Managerial Economics
Mock Exam
Course Introduction
Managerial Economics focuses on applying the principles and methodologies of economics to solve practical problems in business management. The course covers key concepts such as demand analysis, production and cost functions, pricing strategies, market structure analysis, risk assessment, and decision-making under uncertainty. Students learn how economic theories inform managerial decisions regarding resource allocation, profit maximization, and competitive strategy. Through real-world case studies and quantitative analysis, the course equips future managers with the tools needed to make informed and effective business choices in a dynamic economic environment.
Recommended Textbook
Intermediate Microeconomics and Its Application 11th Edition by Walter Nicholson
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Page 2
Chapter 1: Economic Models
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Sample Questions
Q1) The Y-intercept of Y = 3X + 8 is
A) 3/8.
B) 3.
C) 8.
D) 8/3.
Answer: C
Q2) The slope of the production possibility frontier shows
A) how inputs must be changed to keep them fully employed.
B) the technically efficient combinations of the two goods.
C) how demanders are willing to trade one good for another.
D) the opportunity cost of one good in terms of the other.
Answer: D
Q3) If the production possibilities frontier can be expressed as 4X<sup>2</sup> + Y<sup>2</sup> = 16 then the point X = 1; Y = 4 is
A) outside the production possibilities frontier
B) on the production possibilities frontier
C) inside the production possibilities frontier
D) in the wrong quadrant to be on the graph
Answer: A
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Page 3
Chapter 2: Utility and Choice
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Sample Questions
Q1) If people like their goods in fixed proportions,the two goods are
A) perfect substitutes
B) perfect complements
C) complements (but not perfect)
D) substitutes (but not perfect)
Answer: B
Q2) If bundles of goods A and B lie on the same indifference curve,one can assume the individual
A) prefers bundle A to bundle B.
B) prefers bundle B to bundle A.
C) enjoys bundle A and B equally.
D) bundle A contains the same goods as bundle B.
Answer: C
Q3) If a person's indifference curves can be represented as a straight line,the person views the goods as
A) perfect substitutes
B) perfect complements
C) complements (but not perfect)
D) substitutes (but not perfect)
Answer: A
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Chapter 3: Individual Demand Curves
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Sample Questions
Q1) A decrease in demand is represented by
A) a shift outward of the entire demand curve.
B) a shift inward of the entire demand curve.
C) a movement along the demand curve in a southeasterly direction.
D) a movement along the demand curve in a northwesterly direction.
Answer: B
Q2) A change in the distribution of income which leaves total income constant will not shift the market demand curve for a product providing
A) everyone has an income elasticity of demand of zero for the product.
B) everyone has the same income elasticity of demand for the product.
C) individuals have differing income elasticities for the product, but the average income elasticity for income gainers is equal to the average income elasticity for income losers.
D) any of the above conditions occur.
Answer: D
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Chapter 4: Uncertainty
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Sample Questions
Q1) Suppose a lottery ticket costs $1and has a jackpot of $1,000.What must the probability of winning nothing be if the bet is fair?
A) 99%
B) 99.9%
C) 99.999%
D) 99.9999%
Q2) With moral hazard,fair insurance contracts are not viable because A) individuals' aversion to risk is reduced.
B) insurance company's administrative costs are increased.
C) individuals fear unscrupulous agents.
D) probabilities of loss are increased over what is expected.
Q3) Continuing with the same vacation-insurance company from the preceding question,is there any vacation-day price that would both strictly increase the family's expected utility (compared to no insurance)and strictly increase the profits of the risk-neutral insurance company?
A) Yes, two days.
B) Yes, three days.
C) Yes, four days.
D) No.
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Chapter 5: Game Theory
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Sample Questions
Q1) A lake supports a delicious variety of fish.The land around the lake is owned by two fisherman,so by state law both are free to fish as much as they like.Let F<sub>A</sub> and F<sub>B</sub> be the number of fish each catches,respectively.Suppose the price of fish is 100 - F<sub>A</sub> - F<sub>B</sub>.Given this demand curve,it turns out that marginal revenue is 100 - 2F<sub>A</sub> - F<sub>B</sub><sub> </sub>for fisherman A and 100 - F<sub>A</sub> - 2F<sub>B</sub><sub> </sub>for fisherman B.What is the total number of fish by both in the Nash equilibrium?
