Managerial Economics Review
Questions
Course Introduction
Managerial Economics explores the application of economic theory and methodologies to business management practices and decision-making processes. The course provides students with analytical tools for analyzing costs, demand, market structure, and pricing strategies, equipping them to tackle real-world business challenges. Through case studies and practical scenarios, students learn how to apply concepts such as marginal analysis, elasticity, game theory, and risk assessment to optimize resource allocation and maximize organizational objectives within different market environments.
Recommended Textbook
Economics of Strategy 7th Edition by David Dranove
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15 Chapters
505 Verified Questions
505 Flashcards
Source URL: https://quizplus.com/study-set/2441 Page 2
Chapter 1: The Power of Principles: A Historical Perspective
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35 Verified Questions
35 Flashcards
Source URL: https://quizplus.com/quiz/48520
Sample Questions
Q1) Which of the following would likely lower antitrust scrutiny?
A)Predatory pricing tactics
B)Utilizing mergers and acquisitions over alliances and joint ventures
C)Utilizing alliances and joint ventures over mergers and acquisitions
D)Incomplete contracting
E)Complete contracting
Answer: C
Q2) Which of the following facets of modern financial infrastructure came as a result of deregulation in the 1970s and 1980s?
A)Separation of commercial and investment banking
B)Enhanced role of central banks
C)Increased regulation of securities markets
D)Supply of debt and equity funding for firms that could not fund themselves through retained earnings
E)The availability of large investment funds facilitating M&A to flourish
Answer: E
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3
Chapter 2: The Horizontal Boundaries of the Firm
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34 Verified Questions
34 Flashcards
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Sample Questions
Q1) What is the approximate observed median learning curve slope for typical firms?
A)0.6
B)0.7
C)0.8
D)0.9
E)1.0
Answer: C
Q2) Which of the following is not a reason a supplier might seek to sell in bulk?
A)Each sale incurs a fixed cost in writing a contract
B)The purchaser is likely to switch over a small price due to the gains over the large number of units ordered
C)Each sale involves setting up a different production run
D)The cost of delivery is a fixed on a per unit basis
E)The supplier fears uneven sales
Answer: C
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4
Chapter 3: The Vertical Boundaries of the Firm
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34 Verified Questions
34 Flashcards
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Sample Questions
Q1) Suppose you manufacture 10 million hard drives per year specifically for Dell laptop computers.Suppose your average variable cost C=$20/unit and annualized cost of investment to build a hard drive factory I=$30 million.If Dell agrees to purchase the 10 million hard drives at a price P*=$25/unit,what is your company's "rent?
Answer: $20 million
Q2) Which of the following is a reason for a firm to Buy rather than make?
A)To eliminate competition among upstream suppliers
B)Upstream firms aggregate the demands of many buyers and provide economies of scale.
C)To prevent downstream competitors from reducing their prices
D)Tax advantages for purchasing upstream rather than making internally
E)None of the above
Answer: B
Q3) Suppose you manufacture 10 million hard drives per year specifically for Dell laptop computers.If your average variable cost C=$20/unit,annualized cost of investment to build a hard drive factory I=$30 million,and market price (bailout market price in the event Dell does not buy)Pm=$22/unit,what is your company's RSI (relationship specific investment)?
Answer: $10 million
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Page 5
Chapter 4: Integration and Its Alternatives
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32 Verified Questions
32 Flashcards
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Sample Questions
Q1) Which of the following would reduce co-ordination and hold-up problems?
A)Cost of upstream vertical supplies
B)Manager contracts
C)Required quality of finished product
D)Governance
E)None of the above
Q2) What term describes when a firm is using the least-cost production process?
A)Agency efficiency
B)Matrix purchasing
C)Technical efficiency
D)Economizing
E)All of the above
Q3) What type of strategic alliance involves two or more firms creating and together owning a new independent organization?
