Course Introduction
Managerial Economics
Pre-Test Questions
Managerial Economics explores the application of economic theory and quantitative methods to business decision-making. The course examines how microeconomic principles, such as supply and demand analysis, production and cost theory, market structures, and pricing strategies, inform managerial choices in various organizational contexts. Students learn to assess the external and internal economic forces affecting firms, analyze risk, and optimize resource allocation. Emphasis is placed on real-world case studies and problem-solving techniques, enabling future managers to make rational, data-driven decisions that align with organizational goals.
Recommended Textbook Microeconomics 7th Edition by
R. Glenn Hubbard
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Page 2
Chapter 1: Economics: Foundations and Models
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Sample Questions
Q1) When production reflects consumer preferences, ________ occurs.
A)allocative efficiency
B)productive efficiency
C)equity
D)efficient central planning
Answer: A
Q2) Refer to Figure 1-3.Calculate the area of the trapezoid X.
A)$270
B)$720
C)$810
D)$2,520
Answer: C
Q3) Which of the following is an example of an activity undertaken by an entrepreneur?
A)washing and ironing your own shirts instead of taking them to the cleaners
B)holding a position as the president of a liberal arts college
C)running for the president of the United States
D)starting your own pet sitting business
Answer: D
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3
Chapter 2: Trade-Offs, Comparative Advantage, and the Market System
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Sample Questions
Q1) Comparative advantage means the ability to produce a good or service
A)at a lower selling price than any other producer.
B)at a lower opportunity cost than any other producer.
C)of a higher quality than any other producer.
D)at a higher profit level than any other producer.
Answer: B
Q2) If a country produces only two goods, then it is not possible to have an absolute advantage in the production of both goods.
A)True
B)False
Answer: False
Q3) If Sanjaya can shuck more oysters in one hour than Tatiana, then Sanjaya has a comparative advantage in shucking oysters.
A)True
B)False
Answer: False
Q4) What is economic growth?
Answer: Economic growth refers to the ability of the economy to increase the production of goods and services.
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Chapter 3: Where Prices Come From: the Interaction of
Demand and Supply
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Sample Questions
Q1) What is the ceteris paribus condition?
Answer: The ceteris paribus condition is the requirement that when analyzing the relationship between two variables, such as price and quantity demanded, other variables must be held constant.
Q2) What are the two effects that explain the law of demand? Briefly explain each effect. Answer: The two effects that explain the law of demand are the income effect and the substitution effect.The income effect is the change in quantity demanded of a good that results from a change in purchasing power due to a change in the good's price.The substitution effect is the change in quantity demanded of a good that results from the effect of a change in the good's price making the good more or less expensive relative to other goods that are substitutes.
Q3) Refer to Figure 3-5.At a price of $15,
A)there would be a surplus of 4 units.
B)there would be a shortage of 2 units.
C)there would be a surplus of 6 units.
D)there would be a shortage of 4 units.
Answer: A
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Page 5
Chapter 4: Economic Efficiency, Government Price Setting, and Taxes
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Sample Questions
Q1) Refer to Table 4-1.The table above lists the highest prices three consumers, Tom, Dick, and Harriet, are willing to pay for a short-sleeved polo shirt.If the price of one of the shirts is $28 dollars,
A)Tom will buy two shirts, Dick will buy one shirt and Harriet will buy no shirts.
B)Tom will receive $12 of consumer surplus from buying one shirt.
C)Tom and Dick receive a total of $70 of consumer surplus from buying one shirt each. Harriet will buy no shirts.
D)Harriet will receive $25 of consumer surplus since she will buy no shirts.
Q2) Which of the following statements best describes the concept of consumer surplus?
A)"Safeway was having a sale on Dreyer's ice cream so I bought 3 quarts."
B)"I was all ready to pay $300 for a new leather jacket that I had seen in Macy's but I ended up paying only $180 for the same jacket."
C)"I paid $130 for a printer last week. This week the same store is selling the same printer for $110."
D)"I sold my Blu-ray copy of Ben-Hur for $18 at a garage sale even though I was willing to sell it for $10."
