Managerial Economics
Pre-Test Questions
Course Introduction
Managerial Economics explores the application of economic theories, methodologies, and analytical tools to business decision-making and problem-solving. The course covers topics such as demand and supply analysis, production and cost functions, pricing strategies, market structures, and the impact of government regulation. Emphasis is placed on using quantitative and qualitative economic principles to maximize organizational objectives, evaluate risk and uncertainty, and develop effective managerial strategies in competitive and dynamic market environments.
Recommended Textbook
Microeconomics Principles and Applications 6th Edition by Robert E. Hall
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Chapter 1: What Is Economics
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Sample Questions
Q1) The question of scarce resources and unlimited wants is addressed in A)psychology
B)history
C)political science
D)economics
E)anthropology
Answer: D
Q2) In the United States,individuals are forced to make choices
A)because time is scarce,though spending power is not
B)because spending power is scarce,though time is not
C)though neither time nor spending power are scarce
D)because both time and spending power are scarce
E)because living standards are low
Answer: D
Q3) Macroeconomics focuses on the behavior of economic agents such as the consumer,a business firm,or a specific market.
A)True
B)False
Answer: False
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Page 3
Chapter 2: Scarcity, choice, and Economic Systems
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Sample Questions
Q1) Bill can cook dinner in 45 minutes and mow the lawn in 1.5 hours.Eileen can cook dinner in 1.5 hours and mow the lawn in 2 hours.Bill's opportunity cost of mowing the lawn is
A)1/2 of a dinner
B)2 dinners
C)3/4 of a dinner
D)1-1/3 dinners
E)2-2/3 dinners
Answer: B
Q2) The role of prices in a market economy is to
A)make producers rich at the expense of consumers
B)replicate what society produced in the past
C)determine the allocation of resources
D)enforce what the government chooses
E)force consumers to pay for business profits
Answer: C
Q3) An economy's production possibilities frontier is fixed in the long run.
A)True
B)False
Answer: False
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Chapter 3: Supply and Demand
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Sample Questions
Q1) A decrease in the price of a commodity results in a(n)
A)decrease in supply
B)decrease in quantity demanded
C)increase in demand
D)decrease in quantity supplied
E)increase in supply
Answer: D
Q2) If Holly's demand for fast food decreases as her income rises,then
A)fast food is a normal good for her
B)the law of demand must apply
C)fast food is a complementary good
D)fast food is an inferior good for her
E)fast food is a substitute good
Answer: D
Q3) If the price of film increases,the demand for film processing would decrease;moreover,the equilibrium price and quantity of film processing should also decrease.
A)True
B)False
Answer: True
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Chapter 4: Working With Supply and Demand
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Sample Questions
Q1) If the government thinks the price that a consumer has to pay for a good is too low,then which of the following would solve this problem?
A)a price ceiling or an excise tax
B)a price floor or an excise tax
C)a price ceiling or a subsidy
D)a price floor or a subsidy
E)none of the above will lower the price a consumer has to pay for a good
Q2) Figure 4-4 depicts a market in which the government has imposed a price floor of $5.00 per unit.To maintain the price floor,the government should
A)buy 200 units of the good
B)sell 200 units of the good
C)buy 700 units of the good
D)sell 700 units of the good
E)buy 500 units of the good
Q3) Federal subsidies to higher education have the effect of
A)increasing the number of people seeking higher education and lowering tuition
B)increasing the number of people seeking higher education and raising tuition
C)decreasing the number of people seeking higher education and lowering tuition
D)decreasing the number of people seeking higher education and raising tuition
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Page 6
Chapter 5: Elasticity
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Sample Questions
Q1) Figure 5-1 shows the prices of two services offered by Earl's Barber Shop and the resulting quantities demanded by customers.In this example,the price elasticity of demand for haircuts (using the midpoint formula)is
A)1
B)1.8
C)3.5
D)2.25
E)0.5
Q2) Bill's Office Furniture sells office chairs and desks.Bill's has changed the price per chair by $10 in each of four successive weeks.Figure 5-12 shows the four prices along with the corresponding sales of desks.From this information,it can be seen that
A)office chairs and desks are unrelated goods
B)office chairs and desks are complementary goods
C)office chairs and desks are substitute goods
D)both goods are normal goods
E)both goods obey the law of demand
Q3) An inferior good is defined by an income elasticity less than 1.
A)True
B)False
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Page 7
Chapter 6: Consumer Choice
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Sample Questions
Q1) Marginal utility is the extra utility a consumer derives from consuming an extra unit of a good.
