Course Introduction
Managerial Economics Practice
Questions
Managerial Economics is a foundational course that applies microeconomic theory and quantitative analysis to business decision-making. The course examines key concepts such as demand and supply analysis, production and cost functions, market structures, pricing strategies, and risk analysis. Students learn how to utilize economic reasoning and analytical tools to solve practical problems related to resource allocation, profit maximization, and strategic planning within organizations. Emphasis is placed on understanding the economic forces that influence managerial decisions and developing critical thinking skills to address real-world business challenges.
Recommended Textbook
Managerial Economics and Strategy 1st Edition by Jeffrey M. Perloff
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1600 Verified Questions
1600 Flashcards
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Page 2
Chapter 1: Introduction
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Sample Questions
Q1) Which of the following is an example of a positive statement?
A) Since this food is bad for you, you should not consume it.
B) If this food is bad for you, you should not consume it.
C) If you consume this food, you will get sick.
D) None of the above.
Answer: C
Q2) If actual experience supports two competing theories,then both theories are proven to be true.
A)True
B)False
Answer: False
Q3) In a market
A) the primary participants are consumers and firms.
B) government policies play a very small part.
C) decision makers always maximize.
D) the goods sold are always closely related.
Answer: A
Q4) Give an example of a tradeoff a pizza restaurant might face.
Answer: Whether to make pepperoni or combination pizzas.
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Chapter 2: Supply and Demand
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Sample Questions
Q1) The expression "increase in quantity supplied" is illustrated graphically as a
A) leftward shift in the supply curve.
B) rightward shift in the supply curve.
C) movement up along the supply curve.
D) movement down along the supply curve.
Answer: C
Q2) Once an equilibrium is achieved,it can persist indefinitely because A) shocks that shift the demand curve or the supply curve cannot occur.
B) shocks to the demand curve are always exactly offset by shocks to the supply curve.
C) the government never intervenes in markets at equilibrium.
D) in the absence of supply/demand shocks no one applies pressure to change the price.
Answer: D
Q3) Consumers and firms are known as price takers only if A) no market exists to determine the equilibrium price.
B) they can set the market price.
C) they cannot unilaterally affect the market price.
D) excess demand exists.
Answer: C
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Page 4
Chapter 3: Empirical Methods for Demand Analysis
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Sample Questions
Q1) Ordinary Least Squares Regression analysis attempts to
A) maximize the distance of each point from a regression line.
B) select a line that fits the data well.
C) maximize the residual.
D) change a multivariate problem into a single dimension.
Answer: B
Q2) If the elasticity of demand is -2.3 when calculated using the point elasticity method and -3.4 using the arc elasticity method,then
A) you should use the point elasticity.
B) it is OK to use either one.
C) there must be a mistake in the calculations.
D) you should use the arc elasticity.
Answer: B
Q3) Elasticity along a downward sloping linear demand curve
A) is constant and equal to the slope of the curve.
B) is constant and equal to the slope times the ratio of price to quantity.
C) changes along the curve.
D) does not vary with price unless the good is expensive.
Answer: C
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Page 5
Chapter 4: Consumer Choice
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Sample Questions
Q1) The above figure shows Bobby's indifference map for juice and snacks.Also shown are three budget lines resulting from different prices for snacks.Bobby's demand for snacks is
A) unit elastic.
B) elastic.
C) inelastic.
D) perfectly elastic.
Q2) Joe's income is $500,the price of food (F,y-axis)is $2 per unit,and the price of shelter (S,x-axis)is $100.Which of the following represents his marginal rate of transformation of food for shelter?
A) -5
B) -50
C) -.02
D) None of the above.
Q3) What is the difference between ordinal and cardinal measurement?
Q4) Consumers allocate their budgets among bundles because A) more is not always better.
B) bundles are the most efficient way to package goods and services.
C) consumers face choices and tradeoffs.
D) they want to minimize trips to the store.
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Chapter 5: Production
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Sample Questions
Q1) Joey cuts lawns during the summer.Let q equal the number of acres mowed per day,and let L equal the number of hours worked per day.Joey never works more than eight hours per day,and during that time his short-run production function is q = 0.2
L.Which of the following statements is FALSE?
A) Joey's marginal product equals his average product.
B) Joey's marginal product diminishes by 0.2 for each additional hour worked.
C) Joey's average product is constant.
D) Joey's marginal product is constant.
Q2) Which of the following statements best summarizes the law of diminishing marginal returns?
A) In the short run, as more labor is hired, output diminishes.
B) In the short run, as more labor is hired, output increases at a diminishing rate.
C) In the short run, the amount of labor a firm will hire diminishes as output increases.
D) As more labor is hired, the length of time that defines the short run diminishes.
Q3) The length of the short-run is the same for all firms.