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Chapter 5: Externalities, Environmental Policy, and Public Goods
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Sample Questions
Q1) Private solutions to the problem of externalities are most likely when
A)government actively encourages these solutions.
B)transactions costs are low and the number of bargaining parties is small.
C)transactions costs are low and the number of bargaining parties is large.
D)transactions costs are low and the monetary damages to third parties are high.
Q2) Assume that production from an electric utility caused acid rain.If the government imposed a tax on the utility equal to the marginal external cost of the acid rain, the government's action would
A)externalize the externality.
B)result in a marginal social benefit greater than the marginal cost of the electricity.
C)be an example of supply-side economic policy.
D)internalize the externality.
Q3) The cost borne by a producer in the production of a good or service is called
A)private cost.
B)public cost.
C)social cost.
D)internal cost.
Q4) How does a positive externality in consumption reduce economic efficiency?
Q5) Should the level of pollution be reduced to zero and if not, then to what level?
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Chapter 6: Elasticity: the Responsiveness of Demand and Supply
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Sample Questions
Q1) Refer to Figure 6-10.A unit-elastic supply curve is shown in
A)Panel A.
B)Panel B.
C)Panel C.
D)Panel D.
Q2) What is the relationship between price elasticity of demand and total revenue?
Q3) Suppose you are considering buying stock in the stock market, and your objective is to maximize your net worth.Furthermore, your study of the market reveals that the economy will be slowing down over the next several months.Under these conditions, it would be best to purchase stock in companies that produce A)normal goods.
B)luxury goods.
C)inferior goods.
D)price elastic goods.
Q4) Suppose that at a price of $55, 100 units were sold while at a price of $33, 153 units were sold.Without calculating the price elasticity value, can you determine whether demand is elastic, unit elastic, or inelastic? Explain your answer.
Q5) Define the economic concept of elasticity.
Page 8
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Chapter 7: The Economics of Health Care
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Sample Questions
Q1) Identify the 6 main provisions of the Patient Protection and Affordable Care Act (ACA).
Q2) A contract under which a buyer agrees to make payments in exchange for the provider agreeing to pay some or all of the buyer's medical bills is referred to as
A)a fee-for-service plan.
B)the Affordable Care Act.
C)a deductible.
D)health insurance.
Q3) Canada has a single-payer health care system in which the government provides national health insurance to all Canadian residents.
A)True
B)False
Q4) What is the principal-agent problem?
Q5) Changes in the health of the average person are an important indicator of changes in the standard of living.
A)True
B)False
Q6) How can improvements in health increase a country's total income?
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Chapter 8: Firms, the Stock Market, and Corporate Governance
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Sample Questions
Q1) What was the source of the problems encountered by many financial firms during the late 2000s?
Q2) An implicit cost is
A)a nonmonetary opportunity cost.
B)a cost unique to sole proprietorships.
C)a cost that involves spending money.
D)a cost unique to corporations.
Q3) Owners of a corporation share in the profits of the firm
A)by selling any bonds or stocks owned and realizing a capital gain.
B)through coupon payments on that firm's bonds.
C)through dividend payments on shares of that firm's stock.
D)by raising the interest rate on bonds.
Q4) A firm's accounting profit is also its
A)economic profit.
B)income statement.
C)net income.
D)statement of liabilities.
Q5) If you own a bond with a seven percent coupon rate and new bonds are paying five percent, what will happen to your bond's market price?
Page 10
Q6) How do firms raise external funds through indirect finance?
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Chapter 9: Comparative Advantage and the Gains From International Trade
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Sample Questions
Q1) The concept of ________ explains how trade between two countries can make each better off.
A)absolute advantage
B)comparative advantage
C)autarky
D)trade barriers
Q2) Refer to Figure 9-2.As a result of the tariff, domestic producers increase their quantity supplied by
A)31 million pounds of rice.
B)22 million pounds of rice.
C)15 million pounds or rice.
D)6 million pounds of rice.
Q3) The process of countries becoming more open to foreign trade and investment is known as outsourcing.
A)True
B)False
Q4) What is autarky?
