Managerial Economics Test Bank
Course Introduction
Managerial Economics is a course that applies microeconomic theory and quantitative analysis to decision-making processes within organizations. It explores how managers can use economic concepts and tools to solve real-world business problems, optimize resources, forecast market trends, and formulate effective strategies. Key topics include demand analysis, production and cost functions, pricing strategies, market structures, and risk analysis, with a focus on enhancing managerial efficiency and achieving organizational objectives in dynamic market environments.
Recommended Textbook
Microeconomics Theory and Applications 12th Edition by Edgar K. Browning
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20 Chapters
1871 Verified Questions
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Chapter 1: An Introduction to Microeconomics
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Sample Questions
Q1) Which of the following is an example of a positive economic statement?
A)The distribution of income in the United States should be more equal.
B)The after-tax distribution of income is more equal than the pre-tax distribution of income.
C)The tax system should be more progressive so that the after-tax distribution of income can be more equal.
D)The government should not be involved in the income redistribution schemes.
Answer: B
Q2) What does the consumer price index measure?
A)The average price of a good over five years
B)The change in nominal prices of goods and services
C)The change in the value of a currency
D)The change in the average price level in the economy
Answer: B
Q3) When analyzing events across time,economists measure consumer behavior based on:
A)nominal prices.
B)real prices.
C)complete information about buyer preferences.
D)current income.
Answer: B
Page 3
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Chapter 2: Supply and Demand
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Sample Questions
Q1) The law of demand states that people:
A)prefer high-quality goods to low-quality goods.
B)buy larger quantities of a good at lower prices.
C)prefer more to less.
D)are willing to pay a higher price only for goods they need.
Answer: B
Q2) All of the following are common responses to a price ceiling,except:
A)an excess supply.
B)nonprice rationing.
C)quality deterioration.
D)black markets.
Answer: A
Q3) Suppose 100 pretzels are demanded at a given price.If the price of pretzels rises by 5% and the number of pretzels demanded falls to 92,it can be concluded that:.
A)the demand for pretzels in the price range is elastic.
B)the demand for pretzels in the price range is inelastic.
C)the demand for pretzels in the price range is unit elastic.
D)the price elasticity of demand for pretzels is zero.
Answer: A
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Page 4
Chapter 3: The Theory of Consumer Choice
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Sample Questions
Q1) The assumption of transitivity of preferences states that _____.
A)a consumer can rank all possible consumption bundles
B)consumers act rationally when choosing between consumption bundles
C)more of a good is always better
D)no two bundles can yield the same level of utility
Answer: B
Q2) Consider a graph with Yvonne's income on the Y-axis and Xavier's income on the X-axis.Yvonne has twice as much income as Xavier.If Yvonne cares about the material well-being of Oscar,and considers the latter's income as an economic good,the slope of the indifference curves representing Yvonne's preferences:
A)will be steeper,the more willing she is to transfer some of her income to Xavier.
B)will be flatter,the more willing she is to transfer some of her income to Xavier.
C)cannot be determined from the information given.
D)will not change as Yvonne's willingness to donate to Xavier changes.
Answer: A
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Chapter 4: Individual and Market Demand
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Sample Questions
Q1) Alex distributes his monthly income of $600 between two goods,movies,and food.By spending his entire income on movies,he can enjoy a maximum of 20 movies.On the other hand,by spending his entire income on food he can consume a total of 60 units of food.Assume that food consumption is measured along the horizontal axis and the consumption of movies is measured on the vertical axis.What will be the slope of Alex's budget line when the maximum possible movie consumption declines to 15,all other things remaining the same?
A)-0.5
B)-0.25
C)-1
D)-0.47
Q2) When the substitution effect of a price change that is positive is greater than the income effect that is negative:
A)the good is an inferior good.
B)the good is a Giffen good.
C)the good is a normal good.
D)the good has no substitute.
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Chapter 5: Using Consumer Choice Theory
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Sample Questions
Q1) Prior to the subsidy,the family is in equilibrium at point J.Assume that public schooling cannot be supplemented with private tutoring.Refer to Figure 5-5.The fixed-quantity subsidy reduces schooling by _____.
A)G0
B)B0
C)BG
D)H0
Q2) Suppose Microsoft stock will provide either a return of 10 or 20 percent over the next year and that the probability of the former outcome is 0.25 while the probability of the latter is 0.75.The expected return on Microsoft stock over the next year is thus _____%.
