Managerial Economics
Test Questions
Course Introduction
Managerial Economics applies microeconomic theory and quantitative analysis to business decision-making. This course explores how managers use economic concepts to solve practical problems related to pricing, production, cost analysis, and market strategies. Students will learn to assess market demand, forecast and manage costs, evaluate competitive environments, and analyze the impact of government regulation. The course provides a strong foundation for making effective economic decisions in real-world business settings by integrating theory with case studies and data-driven approaches.
Recommended Textbook
Microeconomics 7th Edition by R. Glenn Hubbard
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Page 2
Chapter 1: Economics: Foundations and Models
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Sample Questions
Q1) Which of the following generates productive efficiency?
A)competition among sellers
B)competition among buyers
C)government inspectors
D)government production rules and regulations
Answer: A
Q2) Refer to Scenario 1-2.Using marginal analysis terminology, another economic term for the incremental cost of producing the last 300 hats is
A)marginal cost.
B)operating cost.
C)explicit cost.
D)Any of the above terms are correct.
Answer: A
Q3) Which of the following is a macroeconomic question?
A)What determines the inflation rate?
B)What determines the production of DVDs?
C)What factors determine the price of carrots?
D)What determines the wage of auto workers?
Answer: A
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Chapter 2: Trade-Offs, Comparative Advantage, and the Market System
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Sample Questions
Q1) What is a circular flow diagram and what does it demonstrate?
Answer: A circular flow diagram is a model that illustrates how participants in markets are linked.It shows who supplies and purchases factors of production and who supplies and purchases goods and services.
Q2) Refer to Figure 2-2.If Mendonca chooses to produce 120 pounds of meat, how much vegetables can it produce to maximize production?
A)0 pounds of vegetables
B)60 pounds of vegetables
C)100 pounds of vegetables
D)160 pounds of vegetables
Answer: A
Q3) Identify whether each of the following transactions will take place in the factor market or in the product market.
a.Graciela buys a Tesla Motors Model X.
b.Lashan works 60 hours a week at a law firm.
c.Tito sells his family's farmland to a housing developer.
d.Tesla Motors increases employment at its Fremont, California plant.
Answer: a takes place in the product market.
b, c, and d take place in the factor market.
Page 4
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Chapter 3: Where Prices Come From: the Interaction of
Demand and Supply
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Sample Questions
Q1) Suppose that when the price of strawberries decreases, Simone increases her purchase of whipped cream.To Simone
A)strawberries and whipped cream are complements.
B)strawberries and whipped cream and substitutes.
C)strawberries and whipped cream are normal goods.
D)strawberries are a normal good and whipped cream is an inferior good.
Answer: A
Q2) The popularity of digital cameras has enticed large discount stores like Walmart and Costco to offer digital photo printing services.How does the offering of the printing service by Walmart and Costco affect the digital photo printing market?
A)The demand curve for digital photo printing services shifts to the right.
B)The demand curve for digital photo printing services shifts to the left.
C)The supply curve for digital photo printing services shifts to the right.
D)The supply curve for digital photo printing services shifts to the left.
Answer: C
Q3) A shortage occurs when the market price is lower than the equilibrium price.
A)True
B)False
Answer: True
Page 5
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Chapter 4: Economic Efficiency, Government Price Setting, and Taxes
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Sample Questions
Q1) Refer to Table 4-7.The equations above describe the demand and supply for Bubba's Fried Jellybeans.What are the equilibrium price and quantity (in thousands)for Bubba's Fried Jellybeans?
A)$80 and 40 thousand
B)$60 and 10 thousand
C)$20 and 20 thousand
D)$40 and 5 thousand
Q2) Arthur buys a new cell phone for $150.He receives consumer surplus of $150 from the purchase.What value does Arthur place on his cell phone?
A)$0
B)$150
C)$225
D)$300
Q3) The total amount of consumer surplus in a market is equal to the area below the demand curve.
A)True
B)False
Q4) What do economists mean by an efficient tax?
Q5) What is the difference between scarcity and a shortage?
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Chapter 5: Externalities, Environmental Policy, and Public Goods
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Sample Questions
Q1) Which of the following is an example of a Pigovian tax?