A)Partnership
B)Tapered integration
C)Close-knit semi-formal relationship
D)Mutual agreement
E)Joint venture
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Page 6
Chapter 5: Competitors and Competition
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31 Flashcards
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Sample Questions
Q1) What term describes the differentiation of a product when only some consumers prefer it to competing products (holding price equal)?
A)Horizontal differentiation
B)Vertical differentiation
C)Idiosyncratic differentiation
D)Spatial differentiation
E)Non-price differentiation
Q2) Which U.S.agency is responsible for preventing anticompetitive conduct?
A)Securities and Exchange Commission
B)Department of Justice
C)Office of Fair Trading
D)Competition Commission
E)Competition Authority
Q3) What criterion developed by the DOJ is used to identify all potential competitors within the market?
A)Market competition criterion
B)DOJ competition criterion
C)SSNIP criterion
D)SIC criterion
E)DOJ market criterion
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Chapter 6: Entry and Exit
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35 Verified Questions
35 Flashcards
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Sample Questions
Q1) Which of the following is a potential risk of a brand umbrella?
A)The brand umbrella reduces the incumbents sunk cost of introducing a new product
B)The umbrella brand may help the incumbent navigate the vertical chain
C)The brand umbrella allows an incumbent offset uncertainty about the quality of a new product
D)A brand umbrella may make suppliers and distributors more willing to enter relationship specific investments in or sell credit to incumbents
E)If a new product under the umbrella fails,consumers may become disenchanted with the entire brand
Q2) When are sunk costs 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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Chapter 7: The Dynamics Competing Across Time
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33 Verified Questions
33 Flashcards
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Sample Questions
Q1) Suppose a firm has $50 million to invest in a new market.Given market uncertainties,the firm forecasts a high-scenario where the present value of the investment is $200 million and a low-scenario where the present value of the investment is $20 million.Suppose that by waiting a year,the firm can learn with certainty which scenario will arise.Assume a 10% annual discount rate.If the firm waits one year and learns that the high-scenario will happen,what is the firm's expected net present value of the investment?
Q2) What type of option exists when a decision maker has the opportunity to tailor a decision to information that will be received in the future?
A)Real option
B)Commitment option
C)Project option
D)Decision option
E)Future option
Q3) Suppose a firm has $50 million to invest in a new market.Given market uncertainties,the firm forecasts a high-scenario where the present value of the investment is $200 million and a low-scenario where the present value of the investment is $20 million.If the firm believes each scenario is equally likely and invests today,what is the net present value of the investment?
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Page 9
Chapter 8: Industry Analysis
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35 Verified Questions
35 Flashcards
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Sample Questions
Q1) What term refers to the ability of firms to negotiate purchase prices that extract higher profits from buyers?
A)Substitutes and Complements
B)Competition
C)Customer power
D)Seller power
E)Buyer power
Q2) What term refers to the ability of individual customers to negotiate purchase prices that extract profits from sellers?
A)Substitutes and Complements
B)Competition
C)Customer power
D)Seller power
E)Buyer power
Q3) Which of the following does not tend to affect the threat of entry?
A)Expectations about pre-entry competition
B)Government protection of incumbents
C)Consumers highly valuable reputation/consumers are brand loyal
D)Experience curve
E)Network externalities
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Chapter 9: Strategic Positioning for Competitive Advantage
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33 Verified Questions
33 Flashcards
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Sample Questions
Q1) Consumer surplus is measured as which of the following?
A)The excess of sales price over manufacturing cost
B)The amount a consumer pays for a good minus search costs
C)The perceived manufacturing cost by a consumer as a percentage of sales price
D)The perceived benefit of a product per unit consumed minus the product's monetary price
E)The loss incurred by a firm selling at a price below its manufacturing cost
Q2) Which of the following represents producer surplus in the value creation equation,(B-P)+ (P-C)?
A)B
B)P
C)C
D)B-P
E)P-C
Q3) Which of the following is a characteristic of an experience good?
