Managerial Economics applies microeconomic theory and quantitative analysis to decision-making processes within organizations. The course explores topics such as demand analysis, production and cost functions, market structures, pricing strategies, and risk analysis, with a strong emphasis on how these concepts inform effective business strategies. Students learn to evaluate alternatives, forecast economic trends, and devise optimal managerial policies by integrating economic reasoning with real-world business scenarios. Through case studies and practical examples, the course equips future managers with analytical tools to solve complex problems and enhance organizational performance.
Recommended Textbook Economics for Managers Global Edition 3rd Edition by Paul
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Page 2
G. Farnham
Chapter 1: Managers and Economics
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Sample Questions
Q1) A strong Japanese yen:
A)induced Japanese auto manufacturers to increase their production of cars in Japan.
B)induced Japanese auto manufacturers to shift their production of cars to the U.S.
C)made Japanese exports more price competitive globally.
D)had no meaningful impact on Japanese auto manufacturers.
Answer: B
Q2) Assume a bottled water company is trying to decide on a new pricing strategy.Sound decision making would require the firm's managers to consider not only how consumers will respond to the product's own price,but how they will react to the price for the firm's product relative to the prices of similar products offered by the firm's competitors.
A)True
B)False
Answer: True
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Chapter 2: Demand, supply, and Equilibrium Prices
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Sample Questions
Q1) Consider the market for air travel.A simultaneous increase in the price of fuel and another terrorist attack on United States soil would cause the equilibrium quantity of air travel to go down,but have an uncertain effect on equilibrium price.
A)True
B)False
Answer: True
Q2) A simultaneous improvement in the technology used to produce computers and increase in the number of buyers in the computer market would cause the equilibrium price of computers to drop but have an uncertain effect on equilibrium quantity.
A)True
B)False
Answer: False
Q3) A home theater system and an HD television would be considered an example of: A)substitute goods.
B)giffen goods.
C)inferior goods.
D)complementary goods.
Answer: D
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Chapter 3: Demand Elasticities
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Sample Questions
Q1) Assume that,for a particular demand curve,when price rises from $50 to $60,total revenue falls from $8,750 to $7800.
a.Based on this information,what is the quantity demanded at each price.
b.Without calculating the coefficient of elasticity,is demand over this range elastic or inelastic? How do you know?
Answer: a.When price is $50,quantity demanded is $8750/$50 = 175.When price is $60,quantity demanded is $7800/$60 = 130.
b.Demand is elastic.When price increases from $50 to $60,total revenue decreases.Thus,the decrease in quantity dominates the increase in price,indicating that the percentage in quantity demanded is greater than the percentage change in price and the absolute value of the elasticity coefficient is greater than 1.
Q2) Assuming demand is inelastic,if a firm wants to increase its total revenue,it should raise price.
A)True
B)False
Answer: True
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Chapter 4: Techniques for Understanding Consumer Demand and Behavior
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Sample Questions
Q1) The coefficient of determination is defined as the:
A)ratio of the total sum of squared errors to the sum of squared errors.
B)ratio of the regression sum of squares to the sum of the squared errors.
C)ratio of the sum of squared errors to the total sum of squared errors.
D)none of the above.
Q2) Briefly explain why empirical consumer demand studies such as Patrick McCarthy's study of automobile demand are relevant to managers.
Q3) Cross-sectional data observed at several points in time is known as:
A)time series data.
B)panel data.
C)experimental data.
D)none of the above.
Q4) Refer to Scenario 2.If the age of a house increases by 1 year given that the square feet is held constant,what is the impact on the house's market value?
Q5) Refer to Scenario 2.What is the estimated regression equation for determining the market value of houses?
Q6) Refer to Scenario 2.What are the units of measurement for the standard error of the estimate?
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Chapter 5: Production and Cost Analysis in the Short Run
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Sample Questions
Q1) Assume a firm is currently producing 100 units of output,total fixed costs are $10,000,and average variable costs are $8.Based on this information we can conclude,with certainty,that the firm's:
A)marginal costs are $8.
B)total variable costs are $8000.
C)average fixed costs are $2.
D)total costs are $10,800.
Q2) In the short run,a firm can minimize its total costs of production by operating at the minimum of its average total cost curve.
A)True
B)False
Q3) The amount of money a firm pays to lease a building it uses for office space is called:
A)the full opportunity cost of production.
B)an explicit cost.
C)a real cost of production.
D)an implicit cost.