A)15
B)12.5
C)17.5
D)20
Q3) An excise subsidy given on each unit of X consumed will:
A)reduce consumption of X and lower total expenditures on X.
B)shift the budget line inward in a parallel manner.
C)place the consumer on a higher indifference curve.
D)cause the consumer to increase consumption of non-subsidized goods.
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Page 7
Chapter 6: Exchange, Efficiency, and Prices
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Sample Questions
Q1) Suppose,given their initial endowments of milk [M] and cookies [C],we know that: Ashley's marginal rate of substitution of cookies for milk [MRS<sub>CM</sub>] = 3M/1C;Bill's MRS<sub>C</sub><sub>M</sub> = 8M/8C;and Carol's MRS<sub>CM</sub> = 5M/10C.Given this information we know that a mutually beneficial trade would involve Carol selling _____ to Bill and Ashley selling _____ to Bill.
A)milk;cookies
B)milk;milk
C)cookies;milk
D)cookies;cookies
Q2) A Pareto optimal distribution of goods is _____.
A)always efficient and equitable
B)efficient but not always equitable
C)not always efficient but equitable
D)neither efficient nor inequitable
Q3) Nonprice rationing systems usually are:
A)inefficient because it is unlikely that those who value the good the most will get it.
B)inefficient because they result in surpluses in the market.
C)efficient because more emphasis is placed on equity and less on wealth.
D)efficient because goods are distributed to those who deserve them most.
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Page 8
Chapter 7: Production
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Sample Questions
Q1) Convexity of a curve implies that the slope of the curve:
A)is zero.
B)is constant.
C)diminishes along the curve.
D)approaches infinity.
Q2) In Figure 7-2,a firm would choose to operate _____ on the total product curve.
A)between O and A
B)at point E
C)between B and D
D)between D and E
Q3) If a firm doubles its usage of all inputs,and output also doubles,the production function is said to exhibit:
A)increasing returns to scale.
B)decreasing returns to scale.
C)constant returns to scale.
D)increasing marginal returns to a fixed factor of production.
Q4) Define and then derive the expression for the marginal rate of technical substitution.
Q5) What factors give rise to increasing returns to scale and decreasing returns to scale?
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Chapter 8: The Cost of Production
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Sample Questions
Q1) Which of the following determines the shape of the marginal cost curve in the short run?
A)The marginal product of labor is first increasing and then decreasing
B)The wage rate first decreases and then increases throughout the range of output
C)The price of output produced by labor is first decreasing and then increasing
D)The presence of economies of scale in the product market
Q2) In Figure 8-1,which of the following distances represent the total cost of producing BT units of output?
A)SR
B)ST
C)RT
D)AB
Q3) Which of the following depicts the change in per-unit cost of production resulting from a decrease in the input prices,given the output produced by the firm is constant?
A)An upward shift of the marginal cost curve
B)A rightward shift of the total cost curve
C)A downward shift of the average cost curve
D)An upward shift of the isocost curve
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Chapter 9: Profit Maximization in Perfectly Competitive Markets
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Sample Questions
Q1) If firms in a perfectly competitive market produced dissimilar products:
A)the buyers in the market will be price takers.
B)price differentials will exist in equilibrium.
C)they will remain price takers.
D)price differentials between firms will be eliminated.
Q2) According to the _____ principle,firms that do not approximate profit maximization will not succeed in competitive markets.
A)equity
B)successor
C)survivor
D)winner-takes-all
Q3) For a perfectly competitive firm,the demand curve:
A)coincides with the marginal revenue curve.
B)is parallel to the vertical axis.
C)is upward sloping.
D)is convex to the origin.
Q4) Derive the first-order and second-order conditions for perfect competition.
Q5) Explain the difference between diminishing marginal returns to factor and a decreasing-cost industry.
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Chapter 10: Using the Competitive Model
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Sample Questions
Q1) An excise tax imposed on junk food reduces consumer surplus by $50,producer surplus by $80,and results in tax revenue of $40 for the government.What is the welfare effect of this tax?
A)A net loss of $10
B)A net gain of $40
C)A net loss of $90
D)A net loss of $130
Q2) Which of the following strengthens the possibility that the airline market is a contestable market?
A)Since other airlines can enter the market at no cost and charge lower fares,the fare charged by a single airline is always equal to the marginal cost.
B)The barriers to entry in the airline market lead to nonprice competition between the airlines operating in the market.
C)The fares that are charged for routes with more than one airline are significantly higher than the fares charged for a route with only one airline.
