Managerial Economics
Pre-Test Questions
Course Introduction
Managerial Economics is a course that integrates economic theory with business practice to facilitate decision-making and forward planning by management. It explores key concepts such as demand analysis, production and cost functions, market structure, pricing strategies, and the allocation of resources within the firm. Students learn how to apply microeconomic principles to analyze business problems, forecast market trends, evaluate risks, and make informed choices that align with organizational goals. Emphasis is placed on quantitative methods, real-world case studies, and the use of economic tools to optimize business performance in a competitive environment.
Recommended Textbook
Intermediate Microeconomics and Its Application 11th Edition by Walter Nicholson
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Chapter 1: Economic Models
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Sample Questions
Q1) For the equation Y = X<sup>2 </sup>+ Z<sup>2</sup>,which of the following points lie on the Y = 25 contour line?
A) X = 2, Z = 4.
B) X = 3. Z = 5.
C) X = 4, Z = 3.
D) Both a and c.
Answer: C
Q2) Suppose T = .02<sup>\(\alpha\)</sup>.If taxes are proportional which of the following is true?
A) \(\alpha\)> 1
B) 0 < \(\alpha\) < 1
C) \(\alpha\) = 1
D) \(\alpha\)= 0
Answer: C
Q3) In the equation Y = 13X + 38 where Y is a function of X
A) Y is the independent variable.
B) 38 is a variable.
C) the slope of the line is 38.
D) None of these.
Answer: D
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Chapter 2: Utility and Choice
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Q1) If an individual's indifference curve map does not obey the assumption of a diminishing MRS,then
A) the individual will not maximize utility.
B) the individual will buy none of good X.
C) tangencies of indifference curves to the budget constraint may not be points of utility maximization.
D) the budget constraint cannot be tangent to an appropriate indifference curve.
Answer: C
Q2) 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
Q3) Indifference curves
A) are nonintersecting.
B) are contour lines of a utility function.
C) are negatively sloped.
D) All of the above.
Answer: D
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Chapter 3: Individual Demand Curves
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Sample Questions
Q1) If the cross price elasticity of demand equals -1,then the two goods are
A) both normal.
B) both inferior.
C) complements to one another.
D) substitutes to one another.
Answer: C
Q2) Suppose there are two goods (X and Y).On a traditional graph of a budget line a tripling of all prices and incomes will
A) alter the slope of the budget line only.
B) alter the slope of the budget line as well as the Y-intercept.
C) alter the slope of the budget line as well as the X-intercept.
D) leave the budget line unaltered.
Answer: D
Q3) If the demand for a product is elastic,then a rise in price will
A) cause total spending on the good to increase.
B) cause total spending on the good to decrease.
C) keep total spending the same, but reduce the quantity demanded.
D) keep total spending the same, but increase the quantity demanded.
Answer: B
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Chapter 4: Uncertainty
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Sample Questions
Q1) Probability is sometimes defined as
A) the expected profit of a fair bet.
B) the most likely outcome of a given experiment.
C) the outcome that will occur on average for a given experiment.
D) the relative frequency with which an event will occur.
Q2) Continuing with the same vacation-insurance company from the preceding question,what vacation-day price(s)would be acceptable to both the family and the insurance company?
A) 2 only
B) 3 only
C) 2 or 3
D) 4
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 subgame-perfect equilibrium is a Nash equilibrium that A) cannot persist through several periods.
B) involves only credible threats.
C) consists only of dominant strategies.
D) is unique.
Q2) The game of Matching Pennies
A) has no Nash equilibrium.
B) has a pure-strategy Nash equilibrium.
C) has a mixed strategy Nash equilibrium.
D) has multiple Nash equilibria.
Q3) When a game has multiple equilibria,a useful method to sort out which one would be the "best" prediction is to
A) find the one (if any) in which both players are better off than in any other equilibrium. B) find the equilibrium that is symmetric, if any.
