Course Introduction
Managerial Economics
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Managerial Economics focuses on the application of economic theory and quantitative methods to business decision-making. The course explores how managers can use concepts such as demand and supply analysis, cost and production functions, market structure, pricing strategies, and risk analysis to address real-world business problems. Emphasis is placed on optimizing resource allocation, forecasting market trends, and evaluating the impact of government policies on business operations. Through case studies and practical examples, students learn to apply analytical tools to make informed managerial decisions in a dynamic and competitive environment.
Recommended Textbook
Foundations of Economics 6th Edition by Robin Bade
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Page 2
Chapter 1: Getting Started
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Sample Questions
Q1) Opportunity cost is best defined as
A) how much money is paid for something.
B) how much money and time it takes to consume something.
C) the value of the highest-valued alternative that is forgone in making a choice.
D) the total of all other alternatives that are forgone in making a choice.
E) the sunk cost of any decision.
Answer: C
Q2) In New State,the bottling law requires that people get a refund of five cents when they return an empty bottle or can.Why does the state pay people to return bottles? In your answer,be sure to mention the role played by rational choice.
Answer: Policy makers know that people making rational choices respond to incentives.Instead of throwing away bottles and cans,people will now bring the used bottles and cans to the designated areas for recycling in order to receive their payment.Thus policy makers have taken advantage of people's rational decision making in order to reduce litter and clean the environment.
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Chapter 2: The Usand Global Economies
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Sample Questions
Q1) Discuss the differences between developing and emerging market economies.
Answer: Although the average income in emerging market economies is less than that in advanced economies,developing countries generally have lower levels of income than emerging market economies.Emerging market economies are in some ways as developed as the advanced economies because they often have a well-trained labor force and a reasonable capital stock,both of which are typically missing in developing economies.But emerging market economies are struggling to raise their living standards.The main difference between emerging market economies and other economies is their economic system.Emerging market economies operated under state-owned production for many years and are now moving towards a free market system.Developing economies generally do not have the same history of a very long period of time operating under a system of state-owned production.
Q2) ________ economies include ____________.
A) Advanced; France, Australia and South Korea
B) Advanced; the U.S., Taiwan and Russia
C) Advanced; Russia, Canada and Singapore
D) Emerging; Taiwan, Russia and Singapore
E) Emerging; Saudi Arabia, Poland and Taiwan
Answer: A
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Page 4
Chapter 3: The Economic Problem
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Sample Questions
Q1) The opportunity cost of one more slice of pizza in terms of sodas is the
A) number of pizza slices we have to give up in order to get one extra soda.
B) number of sodas we have to give up in order to get one extra pizza slice.
C) total number of sodas that we have divided by the total number of pizza slices that we have.
D) total number of pizza slices that we have divided by the total number of sodas that we have.
E) price of a pizza slice minus the price of a soda.
Answer: B
Q2) As we move along the production possibilities frontier,
A) the production of one good increases as the production of the other good decreases.
B) the possibilities of tradeoffs diminish.
C) a tradeoff is not possible because nations need all goods.
D) more of both goods can be produced.
E) less of both goods can be produced.
Answer: A
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Page 5
Chapter 4: Demand and Supply
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Sample Questions
Q1) There are five hundred buyers in the market for cheese.If we know each individual's demand curves,to find the market demand,we must
A) add the prices that each buyer will pay at every quantity.
B) add the quantities that each buyer will purchase at every price.
C) multiply the price times quantity for each buyer and then add the resulting products together.
D) average the price each buyer is willing to pay for each given quantity.
E) give up because there is no way to find the market demand.
Q2) Market demand curves are obtained by
A) determining the price each consumer is willing to pay for the good and summing those prices across all consumers.
B) observing the prices and quantities sold in a market over time and plotting those price-quantity combinations in a graph.
C) summing the quantities every consumer is willing to buy at each different price.
D) observing the behavior of an individual consumer in a market.
E) averaging the quantities every consumer is willing to buy at each different price.
Q3) When does a shortage occur?
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Chapter 5: Elasticities of Demand and Supply
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Sample Questions
Q1) If a good is a necessity,it has ________ substitutes and its demand is ________.
A) poor; elastic
B) poor; inelastic
C) many; elastic
D) many; inelastic
E) many; precisely unit elastic
Q2) Taco Bell firm raises the price of its tacos.The price elasticity of demand for Taco Bell tacos equals 5.0.What happens to the Taco Bell's total revenue?
A) nothing
B) It increases.
C) It decreases.
D) It becomes negative.