A) 30
B) 45
C) 60
D) 90
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
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Page 7
Chapter 6: Production
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Sample Questions
Q1) Graphically,the average productivity of labor would be illustrated by
A) the slope of the total product curve at the relevant point.
B) the slope of the marginal productivity curve at the relevant point.
C) the negative of the slope of the marginal productivity curve at the relevant point.
D) the slope of the chord connecting the origin with the relevant point on the total output curve.
Q2) When isoquants get progressively further apart there is
A) increasing returns to scale
B) decreasing returns to scale
C) constant returns to scale
D) not enough information to determine
Q3) If production is given by Q = K<sup>\(\alpha\)</sup>L<sup>B</sup>,(\(\alpha\)+
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.
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8
Chapter 7: Costs
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Sample Questions
Q1) A firm's marginal cost is defined as
A) the ratio of total cost to total output.
B) the ratio of total output to total cost.
C) the additional cost of producing one more unit of output.
D) the reciprocal of total average cost.
Q2) Short-run total cost is the sum of
A) short-run fixed cost plus short-run variable cost, and short-run marginal costs.
B) short-run fixed cost and short-run marginal costs.
C) short-run variable cost and short-run costs.
D) short-run fixed cost and short-run variable cost.
Q3) 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.
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Chapter 8: Profit Maximization and Supply
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Sample Questions
Q1) It is usually assumed that a perfectly competitive firm's supply curve is given by its marginal cost curve.In order for this to be true,which of the following additional assumptions are necessary?
I.That the firm seek to maximize profits.
II.That the marginal cost curve be positively sloped.
III.That price exceeds average variable cost.
IV.That price exceeds average total cost.
A) I and II only.
B) I and II but not III and IV.
C) I and III but not II and IV.
D) I, II and III, but not IV.
Q2) A firm's marginal revenue is defined as
A) the ratio of total revenue to total quantity produced.
B) the additional output produced by lowering price.
C) the additional revenue received due to technical innovation.
D) the additional revenue received when selling one more unit of output.
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Chapter 9: Perfect Competition in a Single Market
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Sample Questions
Q1) Suppose that the price elasticity of demand for a product is -1 and that the price elasticity of supply is +1.Assume also that the income elasticity of demand is +2.Then an increase in income of 10% will raise equilibrium price by A) 10%.
B) 5%.
C) 20%.
D) an annual amount that cannot be determined.
Q2) Suppose there are 100 firms each with a short run total cost of STC = q<sup>2</sup> + q + 10,so that marginal cost is MC = 2q +1.If market demand is given by Q<sub>D</sub> = 1050 - 50P,total cost to the firm will be A) 22
B) 30
C) 40
D) 52
Q3) The short-run market supply curve is
A) the horizontal summation of each firm's short-run supply curve.
B) the vertical summation of each firm's short-run supply curve.
C) the horizontal summation of each firm's short-run average cost curve.
D) the vertical summation of each firm's short-run average cost curve.
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Page 11
Chapter 10: General Equilibrium and Welfare
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Sample Questions
Q1) Suppose two goods (X and Y )are being produced efficiently and that the production of X is always more labor intensive than the production of Y.Production depends only on two factors (capital and labor); these may be smoothly substituted for each other.The total quantities of these inputs are fixed.An increase in the production of X and a decrease in the production of Y will
A) increase the capital-labor ratio in each firm.
B) decrease the capital-labor ratio in each firm.
C) leave the capital-labor ratio for each firm unchanged.
D) increase the capital-labor ratio in Y production and decrease the capital -labor ratio in X production.
Q2) The slope of the production possibility frontier shows
A) the marginal rate of substitution between the two goods. B) the relative marginal costs of the two goods.
C) the efficient combination of outputs possible using fixed amounts of input. D) the relative marginal productivities of the two goods.
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12
Chapter 11: Monopoly
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Sample Questions
Q1) Which of the following is not a technical barrier to entry in a monopolized market?
A) A patent.
B) Decreasing average cost.
C) A low cost method of production known only by monopolist.
D) Increasing returns to scale.
Q2) Consider the same monopoly situation as in the previous question.The deadweight loss associated with this monopoly is
A) 966
B) 1,058
C) 2,484
D) 3,680
Q3) A natural monopoly
A) is a monopoly in the production of raw materials.
