Course Introduction
Managerial Economics Question
Bank
Managerial Economics explores the application of economic theory and quantitative methods to business decision-making. The course equips students with analytical tools to evaluate market structures, pricing strategies, demand forecasting, production and cost analysis, and resource allocation. Emphasizing real-world scenarios, it bridges the gap between abstract economic concepts and managerial practice, helping future managers make informed and effective decisions in a dynamic business environment. Through case studies and problem-solving exercises, students learn to incorporate economic reasoning into strategic planning and operational choices.
Recommended Textbook Microeconomics Student Value 4th Edition by R. Glenn Hubbard
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Page 2
Chapter 1: Economics: Foundations and Models
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Sample Questions
Q1) What is the difference between physical capital and human capital?
Answer: Physical capital includes manufactured goods which are used to produce other goods and services.Human capital refers to the accumulated education,training and skills that workers possess.
Q2) The branch of economics which studies how households and firms make choices,interact in markets and how government attempts to influence their choices is called
A)macroeconomics.
B)microeconomics.
C)positive economics.
D)normative economics.
Answer: B
Q3) Trade-offs force society to make choices when answering what three fundamental questions?
Answer: 1.What goods and services will be produced? 2.How will the goods and services be produced? 3.Who will receive the goods and services produced?
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Chapter
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Sample Questions
Q1) A guild is
A)a group of independent producers competing with each other.
B)an organization of producers that limits the amount of a good produced.
C)a group of nations who agree not to compete with each other.
D)a nation that is a free market benchmark.
Answer: B
Q2) The principle of ________ is that the economic cost of using a factor of production is the alternative use of that factor that is given up.
A)marginal cost
B)opportunity cost
C)normative economics
D)entrepreneurship
Answer: B
Q3) Which of the following would shift a nation's production possibilities frontier inward?
A)discovering a cheap way to convert sunshine into electricity
B)producing more capital equipment
C)an increase in the unemployment rate
D)a law requiring workers to retire at age 50
Answer: D
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Chapter 3: Where Prices Come From: the Interaction of
Demand and Supply
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Q1) Refer to Figure 3-8.The graph in this figure illustrates an initial competitive equilibrium in the market for motorcycles at the intersection of D<sub>1</sub> and S<sub>1</sub> (point A).If the price of motorcycle engines increases,and the wages of motorcycle workers increase,how will the equilibrium point change?
A)The equilibrium point will move from A to E.
B)The equilibrium point will move from A to B.
C)The equilibrium point will move from A to C.
D)The equilibrium will first move from A to B,then return to A.
Answer: B
Q2) Refer to Figure 3-2.A decrease in the price of inputs would be represented by a movement from A)A to B.
B)B to A.
C)S<sub>1</sub> to S<sub>2</sub>.
D)S<sub>2</sub> to S<sub>1</sub>.
Answer: C
Q3) What are the five most important variables that shift the market supply curve?
Answer: Prices of inputs; Technological change; Prices of substitutes in production; The number of firms in the market; Expected future prices
Page 5
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Chapter 4: Economic Efficiency, government Price Setting, and Taxes
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Sample Questions
Q1) Which of the follow is a result of imposing a rent ceiling?
A)Some consumer surplus is converted to producer surplus.
B)There is an increase in the quantity of apartments supplied.
C)There is an increase in the quantity of apartments demanded.
D)The marginal benefit of the last apartment rented is less than the marginal cost of supplying it.
Q2) Suppliers will be willing to supply a product in all of the following situations except
A)the price received is greater than the additional cost of producing the product.
B)the price received is at least equal to the additional cost of producing the product.
C)the price received is equal to the additional cost of producing the product.
D)the price received is less than the additional cost of producing the product.
Q3) Refer to Figure 4-9.As a result of the tax,is there a loss in producer surplus?
A)Yes,because producers are not selling as many units now.
B)No,because the consumer pays the tax.
C)No,because the market reaches a new equilibrium
D)No,because producers are able to raise the price to cover their tax burden.
Q4) What is deadweight loss? When is deadweight loss equal to zero?
