Managerial Economics
Mock Exam
Course Introduction
Managerial Economics explores the application of economic theory and quantitative methods to business decision-making. The course covers topics such as demand analysis, production and cost functions, pricing strategies, market structures, and the impact of government regulation. Students learn to analyze business problems, forecast trends, and use economic reasoning to develop effective managerial strategies, enabling them to make informed decisions in a rapidly changing economic environment.
Recommended Textbook
Managerial Economics and Business Strategy 9th Edition by Michael Baye
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14 Chapters
2024 Verified Questions
2024 Flashcards
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Chapter 1: The Fundamentals of Managerial Economics
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145 Verified Questions
145 Flashcards
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Sample Questions
Q1) If the interest rate is 3 percent,the present value of $900 received at the end of four years is:
A) $792.00.
B) $799.64.
C) $873.79.
D) $927.40.
Answer: B
Q2) A farm must decide whether or not to purchase a new tractor.The tractor will reduce costs by $2,000 in the first year,$2,500 in the second,and $3,000 in the third and final year of usefulness.The tractor costs $9,000 today,while the above cost savings will be realized at the end of each year.If the interest rate is 7 percent,what is the net present value of purchasing the tractor?
A) $6,764
B) $9,362
C) $18,362
D) None of the statements associated with this question are correct.
Answer: D
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Page 3
Chapter 2: Market Forces: Demand and Supply
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149 Flashcards
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Sample Questions
Q1) Consider a market characterized by the following demand and supply conditions: P<sub>X</sub> = 15 2Q<sub>X</sub> and P<sub>X</sub> = 3 + 2Q<sub>X</sub>.The equilibrium price and quantity are,respectively:
A) $3 and 9 units.
B) $9 and 3 units.
C) $12 and 4 units.
D) $4 and 12 units.
Answer: B
Q2) Suppose market demand and supply are given by Q<sup>d</sup> = 100 2P and Q<sup>s</sup> = 5 + 3P.The equilibrium price is:
A) $15.
B) $19.
C) $17.
D) $20.
Answer: D
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4
Chapter 3: Quantitative Demand Analysis
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167 Flashcards
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Sample Questions
Q1) The demand curve for a good is horizontal when it is:
A) a perfectly inelastic good.
B) a unitary elastic good.
C) a perfectly elastic good.
D) an inferior good.
Answer: C
Q2) As a general rule of thumb,a manager can be 95 percent confident that the true value of the underlying parameter in the regression is not zero,when the absolute value of the t-statistic is:
A) greater than zero.
B) greater than or equal to 1.
C) greater than or equal to 2.
D) None of the preceding statements is correct.
Answer: C
Q3) When marginal revenue is zero,demand will be:
A) elastic.
B) inelastic.
C) unit elastic.
D) There is not sufficient information to classify the elasticity of demand.
Answer: C
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Chapter 4: The Theory of Individual Behavior
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183 Flashcards
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Sample Questions
Q1) If you wish to open a store and you do not like risk,it would be wise to sell:
A) only normal goods.
B) a mix of normal and inferior goods.
C) all inferior goods.
D) None of the preceding statements is correct.
Q2) The difference between a price decrease and an increase in income is that
A) A price decrease does not affect the consumption of other goods, while an increase in income does.
B) An increase in income does not affect the slope of the budget line, while a decrease in price does change the slope.
C) A price decrease decreases real income, while an increase in income increases real income.
D) A price decrease leaves real income unchanged, while an increase in income increases real income.
Q3) Sally Consumer's indifference curve between cigarettes and hamburgers is upward sloping.Based on this information,can we conclude that Sally views cigarettes as "bads" and hamburgers as "goods"?
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Chapter 5: The Production Process and Costs
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Sample Questions
Q1) The short run is defined as the time frame:
A) in which there are no fixed factors of production.
B) in which there are fixed factors of production.
C) less than one year.
D) less than three years.
Q2) The long-run average cost curve defines the minimum average cost of producing alternative levels of output,allowing for optimal selection of:
A) fixed factors of production.
B) variable factors of production.
C) all factors of production.
D) sunk cost factors of production.