D)Airlines regularly charge fares that are above the competitive levels irrespective of the number of airlines plying a particular route.
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Page 12
Chapter 11: Monopoly
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Sample Questions
Q1) A monopolist does not have a supply curve because:
A)price and quantity are determined by marginal cost and demand.
B)a monopoly firm's marginal cost of production is constant.
C)supply is determined by average total cost and not price.
D)firms in monopoly markets are price takers.
Q2) Refer to Figure 11-6.When the firm operates as a profit-maximizing monopolist as compared to a perfectly competitive firm,producer surplus changes by _____.
A)-ABC
B)P''ABP
C)-AFBG
D)P''ACP
Q3) Refer to Table 11-1.What is the marginal revenue when 3 units are sold?
A)$20
B)$30
C)$50
D)$70
Q4) Given the price [P],marginal cost [MC],and price elasticity of demand [ ] for a monopolist,derive the condition for the profit-maximizing price.
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Page 13
Chapter 12: Product Pricing With Monopoly Power
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Sample Questions
Q1) Lewis owns an exclusive fashion accessories store and charges all consumers a uniform price for a particular product.Recently,however,he has realized that some of his customers are actually willing to pay a higher price for the items he sells,while some others feel that his prices are a little too high.Given this information,which of the following will not affect his ability to discriminate prices between these two consumer segments?
A)His level of monopoly power in this market
B)His total investment in this business
C)His ability to segment the market into high demand and low demand users
D)His ability to prevent arbitrage
Q2) Which of the following is true of the comparison between a non-price discriminating monopoly and a perfectly price discriminating monopoly?
A)The non-price discriminating monopolist will produce a higher amount of output.
B)The non-price discriminating monopolist will have more producer surplus.
C)The non-price discriminating monopolist will impose a greater efficiency loss.
D)The non-price discriminating monopolist will capture more consumer surplus.
Q3) Why is it difficult to implement first-degree price discrimination?
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Page 14
Chapter 13: Monopolistic Competition and Oligopoly
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Sample Questions
Q1) Suppose ABC Concrete is the dominant firm in a market consisting of five firms.ABC's market share is 40% of the market.The elasticity of market demand is 0.8 and the elasticity of
Supply for the remaining firms is 6.What is the elasticity of demand for ABC's product?
A)6
B)8
C)11
D)13
Q2) A monopolistically competitive firm that is maximizing profit will choose to produce at the level where:
A)total revenue is maximized.
B)average total cost exceeds average revenue.
C)marginal revenue equals marginal cost.
D)marginal revenue exceeds average revenue.
Q3) Oligopoly cannot be explained using a single theoretical model because:
A)oligopolistic markets are not really found in the real world.
B)the assumptions of the oligopoly model are not realistic.
C)product differentiation makes the model too complex.
D)mutual interdependence makes it difficult to analyze strategic behavior.
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Page 15
Chapter 14: Game Theory and the Economics of Information
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Sample Questions
Q1) In economics,the term "lemon" is used to describe:
A)any product that commands a very high market price.
B)any product which repeatedly breaks down.
C)a product for which there is an excess demand in the market.
D)a product that most people do not need.
Q2) Under which of the following game theory circumstances is a collusive outcome most likely?
A)Prisoner's dilemma
B)Repeated games
C)Games with dominant-strategy outcomes
D)Games with Nash equilibrium
Q3) Which of the following practices allows insurance firms to reduce the costs imposed by the high-risk customers?
A)A homeowners' insurance covers only the market value of structures and contents
B)A higher premium is charged under a group insurance than a single party insurance
C)A vehicle insurance charges different rates of premium each year
D)A fixed claim is honored by a fire insurance contract for all the houses in an apartment
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Page 16
Chapter 15: Using Noncompetitive Market Models
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Sample Questions
Q1) In Figure 15-3,under marginal-cost pricing,a firm would require a government subsidy of at least _____ to remain profitable.
A)P<sub>3</sub>CBP<sub>2</sub>
B)P<sub>1</sub>AFP<sub>2</sub>
C)P<sub>3</sub>CQ<sub>2</sub>O
D)FBQ<sub>2</sub>Q<sub>1</sub>
Q2) Suppose that the elasticity of demand at a competitive equilibrium is 2.50.If the price under Monopoly is 10 percent higher than under perfect competition,assuming identical cost curves,one can conclude that the monopoly output is _____ percent below of the competitive output.