A)True
B)False
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Page 7
Chapter 6: Costs
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Sample Questions
Q1) If a firm buys a specialized metal stamping machine that will last 4 years for $125,000 and cannot resell it,the opportunity cost is
A) $0.
B) $31,250.
C) $125,000.
D) $93,750.
Q2) If a firm buys a delivery van for $18,000 and can resell it in 2 years for $7,500,the opportunity cost is
A) $10,500.
B) $7,500.
C) $18,000.
D) $3,750.
Q3) If the Cobb-Douglas production function for a beer manufacturer is q=1.52L . K . .If we assume that the firm's capital is fixed at 250 units and the rental rate of capital is $5 per unit,then average fixed cost is
A) $1250.
B) $1250/q.
C) 1.52L . (250) . .
D) Unable to determine with information given.
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Page 8
Chapter 7: Firm Organization and Market Structure
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Sample Questions
Q1) A firm's vertical dimension refers to
A) its ability to grow its profits.
B) the size of its headquarters building.
C) the degree to which it participates in the various stages of producing the products and services it sells.
D) the downstream stages of production.
Q2) A firm should always shut down if its revenue is A) declining.
B) less than its average fixed costs.
C) less than its total costs.
D) less than its avoidable costs.
Q3) Economists typically assume that the owners of firms wish to A) produce efficiently.
B) maximize sales revenues.
C) maximize profits.
D) All of the above.
Q4) If a firm sets marginal revenue equal to marginal cost it will make an economic profit.
A)True
B)False
Page 9
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Chapter 8: Competitive Firms and Markets
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Sample Questions
Q1) Producer surplus is equal to
A) the area under the supply curve.
B) the difference between price and average cost for all units sold.
C) the difference between price and marginal cost for all units sold.
D) the firm's profit when fixed costs exist.
Q2) If a firm happened to be the only seller of a particular product,it might behave as a price taker as long as
A) buyers have full information about the firm's price.
B) the transaction costs of doing business with this firm are low.
C) there are many buyers.
D) there is free entry and exit.
Q3) The above figure shows the market demand curve for telecommunication while driving one's car (time spent on the car phone).The current price is $0.35 per minute.If the price were to increase by ten cents per minute,consumer surplus would
A) fall to $820.
B) fall by $84.
C) fall by $58.
D) fall to $369.
Q4) When is the profit a firm earns equal to the producer surplus? Explain.
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Chapter 9: Monopoly
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Sample Questions
Q1) The loss associated with the fact that at the profit-maximizing quantity consumers value the goods more than it cost to produce them is called
A) deadweight loss.
B) comparative loss.
C) Lerner Loss.
D) Consumer Value Loss.
Q2) The monopoly can shift the demand for its product rightward by
A) accommodating entry.
B) advertising new uses for its product.
C) moving along the learning curve.
D) All of the above.
Q3) A flour mill holding exclusive contracts to 95% of the wheat in a large geographic area may operate as a flour producing monopoly locally because
A) the mill has a very inelastic supply curve.
B) the mill is a natural monopoly.
C) the mill controls a key input.
D) the government will declare it a monopoly.
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Chapter 10: Pricing With Market Power
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Sample Questions
Q1) Consider a car dealership advertises a three-year lease at $250 per month.When you arrive to apply,you discover that the lease requires a downpayment of $3600 dollars.You will undertake the lease if
A) you value the lease at least $350 per month.
B) you value the lease at least $250 per month, the $3600 is a sunk cost.
C) you value the lease less than $350 per month.
D) you value buying a new car at $400 per month.
Q2) One reason car dealerships might move away from perfect price discrimination to uniform pricing?
A) Perfect price discrimination doesn't work.
B) Transaction costs erode the profit of perfect price discrimination.
C) Consumers are ill-informed and tend to complain too much.
D) Uniform pricing is always more profitable and more fair as well.
Q3) Which of the following is an example of pure bundling?
A) a pair of pants
B) a pizza and beer lunch combo
C) an automobile
D) All of the above.
Q4) Explain why a firm can earn more profit by price discrimination than from setting a uniform price.
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Chapter 11: Oligopoly and Monopolistic Competition
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Sample Questions
Q1) The Cournot Model of Oligopoly assumes that
A) firms decide what quantity to produce.
B) firms make their decisions simultaneously.
C) firms do not cooperate.
D) All of the above.
Q2) A cartel might fail because
A) it does not control enough of the output in a market to raise prices enough.
B) there is an incentive for members to cheat.
C) too many firms leave the cartel, causing the cartel price to fall.
D) All of the above.
Q3) In the Cournot model,if one firm increases its output
A) the market will not clear because now there is a surplus.
B) the market price drops, reducing the revenues received by the other firms.
C) the others will kick it out of the oligopoly.
D) the other firms are unaffected.
Q4) Is it true that in the long run,a monopolistically competitive firm has market power but earns no profit? Explain.