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Chapter 5: Externalities, environmental Policy, and Public Goods
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Q1) Refer to Figure 5-2.Suppose the current market equilibrium output of Q<sub>1</sub> is not the economically efficient output because of an externality.The economically efficient output is Q<sub>2</sub>.In that case,diagram shows
A)the effect of a subsidy granted to producers of a good.
B)the effect of an excess demand in a market.
C)the effect of a positive externality in the consumption of a good.
D)the effect of a negative externality in the consumption of a good.
Q2) Public goods are distinguished by two primary characteristics.What are they?
A)nonrivalry and nonexcludability
B)government intervention and low prices
C)market failure and high prices
D)rivalry and exclusivity
Q3) If the social cost of producing a good or service exceeds the private cost,
A)a positive externality exists.
B)the sum of consumer surplus and producer surplus is maximized.
C)the market achieves economic efficiency.
D)a negative externality exists.
Q4) The social cost of a good or service is the cost borne by the producer.
A)True
B)False
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Chapter 6: Elasticity: the Responsiveness of Demand and Supply
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Sample Questions
Q1) Suppose the current price of copper is $3 per pound and the quantity supplied is 200 pounds per day.If the price of copper falls to $2.50 per pound,the quantity supplied drops to 180 pounds per day.Use the midpoint formula to calculate the price elasticity of supply for copper.
Q2) If the demand for a steak is unit-elastic,then
A)the percentage change in quantity demanded is 1 percent greater than the percentage change in price.
B)the percentage change in quantity demanded is equal to the percentage change in price.
C)the percentage change in quantity demanded is 100 percent greater than the percentage change in price (in absolute value).
D)quantity demanded does not respond to changes in price.
Q3) A linear downward sloping demand curve has price elasticities (in absolute values)that
A)increase as price decreases.
B)remain constant along the demand curve.
C)decrease as price decreases.
D)are greater than or equal to 1.
Q4) Briefly explain 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) Under current U.S.tax laws individuals do not pay taxes on health insurance benefits they receive from their employers.
A)True
B)False
Q2) About ________ of pharmaceutical patents are issued to U.S.firms.
A)10 percent
B)one-half
C)two-thirds
D)90 percent
Q3) On average,people in low-income countries ________ than people in high-income countries.
A)have a longer life expectancy
B)are subject to a lower infant mortality rate
C)are shorter
D)are exposed to fewer severe diseases
Q4) A key provision of the Patient Protection and Affordable Care Act (PPACA)is the Small Business Health Options Program (SHOP).Briefly describe the SHOP provision.
Q5) What is asymmetric information?
Q6) How do adverse selection and moral hazard affect the market for insurance?
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Chapter 8: Firms, the Stock Market, and Corporate Governance
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Sample Questions
Q1) How much is a bond that pays $20 in coupon payments for 4 years and $1,000 at the end of the fourth year worth if the interest rate is 5%?
A)$822.70
B)$893.62
C)$1,070.92
D)$1,080
Q2) With state and multistate lotteries,winners are typically given the choice between a lump sum payment today or a 20 year series of annuities.How should a winner decide which is better?
Q3) Which of the following does not take place in the direct finance market?
A)Ownership in corporations is sold in the form of common stock.
B)Deposits from savers are accumulated and loans made to borrowers.
C)Ownership in corporations is sold in the form of preferred stock.
D)Corporate bonds are sold to savers.
Q4) What type of business is the easiest to set up?
A)sole proprietorship
B)partnership
C)corporation
D)There is no difference in the ease of establishment.
Page 10
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Chapter 9: Comparative Advantage and the Gains From International Trade
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Q1) Trade restrictions tend to preserve ________ in the protected industries and lead to ________ in other industries.
A)almost all jobs; economic growth
B)well over half of the jobs; price decreases
C)relatively few jobs; job losses
D)no jobs; increased productivity
Q2) Your roommate Hansen argues that American producers cannot compete with foreign producers because wages are lower in foreign countries than in the United States.Hansen
A)is incorrect.Free trade raises living standards by increasing economic efficiency.
B)is right in asserting the need to protect high wages if the United States wishes to maintain its high standard of living.
