Managerial Economics
Textbook Exam Questions
Course Introduction
Managerial Economics is a course that bridges economic theory with practical business applications, equipping students with the analytical tools necessary for effective decision-making in organizations. The course covers fundamental concepts such as demand analysis, production and cost functions, pricing strategies, market structures, and the impact of government regulation on businesses. Through the application of microeconomic principles and quantitative techniques, students learn to evaluate various business scenarios, assess risk, forecast economic outcomes, and optimize resources to achieve organizational objectives. The course emphasizes real-world cases and problem-solving to prepare students for strategic roles in management and business analysis.
Recommended Textbook
Economics for Managers Global Edition 3rd Edition by Paul G. Farnham
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Page 2
Chapter 1: Managers and Economics
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Q1) Which of the following statements is correct?
A)Managerial decisions are affected primarily by microeconomic forces.
B)Managerial decisions are affected primarily by macroeconomic forces.
C)Managerial decisions are affected by both microeconomic and macroeconomic forces.
D)By and large, managerial decisions are not affected by either microeconomic or macroeconomic forces.
Answer: C
Q2) Managerial economics refers to the application of microeconomics to business decision making.
A)True
B)False
Answer: True
Q3) The term "relative price" is used to refer to how the current price of a good or service compares to the price of the same item in the previous time period.
A)True
B)False
Answer: False
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3
Chapter 2: Demand, supply, and Equilibrium Prices
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Q1) Which of the following statements is correct?
A)A change in demand or supply can only be caused by a change in price.
B)A simultaneous decrease in demand and increase in supply will result in an increase in equilibrium price and uncertain effect on quantity.
C)If price is currently above equilibrium, market adjustments will result in a decrease in price and quantity supplied.
D)An increase in supply invariably leads to a shortage in the affected market.
Answer: C
Q2) Assume the demand function for good X can be written as
Qd = 80 - 3Px - 2Py + 10I where Px = the price of X,
Py = the price of good Y,and
I = Consumer income.
This equation implies that X and Y are complements.
A)True
B)False
Answer: True
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Chapter 3: Demand Elasticities
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Q1) Assume that when the price of good X is $7,quantity demanded is 25.When price is increased to $9,quantity demanded falls to 20.Based on this information,over the range in question demand is elastic.
A)True
B)False
Answer: False
Q2) Assume an analyst has been hired to estimate the price elasticity of demand for hamburger (which sells for about $2.30 per pound)and filet mignon (which sells for about $20 per pound),respectively.Considering the different determinants of the price elasticity of demand and assuming the consumers in both markets have approximately the same incomes,we would expect the coefficient of price elasticity of demand in absolute value to be:
A)larger for hamburger than for filet mignon.
B)larger for filet mignon than for hamburger.
C)approximately the same for both hamburger and filet mignon.
D)none of the above because different determinants would have opposing effects on the two estimates.
Answer: B
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Chapter 4: Techniques for Understanding Consumer Demand and Behavior
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Q1) Given the demand function in log-linear form: Q = 120 - 1.5P + 12ADV where Q = quantity,P = price,and ADV = advertising expenditures,what is the price elasticity?
A)1.5, inelastic
B)-1.5, elastic
C)120, elastic
D)12, elastic
Q2) The test statistic used to test the hypothesis of whether a regression coefficient is significantly different from zero,holding all other independent variables constant,is called a(n):
A)F-test.
B)autocorrelation test.
C)multicollinearity test.
D)t-test.
Q3) Refer to Scenario 1.What is the total sum of squares?
A)3860.8
B)3718.9
C)141.9
D)None of the above.
Q4) Why are estimated models of demand and consumer behavior useful to managers?
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Chapter 5: Production and Cost Analysis in the Short Run
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Q1) Explain how the value of marginal cost affects the values of average variable cost and average total cost and what this means for the relationship between the marginal cost curve and the average variable and total cost curves.
Q2) Because it is a machine,a personal computer should be treated as a fixed input in the typical firm's short-run production function.
A)True
B)False
Q3) Which of the following statements is correct?
A)Workers employed by General Motors are approximately twice as productive as their Japanese counterparts.
B)Between 1979 and 1998, Chrysler and Ford eliminated the productivity gap between all of their production facilities and their Japanese counterparts.
C)The increase in productivity Japanese manufacturers experienced in the early 1980s was the result primarily of changes in management focusing on inventory systems and plant layout.
D)Auto workers in the United States are less productive than their Japanese counterparts primarily due to the higher wages U.S. workers receive.