C) find the one which seems "focal", if any.
D) all of these.
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Chapter 6: Production
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Sample
Questions
Q1) A firm's rate of technical substitution is represented graphically by A) the slope of the line connecting the origin with the relevant point on the isoquant. B) the negative of the slope of the line connecting the origin with the relevant point on the isoquant.
C) the slope of the isoquant at the relevant point.
D) the negative of the slope of the isoquant at the relevant point.
Q2) Suppose electricity (E)can be produced with coal (C)or gas (G)to operate steam turbines (T).Suppose gas is more efficiently burned than coal but that they are otherwise perfect substitutes.E = ((G + 1/2C),T)The isoquants between gas and coal will be
A) hyperbolas
B) quarter circles
C) straight lines
D) rectangular
Q3) If Q = K<sup>1/3</sup>L<sup>2</sup> the MP<sub>L</sub> is A) constant
B) diminishing
C) increasing
D) not enough information to determine
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Chapter 7: Costs
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Sample Questions
Q1) In the short run
A) all inputs are fixed.
B) all inputs are variable.
C) some inputs are fixed.
D) no production occurs.
Q2) 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.
Q3) Suppose pigs (P)can be fed corn-based feed (C)or soybean-based feed (S)such that the production function is P = 2C + 5S.The expansion path depends
A) on the price of corn based feed only.
B) on the price of soybean based feed only.
C) on neither the price of corn based or soybean based feed.
D) on whether the price of corn based feed is greater than or less than 2/5 the price of soybean based feed.
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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 that sought to "maximize market share" would choose to produce an output level for which marginal revenue was equal to A) marginal cost
B) average cost.
C) price.
D) zero.
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Chapter 9: Perfect Competition in a Single Market
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Sample Questions
Q1) A deadweight loss of consumer and/or producer surplus occurs when A) producers fail to maximize profits.
B) mutually beneficial transactions cannot be completed. C) consumers do not maximize their utility.
D) the price of inputs increases.
Q2) If a 1 percent increase in price leads to a .7 percent increase in quantity supplied,the short-run supply curve is A) elastic.
B) inelastic.
C) unit elastic.
D) perfectly inelastic.
Q3) If the market for bottled spring water is characterized by a very elastic supply curve and a very inelastic demand curve,an outward shift in the supply curve would be reflected primarily in the form of A) higher prices.
B) higher output.
C) lower prices.
D) lower output.
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Chapter 10: General Equilibrium and Welfare
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Sample Questions
Q1) The reason externalities distort the allocation of resources is that
A) too few goods are usually produced.
B) firms often go out of business because of the externality.
C) a firm's private costs do not reflect the social cost of production.
D) regulating externalities uses scarce resources.
Q2) Consider three ways of allocating two goods in a two-person exchange economy.
I.Both individuals take prices as given and equilibrium prices are established by an impartial auctioneer.
II.One individual can act as a perfect price discriminator and force the other individual to pay a different price for each unit of a good that is traded.
III.One individual is a monopolist and can charge the other individual a single,utility-maximizing price.
Which of these situations is efficient?
A) None of them.
B) Only I.
C) I and II, but not III.
D) I and III, but not II.
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Chapter 11: Monopoly
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Sample Questions
Q1) Which of the following is not a legal barrier to entry in a monopolized market?
A) A patent.
B) An exclusive franchise.
C) Decreasing average cost.
D) An exclusive license.
Q2) 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.
Q3) A profit-maximizing monopoly will produce that output for which
A) marginal revenue equals price.
B) average cost is minimized.
C) marginal cost is minimized.
D) marginal cost equals marginal revenue.
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Chapter 12: Imperfect Competition
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Sample Questions
Q1) Consider the market for nonalcoholic beers from the previous question.Which of the following is the Bertrand reaction function for Boors?