C)is correct in arguing that the high wages of U.S.workers make it impossible to compete with workers in low-wage countries.
D)is advancing the anti-dumping argument for protectionism.
Q3) What are three primary reasons for the growth of international trade over the past 50 years?
Q4) What are terms of trade?
Page 11
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Chapter 10: Consumer Choice and Behavioral Economics
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Sample Questions
Q1) If Joey Kobayashi experiences diminishing marginal utility from eating hot dogs then
A)his total utility from eating hot dogs is negative.
B)the marginal utility from the next hot dog Joey eats will be negative.
C)the additional satisfaction he receives from eating another hot dog will be less then the satisfaction he received from his eating his last hot dog.
D)Joey is maximizing the marginal utility per dollar he receives from eating hot dogs.
Q2) A sunk cost is a cost that has already been paid and cannot be recovered.
A)True
B)False
Q3) Explain the concept of network externalities.
Q4) Which of the following is held constant along an indifference curve?
A)the prices of the goods in question
B)the marginal rate of substitution between the two goods in question
C)the marginal utility derived from consuming any bundle of goods on the indifference curve
D)the total utility derived from consuming any bundle of goods on the indifference curve
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Chapter 11: Technology, production, and Costs
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Sample Questions
Q1) A firm's short-run average total cost curve is parallel to its short-run average variable cost curve.
A)True
B)False
Q2) Refer to Table 11-5.Elegant Settings experiences
A)economies of scale up to an output level of 400.
B)diminishing returns up to an output level of 400.
C)increasing returns beyond an output level of 400.
D)economies of scale at an output of 300 or less and diseconomies of scale at an output level above 400.
Q3) The total cost schedule shows the relationship between different amounts of inputs and the resulting level of output.
A)True
B)False
Q4) Which of the following can a firm do in the long run but not in the short run?
A)decrease the size of its physical plant
B)reduce its rate of output by laying off workers
C)increase its variable costs
D)increase its use of raw materials
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Chapter 12: Firms in Perfectly Competitive Markets
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Q1) ________ in demand for organic food products in the United Kingdom will decrease a firm's economic profit,and the ________ in cost to grow organic food products in the United Kingdom will decrease a firm's economic profit.
A)An increase; increase
B)An increase; decrease
C)A decrease; increase
D)A decrease; decrease
Q2) In analyzing the decision to shut down in the short run we assume that the firm's fixed costs are
A)implicit costs.
B)capital costs.
C)nonmonetary opportunity costs.
D)sunk costs.
Q3) A teenaged babysitter is similar to a firm in a perfectly competitive industry in that,for both,
A)fixed costs are lower than variable costs.
B)there are many other suppliers of similar goods or services.
C)the implicit costs of production exceed the explicit costs of production.
D)average costs of production do not change when their industry expands.
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Chapter 13: Monopolistic Competition: the Competitive
Model in a More Realistic Setting
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Q1) If some monopolistically competitive firms exit their market after suffering short-run losses,the demand curves of remaining firms will shift to the right.
A)True
B)False
Q2) Long-run equilibrium under monopolistic competition and perfect competition is similar in that
A)firms produce at the minimum point of their average cost curves.
B)price equals marginal cost.
C)firms break even.
D)price equals marginal revenue.
Q3) Monopolistically competitive firms achieve allocative efficiency but not productive efficiency.
A)True
B)False
Q4) Refer to Figure 13-7.What is the profit maximizing output level?
A)Q<sub>1</sub> units
B)Q<sub>2</sub> units
C)Q<sub>3</sub> units
D)Q<sub>4</sub> units
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Chapter 14: Oligopoly: Firms in Less Competitive Markets
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Q1) Does the strength of each of the five competitive forces from Michael Porter's model remain constant over time? Briefly explain.
Q2) Refer to Figure 14-1.If Netflix lowers its price will this deter Blockbuster from setting up an online DVD rental service?
A)Yes,because Blockbuster stands to lose $1 million if it competes with Netflix.
B)Yes,because Blockbuster will make a smaller profit than Netflix if it chooses to compete.
C)No,because Blockbuster will make a profit if it competes with Netflix.