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Chapter 6: Production and Cost Analysis in the Long Run
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Q1) What are the two primary factors that influence a firm manager's choice between a labor-intensive and a capital-intensive method of production? How does each factor influence the manager's choice.
Q2) An improvement in technology would cause each of the isoquants in a firm's isoquant map to shift out away from the origin.
A)True
B)False
Q3) Briefly summarize the empirical literature on the long-run costs typically incurred by firms in a variety of industries.In particular,is there reason to believe that firms' long-run cost curves assume the typical U-shape? Why or why not?
Q4) A change in technology or the relative prices of the inputs used in a production process would cause a manager's choice of inputs to use in the production process to change as well.
A)True
B)False
Q5) Explain how "learning by doing" and transportation costs each affect the long-run average cost curve.
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Chapter 7: Market Structure: Perfect Competition
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Q1) Which of the following statements regarding a price-taking firm is correct?
A)Demand = average revenue > marginal revenue.
B)Demand = marginal revenue > average revenue.
C)Demand = price = average revenue = marginal revenue.
D)Demand = price > average revenue > marginal revenue.
Q2) Explain why,when all adjustment have taken place,the perfectly competitive firm will operate at the minimum of its short-run and long-run average total cost curves and earn zero economic profit.
Q3) Assume the firms in a perfectly competitive industry are initially in long-run equilibrium and the cost of labor increases.How will the market adjust over time?
A)Firms will enter the market, causing price to rise until losses are eliminated.
B)Firms will enter the market, causing price to fall until positive profits are eliminated.
C)Firms will exit the market, causing price to rise until losses are eliminated.
D)Firms will exit the market, causing price to fall until positive profits are eliminated.
Q4) Summarize the characteristics of a perfectly competitive market.
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Chapter 8: Market Structure: Monopoly and Monopolistic Competition
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Q1) Patents and copyrights create incentives for individuals to create information that might not be produced otherwise.
A)True
B)False
Q2) Compare and contrast the outcomes with respect to price and output in a monopolistically competitive market and a perfectly competitive market.In which situation are consumers better off? Why?
Q3) The Justice Department is most likely to oppose a proposed merger on the basis of the Herfindahl-Hirschman Index when the post-merger HHI is:
A)less than 100.
B)less than 1000.
C)between 1000 and 1800.
D)greater than 1800.
Q4) Any firm that operates in an imperfectly competitive market faces a downward-sloping demand curve for its product.
A)True
B)False
Q5) Explain how network externalities act as a barrier to entry.
Page 10
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Chapter 9: Market Structure: Oligopoly
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Q1) Assume two firms are currently competing in a market.If one of the two firms wants to try to eliminate the other firm as a competitor,should it undertake a strategy of limit pricing or predatory pricing? Why? In addition,describe the conditions under which the strategy you have selected will be most successful.
Q2) Which of the following is not an example of a noncooperative oligopoly model?
A)The kinked demand curve model.
B)The model of limit pricing.
C)The prisoner's dilemma game.
D)The cartel model.
Q3) Assume a cartel that consists of two firms has determined its profit-maximizing level of output and must now decide how to allocate total output between the two firms.Assuming firm A's marginal costs are less than firm B's marginal costs,firm A should produce a smaller share of total output than firm B.
A)True
B)False
Q4) The text's discussion of the airline industry,the soft drink industry,and the doughnut industry reveals a common theme when it comes to the types of competitive practices firms in each industry engage in.What is it and what advantage does it offer firms?
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Chapter 10: Pricing Strategies for the Firm
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Q1) Is the profit-maximizing price-taking firm able to mark up price above the marginal costs of production at the profit-maximizing level of output? Why or why not?
Q2) The practice of charging different prices to various groups of customers that are not based on differences in the costs of production is referred to as:
A)predatory pricing.
B)markup pricing.
C)discretionary pricing.
D)price discrimination.
Q3) The practice of setting price by increasing the average costs of production by some percentage is referred to as:
A)average cost pricing.
B)percentage pricing.
C)rate-of-return pricing.
D)markup pricing.
Q4) BOGOs,i.e.,buy-one,get-one-free offers,are an example of third-degree price discrimination.
A)True
B)False
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12
Chapter 11: Measuring Macroeconomic Activity
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Q1) U.S.GDP excludes underground activities.
A)True
B)False
Q2) Changes in the amount of goods produced,but not sold in a given year is called:
A)inventory investment
B)business fixed investment
C)residential fixed investment
D)consumption
Q3) In year one,the GDP deflator is 100 and in year two 110.If nominal GDP in year two is $300 billion,what is real GDP for year two?