A) P<sub>B</sub> = -2.5 + .05P<sub>C</sub>
B) P<sub>B</sub> = 2.5 + .05P<sub>C</sub>
C) P<sub>C</sub> = 2.5 - .05P<sub>B</sub>
D) P<sub>B</sub> = 2.5 - .15P<sub>C</sub><sub> </sub>
Q2) In the monopolistic competition model
A) firms are price takers
B) barriers to entry maintain some monopoly "rents" in the long run.
C) one dominant firm acts as the monopolist that is followed by the fringe of competitors.
D) none of these.
Q3) 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.
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Chapter 13: Pricing in Input Markets
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Sample Questions
Q1) A profit-maximizing firm will never hire that quantity of a factor of production for which that factor has an increasing marginal productivity because
A) it would not be maximizing output.
B) it would not be maximizing the productivity of labor.
C) it would not be minimizing costs.
D) it would not be maximizing profits.
Q2) The substitution effect of a change in wage rate on a firm's demand for labor input will be more significant
A) the greater the change in output.
B) the more sharply curved are the firm's isoquants.
C) the flatter are the firm's isoquants.
D) the larger the quantity of labor employed.
Q3) 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.
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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.Also 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 $12,red for $16 and blue for $44.
A) 2
B) 5
C) 8
D) 10
Q2) A rise in the real interest rate r
A) creates income and substitution effects that reduce C<sub>0</sub>.
B) creates income effects that reduce C<sub>0</sub>, substitution effects that increase C<sub>0</sub>.
C) creates income effects that increase C<sub>0</sub>, substitution effects that reduce C<sub>0</sub>.
D) creates income and substitution effects that increase C<sub>0</sub>.
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Chapter 15: Asymmetric Information
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Sample Questions
Q1) How can a monopolist get different consumers to purchase different bundles on a menu (such as different sizes of coffee cups),and thereby achieve a form of price discrimination,even if the firm cannot observe the consumers' valuations directly?
A) different types of consumers have different tradeoffs between money and amounts of the good.
B) the monopolist can separate the types into different markets.
C) social norms are powerful deterrents to lying about one's type.
D) this is impossible: if one bundle is preferred by one type, logically it will be preferred by all.
Q2) Concerning auctions,what is the definition of a "common-values setting"?
A) bids are submitted using open outcries.
B) bids are submitted simultaneously, and the highest is selected as the winner.
C) bidders value the object the same, but are uncertain as to what that value is.
D) bids are submitted by syndicates of cooperating bidders.
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Chapter 16: Externalities and Public Goods
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Sample Questions
Q1) 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.
Q2) Suppose the market for oranges is perfectly competitive and unregulated.Suppose also that the chemicals used to keep the oranges insect-free damage the environment by an estimated $1 per bushel of oranges.Suppose Q<sub>D</sub> = 1000 - 100P and Q<sub>S </sub>= -100 + 100P.The market equilibrium quantity is A) 400
B) 450
C) 500
D) 550
Q3) A nonexclusive good is a good that A) is sold in various markets. B) is impossible to keep people from enjoying the benefits the good provides. C) is produced by a perfectly competitive firm. D) is produced at the lowest possible cost.
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Chapter 17: Behavioral Economics
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Sample Questions
Q1) Which of the following weights on utility (over four periods starting with the current one)provide an illustration of hyperbolic discounting that could well lead to inconsistent choices over time?
A) 1, .5, .25, .125.
B) 1, .25, .0625, .015625.
C) 1, .8, .72, .648.
D) 1, 1, 1, 1.
Q2) Return to the case of Jan,the hyperbolic discounter from the previous question.What values of B and C will lead her to be consistent with a plan to undertake the action?
A) C < B < 2C.
B) B < C.
C) B > 2C.
D) B < C < 2B.
Q3) Limits to self-interested payoff maximization that have been studied by behavioral economists include
A) limited cognitive ability.
B) limited willpower.
C) limits to self interest.
D) all of the above.
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