Managerial Economics Question
Bank
Course Introduction
Managerial Economics is a course that bridges economic theory with practical business applications, focusing on how managers use economic concepts and analytical tools to make informed decisions within organizations. Students learn to analyze market structures, demand and supply, production and cost functions, pricing strategies, and the effects of government regulation. By applying quantitative methods and real-world case studies, the course equips future managers with the skills to optimize resources, forecast business trends, and develop strategies that enhance organizational efficiency and competitiveness in diverse economic environments.
Recommended Textbook Economics of Strategy 5th Edition by
David Besanko
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Page 2
Chapter 1: Basic Microeconomic Principles
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Q1) In which of the following markets is a consumer more sensitive to price?
A)Credit Cards
B)Items sold door to door
C)Customized software upgrade
D)Copier/Printer Toner
E)Health Care
Answer: A
Q2) Which of the following best describes marginal cost?
A)The per-unit-of-output cost for a product
B)The incremental cost of producing one more unit of output.
C)A cost invariant to the firm's output
D)The sum of all costs associate with the production of a product
E)The cost of fixed items such as general and administrative expenses
Answer: B
Q3) Suppose a firm's plant produces Q units in any given year.The plant itself operates with annualized costs of $10M and other annual fixed expenses totaling $3M.In addition,the firm's variable costs depend on Q and are given by the formula 5Q²+3Q.What is the formula for the firm's Average Variable Costs?
Answer: AVC(Q)= 5Q+3
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Page 3
Chapter 2: Economies of Scale and Scope
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Q1) What is the minimum efficient scale (MES)of production?
A)The point on an average cost curve where the cost per unit begins to decline more rapidly
B)The minimum point on a U-shaped average cost curve
C)The minimum level of production at a plant for it to be considered profitable
D)The level of production for a small sized plant
E)The threshold at which capacity is constraining for a firm's production
Answer: B
Q2) In the BCG Growth Share Matrix,what is a cash cow?
A)A product in a growing market with high relative share
B)A product in a stable or declining market with high relative share
C)A product in a growing market with a low relative share
D)A product in a stable or declining market with low relative share
E)A product losing money for a company
Answer: B
Q3) Suppose the cost of advertising in a local newspaper is $5 per thousand papers.If the circulation for the paper is 1.5 million and the cost of preparing an ad for a company is $2500,what is the advertising cost per potential customer?
Answer: $.0067 per potential customer,or $6.67 per 1000 customers
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Page 4
Chapter 3: Agency and Coordination
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Q1) What is a benefit of the de-centralized organization coordination solution?
A)Ensures no coordination opportunities are missed
B)Makes the organization more hierarchical
C)Takes advantage of localized information
D)Improves communication
E)Always encourages collaboration
Answer: C
Q2) What term describes situations in which aspects of the productive environment that are important to the principal cannot be observed?
A)Unobservable action
B)Hidden action
C)Covert information
D)Unobservable information
E)Hidden information
Answer: E
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Chapter 4: The Power of Principles - an Historical Perspective
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Q1) What is the accounting concept inventory turnover as developed by sears in the late 19 century?
A)To systemize and circulate credit information
B)To manage the requirements of operating efficiencies
C)To publicly disclose the details of a firm's operations
D)To present the payment of dividends out of profits
E)To link profits to fluctuations in sales volume
Q2) What firm is generally regarded as being the first to extensively use mass production processes?
A)IBM
B)Burroughs
C)Remington Rand
D)Ford
E)Sears
Q3) What is the gaizhi process?
A)Valuing assets according to their earnings
B)A state-owned enterprise and private enterprise entering a joint venture
C)An increase of profitability prior to sale
D)Acquisition of large firms by private organizations
E)Restructuring whereby small firms are leased or sold
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Chapter 5: The Vertical Boundaries of the Firm
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Q1) What is a market firm?
A)Firm representing a particular industry
B)Financial firm
C)Subsidiary of the larger parent firm
D)Large scale firm
E)An independent outsourcing partner
Q2) Which of the following issues makes it difficult for to managers to reign in dedicated "cost centers" in a firm?