A)$200 billion.
B)$100 billion.
C)$272.73 billion.
D)$220 billion.
Q4) Refer to Table 11.1.What is the value of personal consumption expenditures?
A)$3,000.
B)$1,000.
C)$4,350.
D)$2,350.
Q5) What are the two policy options used to influence the economy?
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Chapter 12: Spending by
Individuals, firms, and
Governments on Real Goods and Services
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Q1) The marginal propensity to consume plus the marginal propensity to invest equal one.
A)True
B)False
Q2) Personal income taxes are reduced as part of an expansionary fiscal policy.What is the impact on aggregate expenditures and income?
A)Both increase.
B)Both decrease.
C)Aggregate expenditure increases and income decreases.
D)Aggregate expenditure decreases and income increases.
Q3) Any uses of current income for purposes other than purchasing currently produced domestic goods and services are called an injection.
A)True
B)False
Q4) Household consumption primarily depends on:
A)disposable income.
B)the interest rate.
C)marginal propensity to import.
D)credit card debt.
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Chapter 13: The Role of Money in the Macro Economy
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Q1) Expansionary monetary policy is achieved by:
A)decreasing the amount of bank reserves and lowering the federal funds rate.
B)decreasing the amount of bank reserves and raising the federal funds rate.
C)increasing the amount of bank reserves and lowering the federal funds rate.
D)increasing the amount of bank reserves and raising the federal funds rate.
Q2) The simple deposit multiplier is larger than the money multiplier.
A)True
B)False
Q3) An increase in the discount rate would:
A)decrease bank borrowing of reserves and reflect an expansionary monetary policy.
B)decrease bank borrowing of reserves and reflect a contractionary monetary policy.
C)increase bank borrowing of reserves and reflect an expansionary monetary policy.
D)increase bank borrowing of reserves and reflect a contractionary monetary policy.
Q4) Why is the money multiplier smaller than the simple deposit multiplier?
Q5) Define the three functions of money.
Q6) Describe the fractional reserve banking system.
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Chapter 14: The Aggregate Model of the Macro Economy
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Q1) A decrease in efficiency would shift the long-run aggregate supply curve:
A)rightward.
B)leftward.
C)no shift.
D)none of the above.
Q2) During the recession of 2007-2009,the U.S.economy was experiencing a decrease in home prices and consumer wealth,a credit crisis in the financial markets,and declining consumer and business confidence.What components of aggregate demand were affected and what was the impact on real output? What were the policy options?
Q3) Economic variables that generally turn down before a recession begins and turn back up before the recovery starts are called:
A)leading indicators.
B)coincident indicators.
C)lagging indicators.
D)none of the above.
Q4) An open market purchase of government securities by the Fed would shift the aggregate demand curve leftward.
A)True
B)False
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Chapter 15: International and Balance of Payments Issues
in the Macro Economy
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Q1) A trade surplus means:
A)the country has positive net savings, which it lends abroad.
B)the country has negative net savings, which it lends abroad.
C)the country has positive net savings, which it borrows from abroad.
D)the country has negative net savings, which it borrows from abroad.
Q2) If there is a current account surplus,then there is a financial account deficit.
A)True
B)False
Q3) Borrowing from another country that occurs when the country has a trade deficit and its citizens sell real and financial assets to foreigners is called a capital inflow.
A)True
B)False
Q4) In the foreign exchange market,a balance of payments surplus is represented by:
A)excess supply of dollars.
B)excess demand for dollars.
C)equilibrium in the foreign exchange market.
D)none of the above.
Q5) Briefly explain the behavior of the Federal Reserve considering a balance of payments disequilibria within a fixed exchange rate system.
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Chapter 16: Combining Micro and Macro Analysis for Managerial Decision Making
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Q1) Although McDonalds operates in a market structure with many competitors and substitute foods,it often engages in ________ with its major fast food competitors.
A)monopoly behavior.
B)oligopoly behavior.
C)competitive behavior.
D)none of the above.
Q2) In 2001-2002,the fast food industry underwent tremendous growth.
A)True
B)False
Q3) How did McDonald's attempt to address the cultural differences around the world in selling its product?
Q4) When entering the Chinese market,McDonalds had to confront:
A)mainly technical issues.
B)mainly political issues.
C)mainly cultural issues.
D)all of the above.
Q5) McDonalds kept its U.S.-based menu when entering the Chinese market.
A)True B)False
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