A)payments by utilities to obtain tradable emission allowances
B)a payroll tax
C)payments for licenses to pollute
D)a tax imposed on a utility that internalizes the cost of externalities caused by the utility
Q2) Assume that production from an electric utility caused acid rain and that the government imposed a tax on the utility equal to the cost of the acid rain.This is an example of
A)a transactions cost.
B)a Pigovian tax.
C)a Pigovian subsidy.
D)the Coase Theorem.
Q3) Refer to Figure 5-2.The deadweight loss due to the externality is represented by the area
A)abc.
B)abf.
C)abd.
D)ade.
Q4) How does a positive externality in consumption reduce economic efficiency?
Page 7
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Chapter 6: Elasticity: the Responsiveness of Demand and Supply
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Sample Questions
Q1) In order to prove that Motrin and Ibuprofen are substitutes, one should measure the ________ and get a ________.
A)cross-price elasticity; positive number
B)cross-price elasticity; negative number
C)price elasticity of demand; number greater than 1 (in absolute value)
D)price elasticity of demand; number less than 1 (in absolute value)
Q2) An increase in the demand for green tea raises the price of green tea from $16 a pound to $20 a pound.As a result, quantity supplied increases by 30 percent.Using the midpoint formula, what is the value of the price elasticity of supply?
A)1.35
B)1.875
C)2.22
D)7.5
Q3) You are the manager of a theater.At present the theater charges the same admission price of $8 to all customers, regardless of age.You propose a two-tier pricing scheme: $5 for children under the age of 12 and $10 for adults.You tell your supervisor that your proposal is likely to increase revenue.What must be true about the price elasticity of demand if your proposal is to achieve its goal of raising revenue? Explain your answer.
Page 8
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Chapter 7: The Economics of Health Care
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Sample Questions
Q1) Which of the following is not an argument used by economists and policymakers who are in favor of moving toward greater government involvement in health care?
A)The increased competition that results from market-based reforms would reduce health care costs and increase economic efficiency.
B)A single-payer system would reduce the paperwork caused by the current system.
C)The current Medicare system has had lower administrative costs than have private health insurance companies.
D)The systems in most other high-income countries have lower levels of health care spending per person which still providing good health outcomes.
Q2) "Cost disease" refers to the tendency for low productivity in the service sector to lead to higher costs in those industries.
A)True
B)False
Q3) In 2018, a tax is scheduled to be imposed on employer-provided health insurance plans known as 'Cadillac plans'.
A)True
B)False
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Chapter 8: Firms, the Stock Market, and Corporate Governance
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Sample Questions
Q1) If you own a bond with a seven percent coupon rate and new bonds are paying five percent, what will happen to your bond's market price?
Q2) What must balance on a balance sheet?
A)Total assets must equal total liabilities plus equity.
B)Revenues must equal costs.
C)Retained earnings plus dividends paid must equal earnings per share.
D)All of these must balance.
Q3) How can a proprietorship or partnership raise funds for expansion?
A)borrow from someone or an institution willing to lend the funds
B)reinvest profit back into the business
C)take on a partner or more partners
D)Any of these would generate funds for expansion.
Q4) How does the owner of a sole proprietorship relate to the business?
A)The owner and the business are separate legal entities.
B)The owner and the business are not separate legal entities.
C)The assets of the owner are considered separate from the assets of the business.
D)None of these describe the legal relationship of the owner to the business.
Q5) How can a sole proprietorship raise funds needed for firm expansion?
Q6) What role do well-functioning financial markets play in a market economy?
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Chapter 9: Comparative Advantage and the Gains From International Trade
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Sample Questions
Q1) Refer to Table 9-1.Select the statement that accurately interprets the data in the table.
A)Sandy has a comparative advantage in dog grooming.
B)Linda has a comparative advantage in dog grooming.
C)Linda has a comparative advantage in dog grooming and dog bathing.
D)Sandy has a comparative advantage in dog bathing.
Q2) Disagreements about whether the U.S.government should regulate international trade
A)began during the Great Depression.
B)began after World War I when government officials no longer believed in isolationism.
C)date back to the beginning of the country.
D)did not occur until the end of the Mexican War in 1848.
Q3) Refer to Table 9-3.Select the statement that accurately interprets the data in the table.