Q5) A tariff is a numerical limit on the quantity of a good that can be imported. A)True
B)False
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Chapter 10: Consumer Choice and Behavioral Economics
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Sample Questions
Q1) The marginal utility per dollar that Harold Stratton receives from oranges is greater than the marginal utility per dollar Harold receives from pears.To maximize his utility, what should Harold do?
A)He should acquire more income so that he can afford to buy more oranges and pears.
B)He should reduce his consumption of both oranges and pears so that he can buy a greater variety of goods.
C)He should buy fewer pears and more oranges.
D)He should buy fewer oranges and more pears.
Q2) If Marlowe obtains 9 units of utility per dollar spent on apples and 6 units of utility per dollar spent on oranges, then Marlowe
A)is maximizing total utility.
B)should buy more apples and fewer oranges.
C)should buy more oranges and fewer apples.
D)should buy fewer oranges and fewer apples.
Q3) When diminishing marginal utility sets in, total utility must be negative.
A)True
B)False
Q4) What is an indifference curve? Why can indifference curves never cross?
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Page 13
Chapter 11: Technology, Production, and Costs
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Sample Questions
Q1) Which of the following statements is false?
A)When marginal cost equals average total cost, average total cost is at its highest value.
B)The marginal cost curve intersects the average variable cost curve and the average total cost curve at their minimum points.
C)The difference between average total cost and average fixed cost is average variable cost.
D)Firms often refer to the process of lowering average fixed cost as "spreading the overhead."
Q2) Some colleges now offer massive open online courses (MOOCs), where students do not need to be in the same classroom as their instructors.The fixed cost of an online course is relatively ________, but after the courses are placed online, the marginal cost of providing instruction to an additional student is ________.
A)high; low
B)high; high
C)low; low
D)low; high
Q3) Describe the relationship between marginal cost and average total cost.
Q4) In economics, what is the difference between the short run and the long run?
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Chapter 12: Firms in Perfectly Competitive Markets
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Sample Questions
Q1) Refer to Figure 12-9.At price P , the firm would
A)lose an amount equal to its fixed cost.
B)lose an amount more than fixed cost.
C)lose an amount less than fixed cost.
D)break even.
Q2) Refer to Figure 12-4.If the market price is $30 and the firm is producing output, what is the amount of the firm's profit or loss?
A)loss of $1,080
B)profit of $1,440
C)loss of $2,520
D)profit of $1,300
Q3) Refer to Figure 12-4.If the market price is $30 and if the firm is producing output, what is the amount of its total variable cost?
A)$7,200
B)$6,480
C)$5,400
D)$3,960
Q4) What is a long-run supply curve? What does a long-run supply curve look like on a perfectly competitive market graph?
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Chapter 13: Monopolistic Competition: the Competitive
Model in a
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Sample Questions
Q1) A monopolistically competitive firm that earns economic profits in the short run will be able to expand its market share even if the market size remains constant.
A)True
B)False
Q2) If buyers of a monopolistically competitive product feel the products of different sellers are strongly differentiated, then the demand for each seller's product is
A)perfectly inelastic.
B)perfectly elastic.
C)relatively inelastic.
D)relatively elastic.
Q3) Every firm that has the ability to affect the price of the good or service it sells will
A)have a perfectly elastic demand curve.
B)have a marginal revenue curve that lies below its demand curve.
C)earn a short-run profit but break even in the long run.
D)shut down in the short run.
Q4) What is the most important difference between perfectly competitive markets and monopolistically competitive markets?
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Chapter 14: Oligopoly: Firms in Less Competitive Markets
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Sample Questions
Q1) If an industry is made up of five identical-sized firms, the four-firm concentration ratio is
A)5%.
B)20%.
C)80%.
D)100%.
Q2) Refer to Table 14-7.Which of the following statements is true?
A)Neither Perfect nor Floribunda have a dominant strategy.
B)Perfect's dominant strategy is to offer same-day delivery; Floribunda's dominant strategy is to not offer same-day delivery.
C)Floribunda's dominant strategy is to offer same-day delivery; Perfect's dominant strategy is to not offer same-day delivery.
D)The dominant strategy for both firms is to offer same-day delivery.
Q3) All of the following are characteristics of game theory except A)rules that determine what actions are allowable.