E) It might change, but more information is needed to determine if it increases, decreases, or does not change.
Q3) Consider two goods: peanut butter and jelly.If the price of jelly increases from $2 a jar to $3 per jar and the quantity demanded of peanut butter decreases from 50 jars to 45 jars,what is the cross elasticity of demand? Are the goods substitutes or complements?
Q4) What effect does a price hike have on the total revenue of the producers?
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Chapter 6: Efficiency and Fairness of Markets
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Sample Questions
Q1) In the figure above,when 6,000 pizzas are produced,the marginal benefit of a pizza ________ its marginal cost,which means ________ pizza is being produced. A) exceeds its marginal cost; too little B) exceeds its marginal cost; too much C) is below its marginal cost; too much D) is below its marginal cost; too little E) equals its marginal cost; the efficient quantity of
Q2) In the above figure,if the quantity is equal to 2,500,000 units,the deadweight loss is equal to
A) area B + area F.
B) area D + area I.
C) area C.
D) area G + area H.
E) None of the above answers is correct because the deadweight loss is equal to zero.
Q3) What must be true for a consumer to enjoy a consumer surplus from a unit of a good?
Q4) What is the "invisible hand"?
Q5) Explain how the invisible hand delivers an efficient market outcome.
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Chapter 7: Government Actions in Markets
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Sample Questions
Q1) With a rent ceiling set below the equilibrium rent, i.all renters are able to rent apartments at a lower rent.
ii.there is a shortage of apartments.
iii.the quantity of apartments supplied does not change because buildings cannot be moved.
A) i only
B) ii only
C) iii only
D) ii and iii
E) i, ii, and iii
Q2) Which of the following decrease the deadweight loss from a rent ceiling set below the equilibrium rent?
i.lowering the ceiling
ii.dedicating more resources to enforcement of the ceiling
iii.raising the ceiling
A) i only
B) ii only
C) iii only
D) i and ii
E) ii and iii
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Page 9
Chapter 8: Taxes
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Sample Questions
Q1) The figure above shows the labor supply and labor demand curves for personal trainers in the state of Florida.The initial equilibrium hourly wage is $10.Suppose the state of Florida institutes an income tax on labor income of $6 an hour in order to buy voting machines for the next election.The deadweight loss from this tax equals the region A) abe.
B) bce.
C) cef.
D) efg.
E) cdf.
Q2) Based on the figure above,the deadweight loss from the tax is
A) $15,000 per week.
B) $20,000 per week.
C) $35,000 per week.
D) $17,500 per week.
E) zero.
Q3) Ali earns $20,000 and pays $2,000 in taxes; Maria earns $40,000 and pays $4,000 in taxes.Is this tax progressive,regressive,or proportional?
Q4) What is the marginal tax rate? Average tax rate? Can these rates ever differ?
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Page 10
Chapter 9: Global Markets in Action
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Sample Questions
Q1) Comparing developed and developing nations in their use of tariffs,we see that
A) the developing nations' governments get very little revenue from tariffs.
B) both governments get large amounts of revenue from tariffs.
C) many developing nations' governments get a large portion of their revenue from tariffs.
D) developing nations almost never impose tariffs because they want their people to obtain goods and services at the lowest possible price.
E) developed nations rely much more than developing nations on tariff revenue.
Q2) A tax on a good that is imposed by the importing country is called a A) tariff.
B) nontariff barrier.
C) quantitative restriction.
D) licensing regulation.
E) trade constraint.
Q3) A nation will export a good if its
A) no-trade, domestic price is equal to the world price.
B) no-trade, domestic price is less than the world price
C) no-trade, domestic price is greater than the world price.
D) no-trade, domestic quantity is less than the world quantity.
E) no-trade, domestic quantity is greater than the world quantity.
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Chapter 10: Externalities
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Sample Questions
Q1) List and briefly define the three methods government can use to cope with an external cost,such as pollution.
Q2) Suppose unregulated production of pesticides results in an equilibrium price and quantity of $400 and 1,000 tons per day,respectively,and a marginal external cost of $10 a ton.
a.If the government were to eliminate the external cost by using pollution charges,what should the pollution charge be set at?
b.If the government were to eliminate the external cost by using taxes,what should the tax equal?
c.Would the government actions described above affect the quantity of pesticides produced? If yes,how? If no,why not?
Q3) In order for pollution taxes to be effective in eliminating the deadweight loss resulting from pollution,the pollution tax must be set equal to the A) marginal private cost.
B) marginal external cost.
C) marginal social cost.
D) marginal benefit of polluting.