A)Bryce has an absolute advantage in making candles and soap.
B)Tina has an absolute advantage in making candles and soap.
C)Neither Bryce nor Tina has an absolute advantage in making candles.
D)Neither Bryce nor Tina has an absolute advantage in making soap.
Q4) What is dumping? Who benefits and who loses from dumping?
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Chapter 10: Consumer Choice and Behavioral Economics
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Sample Questions
Q1) Each price-quantity combination on a consumer's demand curve shows the utility-maximizing quantity at the given price.
A)True
B)False
Q2) One reason college students do not study enough to get high grades is that they are unrealistic about their future behavior.
A)True B)False
Q3) Refer to Table 10-7.Suppose Antonio has $10 to spend and the price of beer = $2 per glass and the price of pizza = $2 per slice.How many of each good will he consume when he maximizes his utility?
A)2 glasses of beer, 1 slice of pizza
B)2 glasses of beer, 3 slices of pizza
C)3 glasses of beer, 2 slices of pizza
D)4 glasses of beer, 5 slices of pizza
Q4) A common mistake made by consumers is the failure to take into account the sunk costs of their actions.
A)True B)False
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Chapter 11: Technology, Production, and Costs
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Sample Questions
Q1) Average variable cost can be calculated using any of the formulas below except A)TVC/Q.
B)(TC - FC)/Q.
C) (TC - FC)/ Q.
D)(TC/Q)- AFC.
Q2) Which of the following are implicit costs for a typical firm?
A)the cost of labor
B)the opportunity cost of capital owned and used by the firm
C)the cost of energy used in production
D)a business licensing fee
Q3) Explain why the marginal cost of production must increase if the marginal product of a variable resource is decreasing.
Q4) As a firm moves to higher isocost lines,
A)its profits increase.
B)its revenue increases.
C)its input price ratio increases.
D)its total cost increases.
Q5) What is minimum efficient scale? What is likely to happen in the long run to firms that do not reach minimum efficient scale?
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Chapter 12: Firms in Perfectly Competitive Markets
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Sample Questions
Q1) Refer to Figure 12-14.Consider a typical firm in a perfectly competitive industry which is incurring short-run losses.Which of the diagrams in the figure shows the effect on the industry as it transitions to a long-run equilibrium?
A)Panel A
B)Panel B
C)Panel C
D)Panel D
Q2) Refer to Figure 12-1.If the firm is charging a price of $12 per unit,
A)it breaks even.
B)it is making a profit.
C)it is selling 700 units.
D)it is not selling any output.
Q3) Refer to the Article Summary.Assume that after the slight increase in U.S.farm income in 2017, farmers are expected to break even in 2018.This means that at the quantity being produced in 2018,
A)MC = AVC.
B)MR = MC.
C)MR = ATC.
D)AVC = ATC.
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Page 14
Chapter 13: Monopolistic Competition: the Competitive
Model in a
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Sample Questions
Q1) If the price exceeds the average variable cost but is less than the average total cost, a firm
A)should further differentiate its product.
B)should stay in business for a while longer until its fixed costs expire.
C)is making some profit but less than maximum profit.
D)should shut down.
Q2) What effect does the entry of new firms in a monopolistically competitive market have on the economic profits of existing firms in the market? How might existing firms attempt to counteract this effect?
Q3) Although advertising raises the price of a monopolistic competitor's product, it does confer a benefit to consumers.Which of the following is a benefit to consumers?
A)Advertising acts as a barrier to entry.
B)Advertising engenders brand loyalty.
C)Advertising could provide consumers with useful information about new products and enable them to comparison shop.
D)Advertised products tend to be of higher quality so consumers feel special when they consume advertised products.
Q4) Why are many companies concerned about brand management?
Page 15
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Chapter 14: Oligopoly: Firms in Less Competitive Markets
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Sample Questions
Q1) The barrier to entry that allowed Alcoa to make persistent economic profits was ownership of an essential input.
A)True
B)False
Q2) According to Porter's Five Competitive Forces Model, which kinds of products are most likely to limit the ability of firms in an industry to raise prices?