Q3) If the production function is Q = K<sup>.5</sup>L<sup>.5</sup> and capital is fixed at 9 units,then the marginal product of labor when L = 49 is:
A) 3.
B) 9/98.
C) 3/14.
D) None of the answers are correct.
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Chapter 6: The Organization of the Firm
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Sample Questions
Q1) Suppose a new contracting environment that requires greater specialized investments is considered.This new contract will result in:
A) an increase in the marginal benefit and a longer optimal contract.
B) an increase in the marginal benefit and a shorter optimal contract.
C) a decrease in the marginal benefit and a longer optimal contract.
D) a decrease in the marginal benefit and a shorter optimal contract.
Q2) Spot exchange can be inefficient in the presence of: A) opportunism.
B) a complex contracting environment.
C) spot checks.
D) None of the statements is correct.
Q3) Revenue sharing tries to induce worker effort by linking:
A) worker compensation to profits.
B) worker compensation to revenues.
C) worker output to profits.
D) worker output to revenues.
Q4) Is it necessarily in the best interests of shareholders for management to ensure that there is absolutely no shirking in the workplace?
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8
Chapter 7: The Nature of Industry
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Sample Questions
Q1) An industry consists of three firms with equal annual sales.What is the industry's C<sub>4</sub>?
A) 0.58
B) 0.75
C) 1.00
D) There is not sufficient information to compute the industry C<sub>4</sub>.
Q2) Which of the following may transform an industry from oligopoly to monopolistic competition?
A) Entry of new firms
B) Significant vertical integration
C) Exit of firms
D) A series of horizontal mergers
Q3) Star Computer and a small telecommunications company are considering a merger.A socially minded member of Star Computer's board of directors is against the merger,however,because she is concerned that the merger might not benefit society as a whole.Provide the board member with an argument for why it may be socially beneficial for the merger to take place.
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Chapter 8: Managing in Competitive, Monopolistic, and Monopolistically Competitive Markets
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Sample Questions
Q1) Compute the marginal revenue when the price elasticity of demand is 0.25.
A) 3P, meaning marginal revenue is negative and 3 times greater than price.
B) 3P, meaning marginal revenue is positive and 3 times greater than price.
C) 0.33P, meaning that marginal revenue is negative and one-third of the price.
D) 0.25P, meaning that marginal revenue is negative and one-fourth of the price.
Q2) In a competitive industry with identical firms,long-run equilibrium is characterized by:
A) P > AC.
B) P < MC.
C) MR = MC.
D) MR < P.
Q3) The first-order condition for a firm maximizing its profit operating in a monopolistically competitive market is:
A) (dMR/dQ) = (dMC/dQ).
B) P (dC(Q)/dQ) = 0.
C) (dR(Q)/dQ) (dC(Q)/dQ) = 0.
D) (dMR/dQ) < (dMC/dQ).
Q4) Why does the government grant patents to investors?
Why does the government give monopoly power to utility companies?
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Chapter 9: Basic Oligopoly Models
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Sample Questions
Q1) An oligopolist has a marginal revenue curve that jumps down at 500 units of output.What kind of oligopoly does the firm most likely belong to?
A) Sweezy
B) Cournot
C) Stackelberg
D) Bertrand
Q2) Consider a Cournot duopoly with the following inverse demand function: P = 100 2Q<sub>1</sub> 2Q<sub>2</sub>.The firms' marginal costs are identical and are given by MC<sub>i</sub> = 2.Based on this information,consumer surplus in this market is:
A) $16.33.
B) $32.67.
C) $1,067.11.
D) $2,134.22.
Q3) Which of the following is NOT a type of market structure?
A) Monopolistic competition
B) Perfect competition
C) Monopolistic oligopoly
D) Monopoly
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11
Chapter 10: Game Theory: Inside Oligopoly
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Sample Questions
Q1) If you advertise and your rival advertises,you each will earn $4 million in profits.If neither of you advertises,you will each earn $10 million in profits.However,if one of you advertises and the other does not,the firm that advertises will earn $1 million and the non-advertising firm will earn $5 million.If you and your rival plan to hand your business down to your children (and this "bequest" goes on forever),then a Nash equilibrium is for each firm to:
A) not advertise until the rival does, and then to advertise forever.