E) price of the good.
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Chapter 11: Public Goods and Common Resources
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Sample Questions
Q1) The above figure shows the marginal private cost curve,marginal social cost curve,and marginal social benefit curve for cod,a common resource.A quota to prevent the overuse of the cod sets the catch equal to ________.
A) 0 tons per week
B) 200 tons per week
C) 400 tons per week
D) 300 tons per week
E) 500 tons per week
Q2) Which of the following represents an efficient quantity of a public good? The quantity at which the
A) marginal cost of production is minimized.
B) number of free riders is maximized.
C) marginal benefit minus marginal cost is minimized.
D) marginal benefit is equal to the marginal cost.
E) marginal benefit exceeds the marginal cost by the maximum amount possible.
Q3) Why is watching sports more important to many prospective voters than watching the news? In your answer,mention the role played by rational ignorance and the cost of gathering information.
Q4) How is the efficient quantity of public goods determined?
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Chapter 12: Markets With Private Information
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Sample Questions
Q1) Moral hazard results from _____ information and adverse selection results from _____ information.
A) private; private
B) private; public
C) public; private
D) public; public
E) None of the above answers are correct because both are the result of the lemons problem.
Q2) Bill purchases property insurance for his office building,which includes coverage for fire damage.The policy offers premium discounts for smoke detectors,fire alarms,fire extinguishers and sprinkler systems.This is an incentive system to help avoid
A) adverse selection.
B) adverse signals.
C) moral hazard.
D) screening.
E) None of the above answers are correct.
Q3) How can a warranty at the seller's expense signal that a product is high quality?
Q4) Explain the concept of moral hazard.Give an example.
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Page 14
Chapter 13: Consumer Choice and Demand
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Sample Questions
Q1) Nadir and Nina consume the same goods.If Nadir has more income than Nina,then Nina's budget line will
A) lie to the left of Nadir's budget line.
B) be steeper than Nadir's budget line.
C) lie to the right of Nadir's budget line.
D) be flatter than Nadir's budget line.
E) More information is needed to determine how Nina's and Nadir's budget lines compare.
Q2) Suppose the consumer has allocated his or her entire budget.Which of the following conditions is also required for total utility to be maximized?
A) Marginal utility has decreased to zero for all goods.
B) The least inexpensive combination of goods has been purchased.
C) The marginal utility for each good is equal.
D) The marginal utility divided by price for each good is equal.
E) The number of units of each good consumed must be the same.
Q3) Tris is shopping for pants and belts.He has a budget of $100.The price of a pair of pants is $20 and the price of a belt is $5.His marginal utility schedules are above.What combination of pants and belts does Tris buy? Explain your answer.
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Chapter 14: Production and Cost
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Sample Questions
Q1) The table above shows a total product schedule.Suppose that labor costs $20 per worker and fixed costs are $60.The total cost of producing 80 units equals
A) less than $5.
B) more than $5 and less than $110.
C) more than $110 and less than $120.
D) more than $120 and less than $150.
E) more than $150.
Q2) Anna owns a dog grooming salon in Brunswick,Georgia.The above table has Anna's total product schedule.Anna pays each worker $300 per week and she pays rent of $600 a week for her salon.These are her only costs.When Anna has a staff of 2 workers,her total cost equals
A) $1,200.
B) $300.
C) $10.00.
D) $12.00.
E) $600.
Q3) What is a normal profit? Is it part of the firm's opportunity costs,total revenue,or neither?
Q4) What do economists mean when they say that a firm's plant is fixed?
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Chapter 15: Perfect Competition
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Sample Questions
Q1) For a perfectly competitive sugar producer in Haiti,a short-run economic profit will occur if the price of each ton of sugar sold is
A) greater than the average total cost of producing sugar.
B) equal to the average total cost of producing sugar.
C) less than the average total cost of producing sugar.
D) rising as more sugar is sold.
E) greater than the marginal revenue of each ton of sugar.
Q2) The above figure shows three possible average total cost curves.If all firms in a perfectly competitive industry each have an average total cost curve identical to ATC ,each produces 40 units,and the market price of the good is $20 per unit,then
A) the firms incur an economic loss of $12 per unit.
B) firms will enter the industry and the number of firms increases.
C) the firms' ATC curves will eventually shift to become the same as ATC .
D) firms will exit the industry and the number of firms decreases.
E) Both answers A and D are correct.
Q3) What four conditions define a perfectly competitive market?
Q4) "Perfectly competitive firms have total control over the price they set for their product." Explain why the previous statement is correct or incorrect.