Q5) Suppose the demand for pizza in a small isolated town is p = 10 - Q.There are only two firms,A and B,and each has a cost function TC = 2 + q.Determine the Cournot equilibrium.
Page 13
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Chapter 12: Game Theory and Business Strategy
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Sample Questions
Q1) Explain why it is unwise to bid more than your valuation of the good in a sealed bid second-price auction.
Q2) When a bargaining solution is reached
A) each player receives a net surplus greater than or equal to zero.
B) we have a Nash equilibrium.
C) the sum of the net surpluses is the Nash product.
D) Both A and C.
Q3) Strategic advertising in the cola market
A) significantly expands the size of the market.
B) brings in few new customers and primarily shifts market share among rivals.
C) shifts market demand to the right, increasing quantity sold and decreasing prices.
D) has no impact on the market.
Q4) A single-period duopoly firm can choose output level A or B.The firm decides it will produce level A regardless of what the other firm produces.This decision may occur because
A) producing the output level A is a dominant strategy.
B) this firm has simply decided to always produce at level A.
C) Both A and B are possible.
D) None of the above.
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Chapter 13: Strategies Over Time
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Sample Questions
Q1) When a prisoners' dilemma game is repeated a finite number of times (T)
A) cooperation unravels during the first round of the game, resulting in the static game Nash equilibrium.
B) cooperation continues until the T-2 round, where the players will switch to a non-cooperative Nash equilibrium.
C) firms cooperate and achieve the collusive Nash equilibrium for all rounds.
D) None of the above.
Q2) A disadvantage of moving too quickly is that
A) costs of entry are higher.
B) the likelihood of misunderstanding the demand is greater.
C) followers gain an advantage by learning from the first-mover.
D) All of the above.
Q3) One way to avoid holdups is to
A) use contracts.
B) vertically integrate.
C) use multiple sources.
D) All of the above.
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Chapter 14: Managerial Decision-Making Under Uncertainty
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Sample Questions
Q1) Framing often causes people to A) violate expected utility theory.
B) go to prison.
C) fall afoul of the certainty effect.
D) become risk-averse.
Q2) Explain why insurance companies usually do not offer earthquake insurance.
Q3) Searching the Internet for information to help select a product that is more reliable is most likely to be done by a A) risk-averse person.
B) risk-neutral person.
C) risk-preferring person.
D) This cannot be determined with the information provided.
Q4) Rahul has a concave utility function.Therefore,if there are two choices he will pick the ________ if ________ expected value.
A) fair bet; both have the same
B) less risky choice;both have the same
C) more risky choice; both have the same
D) less risky choice; it has a lower
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16
Chapter 15: Asymmetric Information
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Sample Questions
Q1) If adverse selection exists in a market
A) it increases consumer surplus but reduces producer surplus.
B) it reduces consumer and producer surplus.
C) it reduces producer surplus but has no impact on consumer surplus.
D) it increases both consumer and producer surplus.
Q2) In the presence of asymmetric information,a fixed-fee contract
A) achieves production efficiency.
B) can lead to opportunistic behavior on the part of the agent.
C) is impossible to write.
D) will result in the principal earning all of the profit.
Q3) To reduce adverse selection
A) firms can use screening.
B) both consumers and firms can use screening.
C) the government could eliminate all monopolies and oligopolies.
D) Both B and C.
Q4) Adverse selection occurs when there is
A) full information.
B) unobserved behavior.
C) an unobserved characteristic.
D) a worker who shirks because his boss does not watch him.
Page 17
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Chapter 16: Government and Business
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Sample Questions
Q1) A firm's private costs
A) include only its direct costs.
B) is the private profit minus the producer surplus.
C) includes both direct and indirect costs.
D) exclude the taxes on any externalities generated.
Q2) The total demand for a public good is found by
A) horizontally summing all individual demands.
B) vertically summing all individual demands.
C) finding the demand from the median voter.
D) dividing the marginal cost of the good by the number of voters.
Q3) Resale price maintenance
A) requires a retailer to sell a good no lower than the specified price.
B) is illegal.
C) is the price of a maintenance contract on a good, such as an extended service contract on a car.
D) has a net negative impact on competition.
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18
Chapter 17: Global Business
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Sample Questions
Q1) When a country opens up to free trade
A) winners and losers are created.
B) comparative advantage dictates that the country focus on production of some goods and services at the expense of others.
C) the gains outweigh the losses.
D) All of the above.
Q2) International price discrimination for a good is possible if
A) goods are sold through the gray market.
B) the price difference between two countries is greater than the transaction costs in arbitrage.
C) the price difference between two countries is less than the transaction costs in arbitrage.
D) None of the above.
Q3) Levying a tariff on an imported good
A) shifts the demand curve down for the good.
B) shifts the supply curve up for the good.
C) Both A and B.
D) Not enough information to determine.
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19