B) occurs when one firm can supply the entire market more cheaply than can a number of firms.
C) is one result of a patent.
D) results from decreasing returns to scale.
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Chapter 12: Imperfect Competition
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Sample Questions
Q1) Product differentiation complicates the study of oligopolies because such markets may not
A) be efficient.
B) have prices equal to marginal cost.
C) have free entry and exit.
D) obey the law of one price.
Q2) Which assumptions of the Bertrand model be altered to avoid the Bertrand Paradox (that an outcome resembling perfect competition may arise with even as few as two firms)?
A) assuming firms have limited capacities.
B) assuming firms produce differentiated rather than homogeneous products.
C) assuming firms play repeatedly and thus may collude.
D) all of the above.
Q3) Consider the same market for nonalcoholic beer as in the previous question.How many "units" of beer will Boors produce in the Nash equilibrium?
A) 667
B) 1,667
C) 2,333
D) 3,000
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Page 14
Chapter 13: Pricing in Input Markets
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Sample Questions
Q1) In an input market,economic rent is defined as
A) the total remuneration paid to a factor of production.
B) the minimum amount required to retain a factor of production in its present use.
C) the total cost for a firm of renting land, equipment, and buildings.
D) the extent to which payments to a factor of production exceed the minimum amount required to retain it in its present use.
Q2) If a factor of production comes to have more and more alternative uses,its supply curve to any one use
A) remains unchanged.
B) becomes more inelastic.
C) becomes more elastic.
D) may move in any direction.
Q3) For a monopsonistic hirer of labor,the gap between labor's marginal value product and its wage rate will be greater
A) the more elastic the supply curve for labor.
B) the more inelastic the supply curve for labor.
C) the more elastic the firm's demand for labor.
D) the more inelastic the firm's demand for labor.
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Chapter 14: Capital and Time
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Sample Questions
Q1) Suppose Johnny Stroller sells 12,25,and 75 year-old scotch in under black,red,and blue labels.Suppose the storage costs are zero and the initial production costs are the same.What is the implied (approximate)interest rate if black sells for $18,red for $34 and blue for $388.
A) 2
B) 5
C) 8
D) 10
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 lowered.
D) the price of machines will fall.
Q3) In the two-period utility maximization model the opportunity cost of one unit of C<sub>1</sub> is
A) one unit of C<sub>0</sub>.
B) 1 + r units of C<sub>0</sub>.
C) 1/(1 + r) units of C<sub>0</sub>.
D) cannot be determined without more information.
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Chapter 15: Asymmetric Information
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Sample Questions
Q1) 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) only some bundles involve inefficiently low quantities.
D) quantities aren't distorted, but prices extract too much consumer surplus.
Q2) Adverse selection in competitive insurance markets harms
A) high risk individuals.
B) low risk individuals.
C) owners of competitive insurance companies.
D) everyone.
Q3) Return to the situation with the manager from the previous question.Now assume that shareholders cannot observe effort,so cannot specify how hard the manager works in the contract but must induce it through the incentive scheme.Which of the following wage contracts would work out best for shareholders in equilibrium?
A) A flat wage w = 2,500 with no profit share.
B) A share of 35% of the gross profits.
C) A share of 55% of the gross profits.
D) A share of 70% of the gross profits.
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Page 17
Chapter 16: Externalities and Public Goods
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Sample Questions
Q1) Common property
A) is owned by specific people.
B) is inexhaustible.
C) refers strictly to land resource.
D) refers to goods "owned" by society at large and freely usable by anyone.
Q2) 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.
Q3) If preferences are one-dimensional and preferences are single peaked,majority rule will result in selection of the project most favored by
A) no one.
B) the median voter.
C) the average voter.
D) everyone.
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Chapter 17: Behavioral Economics
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Sample Questions
Q1) The option-value principle can be roughly stated as "more choices can't make a person worse off." Are there any exceptions to this rule? Choose all that apply.
A) No.
B) Yes, in strategic situations.
C) Yes, in situations involving self-control.
D) Yes, for certain complicated financial derivatives.
Q2) Return to the market for cigarettes from the previous question.What per-unit tax could the government levy to eliminate the deadweight loss from the behavioral bias?
A) 0
B) 1
C) 50
D) 100
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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