A)25
B)40
C)2.5
D)4
Q3) Answer the following:
a)Define and illustrate graphically average-cost pricing and marginal-cost pricing. b)What are the problems faced in regulating natural monopolies?
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17
Chapter 16: Employment and Pricing of Inputs
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Q1) A competitive firm in a competitive labor market faces the following conditions: Q = 12K<sup>½</sup>L<sup>½</sup>,with the market output price of $100 per unit and the market wage rate of $60 per unit of labor and a market rental price of capital of $100 per unit.How many units of capital should the firm use?
A)75
B)85
C)100
D)115
Q2) Which of the following will not determine the elasticity of demand for bank tellers,which is a competitive input industry?
A)The elasticity of demand for banking services
B)The availability of automated teller machines (ATMs)
C)The marginal product of ATM technicians
D)The elasticity of supply for computers used to record banking transactions
Q3) Refer to Table 16-1.Marginal product becomes negative from the _____ worker.
A)third
B)fourth
C)sixth
D)seventh
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Page 18
Chapter 17: Wages, Rent, Interest, and Profit
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Sample Questions
Q1) What does the height of the supply curve in a labor market represent?
A)The marginal revenue product of a worker
B)The value of the output produced by a worker
C)The marginal value product of a worker
D)The minimum payment required to induce the worker to work
Q2) The income effect of a wage change typically assumes that:
A)workers get negative utility from work.
B)not all workers consider income to be a normal good.
C)leisure is a normal good.
D)income and leisure are complementary goods.
Q3) As a result of the substitution effect of a lower wage,hours of work will:
A)increase due to a higher opportunity cost of leisure time.
B)fall due to a higher opportunity cost of leisure time.
C)fall due to a lower opportunity cost of leisure time.
D)increase due to a lower opportunity cost of leisure time.
Q4) The value of economic rent _____.
A)is directly related to the elasticity of supply of the input
B)decreases with an increase in the total payment made for the use of the input
C)increases with an increase in the total payment made for the use of the input
D)is inversely related to the elasticity of supply of the input
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Chapter 18: Using Input Market Analysis
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Sample Questions
Q1) According to Figure 18-2,the proportion of the per-unit tax paid by the employers is:
A)OA/OB.
B)AB/AC.
C)BC/AC.
D)BC/AB.
Q2) An employer's cartel will seek to:
A)restrict the employment of the input and lower its price below its marginal revenue product.
B)restrict the employment of the input and raise its price to the marginal factor cost.
C)decrease the price of the input by employing more units of the input.
D)restrict the employment of the input and increase its productivity.
Q3) The aggregate supply curve of hours of work used to analyze a payroll tax is generally:
A)elastic.
B)perfectly elastic.
C)inelastic.
D)unit elastic.
Q4) Mention some of the factors which hinder input buyer's cartel.
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Chapter 19: General Equilibrium Analysis and Economic Efficiency
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Q1) Assume that the price of steel rises because steel workers negotiate for higher wages.The impact of this increase in the price of steel on the market for aluminum is the result of the:
A)real income effect on aluminum.
B)disequilibrium effect on aluminum.
C)total price effect on aluminum.
D)spillover effect on aluminum.
Q2) Which of the following statements about the welfare frontier is incorrect?
A)Some of the points on the welfare frontier are efficient.
B)The welfare frontier is downward sloping.
C)Any point on the welfare frontier is preferred to any point inside it.
D)the marginal rate of substitution [MRS] is equal to the marginal rate of transformation [MRT] at all points on the welfare frontier.
Q3) Which of the following is not an equilibrium condition in a general equilibrium analysis of a competitive economy?
A)Input markets are in equilibrium.
B)The quantity supplied equals the quantity demanded.
C)Factor incomes are evenly divided.
D)The marginal rate of transformation equals the marginal rate of substitution.
Page 21
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Chapter 20: Public Goods and Externalities
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Sample Questions
Q1) A competitive market will generally _____ a good that involves an external cost.
A)underproduce
B)overproduce
C)produce the optimal amount of
D)produce no units of
Q2) The government can overcome the free rider problem in the provision of a public good by:
A)encouraging private firms to produce it.
B)producing the good at a zero marginal cost.
C)providing the goods only to those who pay taxes.
D)subsidizing the production of public goods.
Q3) Answer the following:
a)Explain how the free rider problem might apply to the research and development of new technologies,medicine,and processes if research and development were only financed by private funds.
b)How does the government combat the free-rider problem in new ideas?
Q4) Explain with the help of a suitable real life example how common resources are depleted if property rights are not ensured?
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