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Chapter 6: Production and Cost Analysis in the Long Run
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Sample Questions
Q1) Which of the following statements concerning the long-run average cost (LRAC)curve is correct?
A)The LRAC curve represents the least-cost input combination of inputs for producing each level of output.
B)The LRAC curve is derived from a series of short-run marginal cost curves.
C)The short-run cost curve at the minimum point of the LRAC curve represents the least-cost plant size for all levels of output.
D)As output increases, the amount of capital employed by the firm is held constant along the LRAC curve.
Q2) When a firm is experiencing economies of scale,the minimum point of the firm's short-run average total cost curve shifts down as it expands its scale of production.
A)True
B)False
Q3) All else constant,an increase in the level of competition among firms would be expected to reduce the amount of X-inefficiency that exists in a particular industry.
A)True
B)False
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Chapter 7: Market Structure: Perfect Competition
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Sample Questions
Q1) Assume goods X and Y are complements and are produced in perfectly competitive markets.All else constant,an increase in demand for good X would cause:
A)a decrease in the number of firms that produce good X.
B)an increase in the number of firms that produce good Y.
C)a decrease in the number of firms that produce good Y.
D)no effect on the number of firms that produce either good.
Q2) Which of the following statements regarding the agricultural industry is correct?
A)Economies of scale and consolidation have significantly reduced the degree of competition in the industry.
B)Corporate farms now control more than 50 percent of the market for each of the major crops.
C)The largest 5 percent of growers of any particular product are characterized by a small number of interdependent producers.
D)Although farming has become increasingly concentrated over the last 70 years, it is still a highly competitive industry.
Q3) Summarize the characteristics of a perfectly competitive market.
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Chapter 8: Market Structure: Monopoly and Monopolistic Competition
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Sample Questions
Q1) Which of the following statements regarding a monopolist is false?
A)The marginal revenue curve lies below the demand curve for the monopolist's output.
B)Unlike a perfectly competitive firm, a monopolist faces little or no competition.
C)The monopolist sets price equal to marginal cost to maximize profits.
D)The monopolist may or may not earn positive economic profits.
Q2) The Herfindahl-Hirschman Index is a measure of market power that focuses on:
A)the ratio of the price of a firm's product to the price elasticity of demand for the product.
B)the share of the market controlled by the X largest firms in the market.
C)the sum of the squares of the market share of each firm in an industry.
D)the difference between a firm's product price and its marginal costs of production.
Q3) Efforts by firms to secure patents increase the amount of competition in the affected markets.
A)True
B)False
Q4) Explain how network externalities act as a barrier to entry.
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Chapter 9: Market Structure: Oligopoly
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Sample Questions
Q1) In game theory,a Nash equilibrium is defined as:
A)the dominant strategy of each player.
B)a set of strategies for which all players are choosing their best strategy, given the actions of the other players.
C)the set of strategies that result in the maximum payoff to each player.
D)the set of strategies chosen when the players in a game can cooperate with each other.
Q2) Which of the following is an example of strategic entry deterrence?
A)Marginal cost pricing.
B)Limit pricing.
C)Price leadership.
D)Mark-up pricing.
Q3) Predatory pricing will be most effective when the costs structures of the firms in an industry,including potential entrants into the market,are identical or at least very similar.
A)True
B)False
Q4) What is the significance of the mutual interdependence among the firms in an oligopolistic market?
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Chapter 10: Pricing Strategies for the Firm
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Sample Questions
Q1) When the macroeconomy is doing poorly (as it was in 2009),profits of existing firms decrease,creating an incentive for existing firms to exit unprofitable markets.This in turn makes it more difficult for the remaining firms to mark up price over average or marginal cost.
A)True
B)False
Q2) In the case of a perfectly competitive firm,the optimal markup over marginal cost is 0 percent.
A)True
B)False
Q3) So long as the absolute value of the price elasticity of demand for a firm's output is greater than 0,the firm's optimal markup factor will be positive as well.
A)True
B)False
Q4) Promotional pricing is designed to take advantage of differences in the price elasticity of demand among customers.As such,it is an application of first-degree price discrimination.
A)True B)False
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Chapter 11: Measuring Macroeconomic Activity
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Sample Questions
Q1) If nominal GDP is 100,000 and real GDP is 80,000,the GDP deflator is 115.
A)True
B)False
Q2) Suppose an apartment complex is converted to an owner occupied condominium.Suppose that the estimated value of the condominium owners' housing services is now the same as their former rent.