A)Cost centers have no dedicated "customer"
B)Cost centers are easy to judge against market counterparts performing similar functions
C)Firms are unwilling to endure the ill will generated by firing unproductive elements in an organization
D)Firms are always looking to cut costs when they retain an advantage insulting it from the market
E)Managers of costs centers have significant latitude to complete their jobs
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Chapter 6: Organizing Vertical Boundariesvertical
Integration and Its Alternatives
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Q1) Which of the following in the late 19 century was predicted by the asset-specificity hypothesis?
A)Forward integration was most likely to occur for products that require specialized investments in human capital
B)Increases in the size of manufacturing firms led to independent wholesale and marketing agents losing scale/scope cost advantages and in turn led to manufacturers forward integrating into marketing and distribution
C)Forward integration was most likely to occur for products that do not require specialized investments in equipment and facilities
D)For industries with small manufacturers, marketing relied on specialized assets
E)For industries with small manufacturers, distribution relied on specialized assets
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8
Chapter 7: Diversificationpart Threemarket and Competitive Analysis
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Q1) Which of the following is generally a way that LBOs can help a firm realize its potential value?
A)The synergies created allow for cost savings
B)The transaction reduces the disparity between a firm's actual and potential share price
C)The acquisition reduces the likelihood of competition in the industry
D)The transaction requires debt repayment with future free cash flow leaving management no discretion over the investment of these funds
E)The buyout gives an opportunity to adjust the management structure and makeup
Q2) Which of the following is a term that can best be used to describe a broadly diversified firm?
A)Integrated
B)Merged
C)Mixed
D)Conglomerate
E)Multifaceted
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Chapter 8: Competitors and Competition
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Q1) Which of the following is a reason other than concentration that price-cost margins may vary across industries?
A)Accounting practices
B)Regulation
C)Product differentiation
D)Nature of sales transactions
E)All of the above
Q2) The average PCM (percentage contribution margin)in a Cournot equilibrium is given by the formula PCM=H/ ,where H is the Herfindahl index and is the price elasticity of market demand.Given this equation,which of the following statements is true?
A)The more concentrated the industry, the smaller the PCMs in equilibrium
B)The industry concentration only raises the PCMs in equilibrium
C)The industry concentration has no bearing on PCM size in equilibrium
D)The less concentrated the industry, the larger the PCMs in equilibrium
E)The less concentrated the industry, the smaller the PCMs in equilibrium
Q3) Suppose the demand for a product faces by a monopolist firm is given by Q=60-P/2.If the marginal cost of producing the product is $20,what is the profit maximizing price the firm should charge for the product? What are the firm's profits?
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Chapter 9: Strategic Commitment
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Q1) What tactical term best describes the capacity relationship between Toyota and Honda such that Toyota's response is to reduce production output of the Rav 4 if Honda were to first announce a large increase in the production of the CR-V that drove down prices?
A)Tough commitment
B)Strategic complement
C)Soft commitment
D)Strategic substitute
E)Duopoly
Q2) What term describes a decision that has a long-term impact and is difficult to reverse?
A)Dedicated investment
B)Strategic commitment
C)Critical choice
D)Market investment
E)Firm commitment
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11
Chapter 10: The Dynamics of Pricing Rivalry
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Q1) Why do price-sensitive buyers tend to harm cooperative pricing in a market?
A)They cause an increase in detection lags because competitor prices become more difficult to monitor
B)There is a resultant decrease in the frequency of interaction between competitors
C)There is an increase in the probability of misreads
D)The is an increase in temptation to cut price, even if competitors are expected to match
E)There is an increase in detection lags because prices of competitors are more difficult to monitor
Q2) What type of clause is a provision in a sales contract that promises a buyer that it will pay the lowest price the seller charges?
A)Low price clause
B)Price matching clause
C)Best price clause
D)Most favored customer clause
E)Competitive price clause
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Chapter 11: Entry and Exit
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Q1) What is the term defined as the withdrawal of a product from a market?
A)Shut-down
B)Exit
C)Sale
D)Removal
E)Withdrawal
Q2) What term is defined as a firm selling goods at a price below their normal price (and generally below cost)usually as an export in international trade?
A)Predatory pricing
B)Cost plus pricing
C)Dumping
D)Marginal cost pricing
E)Price leading
Q3) When is reputation a most effective entry barrier?