B)payoffs that are the results of the interaction among players' strategies.
C)strategies that players employ to attain their objectives.
D)independence among players.
Q4) Firms in an oligopoly are said to be interdependent.What does this mean?
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Chapter 15: Monopoly and Antitrust Policy
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Sample Questions
Q1) Arnold Harberger was the first economist to estimate the loss of economic efficiency due to market power.Since Harberger's findings were published, other researchers have studied this same issue.How do the results of these researchers compare to Harberger's results?
A)The other researchers reached conclusions similar to Harberger's; namely, the loss of economic efficiency due to market power is about 10 percent of the value of production in the United States.
B)The other researchers reached conclusions different from Harberger's; namely, they found that the loss of economic efficiency due to market power is only about 1 percent of the value of production in the United States, much less than Harberger's estimate.
C)The other researchers reached conclusions different from Harberger's; namely, the loss of economic efficiency due to market power is about 10 percent of the value of production in the United States, significantly greater than Harberger's estimate.
D)The other researchers reached conclusions similar to Harberger's; namely, the loss of economic efficiency due to market power is about 1 percent of the value of production in the United States.
Q2) Identify two ways by which the government controls monopolies?
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Page 18
Chapter 16: Pricing Strategy
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Sample Questions
Q1) All of the following are disadvantages of cost-plus pricing except
A)It ignores the price elasticity of demand: for example, it may be possible to increase profits by raising or lowering price.
B)If the industry comprises identical firms (with identical costs), markups could be consistent among firms leading to no one firm having a competitive edge in terms of price.
C)Allocating and apportioning business overheads to individual products could be somewhat arbitrary.
D)The business has less incentive to cut or control costs: if costs increase, then selling prices increase. Consequently, this might further erode a firm's competitiveness.
Q2) According to the law of one price, identical products should sell for the same price everywhere if
A)consumers have knowledge of the prices charged for products in different markets.
B)transactions costs are zero.
C)firms can prevent consumers from engaging in arbitrage.
D)there are no tariffs or other restrictions on imports or exports.
Q3) Are restaurant coupons a form of price discrimination? Why or why not?
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Page 19
Chapter 17: The Markets for Labor and Other Factors of Production
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Sample Questions
Q1) The equilibrium wage and quantity of labor in the market for skilled workers is determined by
A)the strength of labor unions.
B)the monopsony power of firms.
C)the demand and supply of labor.
D)the market value created by the output of these skilled workers.
Q2) Which of the following factors has significantly increased the supply of labor in the United States since 1950?
A)a large increase in the substitution effect as a result of higher wages
B)a low birth rate and an aging population
C)an increase in the number of people who have received college degrees
D)an increase in the labor force participation rate of women
Q3) Refer to Figure 17-3.In Panel A, at high wages (segment iii)
A)the price of leisure is rising relative to the price of labor.
B)the price of leisure is falling relative to the price of labor.
C)laborers work more as wages increase.
D)labor suppliers take more leisure as wages increase.
Q4) Why are there superstar baseball players but no superstar chiropractors?
Q5) What is a compensating differential?
Q6) What is the marginal productivity theory of income distribution? Page 20
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Page 21
Chapter 18: Public Choice, Taxes, and the Distribution of Income
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Sample Questions
Q1) Holding all other factors constant, income earned from capital is more unequally distributed than income earned from labor.
A)True
B)False
Q2) Refer to the Article Summary.Suppose the sale of marijuana is legalized in Florida, and the state decides to charge a tax of $50 per ounce on each sale, with the state claiming that retailers will bear the entire burden of this tax.Draw a graph illustrating the situation where retail outlets would bear the entire tax burden of $50 per ounce of marijuana.Explain what would need to be true about the demand for marijuana for retailers to bear the entire burden of this tax, and if this would likely occur if marijuana sales were legalized.
Q3) If the marginal tax rate is greater than the average tax rate, the tax structure is described as regressive.
A)True
B)False
Q4) A Lorenz curve summarizes the information provided by a Gini coefficient.
A)True
B)False
Page 22
Q5) What is the relationship between market failure and government failure?
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