A)Warranty service is included in the sales price
B)An independent evaluation certifies the product
C)The product is heavily advertised
D)Quality can be assessed only after the customer has used it for a while
E)Noen of the above
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Chapter 10: Information and Value Creation
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35 Flashcards
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Sample Questions
Q1) When consumers learn about one seller at a time it is known as a :
A)Simultaneous search
B)Parallel search
C)Serial search
D)Sequential search
E)Divided search
Q2) Which of the following is measured by a report card that assesses product performance?
A)Process
B)Inputs
C)Warrantees
D)Outcomes
E)Longevity
Q3) Why do consumers often rely on friend's advice when shopping for experience goods?
A)They know their friend's tastes
B)Friends are less likely to be biased reporters
C)There are no search costs in seeking friend's advice
D)Friends are always more accurate than unknown verifiers
E)All friends share the common goal of highest quality
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Chapter 11: Sustaining Competitive Advantage
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34 Verified Questions
34 Flashcards
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Sample Questions
Q1) What term best describes clusters of activities that a firm does especially well in comparison with other firms?
A)Competitive advantage
B)Resources
C)Capabilities
D)Threats to sustainability
E)Strategic firm assets
Q2) What term best describes assets that are more valuable when used together than when separated?
A)Isolating
B)Value-creating
C)Imperfectly mobile
D)Scarce
E)Cospecialized
Q3) Which of the following is not a Legal Restriction?
A)Patent
B)Copyright
C)Trademark
D)Intellectual property
E)Operating rights
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Chapter 12: Performance Measurement and Incentives
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33 Flashcards
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Sample Questions
Q1) Which of the following terms describes a phenomenon whereby individuals ignore their own information about the best course of action and instead simply do what everyone else is doing?
A)Relative performance
B)Absolute performance
C)Herding
D)Risk sharing
E)Pay-for-performance
Q2) Which of the following terms describes a contract based on information that cannot be observed by courts or arbitrators?
A)Explicit incentive contract
B)Implicit incentive contract
C)Risk sharing contract
D)Compensation contract
E)Pay-for-performance
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14
Chapter 13: Strategy and Structure
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34 Flashcards
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Sample Questions
Q1) Which of the following should not be considered when selecting organizing dimensions?
A)Economies of scale
B)Economies of scope
C)Transactions costs
D)Agency costs
E)Sunk costs
Q2) Which of the following modes of task interdependence exists when two or more positions are not directly dependent on each other but are associated through their independent contributions to the success of the firm?
A)Technology interdependence
B)Environment interdependence
C)Reciprocal interdependence
D)Sequential interdependence
E)Pooled interdependence
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15
Chapter 14: Environment, Power, and Culture
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33 Flashcards
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Sample Questions
Q1) What technique did Google use to preserve its "evil-free" culture when going public with an initial public offering in 2004?
A)Used an IPO underwriter
B)Allow clients to purchase underpriced IPO shares
C)Used a "Dutch auction"
D)Committed to sell a certain number of shares at a set price
E)Drastically underpriced its shares (by 200%)
Q2) Which of the following is true about culture?
A)Culture increases agency costs
B)Culture reduces bargaining costs
C)Culture reduces transactions costs
D)Culture increases economic costs
E)culture has no effect on costs
Q3) What is the source from which a person derives legitimate or formal power?
A)Due to status
B)Possession of specialized knowledge
C)Ability to punish
D)Ability to grant rewards
E)Position within a hierarchy
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Page 16
Chapter 15: Economics Primer
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Sample Questions
Q1) In which of the following markets is a consumer less sensitive to price?
A)Airlines
B)Refrigerators
C)Health Care
D)Computer components
E)Washing Machines
Q2) If a firm is producing as efficiently as it knows how,then how will the total cost function slope?
A)Upward
B)Downward
C)No Slope
D)Downward until an output threshold value,then upward
E)Upward until an output threshold value,then downward
Q3) At what point can a firm achieve a profit maximizing quantity?
A)MR>MC
B)MC=D
C)MR<MC
D)MR=D
E)MR=MC
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Page 17