A)When the incumbent has incurred them and the entrant has not
B)When incumbents have long-standing relationships with suppliers and customers
C)When channels are few and hard to replicate
D)When a firm has a reputation for toughness or competes in multiple markets
E)When marginal costs are low and flooding the market causes large price reductions
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Page 13
Chapter 12: Industry Analysispart Fourstrategic Position and Dynamics
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Q1) What professional sports complement poses the biggest dilemma?
A)Cheerleaders
B)Mascots
C)Gambling
D)Television
E)Radio
Q2) Which of the following trends or methods has since helped reduce the pricing rivalry that had intensified by the late 1990s?
A)Patients began accepting MCOs with "narrow networks" and MCOs had the upper hand in negotiating with hospitals for inclusion in networks
B)Hospitals removed brand identities
C)Hospitals dropped "centers of excellence" from their hospitals
D)Hospitals consolidating away from related products
E)Hospitals consolidated (conducted mergers)
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Chapter 13: Strategic Positioning for Competitive Advantage
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Q1) What type of curve can be used to describe the set of price-quality combinations that yields the same consumer surplus to an individual?
A)Frontier curve
B)Learning curve
C)Level curve
D)Implicit curve
E)Indifference curve
Q2) What type of strategy seeks to serve all customer groups in the market by offering a full line of related products?
A)Generic strategy
B)Margin strategy
C)Focus strategy
D)Share strategy
E)Broad-coverage strategy
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Page 15
Chapter 14: Sustaining Competitive Advantage
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Q1) Which of the following is not an impediment to imitation?
A)Legal restrictions
B)Superior access to inputs or customers
C)Scale diseconomies
D)Market size economies
E)Intangible barriers: casual ambiguity, dependence on historical circumstances, and social complexity
Q2) What term describes the situation where a firm does exceedingly well due to good luck or exceedingly poorly due to bad luck,but returns to normal performance following?
A)Regression to the mean
B)Competitive advantage
C)Persistent performer
D)Sustainable firm
E)Predictable performance
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16
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Q1) What term describes the achievement of long-term growth and technological improvement?
A)Creative destruction
B)Static efficiency
C)Dynamic efficiency
D)Efficient allocation
E)Resource efficiency
Q2) Which of the following is not part of Porter's "diamond",four attributes in a firm's home market that promote or impede a firm's ability to achieve competitive advantage in global markets?
A)Factor conditions
B)Demand conditions
C)Supply conditions
D)Related supplier or support industries
E)Strategy, structure, and rivalry
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Chapter 16: Performance Measurement and Incentives in Firms
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Q1) Which of the following terms best describes a review system in which an employee and a supervisor work together to construct a set of goals for that employee?
A)Traditional top down review system
B)360-degree peer review system
C)Management-by-objective system
D)Subjective performance evaluation
E)Pay-for-performance
Q2) What term best describes an agent who prefers a risky outcome with the same expected value over a sure thing?
A)Risk sharing
B)Risk seeking
C)Risk neutral
D)Risk averse
E)Risk premium
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18
Chapter 17: Strategy and Structure
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Q1) Which of the following structures best describes a small group of people where a collection of individuals work together to set and pursue common objectives?
A)Complex hierarchy
B)Individually
C)Self-managed team
D)Hierarchy of authority
E)Divisional
Q2) What type of organizational structure is one in which employees are subject to two or more sets of managers at once?
A)Unitary functional structure
B)Multidivisional structure
C)Matrix structure
D)Network structure
E)Individual structure
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Chapter 18: Environment, power, and Culture
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Q1) Which of the following statements is least true regarding the accumulation of power?
A)The accumulation of power is helpful when there are high agency costs in coordinating among managers and lower-level workers
B)The accumulation of power is helpful when the firm's environment is relatively stable
C)The accumulation of power is harmful when there are high agency costs in coordinating among levels of upper management
D)The accumulation of power is harmful when the firm's environment is relatively unstable
E)The major purpose of corporate governance is not to reign in the accumulation of power by CEOs
Q2) What does Gary Miller identify as the focus for actors around which a consensus can form within an organization?
A)Contracts
B)Incentives
C)Formal controls
D)Norms and Social conventions (culture)
E)Exclusive deals
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