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Page 17
Chapter 16: Monopoly
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Q1) If Microsoft is a monopoly and currently charges prices where its demand is elastic,then Microsoft's marginal revenue is
A) negative.
B) positive.
C) zero.
D) minimized.
E) undefined.
Q2) If a natural monopoly is told to set price equal to average cost,then the firm
A) is not able to set marginal revenue equal to marginal cost.
B) automatically also sets price equal to marginal cost.
C) will make a substantial economic profit.
D) will incur an economic loss.
E) sets a price that is lower than its marginal cost.
Q3) Can a monopoly make an economic profit in the long run? Explain your answer.
Q4) What are the conditions that define a monopoly?
Q5) "Price discrimination allows a monopoly to increase its economic profit by capturing part of the consumer surplus and turning it into economic profit." Is the previous statement correct or incorrect? If the statement is correct,why is it important in understanding firms' behaviors? If it is incorrect,why is it incorrect?
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Chapter 17: Monopolistic Competition
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Sample Questions
Q1) Why does a firm in monopolistic competition make zero economic profit rather than an economic profit in the long run?
Q2) The above figure shows a restaurant engaged in monopolistic competition with other restaurants.The equilibrium quantity at this restaurant is ________ meals per day.
A) less than 150
B) between 151 and 250
C) between 251 and 350
D) between 451 and 450
E) more than 451
Q3) Why would a firm in a monopolistically competitive industry advertise?
Q4) The Herfindahl-Hirschman Index measures market concentration in an industry by summing the square of the percentage market shares for
A) the 4 largest firms.
B) the 50 smallest firms.
C) the 4 smallest firms.
D) the 50 largest firms.
E) all firms in the market.
Q5) What is the Herfindahl-Hirschman Index and what does it measure?
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Chapter 18: Oligopoly
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Sample Questions
Q1) According to Section 2 of the Sherman Act,which of the following is a felony?
A) mergers of a vertical nature
B) horizontal mergers
C) attempts to monopolize an industry
D) price increases among competing firms that occur simultaneously
E) using the HHI to justify a merger
Q2) The above figure shows the market for the three moving companies in a small nation.If the movers act as perfect competitors,what is the price per mile and the number of miles per year? If the movers collude and act as a single monopoly,what is the price per mile and the number of lines per year?
Q3) When the Federal Trade Commission decides whether to allow firms in an industry to merge,it uses the ________ to guide its decision.
A) social interest theory
B) HHI
C) capture theory
D) Sherman Act
E) predatory pricing theory
Q4) What is meant by the term "exclusive dealing"? Give an example of an exclusive deal.When is it illegal?
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Chapter 19: Markets for Factors of Production
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Sample Questions
Q1) Because leisure time has value to many workers,as wages increase the labor supply curve
A) has a positive slope.
B) bends backwards and has a negative slope.
C) becomes a horizontal line.
D) becomes a vertical line.
E) bends forward and has a positive slope.
Q2) An increase in the price of the firm's output leads to a
A) movement up along the demand for labor curve.
B) movement down along the demand for labor curve.
C) rightward shift of the demand for labor curve.
D) leftward shift of the demand for labor curve.
E) rightward shift of the supply of labor curve.
Q3) "As the quantity of labor hired increases,the value of marginal product stays constant as long as the wage rate is constant for all workers." Is the previous statement correct or incorrect? Explain your answer.
Q4) Why is the supply of an nonrenewable natural resource perfectly elastic?
Q5) What factors shift the demand for labor curve? Briefly describe the effect of each.
Q6) Why is the demand for labor a "derived demand"?
Page 21
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Chapter 20: Economic Inequality
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Sample Questions
Q1) The more costly it is to acquire a skill,the
A) more people will go to school to learn the skill.
B) less employers are willing to pay for the skill.
C) greater the wage differential between high-skilled and low-skilled workers.
D) smaller the wage differential between high-skilled and low-skilled workers.
E) the demand for workers with that skill exceeds the demand for workers without that skill.
Q2) If buyers discriminate against women and minorities, i.the value of marginal product of women and minorities is less than otherwise.
ii.the wage rate paid to women and minorities is less than otherwise. iii.more women and minorities are hired than otherwise.
A) i only
B) ii only
C) ii and iii
D) i and ii
E) i, ii, and iii
Q3) Fully explain why it is a good idea for young people who are considering dropping out of high school to stay in school if the U.S.government pursues more liberal immigration policies over the next 20 years.
Q4) What is "human capital" and why is it considered an investment?
Page 22
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