A)GDP increases.
B)GDP decreases.
C)GDP is unaffected because neither the rent nor the estimate of the value of housing services is included in GDP.
D)None of the above.
Q3) If GDP rises:
A)income and production must both fall.
B)income and production must both rise.
C)income must rise, but production may rise or fall.
D)none of the above.
Q4) Fiscal policy is determined by the Federal Reserve System.
A)True
B)False
Q5) What are some of the issues associated with the consumer price index?
Page 13
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Chapter 12: Spending by Individuals, firms, and
Governments on Real Goods and Services
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Sample Questions
Q1) Stock market wealth decreases.What is the impact on aggregate expenditures and income?
A)Both increase.
B)Both decrease.
C)Aggregate expenditure increases and income decreases.
D)Aggregate expenditure decreases and income increases.
Q2) A larger marginal propensity to import will make the slope of the aggregate expenditure function flatter.
A)True
B)False
Q3) Decrease in the real interest rate will ________ the expenditure curve:
A)decrease.
B)increase.
C)not change.
D)none of the above.
Q4) The marginal propensity to save is defined as:
A) C/ Yd.
B) S/ Yd.
C) Yd/ C.
D) Yd/ S.
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Chapter 13: The Role of Money in the Macro Economy
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Sample Questions
Q1) You are given the following information on the banking system.
Reserve requirement rr = 0.08
Currency-deposit ratio c = 0.10
Excess reserve ratio e = 0.05
Compute the simple deposit and money multipliers.
Q2) The money multiplier is computed as follows:
A)(c + 1)/(c + rr + e).
B)(c + 1)/(c + rr).
C)1/rr.
D)(c + 1)/(c + e).
Q3) Contractionary monetary policy increases the federal funds rate.
A)True
B)False
Q4) The primary monetary policy tool is reserve requirements.
A)True
B)False
Q5) In the context of the money market,graphically illustrate and explain the impact of a contractionary monetary policy on interest rates.
Q6) Describe the fractional reserve banking system.
Q7) Why is the money multiplier smaller than the simple deposit multiplier?
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Chapter 14: The Aggregate Model of the Macro Economy
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Sample Questions
Q1) A decrease in resources,efficiency,or technology will shift the:
A)short-run aggregate supply curve rightward.
B)short-run aggregate supply curve leftward.
C)long-run aggregate supply curve rightward.
D)long-run aggregate supply curve leftward.
Q2) An increase in consumer wealth would shift the aggregate demand curve rightward.
A)True
B)False
Q3) The horizontal portion of the short-run aggregate supply curve reflects the Keynesian assumption of "sticky" prices.
A)True
B)False
Q4) A decrease in efficiency would shift the long-run aggregate supply curve:
A)rightward.
B)leftward.
C)no shift.
D)none of the above.
Q5) Expansionary fiscal policy will shift the AD curve leftward.
A)True
B)False
16
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Chapter 15: International and Balance of Payments Issues in the Macro Economy
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Sample Questions
Q1) Exports are positively related to domestic income and negatively related to the exchange rate.
A)True
B)False
Q2) Under a gold standard,a continual balance of surplus in any country can be sustained only as long as the country's gold reserves hold out.
A)True
B)False
Q3) In 2003,China's control of the value of the yuan became an economic and political issue for the U.S.because:
A)increased U.S. exports to China.
B)decreased U.S. exports to China.
C)increased China imports from the U.S.
D)none of the above.
Q4) What will a U.S.corporation do if it believes that the dollar will continue to appreciate when it changes foreign earnings back into dollars?
Q5) What did the European Central Bank (ECB)do to bolster the value of the euro in September 2000?
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Chapter 16: Combining Micro and Macro Analysis for Managerial Decision Making
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Sample Questions
Q1) Give some examples of oligopolistic behavior among the major fast food companies.
Q2) For much of 2001 and 2002,McDonalds faced a(n):
A)decrease in demand.
B)increase in demand.
C)increase in profits.
D)none of the above.
Q3) In general,large current account deficits have to be financed by:
A)capital outflows abroad.
B)capital inflows from abroad.
C)trade barriers.
D)none of the above.
Q4) The study quoted in the text demonstrated that calorie posting did not cause any significant changes in Starbucks revenue over all.
A)True
B)False
Q5) McDonalds has traditionally been popular among Chinese children.
A)True
B)False
Q6) How did McDonalds address the drive-through innovation in China?
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