D)No,because Blockbuster will make a larger profit than Netflix if it chooses to compete.
Q3) Sequential games are used to analyze
A)firms that are subject to the prisoner's dilemma.
B)cartels.
C)second-price auctions.
D)situations in which one firm acts and other firms respond.
Q4) On January 2,1971,all cigarette advertising was banned on U.S.television and radio stations.Did this ban likely increase or decrease the profits of cigarette companies in 1971? Briefly explain.
Q5) 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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Q1) If a monopolist's marginal revenue is $35 per unit and its marginal cost is $25,then
A)to maximize profit the firm should increase output.
B)to maximize profit the firm should decrease output.
C)to maximize profit the firm should continue to produce the output it is producing.
D)Not enough information is given to say what the firm should do to maximize profit.
Q2) Network externalities refer to the situation where the usefulness of a product increases with the number of consumers who use it.
A)True
B)False
Q3) In evaluating the degree of economic efficiency in a market,we can state that the size of the deadweight loss in a market will be smaller
A)the greater the difference between marginal cost and price.
B)the smaller the difference between marginal cost and average total cost.
C)the smaller the difference between marginal cost and price.
D)the greater the difference between marginal cost and average revenue.
Q4) What is a public franchise? Are all public franchises natural monopolies?
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Chapter 16: Pricing Strategy
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Q1) Refer to Table 16-1.Suppose Julie's marginal cost of providing this service is constant at $7 and she decides to charge each customer according to his or her willingness to pay.What is Julie's total revenue and how many hours of service will be purchased?
A)4 hours and her total revenue = $39
B)4 hours and her total revenue = $28
C)1 hour and her total revenue = $7
D)5 hours and her total revenue = $35
Q2) Are restaurant coupons a form of price discrimination? Why or why not?
Q3) Which of the following statements about perfect price discrimination is false?
A)There is no consumer surplus if a firm engages in perfect price discrimination.
B)Perfect price discrimination occurs when the seller charges the highest price each consumer would be willing to pay for the product.
C)A condition for perfect price discrimination is that it must be costlier to service some customers than others.
D)For the price-discriminating firm,its marginal revenue curve coincides with its demand curve.
Q4) What conditions are required for a firm to use a price discrimination strategy?
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Chapter 17: The Markets for Labor and Other Factors of Production
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Q1) Companies often find it to be more profitable to use a commission or piece-rate system of compensation rather than a salary system,yet many firms continue to pay their workers salaries.List three reasons why a firm would choose a salary system of compensation.
Q2) The demand for labor depends primarily on the additional output produced as a result of hiring an additional worker and
A)the additional revenue received from selling the output produced as a result of hiring an additional worker.
B)the payment made to the worker for producing the additional output.
C)the elasticity of demand for the output produced by the worker.
D)the number of workers willing to produce the additional output.
Q3) As nonunion construction workers replace a unionized work force,the average wage in the construction sector is likely to rise.
A)True
B)False
Q4) If the labor supply curve shifts to the right and the labor demand curve remains unchanged,what will happen to the equilibrium wage and the equilibrium level of employment? Illustrate your answer with a graph.
Page 19
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Chapter 18: Public Choice, taxes, and the Distribution of Income
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Q1) The federal government defines the poverty line as
A)a level of annual income equal to the amount necessary to purchase the minimal quantity of food required for adequate nutrition.
B)a level of annual income equal to three times the amount of money necessary to purchase the minimal quantity of food required for adequate nutrition.
C)the average income level of welfare recipients.
D)an annual income of $11,800 for a family of four in 2011.
Q2) In 2010,which type of tax raised the most revenue for the U.S.federal government? Which type of tax raised the most revenue for state and local governments?
Q3) Refer to Figure 18-1.Area E+H represents
A)the portion of sales tax revenue borne by consumers.
B)the portion of sales tax revenue borne by producers.
C)the excess burden of the sales tax.
D)sales tax revenue collected by the government.
Q4) What is meant by "tax incidence"?
Q5) If you pay $14,000 in taxes on an income of $125,000,and $17,400 in taxes on an income of $144,000,what is your marginal tax rate? Show your work.
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