B) never advertise.
C) always advertise.
D) advertise until the rival does not advertise, and then not advertise forever.
Q2) If you advertise and your rival advertises,you each will earn $4 million in profits.If neither of you advertises,you will each earn $10 million in profits.However,if one of you advertises and the other does not,the firm that advertises will earn $1 million and the non-advertising firm will earn $5 million. Which of the following is true?
A) A secure strategy for firm A is to not advertise.
B) A secure strategy for firm B is to advertise.
C) Firm A does not have a secure strategy.
D) None of the preceding answers is correct.
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Page 12
Chapter 11: Pricing Strategies for Firms With Market Power
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Sample Questions
Q1) You are the manager of a Mom and Pop store that can buy milk from a supplier at $2.00 per gallon.If you believe the elasticity of demand for milk by customers at your store is 3,then your profit-maximizing price is:
A) $1.33.
B) $2.75.
C) $3.00.
D) $4.50.
Q2) You are the manager of a gas station and your goal is to maximize profits.Based on your past experience,the elasticity of demand by Ohioans for a car wash is 3,while the elasticity of demand by non-Ohioans for a car wash is 1.5.If you charge Ohioans $9 for a car wash,how much should you charge a man with a Kentucky license plate for a car wash?
A) $6
B) $15
C) $18
D) $9
Q3) An auto dealer in Chicago recently told his mother that he makes no money on the sales of his cars but the markup on accessories is 200 percent.Can this possibly be a profit-maximizing strategy?
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Page 13
Chapter 12: The Economics of Information
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Sample Questions
Q1) Consider a market for product X where 75 percent of the stores charge $500 and 25 percent charge $450.Compute the expected benefit from an additional search when the first search results in a price of $500.
A) $37.50
B) $50
C) $12.50
D) $500
Q2) An apple farmer must decide how many apples to harvest for the world apple market.He knows that there is a one-third probability that the world price will be $1,a one-third probability that it will be $1.50,and a one-third probability that it will be $2.His cost function is C(Q)= 0.01Q<sup>2</sup>.What is the expected price in the world apple market?
A) $1.50
B) $1.80
C) $2.00
D) $1.40
Q3) Why do life insurance policies have clauses stipulating that the company will not pay benefits for suicide within one year from the policy date?
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Chapter 13: Advanced Topics in Business Strategy
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90 Verified Questions
90 Flashcards
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Sample Questions
Q1) A two-way network linking five users creates how many potential network connections?
A) 5
B) 10
C) 20
D) 30
Q2) A network linking eight users is typically:
A) less likely to exhibit bottlenecks than a network linking two users.
B) more than four times as valuable as a network linking two users.
C) four times as valuable as a network linking two users.
D) less than four times as valuable as a network linking two users.
Q3) Which of the following is a correct statement?
A) Predatory pricing is easy to prove in a court of law.
B) An incumbent firm may experience a learning curve that allows it to produce at a lower cost than a potential entrant.
C) A firm receives no individual benefit from strategies that raise the marginal costs of its rivals.
D) No individual firm can benefit from strategies that raise the fixed costs of all the firms in the industry.
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Page 15
Chapter 14: A Managers Guide to Government in the Marketplace
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Sample Questions
Q1) A negative externality:
A) is a payment received to parties not involved in the production or consumption of a good.
B) is a cost borne by parties not involved in the production or consumption of a good.
C) results from the absence of well-defined property rights.
D) is a cost borne by parties not involved in the production or consumption of a good and results from the absence of well-defined property rights.
Q2) Which of the following statements is NOT true in the presence of externalities?
A) Social marginal cost equals the sum of internal and external marginal costs.
B) A competitive industry generally produces more than a monopoly.
C) A competitive industry always produces more than the socially efficient level of output.
D) A monopoly always produces more than the socially efficient level of output.
Q3) The unregulated monopoly in the figure below will earn profit of:
A) $16.
B) $8.
C) $4.
D) $0.
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