A)differentiated products that target a small subsegment of the industry
B)substitutable products produced by firms in different industries
C)similar products produced by similar industries in low-cost countries
D)complementary products produced by different firms in the same industry
Q3) Collusion between two firms occurs when
A)the firms independently pursue strategies that could hurt each other.
B)firms explicitly or implicitly agree to adopt a uniform business strategy.
C)announce that each will match its rival's market price.
D)firms act altruistically to bring about the economically efficient outcome.
Q4) Refer to Figure 14-8 Use the decision tree to determine whether Microsoft should deter Toshiba from entering the market for ergonomic wireless keyboards.Assume that each firm must earn a 20% return on investment to break even.Explain Microsoft's decision process.
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Chapter 15: Monopoly and Antitrust Policy
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Sample Questions
Q1) A merger between U.S.Steel and General Motors would be an example of a A)vertical merger.
B)horizontal merger.
C)conglomerate merger.
D)conspiracy in restraint of trade.
Q2) Most pharmaceutical firms selling prescription drugs continue to earn economic profits long after the patents on the prescription drugs expire because they have established a strong foothold in the market.
A)True
B)False
Q3) A monopoly is characterized by all of the following except A)there are only a few sellers, each selling a unique product.
B)entry barriers are high.
C)there are no close substitutes to the firm's product.
D)the firm has market power.
Q4) What is the relationship between marginal revenue and average revenue for a monopolist and is it the same for a perfect competitor?
Q5) If you own the only bookstore in a small town, do you have a monopoly?
Q6) Provide two examples of a government barrier to entry.
Page 17
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Chapter 16: Pricing Strategy
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Sample Questions
Q1) Book publishers often use price discrimination across time to increase profits.Toni Morrison's book, A Mercy, was published as a hardcover edition in November 2008 at a price of $23.95.In August 2009, the paperback version was published at a price of $15.00.Assume that 100,000 hardcover books were sold to hard-core Toni Morrison fans in November 2008, and 400,000 paperback books were sold to casual readers in August 2009.Illustrate each of these situations graphically.Assume that the marginal cost of the hardcover version is $2.00 and the marginal cost of the paperback version is $0.75.
Q2) Big data is often used to establish pricing strategies for automobile insurance companies.
A)True
B)False
Q3) The collection and analysis of massive amounts of data, with the goal of measuring aspects of people's behavior is referred to as A)marginal utility.
B)big data.
C)mega processing. D)the Internet of Things.
Q4) What is odd pricing? Why do some merchants use odd pricing?
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Page 18
Chapter 17: The Markets for Labor and Other Factors of Production
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Sample Questions
Q1) Most economists believe that only a small gap between the wages of white males and the wages of other groups is due to education.Most of the gap is explained by discrimination.
A)True
B)False
Q2) If the labor demand curve shifts to the left and the labor supply curve remains unchanged, what will happen to the equilibrium wage and the equilibrium level of employment? Illustrate your answer with a graph.
Q3) An increase in a perfectly competitive firm's demand for labor could be caused by A)a decrease in the market wage rate.
B)an increase in the amount of human capital among the labor force.
C)an increase in the supply of labor.
D)a decrease in the market price of the product the firm produces.
Q4) An increase in wages raises the opportunity cost of leisure and leads to an increase in the quantity of labor supplied.
A)True
B)False
Q5) What is personnel economics?
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Chapter 18: Public Choice, Taxes, and the Distribution of Income
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Sample Questions
Q1) Which of the following statements about rent seeking is false?
A)Rent seeking often involves governments because governments transfer huge amounts of funds that economic agents must compete for.
B)A person is engaging in rent-seeking behavior when he uses the political process to acquire ownership of a resource that belongs to the public.
C)Because rent seeking redistributes society's resources, anyone engaging in such behavior is violating the law.
D)If a firm can benefit from government intervention in the economy, it is more likely to spend resources attempting to secure this intervention than toward innovating its product to gain a competitive edge in the market.
Q2) Refer to Figure 18-5.The middle 20 percent of households
A)earn 20 percent of the society's total income.
B)earn 36 percent of the society's total income.
C)earn 48 percent of the society's total income.
D)earn 50 percent of the society's total income.
Q3) The person or firm that pays a tax bears the burden of the tax.
A)True
B)False
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