A)True
B)False
Q2) Suppose that the price of a pizza is $10 and that the price of a blouse is $30.At her present level of consumption,Magda's ratio of marginal utility of pizza to marginal utility of blouses is 1/4.To maximize total utility,she should
A)buy more pizzas and fewer blouses
B)buy fewer pizzas and more blouses
C)continue to buy the same quantities of pizza and blouses
D)spend more time consuming pizza
E)spend more time buying blouses
Q3) If a consumer allocates her income between two goods,x and y,then she will be in equilibrium when
A)MUx/Px = MUy/Py and she is below her budget constraint
B)MUx = MUy and she has spent all of her income
C)MUx/MUy > Px/Py and all of her income is spent
D)MUx/Px = MUy/Py and all of her income is spent
E)MUx = MUy and she is below her budget constraint
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Page 8
Chapter 7: Production and Cost
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Sample Questions
Q1) Assume that an industry requires a very specialized technology that involves high start-up costs for new firms no matter what level of output they produce.In the long run,at low levels of output,these firms will tend to exhibit
A)diminishing marginal returns
B)increasing marginal returns
C)diseconomies of scale
D)constant returns to scale
E)economies of scale
Q2) If a firm is experiencing constant returns to scale
A)long-run average total cost neither rises nor falls as production increases
B)average fixed cost is zero
C)the increase in average variable cost is exactly offset by a decrease in average fixed cost
D)the decrease in average variable cost is exactly offset by an increase in average fixed cost
E)long-run average total cost is zero.
Q3) Total fixed costs decrease as output expands.
A)True
B)False
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Page 9
Chapter 8: How Firms Make Decisions: Profit Maximization
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Sample Questions
Q1) If a firm has an accounting profit of $2,350,000 and implicit costs totaling $150,000,then its economic profit equals
A)$2,350,000
B)$2,500,000
C)$2,200,000
D)$150,000
E)$2,000,000
Q2) If total revenue falls as more output is produced,
A)marginal revenue is negative
B)marginal revenue is positive
C)marginal cost is negative
D)average revenue is negative
E)total costs exceed total revenue
Q3) If a firm minimizes its losses by shutting down in the short run,then at all other output levels,
A)variable cost would exceed total revenue
B)total revenue exceeds total cost
C)marginal revenue exceeds marginal cost
D)total cost is zero
E)total revenue is zero
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Chapter 9: Perfect Competition
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Sample Questions
Q1) In the short run,
A)new firms may enter a market,but existing firms cannot exit.
B)firms may exit a market,but new firms may not enter.
C)firms may enter or exit a market.
D)firms may neither enter nor exit a market.
Q2) Which of the following is not a characteristic of perfect competition?
A)Many small buyers.
B)Different firms sell products with different features.
C)Ease of entry into and exit from the market.
D)Many small sellers.
Q3) Figure 9-1 shows the marginal cost and average total cost curves for a perfectly competitive firm.If the market price is $10,then
A)the firm earns $10 profit on each unit sold
B)the firm earns $8 profit on each unit sold
C)marginal revenue equals $10
D)the firm is losing money in the short run
E)marginal cost always equals marginal revenue
Q4) The automobile market is an example of a perfectly competitive market.
A)True
B)False
Page 11
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Chapter 10: B:Perfect Competition
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Sample Questions
Q1) Diminishing marginal returns are the reason why some industries have positively-sloped long-run average cost curves.
A)True
B)False
Q2) One of the defining characteristics of a perfectly competitive market is
A)both buyers and sellers are well informed about the market
B)a small number of buyers
C)high barriers to entry
D)a small number of buyers but a large number of sellers
E)buyers are better informed about the market than sellers
Q3) Which of the following is not a characteristic of a perfectly competitive market
A)buyers and sellers are well informed about the market
B)standardized product
C)many buyers and few sellers
D)easy exit out of the industry
E)easy entry into the industry
Q4) In a perfectly competitive market,a technological advance allows all firms to earn higher economic profits in the long run.
A)True
B)False
Page 12
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Chapter 11: Monopolistic Competition and Oligopoly
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Sample Questions
Q1) At the long-run equilibrium output level,a monopolistically competitive firm's average total cost curve
A)lies below the demand curve
B)is tangent to (just touches but does not cross)the demand curve
C)crosses the demand curve from below
D)crosses the demand curve from above
E)is at its minimum point
Q2) A firm's minimum efficient scale occurs where the long-run average total cost curve reaches its minimum.
A)True
B)False
Q3) In the long run,a monopolistic competitor will
A)always produce at minimum efficient scale
B)produce too little output to achieve minimum cost per unit
C)use limit pricing to forestall competition
D)earn economic profits
E)standardize its product
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Chapter 11: Monopoly
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Sample Questions
Q1) Marginal revenue is
A)the change in total revenue obtained by selling an additional unit of output
B)average revenue per unit of output
C)the change in total revenue per unit of cost
D)total revenue divided by average revenue
E)average revenue divided by marginal cost
Q2) Patents allow manufacturers to block the entry of new firms into an industry through
A)infringement suits
B)economies of scale
C)limit pricing
D)price discrimination
E)a government franchise
Q3) A firm charges each customer the highest price that customer will pay for the marginal unit under
A)perfect competition
B)oligopoly
C)monopolistic competition
D)single-price monopoly
E)perfect price discrimination
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Page 14
Chapter 12: Labor Markets
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Sample Questions
Q1) A firm's labor demand curve shows the relationship between the
A)wage rate and the quantity of labor supplied
B)marginal revenue product of labor and the marginal product of labor
C)wage rate and the quantity of labor demanded
D)marginal product of labor and the quantity of labor demanded
E)wage rate and the quantity demanded of the good produced by labor
Q2) If the wage rate increases,there is an increase in the quantity of labor supplied.This means the labor supply curve shifts outward.
A)True
B)False
Q3) An increase in the wage rate will cause the labor supply curve to shift to the right.
A)True
B)False
Q4) The marginal product of labor
A)measures the contribution to total output of the average worker
B)is a characteristic of production,not of an individual worker
C)measures the personal productivity of the last worker hired
D)measures the extra revenue generated by the last worker hired
E)measures the extra cost attributed to the last worker hired
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Chapter 13: B: Labor Markets
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Sample Questions
Q1) The Earned Income Tax Credit
A)is targeted to poor families
B)is less targeted to poor families than the minimum wage
C)is just a different name for the minimum wage
D)operates on the labor market in exactly the same as the minimum wage
Q2) The supply of labor to a particular job will be greater the
A)less the social status that is attached to the job
B)less training is required to perform that job
C)lower the fringe benefits are of the job
D)less flexible the work schedules are in the job
E)higher degree of personal risk involved in the job
Q3) Which of the following is a form of statistical discrimination?
A)Young people are charged higher automobile insurance rates due to the higher probability of an accident.
B)Restaurants prefer to hire women than men as servers.
C)Women prefer to see a female doctor than a male doctor.
D)Women are more likely than men to pay too much money for a new automobile because salespeople bargain more with men than with women.
E)Female physicians earn 20 percent less than male physicians,on average.
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Page 16
Chapter 14: Capital and Financial Markets
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Sample Questions
Q1) According to the efficient markets theory of stock prices,who are the primary beneficiaries of a sudden rise in demand for a firm's stock?
A)the consumers of the firm's products
B)the current shareholders at the time of the rise in demand
C)the investors who buy the firm's stock shortly after the rise in demand
D)the investors who sell their shares just before the rise in demand
E)the investors who have been carefully watching stock price patterns
Q2) The supply curve for a particular bond is horizontal.
A)True
B)False
Q3) According to the efficient markets theory of stock prices,
A)fundamental analysis is a way to profit from predicting stock prices
B)fundamental and technical analysis are largely useless
C)technical analysis is the best approach to profit from predicting stock prices
D)fundamental and technical analysis must be synthesized in order to profit from predicting stock prices
E)whether fundamental and technical analysis can be profitable depends on the specific firm being analyzed
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Chapter 15: Economic Efficiency and the Competitive Ideal
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Sample Questions
Q1) Instead of throwing away a worn-out pair of jeans,a cowboy trades them in for $12.The jeans are resold for $45 to someone who likes to project a rugged image.These transactions are Pareto improvements.
A)True
B)False
Q2) The height of the market demand curve
A)at any quantity shows the value - to someone - of the last unit of the good consumed
B)shows the market value of a good or service
C)increases as more of a good or service is consumed
D)shows the cost of producing each unit of a good or service
E)measures the side payment necessary to achieve economic efficiency
Q3) Tax shifting
A)is the process by which buyers pass a tax onto sellers
B)is the process that causes some of a tax collected by one side of a market to be paid by the other side
C)is the process of avoiding taxes and lowering a tax burden
D)is a way of avoiding payment of a tax
E)is illegal in the United States
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Chapter 16: Governments Role in Economic Efficiency
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Sample Questions
Q1) If all unwelcome or harmful activities were eliminated,
A)the benefits from eliminating these activities would exceed the cost of eliminating them
B)there would be no remaining potential Pareto improvements
C)society would be more efficient
D)society would be less efficient
E)the result would be Pareto efficient
Q2) If consumption of a good by one person imposes costs on a party other than the producer,
A)the consumption creates a positive externality
B)the good is a public good
C)the consumption creates a negative externality
D)too little of the good is produced from society's point of view
E)the market will correct the problem if left alone
Q3) Price-fixing agreements among competing firms are a violation of the Sherman Antitrust Act.
A)True
B)False
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Chapter 17: Comparative Advantage and the Gains From International Trade
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Sample Questions
Q1) The terms of trade
A)equal the ratio of opportunity costs of production in two countries
B)equal the ratio of marginal production costs in two countries
C)is the quantity of one good that is exchanged for one unit of another good
D)are determined by absolute advantage
E)equal the ratio of average production costs in two countries
Q2) Comparative advantage is determined by the
A)elasticities of demand for a good in two countries
B)opportunity costs of producing a good in two different countries
C)presence of absolute advantages in production
D)degrees of allocative efficiency within each economy
E)amounts of resources required to produce a good in different countries
Q3) Protectionism is
A)the belief that a nation's industries should be protected from foreign competition
B)the belief that a nation's consumers should be protected from foreign competition
C)based on the idea that economies of scale are important
D)consistent with absolute advantage,but not with comparative advantage
E)the favored approach of pro-trade groups
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